Rinehart Offers to End Children’s Suit by Giving Up Trust

Gina Rinehart, Asia’s richest woman, offered to step down from managing a multibillion dollar family trust and give up control of almost a quarter of her iron ore company to end a lawsuit by two of her children.

John Hancock and Bianca Rinehart sued their mother in September 2011 seeking to remove her from managing the Hope Margaret Hancock Trust on claims she breached her duty, failed to act honestly and has a conflict of interest. Hancock has offered to replace her as trustee, which would give him control over 23.5 percent of shares in Hancock Prospecting Pty held in the trust, valued at about $4 billion.

“She has advised the beneficiaries that she no longer wishes to be trustee of the Hope Margaret Hancock Trust and desires to be discharged,” Rinehart’s lawyer Bruce McClintock said yesterday in New South Wales Supreme Court in Sydney. “This should mean that this litigation is essentially over.”

“It’s not,” responded Christopher Withers, John Hancock’s lawyer, adding he would press for a trial to go as scheduled next week and seek a declaration from the court that Gina Rinehart acted improperly and to the detriment of the beneficiaries as trustee.

Settlement Incentive

Gina Rinehart’s offer to resign was made after a bid to resolve the dispute in mediation last week failed.

Supreme Court Justice Paul Brereton, who’s to oversee the trial and make a final determination, issued an order yesterday for mediation to determine a new trustee, saying he planned to proceed “resolutely toward a hearing and provide an incentive for a settlement.”

Richard McHugh, a lawyer representing Ginia Rinehart, Gina’s youngest daughter who has stood by her mother’s side, said Ginia would oppose John Hancock’s appointment, as well as any non-family member.

A deed governing the operation of the trust prohibits a non-family member from managing it.

John Hancock had also nominated Bruce Carter, an Adelaide businessman and chairman of shipbuilder ASC Pty and deputy chairman of Skycity Entertainment Group Ltd.

Gina Rinehart, 59, is the world’s 41st richest person with a net worth of $18.5 billion, according to the Bloomberg Billionaires Index, with Hancock Prospecting accounting for most of her wealth.

The Hope Margaret Hancock Trust was created by Gina Rinehart’s father Lang Hancock for the benefit of his grandchildren, and according to original deed Lang Hancock created in 1988, the trustee shall “stand possessed of the shares and of the income” in the trust.

Wrong Expectation

Hope Rinehart Welker, who filed the initial lawsuit on behalf of herself and her three siblings in 2011, withdrew earlier this year, saying her expectation of a “quick and quiet resolution was wrong.”

The children’s lawsuit “would cause major damage” to Hancock Prospecting,’’ McClintock said. “Too much of Mrs. Rinehart’s time to date has had to be diverted to this unnecessary litigation, and while she is in the process of building a major project for Australia.”

Hancock Prospecting is in the midst of talks to raise funds for a A$10 billion ($9.4 billion) mining project in Western Australia.

Withers yesterday told the judge that Gina Rinehart succumbed because documents ordered released by the court showing the tax advice she received proved the children’s allegations were “well-founded,” and she attempted to mislead them.

Tax Advice

Gina Rinehart warned her children in e-mails sent three days before the trust was due to vest on Sept. 6, 2011, Ginia Rinehart’s 25th birthday, that they faced bankruptcy from capital gains taxes that would be imposed if the vesting date weren’t extended. She sought to extend the vesting date to 2068.

John Hancock obtained independent advice from the Australian Tax Office, confirming his claim that the simple vesting of the trust wouldn’t make the beneficiaries liable for capital gains taxes.

That ruling ignored the fact John Hancock had repeatedly asked for the shares to be transferred to him, which would have made him liable for the tax, Rinehart’s lawyer Paul McCann wrote in an e-mailed statement yesterday.

John Hancock declined to comment yesterday.

Correspondence released by court order showed Jay Newby, Hancock Prospecting’s chief financial officer, sought to eliminate any doubts from advice given by PriceWaterhouseCoopers LLP about whether the children would be liable for the capital gains taxes.

“I am waiting for the sanitised version of the PWC advice, that contains the opinion that CGT would be payable on vesting,” Newby wrote in an Aug. 16, 2011, letter to Gina Rinehart. The letter was cited in a Sept. 30 affidavit by John Hancock’s lawyer Timothy Price, released by the court today.

The case is John Langley Hancock v. Gina Hope Rinehart. 2011/285907, New South Wales Supreme Court (Sydney).