Gina Rinehart is withholding hundreds of thousands of dollars in family trust payments meant to go to two of her children, court documents claim.
She has told them she is using the money as security to repay her defence costs against their "malicious and ill-advised litigation" over her management of that trust.
The mining magnate also allegedly falsely told the Australian Tax Office that both John Hancock and Bianca Rinehart each received $398,206 from the trust in the 2011-2012 financial year, while the funds were being withheld, exposing them to a significant tax liability.
The claims are in new documents filed by the two children in the bitter court battle over the multibillion-dollar family trust set up by their grandfather Lang Hancock.
The documents allege that in a letter last month, Mrs Rinehart argued she was "entitled to issue a lien" over the funds to repay the costs she has incurred in the court action. In a letter this month, she claimed she was entitled to use the funds as security over loans she had given to the trust.
As the case moved closer to its October trial date, lawyers representing Mrs Rinehart, three of her children, family company Hancock Prospecting, Hope Downs as well as Rio Tinto subsidiary and joint venture partner Hamersley Iron packed a courtroom yesterday.
The mining companies argued the Hope Downs joint venture project would suffer if Mrs Rinehart's two children were successful in removing her as head of the trust.
Christopher Withers, representing Mrs Rinehart's two estranged children, told the court that challenged the validity of a 2006 change their mother had made to the constitution of the family company, Hancock Prospecting.
In what he described as a "poison pill", he said the amendment meant if Mrs Rinehart was removed as trustee, she could potentially stop them from receiving trust funds.
Judge Patricia Bergin: "This is a very serious allegation and you are either making it or you are not."
Mr Withers: "We are making these allegations."
In the new documents filed in the case, John Hancock and Bianca Rinehart claim Mrs Rinehart is trying to use a secret pact made between her and her four children, the Hope Downs Deed, to quarantine herself from legal scrutiny.
The agreement, signed by her three daughters in 2006 and by Mr Hancock in 2007, bans the children from criticising their mother or questioning her management of the family trust.
"(She) is seeking to advance her own interest in not being found by the court to have breached her duties as trustee," the document says.
They say she has relied on the deed to prevent them from obtaining trust records, which they need to review its management.
Mrs Rinehart's lawyer David Russell said the children's claims that Mrs Rinehart had acted against them were hard to understand when her management decisions had led to an "ultimate source of wealth beyond imagining".
The case is due back in the NSW Supreme Court next week.