Gina Rinehart told her eldest children that if they proceeded with their NSW Supreme Court action against her, it would be held against them all their life, a judge has been told.
Australia's richest person made the threat against her three eldest children, John Hancock, Bianca Rinehart and Hope Welker, their barrister Andrew Bell SC told the Supreme Court on Wednesday.
The trio launched the proceedings against their mining magnate mother one year ago in a bid to oust her as trustee of the multimillion-dollar family trust.
They claim she acted with "gross dishonesty" and "deceitfully" in her dealings with the trust, set up in 1988 by her father Lang Hancock, with her children being the beneficiaries.
Ms Rinehart is supported by her youngest daughter, Ginia, in the battle.
"Mrs Rinehart communicated what can properly be described as a threat to the beneficiaries (of the trust) that if you verify your statement of claim, that will be held against you all your life," Mr Bell said.
Mr Bell said this conduct was "manifestly inappropriate".
Mr Hancock believed his mother delayed in giving her children financial advice on the trust, "instilling fear of (their) impending bankruptcy", Mr Bell said.
But there was no reason to believe the children were at risk of bankruptcy, the court heard.
Earlier, Justice Paul Brereton refused lawyers for Ginia Rinehart leave to file a notice of motion in court to have the matter dealt with through mediation.
"The public debate about this issue is not, she perceives, in her family's interest," Francois Kunc SC said.
Justice Brereton rejected the application, noting he did not believe it would have "high prospects" at this stage.
The hearing continues.