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Sunday, June 16, 2024 | Back issues
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Mining Concession Battle Will Stay in New York

(CN) - Brazilian metals and mining giant Vale S.A. failed to convince a federal judge to dismiss a case in which it is accused of conspiring to steal an iron ore reserve potentially worth billions from its rightful owner.

Rio Tinto, a British-Australian mining corporation based in London sued Vale S.A., Israeli diamond magnate Benjamin Steinmetz, BSG Resources Ltd. and others claiming the defendants conspired to misappropriate its mining concession in the Simandou region of southeast Guinea.

According to the complaint Rio Tinto filed in Manhattan Federal Court, it spent 11 years and hundreds of millions of dollars developing the mining concession, but when it came time to grant a license to what may be the most valuable untapped iron ore reserve in the world, the Guinean government granted it not to Rio Tinto, but to defendant Beny Steinmetz's BSG Resources.

BSG then sold 51 percent of the mine to Vale for $2.5 billion, the complaint says.

In its lawsuit, however, Rio Tinto squarely takes aim at Vale, with whom it had discussed the sale of a portion of the Simandou mine, and who, it claims, played a critical role in the theft of the concession.

Rio Tinto claims Vale shared confidential information with Steinmetz, who allegedly then began attempting to "interfere with and steal" Rio Tinto's rights to the concession.

"Given BSGR's reputation for corruption and bribery - well known among those active in the mining industry, including Vale - Vale was on notice that Steinmetz's and BSGR's efforts to misappropriate Rio Tinto's rights included bribing various Guinean officials," the complaint says.

Rio Tinto claims that bribery alone wasn't enough to secure the Simandou concession. Because they lacked any track record in iron ore mining, Steinmetz and BSG Resources needed a partner to provide the technical knowhow and resources necessary to develop the mine. This is the role Vale agreed to play, Rio Tinto claims.

"The scheme quickly bore fruit when certain officials in the Guinean government announced in December 2008 that the government had rescinded half of Rio Tinto's Simandou interest and intended to assign that interest to BSGR," the complaint says.

On September 3, 2014, Vale filed a motion to dismiss Rio Tinto's complaint, asserting that the company's claims against it should have been brought in England, pursuant a clause in a confidentiality agreement both entered into in 2008.

Two weeks later, Rio Tinto filed its opposition to Vale's motion, and with that, the debate for and against dismissal became a battle of British Lords, as each side presented one as its expert witness.

In Vale's case the expert was Lord Collins of Mapesbury, a former member of the Appellate Committee of the UK's House of Lords, who said that while the agreement was sloppily drafted, it clearly mandates that any legal disputes between the parties be litigated in England.

Rio Tinto presented an expert declaration from a Lord Hoffman, who is also a former member of the Appellate Committee of the UK's House of Lords and is now a non-permanent member of the Court of Final Appeal for Hong Kong. Lord Hoffman reached exactly the opposite conclusion from Lord Collins.

Hoffman found that the word "shall," upon which Collins' conclusions rested, is "notoriously ambiguous."

"If shall is construed to mean that the English courts are to have exclusive jurisdiction ... [i]t would be subscribing to a contradiction of Alice in Wonderland proportions," Hoffman wrote.

On consideration, U.S. District Judge Richard Berman said on Tuesday that the essential principle to be considered is "the more that a plaintiff, even a foreign plaintiff such as Rio Tinto, chooses to sue in a United States court for 'legitimate reasons, the more deference must be given to that choice.'"

In that light, Judge Berman said, "The court concludes that Rio Tinto has brought suit in New York for legitimate reasons.

"For one thing," he explained, "the Southern District of New York appears to be the forum where it is possible for Rio Tinto to obtain jurisdiction over all of the defendants."

This is especially true as one of the defendants is a resident of Florida, and another is currently in federal prison in Pennsylvania.

"Neither has consented to jurisdiction in England," Berman said.

But the judge didn't stop there. He noted that Vale's alleged conduct in furtherance of the conspiracy occurred in New York, that the pendency of a federal criminal investigation into the alleged activities is ongoing there, and that some of the money allegedly paid to steal the mining concession were used to purchase a home in Dutchess County, N.Y.

Berman also rejected several private and public interest factors Vale cited as favoring England as the venue for the litigation, including concerns it that holding the trial in New York would be more expensive for the company than it would be in Britain.

"Vale is a multinational corporation with over $48 billion in revenue in 2013, and defendant Steinmetz appears to have a net worth of approximately $2 billion," Berman wrote. "Thus any travel cost differential would appear to have a de minimis impact."

"In sum, the Court finds that the private and public interest factors do not 'strongly favor' England, and that Defendants have not shown that a trial in the United States 'would be so oppressive and vexatious to them as to be out of all proportion to plaintiffs' convenience," Berman said.

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