Mining giant Rio Tinto is facing a clash with investors over plans to introduce a rare clause into its articles of association that will severely restrict where legal battles against the firm can be heard.
The group will ask shareholders to vote on the proposal at this month's annual general meeting on 12 April. Rio Tinto wants to change the articles so that any dispute between investors and the company, or directors of the company, can only be heard before the courts of England and Wales or Australia.
Australia-based Rio Tinto, which has operations around the world, has its primary listing in London but shares are also traded on Euronext, the Deutsche Börse and on the New York Stock Exchange as ADRs, securities offered by overseas companies listed on US markets. A number of US institutions hold Rio Tinto stock.
The Australian business is listed on the Australia and New Zealand stock exchanges.
A Rio Tinto spokesman said: "The directors think it's more appropriate and sensible to have any proceedings covered in the home courts of our company. We can do this as long as the shareholders agree."
However, investor advisory group Pensions Investment Research Consultants (Pirc) has already recommended that its members oppose the move. "In our view, the exclusive jurisdiction clause appears to represent a reduction in shareholders' rights and on that basis we recommend opposition to the proposed change," it said.
But even if the change is voted through, it could still not keep Rio Tinto out of foreign courts, particularly in the US. A senior litigation partner at a leading City law firm, who asked not to be named, said he had never come across article of associations that stipulated investor disputes against the company could only be held in specific jurisdictions.
"Everyone understands that there's enormous uncertainty for any company in this day and age when it comes to potential shareholder action.
"But there is all sorts of room for manoeuvre. If a court wants to get round it, then it will."
Another senior lawyer at a rival firm agreed the move was rare. He added: "If a US court is prepared to take a view that an investor in their jurisdiction has been harmed, would they bother about an article of association? They should, but that's very different as to whether they will."
Rio Tinto's shares have doubled in value over the last year as the price of commodities continued to climb.Reuse content