Forge Group receivers KordaMentha are lodging claims in the Supreme Court in Western Australia to recoup some of the money they believe Forge Group (and thus its creditors) are owed by Rio Tinto Limited (ASX: RIO).
KordaMentha is seeking $50 million from Rio for works completed, as well as $100 million in construction security bonds that were seized by Rio Tinto after Forge's collapse. Construction bonds are normally provided by the construction company as security for the completion of the work.
Rio responded, stating that it intends to vigorously defend 'its entitlement to take the actions it has taken relating to the security bond issued to it by Forge' and that it 'disputes claims that we have any outstanding payments for work completed by Forge Group'.
Given the mistakes made during construction of a number of Rio-owned projects by Forge, I expect that repairs would have been quite costly and inconvenient for Rio after Forge went bust.
Also, considering Forge's failure to complete the projects involved, forfeiture of the construction bonds seems like a given.
However, with a legal challenge being made, the public arguments remain little more than a 'he said-she said' with the outcome still very much up in the air. Ultimately the Supreme Court will decide, and it probably won't be quickly.
Still, shareholders in Rio can rest easy knowing that $150 million is a comparatively small chunk of change (~3%) out of yearly earnings, and given Rio's recent tendency to focus on 'underlying' results, investors may not even be widely informed if the case is decided against the company.
Of much greater concern is whether Rio CEO Sam Walsh can actually deliver on his promise to deliver 'materially increased shareholders returns' in 2015. Unfortunately there are no easy answers to that question either.
