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Subsidiary of Russian company sues Rio Tinto for cutting it out of Queensland alumina operation

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<span>Photograph: Dan Peled/AAP</span>
Photograph: Dan Peled/AAP

A subsidiary of Russian aluminium giant Rusal is suing Rio Tinto for freezing it out of a Queensland alumina operation due to Australian sanctions, saying it had deliberately “ringfenced” its business to avoid any benefit from flowing to targeted oligarch Oleg Deripaska.

In March, the Australian government announced it would impose sanctions on Deripaska, a Russian metals magnate, due to Russia’s invasion of Ukraine.

Deripaska holds a 25.6% stake in Rusal, which partnered with Rio Tinto to operate an alumina refinery in Gladstone, Queensland, through a joint venture known as Queensland Alumina Ltd.

Related: Australian man killed in Ukraine while providing humanitarian aid

The move left Rio Tinto scrambling to understand its legal obligations, including how it would affect its work with one of Rusal’s subsidiaries, a company based in the British Virgin Islands named the Alumina and Bauxite Company (ABC).

ABC’s role in the joint venture is to deliver about 20% of the bauxite the refinery needs to make alumina. It gets an equal share of the alumina output in return, which it then sells.

The joint venture company decided it would be in breach of the Australian sanctions should it continue the deal with ABC. In April, Rio Tinto announced it would take 100% responsibility for the operation and governance of the Gladstone refinery to ensure sanctions were not breached.

ABC has sued Rio Tinto, asking the federal court to restore its rights and privileges under the joint venture deal, stop Rio Tinto from taking any further steps, and award it damages, interest and court costs.

Court documents, first reported by the Australian Financial Review, show the Rusal subsidiary told Rio Tinto that its business was “‘ringfenced’ such that Mr Deripaska does not stand to receive any benefit from ABC’s business operations”.

It also said it told Rio Tinto that it would “not supply or sell alumina to the Russian Federation” and was “not taxable in the Russian Federation”.

“In these circumstances ABC is not subject to the Personal Sanctions or the Export Sanctions,” the company said in its court filing.

The owners of the refinery operation froze ABC out of the arrangement by using a trigger in the joint venture agreement between Rio Tinto and Rusal, which was to be reached in the event of sanctions.

But ABC said in its court case that the use of the trigger was “invalid”, because the activities of Rusal, ABC and their affiliates were not directly affected by the sanctions.

Even if they were, the company said it had no plan to make assets “directly or indirectly” available to Deripaska or another sanctioned shareholder, Viktor Vekselberg,

“Neither person will receive any dividend or right to a dividend from ABC in respect of ABC’s operations, and the revenue that ABC receives from supplying alumina to ABC will be received by ABC alone,” it said.

The government had faced some criticism over its initial decision not to include Deripaska or Vekselberg in its sanctions.

Rio Tinto and Rusal were approached for comment.

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