Fortescue Metals Group, the iron ore miner owned by billionaire Andrew Forrest, has hit back at legal action launched by one of its largest shareholders Leucadia National Corporation, which says Fortescue is set to breach a funding agreement between the two companies.

Leucadia, which is Fortescue’s third largest shareholder, has told the US sharemarket regulator the Securities and Exchange Commission that it has filed a writ of summons against Fortescue and Forrest in the West Australian Supreme Court.

Leucadia holds a $US100 million subordinated note from Fortescue, which is received as part of a funding agreement struck in 2006. Under that agreement, Fortescue pays Leucadia 4% of its revenue in interest each year, and will do so until 2019.

According to broker estimates, the note will cost Fortescue $US160 million this year.

However, Leucadia claims Fortescue plans to issue more subordinated notes and pay noteholders interest out of the same pool that it pays Leucadia.

As a result, Leucadia claims it will be diluted.

“Leucadia did not, and never would, agree to such a dilution,” the company said in its filing.

But this morning, Foretescue has hit back, accusing Leucadia of trying to get the Supreme Court to rewrite the agreement in Court.

“Fortescue denies all the allegations made by Leucadia National Corporation in its writ,” Fortescue said in a statement this morning.

“Fortescue has raised the prospect of issuing further notes, but has not taken any step to do so.”

“It is noteworthy that in its legal proceedings, Leucadia seeks rectification of agreements it entered into with Fortescue, this being essentially a request to have the Court rewrite aspects of the written agreement in Leucadia’s favour.”

Fortescue also said Leucadia seems to be “seeking an opinion from the Court when no damage has been suffered”.

Fortescue says the case has no bearing on its funding arrangements.

*This article first appeared at SmartCompany