Telkom AR front.qxp

39. CONTINGENCIES
Telkom Annual Report 2009 223
Notes to the consolidated annual financial statements (continued)
for the three years ended March 31, 2009
2007 2008 2009
Rm Rm Rm
Third parties 28 27 18
Fixed-line 19 18 18
Mobile 4 4 –
Multi-Links – – –
Other 5 5 –
Third parties
These amounts represent sundry disputes with suppliers that are not individually significant and that the Group does not intend to settle.
Supplier dispute
Telcordia instituted arbitration proceedings against Telkom in March 2001 before a single arbitrator of the International Court of Arbitration,
operating under the auspices of the International Chamber of Commerce. Telcordia is seeking to recover approximately US$130 million
for monies outstanding and damages, plus costs and interest at a rate of 15.5% per year which was increased by Telcordia to
US$172 million in the 2007 financial year and subsequently decreased to US$128 million in the 2008 financial year. The arbitration
proceeding relates to the cancellation of an agreement entered into between Telkom and Telcordia during June 1999 for the development
and supply of an integrated end-to-end customer assurance and activation system by Telcordia.
In September 2002, the arbitrator found that Telkom had wrongfully repudiated the contract and a partial award was issued by the
arbitrator in favour of Telcordia. Telkom subsequently filed an application in the South African High Court to review and set aside the partial
award. On November 27, 2003, the South African High Court set aside the partial award and issued a cost order in favour of Telkom.
On May 3, 2004, the South African High Court dismissed an application by Telcordia for leave to appeal and ordered Telcordia to pay
the legal costs of Telkom.
On November 29, 2004 the Supreme Court of Appeals granted Telcordia leave to appeal. Telcordia filed a notice of appeal and also
petitioned the United States District Court for the District of Columbia to confirm the partial award, which petition was dismissed, along
with a subsequent appeal. Following the dismissal of the appeal, Telcordia filed a similar petition in the United States District Court of New
Jersey. The United States District Court of New Jersey also dismissed Telcordia’s petition, reaffirming the decision of the United States District
Court of Columbia. Telcordia appealed this dismissal, which was later dismissed by the Appeals Court of New Jersey.
The appeal by Telcordia in the Supreme Court of Appeals was set down for and heard on October 30 and October 31, 2006. Following
the successful upholding of the appeal, Telkom filed an application for leave to appeal to the Constitutional Court on only the issue revolving
around the Supreme Court of Appeals’ failure to recognise Telkom’s rights of access to the courts under the South African Arbitration Act.
The Constitutional Court has since dismissed Telkom’s appeal with costs. The Constitutional Court judgment brought finality to the dispute
over the merits of Telcordia’s claim against Telkom and the parties reconvened the arbitration in May 2007 to deal with the amount of
damages to which Telcordia is entitled.
Two hearings were held at the International Dispute Resolutions Centre (IDRC). The first hearing was held in London on May 21, 2007
and was a ’directions hearing’, in terms of which the parties consented to a ruling by the arbitrator setting out a consolidated list of
proposals and issues to form part of the damages hearing.
The second hearing was held in London at the IDRC on June 25 and 26, 2007 and dealt with the application by Telcordia for the striking
out of part of Telkom’s defence on the basis that Telkom had raised issues in its defence that had already been heard by the arbitrator prior
to his partial award. This application was dismissed by the arbitrator. The arbitrator also made a ruling compelling Telcordia to provide
certain particulars requested by Telkom with regard to the claims by Telcordia. In his ruling, the arbitrator also set out a list of issues for
determination of the damages.