2012 Annual Report - ZTE

ANNUAL REPORT 2012Notes to Financial Statements (continued)(Prepared in accordance with PRC ASBEs)(All amounts in RMB’000 unless otherwise stated)(English translation for reference only)VIII. CONTINGENT EVENTS1. In August 2006, a customer instituted arbitration against the Company to demand indemnity from theCompany in the amount of PKR762,984,000 (approximately RMB49,975,000). Meanwhile, the Companyinstituted a counter-claim against the customer’s breach of contract to demand for damages. InFebruary 2008, the arbitration authority issued its award ruling that an indemnity of PKR328,040,000(approximately RMB21,487,000) is to be paid by the Company. On the balance sheet date, the Companyhas made provisions for the amount. In accordance with local laws, the Company had filed with thelocal court an objection against the arbitration award and a counter-claim against the customer’sbreach of contract. Based on the legal opinion furnished by lawyers engaged by the Company, thelitigation is likely to continue for a considerable amount of time. As at the date of approval of thefinancial statements, the Group had not made any payments of compensation pursuant to the aforesaidjudgement. Based on the legal opinion furnished by lawyers engaged by the Company and the progressof the case, the Directors of the Company are of the opinion that the aforesaid arbitration will nothave any material adverse impact on the financial conditions and operating results of the Group forthe current period.2. In April 2008, China Construction Fifth Engineering Division Corp., Ltd. (“China Construction Fifth”), anengineering contractor of the Company, demanded the Company to increase the contract amount on thegrounds that raw material prices had increased in connection with which it launched first a slowdownin work, followed later by total suspension. In September 2008, the Company instituted litigation withthe Nanshan District People’s Court, pleading for the revocation of the contract and court order ofthe evacuation of the work sites by the defendant, as well as a penalty payment for work delay in theamount of RMB24,912,000 and damages of RMB11,319,000 payable to the Company. The NanshanDistrict People’s court handed the first trial judgement in July 2009, ruling that the contract betweenthe Company and China Construction Fifth be revoked and a penalty payment for work delay in theamount of RMB12,817,000 be payable by China Construction Fifth. China Construction Fifth hadappealed to the Nanshan District People’s Court against the said judgement. As of now, court hearingfor the second trial has been completed and the court has ordered trial of the case to be suspendedpending the final judgement of the case of China Construction Fifth Division at the Intermediate Court.In July 2009, China Construction Fifth instituted a separate litigation with the Shenzhen IntermediatePeople’s Court, demanding the Company to make a payment of RMB75,563,000 for raw materials andstaff deployment. The Shenzhen Intermediate People’s Court issued its first-trial judgement in November2012 which ruled contract amounts of approximately 14,497,000 together with interests accrued thereonand losses incurred as a a result of work suspension amounting to approximately RMB953,000 to bepaid by the Company to China Construction Fifth; while RMB20,150,000 withheld by China ConstructionFifth together with interests accrued thereon shall be refunded by China Construction Fifth to theCompany. Other claims of China Construction Fifth were rejected. China Construction Fifth has filedan appeal with the Guangdong Provincial People’s High Court in respect of the said judgement.271