2012 Annual Report - ZTE

ANNUAL REPORT 2012Notes to Financial Statements(Prepared under Hong Kong Financial Reporting Standards)31 December 201247. CONTINGENT LIABILITIES(a)At the end of the reporting period, contingent liabilities not provided for in the financial statementswere as follows:Group and Company2012 2011RMB’000RMB’000Guarantees given to banks in connectionwith borrowing to customers 65,179 65,213Guarantees given to banks in respect of performance bonds 7,814,811 9,752,5587,879,990 9,817,771(b)In August 2006, a customer instituted arbitration against the Company and demanded compensationin the amount of PKR762.98 million (equivalent to approximately RMB49,975,200). Meanwhile, theCompany instituted a counterclaim against the customer’s breach of contract demanding for damagesand payment of outstanding contract amounts. In February 2008, the arbitration authorities issued itsaward ruling that an compensation of PKR328.04 million (equivalent to approximately RMB21,487,000)be paid by the Company. In accordance with local laws, the Company had filed with the local court anobjection against the arbitration award and a counter-claim against the customer’s breach of contract.Based on the legal opinion furnished by the legal counsel engaged by the Company, the case willlikely stand a prolonged period of litigation. There was no substantial progress of the case during thereporting period.Based on the legal opinion furnished by the legal counsel engaged by the Company and the progressof the case, the Directors of the Company are of the opinion that the aforesaid case will not have anymaterial adverse impact on the financial conditions and operating results of the Group for the currentperiod.(c)Since April 2008, China Construction Fifth Engineering Division Corp., Ltd. (“China Construction FifthDivision”), an engineering contractor of the Company, had staged a slowdown in work followed bytotal suspension, as part of its move to demand the Company to increase the contract amount on thegrounds that raw material prices had increased. In September 2008, the Company instituted litigationwith the Nanshan District People’s Court, pleading for the revocation of the contract and court orderof the evacuation of the work sites by the defendant, as well as a penalty payment for work delayin the amount of RMB24.912 million and damages of RMB11.319 million payable to the Company.The court handed down the first trial judgement in July 2009, ruling that the contract between theCompany and China Construction Fifth Division be revoked and a penalty payment for work delay inthe amount of RMB12.817 million be payable by China Construction Fifth Division. China ConstructionFifth Division had appealed against the said judgement. As of now, court hearing for the second trialhas been completed and the court has ordered trial of the case to be suspended pending the finaljudgement of the case of China Construction Fifth Division’s appeal at the Intermediate Court.411