2012 Annual Report - ZTE

ANNUAL REPORT 2012Notes to Financial Statements(Prepared under Hong Kong Financial Reporting Standards)31 December 201247. CONTINGENT LIABILITIES (continued)(e)On 5 April 2011, a carrier of Ecuador filed an application for arbitration with the Business ArbitrationTribunal of Guayaquil, Ecuador, claiming quality problems in the works performed by the Companyand demanding a total compensation amount of USD23.35 million from the Company, comprisingUSD22.25 million as reimbursement of the cost of network reconstruction and USD1.10 million as thecost for supervising and managing construction work quality of the entire network. The legal counselengaged by the Company has submitted a defence in a timely manner to deny all allegations madeby the carrier.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.(f)On 9 December 2011, the Company and ZTE USA received a petition for arbitration filed by four USAcompanies and a natural person (together “CLEARTALK”) with the International Center for DisputeResolution under the American Arbitration Association (“ICDR”), whereby CLEARTALK alleged thatthe Company and ZTE USA had committed acts of breach of contract and fraud, and demandedcancellation of contract and refund of payments and compensation with an aggregate amount of overUSD10 million. On 28 December 2011, the Company and ZTE USA received a revised petition forarbitration filed by CLEARTALK with ICDR, whereby CLEARTALK demanded, in respect of the samecase, a USD300 million compensation together with the reimbursement of legal fees, litigation costsand other compensation deemed appropriate by the arbitration court.On 12 October 2012, the Company and ZTE USA filed a defence and a counter-claim with ICDR,alleging that CLEARTALK had committed breach of contract, fraud and abuse of litigation rights andhad seriously compromised the interests of the Company. Under the mediation of the arbitrator, thetwo parties agreed to reschedule the date of arbitration to 1 April 2013, while the location of arbitrationwould remain Jacksonville, Florida. As the arbitration procedures of the United States do not providefor any limit on the amount compensation demanded by an applicant, the final amount of compensationdemanded in this case will not be confirmed until the arbitration tribunal opens.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.413