Annual report and financial statement 2009 - United Utilities

RISKMATERIAL LITIGATIONNOSS Consortium (NOSS), of which North West WaterInternational Limited, a wholly owned subsidiary of UnitedUtilities Group PLC, is a member and the sole remaining activeparticipant, is party to arbitration proceedings in Thailandin relation to a design and construction contract dated1 November 1993 between NOSS and the Bangkok MetropolitanAdministration (BMA) to build a wastewater treatment plantand network in central Bangkok. Following disagreements withthe engineer (Dorsch Consult) and disputes with the BMA,NOSS terminated the contract with the BMA and served anotice of arbitration. NOSS has total claims against the BMA ofapproximately six billion baht. The BMA has counter claimed forapproximately three billion baht; however, based upon the factsand matters currently known, the counterclaim appears to lacksubstance. Although there have been some delays in the arbitralprocess, the arbitration now appears set to proceed.In February 2009 the group was served with notice of a multiparty‘class action’ in Argentina into which United UtilitiesInternational Limited (UUIL) was enjoined in 2007. The classaction is related to the issuance and payment default of aUS$230 million bond by Inversora Eléctrica de Buenos Aires S.A.(IEBA), an Argentine project company set up to purchase one ofthe Argentine electricity distribution networks, which wasprivatised in 1997. UUIL had a 45 per cent shareholding in IEBAwhich it sold in 2005. The class action is being pursued againstvarious parties, including the original direct and indirectshareholders of IEBA, the banks which advised IEBA and therating agencies of the bonds. The bonds, which were issuedin 1997, were defaulted in March 2002 and IEBA entered aninsolvency process in 2003. The claim is for a non-quantifiedamount of unspecified damages, and purports to be pursuedon behalf of unidentified consumer bondholders in IEBA whoallegedly lost money. UUIL has filed a defence to the actionand will vigorously resist the proceedings, given the robustdefences that UUIL has been advised that it has on proceduraland substantive grounds.MITIGATIONThe group faces the general risk of litigation in connection withits businesses. In most cases, liability for litigation is difficult toassess or quantify; recovery may be sought for very large and/orindeterminate amounts and the existence and magnitude ofliability may remain unknown for substantial periods of time. Thegroup robustly defends litigation where appropriate and seeksto minimise its exposure to such claims by early identification ofrisks and compliance with its legal and other obligations. Basedupon the facts and matters currently known and the provisionscarried in the group’s balance sheet, the directors are of theopinion that the possibility of the disputes referred to in this risksection having a material adverse effect on the group’s financialposition is remote.Business reviewunitedutilities.com 19