TELKOM FACES R2BN BILL AFTER LAWSUIT

Oh good grief! Well I suspect, that all the South African unsuspecting Telkom clients, who are going bout their daily business, are in for a shocker when the Telkom rates go up this year! Well someone has to pay this bill and you really don't expect the "fat cats" at the top to be putting their hands into their pockets to reach for their wallets - now do you?

Who wrote the damn contract, and who didn't read it properly either! My goodness, what a waste of money - although I am sure that the lawyers are all laughing on the way to the bank!

Regards

Nikki

Telkom faces R2bn bill after lawsuit

November 23, 2006By Thabiso Mochiko Johannesburg

Telkom faces more than R2 billion in damages and legal fees after it lost a five-year legal battle against US-based computer software supplier Telcordia. Telkom's costs, which have been estimated by Telcordia at between R2 billion and R2.5 billion, represent more than 20 percent of this financial year's annual profit of R9.3 billion.

Telkom's shares dropped 3.7 percent to close at R130 yesterday. The Top 40 index gained 0.38 percent. Telcordia's lawyer, Lennard Cowan, said yesterday that the two companies would now start negotiating the settlement, which would amount to about R2.5 billion, including legal costs. He said the negotiations were unlikely to be finalised before the end of December.

The group executive for legal services, Anton Klopper, said Telkom was studying the judgment and evaluating "options regarding the protection of its rights". "The consequence of the judgment is, among other things, that the parties will return to and continue with the arbitration proceedings as they were prior to Telkom's review application to the high court," said Klopper. He said the arbitrator had made an interim award that only addressed certain aspects of the case. This had been effectively upheld by the judgment of the supreme court of appeal.

The remainder of the matter would be dealt with at the upcoming arbitration proceedings. Two years ago Telkom estimated its contingent liabilities from the Telcordia matter to be $47 million (R340 million at yesterday's exchange rate). Telkom said in this year's annual report that in the 2001 financial year, it had written off R119 million of this investment. It incurred expenditure of R594 million up to March 2002.

Cowan said it was not clear whether Telcordia would set up shop again in South Africa as it had opened a local office specifically for the Telkom contract. The appeal court's judgment upheld a 2002 decision by an international arbitrator, but overturned a 2003 judgment by the Pretoria high court. The battle started five years ago when Telkom cancelled a contract with Telcordia, claiming that the state-of-the-art software applications ordered had not been delivered.

Telcordia then lodged a case with an international arbitrator, claiming $130 million plus interest at a rate of 15.5 percent a year for money outstanding and damages. Telkom reacted by making counterclaims against Telcordia worth about $331 million, including for a refund of money already paid to the US company. The appeal court did not uphold this claim. Telcordia received a partial ruling in September 2002 from an international arbitrator chosen by the two companies. The arbitrator accepted Telcordia's interpretation of the contract. But Telkom refused to accept this and applied to the Pretoria high court to review the judgment and set aside the partial award. In 2003 the court ruled in favour of Telkom. But Telcordia then took the matter to the appeal court, which said the high court had dealt with the matter as an appeal and not a review, and therefore upheld the international court award. This meant Telcordia could recover damages from Telkom because it had breached the agreement.

In this year's annual report, Telkom claimed that it had been approached by Telcordia's representatives to consider certain settlement proposals. - With additional reporting by Sapa