Telkom is party to a number of legal proceedings filed by several parties with the South African Competition Commission ("CC ") alleging anti-competitive practices described below. Some of the complaints filed at the CC have been referred by the CC to the Competition Tribunal ("CT") for adjudication.
Should the CT find that Telkom committed a prohibited practice as set out in the Competition Act for each of the cases, the CT may impose a maximum administrative penalty of 10% of Telkom's annual turnover in the Republic of South Africa and its exports from the Republic of South Africa during Telkom's preceding financial year. However, Telkom has been advised by external legal counsel that the CT has to date not imposed the maximum penalty on any offender in respect of the contraventions it is being accused of.
Telkom and the CC signed a settlement agreement on 14 June 2013, in settlement of the Multiple Complaints Referral. In terms of this settlement agreement, Telkom admitted that its conduct during the complaint period amounted to a contravention of sections 8(c) (margin squeeze) and 8(d)(iii) (bundling and tying) of the Competition Act. The settlement agreement was confirmed by the CT on 18 July 2013 and made an order of the CT. In terms of the aforementioned settlement agreement, Telkom agreed to pay an administrative penalty of R200 000 000, payable in three instalments. The first instalment of R66 666 666 was paid on 16 August 2013. The second instalment in the same amount is payable during July 2014 and the last instalment of R66 666 668 is payable during July 2015. Telkom furthermore committed to certain price reductions in the 2014, 2015 and 2016 financial years as well as to certain behavioural remedies.
Phutuma filed a complaint against Telkom at the Complaints and Compliance Committee of ICASA ("CCC ") in February 2010. At the hearing during February 2013, Phutuma applied for a postponement and the matter was postponed for hearing in August 2013. However, the matter was not finalised during this hearing due to, amongst other things, new allegations raised by Phutuma which, Telkom argued, did not form part of the complaint as currently constituted before the CCC . No evidence was led regarding the merits of the claim. The matter was postponed again to 23 – 24 January 2014 in order to hear argument regarding the admissibility of evidence Phutuma intends to introduce. The matter was further postponed to 5 – 16 May 2014 for the main hearing.
An exception hearing set down in August 2013 was postponed at the instance of RSSS with costs awarded to Telkom. The exception hearing is now set down in November 2013.
In August 2009 Phutuma served a summons on Telkom, claiming for damages arising from a tender published by Telkom in November 2007 for the outsourcing of the Telex and Gentex services and for the provision of a solution to support the maritime industry requirements. The tender was cancelled in June 2009, without any award being made, due to the expiration of the validity period of the tender. Phutuma alleged that Telkom awarded the tender to a third party outside a fair, transparent and cost effective procurement process and claimed damages of R3 730 433 545, alternatively R5 513 876 290, and further alternatively R1 771 683 580 plus interest at 15,5% per annum to date of payment from April 2008, alternatively from 30 April 2009 being the date of notice in terms of Act 40 of 2002, further alternatively from date of service of this summons plus legal costs The trial was re-enrolled for hearing from 20 May 2013. On 22 May 2013 the court refused Phutuma's application for a postponement of the trial. The court also granted absolution from the instance plus costs since Phutuma could not establish the facts in support of its case to the satisfaction of the court. Phutuma has filed a notice of appeal against the judgement. No date for leave to appeal has been assigned by the High court.
In December 2008 Multi-Links, a former Telkom subsidiary concluded a Super Dealer agreement ("SDA ") with African Prepaid Services (APS ). In May 2009, APS ceded and assigned all of its rights and obligations under the agreement to APSN . On 13 June 2011 APSN launched arbitration proceedings in South Africa (as per contract) against Multi-Links claiming damages (nine claims) in the total sum of USD 481 199 101 arising from an alleged repudiation of the SDA by Multi-Links. The claim was reduced to USD 457 million. The matter is defended by Multi – Links and it has counterclaim for USD 123 million. Telkom is liable for all amounts in excess of USD 10 million in respect of the claim between APSN and Multi-Links in terms of an indemnity clause under the Share Purchase agreement with Hip Oils.
The arbitration was set down for hearing in November 2012. It was adjourned for Multi-Links to file a special plea regarding irregularities in the SDA negotiations and re-enrolled for hearing from February 2014 to April 2014. In A ugust 2013, ML T successfully applied to the High Court in terms of section 3(2) of the Arbitration Act to stay the arbitation hearing pending the outcome of the damages action against Blue Label Telecoms and others.
With the sale of Telkom's shares in Multi-Links to HIP Oils, Telkom provided a taxation indemnity and a "creditors" indemnity to HIP Oils and Multi-Links where such liability or obligation was incurred prior to 3 October 2011 and to the extent that such liability was not disclosed or exceed the amounts set out in Schedule 4 (creditors list) to the Sale and Purchase agreement. Discussions are underway with the Nigerian tax authorities. Telkom is also in discussions with Multi-Links/Hip Oils regarding contributions towards the creditors claims.
Telkom has issued a summons against a former senior executive of Telkom in April 2013, claiming an amount of USD 6 million, for damages suffered as a result of certain irregularities. Telkom paid USD 1 million to a third party due to the defendant, acting ultra vires,by binding Telkom jointly and severally under a financial guarantee for the obligations of Multi-Links (a previous subsidiary of Telkom and also lost USD 5 million, payable to Telkom under a traffic termination agreement due to the defendant authorising a telecommunications operator to earmark and make a payment of USD 5 million to a third party, instead of Telkom. The matter is being defended.
On 17 May 2013, Telkom (and Multi-Links Telecommunications, Nigeria) issued a summons against Blue Label Telecoms Limited and five other defendants including APSN and a former senior executive of Telkom, for damages of USD 528 071 116 being arising out of a SDA concluded between African Prepaid Services (Proprietary) Limited (a subsidiary of Blue Label) and Multi-Links. Multi-Links is also claiming several millions US Dollars for damages suffered. The matter is defended. In August 2013 Telkom and Multi-Links successfully opposed a High Court application by APSN that the North Gauteng High court had no jurisdiction over it. Telkom abandoned a previous attachment order for jurisdiction but was ordered to pay costs to APSN .
In October 2008, Telkom concluded a Traffic Termination agreement with BLS . The said agreement made provision inter alia for the resolution of disputes by means of arbitration in South Africa. BLS disputed liability for payment of various amounts owing to Telkom in terms of the agreement. In 2011, Telkom served a Statement Claim on BLS for payment of USD 38 097 894 in relation to services rendered in terms of the agreement. BLS is defending the matter and has also filed a counter claim of USD 18 million for a telecommunications network allegedly supplied to Multi-Links and switchboxes allegedly supplied to both Telkom and Multi-Links. Telkom has prepared an amended discovery affidavit in respect of documents to be used at the trial. It is anticipated that the matter should be ready for a trial within the next 6 months, based on the arbitrator's availability.
As noted in the 2013 consolidated annual financial statements, the 2012 tax return has been submitted, and has since then been provisionally assessed, on the basis of the Senior Counsel opinions obtained. Since the tax treatment of the R3,9 billion loss is based on an unique set of circumstances and a complex legislative environment, the contingent asset will only be recognised once the Telkom interpretation has been given final acceptance by SARS (or in the case of a dispute has been positively resolved in the Tax Court). The Company awaits the outcome of the SARS process, which will confirm the recognition of the tax refund of R854 million, currently included in trade and other payables.
The Group is regularly subject to an evaluation, by tax authorities, of its direct and indirect tax filings. The consequence of such reviews is that disputes can arise with tax authorities over the interpretation or application of certain tax rules applicable to the Group's business. These disputes may not necessarily be resolved in a manner that is favourable to the Group. Additionally, the resolution of the disputes could result in an obligation to the Group.