Blue Label to defend US$528.07m lawsuit brought by Telkom

Telkom (TKG) announced earlier on Friday it was suing a former executive for US$6m as part of a US$528.07m lawsuit for damages arising out of the "super dealer agreement" between Blue Label subsidiary African Prepaid Services and Telkom's former Nigerian subsidiary‚ Multi-Links.

Telkom has filed suit against Blue Label Telecoms‚ the former executive and four other respondents.

It said Blue Label had been contracted to distribute Multi-Links' products in Nigeria. Telkom cancelled the contract to reduce costs in its struggling Multi-Links business‚ which it bought for US$410m in 2007.

By 2011 Telkom had lost R10bn due to the weak performance by Multi-Links‚ and it sold the unit that year to Helios Towers Africa for US$10m.

The damages claim is based on what Telkom says was a breach of a duty of care and misrepresentations made by Blue Label at the time the agreement was concluded with Multi-Links in 2008.

Responding to claim‚ Blue Label pointed out that in December 2008‚ Africa Prepaid Services (Pty) Ltd (APS)‚ a subsidiary of Blue Label‚ had concluded a super dealer agreement with C a wholly owned subsidiary of Telkom‚ at the time‚ in terms of which APS was appointed for a period of 10 years to market and distribute a range of products and services for MLT in Nigeria. In 2009 APS ceded and assigned all its rights and obligations in terms of the agreement to Africa Prepaid Services Nigeria Limited (APSN)‚ a subsidiary of APS and Blue Label.

On 26 November 2010 APSN cancelled the agreement on the basis of MLT's wrongful repudiation of the agreement.

In June 2011 APSN launched arbitration proceedings in South Africa against MLT. APSN claims payment of US$457 million against MLT and MLT has counterclaimed for payment of the sum of US$123 million.

Telkom sold its shareholding in MLT to Hip Oils Topco Limited on 3 October 2011. In terms of an indemnity contained in the sale and purchase agreement‚ Telkom is liable for all amounts in excess of US$10 million in respect of APSN's claim against MLT.

The arbitration was due to commence in November 2012 but was postponed and is due to reconvene in February 2014. MLT has applied to the High Court to stay the arbitration hearing pending the outcome of an action for damages which Telkom and MLT have instituted against Blue Label‚ APS‚ APSN and certain individuals‚ including a former senior executive of Telkom in the High Court for payment of an aggregate amount of US$724 million

. The claim in the action is based‚ inter alia‚ on an alleged breach of the duty of care and alleged misrepresentations made by Blue Label together with alleged breaches of fiduciary duties on the part of the former senior Telkom executive‚ at the time the agreement was concluded.

On 16 May 2013 Telkom and MLT obtained an order without notice to APSN in terms of which APSN's claim against MLT in the arbitration proceedings together with a costs order in APSN's favour were purportedly attached in order to give the High Court jurisdiction over APSN in the action.

The stay application is being opposed by APSN. APSN has also filed an application in the High Court to set aside the ex parte order and the purported attachment of APSN's claim and order for costs against MLT. This application is due to be heard on 2 July 2013.

Blue Label concluded: "The Board is confident that the attempts which have been made to frustrate the continuation of the arbitration proceedings will be overcome and that the claims made against Blue Label‚ its subsidiaries and representatives will be successfully defended. As the arbitration and legal proceedings are sub judice‚ no further statements may be made about the merits at this stage.

"As and when each of these proceedings is determined by the High Court and Arbitration Tribunal‚ further announcements will follow‚" the company added.