Arbitration proceedings between Telkom and Blue Label over a long-standing wrangle were nixed by a High Court ruling on Friday.
Blue Label says its Nigerian unit, Africa Prepaid Services Nigeria (APSN), will now either pursue a claim against Multi-Links - a former Telkom subsidiary - in the High Court, or will appeal Friday's ruling.
At the heart of the dispute is a 10-year super dealer contract between APSN and Multi-Links, which was cancelled early after Telkom sold the unit. APSN was set to go through an arbitration process to claim $457 million from Multi-Links, which is defending the action and lodged a counter-claim worth $123 million.
APSN, in which local firm Blue Label Telecom has a 36.7% stake, is claiming the damages for lost profit, because the dealer agreement was cancelled in November 2010, after Telkom said it was looking at exiting the struggling CDMA business in Nigeria.
APSN had a "super dealer agreement" with Multi-Links, which allowed it to acquire customers for Multi-Links' CDMA network, as well as sell and market the range of Multi-Links' CDMA service and products for an exclusive 10-year period, until December 2018.
In March 2007, Telkom bought 75% of the CDMA operator, for $280 million, and almost two years later, bought out the balance for another $130 million. It sold the unit in October 2011, making a large loss, after having written the unit down for more than its initial investments.
Under the initial deal, Multi-Links outsourced its entire sales, marketing and distribution function to APSN. The deal was seen as vital to fixing the flagging Multi-Links operation, which was a precondition of Telkom investing more into it.
Deciding
In June 2011, ASPN launched arbitration proceedings, which were set to finally take place in February next year, after being postponed from the November date.
On Friday, the judge granted Multi-Links' application to have the arbitration agreement set aside. The court also directed that the question of the High Court's jurisdiction over APSN in the action should be determined by the trial court.
"APSN is in the process of considering the judgment with a view to deciding whether it should apply for leave to appeal against the dismissal of the jurisdiction application and the grant of the stay application," says Blue Label.
It adds: "The High Court did not make any determination on the merits of the claims in the arbitration and the action."
Legal battle
In an announcement to shareholders, Blue Label says Telkom and Multi-Links obtained a court order "without notice" to APSN in May, in which the claim against Multi-Links in the arbitration proceedings together with a costs order in APSN's favour were attached.
The purpose of the attachment application was to confirm the jurisdiction of the South African High Court over APSN in an action instituted by Telkom and Multi-Links against Blue Label, APSN and others.
Telkom and its former subsidiary, Multi-Links, are suing three entities and three people for $724 million in damages, arguing breaches of fiduciary duty by a former executive and misrepresentations by Blue Label. It alleges the misrepresentations were designed to cause Telkom to continue pumping money into the bleeding Nigerian company after December 2008.
The suit, filed on 17 May in the North Gauteng High Court, cites six defendants, including Blue Label Telecoms, Africa Prepaid Services, Africa Prepaid Services Nigeria, Blue Label COO Mark Pamensky, ICT veteran Mthunzi Mdwaba, and former executive Thami Msimango.
Telkom alleged it suffered damages of $528 million in the form of loans to Multi-Links that are irrecoverable and were made between December 2008 - when it would have pulled out were it not for the deal - and October 2010. Multi-Links, the second plaintiff, has suffered damages of $196 million, because it paid Blue Label's Nigerian subsidiary under a deal the papers argue yielded no value.
Telkom was not immediately able to comment.
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