Telstra 2008 Annual Report Download - page 198

Telstra Corporation Limited and controlled entities
195
Notes to the Financial Statements (continued)
We have no significant contingent assets as at 30 June 2008. The
details and maximum amounts (where reasonable estimates can be
made) are set out below for our contingent liabilities.
Telstra Entity
Common law claims
Certain common law claims by employees and third parties are yet to
be resolved. As at 30 June 2008, management believes that the
resolution of these contingencies will not have a significant effect on
the Telstra Entity's financial position, results of operations or cash
flows. The maximum amount of these contingent liabilities cannot be
reasonably estimated.
Included in our common law claims are the following litigation cases:
(a) In November 2002, Seven Network Limited and C7 Pty Limited
('Seven') commenced litigation against us and various other parties
('the respondents') in relation to the contracts and arrangements
between us and some of those other parties relating to the right to
broadcast Australian Football League and National Rugby League,
the contract between FOXTEL and us for the provision of HFC cable
services (the Broadband Co-operation Agreement) and other matters.
Seven sought damages and other relief, including that some of these
contracts and arrangements are void. Seven also sought orders which
would, in effect, require a significant restructure of the subscription
television/sports rights markets in Australia.
On 27 July 2007 the Federal Court dismissed Seven's case on all
grounds. Final orders were made and in December 2007 Seven paid
Telstra $13 million in costs. Seven has appealed some aspects of the
decision, and the appeal hearing is to be held in November 2008.
(b) In January 2006, a shareholder commenced a representative
proceeding in the Federal Court against Telstra. The statement of
claim alleged that Telstra breached the Corporations Act and the
Australian Stock Exchange (ASX) Listing Rules by failing to disclose:
• that Telstra's senior management had formed an opinion that
there had been past deficiencies in operating expenditure and
capital expenditure on telecommunications infrastructure;
• that Telstra had forecast a long term decline in PSTN revenues; and
• that Telstra had communicated these matters to the Government.
In November 2006, the shareholder filed a second further amended
statement of claim, in response to arguments raised in our application
to strike out portions of the earlier pleading. The claim sought orders
for compensation for the class of shareholders who bought shares
between the time that these matters became known to Telstra and
the time at which they were disclosed to the market. Telstra filed its
defence on 22 December 2006 and a trial date was set for 26 November
2007.
The Federal Court subsequently dismissed the shareholder class
action awarding judgement for Telstra. Telstra, in January 2008, paid
a sum of $5 million under the terms of the Deed of Settlement
approved by the Federal Court on 13 December 2007.
Unconditioned Local Loop Service (ULLS) and Line Sharing Service
(LSS)
A number of Telstra competitors have notified access disputes in
relation to ULLS and LSS. Since August 2007 the ACCC has issued a
number of interim and final determinations in those access disputes
setting the monthly access charge for LSS at $2.50 per month until 30
June 2009 and the key Band 2 price for ULLS at $14.30 per month until
30 June 2008. In late June 2008 the ACCC began making interim
determinations at the Band 2 price of $16 per month for ULLS until 30
June 2009.
In the final determinations the ACCC also decided to back-date those
decisions such that Telstra had to reimburse the access seekers for the
difference in the monthly access charge from the date when
negotiations between Telstra and the various access seekers
commenced. There is a risk that the ACCC will do the same for the
remaining access disputes when it makes final determinations in
those disputes.
Telstra has filed judicial review applications in the Federal Court of
Australia challenging a number of the final determinations. The
Federal Court heard some of these applications in December 2007 and
subsequently in June and July 2008 and those judgements have been
reserved. The balance of the applications have been fixed for hearing
in August and September 2008.
On 24 January 2007, Telstra commenced proceedings in the High
Court against the Commonwealth, the ACCC and eleven access seekers
who had, prior to 24 January 2007, notified access disputes in respect
of ULLS and/or LSS. Telstra sought declarations from the High Court
that Part XIC of the Trade Practices Act is invalid as it applies to ULLS
and LSS, together with administrative relief directed at each of the
specific access disputes. The proceedings were heard by the Full Court
of the High Court on 13 and 14 November 2007. Judgement dismissing
the claim was delivered in March 2008. Telstra is currently in the
process of negotiating costs with the defendants.
Indemnities, performance guarantees and financial support
We have provided the following indemnities, performance guarantees
and financial support through the Telstra Entity as follows:
• Indemnities to financial institutions to support bank guarantees to
the value of $350 million (2007: $364 million) in respect of the
performance of contracts.
• Indemnities to financial institutions in respect of the obligations of
our controlled entities. The maximum amount of our contingent
liabilities for this purpose was $277 million (2007: $245 million).
• Financial support for certain controlled entities to the amount
necessary to enable those entities to meet their obligations as and
when they fall due. The financial support is subject to conditions
including individual monetary limits totalling $55 million (2007:
$103 million) and a requirement that the entity remains our
controlled entity.
23. Contingent liabilities and contingent assets