Grupa LOTOS S.A. - Integrated Annual Report 2012
36. Contingent liabilities and assets
36.1 Material court, arbitration or administrative proceedings and other risks of the Parent or its subsidiaries
Material court proceedings instigated against Grupa LOTOS S.A.
Proceedings brought by PETROECCO JV Sp. z o.o. seeking compensation for losses incurred as a result of monopolistic practices
On May 18th 2001, PETROECCO JV Sp. z o.o. brought an action against the Company whereby it sought the courts’ decision awarding an amount of PLN 6,975 thousand, plus statutory interest from May 1st 1999, as compensation for damage incurred as a result of the Company’s monopolistic practices, which involved selling BS base oils in a manner favouring some customers, whose orders were executed to a disproportionately higher extent than the orders of PETROECCO JV Sp. z o.o. The alleged use of the monopolistic practices by the Company was confirmed by a decision of the Anti-Monopoly Office of September 26th 1996, in which the Office ordered the Company to abandon such practices. The Company was also ordered to abandon monopolistic practices pursuant to a decision of the Provincial Court of Warsaw – the Anti-Monopoly Court of October 22nd 1997.
The Regional Court of Gdańsk, by virtue of its decision of December 21st 2002, dismissed the action for compensation filed by PETROECCO JV Sp. z o.o., fully complying with the Company’s objection referring to the statute of limitation. However, this decision was overruled on December 4th 2003 by the Gdańsk Court of Appeals and remanded for re-examination by the Regional Court. The Company questioned the fact that any damage was incurred by PETROECCO JV Sp. z o.o., the amount of the alleged damage, and the existence of the cause and effect relationship between the monopolistic practices and the damage. After two further hearings at which expert witnesses provided their evidence, by virtue of a ruling of April 20th 2007 the action was dismissed. Following the appeal and cassation proceedings in 2007, initiated by PETROECCO JV Sp. z o.o., the case was remanded for re-examination by the Regional Court of Gdańsk. As a result of further hearings (held on November 3rd 2009, October 1st 2010, December 6th 2012, February 8th 2013), after evidence was taken based on an opinion of the expert witness of Instytut Nafty i Gazu (Oil and Gas Institute) of Kraków, which was favourable to Grupa LOTOS S.A., and after the parties exchanged process letters, the Court dismissed the action filed by PETROECCO J. Sp. z o.o. in its entirety on February 22nd 2013. As at the date of approval of these consolidated financial statements, the ruling was not final.
Given that there was little risk of an unfavourable outcome of the case, the Group did not recognise any provisions for potential liabilities related to the case. By virtue of its ruling of February 22nd 2013, the Court awarded PLN 57.6 thousand to Grupa LOTOS S.A. as reimbursement of the costs of proceedings.
Proceedings brought by the Minister of State Treasury seeking invalidation of the share purchase agreement concerning shares in Naftoport Sp. z o.o.
On November 3rd 2005, Grupa LOTOS S.A. was served a nullity suit submitted by the Minister of State Treasury, concerning the agreement of August 18th 1998 between Grupa LOTOS S.A. and Polska Żegluga Morska, a state-owned company, providing for the sale of two shares in Naftoport Sp. z o.o., valued at PLN 3,340 thousand. On April 21st 2006, the Regional Court of Gdańsk issued a ruling dismissing the suit in its entirety. On November 27th 2012, following lengthy appeal and cassation proceedings instituted on the initiative of the Ministry of State Treasury, whose detailed progress was each time described in the annual financial statements, Grupa LOTOS S.A. received a court's decision refusing to accept the State Treasury's cassation complaint for consideration. The agreement of August 18th 1998 concluded between Grupa LOTOS S.A. and Polska Żegluga Morska, a state-owned company, providing for the sale of two shares in Naftoport Sp. z o.o., valued at PLN 3,340 thousand, has not been declared null and void. As at the date of approval of these consolidated financial statements, the case is finally closed.
By virtue of its ruling of November 23rd 2011, the Court awarded PLN 116 thousand to Grupa LOTOS S.A. as reimbursement of the costs of appeal and cassation proceedings.
Tax settlements and other regulated areas of activity (e.g. customs or foreign exchange control) are subject to inspection by competent administration authorities, which are authorised to impose high penalties and sanctions. As the legal regulations regarding these issues in Poland are relatively new, they are often ambiguous and inconsistent. Differences in the interpretation of tax legislation are frequent, both within governmental authorities and between those authorities and businesses, leading to uncertainty and conflicts.
Tax settlements may be subject to tax inspection for a period of five years from the end of the calendar year in which the tax payment was made. As a result of such inspections, additional tax liabilities may be assessed with respect to the tax settlements made by the Company.
Court proceedings instigated by or against the Group entities
Court proceedings instigated by WANDEKO and involving LOTOS Paliwa Sp. z o.o. as a party
Court proceedings are pending against LOTOS Paliwa Sp. z o.o., instigated by Mr Andrzej Wójcik who conducts business activity under the business name of WANDEKO. On October 28th 2009, the Regional Court of Gdańsk, Commercial Division IX, issued a default judgement awarding PLN 1,921 thousand plus contractual interest from the company to the plaintiff. LOTOS Paliwa Sp. z o.o. recognised a PLN 15,318 thousand provision for the awarded amount, including interest, in 2009. The company appealed against the judgement by lodging an objection to the default judgement with the Regional Court of Gdańsk on November 10th 2009. By virtue of its decision of December 28th 2010, the Court of Appeals dismissed Mr Andrzej Wójcik's complaint against the decision issued by the Regional Court of Gdańsk rejecting reversal of the decision to lift the court order making default judgement immediately enforceable, and awarded reimbursement of the cost of proceedings to LOTOS Paliwa Sp. z o.o. Court hearings were held on May 22nd 2012 and September 12th 2012 and, as at the date of approval of these consolidated financial statements, the case was pending.
On January 11th 2013, the Court Enforcement Officer issued a decision reversing the earlier seizure (dated December 14th 2009) of receivables from the bank account of LOTOS Paliwa Sp. z o.o. securing the claims of Mr Andrzej Wójcik (see Note 18).
Proceedings involving LOTOS Gaz S.A. w likwidacji (in liquidation) as a party
On July 23rd 2009, the District Court for Kraków-Śródmieście in Kraków declared KRAK-GAZ Sp. z o.o. bankrupt. The company’s estate is managed by a bankruptcy administrator. As at the date of approval of these consolidated financial statements, the bankruptcy proceedings were pending. On March 13th 2012, the judge commissioner conducting the bankruptcy proceedings of KRAK-GAZ Sp. z o.o. issued a decision admitting objections to the list of debt claims and recognised the claim of LOTOS Gaz S.A. w likwidacji (in liquidation) in the total amount of PLN 23,695 thousand, including principal amount of PLN 21,435 thousand, and acknowledged claims of PLN 21,132thousand as secured with mortgages. As at the date of approval of consolidated financial statement, the decision is final. On December 11th-12th 2012, the judge commissioner issued a decision approving the lists of debt claims prepared in the course of bankruptcy proceedings.
Proceedings involving a LOTOS Petrobaltic Group company as a party
On January 16th 2012, the arbitration court held a session to hear a case concerning claims brought by Single Buoy Moorings Inc. (“SBM”) – supplier of the MOPU (Mobile Operating and Production Unit) to be used in production operations on the YME field. The petition in which SBM presented its claims against Talisman Energy Norge AS and other holders of interests in the YME project was filed with the arbitration court in Norway on January 25th 2011. The petitioner demanded:
- USD 90,000 thousand as an additional bonus for delivering the MOPU within the deadline set forth in the agreement,
- USD 3,700 thousand as reimbursement of costs incurred in connection with using a different method to transport the MOPU.
The liability of LOTOS Exploration and Production Norge AS for SBM's claims was 20% of the amounts, i.e. USD 18,740 thousand in total. On February 20th 2012, a decision in the arbitration proceedings was announced. All claims of Single Buoy Moorings Inc. were dismissed and the arbitration proceedings were closed.
There were also second arbitration proceedings pending with respect to claims of Single Buoy Moorings Inc. ("SBM”) against the YME consortium and mutual claims. SBM’s claims were filed and subsequently modified by the letters of December 14th 2011, May 2nd 2012 and October 16th 2012, and involved disputed costs of USD 330,000 thousand relating to dealings between the parties under the agreement for the delivery of the Mobile Operating and Production Unit (MOPU) to Norway.
On March 12th 2013, Talisman Energy Norge AS (the YME field operator) and SBM (owner of the platform) announced that an agreement was reached to terminate all existing contracts and agreements executed by the parties in connection with the YME project and remove the platform from the YME field (see Note 38).
The agreement contains a note on conclusion of all pending arbitration proceedings between SBM and Talisman Energy Norge AS.
As the risk of an unfavourable ruling in the potential dispute was low, no provisions for potential liabilities were recognised in these consolidated financial statements.
- As at December 31st 2012. the Parent had a PLN 240,000 thousand blank promissory note deposited at the Customs Office in Gdańsk as lump-sum security for excise duty for the amount of PLN 800,000 thousand. The security is valid until August 19th 2013.
- An unconditional and irrevocable guarantee issued by LOTOS Petrobaltic S.A. for the benefit of the government of Norway on June 17th 2008. concerning the activities of LOTOS Exploration and Production Norge AS related to its exploration and production operations on the Norwegian Continental Shelf. was effective as at December 31st 2012 and December 31st 2011. In the guarantee. LOTOS Petrobaltic S.A. undertook to assume any financial liabilities which may arise in connection with the operations of LOTOS Exploration and Production Norge AS on the Norwegian Continental Shelf. consisting in exploration for and extraction of the natural resources from the sea bottom. including their storage and transport using means of transport other than ships.