Deutsche Telekom Wins Dismissal of €3.9 Billion Claims

March 18, 2008

Cleary Gottlieb, as a co-counsel to Deutsche Telekom, won the dismissal of €3.9 billion claims before the Commercial Court of Paris on March 18. The claims, brought in 2005 by Vivendi Universal, were related to a long-standing, multi-jurisdictional battle for the control of PTC, a leading Polish mobile telephone operator.

PTC was founded in 1995 by Deutsche Telekom and Elektrim, a Polish company. Beginning in 1999, Vivendi and Elektrim entered into a series of investment agreements. The agreement established Telco, a joint-venture controlled by Vivendi. Vivendi and Elektrim agreed that Elektrim would contribute its PTC shares to Telco. Deutsche Telekom argued that the transfer was ineffective because it was in violation of the PTC Shareholders’ agreement, and commenced arbitration proceedings in Vienna.

In August 2003, while the Vienna arbitration was pending, Deutsche Telekom and Vivendi engaged in settlement discussions. In September 2004, Deutsche Telekom discontinued the settlement discussions. Two months later, the Vienna Tribunal ruled in favor of Deutsche Telekom, deciding that Elektrim’s PTC shares were wrongfully transferred to Telco.

In the recent litigation before the Commercial Court of Paris, Vivendi sought more than €3.9 billion in damages on the grounds that Deutsche Telekom wrongfully terminated the settlement negotiations and that Deutsche Telekom’s actions eventually resulted in the “spoliation” of Vivendi’s investment in PTC.

The Court dismissed Vivendi’s claims. In its decision, the Court upheld Deutsche Telekom’s defense that given the context of the discussions and since the parties had agreed not to suspend the Vienna arbitration proceedings pending their settlement discussions, they remained free at any time to opt for a litigated, rather than negotiated, settlement of their dispute.