Huge Group, Cell C deal ends in acrimony, finger-pointing

The two parties have now entered a second phase of arbitration to resolve the acrimonious dispute.
Image: Moneyweb

Relations between Cell C and its soon-to-be-former client Huge Group have reached rock bottom, with the former claiming it’s owed R60-million by the latter and the latter saying it’s actually the one that’s owed money “morally”.

The two parties have now entered a second phase of arbitration to resolve the acrimonious dispute, with both sides accusing each other of acting in bad faith.

The latest developments in the long-running saga, which has been dragging on since early 2019, come after the high court in Johannesburg last week handed down judgment against Huge Group subsidiary Huge Cellular’s attempt to seek an urgent interdict against the Cell C Service Provider Company from cutting off services, potentially affecting more than 20 000 mainly small and medium enterprise customers.

Both sides are spitting fire, with Huge Group CEO James Herbst telling TechCentral on Wednesday that the mobile operator received a “windfall gain of R60-million at my expense”, while Cell C chief executive for wholesale Björn Flormann accused Huge of getting a free ride on the company’s infrastructure for over a year without paying what was due for the services rendered.

Cell C is now claiming about R60-million from Huge Group through arbitration (the dispute resolution mechanism agreed to in the contract). Huge Group, meanwhile, argues that, rather than owing R60-million to Cell C, the mobile operator owes it R4-million. This, it said, is because, in its view, it had already paid upfront for wholesale airtime purchased that hadn’t been used when an “enterprise supply agreement” (ESA) between the parties was terminated in February 2019. Cell C argues Huge Group forfeited that airtime when the contract ended – a point Huge Group lost in an earlier phase of arbitration.

Withering judgment

The courts have taken a dim view of Huge Group’s claims, with the high court last week issuing a damning and withering judgment against an urgent application brought by the company, accusing it of wasting the court’s time.

Huge brought the application to try to stop Cell C from terminating its services after it lost the first phase of arbitration in April. In an earlier judgment, the high court had issued an interdict in favour of Huge Group, but only on the basis that the company had agreed to pay for services rendered by Cell C if it lost the arbitration.

The judge found that, “put simply”, Huge Group “advanced no legally viable basis to avoid paying the amount which it undertook to pay for the interdicted period”.

The court dismissed the application with costs.

Herbst told TechCentral that Huge Group will now withdraw another legal challenge at the high court and seek to resolve the remaining dispute – over who is owed what – through the arbitration process.

The company has concluded a new agreement with Cell C rival MTN South Africa and will endeavour to port all of its affected customers across to MTN by 17 October, the date on which Cell C has said it will terminate its relationship with Huge Group for good.

That’s going to prove tricky, though, given that more than 45 000 Sim cards deployed in devices around the country will have to be swapped out manually and their numbers ported to the MTN network. Herbst said MTN is being highly supportive in the move.

The contract between Cell C and Huge Cellular was originally signed in February 2017. The five-year agreement was made up of an initial two-year period followed by a renewal period of three years.

According to Herbst, Huge agreed in the first period of the contract to pay R125-million, broken up into unequal, or “sculpted”, monthly payments. Under the agreement, unused wholesale airtime purchased would be carried forward in perpetuity, he said. This unused airtime quickly built up, to the extent that Huge had R60-million worth of it by the time it was cancelled, Herbst said. Given this, it would have been irresponsible for the company to commit to the second phase of the agreement, which would have involved paying R250-million over three years. The parties failed to reach an agreement over new terms.

Arbitration

Huge, fearing losing access to Cell C’s network, then went to court and secured an interdict to allow it to continue to use the network, and the accrued airtime, until such time as arbitration between the parties was concluded. Huge Group lost the arbitration in April 2020, and Cell C now wants the company to cough up for the airtime provided between March 2019 and March 2020, saying that the unused airtime fell away when the contract was terminated.

“On Cell C’s version, we operated on their network for free. On my version, we were using what we had already paid for,” Herbst said. Even though Huge Group lost the arbitration, he argues that “at a moral level”, Cell C should have honoured the fact that Huge had paid for the airtime. Huge has continued to pre-pay Cell C an amount of R3-million since April, when it lost the arbitration process, to ensure continued access to the network. Cell C, however, is adamant that, following last week’s high court judgment, the arrangement will be terminated fully on 17 October.

Cell C chief legal officer Zahir Williams told TechCentral on Wednesday that Huge Group “made deliberate choices with full regard to the impact of those choices on our relationship”.

“The way they have conducted themselves – those choices reflect badly on Huge. It eroded the minimum level of trust and goodwill that must be in place to continue to do business. It not only eroded it, it destroyed it.”

Williams said Cell C always seeks to build “lasting, fruitful and harmonious relationships with its customers”. This he said, became impossible with Huge Group.

Flormann, the wholesale chief executive, said the company could have terminated Huge Group’s access to its network in April, when it lost the arbitration, but opted not to in an effort to salvage the relationship. But the dispute over the R60-million could not be resolved.

He emphasised that Huge Group explicitly stated in its initial application to the high court that if it was successful in its interdict that it would pay for the services during the interdicted period if it lost the arbitration. It has gone back on its word, Flormann said, even after Cell C offered it a “massive discount”, offering to settle the matter for R30-million.  — © 2020 NewsCentral Media

Duncan McLeod is Editor of TechCentral.
This article was first published on TechCentral, here.

 

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All this infighting might be good for the boards and shareholders of these two companies but ultimately it is the consumer who loses out in the end and has to pay the price. Competition is healthy and keeps prices low. The two major operators are already squeezing the consumer with unrealisticly high Data costs. Marginalizing Cell C is just another nail in the SA networks coffin.

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