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20. Provisions for risks and charges and contingent liabilities

 Guarantees
given
RestructuringPenaltiesProduct
guarantees
Other
provisions
Total
1 January 2015      
Current161284882475749
Non-current1401133181036071,281
 1562413661851,0822,030
       
Transportation Liabilities(8)---(3)(11)
Allocations13861776311593
Uses(1)(57)(16)(9)(49)(132)
Reversals-(14)(9)(63)(197)(283)
Other changes(4)(24)3326(29)2
31 December 20152812073812151,1152,199
       
Broken down as follows:      
Current3838496470736
Non-current2781242971196451,463
 2812073812151,1152,199
       
Allocations3592769227385
Uses(5)(58)(64)(19)(84)(230)
Reversals--(19)(45)(155)(219)
Other changes7(27)(180)(12)(6)(218)
31 December 20162861811452081,0971,917
       
Broken down as follows:      
Current111741994494792
Non-current1751071261146031,125
 2861811452081,0971,917

“Other provisions for risks and charges” mainly include:

  • the provision for contractual risks and charges of €mil. 533 (€mil. 443 at 31 December 2015), mainly related to the Aeronautics sector;
  • the provision for risks on equity investments of €mil. 3 (€mil. 6 at 31 December 2015), which includes the accruals for losses exceeding the carrying amounts of unconsolidated equity-accounted investments;
  • the provision for tax risks of €mil. 133 (€mil. 190 at 31 December 2015);
  • the provision for litigation with employees and former employees of €mil. 37 (€mil. 39 at 31 December 2015);
  • the provision for litigation underway of €mil. 55 (€mil. 70 at 31 December 2015).

With regard to risks, below is a summary of the criminal proceedings that are currently underway against a number of Group companies or Leonardo itself, as well as certain former directors and executives, concerning acts committed during the performance of their duties at Group companies or at Leonardo itself, with specific reference to the events that occurred in 2016 and in early 2017:

  • criminal proceedings are pending before the Court of Rome against the former Commercial Director of Leonardo, for the crime under Articles110, 319, 319-bis, 320, 321 and 322-bis of the Italian Criminal Code, concerning the supply contracts signed in 2010 by AgustaWestland, Selex Sistemi Integrati and Telespazio Argentina with the Government of Panama. The proceedings are now in the trial phase. In relation to this case, criminal proceedings are also pending before the Public Prosecutor’s Office of Rome against Leonardo for administrative violations pursuant to Article 25 of Legislative Decree 231/2001, for crimes under Articles 321 and 322-bis of the Italian Criminal Code attributed to the then Commercial Director of the Company, in the context of the abovementioned criminal proceedings;
  • criminal proceedings are pending before the Court of Rome against one former executive, three former Directors and an executive of Leonardo, for crimes under Article 110 of the Italian Criminal Code and Article 5 of Legislative Decree 74/2000 in relation to the position as director held in the then Finmeccanica Finance SA, as well as against various employees and executives of the company, for the crime under Articles 110, 646 and 61 no.11 of the Italian Criminal Code in relation, inter alia, to personal loans requested to the company in the period 2008-2014;
  • with reference to the immediate trial before the Court of Busto Arsizio in relation to the supply of 12 AW 101 VIP/VVIP helicopters to the Indian Government, it should be noted that on 9 October 2014 the Court sentenced the former Chairman and Chief Executive Officer of Leonardo S.p.a. (in relation to the position held in AgustaWestland) and the former Chief Executive Officer of AgustaWestland S.p.A. to a prison term of two years for having committed crimes under Article 2 of Legislative Decree 74/2000 (having submitted fraudulent tax returns using invoices or other documents from non-existent transactions) – limited to the May 2009 – June 2010 tax period, and ordering that the amount equivalent to such non-payment of taxes (on a taxable income of €mil. 3.4) be confiscated from AgustaWestland S.p.A., considered in determining the provisions for risks. In the same decision, the Court found the defendants not guilty of having committed the crimes under Articles 110, 112, paragraph 1, 319, 321 and 322-bis, paragraph 2(2) of the Italian Criminal Code (corruption of foreign public officials), due to lack of evidence. The decision is being appealed against.
    On 7 April 2016, the Milan Court of Appeal sentenced the former Chairman and Chief Executive Officer of Leonardo to four years and six months of imprisonment, and the former Chief Executive Officer of AgustaWestland S.p.A. to four years of imprisonment, for crimes under Articles 110, 112, paragraph 1, 318, 321 and 322-bis, paragraph 2(2) of the Italian Criminal Code and Article 2 of Legislative Decree 74/2000. On 16 December 2016 the Supreme Court repealed the judgment appealed against and referred it to another division of the Milan Court of Appeal for consideration of new proceedings. In respect of these companies, it is recalled that on 25 July 2014, pursuant to Article 58 of Legislative Decree 231/2001, the Public Prosecutor dismissed the proceedings against Leonardo, holding groundless, following the conclusion of investigations, the Company’s involvement from both a factual and legal point of view. The Prosecutor also acknowledged that since 2003 the Company has adopted, actually implemented and regularly updated an Organisational, Management and Control Model that is conceptually suitable to prevent offences like the one in question and is also focused on compliance processes as to guarantee adequate standards of fairness and ethical conduct. In addition, on 28 August 2014 the Judge for Preliminary Investigations (GIP, Giudice delle Indagini Preliminari) of the Court of Busto Arsizio – in granting the motions put forth by the companies – imposed administrative penalties pursuant to Article 63 of Legislative Decree 231/2001 and Article 444 and ff. of the Italian Code of Criminal Procedure, amounting to €80,000 for AgustaWestland S.p.A. and €300,000 for AgustaWestland Ltd, and ordered the confiscation of the equivalent of €mil. 7.5;
    The Indian Authorities also started their own criminal investigations in late February 2013 into this matter, which are still underway;
  • preliminary investigations are being conducted in relation to the criminal proceedings pending with the Public Prosecutor’s Office of Busto Arsizio, against two former chief executive officers of AgustaWestland S.p.A., for crimes under Article 2 of Legislative Decree 74/2000, Articles 81 and 110 of the Italian Criminal Code and Articles 322-bis, 81 and 110 of the Italian Criminal Code, as well as against a former executive of the company, for crimes under Article 2 of Legislative Decree 74/2000 and Articles 81 and 110 of the Italian Criminal Code. In relation to this investigation, on 23 April 2015 some search warrants were executed at the Cascina Costa office of AgustaWestland S.p.A. in order to collect contract, accounting and non-accounting documents relating to the relationships maintained by AgustaWestland S.p.A. with some companies incorporated under Italian and foreign law. Within these proceedings, the notice of conclusion of the preliminary investigations was served in April 2016, limited to the offence under Article 2 of Legislative Decree 74/2000, against two former chief executive officers and a former executive of AgustaWestland S.p.A., regarding relationship with a foreign company. In the context of these proceedings, an executive of the company was also under investigation, but the proceedings against him have been dismissed;
  • criminal proceedings are pending before the Court of Rome against the former Vice-Chairman of BredaMenarinibus, for crimes under Articles 110 and 646 of the Italian Criminal Code and Article 8 of Legislative Decree 74/2000, as well as against the former Chief Financial Officer of the company, for crimes under Article 110 of the Italian Criminal Code and Article 8 of Legislative Decree 74/2000, in relation to the supply of 45 trolley buses made by BredaMenarinibus in the competitive tender launched by Roma Metropolitane S.p.A.. The company, as a party injured by the crimes under Article 646 of the Italian Criminal Code, brought a civil action in the criminal proceedings. At the hearing held on 7 April 2016, the Court, after having combined these proceedings with those brought against the former Chief Executive Officer of BredaMenarinibus, handed down a dismissal of charge against the former Vice-Chairman of BredaMenarinibus as a result of the extinguishment of the offence. At the same hearing the Court also accepted the civil action brought by the company in the criminal proceedings against the former Chief Executive Officer. The case has now entered the trial phase;
  • criminal proceedings are pending before the Court of Naples concerning contracts awarded to the then-Elsag Datamat (now Selex ES S.p.A.) and Electron Italia for the development, respectively, of the integrated traffic monitoring system of the city of Naples and video-surveillance systems for a number of municipalities within the Province of Naples. Under the proceedings, the former Chief Executive Officer of Electron Italia, the former Chief Executive Officer and an employee of the then-Elsag Datamat are charged with crimes under Articles 326, 353 and 416 of the Italian Criminal Code, and an employee of the then-Elsag Datamat and an employee of Electron Italia with crimes under Articles 353 and 326 of the Italian Criminal Code, as well as Selex ES and Electron Italia for having committed administrative offences under Article 24-ter, paragraph 2, of Legislative Decree 231/2001. Selex ES S.p.A. and Electron Italia, following service of civil summons issued by the Court at the request of the civil-action party, also entered appearance in the civil action. The proceedings are now in the trial phase;
  • in relation to the proceedings are pending before the Court of Trani against a former employee of the then-Elsag Datamat for crimes under Articles 353 and 356 of the Italian Criminal Code, concerning a tender launched by the Municipality of Barletta for the construction of access control systems for the limited traffic area; on 5 February 2016 the Court declared the decision not to prosecute against a former employee of the then-Elsag Datamat, for crimes charged to him as they have become statute barred;
  • criminal proceedings are pending before the Court of Genoa, concerning the overflow of the Chiaravagna River which took place in Genoa on 5 October 2010, involving a former employee of the then-Elsag Datamat (now Selex ES S.p.A.), for crimes under Articles 426 and 449 of the Italian Criminal Code. Selex ES S.p.A., following service of civil summons issued by the Court at the request of the civil-action party, entered appearance in the civil action. At the end of the trial phase, on 7 March 2017 the Court of Genoa found not guilty the former employee of the then-Elsag Datamat (now Selex ES S.p.A.) and the person civilly liable for Selex ES SpA;
  • two criminal proceedings are pending in relation to the awarding of the contract for the construction and operation of the Control System for Waste Tracking (SISTRI).

Immediate trial – Bringing of civil action (Selex Service Management)
In the immediate trial before the Court of Naples against certain suppliers and sub-suppliers of Selex Service Management, at the hearing held on 7 November 2013 the company brought a civil action against the defendants. The proceedings are now in the trial phase.

Abbreviated trial - Bringing of civil action (Selex Service Management)
In the summary trial before the Court of Naples against the former Chief Executive Officer of Seles Service Management, for crimes under Article 416, paragraphs 1, 2 and 5, of the Italian Criminal Code and Articles 81-paragraph 2, 110, 319, 320 and 321 of the Italian Criminal Code and Articles 2 and 8 of Legislative Decree 74/2000, and a supplier of Selex Service Management, the company brought a civil action against the defendants at the hearing held on 21 November 2013.
On 18 July 2014, the Court sentenced the former Chief Executive Officer of Selex Service Management to a prison term of 2 years and 6 months and ordered him to pay damages to Selex Service Management. The aforesaid judgment is being appealed against. The proceedings are currently pending before the Naples Court of Appeal;

  • with reference to the proceedings pending before the Court of Rome against the former Chief Executive Officer and the former Sales Manager of Selex Sistemi Integrati (now in liquidation), concerning the awarding of work contracts on the part of ENAV S.p.A., on 16 October 2015 the Court of Rome sentenced the defendants for the crime under Article 8 of Legislative Decree 74/2000, while acquitting them of the crime under Article 646 of the Italian Criminal Code. With the same decision the Court also ordered the former Chief Executive Officer and the former Sales Manager of Selex Sistemi Integrati to repay damages in favour of the company (the aggrieved party acting in criminal proceedings). The aforesaid judgment is being appealed against. The hearing before the Rome Court of Appeal is scheduled to be held on 24 May 2017;
  • criminal proceedings are pending before the Court of Rome concerning the informal tender for awarding a contract in the ICT area for operational, contract management and procurement services launched by the Prime Minister’s Office in 2010 and awarded to a temporary business combine (RTI, Raggruppamento Temporaneo di Imprese) established by Selex Service Management and a company outside the Leonardo Group.
    On 1 July 2015 the Judge for Preliminary Hearings (GUP, Giudice dell’Udienza Preliminare) ordered the committal for trial of the former Chairman and Chief Executive Officer of Leonardo, for crimes under Articles 81-paragraph 2, 110, 326, 353, paragraphs 1 and 2, of the Italian Criminal Code, and of the former Chief Executive Officer of Selex Service Management for crimes under Articles 110, 319 and 321 of the Italian Criminal Code and Articles 81-paragraph 2, 110, 326, 353, paragraphs 1 and 2, of the Italian Criminal Code, as well as of Selex Service Management itself for violations under Article 25 of Legislative Decree 231/2001. Leonardo brought a civil action as an aggrieved party. The proceedings are now in the trial phase.
    In relation to these proceedings, the former Chief Operations Officer of Selex Service Management and former External Relations Officer of Leonardo were also charged with crimes under Articles 81-paragraph 2, 110, 326, 353, paragraphs 1 and 2, of the Italian Criminal Code. The former COO was acquitted and the former External Relations Officer of Leonardo was found guilty pursuant to Article 444 and ff. of the Italian Code of Criminal Procedure;
  • criminal proceedings are pending before the Court of Rome involving the Chief Executive Officer of the then-Selex Systems Integration GmbH (now Selex ES GmbH), with respect to crimes under Articles 110 and 223, paragraph 2(2), of the Italian Criminal Code, with regard to Articles 216 and 219, paragraphs 1 and 2(1), of Royal Decree no. 267/1942, in connection with the bankruptcy of a supplier. The proceedings are now in the trial phase;
  • criminal proceedings are being conducted by the Turin Public Prosecutor’s Office concerning the provision of helicopters to the armed forces, police and other government entities on the part of AgustaWestland, involving certain directors of Leonardo (serving from 1994 to 1998) and certain directors of AgustaWestland (serving from 1999 to 2014) with respect to crimes under Article 449 of the Italian Criminal Code for violation of the regulations on the use of asbestos;
  • criminal proceedings are pending before the Court of Milan involving certain directors of the then-Breda Termomeccanica S.p.A., subsequently Ansaldo S.p.A., who served during the period from 1973 to 1985, charged with having committed the crimes under Article 589, paragraphs 1, 2 and 3, Article 40, paragraph 2, Article 41, paragraph 1, of the Italian Criminal Code, Article 2087 of the Italian Civil Code and Article 590, paragraphs 1, 2, 3, 4 and 5, of the Italian Criminal Code, for violation of the rules governing the prevention of occupational diseases.
    Leonardo, following service of civil summons issued by the Court at the request of the civil-action parties, entered appearance in the civil action. The proceedings are now in the trial phase.

Based upon the information gathered and the results of the analysis carried out so far, the Directors of Leonardo did not allocate any specific provisions beyond those indicated in the rest of the paragraph. Any negative developments - which cannot be foreseen, nor determined to date - arising from any internal investigations or judicial investigations being conducted, will be subject to consistent assessment for the purposes of provisions (if any).

With regard to the provisions for civil, tax and administrative disputes, it is underlined that the Leonardo Group companies’ operations regard industries and markets where many disputes, both as petitioner and plaintiff, are settled only after a considerable period of time, especially in cases where the customer is a government entity. Pursuant to the IFRSs, provisions have only been set aside for risks that are probable and for which the amount can be determined. No specific provisions have been set aside for certain disputes in which the Group is defendant as these disputes are reasonably expected to be settled, based on current knowledge, satisfactorily and without significantly impacting the Group. Of particular note are the following disputes:

  • the dispute in which Leonardo is defendant in relation to contractual commitments undertaken at the time of the transfer of the former subsidiary Finmilano SpA to Banca di Roma (now UniCredit Group), arising from an assessment report issued to Finmilano SpA by the Rome Direct Taxation Office, which disallowed the tax deductibility of the capital loss arising from the factoring without recourse of a receivable subject to deferred collection for an amount lower than its nominal amount. At present, after alternating outcomes in the various degrees of adjudication, which were mainly unfavourable for the Company and after numerous adjournments, we are waiting for the appeal to be discussed before the Supreme Court. Leonardo does not currently expect it will incur significant losses in this respect;

  • in January 2017 some notices of assessment were served on Alenia Aermacchi SpA, as a result of the examination of the documents submitted for a request for refund of the Group VAT of Leonardo SpA for the 2011 financial year. Specifically, the notices report estimated higher taxable income for VAT and IRES (Corporate Income Tax), a higher value of net production and IRAP (Regional Production Activity Tax) withholdings, as well as penalties and interest (for a total amount of €mil. 17 on account of tax and €mil. 20 on account of penalties). In this regard the company has decided to consent to the assessment procedure subject to agreement in order to provide evidence of the groundlessness of the acts established in the conciliation phase;

  • the litigation brought by Reid against Leonardo and Alenia Space (then ALS SpA, now SOGEPA SpA) before the Court of Texas in 2001, whereby Reid claimed that the former Finmeccanica-Space division failed to meet its obligations under the contract for the implementation of the Gorizont satellite programme. The dispute was settled in favour of the Group due to the lack of jurisdiction of the Court appealed to. On 11 May 2007, Reid served a complaint on Leonardo and SOGEPA, whereby it brought new proceedings before the Court of Chancery in Delaware. In the new proceedings Reid once again submitted the same claims for damages as those included in the papers of the previous case developed before the Court of Texas, without, however, quantifying the amount of the alleged damage.
    In appearing before the Court, Leonardo filed a Motion to Dismiss, asserting that the case was time-barred, the statute of limitation had run out and the Court of Delaware did not have jurisdiction. On 27 March 2008, the Court issued an order which rejected the plaintiff’s claim as the case was time-barred. The opposite party challenged this decision before the Supreme Court of Delaware, which issued a decision on 9 April 2009, granting the motion and referring the case to the Court of Chancery for a decision on the other objection raised by Leonardo and SOGEPA concerning the lack of jurisdiction of the Court of Delaware. Therefore, the discovery phase commenced, during which the witnesses requested by Reid were deposed. The preliminary investigations were completed in December 2013 and on 20 November 2014 the Court issued its decision on the question of jurisdiction, rejecting the objection raised by Leonardo and SOGEPA. Therefore, the case is proceeding on the merits and the discovery phase is currently underway. However, it should be recalled that the lawsuit filed by Leonardo and SOGEPA in Italy – aimed at establishing the inexistence of the claims concerning the facts and requests argued by Mr Dennis Reid before the Court of Delaware – is still pending before the Court of Appeal of Rome and said lawsuit is still at a preliminary stage;

  • the litigation brought before the Santa Maria Capua Vetere Court in February 2011 by GMR SpA, as the sole shareholder of Firema Trasporti against Leonardo and AnsaldoBreda, was settled with a ruling stating the lack of jurisdiction in favour of the Court of Naples. On 28 April 2015 the suit was dismissed following the failure by GMR to reinstate the action in accordance with the time limits prescribed by law. On 23 June 2015, GMR then served a new writ of summons before the Court of Naples, whereby it once again submitted the same claims as those brought in the previous proceedings. More specifically, according to the plaintiff company, during the period in which Leonardo held an investment in Firema Trasporti (from 1993 to 2005), its management and coordination were carried out to the detriment of the company itself and in the sole interest of the Leonardo Group. Moreover, even after the sale of the investment by Leonardo, Firema Trasporti was allegedly de facto subjected to an abuse of economic dependence from the abovementioned Group in performing the various agreements existing with AnsaldoBreda. Leonardo and AnsaldoBreda appeared before the Court requesting that, on the merits, the plaintiff’s claims be dismissed as clearly groundless, as a result of the non-fulfilment of any and all conditions required by law as requirements to bring an action against directors pursuant to Article 2497 of the Italian Civil Code. Moreover, the aforesaid companies also asked the Court to preliminarily hand down a ruling based on the principle of lis alibi pendens (i.e. the suit was pending elsewhere and then the claim was precluded) within these new proceedings with respect to the pending proceedings, between the same parties, before the Naples Court of Appeal. The proceedings described above are still underway and are still in a phase of preliminary discussion.
    It is also recalled that Giorgio and Gianfranco Fiore also brought a third-party action against Leonardo and AnsaldoBreda within the proceedings brought by Firema Trasporti under Extraordinary Administration before the Court of Naples, against the engineers themselves and a number of other defendants. By an order dated 18 November 2014, the Court of Naples declared that both the claims submitted by Giorgio and Gianfranco Fiore against Leonardo and AnsaldoBreda and those submitted by GMR (the third-party that voluntarily intervened in the proceedings in question) were inadmissible; accordingly, the Court ordered that Leonardo, AnsaldoBreda and GMR be dropped from action. On 2 March 2015 GMR filed an appeal before the Naples Court of Appeal against this order. Leonardo and AnsaldoBreda formally entered appearance; at present the appellate proceedings are under the decision phase. While pending the aforesaid appellate proceedings, the judge responsible for preliminary investigations was replaced in the action brought by Firema before the Court of Naples; on 17 June 2015 the new judge reversed the previous ruling (with the related declarations of claim preclusion and removal from the lawsuit) and ordered the resumption of the discussion of the case, which is still underway;

  • the proceedings brought before the Court of Rome on 4 March 2013 by Mr Pio Maria Deiana, on his own account and in his capacity as Director of Janua Dei Italia Srl and of Progetto Cina Srl against Leonardo in order to ask the Court to rule the invalidity of the settlement agreement signed in December 2000 by the aforesaid companies and the then-Ansaldo Industria (a company which was a subsidiary of Leonardo until 2004 and which is now cancelled from the Register of Companies). The aforementioned agreement had settled, by way of conciliation, the action brought before the Court of Genoa in 1998 in order to ask the Court to find Ansaldo Industria liable for breach of contract with regard to the agreements for commercial cooperation in the construction of a waste disposal and cogeneration plant in China, which then was not built.
    As stated by the plaintiffs in the writ of summons, the abovementioned settlement agreement was concluded based on unfair conditions, thus taking advantage of the distress of Mr Deiana and of the economic dependence of the plaintiff companies with respect to Ansaldo Industria. The claim was submitted against Leonardo, invoking the latter’s general liability arising from the control exercised by it on Ansaldo Industria at the time of the events being disputed. The damages being sought, to be determined during the course of the proceedings, is estimated at €mil. 2,700. On 25 September 2013 Leonardo appeared before the Court, arguing, among other things, that it lacks the capacity to be sued and asking, on the merits, that the Court rejects the plaintiffs’ claims as they are entirely groundless in fact and in law. A minority shareholder of Progetto Cina Srl and a minority shareholder of Janua Dei Italia Srl intervened in the case, respectively, at the hearings of 14 May 2014 and 25 September 2014. The parties will be called upon to specify the conclusions that they intend to submit to the Court during the next hearing to be held on 22 November 2017;

  • the dispute between Ansaldo STS and Selex ES (SES) against the Russian company ZST relating to a contract signed in August 2010 between ZST, which had been awarded the contract to build the Sirth-Benghazi railway line in Libya, and the Joint Venture comprised of Ansaldo STS and SES, which was the sub-contractor for the signalling, automation, security and telecommunications works.
    On 12 August 2013, Ansaldo STS and SES filed a motion before the Court of Milan seeking a provisional remedy against the Russian company ZST, prohibiting it from enforcing the advance payment bond guarantees, issued by Crédit Agricole to guarantee the contract advances paid to the companies in the amount of around €mil. 70 for Ansaldo STS and €mil. 15.7 for Selex ES. The performance of the contract had been in fact suspended following the well-known events that occurred in Libya in early 2011. The preventive proceedings concluded with the Court granting the injunction only as to the amounts corresponding to the value of the activities performed up until the works were interrupted (equal to €mil. 29 for Ansaldo STS and to €mil. 3 for Selex ES). The bank therefore proceeded to make payment of the remaining amount.
    Therefore, ZST started arbitration proceedings before the Vienna International Arbitral Centre against Ansaldo STS and Selex ES seeking repayment of the full amount paid on account of fees. On 6 May 2016 an award was issued, which ordered Ansaldo STS, jointly with SES, to pay an amount of €mil. 30, plus interest. Ansaldo STS and Selex ES, based on their respective shares of supply (€mil. 3.3 for Selex ES), have paid the amount required by the award and, therefore, the dispute can be considered to have been settled. It is also recalled that Leonardo has not provided any guarantee in relation to the aforesaid litigation within the transfer of Ansaldo STS to Hitachi.

Moreover, given their complexity, their cutting-edge technological content and the nature of the customers, the Group’s long-term contracts are sometimes affected by disputes with customers in relation to the compliance of works with customer specifications and product performances. The Group adjusts the estimated contract costs for foreseeable issues, also taking into account the possible developments in the relevant disputes. With regard to contracts in progress affected by uncertainties and issues under discussion with customers, there are:

  • the SISTRI five-year contract, signed between the Ministry for the Environment, Land and Sea and Selex Service Management in December 2009 in relation to the design, operation and maintenance of the System for Waste Tracking until 30 November 2014, subject to the criminal proceedings described above.
    The performance of the contract was affected by a number of legislative acts aimed at postponing the time at which it was to come into force, at a drastic reduction of the categories of persons under an obligation to adopt the system, at introducing simplification and/or optimisation measures of the system and at indefinitely postponing the applicable penalties. Such legislative acts had a significant impact on the financial stability of the contract, which was further impaired by the non-payment of a large part of the amounts due to the company.
    Moreover, on 8 May 2014 the then Italian Public Contracts Regulator (Autorità di Vigilanza dei Contratti Pubblici) concluded the procedure that it had opened in July 2012 by resolution 10 whereby the Regulator ruled that the award of the SISTRI contract did not comply with Article 17 of the Italian Code of Public Contracts in the matter of contracts subject to a secrecy classification and ordered the papers of the case to be sent to the Ministry and to the Court of Auditors, as well as to the DDA (Direzione Distrettuale Antimafia) organised crime unit at the Naples Public Prosecutor’s Office. The company appealed against this resolution before the Lazio Regional Administrative Court, challenging its lawfulness under various aspects and the related proceedings are still underway. In the wake of this resolution, the Ministry blocked a number of payments owed to the Company and asked the Government Lawyers (Avvocatura dello Stato) for an opinion on the matter. Partial payments were made in December 2014 in response, we assume, to the confirmation by the Government Lawyers that the contract is valid and legal. On 21 July 2014 Selex Service Management informed the Ministry that it was not its intention to continue with the operation of the system beyond the time-limit of 30 November 2014 set in the contract, forewarning that it would take steps to protect its rights in order to recoup the capital invested and obtain compensation for damages. Afterwards, Law 116 of 11 August 2014 as amended, which converted Law Decree 91 of 24 June 2014, by introducing certain significant changes to the wording of Article 11 of Law Decree 101 of 31 August 2013 (which had provided, inter alia, (i) that the payment of the amounts due would be subject to an audit of the fairness of the final costs throughout 30 June 2013 and to the availability of the amounts paid by users at that date and (ii) a financial rebalancing of the contract, which was then not carried out), extended the ultimate effective date of the contract with Selex Service Management until 31 December 2015, granting Selex Service Management the compensation for the production costs calculated up until the aforesaid date, subject to the fairness assessment by the Agency for Digital Italy (Agenzia per l’Italia digitale), to the maximum extent of the fees paid by the operators.
    Finally, said Law also provided that by 30 June 2015 the Ministry for the Environment, Land and Sea had to start the procedures for the award of the service under concession in accordance with the provisions and methods set out in the Italian Code of Public Contracts. Decree Law 244 of 30 December 2016 extended again the ultimate effective date of the contract with Selex Service Management “until the date of entry of the new concessionaire (…) and anyway with the time limit of 31 December 2017”. Following the refusal of jurisdiction of the arbitration panel served on the company on 19 February 2015 by the Government Lawyers, the Company brought a legal action against the said Ministry before the Court of Rome - Division specialising in business law. This action aims at seeking a declaration that the contract had expired on 30 November 2014.
    By an order dated 17 February 2016, the Court granted the claims submitted by Selex Service Management pursuant to Article 186-ter of the Italian Code of Civil Procedure and ordered the Ministry to pay the plaintiff company an amount of €mil. 12, plus interest and VAT. By virtue of the abovementioned order, on 12 December 2016 the Ministry paid Selex Service Management an amount of €mil 17. The proceedings in question are still underway and the parties will be called upon to specify their conclusions before the judge responsible for preliminary investigations on 22 November 2017;

  • the supply contract for 12 helicopters signed between AgustaWestland International Ltd and the Indian Ministry of Defence in 2010, worth around €mil. 560 in total, which is the object of the above described criminal proceedings. On 15 February 2013 the Indian Ministry of Defence sent a Show Cause Notice asking the company to provide information on the bribery alleged to have occurred in violation of the contract and the Pre-Contract Integrity Pact. In the letter, in addition to notifying the company that it was suspending payments, the Indian Government suggested that it could possibly cancel the contract if the company was unable to provide proof that is was not involved in the alleged corrupt conduct. The company promptly provided the information and documentation requested to the Indian authorities and also invited the Ministry to initiate bilateral discussions to settle the matter.
    Not having received any indication of interest on the part of the Indian Ministry in beginning a dialogue, on 4 October 2013 AgustaWestland International Ltd started arbitration proceedings provided for by the contract in New Delhi. On 21 October 2013, the Indian Ministry served the second Show Cause Notice requesting further documents and once again claiming violation of the Pre-Contract Integrity Pact. In a letter sent on that date, the Ministry also challenged the applicability of the arbitration clause contained in the contract. On 25 November 2013, the company appointed its own arbitrator, the Hon. Justice B.N. Srikrishna, a former justice of the Indian Supreme Court, inviting the Ministry
    to designate its own arbitrator within the next 60 days.
    On 1 January 2014, the Indian Ministry of Defence formally communicated its decision to cancel/terminate/rescind the contract, reserving the right to seek damages, provisionally estimated at an amount equal to about €mil. 648, and simultaneously notified the company that it had taken steps to execute the guarantees and counter-guarantees given in relation to the aforesaid contract in the total amount of €mil. 306. On the same date, the Indian Ministry, altering its stance as expressed on 21 October 2013, appointed its own arbitrator, the Hon. Justice B.P. Jeevan Reddy, a former judge of the Indian Supreme Court.
    On 7 August 2014 the International Chamber of Commerce of Paris appointed William W. Park, Professor of Law at the Boston University, to act as the third arbitrator. On 28 October 2014, the Indian Ministry of Defence filed a defence brief raising a number of preliminary objections challenging, among other things, whether the case could be referred to arbitration. The company, in addition to challenging such objections, will, once the decision on the preliminary questions is issued, restate the reasonableness of its claims, also in light of the ruling handed down by the Court of Busto Arsizio on 9 October 2014 in the context of the immediate trial against the former Chairman and Chief Executive Officer of Leonardo SpA and against the former Chief Executive Officer of AgustaWestland SpA. The arbitration proceedings are still underway.

It should be recalled that, on 23 May 2014, in the framework of the proceedings pursuant to Article 700 of the Italian Code of Civil Procedure brought by AgustaWestland SpA and AgustaWestland International Ltd to prevent the enforcement of the guarantees, the Court of Milan – in partial acceptance of the complaint submitted by the Indian Ministry of Defence – partially amended the order it had previously handed down and revoked its injunction with regard to the whole amount of the Performance Bond equal to about €mil. 28 and up to an amount of about €mil. 200 as regards the Advance Bank Guarantees, as only about €mil. 50 of the guarantees cannot be enforced (corresponding to the reduction that, according to the contract, was to be made from the Advance Bank Guarantees after the customer accepted three of the helicopters).
As to the portion of the delivery already made (3 helicopters already delivered, plus spare parts and support), which is only partially covered by the advances received and not subject to the enforceability of the guarantees, the recoverability of the net assets recognised in the Group’s financial statements (€mil. 110), as well as the recognition of any compensation to be paid or received, are dependent upon the outcome of the proceedings underway.