ANNUAL REPORT 2004–05 - V/Line

NOTE 22 CONTINGENT LIABILITIES AND CONTINGENT ASSETSAs a consequence of the Franchise Agreement, the Company has entered into a Deed of Amendment of Charge. All primary franchise assets will besubject to the fixed charge and all other assets to a floating charge in favour of the Director of Public Transport. The maximum prospective liabilitysecured by the Deed of Charge is one billion dollars.V/Line Passenger Pty Ltd has entered into an agreement for the supply and manufacture of new rolling stock. The agreement provides that the supplierprocure the issue of a Lessee's Refund Amount Letter of Credit (“LRLC”). The LRLC is currently with Dresdner Bank AG with a face value of $6.08million.V/Line has been notified of potential claims from Bombardier Transportation Pty Ltd (Bombardier) arising from delays to the testing and commissioning ofnew rolling stock. Bombardier has advised that it may seek to hold V/Line liable for costs of any delay. No legal proceedings are currently underway. Thelegal costs associated with resolution of this matter are estimated to be no more than $100,000.On January 25, 2003 bushfires occurred at or near Gisborne and Woodend in the Macedon Ranges. V/Line, along with a large range of other parties isan interested party in a coronial inquest due for hearing in November 2005. The legal costs associated with this inquiry are estimated to be no more than$150,000.V/Line has Rolling Stock Manufacture and Supply Agreements (the Agreements) with Bombardier for the provision of a number of new rolling stock units.Several units were delivered by Bombardier after the due dates as specified in the Agreements. Under the Franchise Agreement between the Director ofPublic Transport (the Director) and V/Line there is provision for the Director to, on a discretionary basis, apply liquidated damages in the event that unitsof rolling stock are not delivered by the due dates. Accordingly V/Line has recorded a contingent liability which has been estimated at $1.2 million.Under the Agreements there is provision that, in the event that liquidated damages are levied on V/Line by the Director pursuant to the FranchiseAgreement and, to the extent the cause of the late delivery of units is as a result of the breach of Agreements by Bombardier, then Bombardier is liable topay to V/Line an amount equal to the amount of liquidated damages payable by V/Line to the Director. Accordingly V/Line has recorded a contingentasset at balance date which has been estimated at $1.2 million.Prior to 30 June 2005 there had been a number of incidents involving rolling stock and motor vehicles at level crossings throughout Victoria. In all suchincidents the motor vehicle had been impacted by V/Line rolling stock and the motor vehicle was legally at fault for failing to observe either signals orsignage giving trains a right of way. As a result of these incidents damage has been sustained to V/Line rolling stock necessitating repairs as well as otheroperational costs incurred from the incidents in question. V/Line is pursuing the owners of the vehicles in question from these incidents (either in personor through their insurers) for the costs to V/Line of the repairs and other expenses incurred. On the basis of these anticipated potential recoveries anamount of $400,000 is reported as a contingent asset.On the 13 July 2005, V/Line's Chief Executive Officer wrote to the Director of Public Transport in relation to the significantly increased occupational healthand safety obligations on V/Line, and on its subsidiary company Victorian Rail Heritage Operations Pty Ltd, arising from the provisions of theOccupational Health and Safety Act 2004. Any liability that may arise in relation to these increased occupational health and safety obligations cannot bereliably quantified at this time.CONSOLIDATEDPARENT2005 $’000 2004 $’000 2005 $’000 2004 $’00012 MONTHS 11.5 MONTHS 12 MONTHS 11.5 MONTHSNOTE 23COMMITMENTS FOR EXPENDITUREContractual commitmentsCommitments for minimum contractual payments in relation to non-cancellableoperating commitments are payable as follows:Within one year 26,833 49,514 - -Later than one year but not later than 5 years 3,483 303,428 - -Later than 5 years 1,784 383,797 - -32,100 736,739 - -On June 28 2005 the Minister of Transport signed an allocation statement which transferred operating lease responsibility of the VLocity rolling stock toRolling Stock (Victoria - VL) Pty Ltd. These lease payments have therefore been excluded from the Contractual Commitments note as at 30 June 2005.64| V/LINE ANNUAL REPORT 2004-05