GO was caught completely by surprise by a court judgment ordering it to set up a pension fund, costing the telecommunications and internet firm €11.8 million, the company said yesterday.

The provision of €11.8 million resulted in the telecoms provider registering its first loss.

Despite being aware of the potential implications of the case for 33 years, GO chairman Sonny Portelli said a whole succession of management boards that considered the case "decided there was no need to make provisions."

On July 7, the Court of Appeal ruled that GO was to set up a pension scheme effective from January 1, 1975 for employees that Telemalta Corporation had inherited from Cable and Wireless. Go is the successor in title to Telemalta Corporation.

The case goes back to 1975. Initiated by a small number of employees, the case dealt with the collective agreement that was signed between Telemalta, the government and the General Workers' Union.

Mr Portelli quoted a former Telemalta deputy chairman who had testified in the case, that no provision for any pension scheme was made because "the House of Representatives never approved a pension scheme for Telemalta employees at the time."

For such a pension scheme to be approved, Mr Portelli said, it required the approval of Parliament, as "no expenditure shall be made or incurred by Telemalta that has not been approved by the House of Representatives," he said, quoting Act 26 of 1975.

Mr Portelli explained how since then, subsequent boards that monitored the court case received legal advice which never led them to believe there was any doubt as to the outcome.

There was no legal precedent that could have led one to believe the ruling could have turned out as it did.

When Maltacom was undergoing privatisation in 1998, despite the case appearing several times throughout the memorandum, the board then did not feel the need of a provision for the case either, the only provision in place being one of €1.3 million, intended for the original 35 employees.

Originally, the First Hall of the Civil Court ruled that only 35 ex-employees were entitled to their pension, namely those who retired before October 1, 1992.

The reasoning of the court was that once a new collective agreement was signed covering the period October 1, 1992, to December 31, 1995, the original collective agreement was cancelled out by novation, meaning in practice that those employees still in service were no longer entitled to the agreed pension under the previous agreement.

The Court of Appeal overturned the ruling, maintaining that the subsequent collective agreement did not create any novation with respect to the original agreement and that the old obligations were not extinguished.

The Court of Appeal ruled that those employees who were still in service after October 1, 1992 were entitled to their pension.