We found what the problem was:
Explain the server hardware setup:
COM1 was initially used by the UPS - a setup made so that the server can shutdown and restart from the UPS if the batteries run out after a power out or when the power comes back on. We did not have any additional serial ports.
We added an additional card which gave us two additional serial ports. The fax modem was connected to one of these new ports.
The problem it seems is that hylafax cannot be set to use ports higher than com4. It could not use the serial port on the card.
We then proceeded to swap the UPS and fax cables, thus having the fax modem connected via com1 and the UPS on the card ports.
We changed the port to use from ttyS4 to ttyS0...
and bob's your uncle all is working fine now.
I am not that technically inclined so i hope my basic explanation does help someone with a similar issue.
