Wednesday, May 15, 2019
By NEIL HARTNELL
Tribune Business Editor
Baha Mar’s original developer yesterday dismissed the $150m counter-claim launched by the project’s contractor as another episode in its “long history of misrepresentations”.
Sarkis Izmirlian’s, pictured, BML Properties vehicle, responding to the long-awaited defence filed by China Construction America (CCA) and its affiliates, said in an e-mailed response to Tribune Business’ inquiries: “CCA has a long history of misrepresentations regarding Baha Mar. This is merely more of the same.”
The statement came after this newspaper revealed that CCA is claiming damages for alleged “shareholder oppression” by Mr Izmirlian and BML Properties that wiped out its entire $150m investment in the $4.2bn mega resort development.
This element of CCA’s counter-claim is likely to raise eyebrows, not least because it is based on the Bahamian Companies Act in an action that is before the New York State Supreme Court. And many observers will wonder how CCA can claim it was oppressed given that its failure to complete Baha Mar on budget, and on time, was a key element that led to the project’s failure.
While it could be argued that CCA was the author of its own misfortune, the Chinese state-owned contractor will have been more than adequately compensated for the “wipe out” of its $150m Baha Mar investment in any event.
Besides being reimbursed for the sums said to be owed to it by Baha Mar at the time of the Chapter 11 filing, it was also the recipient of a $600-$700m contract to complete the mega resort once Mr Izmirlian had been removed from the project.
The two other strands to CCA’s counter-claim are allegations that Mr Izmirlian breached their investors’ agreement contract, and not deal fairly and in “good faith” as a result of the Chapter 11 bankruptcy filing that was designed to save his and his family’s investment in the project.
CCA’s response to the $2.25bn fraud and breach of contract lawsuit against it, which was filed late on Monday night, effectively attempts to throw the original developer’s allegations back at him by pinning the blame for Baha Mar’s failure on Mr Izmirlian and his team.
Besides retreating to its long-cited argument that the 5,614 construction change directives (CCDs) issued by Baha Mar were responsible for the building delays, CCA also claimed that $100m of the $2.45bn construction loan from China Export-Import Bank was spent on “unbudgeted soft costs”.
“Notwithstanding the constant design changes and CCDs, CCA Bahamas saved the project $200m-$300m in hard costs and stayed well under its budget,” the Chinese state-owned contractor claimed via allegations that are directly contradicted by Mr Izmirlian.
CCA also took issue with Baha Mar’s hiring of Mace International as co-construction manager, alleging that the latter enabled the developer to issue ‘Non-Conformance Reports’ against it so that due payments could be withheld.
“Mace deliberately interfered with and obstructed CCA Bahamas’ work,” the Chinese contractor claimed. “For example, Mace fed information to Baha Mar so that Baha Mar could issue so-called non-conformance reports (NCRs) against CCA Bahamas.....
“When an NCR is issued, the developer may withhold, or cause to be withheld, payment to the construction manager. When properly applied, NCRs allow a developer to avoid paying for non-conforming work. With the help of Mace, however, BML Properties caused Baha Mar to grossly abuse its ability to issue NCRs in an attempt to improperly withhold money from CCA Bahamas.”
CCA complained that NCRs were issued for “minor deficiencies”, or work that matched design drawings or was not actually complete, resulting in “significant delays in construction”.