The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

Baha Mar’s main contractor is asserting it went just 3 percent over-budget in completing the mega resort as it makes a last-ditch bid to slash Sarkis Izmirlian’s damages claim by $830m.

China Construction America (CCA) and its Bahamian affiliates, in legal filings with the New York State Supreme Court last week, claimed cost overruns only totalled $68m compared to the initial $1.98bn construction budget as it sought a court order blocking Baha Mar’s original developer from recovering the $830m in equity capital it contributed to the development.

The Chinese state-owned contractor, which has hired new US attorneys after a series of legal reversals in its six-and-a-half year court battle with Mr Izmirlian, is also bidding to exclude any costs incurred by Baha Mar in the run-up to the $4.2bn mega resort’s failed March 27, 2015, opening from the damages it may have to pay. It has made its move less than two months before the trial’s August 1, 2024, start.

Referring to Mr Izmirlian’s investment vehicle, CCA and its attorneys are asserting that “the scope of BML Properties’ claims has narrowed significantly over the course of this case” from covering the entirety of the project’s development to the five-month run-up to the failed opening between November 2014 and March 2015. As a result, recovering the $830m “is from the wrong time period - it’s five years out-of-date.

And they also pointed out that the New York State Appeals Court, in an April 25, 2024, ruling determined that Mr Izmirlian and BML Properties “may not pursue lost profit damages” because this is barred by the investors’ agreement both sides struck over the project.

But, in raising these legal points, CCA is also asserting that Baha Mar’s construction completion only cost $68m more than the $1.998bn said to have been spent at March 9, 2015, just prior to the project’s missed opening target. It was repeatedly reported that completing the resort campus, in the aftermath of Mr Izmirlian’s removal, would cost a further $700m and $800m.

“On June 29, 2015, in the midst of negotiations for more financing and without contractually-required notice to and consent by China State Construction and Engineering Corporation (Bahamas), BML Properties caused Baha Mar and other affiliated entities to file for Chapter 11 bankruptcy in the District of Delaware,” CCA recalled.

“The Delaware Bankruptcy Court transferred the proceedings to The Bahamas as a matter of international comity. In 2016, following extensive negotiations, the appointment of a receiver and close court monitoring, the Bahamian Supreme Court eventually ordered Baha Mar’s dissolution.

“With the approval, and under the supervision of the Bahamian court, CCA Bahamas was retained to complete construction of the project, and did so at only $68m over the initial $1.98bn budget for the project despite undertaking significant additional work to remediate hurricane damage [likely Hurricane Matthew] and repay Baha Mar’s debts.”

China State Construction and Engineering Corporation (Bahamas) was the CCA affiliate that partnered with Mr Izmirlian as an investor in Baha Mar, holding $150m of non-voting preference shares. CCA is arguing that the value of Mr Izmirlian’s lost $830m in equity has no connection to his $2.25bn fraud and breach of contract claim as it was made years before the project’s failure in 2010.

“The value of the partial opening by March 27, 2015, a date set forth in the November 2014 meeting minutes, has no connection to the lost value of plaintiff’s 2010 investment in Baha Mar,” CCA and its attorneys are alleging.

“CCA Bahamas ultimately completed construction only $68m (or approximately 3 percent) over the initial budget. This amount, which was not paid by BML Properties, included additional remediation work for damage from a major hurricane and nearly $200m paid to sub-contractors and vendors directly engaged by Baha Mar.” That, though, still seemingly leaves several hundred million unaccounted for.

CCA appears to be basing its calculations on a March 9, 2015, report from Rider Levett Bucknall, the Baha Mar project monitors for Citicorp International, which was acting as the conduit for the financing provided by the China Export-Import Bank. At that date, some $1.998bn in construction-related expenses had been signed-off by all parties.

The Chinese contractor’s legal filings asserted that the equity contribution made by Mr Izmirlian and his family consisted of $745m “in ‘land, other tangible and intangible assets, plus $85m in cash, for a total $845m when they parties closed their deal on January 31, 2011. That $830m was subsequently increased by a further $15m injected to cover Baha Mar’s “equity shortfall” for a total $845m.

“Plaintiff’s damages expert witness, David Bones, submitted a 31-page expert report, which included an entirely conclusory, single-page assertion that BML Properties’ “out-of-pocket” damages are $845m,” CCA and its attorneys alleged.

“Mr Bones’ statement was based exclusively on the deemed value of BML Properties’ $830m contribution to Baha Mar in 2010, plus its $15m additional equity contribution to Baha Mar in 2015. With the exception of his one-page conclusion, Mr Bones devoted his entire report to a purported estimation of BML Properties’ lost profits damages.

“But, on April 25, 2024, the appellate division, issued an opinion holding that BML Properties may not pursue lost profits damages, including because the investor agreement is explicit in barring consequential damages. As a result, plaintiff may not present evidence or argument regarding lost profits damages at trial.”

CCA also argued that the “alleged failure” by the China State Construction and Engineering Corporation (Bahamas) Board representative to act in Baha Mar’s best interest in the four months leading up to the project’s missed opening “did not directly or immediately trigger the loss of equity value that plaintiff seeks to characterise as ‘out-of-pocket’ damages.

“Rather, it was the decision in 2016 of the entirely neutral Bahamian Supreme Court to wind up Baha Mar, thereby extinguishing both BML Properties and China State Construction and Engineering Corporation (Bahamas) equity, that ultimately resulted in the claimed losses, which are quintessentially consequential....

“Accordingly, at trial, plaintiff should not be permitted to present evidence or argument characterizing the $830m it exchanged for equity in Baha Mar in 2010, five years before the alleged breach it claims caused the loss of that equity’s value, as the measure of its damages.”