The Tribune

By Neil Hartnell

Tribune Business Editor

nhartnell@tribunemedia.net

Baha Mar’s main contractor perpetrated “an absolute sham and shakedown” on Sarkis Izmirlian while providing “phony” completion dates that ultimately cost his family $845m and ousted them from the project.

Justice Andrew Borrok, in a scathing judgment released by the New York State Supreme Court on Friday, comprehensively demolished China Construction America’s (CCA) defence in awarding Baha Mar’s original developer the full value of his lost investment plus more than a decade’s worth of pre-judgment interest that will likely equal or exceed his $845m equity contribution to the development.

Unveiling his findings just over two months after a 14-day trial, the judge found that Mr Izmirlian’s fraud claim against CCA was “established beyond doubt” as the contractor “knowingly and falsely” promised it would meet the revised March 27, 2015, opening date for Baha Mar while concealing from the developer this was unlikely to be achieved.

Judge Borrok’s verdict identified six different contractual breaches by CCA, or violations of the investors’ agreement that governed the relationship between the two sides, while also citing what he described as “at least four instances of fraud” in awarding what Mr Izmirlian and his team said is a total $1.6bn in damages (the $845m plus interest).

The New York judge found that Baha Mar’s financial crisis, which resulted in the liquidity crunch sparking Mr Izmirlian’s ultimately unsuccessful Chapter 11 bankruptcy protection filing in Delaware, would have been avoided if CCA had spent the $54m it demanded in November 2014 on paying the project’s sub-contractors rather than acquiring downtown Nassau’s British Colonial resort (see other article on Page 1B).

And he concluded that CCA “ordered or condoned the slowing or stopping” of construction work at Baha Mar in the months leading up to the fatal missed opening in March 2015 to “further its commercial interests”, finding that one of its senior executives admitted to this before then-prime minster Perry Christie.

CCA also “actively worked to curry favour with the Bahamian government” behind Mr Izmirlian’s back, justice Borrok ruled, finding that “the record evidence establishes” it made $2.3m in payments to Notarc Management Group, an entity run by Leslie Bethel, to help “gain access” to his father, Sir Baltron Bethel, who was Mr Christie’s senior policy adviser and ‘point man’ in dealing with the Baha Mar dispute.

The ruling, and the manner in which it dismisses CCA’s case by finding for Mr Izmirlian and his BML Properties vehicle on all the key points, will again renew questions, scrutiny and doubts over the then-Christie administration’s handling of the Baha Mar dispute and why it so eagerly went all-in to support CCA and the Chinese position while opposing the original developer’s Chapter 11 protection bid.

Senior government ministers and officials from the time were quiet yesterday. Mr Christie did not respond to phone calls and messages seeking comment on Mr Izmirlian’s victory and the verdict’s findings, as did Allyson Maynard-Gibson KC, the then-attorney general, who also played a key role in the Government’s response. Sir Baltron was said to be out when Tribune Business called, and its message was not returned. 

Mr Izmirlian, though, in a statement hailing Justice Borrok’s verdict, slammed the former Christie administration while also appearing to take a thinly-veiled swipe at the Bahamian judicial system which oversaw his ousting, Baha Mar’s placement into receivership and its ultimate sale to current owner, Chow Tai Fook Enterprises (CTFE), which played no part in the events that impacted the former developer.

“I first conceived of Baha Mar more than 20 years ago, only to see it ripped out of my hands at the brink of opening by CCA,” Mr Izmirlian said. “We are grateful to have finally had our day in the US judicial system and thank Justice Borrok for his fair and thoughtful approach to the case. And we intend to proceed with the enforcement of the judgment in an equally thoughtful and prudent manner.”

The original developer, who filed his New York action against CCA and its affiliates almost seven years ago in December 2017, added: “The size of the verdict not only demonstrates the scale of the loss to the Izmirlian family but the extent of the wrongdoing by CCA.

“The decision once and for all sheds light on the true events of Baha Mar and how the actions of CCA, and the then-Bahamian government, ousted Sarkis Izmirlian and the Baha Mar management team to the detriment of The Bahamas.

“Justice Borrok ruled that CCA, the US business unit of China State Construction Engineering Corporation (CSCEC), China’s largest construction group, defrauded BML Properties as well as breached the parties’ investment agreement, directly resulting in the complete loss of BML Properties’ $845m investment in Baha Mar.”

CCA, in its own statement issued yesterday, blasted Judge Borrok’s verdict as “deeply flawed” on the basis that it ignored “indisputable evidence” Mr Izmirlian and Baha Mar’s troubles were of their own making. The Chinese state-owned contractor, which is controlled by the Beijing government, also pledged to appeal the judgment.

“The court’s decision is deeply flawed under well-settled principles of New York law, and we intend to appeal,” CCA said. “The decision ignores indisputable evidence that BML Properties overborrowed, overspent and overextended itself, and then drove the project into a wrongful, secret bankruptcy - without first seeking the contractually required consent of minority investor CSCEC Bahamas - to eliminate its obligations at the expense of other stakeholders, including not only CSCEC Bahamas and construction manager CCA Bahamas, which made tireless efforts to complete the Baha Mar project on time and within budget, but the Bahamian government, sub-contractors and workers.”

Much of Judge Borrok’s verdict focused on the investors’ agreement between Mr Izmirlian and BML Properties on one side, and CCA and its CSCEC parent on the other. The latter invested $150m in the Cable Beach mega resort via preference shares, and received one seat on Baha Mar’s Board in return with Mr Izmirlian’s representatives holding the other four seats.

“To avoid the effect of any potential conflict of interest between CSCEC Bahamas and BML Properties, the parties agreed in Section 4.7 of the Investors Agreement that the CSCEC Board member was required to ‘at all times act in the best interests’ of Baha Mar and that the CSCEC Bahamas Board member was also required to report to the Board of Baha Ma as to CSCEC Bahamas’ findings, concerns and recommendations,” he wrote.

However, Judge Borrok found that CCA and CSCEC Bahamas’ Board member routinely failed to meet the obligation to ‘at all times act’ in Baha Mar’s best interests. This problem became especially acute when Tiger Wu, CCA’s executive vice-president and its most senior Bahamas-based official, took over the seat from Ning Yuan, the contractor’s president.

“In perhaps one of the only moments of true candor, and as discussed below, Tiger Wu testified that when he became the CSCEC Bahamas Board Member he was not even aware of the best interests obligation,” Judge Borrok wrote, citing the whole trial exchange where the CCA executive made this admission under cross-examination from Mr Izmirlian’s attorneys.

“Appointing a CSCEC Bahamas Board member who did not even know that he was obligated to act in the best interests of Baha Mar was the first breach of the investors agreement,” Judge Borrok added. “This occurred in May 2014. The breach was further compounded by the fact that Mr Wu was hopelessly conflicted in this role.

“As discussed further below, he was the executive vice-president of CCA Bahamas, the construction manager and general contractor of the project, which was also responsible for the clandestine acquisition of the competing Hilton project.”

CCA argued that its obligation to act in Baha Mar’s best interests was “not a 24/7 commitment, and that [the investors’ agreement] contemplates that the defendants may wear different hats at different times such that they are not required to always act in the best interests of Baha Mar”. This, though, was rejected by the judge who found Mr Wu did not even know he had this responsibility.

Detailing the CCA’s response, when asked about resources being diverted away from Baha Mar’s construction to both the British Colonial’s purchase and projects in Panama, Judge Borrok wrote: “In sum, Mr Wu’s position was that when he acted in a different role with respect to another company... he could shed and no longer be bound by his best interests obligation.

“Put another way, his testimony amounts to the view that the best interests obligation, which he did not know about and did not consider, could be flipped on and off like a light switch by merely by saying that he was working on a different job. This is the very position this court and the appeal court already rejected.”

Turning to the consequences, Judge Borrok ruled: “Fraud was also established beyond doubt. CCA Bahamas knowingly and falsely told Baha Mar and its representatives that substantial completion would occur by March 27, 2015, and Mr Wu voted to authorise a Baha Mar Board resolution announcing such opening date to the public without any plan place to achieve it.”

He added that Mr Wu, “without telling” the Baha Mar Board, had in early 2015 persuaded his superiors to write to the CSCEC parent calling for the immediate dispatch to The Bahamas of an extra 450 workers as without the additional manpower the completion date would not be achieved causing “irreparable and catastrophic losses”.

Yet, at the same time, CCA was reassuring Tom Dunlap, Baha Mar’s president, that all was well with the construction effort. “I think there might be some confusion, all the overhead ceiling inspections, life safety inspections, TCO (temporary certificate of occupancy) pre-inspections are still going well following the schedule,” CCA told him.

“Aside from never telling Baha Mar of the urgent need for more workers, as he was obligated to do as the CSCEC Bahamas Board Member, these assurances by Mr Wu and his subordinates were false and designed to induce reliance by BML Properties and, in Daniel Liu’s words, ultimately ‘turn passive into active’ and cause a liquidity crisis pushing BML Properties out of its $845m investment,” Judge Borrok wrote.

“This is exactly what happened. Additionally, the defendants committed fraud by making the representation that they needed a $54m payment so that they could pay sub-contractors. The evidence adduced at trial established they did not need it or use it for that purpose. They wanted it and used it to buy a competing hotel development down the road.”