The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

Baha Mar’s financial crisis would have been “averted” if its main contractor had properly used $54m to pay the project’s sub-contractors rather than fund the British Colonial’s purchase, a US judge has ruled.

Justice Andrew Borrok, in a verdict unveiled by the New York State Supreme Court on Friday, branded as “simply incredible” assertions by Tiger Wu, China Construction America’s (CCA) executive vice-president, that the sum required to acquire the downtown Nassau resort was identical to what the company had demanded from Sarkis Izmirlian just weeks before in November 2014.

The Chinese state-owned company, which is controlled by the Beijing government, said the $54m was needed to both compensate its sub-contractors and cover the costs of construction changes. But Judge Borrok described this as an “absolute sham and shakedown” designed to “induce” Baha Mar’s original developer and his BML Properties vehicle to part with this sum while CCA had other plans for its use.

The contractor and its executives, both in written evidence and during August’s two-week trial over Mr Izmirlian’s fraud and breach of contract claim, repeatedly testified that the $54m was used for the purposes stated to the developer. However, the judge simply branded this as “false”.

“Indeed, at trial, Baha Mar established by clear and convincing evidence that the meeting was an absolute sham and shakedown of Mr Izmirlian designed to induce Baha Mar to release $54m of disputed change order money for use to purchase the Hilton rather than to pay sub-contractors or to otherwise advance the project, and that CCA Bahamas had no plan to achieve substantial completion by March 27, 2015 when it promised to do so,” Judge Borrok determined.

The November 2014 meeting in Beijing, which was also attended by executives from the China Export-Import Bank, another entity owned by the Beijing government that provided the $2.45bn debt financing for Baha Mar, had been called to get the Cable Beach resort’s construction back on track and resolve the growing differences between Mr Izmirlian and CCA.

However, one month prior on October 21, 2014, CCA’s Bahamas affiliate had signed a sales agreement to acquire the British Colonial resort “unbeknownst” to Mr Izmirlian. The deal, which ultimately led to The Pointe’s development on adjacent land at a cost of $200m, required the Chinese contractor to pay a $3m deposit with a further $54m due at closing.

“The November meeting minute, signed just some three to four weeks after CCA Bahamas signed the contract of sale for the [British Colonial], memorialise Baha Mar’s agreement, at CCA Bahamas urging, to place an emergency utilisation request from Baha Mar’s credit facility with China Export-Import Bank in the amount of approximately $54m in order to pay this sum to CCA Bahamas,” Judge Borrok wrote.

“Baha Mar made this utilisation request on November 21, 2014. CCA Bahamas represented to Baha Mar that this money was urgently needed to pay sub-contractors. The defendants’ representatives testified repeatedly at trial that this $54m was used to pay sub-contractors...... This was false.

“Initially, the court notes that this $54m figure was not the result of a simple addition of unpaid claims. Rather, it was a product of negotiation between the parties at the November 2014 Beijing Meeting , the purpose of which trial revealed was to secure exactly that sum necessary to close on the [British Colonial] hotel down the street.”

Judge Borrok said Mr Izmirlian’s forensic accounting witness, Paul Pocalyko, has “credibly demonstrated” using CCA’s bank statements and other documents “that at least a significant portion of Baha Mar’s $54m payment was used to purchase the [British Colonial] because, but for monies received from Baha Mar, CCA Bahamas’ bank account would have had insufficient funds after CCA Bahamas closed”.

The British Colonial’s sale closed on December 16, 2014, and the verdict added: “Mr Pocalyko also gave uncontradicted testimony that there was no evidence that CCA Bahamas used the entirety of this $54m payment to pay sub-contractors, as it had promised BML Properties it would do.

“In his expert report, and in his testimony, he also pointed to numerous examples of sub-contractors requesting payment from CCA Bahamas after CCA Bahamas received the $54m payment.” Judge Borrok also dismissed evidence supplied by CCA’s forensic accountant, noting that he had failed to verify the payments his client claimed to have made to the project’s sub-contractors.

And he found that Mr Wu also failed to consider whether he was in compliance with his obligation, as CCA’s representative on Baha Mar’s Board, to act in the project’s best interests at all times when focus and resources were simultaneously being directed to the downtown Nassau resort and its purchase.

“Mr Wu admitted in his testimony that, at the time he was working on the Hilton transaction, he simply ‘didn’t think about’ whether acquiring the Hilton was in the best interest of Baha Mar,” Judge Borrok added. “This, too, was a breach. He was both required to think about it and also to disclose the acquisition to the Board of Baha Mar. He did neither.

“Lastly, Mr Wu admitted that this $54m could have otherwise been used to pay sub-contractors on the project, which would have alleviated CCA Bahamas’ liquidity problem in March 2015 and likely averted what happened. BML Properties would not have lost its investment.

“Thus, the credible evidence demonstrates that CCA Bahamas requested and used the $54m payment from BML Properties in the November 2014 Beijing meeting to purchase the Hilton, rather than for its stated purpose to pay sub-contractors,” the judge continued.

“Put another way, Mr Wu’s assertion that the $54m payment request from Baha Mar and $54m payment for the Hilton represent merely an ‘exact coincidence’  is simply incredible.” Judge Borrok said the $54m was not the only asset that the Chinese state-owned contractor switched to the British Colonial purchase.

“CCA Bahamas diverted other project resources to support its acquisition. CCA Bahamas’ head scheduler, Mr Manabat, who served under the direction of Mr Wang and Mr Wu, was also diverted from his work on the project to produce at least one schedule for the [British Colonial] in February 2015,” the verdict added.

And, referring to CCA’s parent, Judge Borrok said: “China State Construction and Engineering Corporation Bahamas breached the best interest obligation both by diverting project funds to purchase the competing [British Colonial] property and by not using those funds for their intended use - to pay sub-contractors.

“Mr Wu, in failing to pay CCA Bahamas’ sub-contractors and permitting the $54m to be used to purchase the British Colonial, was in breach of the best interests obligation to Baha Mar.”