The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

A key Sarkis Izmirlian ally yesterday argued it was “odd” that Baha Mar’s contractor has chosen to appeal the New York court’s verdict as failure could leave it facing a near-$2bn damages payout.

Dionisio D’Aguilar, who sat on Baha Mar’s Board as a director prior to the original developer’s ousting, told Tribune Business he had been advised that Judge Andrew Borrok had advised China Construction America (CCA) to settle prior to issuing the ruling that awarded Mr Izmirlian a combined $1.6bn in principal and interest.

He added that, with interest now accruing at “a compounding” 9 percent annual rate on the judgment award, CCA could face having to pay an estimated $300m in additional interest on top of the $1.6bn if the appeal takes two years to hear and does not go in the contractor’s favour.

The Chinese state-owned contractor, though, confirmed on Tuesday that it had formally filed its “notice of appeal” with the New York State Supreme Court’s appellate division in a bid to overturn that ruling while warning that Judge Borrok’s verdict was “by no means the last word”.

However, Mr D’Aguilar yesterday sought to cast doubt on CCA’s prospects of success by arguing that Judge Borrok’s ruling was “definitive and convincing”, and thus unlikely to be overturned, while the contractor has also seen two previous appeals to the New York State Supreme Court’s appellate division largely rejected. It thus does not have a great track record in this area.

“I find it odd that CCA would risk an appeal for two reasons,” the former minister of tourism and aviation, who held the post after he left the Baha Mar Board, said. “Number one, the judge was extremely firm and definitive, and convincing and compelling, in his decision.

“Number two, interest is accruing at 9 percent per annum. The simple interest was accruing before the judgment, and now it’s beginning to compound. Nine percent on $1.6bn is $144m, say $150m. Let’s assume the appeal takes two years. You’re looking at almost $2bn by the time it’s said and done. 

“The judge us very well-known, very reputable. It seems very odd to me that they would decide to appeal this penalty given that it’s clipping up at 9 percent per annum. I’m advised that when the judge was talking to the parties before his ruling he strongly advised them to settle, which they did not do,” Mr D’Aguilar continued.

“They’ve [CCA] already gone to the appeal court twice and been shut down. They didn’t have a good experience with the appeal court. I don’t get why they would even consider this appeal. It makes sense to settle given that interest is clipping up, they’ve not had much success at the New York State Supreme Court’s appeal division.”

Mr D’Aguilar said one potential alternative was for CCA to declare bankruptcy - and seek the same Chapter 11 safeguards that it resisted for Mr Izmirlian - to protect itself from having to make such a big payout. “Another alternative that they have is to simply declare bankruptcy, but I cannot imagine a Chinese subsidiary of China State Construction and Engineering Corporation (CSCEC) would take that route,” he added.

“It would be hugely embarrassing for the parent company that, when found wrong, this is the route they decide to take to protect themselves from the risk. I’m sure it’s an option. I don’t know of any Chinese company ever doing that. Declaring bankruptcy to protect yourself from the award, no Chinese state-owned company has ever done that.”

CCA, in a statement confirming the appeal notice was filed, said the move is a “first step towards correcting” the New York State Supreme Court verdict that ruled it perpetrated “an absolute sham and shakedown” on Baha Mar’s original while providing “phony” completion dates that ultimately cost him his $845m investment in the project.

The Chinese state-owned contractor again defended “the consistently tireless construction work” it performed in a bid to achieve the busted March 27, 2015, completion date, while continuing to blame Mr Izmirlian, his BML Properties vehicle and executive team for mismanaging the development and its budget.

Mr Izmirlian, though, fired back in his own statement by branding as “absurd” CCA’s attempts to blame everyone but itself for the missed deadline. He also pointed out that CCA has already failed twice with appeals to the New York State Supreme Court’s appellate division relating to the case.

Nevertheless, CCA pledged to use all efforts to overturn Judge Andrew Borrok’s verdict as it argued that Mr Izmirlian went “behind the backs” of itself, the Christie administration and the China Export-Import Bank, the project’s financier, in seeking Chapter 11 bankruptcy protection in Delaware. It argued that this, and the legal battles, receivership and sales process that followed, delayed completion and hurt the Bahamian economy.

“The lower court’s decision is by no means the last word in this matter, and the action we have taken to begin the appeal process is the first step towards correcting a ruling that misapplies basic principles of New York law, misconstrues core facts, and completely overlooks the consistently tireless construction work done by CCA Bahamas that ultimately completed the Baha Mar resort,” CCA argued yesterday.

“Through its own irresponsible actions, BML Properties caused Baha Mar to over-borrow, overspend and overextend itself and then brought about its own losses by unilaterally and secretly putting the project into a wrongful bankruptcy behind the backs of its partners and the Bahamian Government.

“BML Properties’ ploy to keep control of the project, which was rejected by independent courts in the US and The Bahamas, harmed not only CCA Bahamas and CSCEC Bahamas, but also the Bahamian economy. We look forward to presenting our arguments to the appellate court.”

CSCEC Bahamas is China State Construction and Engineering Corporation, parent of CCA, which saw its $150m investment in Baha Mar via preference shares wiped out as a result of the original project’s liquidation, receivership and ultimate sale to current owner, Chow Tai Fook Enterprises (CTFE).

Judge Borrok, unveiling his findings just over two months after a 14-day trial in early August, 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.

His 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).