The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

Baha Mar yesterday made good on threats of legal action against its Chinese contractor partner, swiftly launching a $192 million damages claim in the UK High Court against its ultimate parent.

The move, which comes just a day after the $3.5 billion resort developer filed for Chapter 11 bankruptcy protection in the US, seeks to hold China State Construction Engineering accountable for the performance/completion guarantee it made on its subsidiary’s behalf.

Baha Mar, in legal filings obtained by Tribune Business, reiterated its central complaint that China Construction America’s “breach of its obligations” to complete the project on time, and to standard, had exposed it to multi-million dollar losses and damage.

As a result, Baha Mar is claiming a series of damages against China State Construction under the guarantee for its subsidiary’s “breaches of contract”.

These damages claims include:

• “At least” $50 million for the delay in completing the $3.5 billion resort.

• Some $30 million for “remediation work flowing from the breaches of contract perpetrated by China Construction America (Bahamas)

• A further $55 million for “failures to perform or provide professional construction management services”

• Another $45 million “as a result of failures to provide properly, or at all, the services required under the General Conditions Work Package”.

• An $8 million sum that reflects “the additional cost of architectural and consulting agreements flowing from the disruption to the project”

• And, finally, some $4 million that Baha Mar alleges is due for the late completion of the project’s convention centre.

All told, the damages Baha Mar is seeking total some $192 million. Outlining the background to its claim, it alleges that it hired China State Construction Engineering as construction manager for Baha Mar on March 9, 2009.

The Chinese company subsequently assigned all its rights under this agreement to its China Construction America subsidiary on December 8, 2010, but agreed to guarantee the latter’s performance on May 12, 2011.

Baha Mar alleged that under that agreement, China State Construction Engineering “guaranteed the ‘due and punctual performance’ of all of the obligations of China Construction America” under the construction contract.

The Beijing-based parent, the UK action alleges, is now liable to Baha Mar for its subsidiary’s “breach of obligations” under the terms of those two agreements.

The decision by Baha Mar and its principals, the Izmirlian family, to launch legal proceedings within 24 hours of the Chapter 11 filing provides further evidence that their relationship with their Chinese partners is now likely fractured beyond repair.

The contents of the UK High Court filing, and the nature of the affidavit sworn by Baha Mar president, Thomas Dunlap, will by themselves exacerbate the divide with both the Chinese contractors and the project’s main financier, the China Export-Import Bank, with whom they share common ownership in the form of the Beijing government.

Public criticism is alien to Chinese business entities, and history has shown they frequently ‘cold shoulder’, or freeze out, those such as the Izmirlians who commit this sin. This behaviour pattern has been evident with Baha Mar ever since it issued its late March 2015 press release criticising China Construction America for “shoddy workmanship”.

Robert Sands, Baha Mar’s senior vice-president for government and external affairs, yesterday expressed optimism that a resolution with its Chinese partners was still achievable.

“Baha Mar believes that a negotiated solution is possible among the existing parties to the resort project that would lead to its completion and successful opening,” he said via e-mail.

“To position ourselves to achieve that goal, and to allow time to explore a consensual solution, Baha Mar will continue for a period to operate and fund payroll.

“We will do our very best to continue to engage the resort’s lender to reach a consensual resolution that assures our ability to complete construction and open successfully. However, if we cannot reach a consensual resolution in the next few weeks, we will have to make some extremely difficult decisions that would include workforce reductions.”

Mr Sands also confirmed that the Bahamian Supreme Court would have to affirm orders made by the Delaware Bankruptcy Court in relation to Baha Mar’s Chapter 11 filing. The developer is expected to file an application seeking such Supreme Court approval imminently.

The Government and its taxes stand at the head of Baha Mar’s creditors’ queue, followed by the China Export-Import Bank, which is a ‘secured creditor’ due to the liens/mortgages it has over the Cable Beach resorts and associated real estate.

Several legal sources yesterday queried whether, as a secured creditor, the China Export-Import Bank could simply ‘side step’ the Delaware proceedings by foreclosing on its security or appointing its own receiver to take over Baha Mar’s assets.

However, a Bahamian accountant with experience of Chapter 11 proceedings in the US said it was impossible for the $2.45 billion Chinese debt financier to avoid going to Delaware.

They explained that Baha Mar, through its Monday filings, had given itself a ‘breathing space’ of three weeks to 30 days in which to develop a plan to reorganise its financial affairs - with or without the Chinese.

This plan has to be approved by the Delaware Bankruptcy Court, and can be opposed by Baha Mar’s creditors - chiefly, the Chinese.

The accountant confirmed that the Chinese, or other creditors, could either “challenge the plan and tweak it, or come up with their own”.

Much will be revealed in the next 30 days. Tribune Business was also able to confirm that China Export-Import Bank has instructed its attorneys in the Bahamas, US and elsewhere to explore all the legal ramifications and options with respect to Baha Mar’s Chapter 11 filing.

The bank is represented in the Bahamas by Lennox Paton.