By NEIL HARTNELL
Tribune Business Editor
BAHA Mar's original developer yesterday accused the project's main contractor of misusing a disputed $54 million payment to finance its British Colonial Hilton acquisition.
Sarkis Izmirlian, in a $2.25 billion damages claim against China Construction America (CCA) and its Bahamian affiliates, alleged that the contractor used funds intended to "accelerate" its work at Baha Mar to instead fund the purchase of its downtown Nassau property.
Mr Izmirlian and his BML Properties vehicle are claiming that the misuse of the $54 million, which was to cover construction 'change orders' that the developer believed cost "significantly less", amount to "yet another act of fraud" perpetrated against it.
They are also alleging that CCA's chief executive admitted in March 2015 that the $54 million "advance" was not used to pay sums owed to sun-contractors and workers, as the Chinese state-owned firm had originally stated, but to pay 'overtime'.
Arguing that the latter statement was "false (and concealing)", Mr Izmirlian's action alleged: "BML Properties relied on CCA to be truthful regarding its last hope to open in the 2014-2015 season, namely an agreement reached in November 2014 to accelerate CCA's work in return for an additional $54 which, unbeknownst to BML Properties, CCA never intended to perform and knew when it signed that it could not and would not perform.
"There is evidence that [the] $54 million advance paid in November 2014 to CCA Bahamas was actually diverted by CCA to its own coffers to fund the purchase of the neighbouring Hilton Hotel in Nassau, Bahamas.
"The chronology is telling: (i) CCA's intended purchase of the Hilton was announced in October 2014; (ii) CCA Bahamas forced Baha Mar to pay an advance of $54 million for disputed change orders (believed to be worth significantly less and to be used, CCA said, to pay for subcontractors and labor that allegedly had not been paid) by way of a special payment request submitted in November 2014 to China Export-Import Bank."
Mr Izmirlian alleged that CCA "fraudulently extorted" the $54 million because it "knew the amounts being paid to it were unearned and undeserved, and which completion date was fraudulent since CCA knew the date was unachievable because it did not have the resources to complete by that date.
"CCA closed on the Hilton acquisition for the reported sum of $60 million, also proving that CCA never intended to pay the $54 million to 'sub-contractors and labour that had not been paid" and thus committing yet another act of fraud," Baha Mar's original developer further claimed.
"In March 2015, CCA's chief executive admitted that CCA had not used the $54 million advance to pay back owed subcontractors and labor but rather - he said - CCA had paid it out for 'overtime'.
"However, that in turn was a false (and concealing) statement because CCA did not employ 'overtime' on the project after the advance was paid, and missed the March 27, 2015, promised (but late) delivery of the project (that such 'overtime' would have helped achieve).
"Essentially, CCA had converted this $54 million to a purpose unhinged from its promises in the November 2014 meeting minutes, and otherwise wholly improper, which CCA knew would and did imperil the March 27, 2015 opening."
Mr Izmirlian and BML Properties are also alleging that the Chinese state-owned contractor kept them 'in the dark' over their negotiations to buy the British Colonial Hilton, then diverted machinery, materials and manpower from the Cable Beach project site to its new $200 million The Pointe project adjacent to the existing resort.
Their lawsuit, filed in the New York State Supreme Court, alleged that CCA "diverted" its top managers - Tiger Wu, Daniel Lu and David Wang - to work on the Pointe project and another development in Panama from late 2014 onwards.
Besides "violating" the terms of CCA's master construction contract (MCC) with Baha Mar, the legal documents allege this occurred in the critical run-up to the project's two missed opening deadlines and when the contractor's Bahamas-based executive ranks "were already thin to non-existent".
"At the December 5, 2014, Baha Mar Board meeting, upon questioning by members of the Board as to whether both were fully dedicated to the project, whether they were on-site full time, and whether Mr Wu was involved in the Hilton project, both Mr Wu and Mr Wang denied that their time or efforts would be diverted to, or that they were involved in, or that they would in any way would be responsible for, the redevelopment work CCA planned at the Hilton in Nassau that CCA had just purchased at the end of October 2014," Mr Izmirlian and BML Properties alleged, "and that they were fully committed to the project and achieving the opening date.
"This was critical, as well, under the November 2014 meeting minutes, under which CCA received a $54 million advance on disputed 'change orders' and, in exchange, promised an increased workforce, refocused and increased efforts of senior management, and accelerated work to reach a March 27, 2015 opening."
The lawsuit continued: "Both Mr Wu and Mr Wang knew that those statements were false and misleading, but fully intended the Board and BML Properties to rely on them.
"Contrary to their statements, but unknown to BML Properties at that time, Mr Wang was already heavily involved in the Hilton project and the Panama project, Mr Wu was involved in the Panama project as well, and not only did they and CCA fail to disclose such, they also knew that a substantial amount of their time would be required on those projects while Baha Mar was still underway but failed to disclose that fact as well."
Mr Izmirlian said Baha Mar, distrusting the two CCA executives, hired consultants following the December 5, 2014, Board meeting to assess just how distracted the Chinese contractor had become by its downtown Nassau acquisition.
"In December 2014, unknown to BML Properties until August 2015, CCA closed on the purchase of the Hilton for $60 million cash, a mere $6 million more than the $54 million advance that CCA had demanded and received just a few weeks earlier," Baha Mar's original developer claimed.
Disputing the contractor's claim that the $54 million went to pay overtime, given that its workforce engaged in subsequent "walk-offs and staged work slowdowns", Mr Izmirlian suggested that CCA's demands were linked to a "cash need" to finance the British Colonial Hilton's purchase.
"BML Properties learned in January and February 2015 that because of the needs of the Hilton development, CCA was in fact not only diverting much-needed manpower and executive attention but was also diverting physical assets that were bought and paid for under the [Baha Mar] General Conditions Work Package," the original Baha Mar developer alleged.
"In particular, as to furnishings in use on the project site for staff and consultants, many of these items were removed by CCA from the project before substantial completion and sent to CCA's Hilton project in Nassau. The same is true regarding computer work stations, including software - many of these items were removed by CCA from the project before substantial completion, and to Baha Mar Ltd's information and belief were delivered by CCA to CCA's Hilton project in Nassau. CCA diverted heavy equipment as well.
"By March 2015, long before CCA expected (undisclosed to BML Properties) to be finished at the project, CCA had ordered its sub-contractor responsible for construction fencing to move all eight foot high fencing (hundreds of yards of it) to the Hilton development.........
"In these and numerous other ways, CCA improperly diverted the time and resources of its senior staff, and diverted equipment and 'general conditions' still needed for the project from the project and to CCA's competitive project at the Hilton, and misrepresented its present plans to do so to BML Properties and Baha Mar."
Mr Izmirlian and BML Properties pointed out that just 11 days before Baha Mar filed for Chapter 11 bankruptcy protection, and at a time when the $4.2 billion development was stalled and mired in dispute, the former Christie administration signed the Heads of Agreement for The Pointe with CCA.
This allowed the contractor to move men, materials and equipment to The Pointe, even though it was still contracted to complete Baha Mar, and Mr Izmirlian said media reports of this suggested "collusion" between the then-government and CCA.