By NEIL HARTNELL
Tribune Business Editor
BAHA Mar's main contractor yesterday urged the New York courts to seal its terms for restarting construction, as it bids to push Sarkis Izmirlian's $2.25 billion fraud lawsuit into arbitration.
China Construction America (CCA) and its affiliates revealed in legal filings that they plan to issue a motion "to compel mediation and arbitration, and to stay" the litigation launched against them by Baha Mar's original developer on Boxing Day 2017.To support its case, CCA will produce a document referred to as 'Amendment 9', which allegedly sets out the terms it agreed with Baha Mar's financier, the China Export-Import Bank, and the latter's Perfect Luck vehicle, to restart construction work at Baha Mar and progress the project to completion.
The Chinese state-owned contractor is urging the New York State Supreme Court to seal this, and keep its contents 'confidential', on the grounds that their public release would "competitively harm" CCA.
Disclosing its strategy to counter Mr Izmirlian's allegations that it perpetrated "one of the largest construction-based frauds in this hemisphere", CCA's filings state: "Defendants are prepared to file a motion to compel mediation and arbitration and to stay this action.
"Plaintiff BML Properties Ltd [Mr Izmirlian's company] is required to mediate and arbitrate this dispute because its claims are based on, and relate to, a contract requiring the mediation and arbitration of disputes. In support of the defendants' forthcoming motion, defendants will submit one confidential document, Amendment No. 9, the disclosure of which would competitively harm defendants."
Explaining this 'harm', CCA added: "Amendment number nine, among other things, set conditions for the recommencement of CCA Bahamas' work on the project and amended the terms for completion, including terms related to price and scope.
"Amendment number nine also established new dispute resolution requirements, mandating first mediation and then arbitration of any disputes."
This was backed by an affidavit sworn by Pengfei Yu, CCA (Bahamas) commercial manager, which alleged that the agreement - for construction work worth $600-$700 million to complete Baha Mar - contained "extremely valuable and sensitive" information that would benefit the contractor's competitors.
Mr Yu, revealing that 'Amendment 9' was executed between CCA and Perfect Luck on August 30, 2016, alleged: "Amendment 9 contains competitively sensitive and confidential financial and business information, including the competitive pricing of CCA Bahamas' services and other matters relating to CCA Bahamas' processes in performing its services under the master construction contract (MCC).
"Amendment 9 contains information that is extremely sensitive and valuable to competitors of CCA Bahamas and its affiliates in the construction sector, and the disclosure of this confidential financial and business information would cause CCA Bahamas and its affiliates competitive harm."
To strengthen its case, CCA suggested that 'Amendment 9' was among the documents sealed by the Bahamian Supreme Court when it approved the transfer of Baha Mar's real estate and other assets from the Deloitte & Touche receivers to the China Export-Import Bank's Perfect Luck vehicle.
This was the first stage in Baha Mar's ultimate sale to present owner, Chow Tai Fook Enterprises (CTFE), but Mr Yu admitted in his affidavit that he did "not know for certain" whether 'Amendment 9' was one of the documents designated as confidential by Justice Ian Winder.
And CCA's legal filings also conceded that Justice Winder's rationale for 'sealing' all details of the Perfect Luck transfer was to 'preserve the integrity of the sales process, which remains a commercially live issue'. That 'process' has long since passed with the sale to CTFE.
"The court sealed information and documents because even though the matters at issue in that [Bahamas] case were important to the general public, 'it is nonetheless a commercial transaction of a largely private nature'," CCA's New York filings admitted.
"Defendants cannot represent with certainty whether 'Amendment 9' is one of the particular documents sealed by the Bahamian Supreme Court. However, 'Amendment 9' was only executed as part of the court's approval of the asset sale and transfer.
"Therefore, the Bahamian Supreme Court's decision to seal information relating to this transaction further supports the defendants' request to seal Amendment 9 in the present action."
CCA is arguing that Mr Izmirlian's lawsuit should be sent to arbitration, rather than heard by the New York court, on the basis that his BML Properties vehicle inherited obligations from Baha Mar's construction contract requiring that all disputes be dealt with in this manner.
It accused Mr Izmirlian of attempting to "circumvent unambiguous and mandatory mediation and arbitration requirements that apply to the construction contract at the heart of" his damages claim.
"Plaintiff is subject to those mediation and arbitration requirements because it alleges, among other things, that it is a third-party beneficiary of two agreements that form inseparable parts of that construction contract: a May 2013 memorandum of understanding (MOU) and signed minutes of a November 2014 meeting," CCA claimed.
"Defendants deny that plaintiff has any rights as a third-party beneficiary. But because plaintiff alleges that it is a third-party beneficiary, the doctrine of judicial estoppel binds plaintiff to that assertion, and plaintiff thus has subjected itself to the arbitration provisions, which are found in 'Amendment 9' to the construction contract. Those provisions require mediation and then arbitration under the rules of the International Chamber of Commerce (ICC) of any unresolved disputes.
"Because the construction contract dispute resolution clause mandates mediation and arbitration, defendants are prepared to file a motion to compel mediation and arbitration and to stay this action."
Mr Izmirlian's lawsuit alleges that CCA and its subsidiaries perpetrated a "massive" scheme of "cover up", "deceit", "outright sabotage" and lies to both conceal its failures and "extort more money than it earned".
The action, filed in the name of the developer's BML Properties vehicle, claims that the Chinese state-owned construction firm deliberately concealed its intention to use Baha Mar as "a massive training exercise" that ultimately doomed the project to failure.
Besides alleging that CCA's "real intent" was never to complete Baha Mar "on time and on budget", Mr Izmirlian and BML Properties also claim that it falsified and misrepresented reports on the mega resort's construction progress and the size of its workforce.
The claim, for breach of contract and fraud, alleges that the Chinese contractor earned "tens of millions, if not hundreds of millions" more than it should as a result of uncorrected defects plus inflated and "sham" billings.
And the lawsuit also details numerous alleged construction defects that, if not caught, would have compromised the health and safety of thousands of tourists, hotel guests and Baha Mar staff.