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Cca Slams 'Implausible' $2.25bn Sarkis Lawsuit

Baha Mar’s original developer Sarkis Izmirlian.

Baha Mar’s original developer Sarkis Izmirlian.

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

Baha Mar's main contractor yesterday slammed Sarkis Izmirlian's $2.25 billion fraud claim as "implausible", branding his action as groundless and having no basis in law.

China Construction America (CCA), in its long-awaited response to the fraud and "breach of contract" lawsuit by Baha Mar's original developer, argued that the claims Mr Izmirlian is seeking to assert were all "released" when the $4.2 billion project was taken out of receivership in late 2016.

The Chinese state-owned contractor, in legal filings with the New York State Supreme Court, cited numerous reasons why Mr Izmirlian's claim should be dismissed regardless of whether Judge Saliann Scarpula sent it to arbitration.

Relying on an affidavit supplied by Brian Moree QC, the senior McKinney, Bancroft & Hughes partner, CCA argued that Baha Mar's original developer "lacks standing" to bring a legal claim over the loss of his - and his family's - $830 million equity investment in the project.

Mr Moree argued that, under Bahamian law's "reflective loss rule", shareholders and the company they own are separate legal entities. As a result, Mr Izmirlian cannot assert a direct claim for loss relating to the value of his family's equity investment when this "reflects damages suffered by the company", meaning Baha Mar.

CCA, again drawing on Mr Moree's advice, also argued that Mr Izmirlian could not claim his action was a 'derivative claim' because he had never met the three Companies Act requirements to initiate such an action.

In particular, the contractor claimed that Baha Mar's original developer had never obtained permission from the Bahamian Supreme Court or Baha Mar liquidator (Bahamian accountant Ed Rahming) - as required under Bahamian law.

CCA's legal filings represent an "all in" effort to knock out Mr Izmirlian's lawsuit at the first hurdle, poking fun at his "claim to be a highly sophisticated real estate developer with more than two decades' of experience in the Bahamas".

Targeting the Lyford Cay resident's fraud claim, the Chinese state-owned contractor argued that Mr Izmirlian's 'hands on' involvement with the project meant it was impossible for him to claim he was 'misled' over its progress towards completion by CCA's alleged "misrepresentations".

"The fundamental but implausible premise of plaintiff's [Mr Izmirlian's] fraud claims is that plaintiff was misled for at least three years into believing that the project would be completed on time and on budget, until plaintiff allegedly realised in 2015 that it had been duped and was forced into insolvency," CCA alleged.

"The implausibility of this premise is revealed by the Investors Agreement, on which plaintiff relies, which provides that plaintiff was 'responsible for the day-to-day management of the company [Baha Mar] and its subsidiaries in the ordinary course of business, and all other decisions of the company and its subsidiaries'.

"The complaint confirms that plaintiff had access to complete information by virtue of its managerial role. It is replete with allegations that the plaintiff believed as early as 2012 that the statements giving rise to its fraud claims were false, or at a minimum was on inquiry notice as to their alleged falsity," CCA and its attorneys continued.

"In light of its access and alleged knowledge, plaintiff - which claims to be a highly-sophisticated real estate developer with more than two decades of experience in the Bahamas --cannot now claim ignorance for the better part of three years with respect to the subject matter of defendants' purported misrepresentations."

CCA then sought to cloak itself in the protection of Bahamian law, which underpinned most if its arguments for dismissing Mr Izmirlian's case. Besides asserting that the New York court had no jurisdiction over its Bahamian subsidiaries, the contractor also argued that all the events subject to the complaint occurred in this nation, which was the proper forum for resolving the dispute.

"A Bahamian court would be better suited to co-ordinate any litigation with Baha Mar's wind-up proceedings in the Bahamas, which would be necessary because plaintiff's claims have been released in connection with those proceedings," CCA alleged.

This refers to the deeds of novation and release, executed by CCA, the China Export-Import Bank's Perfect Luck vehicle, and Baha Mar's Deloitte & Touche receivers in September 2016, as part of efforts to extricate the project from receivership and sell it to current owner, Chow Tai Fook Enterprises (CTFE).

These arrangements waived, or released, all legal actions and claims previously asserted by Mr Izmirlian, when he controlled Baha Mar, against CCA. As a result, the latter is arguing that this 'release' bars the original developer and his BML Properties vehicle from reasserting the same claims in their New York lawsuit.

"It is inconceivable that the Bahamian liquidator or court would grant permission to pursue the claims here because those claims were released in connection with the Bahamian court's wind-up proceedings," CCA alleged.

"Specifically, the Asset SPV (Perfect Luck) to which the MCC (main construction contract) was novated executed a Deed of Release through which it released all claims against CCA Bahamas that arose out of, or in connection with, the MCC, with the exception of certain warranty claims.

"The scope of the Release is broad and includes 'all claims . . . in respect of the Main Construction Contract' against CCA Bahamas - the party to which the MCC was assigned in 2010, and the only defendant responsible for the construction of the project," the contractor added.

"It is implausible that the Bahamian wind-up court, or the parties to the Release, would risk the project's restructuring plan by allowing plaintiff to bring claims that belonged to Baha Mar against affiliates of CCA Bahamas."

CCA added that the Bahamian legal points identified by Mr Moree meant Mr Izmirlian has "no standing to bring his claims directly", while he had also failed to give 'reasonable notice' to Baha Mar's liquidator and the Supreme Court he would be launching the New York action - as required by the Companies Act.

"Plaintiff fails to allege that it has met these pre-suit requirements," CCA alleged. "Nor does plaintiff allege that it sought or received consent from the Bahamian liquidator of Baha Mar or the Bahamian court overseeing Baha Mar's wind-up proceedings to bring claims on its behalf, which is required under Bahamian law."

For good measure, CCA also claimed that the case would "impose a substantial burden" on the New York court given that many of the witnesses are located in the Bahamas. Jason McAnarney, CCA Bahamas vice-president of mechanical, engineering and plumbing, listed the involvement of numerous Bahamian companies in the project.

Apart from Reiss Engineering, the Ministry of Works inspectors, these included electrician Gojo Electric; Young's Plumbing; Global Tech for fire alarms; Propane Tech; Graphite Engineering and Integrated Building Services (IBS) as engineers of record; Island Site Development and Bahamas Hot Mix; Universal Security; and Brent Creary as 'architect of record'.

CCA, meanwhile, is demanding that the New York court order Mr Izmirlian's action into arbitration if it does not dismiss it, on the basis that it is "asserting rights and seeking remedies based on the" main construction contract - which mandates dispute resolution as a first step.

Comments

John 7 months, 2 weeks ago

This is where the case gets interesting and where American law or even international will prove differently from what was done in the Bahamian courts with Bah Mar. in the first instance it was China ExIm bank that brought the proceedings against Izmirlian and in a nutshell the claim was that ‘hey we loaned you money and you are in breech of the loan agreement and we are taking Bah Mar.’. In this instance it is Izmirlian bringing a claim against China Construction America. He is saying basically, ‘ You guys did not perform according to the terms of our agreement. Not only were you late and behind schedule, but some of your work was shoddy and caused cost overruns. This made it impossible for me to meet my obligations with the bank and consequently I lost the property. It was your fault and so you must compensate me and put me back in the financial position I was in before this all happened. The amount is $2.25 Billion. Pay up.’ And CCA’s response that this was all dealt with in the winding up procedures in The Bahamas court is weak and definitely not sufficient to dismiss the claim. Basically they are trying to hide behind the legal actions taken by the China Bank and the relief given to the bank by the courts. But this action is addresses activity before the court action taken by China bank. And so CCA must now it was not st fault, that it did not breech the terms of the construction agreement and that it did not cause Izmirlian to lose ownership of Bah Mar.

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Porcupine 7 months, 2 weeks ago

The bottom line is that The Bahamas has sold its soul to the Chinese. Don't blame the Chinese. Our lawyers would have sold it to the only bidder if they had to, to make a few dollars for themselves at the expense of this country. Foreign investors beware. Honest dealings are rare in this country, especially if the government is involved.

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John 7 months, 2 weeks ago

You cannot necessarily say the The Bahamas sold its soul to the Chinese and some crookedness went on. Even though China ExIm Bank and CCA were so tied in the contract with Izmirlian and Bah Mar they appeared to be the one and the same entity. In fact China bank explicitly wrote out Izmirlian’s and Bah Mar’s powers to terminate CCA ‘for any reason.’ But when the matter came before the courts, China Bank asked the courts to rule on Izmirilian’s breech with the bank and basically nothing else. If you have a loan with a bank and you default you can go in and give a ton of reasons. The fact is you still breached the terms of the loan and it is now up to the bank to determine how they deal with you. It was obvious the Chinese wanted Bah Mar and so they seized the opportunity to get rid of Izmirlian. So now Izmirlian must use the same precedent and ask the courts to deal specifically with the agreement between CCA and Bah Mar. To determine CCA breeches this agreement to the point it caused Izmirlian to default. Well the entire Bahamas knows the answer to that question as they sat and waited, patiently then impatiently for Bah Mar to open and only to have the opening date pushed back and back again for some two years as the resort was not complete. Then there were the screaming headlines and news reports of Sarkis Izmirlian crying out to the prime minister for help as he felt the Chinese were taking him to the cleaners (no, not New Oriental) and even trying to sabotage his project. And of course there’s PM’s Chridtie’s Infamous response that ‘the man gone crazy’ and was losing ‘he head.’ And of course there is evidence on the site with major floodings causing millions in damage to parts of the hote that were already completed, furnished and waiting to open. And there were reports of the ghost crews that went in at the dark of night and did lots of corrective work whilst Bah Mar was supposed to be sitting idle waiting for the disputes between China Bank, CCA andI Izmirlian to be resolved. $2.5 Billion is fair compensation considering how comfortable The Chinese have settled in at Bah Mar and made little or no adjustments to Izmirlian’s original plans. And one they have enjoyed a very lucrative first five months and have previewed the future potential of the property, they should offer to settle. Remember the pockets of CCA and China EXIM bank are still connected.

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concernedcitizen 7 months, 2 weeks ago

Basically PGC et all should of let the case be heard in Delaware .Our government at the time colluded w the Chinese to shaft an investor . I know of another large investor that got so spooked by this that although they smiled in pics w PGC etc ,they held off any real investment until after the election

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proudloudandfnm 7 months, 2 weeks ago

We ga see if its implausible. Yall sound scared...

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John 7 months, 2 weeks ago

And it appears Izmirlian is willing to take the short end of the stick and walk away. He could have asked to get Bah Mar back. But that would complicate things because it would then entangle both China Bank and the construction company and possibly even the Bahamas Government. Then the question would also arise as to the value of Bah Mar at the time it was seized as well as the cost to complete it. And to involve the government in the lawsuit would not only complicate things but it would put Izmirlian in a bad position with his status here. But to hit out at one party and with a specific amount makes the case less complicated and easier to prove. And the court may award compensation on top of the relief ($2.5 Billion) that may cause Izmirlian to come out with the whole hog . ($3.5. - $4 Billion).

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TheMadHatter 7 months, 2 weeks ago

Hope Sarkis can chase those crazy bald heads out of town. Maybe Trump will join in with him and together they can slap the stupid off EXIM Bank's face.

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Honolulu 4 months, 1 week ago

I've been following this story for some years now and it is TRAGIC! Sarkis who has resided in your country for years, decades, decided as anyone who is resident to any culture and can afford to start a business, did. He has been EVISCERATED! MAULED! SCAVENGED!

ONLY a reckless person of foreign birth...nationality would invest or attempt to do business in that belligerently corrupt country Bahamas. ABYSMAL!

A country of Piranhas! DIABOLICAL!

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by Honolulu

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