The developer who started the $4.2bn Baha Mar mega resort in the Bahamas has filed an extraordinary lawsuit against the Chinese contractor that built it, alleging "massive fraud" and "malicious acts of deceit" that drove the developer to bankruptcy in 2015.
Calling what happened "one of the largest construction-based frauds in this hemisphere", the 259-page complaint submitted to the Supreme Court of the State of New York on Boxing Day last week seeks more than $2.25bn in damages from state-owned China Construction America, known as CCA Construction Inc., a unit of the biggest contractor in the world, China State Construction Engineering Corp. (CSCEC), and related entities.
Billionaire’s son Sarkis Izmirlian started working on Baha Mar in 2005
The suit by developer Sarkis Izmirlian’s vehicle BML Properties Ltd., Baha Mar’s owner until it was manoeuvred off the scheme, alleges that CCA never intended to finish the project on time and budget but instead used it as a "beachhead" in the Americas and the Caribbean to train unqualified staff for other projects in the region.
It alleges that CCA sabotaged progress and actively sought to get rid of Mace International, the London-headquartered consultancy hired to supervise CCA.
Further, it claims CCA submitted sham billings totalling hundreds of millions of dollars.
Hailed as the biggest leisure development in Caribbean history, the hotels and casino complex failed to open as planned at the end of 2014, and in June 2015 Izmirlian filed for bankruptcy protection to avoid liquidation. The complaint alleges that the revenues lost in the delay led to the bankruptcy filing.
CCA’s "breaches of contract and malicious and intentional acts of deceit in utter disregard for the interests of BML Properties resulted in the severe liquidity crunch of March through June 2015," said the complaint, seen by GCR. This, said the complaint, also led to the loss of Izmirlian’s entire $845m equity stake in the project.
CCA has denied the allegations, calling the lawsuit "a vindictive and baseless attempt to redeem his own failures to properly manage his companies and their investment in the Baha Mar resort project".
"Mr. Izmirlian’s scattershot allegations are totally false and constitute a gross abuse of the American judicial system," said a CCA statement. "CCA Bahamas will vigorously defend these unfounded claims."
Act of revenge
The court battle will be unwelcome for giant CSCEC, as the Baha Mar project was seen as a chance to bolster its reputation in the West. Ranked by ENR as the world’s biggest contractor by revenue last year, most of CSCEC’s non-domestic work has been in Chinese state-financed projects in Africa and Asia.
Mr. Izmirlian’s scattershot allegations are totally false and constitute a gross abuse of the American judicial system– CCA statement
In an arrangement approved by the Chinese government, CSCEC got involved in Baha Mar formally in 2010, along with China’s Export Import Bank (Exim) which loaned the scheme $2.45bn, after Izmirlian’s original development partner bailed out in 2008 as the financial crisis broke. CSCEC appointed its US subsidiary CCA as contractor, and work began in 2011.
The Bahamian government, the Exim Bank and CSCEC opposed Izmirlian’s bankruptcy filing for creditor protection, and ownership of Baha Mar passed to the Exim Bank as the main creditor, which funded the completion of the resort.
A sale to the conglomerate Chow Tai Fook Enterprises was agreed in December 2016 and completed the following December in a process the lawsuit alleges was "secretive and suspect".
Happier times: Sealing the deal on 30 March, 2010: from left, Export-Import Bank of China vice president Li Jun, Sarkis Izmirlian, and China State Construction vice president Liu Jinzhang (Source: China Construction America)
The resort began a phased opening in April 2017 and is scheduled for a full opening in 2018.
The case will be seen as an act of revenge for Sarkis Izmirlian, son of billionaire Armenian peanut tycoon Dikran Izmirlian.
Since being ousted from the scheme he began in 2005, Sarkis has complained bitterly about the role of CCA, CSCEC, the Exim Bank and the Bahamian government, and has made repeated public offers to buy the resort back.
‘Rehash of the narrative’
While public hostilities over the project broke out between Izmirlian and CCA in early 2015, the complaint filed in New York paints a lurid picture of conflict and mistrust going back to the start of the project. It alleges that CCA executives were bridling at the scrutiny of Mace as early as 2012, by which point BML Properties had begun to suspect that CCA executives were "in over their collective heads, incapable of correcting their pattern of poor work and poor to non-existent reporting," the complaint said.
BML Properties further alleges that CCA caused Exim Bank to withhold millions as a way of pressuring the developer to "get rid" of Mace.
Among other sensational claims, BML Properties alleges evidence that CCA diverted $54m worth of disputed change order payments to its own coffers to fund the purchase of the neighbouring Hilton Hotel in Nassau.
The lawsuit alleges that the Exim Bank’s own project monitor, another British consultancy, Rider Levett Bucknall (RLB), had stated its opinion that CCA had failed to supply sufficient labour to the project as early as 2012.
In response to the lawsuit, the Bahamas’ Progressive Liberal Party (PLP), which was in power throughout the Baha Mar saga but lost the spring 2017 general election, accused Izmirlian of being "vindictive" and "seeking revenge to injure the Bahamas".
"When one looks at the words of the documents filed, this seems nothing more than a rehash of the narrative which Mr Izmirlian is determined to tell, although the actual facts bear no reality to his narrative," PLP Chairman Fred Mitchell said in a statement, reports Bahamian newspaper The Tribune.
- A backgrounder on the troubled project can be found here
Top image: Hailed as the biggest leisure development in Caribbean history, the Baha Mar hotels and casino complex failed to open as planned at the end of 2014