Hyatt dispute: EPF-owned company losing millions in cost and interest payments

A part Employees’ Provident Fundowned company is racking up millions of rupees in costs and interest payments because it has failed to settle Euros 7.432 million (Rs 1.38 billion) in damages owed to an Italian company for the 2015 termination of an interior decoration contract for Grand Hyatt, Colombo.

In September last year, a Singapore-based arbitration tribunal ordered SinoLanka Hotels and Spa (Pvt) Ltd to pay Euros 7.432 million in damages to Interna Contract Spa. SinoLanka is a subsidiary of Canwill Holdings ( Pvt) Ltd of which the shareholders are Sri Lanka Insurance Corporation, Litro Gas Lanka Ltd and the EPF.

When SinoLanka did not comply, Interna petitioned the Colombo High Court to enforce the final award in terms of the Arbitration Act of Sri Lanka. The case is still being heard.

But in October 2017, SinoLanka filed application under the International Arbitration Act of Singapore seeking to set aside the final award. In a judgment last week, Judicial Commissioner Ang Cheng Hock dismissed SinoLanka’s applications on several grounds.

SinoLanka is now additionally saddled with costs of SGD 15,000 (Rs 1.75 million) that were granted in favour of Interna. There is also a payment of SGD 7,000 (Rs 817,000) for allowing a second application — SinoLanka withdrew its first application and lodged a second under a different sec- tion of the law—and additional disbursements which can be claimed by Interna.

Meanwhile, the final award of Euros 7,432,062.79 included 2% interest per annum from the date arbitration started, which is August 14, 2015, till the date of payment. Therefore, from the date of the award till July 6, 2018, when the Singapore proceedings were dismissed, interest accrued alone amounted to Euros 121,444.24 (Rs 22 million) and USD 7,418.08 (Rs 1.1 million). This is a total of Rs 23.84 million.

For each day of delay or non-payment of the awarded sum, the Sri Lanka Government accrues in interest of Rs. 85,144.71 out of public funds.

The dispute between Interna and Sinolanka is consequent to the termination of a contract for the interior works package of the Grand Hyatt Colombo. Interna Contract Spa is a subsidiary of the Interna Group, an Italian industrial concern specialising in interior work for hotels, cruise ships, boutiques, offices and high- end residential units.

Interna, by an expression of interest in June 2013, informed SinoLanka of its intention to participate in a tender for the supply of interior works for the Hyatt Regency, Colombo. After it completed the “mock up room” stage of the project, SinoLanka in July 2014 invited Interna to participate in the tender for “construction, supply, installation, completion and remedying defects of interior works package” for the Grand Hyat t , Colombo.

In September 2014, Interna submitted an offer. After a final round of negotiations in October that year, Inter na sent its final of fer to SinoLanka whose representatives visited its head office in Italy for a due diligence assessment. SinoLanka accepted Interna’s offer in December 2014 and the following month, the latter confirmed that it will proceed with execution of works as instructed.

The contract was signed on January 7, 2015 ( the day before the presidential election in Sri Lanka). Interna had already started work such as pursuing and finalising financial agreements to put on place bonds and lines of credit, insurance for the project, interviewing and employing additional personnel, preparing safety documentation, elaborating the preliminary work programme, reporting, researching and sampling architectural finishes.

But in March 2015, SinoLanka sought to “wrongfully terminate” the agreement, purportedly due to a breach of contract by Interna. Despite the Italian firm’s efforts to affirm the contract and demand performance thereof on several occasions, SinoLanka continued to “act in continuous repudiation of the contract”.

In a Request for Arbitration dated August 2015, Interna submitted the disputes that had arisen to be finally determined by arbitration in accordance with the relevant clause. The proceedings continued from August 2015 till May 2017, when the tribunal declared the proceedings closed.

The award was made on September 29, 2017. The tribunal ordered and directed SinoLanka damages amounting to Euros 7,432,062.79 with simple interest thereon at the rate of two percent per annum from August 14, 2015, to the date of full payment; and costs amounting to US$ 483,500 ( Rs 73.8 million) and Euros 516,597.17 ( Rs 92.8 million), both with simple interest at the rate of two percent per annum from the date of the award to the date of full payment.

Interna was represented by Counsel Avindra Rodrigo and Kasuni Jayaweera instructed by M/s FJ& G De Saram. Sinolanka is represented by Chandhaka Jayasundera PC and instructed by Continental Law Associates.