Criminality Exposed Colombo Hilton Hotel Construction Perversely `Covered-Up': Fraud on Sri Lanka Government Volume Ii

CRIMINALITY EXPOSED

COLOMBO HILTON HOTEL CONSTRUCTION

PERVERSELY

COVERED-UP

FRAUD ON SRI LANKA GOVERNMENT

Nihal Sri Ameresekere

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©2011 Nihal Sri Ameresekere. All rights reserved.

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First published by AuthorHouse 11/11/2011

ISBN: 978-1-4670-1100-6 (sc) ISBN: 978-1-4670-1101-3 (e)

Library of Congress Control Number: 2011919630

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Contents

1

CIVIL PROSECUTION OF FRAUD

2

HILTON INTERNATIONAL & JAPANESE ARCHITECTS

3

ATTEMPTS TO COVER-UP FRAUD

4

ATTEMPT TO ADOPT ACCOUNTS TO COVER-UP FRAUD

5

SPECIAL PRESIDENTIAL COMMISSION INQUIRY

6

INVESTIGATIONS BY CHARTERED ARCHITECTS

7

IRREFUTABLE EVIDENCE OF CRIMINALITY DISCLOSED

8

CRIMINAL INVESTIGATIONS-A DAMP SQUIB !

9

SECURITIES EXCHANGE COMMISSION & STOCK EXCHANGE COLLUDE TO COVER-UP

10

‘WHITEWASHING> BY CHARTERED ACCOUNTANTS’ INSTITUTE

PROFILE

DEDICATION

To my father Sirisena, who paved the way for me to acquire knowledge, my mother Clair, who ingrained righteous values in me, my wife Lilamani, who steadfastly supported espousing the cause of the public interest, my children, Dhananjana, Dheeshana and Sharvajana, who unflappably faced social trauma consequent to my public interest litigations, my dedicated and tireless staff, who loyally maintained confidentiality, persons known and unknown, who supported me and stood by me.

PUBLICATIONS BY THE AUTHOR

IMF, World Bank & ADB Agenda on Privatisation

Vol. 1: ‘Pillage ofthe Plantations’ in Sri Lanka

Vol. 2: ‘Dubious Deals’ in Sri Lanka-What a Paradox !

Vol. 3: Colombo Port Bunkering Privatisation

Annulled as Illegal & Fraudulent by Supreme Court

- with flawed Valuation by DFCC Bank,

involving John Keells Holdings, an UN Global Compact Co.

Vol. 4: Sri Lanka Insurance Privatisation

Annulled as Unlawful & Illegal by Supreme Court

- handled by PricewaterhouseCoopers & Ernst & Young, Chartered Accountants

Colombo Hilton Hotel Construction-Fraud on Sri Lanka Government

Vol. 1: Sri Lanka’s First Derivative Action in Law Vol. 2: Criminality Exposed, but perversely ‘Covered-up’! Vol. 3: Controversial Settlement

Vol. 4: Pressures & Obstructions to Exposure (Part of’Socio-Political Realities’ below)

Derivative / Hedging Deals

by Citibank, Standard Chartered Bank, Deutsche Bank,

with Sri Lanka Government’s Petroleum Corporation-Dubious & Illegal ?

Overseas Corporate Structures, which hide ‘Real Owners’

Foreign Business empire of a Sri Lankan Entrepreneur ?

United Nations Convention Against Corruption

to Combat Fraud & Corruption-a Cancerous Menace with mere Rhetoric subverts UN Convention

Transparency & Public Accountability

Fiscal Mismanagement & Lack of Public Accountability

Case Study-Sri Lanka, a Country under the purview ofIMF, World Bank, ADB

In Pursuit of Justice

Case Studies of several Legal Proceedings in the pursuit of Justice

Socio-Political Realities

(Includes Colombo Hilton Hotel Construction-Fraud on Sri Lanka Government Vol. 4 : Pressures & Obstructions to Exposure)

Message

Secretary General, International Association of Anti-Corruption Authorities (IAACA)

IAACA was established to promote and facilitate the implementation of the United Nations Convention Against Corruption (UNCAC). At its inauguration in Beijing in October 2006, the Inaugural Address was delivered by President Hu Jintao of the People’s Republic of China.

Upon the adoption of the UNCAC. then UN Secretary-General. Kofi Annan said-Corruption hurts the poor disproportionately by diverting funds intended for de\’elopment, undermining a government’s ability to provide basic services, feeding inequality and injustice, and discouraging foreign investment and aid. UNCAC was described by Mr. Antonio Maria Costa, then Executive Director. UNODC. Vienna, as-a true global response to the global challenge posed by corruption worldwide .

IAACA is pleased that one of its Members. Mr. Nihal Sri Ameresekere. in keeping with the objectives of IAACA. has taken a step to author and publish a series of Books, dealing with real case studies in combating the global cancerous menace of economic fraud and corruption, which threatens good governance and the well being of people.

The contents of this series of Books would, no doubt, be of material relevance and of educational value to anti-corruption authorities globally.

Yours sincerely,

Ye Feng

Secretary General of the International Association of Anti-Corruption Authorities

Vice President of the International Association of Prosecutors

International Director of Asia Crime Prevention Foundation

Member of the Prosecuting Committee of the Supreme People’s Procuratorate of the People’s

Republic of China

Tel: +86 10 6520 9885

Fax: +86 10 6811 5958

Mobile: +86 13581631826

E-mail: dryefeng@china.com

ADD:No.l47 BEIHEYAN STREET, DONGCHENG DISTRICT, BEIJING 100726, CHINA TEL: 0086-10-65209645 0086-10-65209625 FAX: 0086-10-65209625 WEBSITE: www.iaaca.org EMAIL: iaaca@spp.gov.cn

1612 K Street, NW ■ Suite 1100

Washington, DC, USA 20006

202-457-0034 ■ fax: 202-457-0059

Website: www.whistleblower.org

Review

In a series of books, Nihal Sri Ameresekere meticulously documents and analyzes the ways in which corrupt forces in Sri Lanka and abroad plundered the country’s resources through the 1990s and early 2000s. He argues persuasively that the policies adopted by the government of Sri Lanka during this period, at the behest of the International Monetary fund (IMF), the World Bank, and the Asian Development Bank, set the stage for widespread corruption and allowed an unprecedented illicit transfer of public wealth into privileged and private hands.

Like many countries around the world during this period, Sri Lanka adopted a development agenda based on privatization. The government arranged the outright sale of facilities at the port of Colombo, of the national insurance company, and of the country’s prized tea plantations. In addition, Sri Lankan ministries entered into supply contracts with private banks and construction agreements with foreign firms. These arrangements, sales and transfers, which uniformly favored the private sector were, according to the international financial institutions, the high road to increased productivity, growth and social equity.

It was not to be. Instead, through primary sources, Mr. Ameresekere’s research shows, Sri Lanka’s productive and revenue-producing enterprises were sold to insiders at fraudulently low prices through back-room deals in collaboration with officials at the highest levels of government. Corrupt or incompetent auditors took a cut and predatory domestic and foreign investors benefited handsomely.

As an advisor to the Minister of Finance of Sri Lanka, and Chairman for a short while of the Privatization Commission, Mr. Ameresekere had access to individuals and documents that demonstrate the pervasiveness of the corruption and theft that emptied the Sri Lankan Treasury. Using primary sources, he demonstrates that systemic corruption was no secret to government officials, foreign investors or aid institutions. At best, those responsible looked the other way and at worst they participated. Beneficiaries included foreign banks and construction firms, the largest corporate conglomerate in Sri Lanka and financial and political elites. All of this took place in a country exhausted and impoverished by a brutal and protracted civil war.

The series of books documents extensive public interest litigation before the Supreme Court of Sri Lanka, where Mr. Ameresekere, who is not an attorney, successfully represented the public. In addition to documenting fraudulent privatizations, he covers hedging / derivative deals by foreign banks, fiscal mis-management by the Treasury, and an international construction project that defrauded the government. These books also reveal how the World Bank has misdirected its lending to the Sri Lankan judiciary, which might have addressed the corruption issue more effectively. In total, the series is a comprehensive chronicle about combating economic crime, fraud and corruption in the private and public sectors, as now addressed by the UN Convention Against Corruption.

For readers who seek firsthand accounts of the ways in which international financial fraud takes place, these books are invaluable. For those who want to know what has really occurred over the last twenty years of development, these books are an important contribution, for schemes such as those described by Mr. Ameresekere were surely not confined to Sri Lanka. Clearly and comprehensively, Mr. Ameresekere shows how it was that a few well-placed people appropriated the wealth of a country while claiming to strengthen its institutions and promote growth. Moreover, He shows that to date, few have been held to account and that this impunity is in itself a crime.

Beatrice Edwards

International Program Director

Government Accountability Project

Washington, D.C.

‘politics without principles/

Education without character, Science

without humanity, and Commerce without morality/

are not only useless, but positively dangerous.’

Pugwash Conferences on Science and World Affairs

Nobel Peace Prize 1995

www.pugwash.org

THE PRICE OF FREEDOM IS ETERNAL VIGILANCE

The 1987 stock market crash followed by the 2001 collapse of Enron in the US, with the consequential dissolution of the accounting firm Arthur Andersen, marked the prelude. It was followed by the 2008 financial meltdown on Wall Street with the bankruptcy of Lehman Bros and the spectacular corruption of Madoff. Collectively these events marked the end of the ‘Washington Consensus’ which, from 1980-2008, placed great faith in free market policies in a sort of creed of ‘market fundamentalism. If this strategy of hard economic power needed the final nail in its coffin, that was provided by the international financial crisis which continues to engulf the world. As Ban Ki-moon has said, While recently we have heard much in this country about how problems on Wall Street are affecting innocent people on Main Street, we need to think more about those people around the world with no streets. Wall Street, Main Street, no street-the solutions devised must be for all." These solutions must embrace the principles of the UN Global Compact and the UN

includes countries from the Global South) call the Seoul Development Goals with a recognition of the need for state intervention and for the Millennium Development Goals of the UN to be achieved. However we have still to see how things evolve. Certainly what has been ignored so far is the impact of all this on the developing countries of the world because we are dazzled by the success of China, India. Brazil and the ASEAN tiger economies. But that success was not achieved solely through the unloading of the Washington Consensus on these countries through the accelerated process of globalization. Nor were they part of the recipe in the economic cookbooks of the World Bank and the IMF. The democratic, rule-based safety nets of transparency, regulators and anti-corruption and anti-trust measures had to be devised and implemented as part of the system adopted by these developing countries whose success has now been achieved despite the World Bank and the IMF.

In the particular case of Sri Lanka the 1977 landslide electoral victory of the pro-Western Government led by J.R.Jayawardene led politically to an entrenchment of his power through a Gaullist Constitution and the deregulation of the economy with no holds barred. Indeed Jayawardene adopted the prescription of the World Bank, the IMF and aid donors saying Let the robber barons come! They did-and robber barons within the country also emerged. The prescription included redirection of public spending from subsidies; liberalization of imports, with particular emphasis on elimination of quantitative restrictions (licensing, etc.); Liberalization of inward foreign direct investment; Privatization of state enterprises and Deregulation. These policies have been continued by successive Governments in a ‘crony capitalism’ form that continued despite the conflict with the terrorist LTTE that ended in 2009. The rule of law was frequently violated with impunity and private

In a courageous effort to assert the democratic freedoms of civil society, Nihal Sri Ameresekere set out, as a private citizen, to initiate public interest litigation to protect the resources of the people indiscriminate plunder. Trained as an accountant, he acquired a knowledge of the law astonishing for a layman earning the respect of the judges who heard him.

His heroic endeavours have now been recorded in a series of books outlining a relentless campaign beginning with the construction of Sri Lanka’s first Hilton Hotel, the privatization of plantations and other enterprises owned by the state, through to the privatization of the Colombo Port bunkering facilities, Sri Lanka Insurance, both annulled by the judiciary, and the hedging deals between some foreign commercial banks and the Ceylon Petroleum Corporation; and also the tracing of assets hidden in foreign jurisdictions.

The series of books also reveal the successful challenge and repeal of a controversial tax law pronounced by the judiciary to have defrauded public revenue, to be antithetic to the rule of law and violative of the Universal Declaration of Human Rights and International Covenant on Civil & Political Rights, and a successful challenge before the judiciary of the Appropriation Bill revealing the lackadaisical management of state funds.

It is a dramatic and well-documented record of the true empowerment of civil society in the defence of the wealth of the people from illegal and opaque deals blessed by a democratically elected government in the name of development. The books deserve a wide reading public as an inspiring example of the power of civil society.

layantha Dhanapala

President

‘Looking alike on pCeasure and pain, gain ancf Coss, victory and defeat, then be ready for fight. If you fight in this spirit, you willnot incur sin.’

‘But if you cío not fight this righteous battle, you would neglect your duty and lose your fame and incur sin. ¿Ancf you will be Cowered in the estimation of those who thought highly of you, who will think that you nave desisted from fighting through fear.’

‘Action alone is your sphere, its fruit should never be desired by you. Vo not make the fruit of action your motive. Do your actions without attachment to their fruits, indifferent to success or failure.’

United Nations Convention Against Corruption

The United Nations General Assembly on 31st October 2003 adopted the Convention Against Corruption, with Antonio Maria Costa, then Executive Director, United Nations Office on Drugs & Crimes (UNODC) hailing it as-"a true global response to the global challenge posed by corruption worldwide".

Then Secretary-General United Nations, Kofi Annan said thus-Corruption hurts the poor disproportionately by diverting funds intended for development, undermining a government’s ability to provide basics services, feeding inequality and injustice, and discouraging foreign investment and aid.

The United Nations Convention against Corruption-www.unodc.org, entered into force on 14th December 2005. Sri Lanka was one of the first State Parties to have ratified the Convention on 31st March 2004.

Preamble of the Convention

The States Parties to this Convention,

Concerned about the seriousness of problems and threats posed by corruption to the stability and security of societies, undermining the institutions and values of democracy, ethical values and justice and jeopardizing sustainable development and the rule of law,

Concerned also about the links between corruption and other forms of crime, in particular organized crime and economic crime, including money-laundering,

Concerned further about cases of corruption that involve vast quantities of assets, which may constitute a substantial proportion of the resources of States, and that threaten the political stability and sustainable development of those States,

Convinced that corruption is no longer a local matter but a transnational phenomenon that affects all societies and economies, making international cooperation to prevent and control it essential,

Convinced also that a comprehensive and multidisciplinary approach is required to prevent and combat corruption effectively,

Convinced further that the availability of technical assistance can play an important role in enhancing the ability of States, including by strengthening capacity and by institution-building, to prevent and combat corruption effectively,

Convinced that the illicit acquisition of personal wealth can be particularly damaging to emocratic institutions, national economies and the rule of law,

Determined to prevent, detect and deter in a more effective manner international transfers of illicitly acquired assets and to strengthen international cooperation in asset recovery,

Acknowledging the fundamental principles of due process of law in criminal proceedings and in civil or administrative proceedings to adjudicate property rights,

Bearing in mind that the prevention and eradication of corruption is a responsibility of all States and that they must cooperate with one another, with the support and involvement of individuals and groups outside the public sector, such as civil society, non-governmental organizations and community-based organizations, if their efforts in this area are to be effective,

Bearing also in mind the principles of proper management of public affairs and public property, fairness, responsibility and equality before the law and the need to safeguard integrity and to foster a culture of rejection of corruption,

Commending the work ofthe Commission on Crime Prevention and Criminal Justice and the United Nations Office on Drugs and Crime in preventing and combating corruption,

Recalling the work carried out by other international and regional organizations in this field, including the activities of the African Union, the Council of Europe, the Customs Cooperation Council (also known as the World Customs Organization), the European Union, the League of Arab States, the Organisation for Economic Cooperation and Development and the Organization of American States,

Taking note with appreciation of multilateral instruments to prevent and combat corruption, including, inter alia, the Inter-American Convention against Corruption, adopted by the Organization of American States on 29 March 1996, the Convention on the Fight against Corruption involving Officials of the European Communities or Officials of Member States of the European Union, adopted by the Council of the European Union on 26 May 1997, the Convention on Combating Bribery of Foreign Public Officials in International Business Transactions, adopted by the Organisation for Economic Cooperation and Development on 21 November 1997, the Criminal Law Convention on Corruption, adopted by the Committee of Ministers of the Council of Europe on 27 January 1999, the Civil Law Convention on Corruption, adopted by the Committee of Ministers of the Council of Europe on 4 November 1999, and the African Union Convention on Preventing and Combating Corruption, adopted by the Heads of State and Government of the African Union on 12 July 2003, Welcoming the entry into force on 29 September 2003 ofthe United Nations Convention against Transnational Organized Crime,

Have agreed as follows.

Articles ofthe Convention

1. PREAMBLE

2. CHAPTER I-GENERAL PROVISIONS

Article 1 Statement of Purpose

Article 2 Use of terms

Article 3 Scope of application

Article 4 Protection of sovereignty

3. CHAPTERII-PREVENTIVEMEASURES

Article 5 Preventive anti-corruption policies and practices

Article 6 Preventive anti-corruption body or bodies

Article 7 Public sector

Article 8 Codes of conduct for public officials

Article 9 Public procurement and management of public finances

Article 10 Public reporting

Article 11 Measures relating to the judiciary and prosecution services

Article 12 Private sector

Article 13 Participation of society

Article 14 Measures to prevent money-laundering

4. CHAPTER III-CRIMINALIZATION AND LAW ENFORCEMENT

Article 15 Bribery of national public officials

Article 16 Bribery of foreign public officials and officials of public International organizations

Article 17 Embezzlement, misappropriation or other diversion of property by a public official

Article 18 Trading in influence

Article 19 Abuse offunctions

Article20 Illicitenrichment

Article 21 Bribery in the private sector

Article 22 Embezzlement of property in the private sector

Article 23 Laundering of proceeds of crime

Article 24 Concealment

Article 25 Obstruction ofjustice

Article 26 Liability of legal persons

Article 27 Participation and attempt

Article 28 Knowledge, intent and purpose as elements of an offence

Article 29 Statute of limitations

Article 30 Prosecution, adjudication and sanctions

Article 31 Freezing, seizure and confiscation

Article 32 Protection of witnesses, experts and victims

Article 33 Protection of reporting persons

Article 34 Consequences of acts of corruption

Article 35 Compensation for damage

Article 36 Specialized authorities

Article 37 Cooperation with law enforcement authorities

Article 38 Cooperation between national authorities

Article 39 Cooperation between national authorities and the private sector

Article 40 Bank secrecy

Article41 Criminalrecord

Article 42 Jurisdiction

5. CHAPTER IV-INTERNATIONAL COOPERATION

Article 43 International cooperation

Article 44 Extradition

Article 45 Transfer of sentenced persons

Article 46 Mutual legal assistance

Article 47 Transfer of criminal proceedings

Article 48 Law enforcement cooperation

Article 49 Joint investigations

Article 50 Special investigative techniques

6. CHAPTERV-ASSETRECOVERY

Article 51 General provision

Article 52 Prevention and detection of transfers of proceeds of crime

Article 53 Measures for direct recovery of property

Article 54 Mechanisms for recovery of property through international cooperation in confiscation

Article 55 International cooperation for purposes of confiscation

Article 56 Special cooperation

Article 57 Return and disposal of assets

Article 58 Financial intelligence unit

Article 59 Bilateral and multilateral agreements and arrangements

7. CHAPTER VI-TECHNICALASSISTANCEANDINFORMATIONEXCHANGE

Article 60 Training and technical assistance

Article 61 Collection, exchange and analysis of information on corruption

Article 62 Other measures: implementation of the Convention through economic development and technical assistance

8. CHAPTER VII-MECHANISMS FOR IMPLEMENTATION

Article 63 Conference of the States Parties to the Convention

Article 64 Secretariat

9. CHAPTER VIII-FINAL PROVISIONS

Article 65 Implementation of the Convention

Article66 Settlementofdisputes

Article 67 Signature, ratification, acceptance, approval and accession

Article 68 Entry into force

Article 69 Amendment

Article 70 Denunciation

Article 71 Depositary and languages

(United Nations Convention Against Corruption-Mere ‘rhetoric’ to combat Fraud and Corruption, only subverts UnitedNations Convention-by same Author)

When I saw the effect that corruption and kick-backs were having on our businesses and our ability to compete, I determined that it had to stop. Nothing so encourages inefficiency and mediocrity, nor so discourages talent and endeavour.

Lee Kuan Vew

From The Dhammapada* of Lord Gauthama Buddha

about 2550 years ago

* Well done is that action of doing which one repents not later, and the fruit of which one, reaps with delight and happiness.

* Should a person do good, let him do it again and again. Let him find pleasure therein, for blissful is the accumulation of good.

* An evil deed is better left undone, for such a deed torments one afterwards. But a good deed is better done, doing which one repents not later.

* Those who know the essential to be essential and the unessential to be unessential, dwelling in right thoughts, do arrive at the essential.

* Those who discern the wrong as wrong and the right as right—upholding right views, they go to realms of bliss.

* Those who are ashamed of what they should not be ashamed of, and are not ashamed of what they should be ashamed of—upholding false views, they go to states of woe.

* Those who imagine evil where there is none, and do not see evil where it is—upholding false views, they go to states of woe.

* Easy is life for the shameless one who is impudent as a crow, is backbiting and forward, arrogant and corrupt.

* One who, while himself seeking happiness, oppresses with violence other beings who also desire happiness, will not attain happiness hereafter.

* All tremble at violence; all fear death. Putting oneself in the place of another, one should not kill nor cause another to kill.

* Neither in the sky nor in mid-ocean, nor by entering into mountain clefts, nowhere in the world is there a place where one may escape from the results of evil deeds.

* There never was, there never will be, nor is there now, a person who is wholly blamed or wholly praised.

*The preachings of Lord Gauthama Buddha

Contemporary Realities

Case Studies in a Third World Developing Country Revealing socio-political realities

Incisive insights unraveling the socio-political realities in a third world developing country. The duplicitous hypocrisy of the developed world and international developmental agencies visa-vis the just and equitable enforcement of the ‘rule of law’. The dubious management of the resources of the people, which are held in trust, on their behalf, by democratic governments or even by Kings.

"...........The ruler’s trusteeship of the resources of the State which belong to the people is a part of the legal heritage of Sri Lanka dating back at least to the third century BC as pointed out by Justice Weeramantry in his separate opinion in the International Court of Justice in the Danube Case, by quoting the sermon of Arahath Mahinda to King Devanampiya Tissa as recorded in the Great Chronicle-Mahawamsa* "-June, 2009, Supreme Court ofSri Lanka

# With the cancerous menace of rampant fraud and corruption, does not the unbridled pillage and plunder of the resources of the already impoverished vast majority of poor people, by few persons socio-politically powerful, influential and affluent, further impoverish them ?

# Is it not a curious paradox, that schemes and designs to replace, such pillaged and plundered property of the poor people, through ‘poverty alleviation programs’, ironically are financed from the very funds of the poor people or by debts to be re-paid by them or their future generations ?

# Despite the adoption in December 2005 of the United Nations Convention Against Corruption, specifically identifying as culprits, ‘politically exposed persons’, do not such persons unabashedly continue to peddle fraud and corruption, and are shielded through socio-political influences, and publicly sanctified by religious leaders seeking the ‘limelight’ ?

# Should not the pillage and plunder of the property of the poor people, referred to as ‘economic terrorism’, perpetrated by ‘economic terrorists’, condemned internationally in contemporary times, be first dealt with, as the root cause for the germination of terrorism ?

# Denying the impoverished helpless vast majority of poor people equitable social justice, does it not ultimately lead to disillusionment, alienation, frustration, social unrest, insurrection and justifiable rebellion ?

# Does not therefore, the pillage and plunder of the resources of the poor people, consequently result in armed struggles and armed terrorism, with brutal counter offensives by the international community, to destroy such terrorism ?

# Ironically, do not such brutal counter-offensives, with the utilization of further resources of the poor people, which consequently give rise to despicable violations of human-rights, with concerns of humanity righteously transcending parochial interests of nationality, justifiably raise international concerns, however, at a very belated stage ?

* The Mahawamsa The Great Chronicle is the single most important work of Sri Lankan origin, written in Pali language translated to Sinhala and English, recording the history and heritage from 543 BC

1

CIVIL PROSECUTION OF FRAUD

The Colombo Hilton Hotel construction commenced on 12th March 1984, with much fanfare and a grand ceremonial ground breaking ceremony. Religious rites were performed by Japanese Priests, who had been specially flown down from Japan for such event. This was because, the entirety of the implementation of the Colombo Hilton Hotel project was undertaken on a ‘turn-key fixed price basis’ by the Japanese Consortium, comprising, Mitsui & Co. Ltd., Taisei Corporation and Architects, Kanko Kikaku Sekkeisha Yozo Shibata & Associates.

The Government of Sri Lanka issued State Guarantees to Mitsui & Co. Ltd., and Taisei Corporation (‘Mitsui & Taisei Consortium’) to secure the monies advanced by them for the implementation of the Colombo Hilton Hotel project, by a newly incorporated Company for such purpose, namely, Hotel Developers (Lanka) Ltd., (HDL), in which the Government of Sri Lanka, to comply with the provisions of the Foreign Loans Act No. 29 of1957, became the majority Shareholder, to enable the issuance of State Guarantees, on behalf of HDL, to Mitsui & Taisei Consortium.

The damning racial riots of July 1983, which targeted innocent Tamil civilian population resident in urban areas, outside the North and East, particularly in the City of Colombo and its suburbs, having left a indelible scar and blemish on the standing of Sri Lanka in the eyes of the international community, to repair such tarnished image of Sri Lanka, the Government of President J.R. Jayawardene and Prime Minister R. Premadasa was very keen to have the Colombo Hilton Hotel project implemented, at the very earliest.

Hence, the Government of Sri Lanka readily offered to afford State Guarantees to finalize the financial package, which was to be afforded by Mitsui & Taisei Consortium, with the ‘management contractor’ being Hilton International, then a US Company. This was how the construction of Colombo Hilton Hotel commenced in March 1984, on the very heels of the ugly and despicable communal riots of 1983, as an endeavour to repair the damaged international image of Sri Lanka.

The constructed, fully equipped and furnished Colombo Hilton Hotel began ‘soft’ operations, in a period of 3 % years in July 1987. Thereafter in September 1987 a gala formal ‘opening ceremony’ and a ‘cocktailparty’ was had for over 3000 guests, spread out all over the Colombo Hilton Hotel premises, with an exclusive range of food and beverage being lavishly served, and culminating in a stunning fireworks display, as a grand finale ! All thispomp and pageantry was later revealed to have been afaqade to cover-up a major fraud, which had been perpetrated in the construction of the Colombo Hilton Hotel, and in the context of State Guarantees issued, it was a fraud perpetrated on the Government of Sri Lanka and its people.

Immediately after the Colombo Hilton Hotel opened for operations in 1987, shockingly the following startling discoveries were made by me:

> The number of Hotel Rooms revealed in the Hilton Monthly Reports was 387, counting as one Room, Room ‘modules’ / ‘bays’, which comprised Suites.

> The above was materially different to the total number of 456 Room ‘modules’ / ‘bays’, based upon which the Profitability Forecast had been formulated by Hilton International, and confirmed by Mitsui & Taisei Consortium for obtaining State Guarantees from the Government of Sri Lanka.

> Whilst the Construction Agreement and Prospectus had stipulated 22 Floors, excluding the Basements, the Japanese Architects Kanko Kikaku Sekkeisha Yozo Shibata & Associates’ Monthly Reports had intriguingly referred to only 20 Floors, excluding the Basements.

> Whilst the Architectural Plans had been approved by the Urban Development Authority (UDA) on 5th March 1984 for the construction of the Colombo Hilton Hotel to have commenced on 12th March 1984, over 1 % years thereafter in August 1985, another set of Architectural Plans had been surreptitiously substituted and approved by the UDA in April 1986, as ‘Amended Plans’.

> The foregoing substitution had been without the knowledge and sanction of the Board of Directors of the owning Company, HDL, and also had been without the knowledge and approval of the Government of Sri Lanka, which had issued State Guarantees in terms of an Investment Agreement, the Government of Sri Lanka had become a party to, and under and in terms of which, such approval for any change of the original Architectural Plans was mandatory.

> Payments were made to Mitsui & Taisei Consortium on the effluxion of time, without any interim measurements of work having been made in comparison with Specified Bills of Quantities, and certification and recommendation thereon by the Japanese Architects, Kanko Kikaku Sekkeisha Yozo Shibata & Associates, for payments to have been made to Mitsui & Taisei Consortium.

> All copies of the original Architectural Plans, which had been approved by UDA on 5th March 1984 were reported to be missing. Allegedly, the copies of the Architectural Plans of the owning Company, HDL, intriguingly borrowed by the Japanese Architects, Kanko Kikaku Sekkeisha Yozo Shibata & Associates at that very time, too were reported to have got destroyed in a mysterious fire, which had completely gutted down the Hilton Hotel Construction Site Office in October 1985, just after the Architectural Plans had been surreptitiously substituted in August 1985.

> There were no Specified Bills of Quantities & Final Measurements to justify the construction costs of the Colombo Hilton Hotel, and furthermore, the specified inventory of Furniture, Fixtures and Fittings, which formed a part of the Supplies Contract, was also reported to be missing, rendering it to have been an impossibility to have verified the correctness of the specifications, qualities and quantities of such supplies made to the Colombo Hilton Hotel.

Notwithstanding the surfacing of the foregoing grave and serious material irregularities and discrepancies, the Board of Directors of HDL, disregarding my repeated objections were intriguingly adamant to confirm and agree on the payment of the full claims made by the Mitsui & Taisei Consortium for the implementation of the Colombo Hilton Hotel, which payments had to be made by the Government of Sri Lanka, under the State Guarantees issued to Mitsui & Taisei Consortium.

K.N. Choksy, President’s Counsel, who had been ‘inducted’ in December 1986 into the Board of Directors of HDL, midway during the construction of the Colombo Hilton Hotel, was foremost in insisting in writing, that the full payment ought be made to Mitsui & Taisei Consortium, he having previously prevented an independent engineering examination of the constructed Colombo Hilton Hotel, which had been urged for by me, and endorsed by M.T.L. Fernando, Precedent Partner, Ernst & Young, another Director ofHDL.

K.N. Choksy, President’s Counsel was then an influential Member of Parliament of the ruling United National Party, and a close confidante of and Senior Counsel defending President R. Premadasa in the Presidential Election Petition, which had been filed in the Supreme Court of Sri Lanka, against him by Prime Minister Sirima Dias Bandaranaike.

In the given circumstances, having kept the General Secretary of the United National Party, Ranjan Wijeratne, then State Minister of Defence, fully apprised of the facts, I, as advised by Counsel, P. Navaratnarajah, Queen’s Counsel, K. Kanag-Isvaran, President’s Counsel and M. Radhakrishnan, Attorney-at-Law, as a fractional shareholder of HDL, instituted in September 1990, the District Court of Colombo Case No. 3155/Spl, the very first derivative action in law in Sri Lanka, in the right and on behalf of HDL, in its interest and for its benefit. (Colombo Hilton Hotel Construction-Fraud on Sri Lanka Government-Vol. I-SriLanka’sFirstDerivativeAction inLaw-bysameAuthor)

The Plaint given below in this civil prosecution sets out lucidly the salient facts disclosed to the District Court of Colombo on this fraud perpetrated on the Government of Sri Lanka.

IN THE DISTRICT COURT OF COLOMBO

NIHAL SRI AMERESEKERE of

No.167/4, Sri Vipulasena Mawatha,

Colombo 10.

1. MITSUI AND COMPANY LIMITED, a company organized and existing under the Laws of Japan and having the Principal Place of business at 2-1, Ohtemachi 1-Chome, Chiyoda-Ku, Tokyo, Japan and having a Liaison office and/or a Place of business in Sri Lanka at No.315, Vauxhall Street, Colombo 02.

2. TAISEI CORPORATION, a Company organized and existing under the Laws of Japan and having the Principal place of businessat25-1, Nishi-Shinjuku 1-chome,Shinjuku-ku, Tokyo, Japan and having a Liaison Office and/or Place of business in Sri Lanka at No.65, High Level Road, Maharagama.

3. KANKO KIKAKU SEKKEISHA YOZO SHI BATA & ASSOCIATES, Architects & Designers, a corporation duly organized under the Laws of Japan and having the Principal place of business at No.9, Mori Building,1-2-2, Atago, Minato-ku, Tokyo, Japan.

4. HOTEL DEVELOPERS (LANKA) LIMITED, formerly known as LANKA JAPAN HOTELS LIMITED, and of No.16, Alfred Place, Colombo 03.

5. CORNEL LIONEL PERERA, Chairman/Managing Director, Hotel Developers (Lanka) Limited, of 16, Alfred Place, Colombo 03.

6. FREDERICK GERMAIN NOEL MENDIS, Director, Hotel Developers (Lanka) Limited, and of No.51/3, Dharmapala Mawatha, Colombo 03

7. KAIRSHASP NARIMAN CHOKSY, Director, Hotel Developers (Lanka) Limited, of 23/2, Sir Ernest de Silva Mawatha, Colombo 07.

8. DON PETER SEVERINUS PERERA, Director, Hotel Developers (Lanka) Limited, of No.696/2, Havelock Road, Colombo 06.

9. KAZUTAKA KOBOI, Director of Hotel Developers (Lanka) Limited, and of 6-38, Fujimicho, Chigasaki, Kasagawa, Japan.

10. KANAPATHIPILLAI SHANMUGALINGAM, Director, Hotel Developers (Lanka) Limited, and of No.4, Ramakrishna Avenue, Colombo 06.

11. KOJI ITO, Director of Hotel Developers (Lanka) Limited, and presently of No.315, Vauxhall Street, Colombo 02.

DEFENDANTS

On this 12th day of September, 1990.

The Plaint ofthe Plaintiff above named appearing by Mr. J.W.D. Perera, Practising under the name style of De Silva & Perera, and his assistant Mr. Vernon Gooneratna, his Attorneys-at-Law, states as follows:

1. (a) The Plaintiff above named is a Fellow Member of the Institute of Chartered Accountants of Sri Lanka and a Fellow Member ofthe Institute of Chartered Management Accountants of the United Kingdom, and the Managing Director of Comindtax Management Service Ltd., a limited liability Company Registered under the Companies Act No.17 of 1982 and having its Registered Office at No.167/4, Sri Vipulasena Mawatha, Colombo 10.

(b) The Plaintiff is practising as a Business and Management Consultant and has a prestigious Clientele and is also the Lead Consultant to a large World Bank Funded Project in Sri Lanka.

(c) The Plaintiff is a Subscriber to the Memorandum and Articles of Association of LANKA JAPAN HOTELS LIMITED, holding 70,000 Ordinary Shares of Rs.10.00 each and a Director ofthe said Company, which company changed its name to HOTEL DEVELOPERS (LANKA) LIMITED the said 4th Defendant Company on 20.10.1983.

True copies ofthe Memorandum and Articles of Association ofthe said Lanka Japan Hotels Limited, its Certificate of Incorporation dated 15.03.1983, the Form 48 notifying the first Directors ofthe said Company, the Form 43 notifying the change of Name to Hotel Developers (Lanka) Limited and the Certificate dated 20.10.1983 giving effect to the change of name to Hotel Developers (Lanka) Limited are annexed hereto marked P1, P2, P3, P4(a) and P4(b) respectively and are pleaded as a part and parcel of this plaint.

2. (a) The 1st Defendant above named is a Company organized and existing under the Laws of Japan and having its Principal Place of Business at the address mentioned above in Japan and having a liaison office and/or a place of business at the address above mentioned within the jurisdiction of this Court, sometimes hereinafter referred to as Mitsui.

(a) The 1st Defendant Company is a member of a multinational group in business, including trade, industry, finance, commerce and construction.

(b) The said Mitsui (1st Defendant) is a Shareholder and is represented on the Board of Directors of the 4th Defendant Company and was one of the Contractors, the Supplier and one of the Lenders to the said Hotel Developers (Lanka) Limited (4th Defendant Company) for constructing and equipping the Hilton Hotel. The said Mitsui (1st Defendant) was also a Promoter named in the Prospectus dated 6.3.1984 issued by the said Hotel Developers (4th Defendant Company) for a Public Share Issue.

A true copy of the Prospectus is annexed hereto marked P5 and pleaded as a part and parcel of this Plaint.

1. (a) The 2nd Defendant above named is a Company organized and existing under the Laws of

Japan having its Principal Place of Business at the address mentioned above in Japan and having a liaison office and/or a place of business at the address above mentioned, in Sri Lanka, sometimes hereinafter referred to as Taisei.

(a) The 2nd Defendant Company is a construction company executing large construction projects both within and outside Japan.

(b) The said Taisei (2nd Defendant) is also a shareholder and is represented on the Board of Directors of the said Hotel Developers (4th Defendant Company) and was also one of the Contractors and also one of the Lenders to the Hotel Developers (4th Defendant Company) for constructing and equipping the said Hilton Hotel. The 2nd Defendant Company was also named a Promoter in the Prospectus dated 6.3.1984 issued by the Hotel Developers (4th Defendant) for a Public Share Issue.

2. (a) The said Mitsui and the said Taisei (1st and 2nd Defendants) abovenamed acted jointly

and severally as Promoters, Shareholders with representation on the Board of Directors of the said Hotel Developers (4th Defendant Company) and as Contractors and Lenders to the said 4th Defendant Company and were known and referred to as the Mitsui/Taisei Consortium, and sometimes herein referred to also as the Mitsui/Taisei Consortium.

(b) The said Mitsui/Taisei Consortium (1st and 2nd Defendants) had one of its representatives on the Board of Directors of the said Hotel Developers (4th Defendant Company) as a full time resident Director in Colombo with Executive powers to manage and control the administration and the day to day affairs of the Hotel Developers (4th Defendant Company).

3. (a) The 3rd Defendant above named is a Corporation duly established in Japan under the

Laws of Japan and having its Head Office at the above mentioned address in Japan, sometimes hereinafter referred to as the Architects.

(a) The 3rd Defendant is carrying on, inter alia, the business of professional Architects and Designers.

(b) The 3rd Defendant was the Architect and a signatory to the Construction Agreement referred to hereinafter.

4. (a) The 4th Defendant abovenamed is a limited liability Company duly incorporated under

the Companies Act, No.17 of 1982 and having its Registered Office and an operational office at the above mentioned address, within the jurisdiction of this Court, sometimes herein referred to as Hotel Developers.

(a) The said Hotel Developers (4th Defendant Company) was formerly known as Lanka Japan Hotels Limited which name was changed to its present name of HOTEL DEVELOPERS (LANKA) LIMITED on 20.10.1983.

(b) The said Hotel Developers (4th Defendant Company) is the owning company of the Colombo Hilton Hotel situated at Echelon Square, Colombo, Sri Lanka.

(c) The Directors of the said Hotel Developers, 4th Defendant Company in addition to the Plaintiff are as follows:-

Cornel Lionel Perera (Chairman & Managing Director)

Frederick Germain Noel Mendis

Kairshasp Nariman Choksy

Don Peter Severinus Perera

Kazutaka Koboi

Kanapathipillai Shanmugalingam Koji Ito who are respectively the 5th, 6th, 7th, 8th, 9th, 10th and 11th Defendants abovenamed and are made parties to this action for purposes of notice.

A true copy ofthe Form 48 dated 03.05.1990 giving the names ofthe present Directors of the said Hotel Developers (4th Defendant Company) is annexed hereto marked P4(c) and pleaded as a part and parcel of this Plaint.

At all times material to this action, the Executive Directors ofthe said Hotel Developers (4th Defendant Company) were Mr. A. Naka (from 06.03.1984 to 24.11.1986) and Mr. H. Ogami (from 24.11.1986 to 30.4.1990) who were representatives ofthe Mitsui/Taisei Consortium (1st and 2nd Defendants).

5. The cause of action hereinafter set out arose at Colombo within the jurisdiction of this Court.

6. (a) The said Lanka Japan Hotels Ltd., was formed and incorporated for the purpose of

promoting, and owning a first class Hotel to be built at the Echelon Square, Colombo, Sri Lanka to be managed by Hilton International, New York, an internationally known hotel management company.

(b) The Plaintiff having been actively involved in the promotional work of the said Hotel Project since 1979, in addition to being a Subscriber to the Memorandum & Articles of Association, was one of the first Directors of the said Company.

7. (a) On or about 30.3.1983, a Preliminary Agreement was entered into by and between the

Mitsui/Taisei Consortium (1st and 2nd Defendants) and Cornel & Company Limited, a company incorporated under the said Companies Act, to construct and operate an International Five Star Class Hotel with 452 Bays i.e. Guest Room Bays having a total floor area of about 40,000 Square Meters and hereinafter sometimes referred to as the Hilton Hotel.

A true copy ofthe Preliminary Agreement is annexed hereto marked P6 and pleaded as a part and parcel of this Plaint.

(b) The proposed said Hilton Hotel was to be built on approximately 6.6 Acres of land which land was to be first leased by the Government of Sri Lanka to the said Cornel & Company Limited, and in consideration ofthe allotment of Shares in the said Hotel Developers (4th Defendant Company) the said Cornel & Company Limited under leased the said lease of the said land to the said Hotel Developers (4th Defendant Company).

(c) The said Hilton Hotel to be built according to the Architectural Plans submitted by the said Architects (3rd Defendant) and annexed to the said Construction Agreement was to be managed by the said Hilton International of New York, U.S.A.

(d) The Contract Price for Construction of Jap. Yen 11,952,000,000/-with the said Mitsui/ Taisei Consortium (1st and 2nd Defendants) and the Contract Price for the Supplies of Furnishings, Fixtures and Equipment of Jap. Yen 1,680,000,000/-with Mitsui (1st Defendant) and the Contract Price for the Design and Supervision Services of Jap. Yen 400,000,000/-with the Architects (3rd Defendant) had been agreed upon at the time of execution ofthe said Preliminary Agreement on 30.03.1983.

(e) A Letter of Award had been issued by the said Hotel Developers (4th Defendant Company) to the said Mitsui/Taisei Consortium (1stand2nd Defendants) for the construction ofthe proposed hotel, on 30th March 1983, with the signing ofthe said Preliminary Agreement, which fact had been confirmed in the Construction Agreement subsequently executed on 31st January 1984 referred to hereinafter.

10. (a) Hilton International’s letter dated 31.03.1983 (a copy of this letter was sent to the 1st

Defendant) confirmed that they were willing to change the average room rate of the Forecast of Income and Expenses that had been made by them in August 1981, changing the Average Room Rate for the first full year of operation from U.S.$.70 to U.S.$.73. The forecast of Hilton International made in August 1981, was in respect of 456 Rooms (452 Rooms for Guests and 4 Rooms to be used for the Manager) on which basis the said Forecast of Income and Expenses had been computed.

A true copy of letter dated 31.03.1983 and the said Forecast of Income and Expenses is annexed hereto marked P7 (a) and P7 (b) and pleaded as a part and parcel of this Plaint.

(b) The said Forecast of Income and Expenses prepared by Hilton International, was in conformity with the set of Architectural Plans finalised for the said Hotel Project by the said Architects (3rd Defendant), which provided for 456 Rooms being 452 Guest Room Bays and 4 Room Bays as the Manager’s Apartment.

A true copy ofthe said Architectural Plans is annexed hereto marked P8 and pleaded as a part and parcel of this Plaint.

11. After the execution of the said Preliminary Agreement the Government of Sri Lanka also became a party to the said Hotel Project by entering into a joint-venture with the said three parties to the said Preliminary Agreement, namely Cornel & Company Limited and the said Mitsui/Taisei Consortium, (1st and 2nd Defendants ) which led to the formulation of an Investment Agreement, by and between the said three parties and the Government of Sri Lanka, for the construction of the said Hilton Hotel comprising 452 Guests Room Bays.

A true copy ofthe said Investment Agreement dated 31.01.1984 is annexed hereto marked P9 and pleaded as part and parcel of this Plaint.

12. In compliance with the said Investment Agreement the Articles of Association of the Hotel Developers (4th Defendant Company) was amended inter alia, to empower the parties to the said Investment Agreement to make appointments to the Board of Directors ofthe said Hotel Developers (4th Defendant Company). The Plaintiff continued to function as a Director of the said Hotel Developers (4th Defendant Company).

A true copy of the said Memorandum & Articles of Association, with the amendments and, the Form 43 notifying such Amendments to the Registrar of Companies are annexed hereto marked P10(a) and P10(b) respectively and are pleaded as a part and parcel of this Plaint.

13. (a) In order to achieve the objects of the said Preliminary Agreement, on or about 31.1.1984

the said Hotel Developers (4th Defendant Company) entered into an Construction Agreement with the 1st, 2nd and 3rd Defendants abovenamed for the construction of an International Five Star Class Hotel of 22 storeys containing 452 bays i.e. Guest Room Bays with a construction area of 39,042.3 square meters on the said land for the price or sum of Japanese Yen 11,952,000,000.00 equivalent to Sri Lanka Rupees 1,328,584,320, on a fixed price turn-key basis.

(b) The drawings and technical specifications which fully described the said Hotel Project were attached to the said Construction Agreement and formed a part and parcel of the said Construction Agreement.

A true copy of the said Construction Agreement dated 31.1.1984 is annexed hereto marked P11 and is pleaded as a part and parcel of this plaint.

(c) In pursuance of the said Construction Agreement the General Conditions of Contract for Construction, agreed upon by and between the said parties was also executed on 31.1.1984, forming a part and parcel of the said Construction Agreement marked P11.

A true copy of the said General Conditions of Contract for Construction is annexed hereto marked P12 and pleaded as a part and parcel of this Plaint.

14. (a) On or about 31.1.1984, in pursuance of the said Preliminary Agreement, the said Hotel

Developers (4th Defendant Company) entered into an Agreement with the said Mitsui (1st Defendant) for the Supply and Delivery of Furnishings, Fixtures and Equipment to the said Hilton Hotel for the price or sum of Japanese Yen 1,860,000,000.00 (equivalent to Sri Lanka Rupees 206,757,600), which Supplies Contract provided for the supply of Furnishings, Fixtures and Equipment for an International 5 Star Class Hotel with 452 Bays i.e. Guest Room Bays.

A true copy of the said Supplies Contract dated 31.1.1984 is annexed hereto marked P13 and is pleaded as a part and parcel of this plaint.

(b) The Scope of such supplies of Furnishings, Fixtures and Equipments was described in Exhibit A attached to the said Supplies Contract forming a part and parcel thereof.

15. (a) On or about 31.1.1984, the 4th Defendant Company entered into a contract with the

Architects (3rd Defendant) abovenamed for the Design and Supervision for the said Hilton Hotel stipulated as an International 5 Star Class Hotel with 452 bays, i.e. guest room bays, for the price or sum of JY 400,000,000.00 (equivalent to Sri Lanka Rupees 44,464,000).

A true copy of the said Design and Supervision Contract dated 31.1.1984 is annexed hereto marked P14 and is pleaded as a part and parcel of this Plaint.

(b) Further the said Architects (3rd Defendant) agreed and undertook as stipulated in the said Supplies Contract to supervise the quality and specifications etc. of the supplies being made under the said Supplies Contract.

16. (a) On or about 31.1.1984 the said Hotel Developers (4th Defendant Company) entered

into a Loan Agreement with the said Mitsui/Taisei Consortium (1st and 2nd Defendants) abovenamed for a loan of JY 12,300,000,000.00 (equivalent to Sri Lanka Rupees 1,367,268,000) to be disbursed by the said 1st and 2nd Defendants. The said Loan Agreement stipulated that the proceeds of the loan were to be utilised for the payment to the said Mitsui/Taisei Consortium (1st and 2nd Defendants) for the Construction of the said 5 Star Class Hotel consisting of 452 Guest Room Bays under the said Construction Agreement, and to the said Mitsui 1st Defendant for the Supply and delivery of the goods referred to in the said Supplies Contract, and to the said Architect (3rd Defendant) for Design and Supervision services under the said Design and Supervision Contract.

A true copy of the said Loan Agreement is annexed hereto marked P15 and is pleaded as a part and parcel of this plaint.

(a) The said Loan Agreement contained appendices A, B and C showing the Loan Advances to be made by the Mitsui/Taisei Consortium (1st and 2nd Defendants), and payments for Construction and Supplies to be made from such Loan Advances to the said Mitsui/Taisei Consortium (1st and 2nd Defendants) and Loan Re-payments with Interests to be repaid by the said Hotel Developers (4th Defendant Company), overa 12 year period in 24 semiannual installments to the said Mitusi/Taisei Consortium (1st and 2nd Defendants) above named.

(b) The said 24 semi-annual loan repayment installments with interest spread over 12 years, were in conformity with the Profitability Forecast and Cash Flow Projections formulated and submitted for the said Hilton Hotel Project by the said Mitsui (1st Defendant). These profitability projections had been computed on the basis of 452 Guest Rooms.

A true copy of the said Profitability Forecast and Cash Flow Projections is marked P16 and pleaded as a part and parcel of this Plaint.

17. (a) In terms of the Construction Agreement, Supplier’s Contract and the Design and

Supervision Contract payments were to be made to the said Mitsui/Taisei Consortium (1st and 2nd Defendants) and the said Architects, in terms of Annexures appended to the said Agreements/Contracts, but without the issue of any Architects proper certificates for work actually done.

(b) The payments referred to in paragraph 17 (a) above were executed through a bank account maintained in the name of the said Hotel Developers (4th Defendant Company), opened for this purpose at the Fuji Bank, Tokyo. The said Mitsui/Taisei Consortium (1st and 2nd Defendants) first advanced and deposited funds into the said Bank Account, as Lenders in accordance with the Loan draw down Schedule attached to the said Loan Agreement and at the same time, receiving the above mentioned payments primarily to themselves i.e. excluding the payments to the Architects (3rd Defendant), on the basis of standing instructions given by the said Hotel Developers (4th Defendant Company) to effect such payments in accordance with the said annexures to the said Construction Agreement, Supplies Contract and Design and Supervision Agreement. Such decision was taken by the Board of Directors of the said Hotel Developers (4th Defendant Company).

18. The said Loan Agreement stipulated that the said loan of JY 12,300,000,000.00 (equivalent to Sri Lanka Rupees 1,367,268,000) be guaranteed by the Government of Sri Lanka in a like amount, in accordance with the terms and conditions agreed upon in the said Investment Agreement. Accordingly, the Government of Sri Lanka guaranteed the repayment of the said Loans of JY 12,300,000,000.00 (equivalent to Sri Lanka Rupees 1,367,268,000) to the Mitsui/ Taisei Consortium (1st and 2nd Defendants) abovenamed.

True copies ofthe said Letters of Guarantee annexed to the said Loan Agreement are annexed hereto marked P17(a) and P17(b) and pleaded as a part and parcel of this Plaint.

19. (a) The Plaintiff states that the Investment Agreement, Construction Agreement, Supplies

Contract, Design & Supervision Contract and the Loan Agreement marked P9, P11, P13, P14 and P15 respectively were tabled and approved by the Board of Directors ofthe said Hotel Developers (4th Defendant Company) which Agreements described the said Hilton Hotel to be 22 storeys high containing 452 bays, i.e. guest room bays.

(a) At the said Board Meetings the Board had noted that the said Legal Agreements had been formulated and finalised by and between the Lawyers ofthe said Hotel Developers (4th Defendant Company) and the Lawyers ofthe Mitsui/Taisei Consortium (1st and 2nd Defendants). The Board had also noted that the said Legal Agreements and documents had been subject to the scrutiny and approval of Hamada and Matsumoto, Attorneys-at-law, in Tokyo, Japan who had been retained by the Ministry of Finance and Planning for and on behalf of the Government of Sri Lanka for this purpose and that they had also been approved by the Hon. Attorney General of Sri Lanka.

(b) At the said Board Meeting the said Profitability Forecast and Cash Flow Projections for a period of 12 years computed on the basis of 452 guest rooms forming the Financial Plans of the said Hotel Developers (4th Defendant Company) prepared and submitted by the said Mitsui (1st Defendant) were tabled.

(c) Further the Board noted that the proposed Hotel was to comprise 452 guest rooms to be built up to 5 Star Class standards in keeping up to such standards required by Hilton International, New York.

(d) A complete set of the Architectural Plans together with the Construction Drawings prepared by the said Architects (3rd Defendant) were also tabled at the said Board Meeting and the Board had noted that the Hotel Project had been developed in close co-operation and collaboration with the Mitsui/Taisei Consortium (1st and 2nd Defendants).

A true copy ofthe said Minutes ofthe Board Meetings held on 07.01.1984 and 31.01.1984 are annexed hereto marked P18 (a) and P18 (b) and are pleaded as a part and parcel of this plaint.

20. (a) On or around 26.3.1984 the said Hotel Developers (4th Defendant Company) issued a

Prospectus for the Public Issue of 11,947,505 Ordinary shares of Rupees Ten each i.e. for Rupees 119,475,050.00.

(a) The Promoters named in the said Prospectus were Cornel & Company Limited, Delmege Forsyth & Company Limited, Mitsui & Company Limited, Japan, (1st Defendant) and Taisei Corporation, Japan, (2nd Defendant).

(b) The key feature of the said Hilton Hotel that was to be built as set out in the Prospectus appearing in page 8 therein, was to have a 452 roomed tower concept construction going up to 22 floors. Amongst other features described was covered car parking facilities for up to 400 vehicles.

21. (a) In the context of the final stages of project formulation and implementation a number of

officials from the Mitsui/Taisei Consortium from Japan were in Sri Lanka particularly from the latter half of the year 1983. The principal officer who handled all matters pertaining to the project formulation work, documentation, negotiation and the finalisation of

Agreements was Mr. Akio Kato, of Mitsui, who had been visiting Sri Lanka from time to time in connection with the said project formulation, negotiation and development work.

(b) Amongst other expatriates some of the Officers who were actively involved during this time in association with Mr.A. Kato were K. Fukushi and J. Kojima both of Mitsui; and Toru Kosugi and Seiichi Shinohara both of Taisei; and Kenzo Watanbe and Tomio Okabe both of KKS; and Fergus Paul Rooney, Lawyer of Mitsui, Masafumi Anami, Legal Dept of Taisei.

22. (a) In or about March 1984 the said Mitsui/Taisei Consortium (1st and 2nd Defendants)

commenced construction of the said Hilton Hotel in terms of the Construction Agreement under the Supervision of the said Architects (3rd Defendant) abovenamed.

(a) Prior to the commencement of construction of the said Hilton Hotel on or about 19.10.1983 the Architectural Plans of the said Hilton Hotel had been submitted for Statutory Approval to the Urban Development Authority.

A true copy of the Urban Development Authority Paying-in-Slip dated 19.10.1983 is annexed hereto marked P19 and pleaded as a part and parcel of this Plaint.

(b) A copy of the said Architectural Plans had been tabled atthe Board of Directors of the said Hotel Developers (4th Defendant Company) on 7.1.1984 and the Board had noted that the Hotel was to comprise 452 Guest Rooms and further that the Profitability Forecast and Cash Flow Projections prepared by the said Mitsui (1st Defendant) tabled at the said Board Meeting was also computed on the basis of 452 guest rooms.

(c) As evidenced by the Urban Development Authority’s letter dated 19.1.1984 addressed to the Fire Brigade the said Architectural Plans had comprised 27 sheets.

(d) The Urban Development Authority had approved the said Architectural Plans as per their letter dated 23.3.1984.

True copies of the said letters dated 19.1.1984 and 23.3.1984 are annexed hereto marked P20(a) and P20(b) respectively and are pleaded as a part and parcel of this Plaint.

23. (a) The Plaintiff, by his letter dated 22.7.1985, submitted to the Board, had inter alia

requested for Reports from the said Architects (3rd Defendant) and the said Mitsui/Taisei Consortium, (1st and 2nd Defendants) showing the progress of construction monitored against projected construction.

A true copy of the said letter dated 22.07.1985 and the said Board Minutes dated 25.07.1985 are marked P21(a) and P21(b) and are pleaded as a part and parcel of this Plaint.

(b) The Plaintiff did not receive the Reports called for nor any reply to his request stated in paragraph 22(a) above.

24. Instead, the Executive Director, Mr. A. Naka, representative of the Mitsui/Taisei Consortium

(1st and 2nd Defendants) submitted a Report from the Mitsui/Taisei Consortium on or about

30.10.1985