August 29, 2014
To Whom It May Concern:
Company
Representative::

CodeContact::Phone:

Sumitomo Heavy Industries, Ltd.
Shunsuke Betsukawa
President and Chief Executive Officer
6302
Tsuneyoshi Sato
General Manager, Corporate
Communications Department+81-3-6737-2333

Notice Regarding the Filing of a Lawsuit (Counterclaim)
Sumitomo Heavy Industries, Ltd. (hereinafter referred to as “SHI” or the “Company”) hereby notifies that it has filed
a counterclaim against the City of Kyoto (the “City”) in relation to the lawsuit which was filed by the City with theKyoto District Court on March 20, 2014 regarding the Kyoto City Incinerated Ash Melting Facility (as previouslynotified on April 14, 2014 via a news release entitled “Notice Regarding a Lawsuit Filed Against the Company”).
1.

Historical Background that Led to the Counterclaim(1) On March 18, 2005, the Company and the City entered into a construction contract (hereinafter referred toas the “Contract”) relating to the “Plant/Equipment Installation for the Kyoto City Incinerated Ash Melting
Facility (Provisional Name) Construction Works”.
(2) During the construction of the Incinerated Ash Melting Facility, several defects were discovered. At thatpoint, the Company commenced a full-scale inspection of the facility, reviewed different corrective
measures based on the results of the inspection, and received approval from the City to carry out suchmeasures. Moreover, in July 2012, the Company and the City agreed to extend the project handover date toAugust 13, 2013 in order to provide enough time to implement these corrective measures.
(3) The first trial run was completed in June 2013. At the same time, the works passed the first phase
performance verification tests. Through this, the Company was able to confirm that the performance of thefacility was satisfactory.
(4) In the same month, the second trial run was carried out. At this time, it was discovered that un-melted
residue (dust) was accumulating at the point where the slag from the melting furnace and un-melted waste
is separated.
(5) The Company submitted a report that analyzed the reasons for this problem as well as outlined corrective
measures to the City and requested that it be allowed to implement such measures and re-commence
commissioning activities. However, the “Performance Evaluation Committee” which was set up by the City,
which comprises of technical staff and experts, concluded that it was not able to verify the effectiveness ofsuch measures and denied the Company’s request.
(6) While not approving the Company’s request to implement corrective measures and re-commence
commissioning activities, in August 2013 the City announced that handover of the project would not bemade before the deadline and moved to terminate the contract on the 5th of August (since a full month ofoperations is required to complete the second trial run, unless such activities commence on the 1st of themonth, it would be impossible to handover the project prior to the deadline).
(7) However, in the Contract there is no stipulation that requires that a “Performance Evaluation Committee”
verify the effectiveness of any corrective measure. Of course, as the project principal, the City has the rightto make its opinions known on an as needed basis during the performance of the Contract and alsoestablish a “Performance Evaluation Committee” to review any corrective measures proposed by theCompany. The Company also worked hard to incorporate the requests and wishes of the City as much as
possible during the performance of the contract. Nonetheless, SHI feels strongly that the project handoverdate should have been extended in line with the time required for the “Performance Evaluation Committee”

to complete their review.
(8) Moreover, the project handover could have been completed by the deadline, if the simple andeasy-to-implement corrective measures proposed by the Company had been carried out.
(9) In the Contract, there is a stipulation that states that if there are any disputes between the City and theCompany regarding the performance of the Contract, a resolution will be sought out via mediation orarbitration through the Committee for the Adjustment of Construction Work Disputes as outlined in theConstruction Industry Act. In accordance with this clause, on December 26, 2013, the Company submitted
an arbitration request to the Central Committee for the Adjustment of Construction Work Disputes inregards to this dispute. However, the City stood firm on its stance to say that resolution via arbitration is notpossible unless the Company abdicate the arbitration claim and responds favorably to its claim forcompensation. Further, the City filed the lawsuit against the Company on March 20, 2014 without showing
any posture to solve the dispute via arbitration.
(10) Arbitration by the Central Committee for the Adjustment of Construction Work Disputes was terminated on
July 31, 2014 because the City refused to participate in the arbitration.
(11) The Company attempted to commence the second trial run for the plant that was almost complete, but theCity refused to allow it, and the Company was thus prevented from carrying out one of the final steps of theContract. As such, the Company still retains the right to claim payment for the outstanding balance of theContract. The Company has filed the counterclaim against the City claiming payment for the outstandingbalance of the Contract.
2.

Date and Location where the Counterclaim was Filed(1) Location of Court where Counterclaim was Filed:(2) Date that the Counterclaim was Filed:3.

Defendant of the Counterclaim(1) Name:(2) Address:(3) Name of Representative:

Kyoto District Court
August 29, 2014

The City of Kyoto
488 Kami-Honnoji-Mae-Cho, Oike-agaru, Teramachi-dori, Nakagyo-ku,
Kyoto city, Kyoto, Japan
Mr.Daisaku Kadokawa, Mayor of the City of Kyoto

4.

Amount Claimed in the Counterclaim
The outstanding balance of the Contract in the amount of JPY1,398,637,000 and the proportion of the 3% perannum delinquency charge for the period from December 28, 2013 until the payment is made.

5.

Future Outlook
Although there is potential for the Company’s financial performance to be affected by the lawsuit, the Company
strongly believes that the compensation claim made by the City is baseless because the works passed the firstphase of performance verification tests, and the cancellation of the Contract by the City immediately prior to
project completion is invalid. Moreover, as the City did not allow for the second trial run to be implemented, theCompany was prevented from carrying out the work stipulated in the Contract, which means that the Company
still retains the right to claim payment for the outstanding balance of the Contract. It is the Company’s intention
to make clear the legitimacy of the Company’s counterarguments points regarding the lawsuit. Future progress
and pertinent information regarding the lawsuit will be made available as and when deemed appropriate.
END<Reference – Previous Notices Regarding this Topic>
http://www.shi.co.jp/english/info/2013/6kgpsq0000001jv0-att/6kgpsq0000001jvi.pdf
http://www.shi.co.jp/english/info/2013/6kgpsq0000001jy0-att/6kgpsq0000001jyi.pdf
http://www.shi.co.jp/english/info/2013/6kgpsq0000001kg0-att/6kgpsq0000001kgi.pdf
http://www.shi.co.jp/english/info/2013/6kgpsq0000001ko0-att/6kgpsq0000001koi.pdf
http://www.shi.co.jp/english/info/2014/6kgpsq0000001kw0-att/6kgpsq0000001kwi.pdf