May 27, 2016
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 a Court Decision on the Pending Lawsuit
This is to notify that the District Court of Kyoto today made a decision regarding the lawsuit filed by the City of Kyoto(hereinafter referred to as the “City”) against Sumitomo Heavy Industries, Ltd. (hereinafter referred to as “SHI” or the“Company”) dated March 20, 2014.
1.

Court and Date of Court Decision
Kyoto District Court – May 27, 2016

2.

Historical Background(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 that point,
the Company commenced a full-scale inspection of the facility, reviewed different corrective measures basedon the results of the inspection, and received approval from the City to carry out such measures. Moreover,in July 2012, the Company and the City agreed to extend the project handover date to August 13, 2013 inorder 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 isseparated.
(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 be madebefore 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 also establish

a “Performance Evaluation Committee” to review any corrective measures proposed by the Company. TheCompany also worked hard to incorporate the requests and wishes of the City as much as possible during theperformance of the contract. Nonetheless, SHI feels strongly that the project handover date 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 and easy-toimplement 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 orconciliation 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 aconciliation request to the Central Committee for the Adjustment of Construction Work Disputes in regards
to this dispute. However, the City stood firm on its stance to say that resolution via conciliation is not possible
unless the Company abdicate the conciliation claim and responds favorably to its claim for compensation.
Further, the City filed the lawsuit against the Company on March 20, 2014 without showing any posture tosolve the dispute via conciliation.
(10) Conciliation by the Central Committee for the Adjustment of Construction Work Disputes was terminated onJuly 31, 2014 because the City refused to participate in the conciliation.
(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.
3.

Plaintiff in the Lawsuit(1) Name:(2) Address:(3) Name of Representative: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.

Details of the Court Decision(1) The Court dismisses all of the City’s claims.
(2) The Court dismisses SHI’s counterclaim.
(3) All court costs incurred as a result of the City’s claims are to be borne by the City. All court costs incurred asa result of SHI’s counterclaim are to be borne by SHI.

5.

Future Outlook
With regard to the City’s claims, the court’s decision affirms all of the assertions made by the Company. In termsof the counterclaim, SHI intends to closely examine the details of the court’s decision, and based on consultation
with SHI’s counsel, make a decision on how to proceed in the future. The impact of this court’s decision on
financial performance is not clear at the present moment. If an event that requires disclosure does occur in thefuture, SHI will provide a notification as soon as possible.
END<References: Material made available to the public in the past>
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
http://www.shi.co.jp/english/info/2014/6kgpsq0000001lj0-att/6kgpsq0000001lji.pdf