Legal notes: You couldn’t make it up

Stuart Pemble marvels at what could be the strangest decision he has ever had to read Key point A recent case has highlighted the importance of written contracts and the dangers of contracting with people who are dishonest Coulson J’s 182-page judgment in Harlequin Property (SVG) Ltd and another v Wilkins Kennedy (a firm) [2016] EWHC 3188 (TCC) introduces you to a remarkable cast of characters. Where else do you meet “a Walter Mitty-type figure who, through an unhappy mixture of dishonesty, naivety and incompetence, has caused irreparable loss to thousands of people”, a man described by a witness as “like the kid at school who was quiet and nerdy but then became best friends with the biggest bully”, or the accountant who was “conspicuous from the trial by his absence”? When you add in a fraudulent contractor, a missing £70m (some of which might have ended up sponsoring Port Vale FC), an “untruthful and unreliable” lawyer, the collapse of a Ponzi scheme and the involvement of the Serious Fraud Office, it’s fair to say that Harlequin was not the average dispute. The facts The claimant (controlled by the “Walter Mitty-type” David Ames) planned a significant development at Buccament Bay in St Vincent and the Grenadines. It was advised by the defendant firm of accountants, whose lead partner was Martin MacDonald (“the kid at school”) assisted by Jeremy Newman (the “missing accountant”). An Irish contractor – ICE Group (SVG) Ltd, controlled by Padraig O’Halloran – carried out the development and was paid $50m for work that has actually been valued at $24m. Harlequin received its local property and planning legal advice from Sam Commissiong (the “untruthful and unreliable lawyer”) who was unable to satisfy the court either that the claimant owned the land on which the development was built or that it had the planning permission needed to build it. Buccament Bay was one of a number of projects around the world for which various Harlequin group companies have persuaded about 8,200 investors to pay £450m by way of deposits to secure properties. Some 1,900 were deposits at Buccament Bay. The only properties constructed are 199 at Buccament Bay, and only between 16 and 20 investors occupy their cottages and apartments. The rest are operated by Harlequin on a hotel/short-let basis. There is insufficient space at the site to complete 1,900 units (and, in any event, it is not clear that Harlequin owns all of the required land) and there are insufficient amenities to accommodate that number of occupants. The judge found there is significant evidence to suggest the entire structure is a Ponzi scheme (with deposits for the other projects being used to fund Buccament Bay and other expenditure by Harlequin companies) and, on a very conservative estimate, Coulson J reckoned that at least £70m of the £450m was unaccounted for – hence the involvement of the Serious Fraud Office (which was first notified by MacDonald). To quote the judge: “Despite the vast sums which have been taken by Harlequin from prospective purchasers of their developments around the world, the progress towards completion of anything other than a handful of additional properties at Buccament Bay has been glacial. It is impossible to conclude that any significant further development at the resort will ever occur.” The dispute This case is one of a number of pieces of litigation to have arisen out of the Buccament Bay scheme, including defamation proceedings brought by Ames and his wife over allegations on a website and significant findings of fraud and dishonesty against O’Halloran in proceedings before the Irish High Court. Wilkins Kennedy was the accountant and professional adviser to Harlequin. Harlequin claimed $60m in damages for breach of contract and professional negligence arising out of the advice it had given. Three allegations were central. First, there was never a formal contract between Harlequin and ICE, and Wilkins Kennedy should have advised that a formal contract be entered into. Second, that alleged failure resulted in overpayments being made to ICE. Third, the situation was exacerbated by the fact that both MacDonald and Newman advised (and appeared to be employed, or were held out as being employed, by) ICE at the same time as advising Harlequin – a clear conflict of interest. Indeed, the evidence shows that the conflict was clear, with both deliberately taking steps to ensure that ICE received as much money as possible. They also provided confidential information about Harlequin to ICE. In fact, MacDonald and O’Halloran appear to have become firm friends, with MacDonald agreeing to be O’Halloran’s best man, while Newman, MacDonald and O’Halloran have formed a separate business venture funded by £500,000 of MacDonald’s own money. The decision Coulson J held that Wilkins Kennedy should have advised Harlequin to enter into a formal contract with ICE. Had it done so, there would have been a straightforward valuation process which would have resulted in ICE not being overpaid. He also found against Wilkins Kennedy in relation to the conflict of interest and breach of confidence issues, although this did not give rise to any additional loss. The overpayment was valued at £23m, reduced by 50% to £11.6m due to Harlequin having ignored advice from other professionals of the importance of a proper valuation process. The judge also ordered the money be paid into an escrow account so that the competing interests of Harlequin, any liquidator and the investors can be taken into account. The morals of this sorry tale? Sign up to proper contracts and be honest in business. Look at what can happen when you don’t or aren’t. Stuart Pemble is a partner at Mills & Reeve LLP