Harlequin Property (SVG) Ltd and Another v Wilkins Kennedy (A Firm)
| Jurisdiction | England & Wales |
| Judge | The Hon. Mr Justice Coulson |
| Judgment Date | 12 December 2016 |
| Neutral Citation | [2016] EWHC 3188 (TCC) |
| Docket Number | Case No: HT-2014-000038 |
| Court | Queen's Bench Division (Technology and Construction Court) |
| Date | 12 December 2016 |
[2016] EWHC 3188 (TCC)
IN THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
TECHNOLOGY AND CONSTRUCTION COURT
Royal Courts of Justice
Rolls Building
Fetter Lane, London, EC4A 1NL
The Hon Mr Justice Coulson
Case No: HT-2014-000038
Mr Nicholas Davidson QC and Mr Hefin Rees QC (instructed by ELS Legal LLP) for the Claimants
Mr Justin Fenwick QC, Mr George Spalton and Mr Peter Morcos (instructed by Kennedys Law LLP) for the Defendant
Hearing dates: 14, 15, 16, 20, 21, 22, 23, 27, 28, 29, 30 June; 4, 5, 6, 7, 11, 12, 14, 15, 18, 19, 20, 21, 28 July; 22 and 23 September 2016
Judgment Approved
INTRODUCTION
In these proceedings, the claimants claim damages in the sum of approximately US$60 million against the defendant for breaches of contract and/or duty arising in connection with the development of a luxury resort ("the resort") at Buccament Bay, St Vincent and the Grenadines ("SVG"), in the Caribbean.
The first claimant, to whom I shall refer as "Harlequin SVG", are the owners of the Buccament Bay site and the developers of the resort. The second claimant, to whom I shall refer as "HHR", is said to operate the resort. Mr David Ames is the principal director of both companies and the man behind the numerous other Harlequin companies, to whom I shall refer (where it does not matter which particular Harlequin company was involved, or impossible to say) as "Harlequin". The defendant, to whom I shall refer as "WK", is a firm of accountants and business advisors. Mr Martin MacDonald, a partner in WK, acted as Harlequin's accountant and business advisor between 2006 and 2010. He was universally referred to as "Mac". The remaining key player in this story, who is not a party to these proceedings, is the contractor who built part of the resort, ICE Group (SVG) Limited, to whom I shall refer as "ICE". This company was owned and controlled by Mr Padraig O'Halloran, often referred to in the documents as "Paudie".
It is Harlequin's case that, relying on WK's advice, they had no formal contract with ICE, and instead came to a very loose arrangement with ICE to complete Phase 1 of the resort, which ran completely out of control. Harlequin say that ICE's works were delayed and, in many instances, not built at all, leading to the termination of their arrangement with ICE in June 2010. They blame WK for the delay. Harlequin also say that they paid ICE far too much money for the work that they did, for which they also blame WK. There is also a separate set of allegations arising out of what is said to have been a clear conflict of interest on the part of WK, who were acting for ICE as well as for Harlequin in connection with the construction of the resort.
This case does not lack startling features. The following will suffice as examples. There is an ongoing Serious Fraud Office ("SFO") investigation into Harlequin, and putting the words 'Harlequin Property' into any search engine or social media immediately brings down a shower of invective and complaint by their erstwhile investors. There have been significant findings of fraud and dishonesty against Mr O'Halloran, in connection with the construction of the resort, made by the High Court in Dublin. There have been defamation proceedings, resolved by an apology and a payment of money to Mr and Mrs Ames, as a result of a website which published lies about and threats against Harlequin, and which was discovered to be the work of Mr Jeremy Newman, a senior employee of WK, who provided services to Harlequin at the same time as being ICE's chief financial advisor.
If those examples were not enough, there are at least four significant features of this case which, in my experience, are unique, and which lie behind much of what went so disastrously wrong with this development.
First, the construction works at the resort were funded by deposits made by Harlequin investors who wanted to purchase cabanas (a small bungalow with one or more bedrooms) or apartments, either at this resort, or other resorts planned by Harlequin round the world. But the deposits were not ring-fenced, so there was no link between an investor's 30% deposit for a property at one of the Harlequin resorts, and the destination of that money. The money might go to any other of the numerous Harlequin developments, or might be used for entirely different purposes altogether, such as the generous commissions paid to Harlequin's sales agents, the large sums paid to the Ames family as directors of the web of related Harlequin companies, or separate enterprises altogether, such as the Harlequin travel agency, and the sponsoring of Port Vale FC.
Secondly, despite the limited land purchased by Harlequin at Buccament Bay, and the very obvious physical restraints of the site as a whole, there was no limit to the number of deposits which were taken for the proposed resort there, with the result that there was a huge imbalance between the properties for which a 30% deposit was paid to Harlequin, and the number of properties that had been (or were realistically going to be) built at the Buccament Bay resort. This discrepancy was exacerbated by the fact that, of all the numerous Harlequin projects in the Caribbean and elsewhere, it was/is only the Buccament Bay resort that has ever been built. So, although more than 1,900 deposits were taken for Buccament Bay, and 8,200 overall for all Harlequin developments worldwide, only 195 units have been built at Buccament Bay and none anywhere else. Of those completed units, only about 16–20 are now owned and occupied by the 1,900 investors: the other buildings are used as hotel rooms, with Harlequin, not the investors, receiving the sums paid by the holiday-makers who stay at Buccament Bay. These two elements of the Harlequin business model might be said to bear the hallmarks of a serious and significant scam.
The third remarkable feature of this case arises out of the development itself. Harlequin paid ICE, its contractor, around $52 million 1. They did so, not only without any sort of written contract, but without any detailed agreement as to the scope of the works to be carried out, the monitoring of those works, or their valuation. Although fixed weekly payments were agreed in significant sums, these payments were not in any way tied to interim claims for payment made by ICE, let alone an independent valuation process operated on behalf of Harlequin SVG. ICE received the agreed amount every week, regardless of what, if any, work they had carried out. In the Dublin litigation ( Harlequin Property (SVG) Limited and Harlequin Hotels and Resorts Limited v Padraig O'Halloran and Donal O'Halloran [2013] IEHC 362), McGovern J described this situation as "extraordinary". That is, if anything, an under-statement. In my view, for a project of this size, the fact that there were no financial controls whatsoever beggars all belief.
Finally, there is the fact that WK acted for both Harlequin and ICE, not only on other projects, but specifically in respect of the Buccament Bay construction works. This unsatisfactory arrangement unravelled in two separate strands of the evidence. First, an unusually close relationship developed between Mr O'Halloran of ICE and Mr MacDonald of WK, who was variously referred to as Harlequin's Chief Financial Officer or Financial Director, and Mr Ames' right hand man. Eventually, Mr O'Halloran offered Mr MacDonald a job, and Mr MacDonald agreed to be his best man, although the lavish stag weekend at the Monte Carlo Grand Prix occurred at just the time that the relationship between Harlequin and ICE began its final, inevitable collapse. Since Mr MacDonald reported Harlequin to the SFO in June 2010, with assistance from Mr Newman and Mr O'Halloran, he has invested half a million pounds in a business venture with both men.
The second strand of evidence centres on the internal documents emanating from WK in the early part of 2010, which reveal an attempt by WK to protect ICE at all costs and to ensure that Harlequin paid ICE as much as possible (whether it was justified or not) before the inevitable parting of the ways. This was the strategy that was adopted, regardless of the value of the work that ICE were doing (or, by then, not doing). On a project where WK, through Mr MacDonald, was attending meetings on behalf of Harlequin purportedly to argue with ICE about money, it meant that WK were on both sides of what was (and remains) a very bitter dispute.
It is important to stress at the outset that, despite the unusual features of the case, WK have not raised the defence of illegality, perhaps because Patel v Mirza [2016] UKSC 42 is authority for the proposition that a person who pays money for an unlawful purpose is not prevented from recovering it, whilst in Fiona Trust & Holding Corporation v Privalov [2016] EWHC 2163 it was held that a party who was found to have been dishonest in his commercial dealings and untruthful in his evidence still recovered millions of dollars pursuant to a cross-undertaking. But I accept that these unusual features are relevant to the claims against WK, because one of the issues which I have to decide is the extent of Mr MacDonald's knowledge of, and involvement in, these matters.
The structure of this Judgment is as follows. In Section 2, I comment on the two principal witnesses of fact, Mr Ames and Mr MacDonald, and make some observations about other witnesses of fact. In Section 3, I set out the relevant facts in some detail. In Section 4, I arrive at some conclusions about, for want of a better expression, I shall refer to as "the main contract" between Harlequin SVG and ICE. In Section 5, I deal with the contract between the claimants...
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