REUTERS | Brandon Malone

Caribbean dream turns to sand in luxury beach resort development

We saw a number of really long judgments from the TCC in 2016. Think Stuart-Smith J’s judgment in the Ocensa Pipeline Group Litigation as an example.

I don’t know why but it feels like I always seem to be the one that gets to cover them (even if that isn’t true). Therefore, you can imagine my enthusiasm when I saw Coulson J’s latest epic in Harlequin Property (SVG) Ltd and another v Wilkins Kennedy. I called the judgment in the Ocensa Pipeline Group Litigation a modern day equivalent of Tolstoy’s War and Peace. Therefore, at just under 900 paragraphs, Coulson J’s judgment could be called a baby War and Peace. Luckily I was stuck on a delayed train the day after I saw it on Bailii, so there was plenty of time to digest what Coulson J had written.

If you don’t do anything more, I implore you to read the first 13 paragraphs to get a feel for the case’s “startling features” and then the next 10 paragraphs to understand the witness evidence.The facts demonstrate that you can’t make this stuff up and the real world really is (sometimes) better than fiction.

Harlequin Property (SVG) Ltd and another v Wilkins Kennedy

Where to start?

The claimants claimed some US$60 million from the defendant for breach of contract and breach of duty arising out of the development of a luxury beach resort at Buccament Bay on the island of St Vincent and the Grenadines in the Caribbean.

The claimants alleged that, on the defendant’s advice, there was no formal contract with the contractor, ICE Group (SVG) Ltd, who was responsible for building Buccament Bay. This led to the contractor being paid some US$52 million, which was substantially more than it should have been paid (about twice as much, according to Coulson J). Not only was there no written contract, but there was no scope of works, no monitoring of the works and no valuation of them. The contractor was simply paid a significant fixed weekly payment that was not:

“…tied to interim claims for payment… ICE received the agreed amount every week, regardless of what, if any, work they had carried out.”

The dispute has generated other court proceedings and McGovern J in the High Court in Dublin described this as “extraordinary”. I rather like Coulson J’s suggestion that that is something of an understatement and that:

“…for a project of this size, the fact that there were no financial controls whatsoever beggars all belief.”

The key players in the Buccament Bay development include:

  • Mr Ames, the principal director of both claimants and the man behind numerous other Harlequin companies.
  • The defendant, a firm of accountants.
  • Mr Martin “Mac” MacDonald, a partner in the defendant firm who acted as Harlequin’s accountant and business advisor. He was sometimes described as “Harlequin’s Chief Financial Officer or Financial Director, and Mr Ames’ right hand man”.
  • ICE, which was owned and controlled by Mr Padraig “Paudie” O’Halloran.
  • The defendant also advised ICE. Mr MacDonald and Mr O’Halloran had an “unusually close relationship”. This extended to Mr MacDonald being Mr O’Halloran’s best man and attending a “lavish stag weekend at the Monte Carlo Grand Prix”. It meant that the defendant was “on both sides” of the dispute.
  • Mr Jeremy Newman, a senior employee of the defendant, who provided services to Harlequin at the same time as being ICE’s chief financial advisor. He later assisted Mr MacDonald when he reported Harlequin to the Serious Fraud Office (SFO) in June 2010 (with assistance from Mr O’Halloran.)

St Vincent and the Grenadines looks like an island paradise, a place of turquoise sea, white sand, green palm trees and endless sunshine. It’s no surprise that some 1,900 investors wanted a share in the development at Buccament Bay and paid a 30% deposit for units there. Apparently only 195 units were built and only around 16-20 investors own and occupy those units. Little surprise then, that there is “an ongoing Serious Fraud Office (“SFO”) investigation into Harlequin” and, that:

“…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…”

As Coulson J said:

“…the Harlequin business model might be said to bear the hallmarks of a serious and significant scam.”

Back to the judgment

This was a fact-based case, it was not one where “the law… loomed large”. In that sense, the judgment is all about Coulson J’s findings of fact and those are too long and detailed for me to recite here. Instead, I want to pick up on two specific points arising from the judgment:

  • Witness training.
  • An escrow payment.

Witness training

I don’t think that, in adjudication, those witnesses of fact that I get to question have had witness training, at least, not as far as I’m aware. Therefore, I was interested in Coulson J’s comments about Mr MacDonald and the fact that he had had witness training, a practice that he thought should be discouraged because:

“In my view, the training he received exacerbated Mr MacDonald’s natural tendency to avoid answering any difficult question.”

I wasn’t familiar with the judgment that was referred to, Republic of Djibouti and others v Boreh and others, so I looked up Coulson J’s link to the paragraphs where he had quoted Flaux J from:

“Whilst I am not suggesting that witness training in itself is improper, (provided that it does not amount to coaching of a witness as to what to say, which would be improper) it is to be discouraged, since, as this case demonstrates, it tends to reflect badly on the witness who, perhaps through no fault of his or her own, may appear evasive because he or she has been ‘trained’ to give evidence in a particular way.”

It is an interesting thought, especially as Flaux J said that it was obvious that the Djibouti witnesses had all had witness training and had been carefully prepared for giving evidence.

Perhaps it is something I should start to look out for: evasive witnesses who refuse to accept that there may be things wrong in their witness statements.

Escrow payment

Tucked away in section 11 of the judgment (paragraphs 885-888), Coulson J expressed his concern that any damages which he found to be payable to the claimants:

“…should be paid to the investors, rather than the company, much less to Mr and Mrs Ames.”

This was because it had been suggested during the hearing that one of the claimants, Harlequin SVG, might become insolvent (it filed the appropriate papers in October 2016).

As Coulson J was about to order a payment of some US$11.6 million (about half of the overpayment to ICE, reduced by 50% to reflect the claimants’ contributory negligence), he invited the parties to make submissions on the appropriate way for him to do this, whether it was by way of an escrow account or something else.

It reminded me of the “manifest injustice” principles that Edwards-Stuart J talked about in Galliford Try Building Ltd v Estura Ltd. There the court granted a partial stay of enforcement, finding that it would cause manifest injustice to the paying party (the employer), if the adjudicator’s decision was enforced in full.

At the time, I expressed my surprise at Edwards-Stuart J’s findings and questioned whether it was right and would be limited to “rare cases”, as the court said it should be. In contrast, I can totally understand why Coulson J’s sympathies lie with the 1,900 investors in Buccament Bay (let alone the remaining 6,300 who invested in Harlequin projects worldwide that were never built) and why he wants to give them the:

“…prospect of recovering some of their money from this Judgment.”

It works out at around US$6,100 each (assuming a flat rate is due to each one and there are no other creditors).

A Caribbean dream…

As I said before, you couldn’t make this stuff up! Billy Ocean sang about a Caribbean Queen. Perhaps one could described this as a Caribbean dream, that was shattered.

PS

Since I wrote this post, Coulson J has handed down his costs judgment from which, I note, he ordered the damages to be paid into court because his “relatively simple proposal” of an escrow account “gave rise to difficulties”:

“The claimant’s lawyers did not want the defendant’s lawyers to have any control over the escrow account and pointed out that the defendant’s lawyers did not act for the investors. The defendant did not want an escrow account as suggested by the claimant, which was subject to a simple undertaking from the claimant’s solicitors, and sought to claim an interest in the money in the account because of the possibility of an appeal.”

…The escrow account was designed to provide some protection – albeit temporary – to the investors, but I can now see, given the nature of the relationship between the solicitors, that it would not be appropriate to order any sort of escrow account.”

MCMS Ltd Matt Molloy

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