Debts in paradise

23 March 2017 | By Robert Akenhead

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A Caribbean case - marked by carelessness and potential illegality - highlights how horribly wrong a
construction project can go. It also shows the specialist expertise of the TCC

It is often the cases that do not raise complex legal issues, but illustrate the pitfalls that can be
encountered in construction projects, that turn out to be the most interesting and illuminating. The
Technology and Construction Court (TCC) decision in Harlequin Property (SVG) Ltd & Anor vs Wilkins
Kennedy [2016] is a prime example. This is no ordinary case. Its stark and colourful facts provide an
illustration of how developments can go horribly wrong in the absence of clear contractual
arrangements and – crucially – proper financial controls.

Harlequin was a developer of a luxury resort at Buccament Bay in St Vincent and the Grenadines.
This project was funded by deposits from investors. A total of 1,900 deposits were taken. Not only
were these not ring-fenced, but the number of deposits, the judge found, substantially exceeded the
number of properties that were realistically going to be built at the resort. The judge described the
business model in frank terms: as one that “might be said to bear the hallmarks of a serious and
significant scam”.

Other aspects of the development that emerge from the judgment are equally startling. The firm did
not own, and had no permission to build on, parts of the intended site. Indeed, the owners of one
key piece of land had refused to sell.

The judge described the business model in frank terms: as one that ‘might be said to bear the
hallmarks of a serious and significant scam’

Harlequin had terminated the engagement of its first contractor in mid-2008 for various reasons. It
then engaged ICE Group to complete construction of “phase 1” of the resort. For a project of this
size and value it was a remarkably loose arrangement. At no stage was there any formal written
contract and no detailed agreement was reached as to the scope of works, the monitoring of those
works or their valuation. Instead, ICE received payment of a fixed amount every week, irrespective
of the work it had actually carried out. This weekly amount escalated substantially: it rose from
$125,000 (£101,200) per week in September 2008, to $364,245 (£ 293,900) per week by March
2009.

The judge found that a significant portion of the responsibility for this arrangement was due to
Harlequin’s accountant and business adviser, Wilkins Kennedy, which negligently advised Harlequin
not to have a contract with ICE and failed to advise that a contractually binding system of valuation
was needed to clarify what the agreed scope of works was, and that the payments being made
tallied with the value of the work. The judge found Harlequin itself was also partly to blame: it had
received advice on the importance of proper valuation from another source, but failed to protect
itself by ensuring there was a proper valuation process and that it was being followed.

In any project, the importance of clear, arms-length contractual arrangements also extends to
professionals. That, too, was absent here. One unusual feature of the case was that Wilkins
Kennedy, while acting for Harlequin, was advising ICE on same project. A close relationship
developed between ICE’s principal and one of Wilkins Kennedy’s partners, culminating in a stag
weekend in Monaco shortly before the relationship between Harlequin and ICE collapsed. WK was
on both sides of this bitter dispute.

No doubt a trip to the sunny climes of St Vincent and the Grenadines was a great burden on the
otherwise piña colada-less life of a TCC judge

Predictably, the project went horribly wrong. The judge found that, during the final disintegration of
relations between Harlequin and ICE, the contractor no longer cared or was interested in completing
the resort. Things ended with the termination of ICE’s engagement, ICE blocking access to the site
with cranes and lorries and refusing to leave, and Wilkins Kennedy withdrawing its services from
Harlequin before reporting it to the Serious Organised Crime Agency and the Serious Fraud Office.

By the time its appointment was terminated, ICE had been paid $52m (£42m) for work that the
judge determined to be worth just $24.7m (£20m). This overpayment was attributable, in part, to
Wilkins Kennedy’s failure to advise on the need for a written contract, and binding mechanism for
valuing the works. But the judge decided the loss recoverable from Wilkins Kennedy should be
reduced by 50% from $23.2m (£19m) to $11.6m (£9m) due to Harlequin’s contributory negligence in
ignoring the advice of others. The judge also made no attempt to hide his concern that recovery
might be for the benefit of the investors in the resort, who had lost significant sums. He proposed
the sums awarded be paid into an escrow account while the competing interests of Harlequin, its
liquidators and its creditors were resolved. This was a novel solution to a situation that must have
caused investors considerable heartache.

The decision also demonstrates the great prowess and flexibility of the TCC. No doubt a trip to the
sunny climes of St Vincent and the Grenadines (both for a site view and to take oral evidence from
local witnesses) was a great burden on the otherwise piña colada-less life of a TCC judge, but the
promise of a 900-paragraph judgment to write on his return will surely have lifted his spirits.
Specialist knowledge of construction projects, and what leads them to go wrong, is essential in many
large disputes. That knowledge, and its ability to master huge quantities of documents and complex
facts efficiently, is what makes the TCC unique.

Sir Robert Akenhead is an arbitrator, mediator, DRB member and adjudicator at Atkin Chambers.
From 2010-2013 he was judge in charge of the Technology and Construction Court. He was assisted
in this article by Omar Eljadi, a barrister at Atkin Chambers