This article was previously published in ‘Construction News’ on 7 February 2017, and reproduced with kind permission.
A striking recent case from the Caribbean highlights the vital importance of putting formal, contractually binding payment procedures in place.
At its heart, Harlequin Property v Wilkins Kennedy  EWHC 3233 (TCC) was a professional negligence case – albeit one with trimmings of the absurd.
The claimant, Harlequin Property, was the developer of a luxury resort at Buccament Bay, St Vincent and the Grenadines, in the Caribbean. Wilkins Kennedy was a firm of accountants and business advisers that advised HP in connection with the project.
At the outset of his judgement, Justice Coulson noted that the case “[did] not lack startling features”.
One of these startling features was this: Harlequin Property paid its building contractor, ICE, around US$52m for the works without any written contract or detailed agreement on the scope of the works, or the monitoring or valuation of those works.
Harlequin agreed to make fixed payments weekly to ICE in significant sums. Yet those payments were not tied to interim claims for payment, nor to an independent valuation process. So ICE received the agreed amount weekly, irrespective of what work was carried out.
Unsurprisingly, it was this arrangement which drew the focus of Harlequin’s claim.
Harlequin alleged that it had not entered into a formal contract with ICE, in reliance upon Wilson Kennedy’s advice. This, Harlequin argued, led to a lack of control and serious delays on the project.
Harlequin also argued that ICE had been significantly overpaid. Thus, it brought a claim for breach of contract and/or duty against Wilkins Kennedy, alleging losses of around US$60m.
Harlequin Property’s claim included the following allegations:
Suffice to say, the case was factually dense: much of Justice Coulson’s judgement is given to consideration of the background and witness evidence. Ultimately, he rejected the second and third arguments above.
Notably, in relation to the third argument, Justice Coulson found that while a conflict of interest had existed, this strand of Harlequin’s claim was predicated on Wilkins Kennedy’s failure to pass to Harlequin information confidential to ICE. Accordingly, it failed.
Justice Coulson accepted that Wilkins Kennedy was liable to Harlequin in respect of its failure to advise on the necessity of a formal contract. However, he found that with one exception, this failure caused Harlequin no loss.
The exception was that, if Wilkins Kennedy had advised Harlequin to agree a contractually binding valuation process, ICE would have been paid a reasonable amount for the work done, in accordance with its rates.
In Justice Coulson’s view, ICE had in fact been paid around double what it ought to have been. He therefore concluded that Harlequin was entitled to loss and damages of US$23,261,941. However, he reduced that sum by 50 per cent (to $11,630,970.50) to reflect Harlequin’s contributory negligence.
Harlequin had received advice about the importance of a valuation process from several different sources. Thus, Justice Coulson considered that the failure to ensure there was a contractually binding valuation process was in part Harlequin’s responsibility.
Justice Coulson proposed that the damages be paid into an escrow account. His consideration of this point gave rise to interesting commentary on the implications of Harlequin’s potential insolvency, and his concern that the damages awarded ought to be paid to Harlequin’s investors.
However, in his costs judgement – which followed just over a week later – Justice Coulson ordered that the sums be paid into court, as the suggestion of paying into an escrow account caused difficulties.
This case is a salutary tale with a simple message – and if the drastic losses allegedly suffered by Harlequin Property do not stress the importance of putting formal, contractually binding payment procedures in place, little else will.
Finally, it would seem the project has proven to be a fertile ground for disputes and controversy, far beyond questions of construction law.
Not least among the reported issues are that Harlequin Property may have signed contracts with around 1,900 investors to build luxury villas, taking a 30 per cent deposit from each – yet, it has built only 195 apartments.
It is perhaps little surprise that, as noted by Justice Coulson: “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.”
For further information, please contact Digby Hebbard, Partner, Fladgate LLP (firstname.lastname@example.org)