Harlequin wins up to US$15m in Judgment against accountancy firm Wilkins Kennedy
On Monday 12th December, hotel and property developers Harlequin celebrated victory over their former accountants Wilkins Kennedy following their pursuit for damages through the High Court. Harlequin received a favourable judgment in a case that lasted 7 weeks and have been successfully awarded up to US$15m, including interest and costs (TBC), by Mr Justice Coulson. At 11am on Monday, a 350-page judgment was handed down that severely criticises the top-20 accountancy firm.
Wilkins Kennedy were retained by Harlequin between 2006 and 2010 to provide financial and business advice focused on helping to build and create the Buccament Bay Resort in St Vincent and the Grenadines.
However, according to Mr Justice Coulson (in paragraph 184 of his Judgment) senior representatives of Wilkins Kennedy (Martin MacDonald and Jeremy Newman) did not have “the first clue as to any rule relating to client confidentiality”. This criticism was prompted by the accountancy firm’s poor decision to take on Harlequin’s building company called ICE as a client. At the time, Harlequin and ICE were in a bitter dispute over the costs associated with building work, but Wilkins Kennedy chose to work for both the developer and the builder at the same time, but without telling Harlequin.
The High Court found that both accountants at the firm then sided with ICE’s boss, Paudie O’Halloran, who misappropriated over US$12 million from Harlequin’s investors’ money in the Caribbean to buy planes, yachts, and live an extravagant lifestyle at Sandy Lane in Barbados. In an earlier hearing in 2013, the Commercial Court in Dublin had found Mr O’Halloran liable for fraudulent misappropriation from Harlequin.
Details in the Judgment:
At paragraph 9 of the Judgment, Mr Justice Coulson says:
“Finally, there is the fact that Wilkins Kennedy 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 Wilkins Kennedy, 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 Mac-Donald 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.
“On the basis of Mr MacDonald’s oral evidence, I conclude that he was the de facto CFO or FD of Harlequin, and in particular of Harlequin SVG.”
At paragraph 10 of the Judgment, Mr Justice Coulson said:
“… the internal documents emanating from Wilkins Kennedy in the early part of 2010, which reveal an attempt by Wilkins Kennedy 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 Wilkins Kennedy, through Mr MacDonald, was attending meetings on behalf of Harlequin purportedly to argue with ICE about money, it meant that Wilkins Kennedy were on both sides of what was (and remains) a very bitter dispute…”
At paragraph 17 of the Judgment, Mr Justice Coulson said:
“… This case centres on the extent (if at all) to which Mr MacDonald should have advised Mr Ames to take a different course. I believe that Mr MacDonald was aware of his vulnerability to that central allegation. In consequence, he was a singularly evasive witness. It you open the transcript of his cross-examination at a random page, the chances are that you will find at least one important question which Mr MacDonald is deliberately failing to answer. Despite the fact that I warned him that his failure to answer the questions was giving the impression that he was being thoroughly evasive, he maintained that stance. To describe him, as Wilkins Kennedy do at paragraph 88 of their closing submissions, as ‘fair-minded and thorough’ is, with respect, hopelessly unrealistic…”
At paragraph 19 of the Judgment, Mr Justice Coulson said:
“Mr MacDonald’s other defence mechanism was repeatedly to minimise his involvement in any given event. Thus, perfectly straightforward documents, with text (often written by Mr MacDonald himself) which set out what he was doing or saying at any given time, were the subject of agonising attempts by Mr MacDonald either to suggest that he was not really involved or to rewrite the document. Of his 45 overseas trips undertaken on behalf of Harlequin, most of which were to SVG, Mr MacDonald would have the court believe the he was there just ‘to pass on my business card’ or ‘to carry the bags’. Such attempts to distance himself from the relevant events were, at times, almost risible…”
At paragraph 20 of the Judgment, Mr Justice Coulson said:
“Mr Taylor, whom I consider to be one of the few entirely credible Harlequin witnesses, gave compelling evidence about Mr MacDonald’s nature and attitude. He said that when Mr MacDonald was with Mr O’Halloran (who the documents indicate was a large and imposing presence), Mr MacDonald went from being placid to being a bully, and he would mock the individuals who worked for Harlequin. Mr Taylor said he was ‘like the kid at school who was quiet and nerdy but then became best friends with the biggest bully. It was then that his ego changed’. From what I observed in court, I consider Mr Taylor’s description to be accurate.”
At paragraphs 23.3 of the Judgment, Mr Justice Coulson says:
“The witnesses not called: There were a number of witnesses who Wilkins Kennedy did not call, but the principal witness in this category was Mr Jeremy Newman, who had agreed to provide any evidence required of him by Wilkins Kennedy, but who was conspicuous from the trial by his absence. He worked for Wilkins Kennedy, he advised Harlequin, and he was later to describe himself as ICE’s Chief Financial Officer (“CFO”). In Harlequin’s opening submissions, relying on the case of Wisniewski v Central Manchester Health Authority  P.I.Q.R. 324, Mr Davidson QC suggested that the court was entitled to infer that any truthful evidence from Mr Newman would have assisted Harlequin, not Wilkins Kennedy. I agree with that submission, although I consider that many of the contemporaneous documents are so damning of Mr Newman that the inference is hardly necessary.”
At paragraph 169 of the Judgment, Mr Justice Coulson says:
“First, Mr Smith said that, on the day before the meeting, when he was walking round site, he met Mr O’Halloran for the first time. He said that, amongst other things, Mr O’Halloran told him that he was not interested in Mr Ames and was going to milk Mr Ames and Harlequin for everything he and it had. Mr O’Halloran told Mr Smith that he thought Mr Ames was a gullible man and should never have given ICE the project in the first place. It was not suggested to Mr Smith that this conversation did not happen. I find that it is more likely than not that it did, particularly as it is entirely in keeping with the internal WK emails, noted at paragraphs 180-200 below. I find as a fact that Mr O’Halloran’s game plan was described to Mr Smith in this way.”
At paragraphs 180 to 184 of the Judgment, Mr Justice Coulson says:
“The actual knowledge on the part of Wilkins Kennedy as to what was happening at Buccament Bay, and the gap between their knowledge and the information that they provided to Mr Ames, can be seen in a startling exchange of internal Wilkins Kennedy emails at the end of January/beginning of February. On 29 January 2010 [E/8434/1], Mr Newman said to Mr Walmsley, a partner at Wilkins Kennedy: ‘The position with Harlequin is a mess, so we are trying to get as much protection for ICE in place as we can, and get as much cash up front as possible. The consensus is that Dave [Ames] will try to do the dirty on ICE come the end of July; at the moment, Dave needs ICE and we have to make the most of that while ICE has the whip hand.’
“Bearing in mind that Mr Ames and Harlequin were longstanding clients of Wilkins Kennedy, and were at that time paying the £19.35 million in accordance with the May 2009 agreement, the deceit in this email speaks for itself. Mr Newman did not give evidence but the meaning of his email is plain. Mr Walmsley, who did give evidence, told me he was monitoring the situation to ensure that the two clients were not in conflict. But this email demonstrates that they already were, and Mr Walmsley was doing nothing about it.
“Mr Newman’s concern to ensure that, in the forthcoming bust-up, it was ICE that landed on the right side of the fence can also be seen in another email that he sent as part of the same exchanges on 29 January (E/8450). In that email he said: ‘Phase 1 for Buccament has been finalised and, for what it’s worth, Dave promised not to faff around with it again. The existing cabanas will be fin-ished off, and 3 hotel blocks built. The reception/back office area will be down by the beach, being housed within the area that has the restaurant such as Trader Vic’s. Paudie expects to be able to begin to scale back construction operations within a couple of months as various areas are completed, so the strain on his cash-flow will ease… Paudie and Mark have re-jigged the budget, and will be working on a week-by-week cash-flow over the next day or so. Dave has agreed to keep making weekly payments to the end of June; there will then have to be a balloon payment to clear a balance of circa US$20 million but this will be dependent on loan finance being available. We’re meting Paudie’s lawyers tomorrow afternoon and one of the items we need to get drafted is a formal agreement with Harlequin so that Dave has no wriggle room…
The dodgy Dubai loan has resurfaced – a copy of the revised agreement is attached. This looks (again) simply like advanced fee fraud, but it’s only €40k at risk. I’ll talk to Mac once he’s free about this as Dave is keen for Mac and me to go to Dubai next week to see the lender and his lawyers.’
“In response Mr Walmsley said: ‘Should we advise Paudie to secure his position? To charge his work in Barbados? A floating charge over Merrick’s or a fixed charge mortgage? If Paudie is to be owed $20 million at completion in June given recent form Paudie needs to seriously consider his exposure and risk and I would absolutely recommend obtaining security to support legal agreement.’
“Mr Newman responded to say that he was seeing ICE’s lawyers this afternoon. He went on: ‘I’m guessing Paudie’s position protected as far as we can is at the top of the agenda.’
“These exchanges are important for a number of reasons… they show that Mr Newman and Mr Walmsley had not the first clue as to any rule relating to client confidentiality… most [of this email] is about doing all they can to protect ICE’s position, at the expense of Wilkins Kennedy’s client Harlequin.”
Harlequin founder David Ames said outside of court: “We have lived with the failings of Wilkins Kennedy and the nightmare of this case for years. The impact their actions have had on our investors, the success of our business, our public reputation, the happiness of our family and our own health is undeniable. Wilkins Kennedy should be holding their heads in disgrace. I trusted them as my accountants, and I cannot believe they were acting behind my back to help a fraudster get away with funding a lavish lifestyle. The fact that my former accountant, Mr MacDonald, has now gone into business with that fraudster since all of this came to light shows what a conspiracy all of this has been.
“It is of no surprise that the aggressive and cynical tactics of the defendants were unsuccessful in distracting the court from the key arguments and evidence. With the sheer volume of mud that was thrown by the defendants, it was expected that some might make it to the Judgment, but it was a price worth paying for today’s successful result. In fact we are delighted the case has now resulted in such a strong judgment in favour of Harlequin and it vindicates what we have been saying for years. Today we have, at last, some justice. Tomorrow, we return to fighting to rebuild our business.”
Harlequin’s solicitor Richard Spector from ELS Legal added: “The details of this case has been extraordinary. That individuals from a respected, top firm of accountants should act in this way is shocking. The position of our client Harlequin has been clear throughout this case. They were given bad advice due to a conflict of interest. Today’s judgment confirms this to be true.”
Revelations during the case
Whilst hearing the evidence, Judge Mr Justice Coulson described some of the details as “extraordinary” noting that there were parts of the case unlike anything he had heard in thirty years of undertaking legal work.
Wilkins Kennedy’s Partner Kevin Walmsley confirmed to the judge that it was not common practice for the firm to represent two clients involved in a bitter dispute and that attempts by the company to set up a ‘Chinese Wall’ between its two clients ICE and Harlequin had failed. He confirmed that the evidence being presented showed that Wilkins Kennedy staff in fact didn’t understand how a “Chinese Wall” was supposed to operate.
Martin MacDonald, from Wilkins Kennedy, acting as the main liaison with Harlequin, confirmed under oath that in 2006 he forwarded confidential documents from Harlequin’s in-house solicitor to Harlequin’s building contractor the ICE Group. Harlequin’s in-house solicitor had sent the documents to, amongst others, Mr MacDonald with clear instructions that the document was “confidential” and not to be sent to the ICE Group. However, upon receiving the email, Mr MacDonald immediately forwarded the document to ICE Group’s Finance Director Mark Coggle. In 2013, the owner of ICE Group, Padraig O’Halloran, was found liable in the Irish High Court of fraudulent misrepresentation and misappropriating funds from Harlequin.
Martin MacDonald, who described himself in the evidence he gave at trial as having the nickname of “The Angel of Darkness”, also confirmed that he had personally lent Padraig O’Halloran, the owner of ICE Group, £500,000 of his own money as an unsecured loan, and that in 2009 he had agreed to be best man to Padraig O’Halloran for a wedding that, ultimately, never took place.
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