Imagine relaxing in your beautiful cabana at a luxury resort in Buccament Bay, St Vincent and the Grenadines in the Caribbean. Sounds like a dream? The dream became a nightmare for Harlequin investors when it became clear that the units they had invested in would probably never be built.

The case of Harlequin v Wilkins Kennedy (a firm) [2016] serves as a reminder to put your agreement in writing, and, it goes without saying, to include some kind of valuation mechanism in your building contract.

Harlequin, owners of Buccament Bay and developers of a luxury resort, were advised by Wilkins Kennedy, a firm of accountants and business advisors. Harlequin brought an action against Wilkins Kennedy for losses arising out of Wilkins Kennedy’s advice in relation to construction of the development. In particular, Harlequin claimed that Wilkins Kennedy failed to advise them to enter into a building contract with ICE, the building contractor on the development.

The case contains what the judge called “startling features”: the ongoing investigation by the Serious Fraud Office; the fact that investor’s deposits were not ring-fenced; Buccament Bay was of limited size but there was no limit to the number of deposits taken for cabanas (1,900 deposits taken compared to 195 units built, of which 16-20 are now owned and occupied), and the fact that Wilkins Kennedy acted for both Harlequin and ICE.

The judge made it clear that the case did not decide any new law, but rather, turned on its facts. This was particularly problematic since he found that he could not rely on the evidence of either of the main witnesses.

The judge described elements of the Harlequin business model as similar to a “Ponzi” scheme. However, he also criticised ICE for buying yachts and aeroplanes out of the money that Harlequin provided, rather than paying its subcontractors and Wilkins Kennedy for failing to recognise acting for both Harlequin and ICE as a clear conflict of interest.

Ultimately, despite the criticisms levelled at Harlequin (now in liquidation) the judge found in favour of Harlequin in relation to Wilkins Kennedy’s failure to advise Harlequin to enter into a building contract with ICE. He held that this had caused Harlequin to overpay ICE approximately $24 million. Of that, the judge reduced the payment by 50% as a result of Harlequin’s contributory negligence, in not checking that some kind of valuation of the works was taking place. He ordered that the sum of $12 million should not be paid directly to Harlequin at this stage but should be paid into court to take into account the interests of the investors – perhaps there will be a happy ending for them after all.

The moral for clients? Always put the agreement in writing. For advisors, a failure to advise clients to enter into building contracts may be negligent. And for investors – if it looks too good to be true, it probably is.