Harlequin business model potentially dishonest from start to finish – Judge

The Harlequin business model has been described by British High Court judge, the Hon Mr Justice Coulson, as “at least potentially, dishonest from start to finish.”

In a judgement handed down on December 12, in the case brought by Harlequin against accounting firm Wilkins Kennedy, Coulson said Harlequin founder Dave Ames was less than candid with the court and admitted lying on various occasions during the course of the development of the resort.{{more}}

The judge, however, said he does not think that Ames lied about everything related to the case: “On some matters, he was plainly telling the truth. Moreover, there was at least an element of Mr Ames’ dishonesty which was rooted in his stubborn desire to believe that everything would somehow turn out for the best.”

Describing Ames as “a Walter Mitty-type figure, who, through an unhappy mixture of dishonesty, naivety and incompetence, has caused irreparable loss to thousands of people,” the judge said one of the reasons for this disastrous chain of events was that no-one reined Ames in or explained to him the basic commercial realities of what he was undertaking.

According to the judgement, the Harlequin business model was operated through HMSSE, a company of which Carol Ames, the wife of David Ames, was the sole director.

HMSSE, which was now in liquidation, was engaged in selling the properties at the Buccament Bay Resort, as well as all the other resorts in the Caribbean and elsewhere. 

Prospective purchasers (called ‘investors’ in the evidence) were asked to provide a non-refundable reservation fee of £1,000.  They then had 28 days (a period which might be extended on request) to provide a deposit which equated to 30 per cent of the selling price of the property.  If they needed a loan to cover the 30 per cent deposit, then HMSSE said that they would put them in touch with lenders who would offer a loan to cover the deposit.  Importantly, HMSSE promised to pay the interest on those loans on behalf of the prospective purchaser, until completion of the property.  

The 30 per cent deposit was immediately divided into two by Harlequin.  The first half was taken by HMSSE as commission. The remaining half was then what was available in HMSSE’s bank account for use by any one of the 30 or more separate Harlequin companies.  HMSSE would always make payments as directed by Dave Ames.  

An investor who paid his 30 per cent deposit (say £60,000) for a cabana at Buccament Bay selling for £175,000 might therefore have been surprised to discover that £30,000 of that deposit went to HMSSE (and was therefore never utilized for construction purposes) and that, whilst the other £30,000 might have gone towards the construction costs at Buccament Bay, it might instead have been spent on a completely different resort, or used at Mr Ames’ direction for a different purpose altogether. 

Harlequin, in defence, said that all of this was made clear in the guidelines for investors, which the judge said he disagrees with.

“Although there is a reference to some monies going to HMSSE by way of commission, there is nothing to suggest that it was anything like as much as half of every deposit.  Neither was there any reference in their guidelines to the web of different companies which has allowed Harlequin to put HMSSE into liquidation, whilst continuing to own the Buccament Bay resort in the name of Harlequin SVG, a company with no obvious obligations to the investors and registered abroad. Furthermore, although the guidelines do indicate that the deposit would not necessarily be used to build at the particular resort where the property had been reserved, the clear implication is that the money would at least be used on one of the Harlequin resorts.  There was nothing to indicate that, for example, the money could be used to sponsor Port Vale FC.  In any event, I also note that these guidelines were dated December 2009, long after Harlequin began selling properties and receiving deposits.  For these reasons, it is easy to see why so many investors felt – and continue to feel – that they were misled by Harlequin and why, after HMSSE went into liquidation, a number of them commenced legal proceedings,” the judge said.