The Corporation of Hamilton will be shut down and replaced by a board of administrators if it continues to challenge Government’s authority through the courts.

And the threat looks likely to lead to a head-on collision between the municipality and Home Affairs Minister Michael Fahy after City Hall insiders revealed defiant councillors are now plotting another round of legal actions against Government.

The ultimatum was issued by Sen Fahy last week after the Corporation had filed a series of writs against Government in recent months. The latest dispute arose after Government assumed temporary financial stewardship of City Hall in December.

At a crunch meeting with Hamilton Mayor Graeme Outerbridge and Corporation Secretary Edward Benevides on April 10, Sen Fahy is said to have “drawn a line in the sand”, threatening that the Team Hamilton administration will be disbanded unless it desists from further legal challenges.

In a letter dispatched to Corporation councillors immediately after that meeting, Mr Benevides wrote: “The Minister said that, now that the court action regarding the stewardship had been adjudicated, he expected no more court actions to be initiated by the Corporation of Hamilton against the Government.

“The Mayor pointed out that he was only one voice and that the Council itself needed to respond. The Minister said that court actions were distracting and costly to the taxpayers with expenditures that could be better served elsewhere. If the court actions continue the Government would have no choice but to amend the legislation and replace the Council with an appointed Board. This was not the Minister’s choice but the continued court actions had to stop. After a brief discussion it was agreed that the Council Members would be invited to a meeting with the Minister at which time he would address the issue directly.”

Ahead of that meeting, scheduled for next Wednesday, councillors met to discuss the latest crisis and, according to one Corporation insider, have now agreed to call the Minister’s bluff by launching further legal challenges to Government.

The insider said that a majority of committee members had agreed to reject recommendations for good governance laid out in a report filed by Ombudsman Arlene Brock. They also plan to ignore a set of Financial Instructions imposed by Government as a result of concerns highlighted in Ms Brock’s dossier.

Ms Brock launched a nine-month probe of the municipality in March 2013 amid growing concerns that Team Hamilton was stepping beyond the bounds of its remit. Her damning report, filed in December, listed a catalogue of administrative flaws that had “crept up at every corner in a dazzling, infinite, relentless variety and wilfulness of ways” within the corridors of City Hall.

As a result of that report, Government took over control of the municipality’s purse strings. The Corporation was given back its financial independence last month on the proviso that it obeyed a set of Financial Instructions — basic rules and regulations — that were drafted with the cooperation and approval of City Hall administrators.

Last night the Corporation source told The Royal Gazette: “Quite frankly everything that the Ombudsman found to be wrong continues unabated — private meetings, actions without resolutions, none-sharing of information with all council members and intimidation of staff all continue as before.

“In fact the Mayor’s attorneys have written to the Ombudsman and informed her that they don’t intend following her recommendations contained in her report.

“They have also concluded that they also don’t intend following the Minister’s new Financial Instructions. Their lawyers have advised that they should not follow them. Of course not doing so will place the Mayor’s quorum in direct conflict with our management team, who have already approved of them. And as we have seen in the past what happens when the managers express their reluctance to act illegally — they are threatened with dismissal.

“The lawyers and the Mayor’s quorum are, between them, a marriage made in hell.”

The Corporation has launched numerous lawsuits — and racked up hundreds of thousands of ratepayer dollars in legal fees — in ultimately futile legal challenges in the last 12 months. Last year it sought to overturn Government legislation returning voting rights to city-based businesses.

It also tried — and failed — to block Ms Brock’s findings of rampant maladministration at the municipality being made public, while Mayor Outerbridge and Deputy Mayor Donal Smith were found to be in contempt of court for failing to cooperate with the probe.

And just last week it called for a judicial review seeking to revoke Government’s temporary financial stewardship of the municipality — even though the order had been voluntarily withdrawn by Government a month earlier.

Last October The Royal Gazette revealed that the Corporation had already burned through the $105,000 it had originally set aside for legal fees. In addition, it had paid out a further $480,000 of a $850,000 contingency account. It is also understood that the Corporation has handed over another $200,000 in retainer fees to a top London law firm with a view to pursuing further legal actions.

Asked last October for a breakdown of how the money had been spent, Mayor Outerbridge said that details would be provided at some point in the future.

When asked last week for details of the Corporation’s legal bills, Mr Benevides said: “We have no comment on these matters at this time.”