A judge has found the directors of Par-la-Ville Hotel and Residences Ltd may have “acted dishonestly” and refused to drop injunctions against them linked to an $18 million loan.

Directors Michael and Yasmin MacLean, along with trustees Shane Mora and Matthew Hollis, have argued that they were acting on legal advice by local attorneys.

However in a recent ruling, Puisne Judge Stephen Hellman wrote: “I am satisfied that on the particular facts of this case, there is a good arguable case that the directors and the trustees have acted dishonestly.”

He added that when the injunctions were initially obtained it appeared there was a case that the directors had misappropriated the money for their personal use, but based on new information it appeared more likely that they had acted to benefit the company (PLV).

For several years, PLV has sought funding to erect a luxury hotel on the current site of the Par-la-Ville Car Park.

Last year Mexico Infrastructure Finance LLC (MIF), a Delaware-based company, agreed to offer an $18 million loan to PLV last year, guaranteed by the Corporation of Hamilton.

The purpose of the loan was to provide funds to pay expenses associated with a permanent loan which was to be negotiated to fund the hotel’s development.

The money was placed in an escrow account, with PLV only allowed to withdraw it after conditions had been satisfied — specifically the funding of a $225 million loan and an equity investment of $100 million, or a “substantially similar financing structure”.

The funds were withdrawn in October after PLV secured a Trade and Profit Share agreement with Gibraltar-based Argyle Limited, under which PLV would pay Argyle a non-refundable $12.5 million fee in exchange for a one-year open line of credit worth up to $125 million.

The MIF loan defaulted on December 30 last year, with the company calling for the entire outstanding balance of $18 million plus interest.

MIF has argued that PLV, through its directors, withdrew the funds by making a “fraudulent misrepresentation” that the Trade and Profit Share agreement was substantially similar to the permanent loan funding agreement required.

Late last month MIF received a summary judgement by consent against the Corporation for $18 million. After a contested hearing, they also won a summary judgement against PLV in the sum of $19,397,819 based on its failure to repay the loan.

Ex parte injunctions were subsequently made by the courts against PLV, its directors and trustees prohibiting them from dealing with their assets up to a value of $15,449,858, except for “reasonable sums” for legal advice, cost of living and costs of business.

During a hearing in the Commercial Court on May 26, the PLV directors and trustees sought to be freed from the injunction, inviting the court to infer that PLV was acting on legal advice.

In a ruling dated June 18, Mr Justice Hellman wrote: “I decline to speculate on the content of any such legal advice when I have not seen it, or their attorney’s instructions, or any evidence of the circumstances in which any such advice was given. The advice is of course subject to legal professional privilege.

“Moreover, there is a good arguable case that the mere fact that an attorney advises that a transaction is legally permissible does not necessarily mean that it is not objectively dishonest or that the party seeking the advice would not have appreciated that it was dishonest.

“I am satisfied that, with respect to both its proprietary and its personal claims, MIF has a good arguable case based on solid evidence against the directors and the trustees.

“This is notwithstanding their vigorous submissions to the contrary.”

Mr Justice Hellman, however, added that he was not making any final determination as to the merits of the case, noting that he had not had detailed explanation of the actions of the defendants.

“There are at least two sides to every story and the facts may assume a different complexion at trial,” he wrote.

The directors and trustees also argued that they should not be subject of the injunction because the monies were not in their possession and that there was no real risk that judgement against PLV would go unsatisfied because of the Corporation guarantee.

Mr Justice Hellman noted difficulties with both arguments, finding that he was satisfied that there was a real risk that, unless the trustees and directors are restrained from dealing with the monies, any judgement against them would go unsatisfied.

“Specifically, I am satisfied that unless restrained from doing so there is a real risk that these defendants would, insofar as they have access to it, seek to place the senior escrow amount beyond the reach of MIF,” he wrote.

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