The Corporation of Hamilton has won a legal challenge against a court order that made it liable for repaying an $18 million loan.

Judge Stephen Hellman ruled that the Corporation had no power to guarantee the loan from Mexican Infrastructure Finance to build a hotel on the Par-la-Ville car park.

Mr Justice Hellman, therefore, set aside the previously unchallenged Consent Order of May last year that had required the Corporation to pay MIF the loan plus interest. Mayor Charles Gosling welcomed the judgment handed down at the Supreme Court yesterday, describing it as a “lifeline”, but an MIF spokesman expressed disappointment and vowed to seek recourse in the New York courts.

“We continue to believe the Corporation of Hamilton is responsible for repaying this loan,” the spokesman said.

“They unilaterally signed off on releasing the monies we lent to the hotel project, which are now known to have been misappropriated, and it was clearly within their power to issue a valid guarantee on the loan.

“We intend to immediately pursue recourse in other jurisdictions, namely, New York, as laid out in the demand letter that was delivered to the Corporation to pursue what we believe is a just solution in this matter.

“We will explore additional jurisdictions to ensure that the rule of law is upheld and that future creditors to the Corporation and to Bermuda do not have their claims expropriated. It is unfortunate that this issue has not been settled and will continue to besmirch the reputation of Hamilton and Bermuda as a whole at a time when the country will be in the global spotlight.”

Mr Gosling told The Royal Gazette the judgment would allow the Corporation to get itself back on its feet.

“The ruling of Judge Hellman is a welcome lifeline for the Corporation of Hamilton, its ratepayers and those who rely on Bermuda having a functioning capital city,” Mr Gosling said. “While the guarantee in question was for $18 million, factoring in the total costs, this figure would have almost doubled. This alone would have crippled the City, its services and capital projects for at least 15 years.

“The ruling will allow the Corporation to concentrate on recovering other lost revenues and get itself back on its feet, not only in terms of those services and works but also in terms of further fiduciary responsibility and accountability.”

He added: “The Corporation anticipates that, despite their press release, MIF will appeal the ruling in Bermuda as they have already indicated to the courts to that effect. Until they make it clear that they are no longer seeking a ruling through the appellant process and have chosen another means of trying to secure a different ruling, the Corporation cannot comment further.

“A careful reading of Judge Hellman’s ruling may provide clarification as it pertains to the comments made in the MIF release on the Rule of Law and Contractual Law.”

In July 2014, the Corporation agreed to guarantee a bridging loan of $18 million made by MIF to Par-la-Ville Hotel and Residences Ltd to help PLV build a hotel on the Par-la-Ville car park.

On December 31 that year, PLV defaulted on the loan and MIF took the Corporation to court, in its capacity as guarantor, for the outstanding balance of $18 million plus interest.

The Corporation initially concluded it did not have a defence to the claim and a Consent Ruling was made by the court in May 2015 against the Corporation for the full amount.

However, the City launched a fresh legal challenge in June to set aside the Consent Order on the basis it had no power to make the original guarantee and therefore it should be null and void.

In his ruling, Mr Justice Hellman agreed that the Corporation had acted “ultra vires” in providing the guarantee and set aside the Consent Order.

“I have every sympathy with MIF given the position in which it now finds itself,” Mr Justice Hellman said.

“Nonetheless, I would not go so far as to say that the Corporation’s behaviour was so unreasonable as to render the application to set aside the Consent Order abusive.

“When considering the matter in the round, in my judgment the most important contextual feature is that it is in principle undesirable for the court to enforce a guarantee which is in law a nullity.

“This outweighs the various contextual features pointing in the other direction, including the serious prejudice to MIF which may be caused by not enforcing the guarantee.”

Mr Justice Hellman noted in his ruling that there might be other ways for MIF to pursue the $18 million.

“This judgment does not determine that MIF cannot recover the amount of the loan monies from the Corporation: merely that it cannot do so by enforcing an ultra vires guarantee,” he said.

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