A finance firm has launched a bid to claw back a $13.7 million loan intended to help fund the failed Par-la-Ville hotel development from the City of Hamilton and a US bank.

Mexico Infrastructure Finance wants compensation plus interest on the money, loaned to Par-la-Ville Hotel and Residences three years ago, from the city and The Bank of New York Mellon.

While courts in Bermuda last November ruled that the Corporation’s guarantee for the $18 million loan was void, Mexico Infrastructure Finance (MIF) has alleged that the money was withdrawn through “fraudulent and negligent misrepresentations” in a complaint filed in the Supreme Court of New York.

According to a press statement released on behalf of MIF, in July of 2014 the company agreed to loan up to $18 million to the hotel developer, subject to various conditions.

The statement said: “The purpose of the MIF Loan was to cover PLV’s expenses associated with procuring $325 million in long-term, senior financing to construct a luxury hotel, condominium, and car park project in Hamilton. The MIF loan was a short-term bridge loan that would mature on December 30, 2014.

“The majority of the loan could not be accessed by PLV unless and until PLV had secured a senior loan of at least $225 million and an equity investment of at least $100 million to finance the project, all of which was subject to the review by and approval of Hamilton. Hamilton signed an escrow agreement with MIF, PLV and The Bank of New York Mellon as escrow agent, which allowed the proceeds of the MIF Loan to be released only upon the written authorisation of Hamilton and then only to a senior escrow account for the benefit of the senior lender.”

According to the complaint, MIF was unable to review or approve the loan documents due to “supposed confidentiality concerns” and relied on the Corporation and the bank to ensure that senior financing was secured.

In October of 2014, the complaint claims that PLV informed the municipality that it had entered into a financial agreement with Argyle Limited.

However, MIF claims that the agreement was not a permanent loan funding agreement, but instead a “Trade and Profit Share Agreement” between Argyle and trustees of the Skyline Trust.

“The Argyle agreement was not and does not even purport to be a ‘loan agreement’, and unquestionably did not qualify as a ‘permanent loan’ to PLV as defined in the escrow agreement,” the complaint said. “Indeed, PLV is not a party to the Argyle agreement.” It added that the fact the money was moved into the PLV director’s personal account should have raised clear “red flags”. The lawsuit alleged that the municipality “falsely represented” that senior financing was in place and instructed the escrow agent to release the funds to PLV instead of to the senior escrow.

The statement by MIF continued: “As a result of Hamilton’s fraudulent and negligent misrepresentations, more than $13.7 million of MIF’s funds were diverted and, according to press reports, were used to finance extravagant purchases, including an Aston Martin, an engagement ring, and two properties in the English countryside.”

The Corporation of Hamilton had not responded to a request for comment by press time last night.

The loan and guarantee has been the subject of legal contention since the loan first defaulted on December 31, 2014.

While the Corporation initially signed a consent order, it later applied to overturn that order on the grounds it was not legally empowered to make the original guarantee. Bermuda’s Supreme Court last November ruled that the Corporation had acted “ultra vires” — beyond its powers — in providing the guarantee, which made both the guarantee and the consent order invalid. The decision was upheld by the Court of Appeal this year.