Law firm sued over hotel deal advice

  • Former mayor of Hamilton: Graeme Outerbridge

    Former mayor of Hamilton: Graeme Outerbridge

Bermuda law firm Trott & Duncan is being sued for more than $18 million by a US insurance company.

Fidelity National Title Insurance Company has filed a writ in the Supreme Court claiming that it became involved in a botched bid to build a luxury hotel on the site of Par-la-Ville car park because of advice it was given by the firm.

Delroy Duncan, partner at Trott & Duncan, said yesterday the proceedings were “without merit” and would be “contested vigorously”.

The civil claim from Fidelity, which alleges breach of contract and negligence, highlights a decision made by the Corporation of Hamilton, under former mayor Graeme Outerbridge, to act outside its legal authority in 2014 and guarantee an $18 million loan from Mexico Infrastructure Finance to developers Par-la-Ville Hotel and Residences Ltd.

PLVHR defaulted on the loan later that year and MIF has fought to get its money back ever since.

MIF earlier failed in a court bid to get the corporation to pay up after a judge ruled in 2016 that City Hall was not liable because it acted outside its legal power in giving the guarantee.

MIF made a claim for the $18 million to its insurer, Florida-based Fidelity.

It is alleged in the Fidelity writ that Trott & Duncan “failed to exercise the care and skill to be expected of reasonably competent attorneys” because it advised “unequivocally” that the Corporation of Hamilton was acting within its power when it guaranteed the loan.

Fidelity also claimed Trott & Duncan did not declare a potential conflict of interest over its “prior ongoing representation of the corporation”.

The writ, filed on behalf of Fidelity by law firm Taylors, said: “The plaintiff has suffered loss and damage and will continue to suffer loss and damage.”

It added: “The plaintiff may be required to compensate MIF for loss or damage sustained by MIF ... Under the policy, the plaintiff may be liable to MIF for losses up to $18,000,000.

“To date, the plaintiff has expended a sum in excess of $933,632.80 in legal fees relating to MIF’s claim under the policy and expects to incur further legal fees in the future.”

Fidelity wants the court to award damages “in respect of amounts paid to MIF” as well as continuing legal costs, plus interest.

Controversy dogged plans for a top-class hotel on the site of the Par-la-Ville car park for years and the Fidelity writ is the latest lodged in connection with the deal. PLVHR first reached a development agreement with the corporation in 2007.

The company’s founder, Donal Smith, went on to become Deputy Mayor in 2012, as part of Mr Outerbridge’s Team Hamilton administration. Mr Smith said he left the company before taking office as an elected alderman.

PLVHR secured the $18 million bridging loan from MIF to help arrange financing for the hotel project. But in April 2015, the car park was put into the hands of receivers after the loan was not repaid.

London’s High Court heard last September that PLVHR transferred $12.5 million through a trust to Gibraltar-based Argyle UAE Ltd, run by businessman Robert McKellar. It was alleged Mr McKellar used the money to buy a luxury Aston Martin car, an engagement ring and two countryside properties in the south of England.

The proceedings against Mr McKellar were brought by liquidators for PLVHR and Argyle, as well as receivers for the trustees of the Skyline Trust, set up to enable the funding arrangement.

Walton Brown, home affairs minister, said in a recent statement that MIF’s civil case against City Hall, which it lost in both the Supreme Court and the Court of Appeal, is now set to end up in the Privy Council in London.

Fidelity’s statement of claim said it was approached by MIF in July 2014 for an insurance policy for the loan after another insurer offered the loan company a policy with an exclusion clause to exempt it from liability if the corporation lacked “legal or constitutional authority” to act as guarantor.

The statement added: “MIF was unsatisfied with the policy exclusion and approached the plaintiff seeking a title commitment which did not contain such an exclusion.

“The plaintiff was willing to consider issuing a title policy without the policy exclusion but required Bermuda legal advice ... in relation to the corporation’s capacity to enter into the guarantee.”

The writ claimed Trott & Duncan was asked to give an opinion on whether the corporation had the authority to enter into the guarantee.

Fidelity said the law firm advised: “The corporation has all requisite corporate power and authority to enter into, execute, deliver and perform its obligations under ... the guarantee” and that there was “no reason” not to issue an insurance policy without the exclusion clause.

The insurer said: “But for the opinion issued by the defendant, the plaintiff would have insisted on a policy exclusion to address the capacity issue.”

No one at Fidelity or their legal representatives, could be contacted for comment yesterday.

Mr Duncan said: “Trott & Duncan Ltd has been advised by a leading lawyer that the proceedings filed against the firm are without merit and they will be contested vigorously.”

The firm is represented by ASW Law, according to the Supreme Court cause book.

Hamilton mayor Charles Gosling, who earlier said the hotel negotiations were a “debacle”, declined to comment.

Mr Outerbridge, Mayor of Hamilton from May 2012 to May 2015, could not be contacted.

It is The Royal Gazette’s policy not to allow comments on stories regarding active court cases. This is to prevent any statements being published that may jeopardise the outcome of that case.

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