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Firm loses appeal over $18m loan

Finance firm Mexico Infrastructure Limited has failed in its bid to overturn a court ruling that removed responsibility for repaying an $18 million loan from the Corporation of Hamilton.

Last November, Supreme Court Judge Stephen Hellman ruled that the Corporation had no power to guarantee the loan from MIF to build a hotel on the Par-la-Ville car park. The judgment prompted an appeal by MIF who insisted the Corporation of Hamilton should be responsible for repaying this loan because it “unilaterally signed off on releasing the monies we lent to the hotel project”.

The Court of Appeal handed down its judgment dismissing the appeal by MIF on Friday morning.

Its ruling stated: “In the circumstances I would dismiss the appeal and uphold the learned judge's conclusion that, firstly, in providing the guarantee acted ultra vires and the Corporation's application to set aside the Consent Order was not an abuse of process.

“Accordingly, I would agree with the judge's order than the consent order should be set aside.”

Mayor of Hamilton Charles Gosling, commenting after the ruling, said: “In early May 2015, the morning following my election as Mayor, along with newly elected and returning council members, we were summoned to a meeting with those familiar with the MIF guarantee case before the courts. We were unequivocally told that there was no defence and that the new Corporation of Hamilton team had no recourse but to accept the fact that ‘we' were liable for an $18 million guarantee given to MIF plus any arising interest.

“A couple of years later I am happy that two courts have decided otherwise.

“Without having a consistent revenue stream, stronger than what we had in 2015, any other ultimate ruling would have devastated the Corporation of Hamilton. The $18 million, once paid back in full, would have been a sum closer to $30 million. That is the number I consider we have saved the rate payers (as the Corporation is simply the institution that acts on their behalf) and those who use our city and its services.

“In the meantime we are still actively trying to regain lost parking revenue and to be in a position to reinvest in vital city capital projects. We have a commitment from Government to support us in this regard as they are fully aware of the implications of further delay. We are pleased that a Hamilton Parking Ordinance 2017 is to be presented to Parliament in this sitting and the enactment of the Traffic Offences Procedure Amendment and Validation Act 2015 within the next couple of weeks.”

It was in July 2014 that the Corporation agreed to guarantee a bridging loan of $18 million made by MIF to Par-la-Ville Hotel and Residences Ltd.

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.

Mr Gosling said the retrieved revenue would “enable us to work on such projects as taking further significant steps in improving the treatment of our sewerage output from the city and surrounding areas”.

“There are a number of other capital projects necessitating corrective maintenance or further development. This could be the first time in a number of years where we get to stand up on two feet and get things done, rather than being hobbled and looking at what has to be put off for another year.

“We did not enter into this action gladly. The guarantee was the wrong commitment made at the wrong time supporting the wrong developer. All parties involved in seeking the guarantee were aware of the ultra vires concern, everyone believed the issue had been corrected through legislation. No one took the effort to see if it had indeed been ‘fixed'. It had not.

“If we had not fought this issue, it would have cost every Bermudian in one way or the other. We did not think it fair to accept what was, because of the ultra vires, an agreement voided from the start.

“It was not through the fault of anyone besides that of the mayor and certain members of the council, an elected group who took it upon themselves to ignore their fiduciary duty and play outside their legislated remit with somebody else's money. Taking this legal action was the best means to protect the Hamilton community from what was a horrible, ill-considered undertaking.

“Court actions in the UK continue the effort to recover the monies inexplicably released to a Gibraltar-based company. While this action is less our battle now, we invested in the outcome when no one else was interested in seeking recovery.

“When a group of us sought election, John Harvey, Dennis Tucker, Nicholas Swan, Larry Scott, Henry Ming, Carleton Johnson and myself, we made the commitment to restore good governance and bring the ‘best' back to the city.

“With the able representation of Michael Beloff QC, Ronnie Myers, and Mark Diel, we are living up to our commitment.”

Charles Gosling

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Published May 15, 2017 at 9:00 am (Updated May 15, 2017 at 7:42 am)

Firm loses appeal over $18m loan

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