The Corporation of Hamilton yesterday argued that its $18 million guarantee of the Par-la-Ville Hotel project was not valid, during a hearing in the Supreme Court.

At the in-chambers hearing before Puisne Judge Stephen Hellman, the municipality claimed that despite amendments to the Municipalities Act, it could not legally issue the guarantee for the project as it was not for a “municipal purpose”.

However, lawyers for Mexico Infrastructure Finance LLC, the firm that issued the loan to the project developer, argued that the use of municipal land and the approval of the relevant minister meant that the guarantee — and a subsequent consent order from the corporation — was valid. They further argued that it was an abuse of process to raise the matter so late in proceedings.

The case relates to a bridging loan issued by MIF to Par-la-Ville Hotel and Residences Ltd who sought to erect a luxury hotel on the site of the Par-la-Ville car park.

In order to support the project, the Corporation of Hamilton agreed to guarantee an $18 million bridging loan from MIF.

Amendments to the Municipalities Act were approved purportedly to allow the corporation to issue the guarantee using municipal land.

The guarantee was issued and the bridging loan approved, but the developer subsequently defaulted on the loan and efforts to recover the funds have been unsuccessful.

While the corporation subsequently approved a consent order acknowledging the guarantee, it has since filed an application to set aside the consent order on the grounds that it was not valid, as the guarantee had not been valid.

Barrister Michael Beloff, QC, representing the corporation, said that while such a ruling might be “unattractive”, he added: “The case law is crystal clear that this is the inevitable consequence.”

He argued that the project was not for a municipal purpose as required by statute and, as a result, the guarantee for the project was “ultra vires” — beyond the corporation’s legal power. He told the court that the guarantee itself stated that it was intended for “private and commercial purposes”, which he described as the antithesis of municipal purposes.

And Mr Beloff argued that even though property at the heart of the project was corporation land, this did not necessarily mean that the project had a municipal purpose. “They cannot do something not on their land, but it doesn’t mean everything connected to their land is of a municipal purpose,” he said.

On the subject of the amendments intended to allow the guarantee, Mr Beloff said that while the amendments extended the corporation’s ability to issue guarantees, they did not touch on the municipal purpose requirement.

And he refuted the suggestion that the application was an abuse of process, stating that the issue was only recently identified and the corporation acted as soon as practicable.

“They thought that the problem had been cured,” he said. “Until this was raised, no one thought there was any problem.

“We didn’t delay once we knew there was this point and we had ministerial approval.”

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