The City of Hamilton dodged a $30 million bullet after London’s Privy Council found in its favour in a dispute over a guarantee for a failed hotel project, the mayor said yesterday.

The Corporation of Hamilton had guaranteed an $18 million bridging loan, which defaulted, between Mexico Infrastructure Finance and Par-la-Ville Hotel and Residences Ltd.

However, Lady Arden, in a majority decision released yesterday, ruled that the project did not have a “municipal purpose” — which meant the corporation did not have the power to give the guarantee, which voided it.

Charles Gosling, the Mayor of Hamilton, said he was pleased by the ruling.

He added: “If we had not challenged the guarantee, the city ratepayer and anyone using city services would have had to shoulder, in large part, the funding for the financing of the debt, which, with financial and other charges, could conceivably have totalled close to $30 million.”

Lady Arden, in a decision backed by Lord Reed and Lord Briggs, said it was clear the purpose of the guarantee was to help the developer obtain funding.

She added: “It is no part of the corporation’s functions to act as banker to a developer.

Lady Arden said: “The hotel complex did not provide any service or facility for inhabitants, except possibly for the conferencing facilities, but it has not been suggested that the conferencing facilities alone, doubtless a relatively small part of the total complex, could make the purpose municipal.

“The guarantee was not capable of being brought within the corporation’s powers by reference to a wider motivation and desire on the corporation’s part generally to promote Hamilton’s economic development.”

Lord Sumption wrote a dissenting opinion, supported by Lord David Lloyd-Jones, that argued the Corporation did have the power to guarantee the bridging loan.

He said: “‘Municipal purposes’ are purposes calculated to benefit the current and future residents, permanent or temporary, of Hamilton in their capacity as such. That is the relevant limitation.

“I can see no justification either in principle or in the language of the provision for distinguishing between benefits consisting in the direct provision of services or facilities to residents, and expenditure on the promotion of the city’s economic development which benefits the residents less directly.”

Lord Sumption wrote that the city could invest in sports or entertainment facilities, even if they would be mostly used by non-residents.

He said: “It would be artificial to say that these purposes, which indirectly serve the economic interests of the city and its inhabitants, are not municipal purposes.

“These examples, and one could give many others, illustrate the technical, functionally irrelevant and barely workable distinctions which it is necessary to make if the test favoured by the majority be correct.”

The Corporation of Hamilton backed an $18 million bridging loan from MIF to Par-la-Ville Hotel and Residences Ltd in 2014 and put up the city’s Par-la-Ville car park as collateral.

The guarantee was intended to help the development of a $350 million luxury hotel, to have been built on the site of the car park.

But the developer defaulted on the loan and a consent ruling was made by the Supreme Court in May 2015 against the corporation for the full amount plus interest.

The city later appealed on the ground that it never had the legal power to make the guarantee, which meant the agreement was null and void.

The Supreme Court found in favour of the municipality in 2016 and the decision was later upheld in the Court of Appeal.

Mr Gosling said the ruling removed a “potential commitment” from the city’s books, but that the prolonged legal battle gave the city time to tackle a decline in revenues.

He added: “We will carry on with that initiative. We still see street parking revenue continuing to fall, even with a reinvigorated collection of parking fines.”

Mr Gosling said: “This revenue recovery has greatly lessened the hindering impact of a repayment schedule, but we will continue on that front as well as other issues such as the installation of solar panels where we can promise full power usage for such everyday energy gobbling utilities as our sewerage pumps.”

He added that the municipality also wanted to improve sewage treatment in a bid to cut the risk of “grease balls” off South Shore.

He said: “Initial studies have been very positive. If our results are reaffirmed, this multiyear project could be started within months — as long as we remember anyone can borrow money. It is the paying back that is the challenge.”

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