An insurance company has launched legal action against a law firm over the failed Par-la-Ville hotel project.

Fidelity National Title Insurance Company alleges that Trott & Duncan did not warn that a guarantee by the Corporation of Hamilton may not be enforceable.

The law firm applied to have the case dismissed, but Puisne Judge Shade Subair Williams ruled this month that the action could go ahead.

Mrs Justice Subair Williams said: “It matters not whether I find, as a matter of impression or on an uninformed provisional basis, one argument favourable over the other.

“The point is that these disputes are all arguable on both sides and ought not to be summarily dismissed on the possible preliminary views of a judge at an interlocutory stage.

“Ultimately, the court’s final findings will turn on the full facts of this case.”

The dispute involves an $18 million bridging loan from Mexico Infrastructure Finance to Par-la-Ville Hotel and Residences Ltd, which was guaranteed by the Corporation of Hamilton.

The loan was defaulted on and, after a legal battle that went to the Privy Council in London, it was determined that the municipality did not have the power to make the guarantee under the Municipalities Act.

Mrs Justice Subair Williams wrote that Fidelity’s claim for damages would arise if MIF is unsuccessful in recovering damages for not only the guarantee, but also the mortgage of the Par-la-Ville car park.

She wrote: “Such damages would include, on the plaintiff’s case, an $18 million sum in addition to costs, legal fees and expenses incurred in defence of any matter to which the plaintiff is liable to indemnify MIF which, to date, is said to be a sum in excess of $933,632.80.

“The plaintiff’s claim for legal fees extends to its liability for MIF’s future legal fees covered by the terms of the title policy.”

In a strike-out application on January 7, Trott & Duncan argued the negligence alleged by Fidelity boiled down to not including “but, of course, we could be wrong” in their opinion.

They also argued that Fidelity were made aware of the risk of an enforceability challenge.

Mark Diel, representing Trott & Duncan, said a draft opinion by Terra Law, the Corporation of Hamilton’s former legal representative, sent to the counsel for MIF highlighted the potential problem.

A draft opinion by Terra Law, sent in June 2013, said there was a possibility of a legal challenge “on the basis that as the Act does not give the corporation the express power to mortgage its land to support the borrowing of a third party”.

The opinion added a challenge would require a “very narrow interpretation” of the law and, as the corporation had entered into similar agreements previously, a challenge would be “unlikely”.

It added: “The risk remains nonetheless. We submit, however, that the lender can be protected against such risk through the issuance of the mortgagee title insurance by Stewart Title Insurance Company.”

Mr Diel said legal opinions often differed for good reason, and that even the Privy Council had not made a unanimous ruling on the case.

Keith Robinson, for Fidelity, warned against dismissal of the lawsuit without a proper hearing.

Mrs Justice Subair Williams agreed and dismissed the strike-out application, except for some claims of breach of contract and conflict of interest, which she found had no reasonable cause for action.

• To read the judge’s ruling in full, click on the PDF link under “Related Media”

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