The Government is to foot the legal bill for any court action over its bailout of laid-off Fairmont Southampton Hotel workers.

This was revealed yesterday in the Government’s extensive loan agreement with the hundreds of ex-staff who lost their jobs on October 23 but never received severance packages from the hotel’s owners.

Staff were paid through a government loan after the owner, the property firm Gencom, missed the November 20 redundancy payment deadline.

Under the nine-page agreement, staff agreed to hand their case over to the Government’s lawyers, Trott & Duncan, to pursue their claim against Gencom’s local entity, Westend Properties, which owns the Fairmont Southampton.

It allows Trott & Duncan to go after the firm, either on behalf of lone employees or in a group as a class-action lawsuit, to recover the severance money, said to total $11 million.

Staff were told in a letter from hotel management that the deal would end with the hotel’s owners repaying to the loan to the Government.

They were also told they would bear no litigation costs.

Options on the table include a statutory demand – with the possibility of making a claim, winding up the company, or appointing joint provisional liquidators.

Under the agreement, former staff also consented to hand over any severance payments they received from Westend to the Government or its lawyers, within seven days of a payout by the firm. To date, it is not believed that Westend had made any payments.

A spokeswoman for the Ministry of Finance said last night: “The Bermuda Government is paying the legal fees on the behalf of employees for the actions to date, and in the event further action is required, earlier and subsequent fees will be added to the quantum of the claim.

“The best outcome, and the one we are all working towards, is for Westend to both honour its employee claims and secure funding to proceed with the redevelopment and subsequent reopening of the hotel as soon as possible.

“While litigation is a possibility and a last resort, steps we have taken to date have been necessary to preserve rights of employees in case of that eventuality.”

Asked if legal action against Gencom could harm relations with the company, which also owns the Rosewood Tucker’s Point resort, she added: “While even a hint of a potential action may test the relationships between parties, we expect Gencom to behave commercially and professionally, as will the Government.”

Curtis Dickinson, the finance minister, said on Monday that lawyers had issued a statutory demand on Westend Properties in the wake of a week’s silence from the firm on its payments, after the November 20 deadline.

Mr Dickinson said that if there were “no arrangements”, the lawyers would take the case to the Supreme Court of Bermuda.

Mr Dickinson said this week that the Government had still not heard from the hotel’s owners, who purchased the Fairmont in December 2019 for an undisclosed sum.

Gencom originally planned sweeping renovations to the resort, Bermuda’s biggest, which opened for business in 1972.

They vowed to reopen after 18 months’ closure for renovations.

But the agreement with ex-staff states: “The hotel has suffered financial difficulties as a result, inter alia of the Covid-19 pandemic and has ceased operations and consequently ceased trading.”

An industry insider, speaking anonymously, said he would be “very surprised” if Gencom, a global firm, allowed Westend’s assets to go into liquidation over what was “arguably a very small amount of money”.

But the source said Bermuda’s reputation was unlikely to suffer in the event that the landmark hotel ended up getting sold off – given the crippling worldwide impact on hospitality of the coronavirus outbreak.

He said Gencom were likely focused on finding a way to refinance their deal and pay off the redundancy costs.

The source estimated as much as $80 million could have been paid to acquire the sprawling South Shore property. That sum could not be independently confirmed last night.

He also said the Government’s move in requiring a class-action lawsuit was unusual, but in keeping with the present administration’s labour-friendly ethos.

The source said that Tucker’s Point would have been ring-fenced from any liabilities at the Fairmont Southampton.

The Ministry of Finance spokeswoman confirmed Rosewood Bermuda was a “separate hotel asset owned under a different corporate structure” and would be unaffected.

Yesterday Cole Simons, the Leader of the Opposition, continued to criticise the Government’s payout, after the One Bermuda Alliance queried on Friday why there had been no specific agreement made with Gencom.

David Burt, the Premier, said on Tuesday that Gencom’s legal obligations lay with the Fairmont staff, not with the Government.

Mr Simons called it “very ironic and unconscionable” that the PLP administration had required the former staff to sign three separate agreements as part of its intervention.

Mr Simons said this meant the Government was “either unable, or unwilling to secure an agreement from Gencom” on a reimbursement for the $11 million payout.

He asked: “Who is the Government protecting?”