Mexico Infrastructure Finance LLC v Corporation of Hamilton

• Jurisdiction: Bermuda
• Judge: Bell, JA,Clarke, JA
• Judgment Date: 12 May 2017
• Neutral Citation: [2017] CA Bda 11 CIV
• Docket Number: Civil Appeal 2016 No 52,CIVIL APPEAL No. 19 of 2016
• Court: Court of Appeal (Bermuda)
• Date: 12 May 2017

[2017] CA (BDA) 11 CIV

The Court of Appeal for Bermuda

Before:

Baker, President

Bell, JA

Clarke, JA

CIVIL APPEAL No. 19 of 2016

Between:

Mexico Infrastructure Finance LLC

Appellant

and

The Corporation of Hamilton

Respondent

Appearances:

Lord Pannick QC and Mr Ben Adamson, Conyers Dill & Pearman Limited, for the Appellant

Mr. Michael J. Beloff QC, Mr. Ronald H. Myers and Mr. Jonathan White, MDM Limited, for the Respondent

Bell, JA

Introduction

1 This appeal concerns the financial arrangements made between Mexico Infrastructure Finance LLC (“MIF”) and the Corporation of Hamilton (“the Corporation”), and more particularly the Corporation's agreement to guarantee a loan (“the Loan”) of $18 million made by MIF to a local company named Par-La-Ville Hotel and Residences Ltd (“PLV”).

2 The trial took place before Hellman J in September 2016, and the parties were represented before him by the same eminent counsel as appeared before this Court. Hellman J delivered his judgment on 18 November 2016, and essentially narrowed down the issues between the parties to two, which he defined as “the ultra vires issue” and “the abuse of process issue”. Before turning to these issues and the manner in which they were dealt with by the learned judge, it is no doubt helpful to set out some of the background.

The Background

3 The purpose of the guarantee (“the Guarantee”) was to facilitate the development (“the Development”) by PLV of a hotel (“the Hotel”) on the site of the Par-La-Ville Car Park in the City of Hamilton (“the Car Park”). Both Mayor Graeme Outerbridge and his predecessor (and successor) Mayor Charles Gosling viewed the Development as desirable, and as being in the best interests of the Corporation, as had successive governments. The Corporation had leased the Car Park to PLV for the purposes of the Development, but had retained the freehold interest. The Guarantee was secured by a mortgage of that interest in favour of MIF (“the Security”). The purpose of the Loan was not to fund the Development, but to put PLV in a position where it could meet the anticipated costs of borrowing the monies necessary to do so.

4 Under section 80 of the Bermuda Immigration and Protection Act 1956 (“the 1956 Act”), MIF required the permission of the Minister of Home Affairs (“the Minister”, and where appropriate “Ministerial”) to take a mortgage over the Car Park, since the lender was a company incorporated outside Bermuda. The Minister gave the necessary sanction on 28 March 2013. The Government then sought the approval of the Legislature for the Guarantee and Security, pursuant inter alia to section 37(1) of the Municipalities Act 1923 (“the Act”). Approval was given by the House of Assembly on 13 June 2014 and by the Senate on 25 June 2014.

5 PLV defaulted on the Loan, and on 31 December 2014, MIF issued a demand to the Corporation in the latter's capacity as guarantor, calling on the Corporation to pay the entire outstanding balance of $18 million plus interest. When that payment was not forthcoming, MIF took proceedings against the Corporation in the Supreme Court to enforce the Guarantee. On the advice of its then attorney, David Kessaram of Cox Hallett Wilkinson, the Corporation concluded that it had no defence to the claim. On 27 May 2015, summary judgment was entered by consent in favour of MIF against the Corporation for the full amount claimed (“the Consent Order”).

6 By originating summons dated 23 June 2016 the Corporation, which by this time had obtained fresh legal advice, sought to set aside the Consent Order. It sought to do so on the ground that the Corporation had no power to provide the Guarantee, which was therefore said to be null, void and of no effect, and accordingly it was maintained that the Corporation had no power to consent to its enforcement.

The Judgment at First Instance

7 In his judgment the learned judge set out the substance of the submissions on both sides, in the form of an overview, and it is no doubt helpful to repeat the judge's summary, which I do by setting out paragraphs 9 to 11 inclusive of his judgment below:

“9. Mr Beloff summarised the Corporation's case as follows:

• (1) The Corporation had only such powers as the Act, as the enabling statute, had ceded to it, whether expressly or by necessary implication, and any such powers could only lawfully be exercised to achieve the perceptible purposes of the Act. The authorities upon which Mr Beloff relied included Hazell v Hammersmith LBC [1992] 2 AC 1 HL (E) per Lord Templeman at 22 B – C, 29 B – E, 30 H, 31 B – C, 31 E, 40 E – G, 40 H – 41 B, 41 D – E; Corporation of Hamilton v Attorney-General and the Centre for Justice [2014] Bda LR 104 SC per Kawaley CJ at paras 70, 73 and 78; and Ward v Metropolitan Police Commissioner [2006] 1 AC 23 HL(E) per Baroness Hale at paras 23 and 24.

• (2) The Act did not accord the Corporation power to guarantee the liability of a third party property developer, with or without security, and the Corporation therefore lacked capacity to do so.

• (3) Alternatively, if the Corporation did have capacity to guarantee the liability of a third party property developer, it did not have capacity to do so where the third party was not incurring such liability to assist the Corporation in the performance of its statutory functions. Mr Beloff relied upon Attorney General v Fulham Corporation [1921] 1 Ch 440 Ch D per Sargant J at 453 – 454.

• (4) On either footing, the provision by the Corporation of the Guarantee supported by the Security was ultra vires the Corporation, with the consequence that the Guarantee and the Security were void and unenforceable. Mr Beloff relied upon Credit Suisse v Allerdale Borough Council [1997] QB 306 EWCA per Neill LJ at 340 G, 343 D – E; Peter Gibson LJ at 347 D; but cf (Hobhouse) LJ at 357 D; R (WL (Congo)) v Home Secretary [2012] 1 AC 245 SC (E) per Lord Dyson at para 66; Lord Hope at para 170; Baroness Hale at 218; and Lord Collins at 219.

• (5) The Consent Order could not validate the Guarantee or the security. Mr. Beloff relied upon Great North-West Central Railway v Charlebois [1899] AC 114 PC per Lord Hobhouse at 123 – 124.

• (6) Accordingly, the Court must set aside the Consent Order, which falls into that category of orders which a person affected by the order is entitled to have set aside ex debito justitiae in the exercise of the inherent jurisdiction of the court. As to which, see Isaacs v Robertson [1985] 1 AC 97 PC per Lord Diplock at 103 A – D.

• (7) Alternatively, if, which was disputed, the Court had any discretion as to whether or not to set the Consent Order aside, it should be exercised in favour of the Corporation. MIF knew or ought to have known that the Corporation's powers were conferred and therefore limited by statute, and should therefore have been aware that the Corporation was acting ultra vires. Mr Beloff referred me to the analogous case of Sutton LBC v Morgan Grenfell (1996) 95 LGR 574 EWCA per Peter Gibson LJ at 576.

• 10. Lord Pannick did not take issue with the entirety of the Corporation's case, but sought to punch a hole in it with the following submissions:

  • (1) The Corporation, in making the Guarantee and providing the Security, was acting pursuant to powers expressly conferred on it by the 1923 Act. The underlying premise of the Corporation's application, ie that in so doing its actions were ultra vires, was therefore wrong in law. (“ The ultra vires issue”.)

  • (2) If the Corporation wished to take the ultra vires point it should have done so in the action in which the Consent Order was made but before the making of that Order. It was too late to take it now and to attempt to do so was an abuse of process. (“ The abuse of process issue”).

• 11. Where Mr Beloff's submissions have not been contested I accept them. The live issues on this application are therefore those raised by Lord Pannick. I shall consider them in turn.”

8 In relation to the ultra vires issue, it was common ground before the learned judge that the Corporation had the power to enter into the Guarantee if it did so for one of the purposes enumerated in section 23 of the Act. This section concerns the ability to levy and collect annual rates, which the Corporations of Hamilton and St. George's were empowered to do, per section 23(1)(f), for “such municipal purposes, being purposes of an extraordinary nature, as the Minister may in any particular case approve”. The Minister in the subsection was the Minister for Home Affairs, and although he did not give an approval which was expressed to be for the purposes of the section, since the subsection did not require that Ministerial approval should be in any particular form, the learned judge held that Ministerial approval could be inferred from the fact that the Government of which the Minister was a member had sought and obtained the approval of the Legislature for the Guarantee and Security, and also from the approval given to MIF by the Minister under section 80 of the 1956 Act, enabling MIF to take a mortgage over the Car Park.

9 Lord Pannick submitted that the Guarantee was covered by section 23(1)(f) of the Act, since it was given for a municipal purpose of an extraordinary nature. Mr Beloff submitted that the Guarantee was not covered by that subsection as the purposes for which it was given were not municipal.

10 The learned judge set out the competing arguments. Mr Beloff submitted that in its context “extraordinary” simply meant “not in the ordinary course of events”. Construction of the Hotel would, he submitted, represent a commercial venture, and would not involve providing a service to local residents. He submitted that the commercial purpose was underlined by the wording of the Guarantee, which acknowledged that its execution, delivery and performance constituted private and commercial acts done for private and commercial purposes. Since...