Western Isles Council is being sued for £23million in a row over claims it “unlawfully” awarded the lease of the historic Lews Castle in Stornoway to outside hospitality operator, Natural Retreats.
The legal action could cast a cloud over First Minister Nicola Sturgeon’s grand tour of the rescued historic building she is due to officially open on March 6.
The £18million redevelopment of the castle, overlooking Stornoway harbour, into a plush hotel and museum has been funded by public money.
Cala Hotels was previously barred from taking legal action, following a judicial review in the Court of Session which found the company delayed too long.
But that ban has been now lifted after an appeal. Three judges found in favour of Kenman Holdings which owns three hotels in Stornoway under the Cala brand.
The appeal judgment delivered by Lord Menzies highlighted the “slow drip-feed of disclosure” with the council “not notably prompt or cooperative in disclosing all information.”
The “coincidence” of the timing of the council release of documents under Freedom of Information requests was also highlighted.
The court heard Cala Hotels is seeking damages estimated at £23,340,538.
Kenneth Mackenzie, managing director of the hotel group, said: “We welcome the court’s decision and the opportunity it provides for the substantive merits of our case to be heard at last.”
He added the relationship between the council, Highlands and Islands Enterprise and Natural Retreats during the procurement process will now be “subjected to legal scrutiny.
And he stated: “The council now finds itself at the wrong end of a multimillion-pound damages claim.”
The council said it has “noted” the judgement and a spokesman added: “This decision was not about the merits of the case and Kenman’s claim for damages will now proceed to be determined by the Court of Session.
Council leader, Angus Campbell, who is also chairman of the Lews Castle project board, said: “The council remains confident that its processes in the awarding of the contract were proper and competent.”
The background to the case started in 2011 when Cala Hotels was the only bidder when the council first tendered.
But the local authority subsequently restarted the process, introducing different requirements.
Natural Retreats was the sole bidder and won the award after Cala decided new conditions were too onerous.
A binding contract was signed in July 2014.