A Manx government department is embroiled in a legal dispute over a failed bid for a proposed multi-million pound quayside redevelopment.

A consortium, which was initially told it had been chosen as the preferred developer only for its bid to be rejected the following month, is accusing the Department of Infrastructure of ’negligent mis-statement’.

In a high court judgment, Deemster Andrew Corlett ruled that Sondica Group Inc had a ’potential and arguable’ cause of action and that the DoI is likely - perhaps with others - to be a party to subsequent proceedings.

Successful bidder Kane Ltd lodged a planning application in August (18/00846/B) for a seven-screen cinema, 80-bedroom hotel, 20 flats, restaurants and cafe, shops and multi-storey car park on the former Lord Street bus station site in Douglas.

Its application for the £25m scheme is still pending consideration.

Deemster Corlett said a damages claim based on negligent mis-statements made in the course of a bid process would not disrupt the work of the preferred bidder.

The dispute centres on whether or not government offered to underwrite the North Quay project.

Expressions of interest in bidding and tendering for the scheme were invited in early 2015.

The DoI’s development brochure stated that it wanted to adopt a ’flexible approach to realising value from this unique development opportunity’ and required bidders to set out financial proposals ’including any government contribution required’.

North Quay Consortium, represented by Sondica Group Inc, submitted its bid and was invited to a presentation in October 2015.

The funding structure would be provided by the well-established M&G Group.

From the outset, the idea was for the government to retain the freehold and issue a long lease.

On that basis M&G had put together a proposed structure for the development, which included the ability for the government to step in should the consortium fail to comply with their obligations or become insolvent.

A letter dated February 12, 2016, records that the North Quay Consortium had been successful in its bid and had been selected as the preferred developer. But the consortium’s joy was short-lived.

At a meeting the following month, attended by the Sondica Group, M&G and officers from the DoI, the Treasury and the Attorney General’s Chambers, DoI chief executive Nick Black stated the bid could not be accepted as the DoI could not provide underwriting or a step-in guarantee.

Mr Black said the bid had originally been assessed on the basis that no contribution was required from government.

He said he wanted to avoid any ’challenges later down the line’ as it could be seen as ’an unfair procurement process’.

In a letter to Gary Wilkinson of Sondica later that same month, Mr Black said the DoI had expressed concern about the ’revised proposals’ given that underwriting or indemnification was now being sought.

He said the department would now re-advertise the site and the specification would ’make it clear’ that the Department of Infrastructure, on behalf of the Manx government, would ’not provide any form of underwriting, indemnities or guarantees for any proposed development’.

Mr Black said he realised the news would come as a disappointment but the DoI would welcome any compliant bid from Sondica.

But Mr Wilkinson, in a statement to the high court, insisted the consortium’s funding proposal had remained exactly the same from the outset and the DoI had misunderstood it, and only given it proper consideration late in the day.

A letter from Sondica’s lawyers dated April 2016, copied to the then Infrastructure Minister Phil Gawne, states: ’Suffice to say, our client is extremely disappointed with the department’s approach to this procurement, a process in which it has invested considerable time and resource, and with the misleading statements made to seek to justify the department’s conduct.

’Our client believes that it and the Isle of Man Government has lost a great development opportunity.’

The lawyers said Sondica could not participate in any future procurement and claimed the consortium’s standing had been prejudiced in the eyes of its partners such as Marriott and Peel.

Deemster Corlett rejected the DoI’s argument that Sondica’s application amounted to an abuse of process and he had seen nothing which prevented a common law action for negligent mis-statement.

Kane Ltd’s Quayside North proposal will be entirely privately-funded.

A government spokesman said the planning application had not been delayed. She said it was still under consideration and had gone beyond the normal eight weeks for a decision simply because of the scale of the application.