The Retail Group claims the city council kept important information from it when the group bought the shops between 2 and 42 Palmerston Road in October 2004.

Director David Murphy claims the company did not know John Lewis was planning to close its department store Knight & Lee in Palmerston Road and move to the Northern Quarter development.

As a result, he says, his group overpaid by about £3m for the units.

He claims the city council should have told the group about John Lewis's plans ahead of the deal, and because it did not the Retail Group paid too much for the property.

Now The Retail Group has applied to the High Court for full access to all council documents surrounding the Southsea sale and the Northern Quarter deal.

Mr Murphy wants the papers to help him mount a legal case against the council to recoup the cash he claims he overpaid.

He said: 'When the news came out two weeks after we had purchased the property that the main tenant was going, it set back our plans for a complete refurbishment of the precinct by three to four years.'

The Retail Group says it still hopes to dramatically improve the Palmerston Road precinct with a revamp and new stores, but claims Knight & Lee's departure makes it difficult to attract investors.

Mr Murphy said: 'The main problem is a lot of uncertainty that comes with the relocation of the department store – until that is sorted out we cannot fill the void and it is difficult to inspire confidence in retailers who would consider relocating to Southsea.'

He said he was taking the High Court action to reveal what information the city council had about Knight & Lee moving before his group purchased the property.

The city council is currently considering the application from the courts asking it to disclose the documents Mr Murphy hopes will prove his case.

City council solicitor Michael Lawther said: 'There has been an application to the court for access to our files, which will enable them to establish whether they have a case.'

However, when the allegations were first raised by Mr Murphy in 2006, the then economic director at the council, Barbara Thompson, told The News no wrongdoing had taken place.

She claimed agents working for The Retail Group had attended a meeting in 2003 when John Lewis said the store had three years left in Southsea because of a drop in footfall. 'It was clear Knight & Lee weren't going to stay,' she said.