Part of the historic property has been turned into self-catering apartments.
Kenman Holdings claims an outside competitor was given an unfair advantage in bidding for a contract to run the holiday accommodation.
Western Isles council, Comhairle nan Eilean Siar, said the processes of awarding the contract were "proper".
Kenman Holdings, which runs hotels in Stornoway, was unsuccessful in a previous legal action that challenged the comhairle's tendering of the hospitality contract.
However, three appeal judges at the Court of Session have cleared the way for the claim for damages to be heard because, in part, the company's arguments are more narrowly focused than were previously set out before a judge.
The comhairle said it would defend its processes again in court.
Angus Campbell, leader of the local authority and chairman of the Lews Castle Project Board, said: "The comhairle remains confident that its processes in the awarding of the contract were proper and competent.
"The restoration and development of Lews Castle is hugely popular and has already provided a major economic boost for the islands."
A Western Isles hotels operator plans to sue for £23m in a row about the publicly-funded redevelopment of Lews Castle in Stornoway on Lewis.