A legal dispute over the $18 million Par-la-Ville Hotel loan has garnered international attention, with a legal commentator calling the situation “noteworthy and troubling”.

The article appearing on political website The Hill, written by Horace Cooper, of The Heartland Institute, said the case “gets at the very heart of what is held sacrosanct when one thinks about the rule of law, and the moral hazard that results when contracts begin to lose their force.”

The case revolves around an $18 million guarantee made by the corporation for a hotel project on the Par-la-Ville car park site. The developer used the guarantee to secure a loan from MIF but subsequently defaulted, leaving the municipality on the hook. While the corporation initially accepted the debt, making several requests for additional time to pay, the corporation is now arguing that it never had the power to issue the guarantee, so any agreement made was invalid.

While the Supreme Court of Bermuda has yet to formally release its judgment on the dispute, Mr Cooper wrote that the case could damage the island’s international reputation at a very delicate time.

“This situation clearly poses broader reputational risks for Bermuda — a jurisdiction that has historically sought to present itself as a paragon of law and order and financial rectitude in a region where that is often not the norm,” he wrote.

“It is compounded by the fact that Bermuda is in the midst of trying to raise money through a bond issue in international markets [working with HSBC] as it attempts to attract investment to bolster infrastructure in advance of the 35th America’s Cup in the summer of 2017.

“Doubts about its financial responsibility and hints of scandal are the last thing Bermuda needs while attention is focused on the country as the host of this highly regarded event.”

And while Mr Cooper expresses his opinion that the CoH is simply attempting to break a contract, a victory in the case could carry long-term consequences.

“If the CoH’s argument stands, then we’ll have a situation in which any similar contract could be called into question,” he wrote. “That would certainly open the floodgates of moral hazard and would likely damage the reputations of municipal and sovereign borrowers across the region.

“And it would certainly be cause for MIF to seek justice via whatever legal means are available to it — including in other courts such as New York where the negative spotlight for Bermuda could loom even larger.”