The Hamilton Reserve Bank (HRB) has filed a memorandum in law in opposition to the motion to dismiss the amended complaint filed by Sri Lanka on the grounds that the Cede and Company (Cede) authorisation confirms HRB’s standing to sue Sri Lanka for defaulting on the International Sovereign Bond (ISB) due on 25 July 2022.
On 2 December 2022, HRB filed a memorandum in law before the US District Court for the Southern District of New York in opposition to the memorandum in law filed by Sri Lanka in support of its motion to dismiss the amended complaint, rejecting Sri Lanka’s argument that the indenture of the bond must affirmatively assign Cede the power to authorise HRB to bring a suit against Sri Lanka. Therefore, HRB argued that Cede’s authorisation confirmed HRB’s standing to sue.
HRB further rejected Sri Lanka’s argument that the registered owner had no authority to authorise another to litigate in terms of provisions of the bond indenture and therefore HRB had no standing to institute the current matter.
According to HRB, it brings its claim under the bonds and nothing in the indenture bars its right to claim for payment. Therefore, it claimed that HRB had a standing to sue separate and apart from Cede’s authorisation.
Speaking to The Sunday Morning Business previously, Attorney-at-Law Manjuka Fernandopulle, who specialises in sovereign debt restructuring and complex capital market transactions, stated that even if Sri Lanka were successful in its argument to dismiss HRB’s amended complaint on the technicality that it was not the registered owner of the bonds and was merely the beneficial owner, the US court was likely to dismiss the complaint while allowing HRB to reserve its right to file a new complaint once it became the registered owner of the respective securities.
“Even if the court rejects the plaint, it will not be the end of the saga. It will likely be allowed to file a fresh action because this is only a technical matter. The court will dismiss while allowing HRB to reserve its right to file a fresh application. What has happened is that it has filed a letter in court stating that the nominee of the registered owner had consented for it to file an action. However, the argument of Clifford Chance is that HRB is not the registered owner and that the consent of the registered owner is irrelevant,” he explained.
The argument put forth in Sri Lanka’s motion to dismiss states that the option available to HRB is to ask the trustee Depository Trust Company (DTC) to institute litigation against Sri Lanka, in which case the trustee will seek to recover on behalf of all bondholders.
Alternatively, HRB could exchange its beneficial ownership interest for securities issued in its own name, thus becoming the registered owner or the holder. The indenture of the bonds expressly allows for this exchange in the event of non-payment at maturity. However, for whatever reason, HRB had not sought to do so before instituting the present action.