• Documents provided by HRB do not prove its status: legal counsel 
• Documents consist mainly of publicly available news articles 
• If HRB is found to hold bonds on behalf of others, it could invalidate authorisation-to-sue letter 

Sri Lanka has disputed Hamilton Reserve Bank (HRB)’s claim of being the actual beneficial owner of the sovereign bonds over which the bank has instituted the ongoing litigation in the United States District Court for the Southern District of New York.

On 20 June, Clifford Chance, the legal counsel for Sri Lanka, in a letter addressed to Judge Denise L. Cote, argued that the 17 documents produced by HRB during discovery did not address whether HRB was in fact the beneficial owner of the bonds and consisted mostly of publicly available news articles and press releases about Sri Lanka’s financial situation.

HRB had, in its complaint before the United States District Court for the Southern District of New York, alleged that it was the beneficial owner of Sri Lanka’s $ 1 billion 5.875% International Sovereign Bond due on 25 July 2022, with a principal amount of $ 250,190,000.

Clifford Chance in its letter particularly highlighted that “although HRB has produced a handful of (redacted) documents reflecting its claimed holdings with third-party brokers, these documents do not show how HRB itself – on its own books – holds the bonds. For instance, there is no contemporaneous document reflecting any decision by HRB to put its own capital at risk (as opposed to engaging in a swap or other arrangement in which a third party has an economic interest).”

Accordingly, it was further highlighted by Sri Lanka’s legal counsel that the authorisation-to-sue letter from Cede & Co. on which HRB had sought to proceed with the ongoing litigation had been predicated on the assumption that HRB was the beneficial owner of the bonds. 

However, if it is revealed that HRB actually holds its claimed interest on behalf of other individuals, which is a common practice for banks, it would mean that HRB would not be the beneficial owner of the bonds. This revelation would render the authorisation-to-sue letter defective and could potentially result in HRB losing its legal standing to proceed with the action.

Consequently, Sri Lanka sought documents showing HRB’s ownership of the bonds, such as its audited financial statements and reports and documents concerning the investment decision regarding the bonds in question. 

Sri Lanka has also asked for communications between the bond trustee – Cede & Co. – and HRB, which would shed light on the nature and extent of HRB’s ownership interest in the bonds. 

Additionally, Sri Lanka has raised objections to certain redacted portions in documents provided by HRB, claiming that they were unilaterally edited. Moreover, Sri Lanka has expressed the need for documents disclosing the corporate owners of HRB. 

To accommodate these requests, Sri Lanka has requested an additional three-week extension to the agreed schedule for the discovery phase of the proceedings.

Accordingly, on 21 June, Judge Denise L. Cote ordered that a discovery hearing be held on 23 June by way of a telephone conference. Whilst the docket reveals that the said discovery hearing was held on 23 June, no order has been made by Judge Denise L. Cote to date.