• SL allowed to probe real ownership of defaulted bonds claimed by HRB
• Discovery could lead to dismissal if HRB lacks beneficial ownership: Judge
• Court highlights ‘mysterious financier’ link and new evidence from Financial Times
• Judge orders HRB to show proof of ownership via CFO declarations, broker statements

In the ongoing legal dispute between Sri Lanka and Hamilton Reserve Bank (HRB), the United States District Court for the Southern District of New York, by its order dated 24 April, has granted Sri Lanka’s request for additional discovery to determine the beneficial owner of the International Sovereign Bonds (ISBs) that HRB purportedly claims to hold.

HRB on 26 June 2023 filed a motion for summary judgment and the said motion became fully briefed on 31 July 2023. 

However, the matter was thereafter stayed from 1 November 2023 until 15 January 2025 to permit Sri Lanka to restructure its sovereign debt. Thereafter, on 17 January, the bank renewed its motion for summary judgment, which was duly opposed by Sri Lanka.

In opposition to HRB’s motion for summary judgment, Sri Lanka filed a declaration seeking discovery to determine whether some other person or entity had the real economic interest in the bonds held by HRB.

Judge Denise L. Cote in her order dated 24 April held that Sri Lanka had adequately demonstrated that discovery could reveal that HRB had acted on behalf of another person or entity, including reference to a 2023 declaration from Avinash Persaud to that effect. “Sri Lanka has shown that limited additional discovery is warranted. It seeks to explore whether Hamilton’s internal records reflect that it is the beneficial owner of the bonds, and whether any other person or entity holds a beneficial interest. 

“If Sri Lanka obtains evidence that Hamilton is not the beneficial owner, that could lead to the dismissal of this action due to Hamilton’s lack of standing,” the order said.

She further pointed out that HRB must provide some evidence of its beneficial ownership of the ISBs that form the subject matter of the proceedings.

She further claimed that HRB ought to provide evidence in the form of declarations from its CFO stating that the bank was the sole beneficial owner of the bonds, account statements from Morgan Stanley and Interactive Brokers that were in HRB’s name, and a resolution from HRB’s Board of Directors stating that the bank ‘currently owns’ the bonds.

Judge Corte further held: “Sri Lanka also made an adequate effort to obtain discovery regarding beneficial ownership since the inception of this litigation. It served a relevant document request on 17 April 2023. After multiple meetings and conferences, it raised the discovery dispute on 20 June 2023.

“At the 2023 conference, the court did not grant Sri Lanka’s request for additional discovery but noted that it could reassert its arguments in opposition to summary judgment.”

On 21 January, both parties filed a joint letter addressed to Judge Cote wherein the parties appeared to disagree on whether additional briefing was warranted with respect to HRB’s summary judgment motion.

Therein Sri Lanka claimed: “After the completion of briefing, and while these proceedings were stayed (and/or while motions to stay were pending), new evidence came to light regarding HRB’s purported beneficial ownership of the bonds. This includes a September 2023 Financial Times article titled ‘The mysterious ‘global financier’ suing Sri Lanka.’ 

“This previously unavailable evidence suggests, among other things, that the bonds may be held on behalf of Benjamin Wey and/or HRB’s corporate parent, Fintech, and underscores the need for additional discovery on these matters.”