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Sri Lanka’s counsels file motion to dismiss Hamilton complaint 

13 Nov 2022

  • Motion filed on grounds Hamilton not registered owner of ISBs
  • Merely beneficial owner, hence no standing to institute action
  • US courts likely to dismiss complaint, allow HRB to file anew
By Shenal Fernando  The counsels for Sri Lanka have filed a new motion to dismiss the amended complaint filed by Hamilton Reserve Bank (HRB) on the grounds that HRB is not the registered owner of the Sri Lanka’s International Sovereign Bonds (ISBs) and, being merely the beneficial owner, HRB has no standing to institute the action. On 4 November 2022, the legal counsels representing Sri Lanka from Clifford Chance filed a motion to dismiss the amended complaint filed by HRB on 13 October 2022, on the grounds that HRB was not the registered owner of the bonds and that HRB had accepted the same in its amended complaint wherein it had acknowledged that the Depository Trust Company (DTC) was the registered owner of the bond and that it was merely the beneficial owner.  While HRB claims that it was authorised to litigate by Cede and Co., which is the nominee for the DTC, the counsels for Sri Lanka have argued in their motion 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.  Speaking to The Sunday Morning Business, Attorney-at-Law Manjuka Fernandopulle, who specialises in sovereign debt restructuring and complex capital market transactions, stated that even if Sri Lanka was 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.   However, he further pointed out that if the litigation were to be delayed, there was a possibility that the debt restructuring negotiation process may overtake the litigation process, which might motivate HRB to willingly take part in debt restructuring negotiations.  The argument put forth in Sri Lanka’s motion to dismiss states that the option available to HRB is to ask the trustee (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. HRB was ordered to file its opposition to the motion to dismiss by 2 December 2022.  


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