Hamilton Reserve Bank Ltd. v. The Democratic Socialist Republic of Sri Lanka

Background

Hamilton Reserve Bank Ltd. filed this action after Sri Lanka defaulted on international sovereign bonds. Hamilton asserts that it beneficially owns more than $240 million in principal amount of bonds that were due in July 2022, plus accumulated interest. Hamilton has not participated in, and does not wish to participate in, Sri Lanka’s debt-restructuring negotiations.

Sri Lanka is working with the International Monetary Fund under a 48-month program that requires debt restructuring with both official bilateral creditors and private commercial creditors. During an earlier stay of this action, Sri Lanka reached an agreement in principle with its official creditor committee, reached a preliminary agreement with the Export-Import Bank of China, and continued negotiating with private creditors. Sri Lanka expected to implement restructuring agreements around the completion of the IMF’s second program review, expected in June or July 2024.

The court had previously stayed the action through February 29, 2024. On March 1, 2024, Sri Lanka moved for another five-month stay, through August 1, 2024. France, Canada, Japan, the Netherlands, Spain, and the United Kingdom supported a further stay. The U.S. Government also supported the motion, stating that a stay would help promote an orderly restructuring and reduce the risk that individual creditors would seek repayment separately.

The parties’ positions

Sri Lanka requested a five-month extension based on its continuing progress toward restructuring its debt. Hamilton consented to a continuation of no more than two months, until April 30, 2024, if Sri Lanka provided Hamilton and the court with specific information about the restructuring’s status.

Court’s analysis

The court found that Sri Lanka’s continuing restructuring efforts and significant progress justified the requested five-month stay. The court concluded that the stay was limited rather than indefinite and was tied to Sri Lanka’s expected restructuring timeline. It also noted that, if Hamilton eventually prevailed, any judgment would include prejudgment interest, and that the current prejudice to Hamilton from another stay remained minimal.

The court determined that concerns about judicial efficiency were outweighed by the risk that private creditors would rush to court to obtain priority over other creditors. A judgment for Hamilton could threaten the ongoing negotiations and Sri Lanka’s efforts toward economic stability. The court also found that a stay would benefit official and private creditors by promoting comparable treatment and would serve the public interest and U.S. policy.

The court rejected Hamilton’s shorter proposed stay and information condition. It reasoned that Sri Lanka did not expect to complete restructuring agreements before June or July, making another stay request likely after only two months. The court also found that Sri Lanka had already sufficiently described the negotiations and that disclosing additional details could jeopardize them.

Disposition

The court granted Sri Lanka’s March 1, 2024 motion. The action was stayed through August 1, 2024. This order addressed only whether to pause the litigation; it did not decide Hamilton’s underlying claim for payment.