Second Circuit Concludes Suit to Recover on Defaulted Foreign Bonds Was Untimely

The Second Circuit Court of Appeals recently concluded that a claim to recover on defaulted bonds issued by a foreign sovereign was untimely under New York’s six-year statute of limitation.

Bainbridge Fund Ltd. owned several bonds issued by the Republic of Argentina. Argentina defaulted on those bonds in 2001. In 2016, Bainbridge sued to recover on those bonds. The Southern District of New York concluded that Bainbridge’s suit was barred by New York’s six-year statute of limitation for most breach of contract actions. Bainbridge appealed.

On appeal, Bainbridge argued that (1) a 20-year statute of limitation for recovery of certain bonds applied to its claim and (2) even if the six-year statute of limitations applied, it had been tolled because Argentina had “acknowledged” the debt it owed on the bonds.

The Second Circuit rejected both arguments and affirmed the district court’s dismissal.

First, the Second Circuit held that the 20-year statute did not apply to the bonds issued by Argentina because that statute applied only to bonds issued by “the state of New York or ... any person, association or public or private corporation,” and Argentina, a foreign sovereign, was not a “person” or other qualified entity under the statute. The six-year statute therefore applied.

Second, the Second Circuit held that the six-year statute had not been tolled. Although the Second Circuit acknowledged that the statute could be tolled where a debtor makes a written acknowledgement from which a promise to pay may be fairly implied, Argentina had made no such acknowledgement. To the contrary, quarterly financial statements issued by Argentina did not manifest an implied promise to pay defaulted bonds and Argentina had “repeatedly stated that it would not repay bonds not submitted to [an] exchange [program] and that these bonds ‘may remain in default indefinitely.’” Because tolling did not apply, Bainbridge’s claim was time barred.

Bainbridge Fund Ltd. v. Republic of Argentina, Nos. 21-37, 21-38 (2d Cir. June 22, 2022).