Secure Capital SA v Credit Suisse AG

The party entitled to sue for breach of a contract is determined by the contract’s proper law. Where notes governed by English law expressly identify the bearer as the party entitled to enforce them, an account owner holding an indirect interest through an immobilised securities settlement system has no direct contractual claim against the issuer.

The law governing the settlement system cannot create a parallel entitlement to sue on the English-law contract. Nor will a reference to the settlement system’s rules and procedures incorporate a foreign statutory right of action without clear words. The fact that the contractual structure leaves an investor without a contractual damages claim does not create a lacuna where that result follows from the agreed documents.

Credit Suisse issued bearer-form longevity notes governed by English law. The permanent global security was held by BNYM as common depositary for Clearstream. Secure Capital held an indirect interest as an Account Owner through an Account Holder.

Secure Capital alleged that the issue documentation contained misleading statements about the reference lives. It claimed contractual damages, relying on article 8(1) of the Luxembourg law dated August 2001 on the circulation of securities, which was assumed for the application to permit an investor to enforce certain rights against an issuer.

Hamblen J gave Credit Suisse summary judgment on 24 February 2015. Secure Capital appealed, contending that Luxembourg law, as the law of the Clearstream system, determined who could sue, or alternatively that article 8(1) had been incorporated into the note documentation.

1. Appeal dismissed. The court unanimously upheld the summary judgment for Credit Suisse. The issue was contractual: it concerned who could enforce a contractual term and recover contractual damages. Under English conflicts principles, the parties entitled to sue on a contract are determined by its proper law. The Notes expressly selected English law.

2. The governing documents gave enforceable rights against Credit Suisse only to BNYM as bearer of the permanent global security. The Clearstream provisions required account holders to look solely to Clearstream for payments and all other rights arising under the global securities. That no-look-through arrangement was not confined to payment obligations.

3. The documents created defined exceptions on a default in payment of principal. They could give Account Holders direct rights against Credit Suisse, but did not give such rights to Account Owners. The exclusion of the Contracts (Rights of Third Parties) Act 1999 reinforced that contractual allocation.

4. The proposed new conflicts rule, under which the law of the settlement system would determine entitlement to sue while English law determined the content of the claim, was unsustainable. Trading in an indirect interest in immobilised securities did not alter the contractual allocation of enforcement rights. The asserted absence of a contractual damages claimant was an intended consequence of the documents, not a lacuna. The proposed rule would also produce uncertainty where interests were held or traded through systems governed by different laws.

5. Article 8(1) was not incorporated into the English-law contract. A reference to Clearstream’s rules and procedures did not naturally include substantive Luxembourg law. Clear words would have been required to give a non-party a direct contractual claim and displace the detailed enforcement scheme. In any event, the provision relied upon concerned Account Holders, not Secure Capital as an Account Owner.

• Court of Appeal (Civil Division): dismissed Secure Capital’s appeal in [2017] EWCA Civ 1486, affirming summary judgment for Credit Suisse.
• High Court, Queen’s Bench Division, Commercial Court: Hamblen J granted Credit Suisse summary judgment on 24 February 2015. No citation is stated in the judgment.