Court Of Appeal Rules Investor Has No Contractual Right Of Action Against Issuer In Respect Of Bearer Notes

The Court of Appeal has ruled that an investor with an interest in promissory Notes does not have a direct claim against the issuer for breach of contract in respect of allegedly misleading statements made in the issuance documentation.

Secure Capital argued that Luxembourg law, the law of the relevant trading system, applied entitling them to pursue a direct claim against Credit Suisse as issuer of the Notes.

Background

The Notes were issued in bearer form in 2008 by Credit Suisse. The bearer of the Notes was Bank of New York Mellon (BNYM) holding them on behalf of Clearstream, an electronic trading system for interests in securities established in Luxembourg and operating under Luxembourg law. Secure Capital was the account owner, with RBS Global Banking (Luxembourg) SA (RBSL) the account holder.

The Notes were linked to life insurance policies and payment on the Notes was contingent on mortality rates amongst a set of 'reference lives' to which the relevant life insurance policies related.

Secure Capital claimed Credit Suisse knew or ought to have known that information provided in the issuance documentation was misleading because mortality tables used to generate the expected life expectancies were shortly due to be updated, the result of which would render the Notes effectively worthless.

The Notes were subject to a set of conditions, which included the Programme Memorandum, the Product Supplement and the Pricing Supplement.

The Pricing Supplement contained a term that the issuing bank, Credit Suisse, had "taken all reasonable care to ensure that the information contained in this Pricing Supplement when taken together with the other Issue Documentation is true and accurate in all material respects and that...there are no other material facts the omission of which makes misleading any statements herein..."

The Programme Memorandum determined that the bearer would be deemed to be the absolute owner of the Notes; that the securities were governed by English law with the issuer agreeing to the jurisdiction of the English courts; and that rights of third parties to enforce any terms of the conditions were expressly excluded.

Further, the Clearstream system operated on the basis of a 'no look through' principle, whereby each party has rights only against their own counterparty.

At first instance

Secure Capital's claim was for damages for breach of contract. It sought to rely on a 2001 Luxembourg law on the Circulation of Securities (the 2001...