In the recent case of Secure Capital SA v Credit Suisse AG ([2017] EWCA Civ 1486) the Court of Appeal applied established English conflict of laws rules in holding that a non-bearer holder of issued notes was not entitled to sue under those notes for breach of contract. In doing so, the court has provided commercial certainty to downstream holders of interests in securities, but left open important questions as to third-party redress under these structures.


The appellant, Secure Capital SA, held an interest in bearer notes issued by the respondent, Credit Suisse SA. The notes were linked to life insurance policies. Payment on the notes was contingent on mortality rates among a set of 'reference lives' to which the relevant life insurance policies related.

The interests in the securities represented by the notes were traded on Clearstream. Each note was represented by a single permanent global security (PGS). Bank of New York Mellon (BNYM) held the notes as bearer. RBS Global Banking (Luxembourg) SA (RBSL) traded the interests in the notes through Clearstream as an account holder and held these interests to the order of Secure Capital as the account owner.

Clearstream operates a 'no look through' principle, whereby each party to a note transaction has rights only against its own counterparty. Typically, account holders will become entitled to a direct interest in the notes only if there has been a default in the payment of principal due on the notes.

Secure Capital commenced proceedings against Credit Suisse for breach of a term in the pricing supplement which accompanied the notes. The pertinent term on misleading statements in the pricing supplement stated that:

"the information contained in this Pricing Supplement… is true and accurate in all material respects and that… there are no other material facts the omission of which makes misleading any statement herein."

Secure Capital claimed that the information provided by the issuer was misleading, in that the mortality rate data was shortly to be updated, with the effect of significantly increasing the life expectancies of the reference lives. In Secure Capital's view, this rendered the notes effectively worthless. Secure Capital alleged that Credit Suisse knew or ought to have known about the updates to the data, but failed to disclose them in breach of the misleading statements term.

The notes were governed by the programme memorandum, which stated that title to the notes passed by delivery of the PGS, and that the holder of the PGS was "deemed to be and may be treated as its absolute owner for all purposes". The contracts of the securities represented by the notes were governed by English law and the English courts had jurisdiction over any dispute in relation thereto.

High Court decision

At first instance, Secure Capital relied on Article 8 of the Luxembourg law on the circulation of securities to assert an entitlement to exercise the right of BNYM as bearer to bring an action for the breach of the misleading statements term. Secure Capital argued that Article 8 entitled it, as account owner, to bring legal proceedings for breach of terms governing the notes other than for breach of payment terms. Secure Capital adduced uncontested expert evidence on Luxembourg law in support of this position. The court therefore assumed that the Luxembourg law might facilitate Secure Capital suing Credit Suisse for a breach of the misleading statements term. Credit Suisse argued that unless BNYM itself brought a claim, there was no contractual relationship under which to sue.

The court granted Credit Suisse summary judgment on February 24 2015, holding that as Secure Capital's claim was pleaded exclusively as a claim for breach of contract, the right of Secure Capital to sue under contract was a contractual question. English law was the proper law of the contract. Under English law, Credit Suisse owed contractual obligations only to BNYM as bearer. The judge noted that "a foreign law cannot (even if it purported to do so) create new contractual obligations in an English law contract". As such, the Luxembourg law could not support Secure Capital's claim.


The Court of Appeal had to determine whether the identification of the proper claimant on a bearer note should be subject to a "new conflicts rule", which would identify the law of the settlement system as the applicable law to those notes. Secure Capital argued that to reach any other conclusion would result in a lacuna, whereby the parties suffering loss could not bring a claim in contract. It claimed that English law was relevant only in determining the meaning and effect of the terms of the notes, while the Luxembourg law could determine who could sue for a breach of those terms. Secure Capital advanced a further submission, to the effect that the contract constituting the notes (and the related documents) incorporated the right of a security interest holder to bring a claim under the Luxembourg law.

Court of Appeal decision

In dismissing Secure Capital's appeal, the Court of Appeal confirmed that English conflict of laws principles determine that the parties entitled to sue on a contract are to be identified by the proper law of that contract. In this case, the governing law of the notes determined this to be English law. The contract constituted by the notes and relevant documents made it clear that only BNYM (as bearer) was entitled to sue Credit Suisse in contract.

The court also looked to the programme memorandum, which provided that persons shown in the records of Clearstream (ie, account holders) must look solely to Clearstream "for [payment] and in relation to all other rights arising under the Global Securities". If account holders were bound by this statement, it would be inconsistent to suggest that account owners such as Secure Capital (who are one step further removed) were permitted to bring a claim against the issuer.

There was therefore no lacuna if this was the precise consequence of the express terms of the notes and their supporting documents. The proposition that the law of the settlement system should determine who was entitled to sue on a bearer note held in an immobilised settlement system could produce an incoherent – if not chaotic – result, as an issuer's exposure to claims would be entirely dependent on the system in which a claimant's interests were held. It was by no means certain that the laws of another clearing system would support Secure Capital's position. The court also noted for completeness that the relevant commercial literature did not support Secure Capital's proposition: the International Capital Markets Association had previously recommended that market contracts governed by English law should adopt as standard the exclusion of third-party rights under the Contracts (Rights of Third Parties) Act 1999.


The decision of the court is on one level unsurprising, relying as it does on established English conflict of laws principles and the principle of privity of contract. In this way, the decision maintains market certainty. However, the decision may be perceived as inflexible, in that the lacuna identified by Secure Capital was not addressed in any practical sense; the court did not address satisfactorily the question of how third parties who have suffered contractual loss in these circumstances can obtain redress, in circumstances where the bearer (in this case BNYM) may be unlikely to take any action at its own behest.

A related question, which was not raised on the appeal, was the role of the trustee in these circumstances, and whether it could have played an active role in representing the noteholders' contractual interests in these circumstances.

Finally, the court's emphasis on the choice of English law as governing the notes as the determinative factor may sound a warning to those parties that have not made an express choice of law; the court was silent as to whether any foreign law conferring third-party rights might apply in the absence of express choice. Market practice demonstrates that parties should make that choice clear in the governing documents.

This article was first published by the International Law Office, a premium online legal update service for major companies and law firms worldwide. Register for a free subscription.

For further information on this topic please contact Parham Kouchikali or Matthew Evans at RPC by telephone (+44 20 3060 6000) or email ( or The RPC website can be accessed at