The Court of Appeal has confirmed that an investor holding a beneficial interest in immobilised notes has no direct claim against the issuer of those notes for breach of contract (unless expressly provided by contract): Secure Capital SA v Credit Suisse AG [2017] EWCA Civ 1486.  

This case will be of comfort to issuers as the Court of Appeal upheld the “no look through” principle common in international central securities depositories, reducing the risk of exposure to direct claims. The ruling also promotes certainty and consistency in the securities market.

For those trading/investing in interests in securities, this case is a reminder that the onus is on investors to check what recourse (if any) they have under the terms of the security and ancillary documents. The Court of Appeal noted that participants in this market know that they are trading in interests rather than the underlying securities. Unless contracting directly with the issuer (absent express wording to the contrary in the security documentation) an investor’s only recourse may well be against the Account Holder or, by directing the Account Holder to exercise its rights, against the settlement system.


Clearstream is an international central securities depository, based in Luxembourg and governed by Luxembourg law, which operates an electronic trading system for interests in securities. Clearstream members hold and trade interests in securities through the Clearstream system as “Account Holders”. Account Holders may trade in securities for their own benefit as principal, or on the instruction of their customers (“Account Owners”).

Any payments due under the securities are paid directly to Clearstream by the issuer. Clearstream makes payment of these sums on the issuer’s behalf to the relevant Account Holders, who pass them on to any respective Account Owners, as appropriate. The Clearstream system operates under a “no look through” principle whereby each party only has recourse against its own direct counterparty, unless rights which are directly enforceable against other parties are expressly conferred.

High Court decision

The instant case concerned eight notes issued in 2008 in bearer form (the “Notes”) by Credit Suisse AG (the “Issuer”). The Notes were held on behalf of Clearstream by Bank of New York Mellon acting as common depositary (the “Bearer”). The Notes were therefore ‘immobilised’ – the physical Notes were held by the Bearer and interests in the Notes were traded through the Clearstream system. The Notes were governed by English law.

Secure Capital SA (“Secure Capital”) held the entire beneficial interest in the Notes as an Account Owner, through RBS Global Banking Luxembourg SA, its Account Holder.

Secure Capital brought a claim against the Issuer for damages for breach of contract, alleging that the documentation governing the Notes contained misleading information which rendered the Notes effectively worthless. It claimed the Issuer knew or ought to have known that the information was misleading but failed to disclose it. This non-disclosure was alleged to be in breach of a contractual term in the Pricing Supplement for the Notes (the “Misleading Statements Term”) which provided that:

…the [Issuer] has 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…

The fundamental issue which arose before the High Court was the applicable law, and in particular whether Secure Capital was entitled to rely on a provision of Luxembourg law. The claim relied upon the law governing the Clearstream settlement system (rather than the law governing the Notes), namely Article 8 of Luxembourg law dated August 2001 on the circulation of securities (the “Luxembourg Law”):

“the investor may exercise or arrange to exercise corporate rights attaching to the holding of securities and the rights attaching to the holding of securities linked to the possession of the securities by producing a certificate drawn up by the relevant account holder attesting to the number of securities registered in its custody account.

Secure Capital asserted that the Luxembourg Law entitled it to exercise the rights of a bearer of the Notes to bring an action against the Issuer for a breach of contract. It contended that the Luxembourg Law did not apply to the Issuer’s obligations for the payment of principal and interest on securities and so did not, in that respect, contradict the “no look through” principle.

At first instance, the High Court granted summary judgment in favour of the Issuer, holding that:

  • The relevant issue involved the enforcement of rights under the contractual documentation governing the Notes, and the applicable law was English law (as the proper law of the contract).
  • Whatever the effect of the Luxembourg Law (which was questioned by the Issuer, but not formally challenged), it was irrelevant and could not be used to found a claim against the Issuer.
  • Under English law, the obligations of the Issuer were only owed to the Bearer. As Secure Capital was not the Bearer of the Notes, it had no contractual relationship with the Issuer through which to maintain its breach of contract claim.

Secure Capital appealed the decision.

Court of Appeal decision

The Court of Appeal unanimously dismissed the appeal, upholding the summary judgment at first instance.

The Court of Appeal held that if the issue in the case was properly characterised as contractual, the only party to have directly enforceable contractual rights against the Issuer was the Bearer (absent a principal payment default in relation to which a direct right against the Issuer was expressly conferred upon the Account Holder). This was true both on general principles of English law and the express provisions governing the Notes.

According to English conflict of law principles, the parties entitled to sue on the Notes were determined by the proper law of the contract: Picker v The London and County Banking Co (1887) 18 QBD 515. Under the express terms of the Note documentation, the proper law of the contract was English law.

The rights of the parties to sue the Issuer on the Notes were clearly set out in the Note documentation. The general position under the Note documentation was (aside from a limited number of specific circumstances which did not apply in this case) that the only party with directly enforceable rights against the Issuer was the Bearer of the Notes. In particular, the Note documentation stated that:

  • The Bearer would be treated as the owner for “all purposes”.
  • The Account Holders shown in Clearstream’s records had to look solely to Clearstream “for his share of each payment made by the Bank and in relation to all rights arising under the Global Securities”. This was the “no look through” provision.
  • The effect of the Contracts (Rights of Third Parties) Act 1999 was excluded.

Accordingly, the Court of Appeal rejected Secure Capital’s submission that the “no look through” principle only applied to payments under the Notes, and not to a claim for breach of contract. The Court of Appeal further commented that:

  • The “no look through” principle was “fundamental” to the workings of settlement systems in interests in immobilised securities.
  • It would be “eccentric” to suggest that Account Owners such as Secure Capital, who were further removed from the underlying Notes than the Account Holders mentioned in the Note documentation, should have a wider recourse to claim against the Issuer than that afforded to the Account Holders.

The Court of Appeal also rejected Secure Capital’s novel argument that there should be an exception to the usual conflict of law principles in the case of immobilised securities. The suggested exception was to fix the law of the settlement system as the appropriate law to determine the parties entitled to sue on the Notes. Apart from the lack of authority to support a new conflicts rule, the Court of Appeal noted that if the proposed conflicts rule were accepted, it could lead to “an incoherent, if not chaotic result” particularly where securities were traded across two or more settlement systems located in different jurisdictions.