On 6 October 2017, the Court of Appeal ruled that an investor with an interest in promissory notes cannot sue the issuing bank for allegedly making misleading statements about those promissory notes. There was no contractual relationship; only the bearer of the promissory notes could sue the issuer for breach of contract.

The determining factor in this case was the applicable law. The Court held that the matter in dispute could only be characterised as contractual and that English law, being the governing law of the contract to which the promissory notes were subject, therefore applied. English law did not confer any rights on the investor against the issuing bank, and respondent to the appeal, Credit Suisse. The appellant, Secure Capital’s, argument that the issue could be characterised as non-contractual and that Luxembourg law applied, thereby conferring liability on the issuing bank, was “unsustainable”.


The respondent, Credit Suisse, had issued promissory notes (the “Notes”) to the Bank of New York Mellon (“BNYM”), who was the bearer of the Notes (immobilised securities). BNYM held the Notes on behalf of Clearstream, which operates under Luxembourg law as an electronic trading system. RBS acquired an interest in the Notes through Clearstream and was the Account Holder of the Notes.  Secure Capital then acquired an interest in the Notes from RBS and became the Account Owner. The Notes were governed by English law as a matter of contract.

The Notes were subject to Conditions, defined as the Programme Memorandum, the Product Supplement and the Pricing Schedule. The latter contained a term that the respondent, Credit Suisse, had “taken all reasonable care to ensure that the information contained in this Pricing Schedule when taken together with the other Issue Documentation is true and accurate in all material respects…”.

The Notes were linked to life insurance policies. The loss claimed stemmed from the fact that the documentation used to calculate life expectancies was to be updated shortly in a way that would render the Notes worthless, which Credit Suisse allegedly knew about.

First Instance Decision

The judge considered, amongst other things alia, the Programme Memorandum which was a set of standard terms for securities to be issued by Credit Suisse. This contained a “no look through” term that each person shown in the records of Clearstream must look solely to Clearstream “for his share of each payment made by the Bank and in relation to all other rights arising…”. It also expressly excluded the rights of third parties to enforce any of the Conditions.

Secure Capital argued that, under Luxembourg law in which Clearstream operated, it was entitled to exercise the right of the bearer to bring a claim for breach of the Notes’ Conditions, even though it wasn’t actually the bearer. This interpretation was accepted by the judge. However, Credit Suisse argued that the Notes were governed by English law as a matter of contract and, regardless of the interpretation of the Luxembourg law, there was no right to sue under the contract. The issue to be determined was therefore which law applied.

In order to determine this, the judge at first instance considered the three principles for determining applicable law, the first of which is the proper characterisation of the relevant issue. The judge considered that the issue was whether Secure Capital could claim for breach of the misleading statements clause in the Pricing Schedule, which was a contractual clause. The judge held that the relevant issue could therefore only be characterised as a purely contractual one. As such, the matter was to be decided according to English law, being the law under the contract. Pursuant to English law the obligations of the issuer were owed to the bearer of the Notes only. There was no privity of contract between the issuer and the investor, and Secure Capital’s claim must fail.


Secure Capital appealed on the basis that the decision of the judge at first instance created a lacuna whereby the only person that could sue for breach of the misleading statement clause was BNYM, but that BNYM had suffered no loss. However, the party who had suffered loss could not sue for breach. They argued that this immunity from claims of Credit Suisse created “grave consequences”. Secure Capital submitted that a sui generis rule should be imposed, such that the law under which the electronic trading system operated was the appropriate law (in this instance the Luxembourg law referred to above).

Court of Appeal Decision

The Court of Appeal held that a lacuna cannot be said to exist if it is precisely the consequence of the express terms of the Notes (i.e. the term in the Programme Memorandum referred to above and the governing law clause). The Court also noted that Secure Capital’s argument was only advanced in respect of breach of contract and that it has not been suggested that a claim in tort would be similarly barred. Further, if Secure Capital’s argument was accepted, it would mean that the question of whether Credit Suisse (and other issuers) would be exposed to direct claims would depend on the system and jurisdiction in which the interests were held. The judge commented that “this would damage both certainty and consistency for a reason that might be little more than happenstance”.

Secure Capital argued that its approach accorded with commercial realities and expectations, and that the “no look through” principle only applied to monetary obligations. However, the Court  found that Secure Capital could not evidence this and that it was contradicted by the extensive literature, which emphasised that the purpose of immobilised securities is to prevent a direct link between investor and issuer.

The appeal was dismissed.