Secure Capital SA v Credit Suisse AG
| Jurisdiction | England & Wales |
| Judge | Mr Justice Hamblen |
| Judgment Date | 24 February 2015 |
| Neutral Citation | [2015] EWHC 388 (Comm) |
| Court | Queen's Bench Division (Commercial Court) |
| Docket Number | Case No: 2014-452 |
| Date | 24 February 2015 |
[2015] EWHC 388 (Comm)
IN THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
COMMERCIAL COURT
Royal Courts of Justice
Rolls Building, Fetter Lane, London, EC4A 1NL
Mr Justice Hamblen
Case No: 2014-452
Adrian Beltrami QC and Christopher Burdin (instructed by Allen & Overy LLP) for the Applicant
Raymond Cox QC and Liisa Lahti (instructed by Collyer Bristow LLP) for the Respondent
Hearing dates: 9 and 10 February 2015
Introduction
The Defendant ("Credit Suisse") applies for summary judgment and/or to strike out the claim made by the Claimant ("Secure Capital"). The claim relates to 8 longevity contingent notes, 4 coupon and 4 zero coupon, issued by Credit Suisse in 2008 ("the Coupon Notes" and "the Zero Notes", together "the Notes"). The Notes are governed by English law and are in bearer form.
The Notes were linked to life insurance policies which meant that the prospect of the holder of the notes receiving any redemption payment for the Notes depended on mortality rates among a set of "reference lives" to which the relevant life insurance policies related.
The issuance documentation incorporated into the Notes included a term that Credit Suisse had taken all reasonable care to ensure that the information provided in the pricing supplement taken together with the other issue documentation was accurate and that there were no material facts the omission of which would make any statements contained in the relevant documents misleading ("the misleading statements term"). Secure Capital contends that the information provided in the issuance documents was misleading because a material fact was omitted, namely that the mortality tables used to generate the estimated life expectancies were shortly to be updated in a way that would significantly increase life expectancies rendering the Notes effectively worthless. It is alleged that Credit Suisse knew or ought to have known this but failed to disclose it and was therefore in breach of the misleading statements term and that Secure Capital can bring a claim for damages for breach of that term of the Notes.
Secure Capital's claim is based on Article 8 of Luxembourg law dated August 2001 on the circulation of securities (the "2001 Law"). Secure Capital's position is that it is entitled to exercise the rights linked to the possession of the Notes, including, so it contends, the right of the bearer to bring an action for a breach of a term of the Notes, pursuant to Article 8 of the 2001 Law.
Credit Suisse contends that Secure Capital's claim is misconceived. Secure Capital is not the bearer of the Notes, and accordingly is not in a contractual relationship with Credit Suisse. The claim it seeks to bring is a contractual claim and is governed by English law being the contractually chosen applicable law. Luxembourg law in general and the 2001 Law in particular are irrelevant to any such claim. As a matter of English law there is no basis on which Secure Capital is entitled to claim under contracts to which it is not a party. The claim should accordingly be dismissed or struck out.
Background
General outline
Credit Suisse's Nassau branch issued the Coupon Notes on 21 July 2008 and the Zero Notes on 25 August 2008. Both parties approached the application on the basis that, in so far as relevant to the issues in dispute, all of the Notes were in materially the same terms.
The Notes are supported by an Agency Agreement between Credit Suisse and JPMorgan entities dated 2 August 2006, and a Deed of Covenant by Credit Suisse also dated 2 August 2006. The Deed of Covenant provides a direct right against Credit Suisse in limited circumstances (not present in this case) to a 'Relevant Account Holder' (clause 2): essentially an entity holding a securities account with Euroclear/Clearstream in which there is an entry relating to the security (in this case RBS Global Banking (Luxembourg) SA ("RBSL")).
The amounts payable by Credit Suisse under the Notes on final redemption are determined by the mortality of the 'Reference Individuals'. If mortality is above the 'Mortality Attachment Point', the size of the return is relative to the number of mortalities up to the 'Maximum Mortality Payment'. Information regarding the 'Reference Individuals' is attached to the Pricing Supplement. This includes a life expectancy quote from 21st Services (as 'Life Expectancy Provider'), with the date of the relevant quote. Secure Capital alleges that when Credit Suisse issued the Notes in July and August 2008 it failed to disclose that 21st Services intended to revise its tables, as it did in September 2008. Secure Capital says this breached the "misleading statements term" in the Pricing Supplement.
The Notes were deposited with a common depository (Bank of New York Mellon ("BNYM")), which (as is common ground) is and remains the bearer of the Notes, and therefore the only contractual counterparty of Credit Suisse under the Notes.
The common depository holds the securities on behalf of the clearing system (in this case Clearstream). Any subsequent dealing takes place by way of book entries between accounts. An account holder of the clearing system may sell an entry in its security account to another account holder, the effect of which is simply to debit the seller's security account and credit the buyer's security account. The buyer's right is against the clearing system, which in turn has a right against the common depository. Payments made under the underlying securities are made to the bearer/common depository, and then passed onto the clearing system for the credit of the account holder.
On 7 July 2008 and 8 August 2008 respectively (pre-issue), Prometeo Investment Services SA ("Prometeo") agreed to acquire (through the clearing system) the Coupon Notes and the Zero Notes from Credit Suisse Securities (Europe) Ltd ("CSSEL"). It is Secure Capital's case that RBSL acquired Prometeo's interest on 21 July 2008 (the Coupon Notes) and 25 August 2008 (the Zero Notes), and that RBSL holds its interest in its Clearstream account as custodian for Secure Capital.
The Notes
Each Note is represented by a Permanent Global Security document ("PGS"). The PGS states that it is "a bearer document and negotiable accordingly". It states that it is freely transferable by delivery "and such transfer shall operate to confer upon the transferee all rights and benefits appertaining hereto…". The PGS states that "This Permanent Global Security shall be governed by and construed in accordance with English law".
The PGS was subject to the Conditions which were defined to comprise the Programme Memorandum, the Product Supplement and the Pricing Supplement.
The Programme Memorandum
The Programme Memorandum is dated some 2 years before the Notes, and is a set of standard terms on which Credit Suisse would issue notes of different descriptions. The Programme Memorandum referred to the possibility of there being different tranches of note which together would form a series although in this case each Note was in one tranche equal to the total amount of the Note.
The main features of the Programme Memorandum are:
(1) The PGS would be deposited with a common depository for Clearstream, Euroclear or another agreed clearing system. In this case Clearstream was the relevant clearing and settlement system for the Notes. Clearstream would credit each purchaser of the Notes with a nominal amount of the Notes.
(2) The securities were fungible.
(3) Title would pass by delivery to the bearer of a bearer security, and the holder would "be deemed to be and may be treated as its absolute owner for all purposes".
(4) It was provided that "the Securities are governed by, and shall be construed in accordance with, English law", and the English court had jurisdiction.
(5) 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 under the Global Securities, subject to and in accordance with the respective rules and procedures of … Clearstream". This provision is sometimes called the "no look through" provision. It was subject to the rules and procedures of Clearstream.
(6) So long as Clearstream's rules permitted, the notes were tradable only in amounts equal to a specified amount. If Clearstream was closed for a continuous period of 14 days, or closed down, the PGS would be exchangeable in the form which could be enforced (definitive security). The Notes contemplated that the interests in the Notes would be settled through Clearstream.
(7) The PGS could also be exchanged for a definitive security if principal in respect of any notes was not paid when due by the holder (in this case RBSL) giving notice to the fiscal agent for such exchange.
The Pricing Supplement
There was a Pricing Supplement for each Note. Essentially it gave general information about the life settlements and risks which were the basis of the investment, rather than the details of the terms of the Notes which were set out in the Pricing Supplement. The Pricing Supplement contained the misleading statements term, as did the Pricing Supplement. There was also a Pricing Supplement for each Note which included general details of the intended Note.
The Agency Agreement
The Agency Agreement dated 2 August 2006 was made between Credit Suisse and JP Morgan Chase Bank NA London branch as fiscal agent and JP Morgan Bank Luxembourg SA as paying agent, among others. Essentially, the agents would deal with most matters relating to the issue and administration of the Notes for Credit Suisse, deal with any payments and interest, and report to Credit Suisse.
The duties of the fiscal agent included...
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