Secure Capital v Credit Suisse
In Secure Capital v Credit Suisse [2017] EWCA(Civ) 1486 a bearer security held as a global note by a common depositary on behalf of clearing systems which has a Contracts (Rights of Third Parties) Act 1999 provision excluding the right of the end noteholder (in the clearing systems) to sue the issuer is enforceable according to its terms. The governing law is the law in which the contract is expressed to be governed and not that where the instrument happens to be situated (in this case in a clearing system in Luxembourg).
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Interesting observation re privity though: the direct custodian, who would be able to sue, would not suffer a loss because of its back-to-back custodial relationship with the client. Therefore, even if it did sue, it would not be able to prove any loss.
- 56. The only justification advanced by Secure Capital is that, unless the law of the settlement system is identified as the proper law, there will be no-one able to recover substantial damages in contract for breach of the misleading statements term, thus creating a lacuna and conferring immunity on Credit Suisse as the issuer. I emphasise “in contract” because it is not suggested that a claim in tort, if sustainable, would be similarly barred.
So wait, what? The court is basically acknowledging that it is impossible for anyone to recover in contract for a breach of a bearer security held in a clearance system, since the proximate holder is obliged only to pass on to the ultimate holder what it receives, so it is “perfectly hedged", and the ultimate holder is excluded from benefit by dint of the market-standard CRTPA disclaimer.