FEDERAL COURT OF AUSTRALIA

RNB Equities Pty Ltd v Credit Suisse Investment Services (Australia) Limited [2019] FCA 760

ORDERS

THE COURT ORDERS THAT:

1.    The First Respondent’s interlocutory application be dismissed.

2.    The First Respondent pay the Applicants’ costs of and incidental to the interlocutory application.

Note:    Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

REASONS FOR JUDGMENT

ANDERSON J:

Introduction and summary

1    The first respondent, Credit Suisse Investment Services (Australia) Limited (Credit Suisse), applies for an order that the applicants’ originating application be set aside pursuant to r 13.01(1) of the Federal Court Rules 2011 (Cth) and, further or alternatively, summary judgment pursuant to s 31A of the Federal Court of Australia Act 1976 (Cth) (Federal Court Act). The basis of Credit Suisse’s interlocutory application is that, although the Court has jurisdiction to hear and determine the applicants’ claims against the second respondent, Regal Funds Management Pty Limited (Regal), the Court does not have jurisdiction to hear and determine the applicants’ claims against Credit Suisse.

2    It is undisputed that the claims against Regal comprise a matter arising under federal law and accordingly fall within this Court’s jurisdiction. The claims against Credit Suisse, on the other hand, arise, not by reason of federal law, but as a common law claim for breach of contract. But, as will be explained, the claims against Credit Suisse and Regal arise out of a common substratum of facts. As such, although the Court does not have original jurisdiction to hear and determine the applicants’ claims against Credit Suisse in isolation, it may do so under this Court’s accrued jurisdiction as an attachment to the applicants’ claims against Regal. The applicants’ claims against Credit Suisse and Regal are accordingly to be heard together in this Court.

Applicants’ claims

3    The applicants by their statement of claim filed with the originating application in the proceeding (Statement of Claim) make various claims against Credit Suisse and Regal.

4    The claims arise out of the applicants’ acquisition of a financial product referred to as “MINI warrants”. A brief introduction to MINI warrants was provided by Lee J in Australian Securities and Investments Commission v Davidof [2017] FCA 658 at [8]–[10]. The MINI warrants in this case had their reference asset as shares in Syrah Resources Limited (SYR). The warrants (CS MINIs) were offered by Credit Suisse pursuant to a Product Disclosure Statement (PDS) and were tradeable on a market operated in Australia by the Australian Stock Exchange (ASX): Statement of Claim at [6]–[13].

5    The applicants plead certain terms of the PDS at [8] of the Statement of Claim, including the following. Each CS MINI conferred on the holder the right to exercise the CS MINI by submitting a notice on any ASX business day. Where the holder exercised that right, Credit Suisse was required to pay the holder the “Termination Amount”. The CS MINIs could alternatively terminate upon the occurrence of a “Stop Loss Event”, in which case the holders were able to sell the CS MINIs back to Credit Suisse for the “Stop Loss Value”. The “Stop Loss Value” was to be calculated according to a formula set out in the PDS, which in turn referred to various defined elements, such as the “Reference Asset Value”, the “Strike Price” on the “Stop Loss Event Date” and the “Conversion Ratio”.

6    Key to the applicants’ claims against Credit Suisse, and the determination of this interlocutory application, is the pleaded definition of “Reference Asset Value” under the PDS. This value is not a fixed amount. It is instead determined through the exercise of discretion by Credit Suisse, albeit by reference to certain factors:

‘Reference Asset Value’ means the amount determined by the Issuer at its sole discretion as the value of the Reference Asset taking into consideration the market value of the Reference Asset at the time of determination, including, without limitation in relation to a Stop Loss Event, taking into consideration the market value of the Reference Asset while unwinding its hedge position during the Stop Loss Valuation Period.

7    In summary, the applicants allege the following relevant factual matters in relation to Credit Suisse and Regal:

(a)    the CS MINI is a financial product within the meaning of Ch 7 of the Corporations Act 2001 (Cth) (Act): Statement of Claim at [9];

(b)    at all material times, all the CS MINIs were capable of being traded, and many were in fact traded, on a market operated in Australia by the ASX (Market): Statement of Claim at [10];

(c)    from about September 2012, Credit Suisse or its affiliates acquired shares in SYR as a hedge against potential losses caused by dealings in the CS MINIs: Statement of Claim at [11];

(d)    Regal knew, or ought to have known, that Credit Suisse held a hedged position in relation to the CS MINIs: Statement of Claim at [12];

(e)    Regal knew that Credit Suisse would unwind that hedged position if the CS MINIs terminated: Statement of Claim at [18(b)];

(f)    during the period in or around November 2012 to early April 2013, the applicants acquired CS MINIs from Credit Suisse: Statement of Claim at [13];

(g)    in or about March 2013, Regal acquired from SYR’s directors options to acquire those directors’ SYR shares (Options): Statement of Claim at [14]; and

(h)    on or about 15 March 2013, Regal exercised the Options and acquired 9,907,201 SYR shares, with an acquisition price of $3.01 per share: Statement of Claim at [15]. As a result, Regal became a substantial shareholder of SYR shares, which was announced to the ASX on 20 March 2013: Statement of Claim at [14]–[16];

(i)    between about 21 March 2013 and 4 April 2013, Regal sold, or caused to be sold, a large number of SYR shares (Regal SYR Trades) at less than the current market value of the shares and substantially less than the amount paid by Regal to acquire the shares by exercising the Options: Statement of Claim at [19];

(j)    the effect of the Regal SYR Trades was to put downward pressure on the SYR share price and cause the SYR share price to fail: Statement of Claim at [23];

(k)    as a result of that drop in SYR share price:

(i)    on 3 April 2013, the “SYR KCC series” were rolled into the “SYR KCD series” of CS MINIs (partly at Credit Suisse’s instigation), for no consideration and without a change in ratio: Statement of Claim at [25]; and

(ii)    on 4 April 2013, Credit Suisse determined the relevant Reference Asset Value (pursuant to the contractual discretion outlined above at [6]) to be $1.75, and the relevant Stop Loss Value to be zero: Statement of Claim at [26]; and

(l)    soon thereafter, on 4 April 2013:

(i)    Credit Suisse offered to sell SYR shares to the holders of the “SYR KCB series” and SYR KCD series of the CS MINIs for $1.75 per share, for a 24 hour period only;

(ii)    the applicants purchased a quantity of SYR shares pursuant to that offer;

(iii)    Regal thereafter acquired 1,350,000 SYR shares pursuant to the same offer: Statement of Claim at [27].

8    The applicants’ claims against both Credit Suisse and Regal arise from the above sequence of pleaded events. The applicants’ allege that Regal engaged in market manipulation in contravention of s 1041A of the Act by reason of its trades in SYR: Statement of Claim at [28]–[29]. For reference, s 1041A provides:

Market manipulation

A person must not take part in, or carry out (whether directly or indirectly and whether in this jurisdiction or elsewhere):

 (a)     a transaction that has or is likely to have; or

 (b)     2 or more transactions that have or are likely to have;

 the effect of:

(c)    creating an artificial price for trading in financial products on a financial market operated in this jurisdiction; or

(d)     maintaining at a level that is artificial (whether or not it was previously artificial) a price for trading in financial products on a financial market operated in this jurisdiction.

9    As outlined above, the applicants allege that the Regal SYR Trades placed downward pressure on the SYR share price and caused the SYR share price to fall, which in turn caused the termination of the CS MINIs by the occurrence of a Stop Loss Event with no compensation payable to the applicants. As a result, the applicants claim that:

(a)    they suffered loss and damage: Statement of Claim at [30]; and, further and alternatively

(b)    Regal made profits, which the applicants are entitled to treat as damages by reason of s 1317HA of the Act: Statement of Claim at [31];

10    The applicants’ claims against Credit Suisse are based on different grounds. It is alleged that Credit Suisse breached the terms of the PDS in determining the Stop Loss Value of the CS MINIs upon the occurrence of the Stop Loss Event. The applicants plead that Credit Suisse, in exercising its discretion to determine the Reference Asset Value, failed to act in good faith, placed undue weight on its own interests and acted unreliably, arbitrarily, capriciously, dishonestly and/or for an improper purpose in exercising its sole discretion to determine the Reference Asset value: Statement of Claim at [32]–[39]. The applicants say they have suffered loss and damage as a result of these breaches of the PDS by Credit Suisse: Statement of Claim at [40].

11    Credit Suisse and Regal have not yet filed any defence to the applicants’ claims against them.

Interlocutory application

12    Credit Suisse lodged an interlocutory application on 16 April 2019. As outlined, the application seeks an order that the applicants’ originating application against it be set aside and, further or alternatively, summary judgment against the applicants. The basis of the application is that, although the Court has jurisdiction to hear and determine the claims against Regal, it does not have jurisdiction to hear and determine the claims against Credit Suisse.

13    Credit Suisse filed written submissions in support of its interlocutory application on 24 April 2019 (CS’ Submissions). In support of the application, Credit Suisse relies upon the affidavit of Alexander Basil Morris sworn 12 April 2019 and the exhibits thereof. The applicants filed written submissions in response on 14 May 2019 (Applicants’ Submissions).

14    There is no substantial dispute between Credit Suisse and the applicants regarding the relevant legal principles for the purposes of Credit Suisse’s application. The question for determination is whether the Court has jurisdiction to hear and determine the applicants’ claims against Credit Suisse.

Relevant principles

15    The jurisdiction of the Federal Court of Australia is sourced entirely in statute. It is common to explain the composition of this jurisdiction by reference to three concepts: “original jurisdiction”, “accrued jurisdiction” and “associated jurisdiction”.

Original jurisdiction

16    Section 19 of the Federal Court Act provides that:

(1)    the Court has such original jurisdiction as is vested in it by laws made the Parliament; and

(2)    the original jurisdiction of the Court includes any jurisdiction vested in it to hear and determine appeals from decisions of persons, authorities or Tribunals other than courts.

17    It is therefore necessary to identify the federal law conferring jurisdiction on this Court. The ordinary starting point is s 39B(1A) of the Judiciary Act 1903 (Cth) (Judiciary Act), which provides:

The original jurisdiction of the Federal Court of Australia also includes jurisdiction in any matter:

(a)    in which the Commonwealth is seeking an injunction or a declaration; or

(b)    arising under the Constitution, or involving its interpretation; or

(c)    arising under any laws made by the Parliament, other than a matter in respect of which a criminal prosecution is instituted or any other criminal matter.

18    In addition, the Act provides a specific conferral of jurisdiction on the Court in respect of certain matters under the Act. Section 1337B(1) of the Act (which operates to the exclusion of s 39B(1A) of the Judiciary Act: s 1337A(2)(b) of the Act) provides:

Jurisdiction is conferred on the Federal Court of Australia with respect to civil matters arising under the Corporations legislation.

19    The essential question under this provision (as it would be under s 39B(1A)(c) of the Judiciary Act) is whether the matter may be characterised as “arising under” the relevant federal law. A matter arises under federal law if that law is the source of the relevant right or duty, or if that law created the relevant subject matter, or if federal law provides the authority for enforcing the right or duty, or if the matter’s resolution turns on the federal law’s interpretation: R v Commonwealth Court of Conciliation and Arbitration; Ex parte Barrett (1945) 70 CLR 141 at 154; Construction, Forestry, Mining and Energy Union v Australian Industrial Relations Commission (2007) 157 FCR 260 at [80]; Treasury Wine Estates Vintners Limited v Pearson [2019] FCAFC 21 at [38].

Accrued jurisdiction

20    “Accrued jurisdiction” refers to that part of the Court’s authority to adjudicate in a matter which is not statutorily conferred, but which is instead incidental to the proceedings so as to allow the Court to determine the whole matter before it. In Johnson Tiles Pty Ltd v Esso Australia Pty Ltd (2000) 104 FCR 564 (Johnson Tiles), the Full Court of the Federal Court of Australia noted at [93] that the term “accrued jurisdiction” is a metaphor used in the analysis of the content of the Court’s authority to adjudicate; it does not describe any constitutionally inferior species of federal jurisdiction.

21    The existence of this particular content of the Court’s authority to adjudicate derives from the concept of a “matter”, as utilised in s 1337B(1) of the Act and s 39B(1A) of the Judiciary Act. Whether federal jurisdiction is granted directly by the Constitution, or by Commonwealth legislation, and whether exercised by the High Court, a Federal Court or a State Court exercising federal jurisdiction, it must involve a “matter” for the purposes of Chapter III of the Constitution. The concept of accrued jurisdiction originated in cases where a Federal Court had a direct grant of jurisdiction over the federal law aspects of the “matter”, and it was held that the Court could try additional aspects of the same matter, even though they are raised under a State statute or under the common law.

22    “Matter” has an expansive definition for constitutional purposes, going beyond simply a controversy as defined by the pleadings or similar documents, and beyond notions of “causes of action” or even “claims”. It refers not to a “legal proceeding”, but to any one or more of the subject matter for determination in a legal proceeding; the right, duty or liability to be established; the parties conduct and the relationships between or among them; and the controversy between the parties: see Aronson M, Groves M and Weeks G, Judicial Review of Administrative Action and Government Liability (6th ed, Thomson Reuters, 2017) at [2.230], citing Re Judiciary and Navigation Acts (1921) 29 CLR 257 at 265; Ruhani v Director of Police (2005) 222 CLR 489 at 513, 574-578; CGU Insurance Limited v Blakeley (2016) 259 CLR 339 at [30], [84]–[85].

23    Once jurisdiction over a “matter’ is established, the Federal Court keeps its accrued jurisdiction to try the attached aspects of the controversy, whether they be federal or non-federal, even though the federal claim is dismissed on its merits, not reached or withdrawn or settled: Moorgate Tobacco Co Ltd v Philip Morris Ltd (1980) 145 CLR 457 at 477; Stack v Coast Securities (No. 9) Pty Ltd (1983) 154 CLR 261 (Stack); Johnson Tiles at 597-598.

24    The principles that govern the accrued jurisdiction of this Court have been discussed by the High Court in a number of decisions, including Philip Morris Inc v Adam P Brown Male Fashions Pty Ltd (1981) 148 CLR 457 (Philip Morris), Fencott v Muller (1983) 152 CLR 570 (Fencott), Re Wakim; Ex parte McNally (1999) 198 CLR 511 (Re Wakim) and Australian Securities and Investments Commission v Edensor Nominees Pty Limited (2001) 204 CLR 559 (Edensor Nominees).

25    Philip Morris established that this Court, in the exercise of its jurisdiction to determine a “matter” committed to it by statute, might determine a claim for relief not otherwise within its jurisdiction (including a claim which involved no federal element) provided the claim was part of the same “matter” over which the Court had jurisdiction. Barwick CJ said at 474:

[T]here may be circumstances in which the matter does not in substance itself attract federal jurisdiction though that which attracts federal jurisdiction must in some way relate to the matter. Once federal jurisdiction is attracted, it is not lost because the claim or assertion which attracted it has not been substantiated or has been displaced by some countervailing fact. Once attracted, by whatever path attracted, the jurisdiction persists to enable the Court to resolve the matter. The jurisdiction to do so accrues to the Court because there is a matter, in relation to which federal jurisdiction has been attracted, to be resolved. The jurisdiction thus accrued is itself federal jurisdiction. But, of course, it is limited to the resolution of the matter in relation to which, but not necessarily by which, the federal jurisdiction was attracted in the first instance. But the jurisdiction will not extend to any other matter, though that other matter might in some sense be an allied or associated matter. To be outside the accrued jurisdiction, however, the other matter must be separate and disparate from the matter in relation to or in connexion with which federal jurisdiction has been attracted. The federal jurisdiction will not extend to enable the Court to resolve the further matter, being as I have said in substance a disparate and independent matter. But this does not involve any close confinement of the federal jurisdiction by too narrow a view of what is relevantly the matter. The emphasis on the disparate and independent nature of what is not part of or within the matter should ensure that no narrow view is taken of the parameters of the matter.

(Emphasis added.)

26    His Honour further explained at 475:

It is settled doctrine in Australia that when a court which can exercise federal jurisdiction has its jurisdiction attracted in relation to a matter, that jurisdiction extends to the resolution of the whole matter.

27    In Fencott, the joint judgment of Mason, Murphy, Brennan and Deane JJ sought to provide guidance as to what would be considered a “separate and disparate” matter. Their Honours observed at 607-608:

Perhaps it is not possible to devise so precise a formula that its application to the facts of any controversy would determine accurately what claims are disparate and what claims are not. Whatever formula be adopted as a guide – and the formula of ‘common transactions and facts’ is a sound guide for the purpose – it must result in leaving outside the ambit of a matter a ‘completely disparate claim constituting in substance a separate proceeding’ … a non-federal matter which is ‘completely separate and distinct from the matter which attracted federal jurisdiction’ … or ‘some distinct and unrelated non-federal claim’ …

Claims which are described by these or similar phrases cannot be determined by exercise of the judicial power referred to in s. 71 of the Constitution, for that power can be exercised only to determine those matters in which federal jurisdiction is or can be conferred under Ch. III of the Constitution. For precisely this reason, however, it is necessary to attribute to ‘matter’ in ss. 75 and 76 of the Constitution a connotation which does not deny to federal judicial power its primary character: that is, the power of a sovereign authority ‘to decide controversies between its subjects, or between itself and its subjects, whether the rights relate to life, liberty or property’ … . The unique and essential function of the judicial power is the quelling of such controversies by ascertainment of the facts, by application of the law and by exercise, where appropriate, of judicial discretion. In identifying a s. 76(ii) matter, it would be erroneous to exclude a substantial part of what is in truth a single justiciable controversy and thereby to preclude the exercise of judicial power to determine the whole of that controversy. What is and what is not part of the one controversy depends on what the parties have done, the relationships between or among them and the laws which attach rights or liabilities to their conduct and relationships. The scope of a controversy which constitutes a matter is not ascertained merely by reference to the proceedings which a party may institute, but may be illuminated by the conduct of those proceedings and especially by the pleadings in which the issues in controversy are defined and the claims for relief are set out. But in the end, it is a matter of impression and of practical judgment whether a non-federal claim and a federal claim joined in a proceeding are within the scope of one controversy and thus within the ambit of a matter.

A judicial power which is not exercised to determine the whole of a controversy is, generally speaking, not appropriately and conveniently exercised. Not appropriately, because the controversy is not quelled; not conveniently, because the parties – the principal beneficiaries of the exercise of judicial power – must litigate anew to have the outstanding questions and issues determined.

(Emphasis added.)

28    In Re Wakim, Gummow and Hayne JJ observed at 585-6:

The references to ‘impression’ and ‘practical judgment’ [in Fencott] cannot be understood, however, as stating a test that is to be applied. Considerations of impression and practical judgment are relevant because the question of jurisdiction usually arises before evidence is adduced and often before the pleadings are complete. Necessarily, then, the question will have to be decided on limited information. But the question is not at large. What is a single controversy ‘depends on what the parties have done, the relationships between or among them and the laws which attach rights or liabilities to their conduct and relationships’. There is but a single matter if different claims arise out of ‘common transactions and facts’ or ‘a common substratum of facts’, notwithstanding that the facts upon which the claims depend ‘do not wholly coincide’. So, too, there is but one matter where different claims are so related that the determination of one is essential to the determination of the other, as, for example, in the case of third party proceedings or where there are alternative claims for the same damage and the determination of one will either render the other otiose or necessitate its determination. Conversely, claims which are ‘completely disparate’, ‘completely separate and distinct’ or ‘distinct and unrelated’ are not part of the same matter.

Often, the conclusion that, if proceedings were tried in different courts, there could be conflicting findings made on one or more issues common to the two proceedings will indicate that there is a single matter. By contrast, if the several proceedings could not have been joined in one proceeding, it is difficult to see that they could be said to constitute a single matter.

(Citations omitted.)

29    In Edensor Nominees, Gleeson CJ, Gaudron and Gummow JJ observed at 585-586:

The authorities in which [the] expression [“accrued jurisdiction”] was given currency by this Court were all cases in which the Federal Court was seised of jurisdiction in a matter which, within the meaning of s 76(ii) of the Constitution, was one arising under a law made by the Parliament. In [Philip Morris, Fencott and Stack], the federal law was the Trade Practices Act and claims also were made based on one or more of contract, tort and breach of fiduciary duty. These non-federal claims were elements in the one controversy constituting the relevant “matter”.

There is no harm in the continued use of the term “accrued jurisdiction” in such situations provided several matters are borne in mind. First, while there are various claims, in these cases there is but one “matter” in the constitutional sense and the court in question either does or does not have jurisdiction in respect of it. … Ordinarily, questions of abuse of process, forum non conveniens and the like aside, jurisdiction conferred upon a court is to be exercised.

(Citations omitted.)

30    The above authorities make clear that this Court will have jurisdiction to hear and determine a claim, even though it raises no federal law claim, if it shares a “common substratum of facts” with a federal law claim.

Associated jurisdiction

31    The Court’s accrued jurisdiction is to be distinguished from its associated jurisdiction, which derives from s 32(1) of the Federal Court Act. That provision provides:

To the extent that the Constitution permits, jurisdiction is conferred on the Court in respect of matters not otherwise within its jurisdiction that are associated with matters (the core matters) in which the jurisdiction of the Court is invoked.

32    Associated jurisdiction goes no further than matters arising under laws of the Commonwealth in respect of which jurisdiction has not otherwise been conferred: Philip Morris at 494, 516, 534–536, 547; Jackson v Sterling Industries Ltd (1987) 162 CLR 612 at 618–619. The Federal Court’s associated jurisdiction extends only to issues of federal law. The additional federal law issue is “associated” only if both it and the primary claim arise out the same or substantially the same facts.

33    The parties accept, however, that the Court’s associated jurisdiction is inapplicable in the current case.

Credit Suisse’s submissions

34    Credit Suisse submitted that this Court does not have jurisdiction, either in its original jurisdiction or accrued jurisdiction, to hear and determine the applicants’ claims against it.

Original jurisdiction

35    Credit Suisse contended that the claim is an action at common law that could not have been commenced in this Court in a separate proceeding: CS’ Submissions at [24].

36    Mr De Young of counsel, appearing on behalf of Credit Suisse, submitted that the original jurisdiction of the Court was not invoked as the CS MINIs were created not by reason of federal law but by Credit Suisse entering into contractual arrangements with the applicants. Mr De Young further submitted that there is no power or mechanism in the Act for the creation of financial products such as the CS MINIs. He submitted that the CS MINIs owe their existence to the contractual arrangements between Credit Suisse and the applicants. As such, the claims pleaded against Credit Suisse were purely and solely claims at common law for breach of contract.

37    Mr De Young properly conceded, in my view, that the CS MINIs were regulated as a financial product under the Act. However, Mr De Young submitted that the fact that the CS MINIs are a financial product regulated under the Act does not convert the claims made against Credit Suisse into a matter arising under federal law.

38    As will be further explained below, the applicants sought to draw a connection between the content of Credit Suisse’s obligations under the PDS and its statutory obligations under s 912A of the Act, which prescribes the general obligations of a financial services licensee. Insofar as the applicants rely on s 912A, Mr De Young submitted that such reliance was misconceived as:

(a)    section 912A of the Act does not confer any private rights on customers of financial service providers;

(b)    there is no pleaded claim alleging contravention of section 912A of the Act; and

(c)    no authority has been identified by the applicants to support the existence of any such private rights.

39    Mr De Young moreover highlighted that the claims against Credit Suisse do not allege:

(a)    any claim against Credit Suisse to recover loss by reason of any defect in the PDS under s 1022B of the Act;

(b)    that the PDS was misleading or deceptive contrary to the Australian Consumer Law (ACL).

40    In supplementary submissions filed 20 May 2019, Credit Suisse made further submissions in relation to the surrounding ASX statutory framework. Credit Suisse said that ASX Limited is an Australian public company, formed on 1 April 1987 and incorporated under the Australian Stock Exchange and National Guarantee Fund Act 1987 (Cth). The purpose of that Act was, relevantly, to provide legislative support for a reorganisation of stock exchanges in Australia to establish a single national stock exchange, with each of the six then-current capital city exchanges as its subsidiaries. Section 36B(3) of that Act provided that notwithstanding anything in the Act:

the exchange shall not be taken for the purposes of a law of the Commonwealth, of a State or of a Territory to have been incorporated or established for a public purpose or for a purpose of the Commonwealth.

41    Credit Suisse submitted that, prior to its conversion to a public company limited by shares, ASX Limited had a mutual structure. It was a company limited by a guarantee where its members were brokers who used the facilities of the exchange to deal in securities.

42    Credit Suisse accordingly contended that it is important to distinguish between ASX Limited as market operator, and the market which it operates. Credit Suisse submitted that although the Act requires that ASX Limited, as the operator of a financial market operating in this jurisdiction, hold an Australian market licence under s 791A of the Act, and that it consequently comply with obligations provided for in Pt 7.2 of the Act, neither the Act nor the Australian market licence granted under the Act created the ASX market.

Accrued jurisdiction

43    Credit Suisse further submitted that the claims against it do not fall within the Court’s accrued jurisdiction because they are severable and distinct from the federal matter against Regal. In this regard, Credit Suisse rely upon the decision of this Court of Obacelo Pty Ltd v Taveraft Pty Ltd (1985) 5 FCR 210 at 215. Credit Suisse submitted (in CS’ Submissions at [25]) that:

(a)    the issues as between the applicants and Regal can be fully determined without reference to the issues raised by the claim against Credit Suisse;

(c)    the relief to which the applicants may be entitled against Regal can be granted in the absence of Credit Suisse;

(d)    whilst there is some nexus between the two matters, in that the alleged Regal SYR Trades are said to have triggered the Stop Loss Event giving rise to the termination of the CS MINIs, any overlap in the evidence is minimal. At most, the applicants may need to prove, in connection with the claim against Credit Suisse, the same uncontroversial background facts as to the terms of the PDS and their acquisition of the CS MINIs; and

(e)    it cannot be said that the claims against Credit Suisse and Regal arise out of common transactions and facts. The claim against Regal will depend on evidence as to whether Regal engaged in market manipulation in respect of the alleged Regal SYR Trades. In contrast, the claim against Credit Suisse will depend on evidence as to Credit Suisse’s subsequent determination of the Stop Loss Value of the CS MINIs.

44    Credit Suisse further submitted that if the claims against Credit Suisse and Regal were tried in different courts, there is no apparent risk of conflicting findings: CS’ Submissions at [26].

Applicants’ submissions

45    In response, Mr Bigmore QC, appearing with Mr Barr of counsel for the applicants, submitted (Applicants’ Submissions at [2.1]) that:

(a)    their claims against Credit Suisse fall within the Court’s jurisdiction; and

     (b)    further or alternatively, Credit Suisse’s application is premature insofar as the respondents have not yet filed their defences, which may bring the proceedings against Credit Suisse within the Court’s jurisdiction.

Original jurisdiction

46    The applicants submit that original jurisdiction is conferred upon this Court under s 1337B(1) of the Act, or alternatively, under s 39B(1A) of the Judiciary Act: Applicants’ Submissions at [2.5]–[2.6].

47    The applicants submit that this Court has original jurisdiction to hear the proceeding against Credit Suisse as the proceeding concerns loss and damage suffered by the applicants as investors in ASX traded products caused by:

(a)    on the one hand, Regal’s alleged manipulation of the SYR shares underlying the CS MINIs for the purpose of triggering the termination of the relevant CS MINIs; and

     (b)    upon that very termination, Credit Suisse’s misconduct in determining the Stop Loss Value under the PDS.

48    The applicants contend that, properly understood, the claims made against Credit Suisse as alleged in the Statement of Claim are matters “arising under” the Corporations legislation, to apply s 1337B(1) of the Act, or other laws made by the Federal Parliament, to apply s 39B(1A) of the Judiciary Act: Applicants’ Submissions at [2.7]. The applicants submit that the phrase “arising under” is “wide enough to encompass a claim for common law or equitable relief in respect of, or over, a right which simply owes its existence to federal law”: Applicants’ Submissions at [2.9]. For this reason, it was necessary for the applicants to characterise the connection between their claim against Credit Suisse and Corporations legislation, or another federal law.

49    The applicants submit that the CS MINIs were created and are governed by federal law, insofar as they are “financial products” for the purposes of Ch 7 of the Act and the ASX rules (which are themselves made under federal law). Furthermore, the Act requires the PDS to be provided; prescribes the content of the PDS; and provides for other rights and obligations related to the PDS. As the Reference Asset Value was determined pursuant to the provisions of the PDS, the claim against Credit Suisse is therefore a matter arising under federal law: Applicants’ Submissions at [2.13].

50    The applicants in their supplementary submissions dated 20 May 2019, responding to Credit Suisse’s supplementary submissions referred to above at [40], made submissions in relation to the surrounding ASX statutory framework. The applicants submitted that the regulatory regime in respect of financial markets operates so that the operation of a financial market is prohibited unless the operator holds a relevant licence under section 791A of the Act. The applicants submitted that the real question is whether the ASX market “exists as a result of” the Act. The existence of the market would now (and at the dates alleged in the pleading) be prohibited but for the grant of the relevant market licence. On this basis, the applicants contend the ASX market exists as a result of the Act, and therefore their claim against Credit Suisse is a matter arising under federal law.

51    There is a further basis on which the applicants characterise the connection between their claim against Credit Suisse and federal law. As explained, the applicants plead that Credit Suisse breached the PDS by exercising its discretion to determine the Reference Asset Value in the various manners described above at [10]. The applicants allege a connection between these breaches of the PDS and aspects of federal law by referring to Credit Suisse’s obligations as a financial services licensee in respect of the relevant product, namely the CS MINIs, as a participant in the Australian financial market which is regulated in part by the “Corporations legislation”, as defined in s 9 of the Act. In particular, the applicants say that s 912A(1)(a) of the Act, which provides that a financial services licensee (such as Credit Suisse) must do all things necessary to ensure that the financial services covered by the licence are provided efficiently, honestly and fairly, is “one of the foundations or sources” of Credit Suisse’s obligations under the PDS.

Accrued jurisdiction

52    Finally, the applicants’ submit that, even if their claim against Credit Suisse does not fall within the Court’s original jurisdiction, the claim may be heard as part of the Court’s accrued jurisdiction. There is no dispute that the claim against Regal is a federal matter. In the applicants’ submission, the claim against Regal involves serious breaches of the Act resulting in significant damages. These claims are neither trivial nor insubstantial and are properly within the Court’s jurisdiction.

53    In their submission, the applicants’ claims against Credit Suisse are not severable or disparate from the claim against Regal, and will therefore fall squarely within the Court’s accrued jurisdiction: Applicants’ Submissions at [3.5]. Broadly by reference to the sequence of factual matters outlined above at [7], the applicants identify what they submit to be a common substratum of transactions and facts which in their submission demonstrate the factual overlap of the claims against Credit Suisse and Regal. In the submission of the applicants, this factual overlap is “temporal, causal and substantive”: Applicants’ Submissions at [3.7].

Consideration

Original jurisdiction

54    For the following reasons, I am of the opinion that the pleaded claims in the Statement of Claim against Credit Suisse do not attract the original jurisdiction of this Court.

55    As a starting point, the Statement of Claim does not expressly allege reliance on any provision of the Act or other federal law for the purposes of the applicants’ claims against Credit Suisse. For instance, the applicants do not seek recovery of loss by reason of any defect in the PDS under s 1022B of the Act. Neither do they allege that the PDS or any other conduct of Credit Suisse was misleading or deceptive contrary to the ACL.

56    As explained, the applicants, in their written submissions and the oral submissions of Mr Bigmore QC, sought to place reliance on s 912A of the Act. He said that s 912A provided “one of the foundations or sources” of the relevant obligations of the PDS allegedly breached by Credit Suisse. But the particular breaches of the PDS are not, as pleaded, sufficiently connected to the Act. Whilst it is true that Credit Suisse, as a financial services licensee, owed obligations under s 912A of the Act, it is a wholly different thing to say that those matters are to be imported into the PDS. And, regardless, that importation is not what is alleged in the Statement of Claim.

57    In the absence of express reference to features of federal law, the applicants sought to draw the connection between their claim against Credit Suisse and federal law on the basis of the nature of, and the statutory framework surrounding, the CS MINIs. However, for the following reasons, this submission must also fail.

58    The relevant subject matter of the dispute between the applicants and Credit Suisse concern the rights and obligations pertaining to the CS MINIs. But there is no power or mechanism under the Act for the creation of the CS MINIs. The CS MINIs were not created by any federal law; their existence instead arises by reason of a contract between Credit Suisse as issuer and the applicants as purchasers of the CS MINI. The CS MINIs were created by Credit Suisse and provided to members of the public who acquired the CS MINIs on the Market. The CS MINIs owe their existence to Credit Suisse and the contractual arrangements that exist between them as the issuer of a financial product and the applicants’ as purchasers of that financial product.

59    Furthermore, the existence and operation of the statutory framework surrounding the trading of the CS MINIs does not, for relevant purposes, alter the characterisation of the subject matter of the dispute. First, whilst Credit Suisse must hold an Australian financial services licence under Pt 7.6 of the Act, and Pt 7.9 of the Act imposes obligations on the holder of an Australian financial services licence to make certain product disclosure in relation to the financial products, that, of itself, does not result in the claims made against Credit Suisse being a matter that arises under the Act or any other federal law.

60    Second, the fact that the Act provides a framework for ASX Limited to be the market operator and regulates holders of Australian financial services licences such as Credit Suisse, does not, of itself, make financial products such as the CS MINIs the product of, and the creation of, the Act or any other federal law. I accept the submissions of Credit Suisse that, whilst ASX Limited as market operator and the holders of financial services licences such as Credit Suisse are regulated under the Act, the market in which they operate is not a creature of the Act or any other federal law. In the present case, the architecture of the Act is no more than relevant background to the applicants acquiring CS MINIs from Credit Suisse. The claim against Credit Suisse is, to use the words of Windeyer J in Felton v Mulligan (1979) 124 CLR 367 at 391, one in which the Act is merely “lurking in the background”.

61    Properly understood, the claims made by the applicants against Credit Suisse are purely contractual in nature. I do not accept the applicants’ submission that the “real question” is whether the ASX market exists as a result of the Act and that the existence of the market would now be prohibited but for the grant of the relevant market licence. The real question, in my view, is whether the subject matter of the dispute between the parties has its source in federal law. The subject matter of the dispute between the applicants and Credit Suisse, as pleaded, is alleged contractual breaches of the PDS.

62    The present case can thus be distinguished from LNC Industries Limited v BMW (Australia) Limited (1983) 151 CLR 575 (LNC Industries), which related to the contractual sale of quota entitlements for the importation of vehicles into Australia pursuant to the Customs (Import Licencing) Regulations made under the Customs Act 1901 (Cth). In that case, a company which held import licences to import a number of vehicles brought an action in the Supreme Court of New South Wales alleging that it was a term of a contract (under which it agreed to transfer part of its quota to the defendant) that the defendant would hold on trust for it any benefit accruing as a result of or related to the utilisation of the transferred quota units.

63    The High Court held at 582 of LNC Industries that the proceedings in New South Wales were an exercise of federal jurisdiction on the basis that the contracts considered in that case were “concerned solely with entitlements under the Regulations” and, likewise, that “[t]he very subject of the issue between the parties is an entitlement under the Regulations” (emphasis added). The overarching principle was expressed by the plurality of Gibbs CJ, Mason, Wilson, Brennan, Deane and Dawson JJ at 581 as follows:

When it is said that a matter will arise under a law of the Parliament only if the right or duty in question in the matter owes its existence to a law of the Parliament that does not mean that the question depends on the form of the relief sought and on whether that relief depends on federal law. A claim for damages for breach or or specific performance of a contract, or a claim for relief for breach of trust, is a claim for relief of a kind which is available under State law, but if the contract or trust is in respect of a right or property which is the creation of federal law, the claim arises under federal law. The subject matter of the contract or trust in such a case exists as a result of the federal law.

64    The factual circumstances of this case are a degree removed from that of LNC Industries. What was at stake in LNC Industries may be broadly summarised as a contractual right to a statutory entitlement. Thus, as the plurality of the High Court observed, the ultimate subject of the dispute was a statutory entitlement. But, in this case, the ultimate subject of the dispute between the applicants and Credit Suisse, as pleaded, is not an entitlement under federal law. In fact, even assuming that the CS MINIs may be characterised as a creature of statute (which, for the reasons above, they may not), an entitlement to CS MINIs is not in issue at all. Instead, the essence of the applicants’ dispute with Credit Suisse is the alleged misapplication of a contractual discretion that resulted in the reduction of the valuation of the CS MINIs. The ultimate complaint the applicants advance in their pleadings is in respect of the valuation of, not their entitlement to, the CS MINIs.

Accrued jurisdiction

65    Although this Court does not have original jurisdiction to hear the claims against Credit Suisse in isolation, I am satisfied, however, that the doctrine of accrued jurisdiction applies to those claims.

66    It is not in dispute that the claim against Regal is a matter attracting this Court’s jurisdiction. The claim against Regal involves allegations of market manipulation in contravention of s 1041A of the Act. The subject matter for determination thus inextricably involves the consideration and application of a federal law. It is therefore a matter within the original jurisdiction of this Court.

67    The applicants’ claim against Credit Suisse will form part of this same “matter” if it be concluded that the claims arise out of common transactions and facts, even if the facts upon which the claims depend do not wholly coincide. The fundamental task is therefore to assess the degree of factual commonality between the claims as expressed in the applicants’ pleadings. The starting point is to characterise the claim against Regal at its most basic level.

68    The core allegation against Regal in the applicants’ pleadings is that it engaged in market manipulation. In broad terms, the factual allegations are that Regal, through a series of actions, caused a fall in the SYR shares and, at the same time, positioned itself to then acquire a significant portion of those shares at a reduced price. Regal is said to have made profits in doing so, which the applicants’ now seek to recover as damages. The series of conduct by Regal alleged to have comprised its contravention of the Act primarily took place in March and April 2013, although the evidence to support the allegation will likely stretch back into the preceding months.

69    The central focus during this time period may be expected to be Regal’s “conduct, intentionally engaged in, which has resulted in a price which does not reflect the forces of supply and demand”: Director of Public Prosecutions (Cth) v JM (2013) 250 CLR 135 at [70] (DPP (Cth) v JM). Ordinarily, subjective intentions driving that conduct may also be relevant where the allegation is that a particular transaction was “likely to have” one of the effects described in s 1041A(c) and (d) of the Act: DPP (Cth) v JM at [73]; Australian Securities and Investment Commission v Westpac Banking Corporation (ACN 007 457 141) (No 2) (2018) 357 ALR 240 at [1928], [1958]. However, in this case, the applicants’ only plead that Regal’s conduct did in fact have the effect of creating an artificial price for trading in CS MINIs on the Market, not that it was likely to have had such an effect: Statement of Claim at [28].

70    When it comes to finally determine the allegations against Regal, the Court will therefore place primary focus on the occurrence and effect of the transactions entered into by Regal during the relevant period. Although there is no corresponding allegation of statutory contraventions against Credit Suisse, it is clear from the applicants’ allegations, as evidenced by their pleadings, that Credit Suisse was intimately intertwined in a number of these transactions.

71    The involvement of Credit Suisse in the transactions said to comprise the background to, and engagement in, Regal’s alleged market manipulation is demonstrated by a series of facts pleaded by the applicants in their Statement of Claim, as was summarised at [7] above. To restate, the most important facts for current purposes are as follows:

(a)    from about September 2012, Credit Suisse and/or its affiliates acquired shares in SYR as a hedge against potential losses caused by dealings in the CS MINIs;

(b)    in November and December 2012, Credit Suisse offered the CS MINIs on the terms set out in the PDS;

(c)    Regal knew, or ought to have known, that Credit Suisse held the hedged position in relation to the CS MINIs;

(d)    Regal knew that Credit Suisse would unwind that hedged position if the CS MINIs terminated;

(e)    in or about March 2013, Regal acquired from SYR’s directors the Options to acquire those directors’ SYR shares;

(f)    on or about 15 March 2013, Regal exercised the Options and acquired 9,907,201 SYR shares, with an acquisition price of $3.01 per share;

(g)    between about 21 March 2013 and 4 April 2013, Regal entered into the Regal SYR trades, selling, or caused to be sold, a large number of SYR shared at less than the current market value of the shares and substantially less than the amount paid by Regal to acquire the shares by exercising the Options;

(h)    the effect of the Regal SYR Trades was to put downward pressure on the SYR share price and cause the SYR share price to fail;

(i)    as a result of that drop in SYR share price:

(i)    on 3 April 2013, the SYR KCC series were rolled into the SYR KCD series of CS MINIs (partly at Credit Suisse’s instigation), for no consideration and without a change in ratio; and

(ii)    on 4 April 2013, Credit Suisse determined the relevant Reference Asset Value to be $1.75, and the relevant Stop Loss Value to be zero; and

(j)    soon thereafter, on 4 April 2013:

(iii)    Credit Suisse offered to sell SYR shares to the holders of SYR KCB and SYR KCD series of the CS MINIs for $1.75 per share, for a 24 hour period only;

(iv)    the applicants purchased a quantity of SYR shares pursuant to that offer;

(v)    Regal thereafter acquired 1,350,000 SYR shares pursuant to the same offer.

72    As a starting observation, it is clear from these alleged facts that, even disregarding the applicant’s claim against Credit Suisse, Credit Suisse’s involvement would be a central focus of the evidence expected to be presented in the course of the applicants’ case against Regal. But the relevance of Credit Suisse to the claim against Regal extends further.

73    Focusing now on the claim against Credit Suisse, it is the determination of the Reference Asset Value which lies at the heart of the applicants’ claim. The applicants plead that the manner in which that value was set, and the purposes for which it was set, breached Credit Suisse’s obligations towards the applicants under the PDS. The breaches are characterised in a number of ways in the Statement of Claim. As outlined above at [10], it is said that, in setting the Reference Asset Value, Credit Suisse failed to act in good faith, placed undue weight on its own interests, or acted unreasonably, arbitrarily, capriciously, dishonestly and/or for an improper purpose.

74    It is clear from these allegations, as well as the definition of ‘Reference Asset Value’ under the PDS, that the alleged breaches by Credit Suisse are not mere mathematical errors. It is not the applicants’ case that Credit Suisse simply failed to “plug in” the right number. Although the Stop Loss Value is on its face to be determined formulaically, the alleged case is not that Credit Suisse failed to input an objectively discernible value into that formula. The pleaded allegation is that Credit Suisse failed to properly exercise its contractual discretion in determining one component of the formula. The exercise of Credit Suisse’s “sole discretion” in determining the value of the Reference Asset Value, albeit one to be exercised by reference to certain considerations, is not a purely objective matter.

75    The allegations against Credit Suisse as pleaded may instead be observed to involve factual findings as to the motives and purposes for which Credit Suisse set the Reference Asset Value at $1.75. This will involve an inquiry into the subjective mindset of Credit Suisse at and around this point in time. Although any direct evidence of Credit Suisse’ intentions will be key, in the absence of such evidence such purposes “can be identified using objective considerations and inferred from circumstantial evidence”: Australian Competition and Consumer Commission v Olex Australia Pty Ltd [2017] FCA 222 at [494]. The circumstantial evidence relevant to determining the motives and purposes of Credit Suisse would largely derive from its activities preceding its determination of the Reference Asset Value on 4 April 2013.

76    With this in mind, the potential evidential overlap between the applicants’ two claims becomes clear. The applicants’ claims against Regal may be expected to centre on the occurrence and effect of the transactions it entered into in March and April 2013. As explained, the financial position and involvement of Credit Suisse was, on the basis of the allegations, integral to these transactions. These matters pertaining to Credit Suisse may also be expected to found evidence relevant to the determination of the applicants’ claims against Credit Suisse. Although the evidence may be used for different purposes, there is a clear overlap in the factual material to be considered by the Court. This in turn raises the potential for inconsistent findings of fact between the two claims.

77    As such, and to conclude, although the claims against Credit Suisse and Regal are legally distinct, those parties were intertwined actors in the common series of conduct founding both claims. For this reason, the factual subject matter of the two claims cannot be said to be “separate or disparate”. The facts underpinning the two claims are sufficiently connected such that to separate the claims would be to deny this Court the potential to appropriately and conveniently quell the controversies arising out of the matter raised by the applicants’ claims against Regal.

78    As a matter of impression and practical judgment, I am of the opinion that the claims against Credit Suisse and Regal are within the scope of one controversy and thus within the ambit of a “matter”. Accordingly, this Court has accrued jurisdiction to concurrently hear and determine the applicants’ claims against Credit Suisse and Regal as a single matter.

Conclusion

79    For the reasons outlined above, the interlocutory application by Credit Suisse must be dismissed.

80    Credit Suisse is to pay the applicants’ costs of and incidental to the application.

Associate:

Dated:    28 May 2019

SCHEDULE OF PARTIES