FEDERAL COURT OF AUSTRALIA

RNB Equities Pty Ltd v Credit Suisse Investment Services (Australia) Limited (No 2) [2019] FCA 1385

ORDERS

THE COURT ORDERS THAT:

1.    The first respondent’s interlocutory application dated 9 July 2019 be dismissed.

2.    The first respondent pay the applicants’ costs of and incidental to the first respondent’s interlocutory application dated 9 July 2019.

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) applies by way of interlocutory application for an order that paragraphs 32 to 40 or parts thereof of the applicants’ amended statement of claim (ASOC) be struck out. Credit Suisse alternatively seeks an order that the applicants’ provide further and better particulars of paragraphs 32 and 39 of the ASOC.

2    For the reasons below, Credit Suisse’s interlocution application is dismissed. Contrary to the submission of Credit Suisse, the relevant allegations pleaded by the applicants are not untenable. There is accordingly no basis for striking out these aspects of the ASOC. Moreover, in the circumstances were Credit Suisse has not yet filed a defence, and where the applicants have provided various particulars beyond those set out in the ASOC, my view is that further particulars are not necessary or desirable to enable Credit Suisse to plead.

The ASOC

3    I have previously summarised the applicants’ claims in this proceeding in RNB Equities Pty Ltd v Credit Suisse Investment Services (Australia) Limited [2019] FCA 760 at [3]-[10]. Some of the defined terms in the ASOC were outlined in that summary. Shortly after that interlocutory decision, the applicants filed the ASOC, which introduced only minor amendments.

4    Although Credit Suisse’s application sought the striking out of paragraphs 32 to 40 of the ASOC, counsel for Credit Suisse acknowledged at the hearing of the application that the focus of their application was paragraphs 32 and 39 of the ASOC. These paragraphs, and the otherwise relevant paragraph 38, provide as follows:

32.    Following the rollover of the SYR KCC series into the SYR KCD series of the CS MINIs, and the subsequent Stop Loss Event on 4 April 2013, in determining the Reference Asset Value pursuant to the provisions of the PDS identified in paragraph 8(k) above, Credit Suisse was required to take into consideration matters including:

(a)     the market value of the Reference Asset at the time of determination; and

(b)     without limitation in relation to the Stop Loss Event, the market value of the Reference Asset; and

   (c)    an obligation to act in good faith; and, further or alternatively

(d)     an obligation not to prefer its own interests to the interests of holders of CS MINIs generally; and, further or alternatively

(e)     an obligation not to exercise its discretion in determining the Reference Asset Value unreasonably, arbitrarily, capriciously, dishonestly or for an improper purpose.

…

38.    On or about 4 April 2014, Credit Suisse determined the Reference Asset Value of the SYR KCB and SYR KCD series of the CS Minis as being $1.75, and accordingly determined that no amounts were owing and payable for each of the SYR KCB and SYR KCD series of the CS MINIs cancelled as a result of the Stop Loss Event.

Particulars

The price of the SYR shares on 4 April 2013 has a high of $2.12, a low of $1.88 and an average share price of $1.97. In those circumstances, Credit Suisse exercised its discretion in valuing the SYR share for the purpose of the Reference Asset Value at $1.75, resulting in a zero return to the Applicants.

39.    In breach of its obligations, identified in paragraph 32 above, to holders of CS MINIs cancelled as a result of the Stop Loss Event, by acting as alleged in paragraph 38 above, Credit Suisse:

     (a)     failed to act in good faith; and, further or alternatively

  (b)     placed undue weight upon its interest in unwinding its hedge position and insufficient weight upon its duties; and, further or alternatively

  (c)     exercised its discretion in determining the Reference Asset Value unreasonably, arbitrarily, capriciously, dishonestly and / or for an improper purpose.

Correspondence regarding the ASOC

5    Various correspondence was exchanged between the parties prior to, and around, the hearing of Credit Suisse’s strike out application. The key correspondence between the parties in relation to paragraphs 32 and 39 of the ASOC is set out as follows.

6    On 14 June 2019, Credit Suisse’ solicitors requested further and better particulars of various paragraphs of the ASOC, including in relation to paragraphs 32 and 39 as follows:

Request for further and better particulars

…

Paragraph 32 of the ASOC

10    Please provide particulars of the allegation that our client was required to take the alleged matters into consideration. Our client apprehends that your clients allege that these requirements arose in contract. Please confirm that each pleaded requirement is said to arise as a term of a contract between your clients and ours. If so, please provide the usual particulars of the alleged contract. Please also indicate whether each is said to be an implied term (in which case, please identify the facts, matters and circumstances said to give rise to the implication).

Paragraph 39 of the ASOC

11    Please specify (with all material dates and places) each act, fact, matter, thing, circumstance, event, happening, occurrence, omission, error, neglect or default which your clients rely on in support of the allegation that our client in determining the Reference Value:

(a)    failed to act in good faith;

(b)    placed undue weight upon its interest in unwinding its hedge position;

(c)    placed insufficient weight upon its duties (including particulars of the alleged duties);

(d)     exercised its discretion unreasonably;

(e)    exercised its discretion arbitrarily;

(f)    exercised its discretion capriciously;

(g)    exercised its discretion dishonestly;

(h)    exercised its discretion for an improper purpose (including particulars of the alleged purpose).

7    On 28 June 2019, the applicants’ solicitors provided further and better particulars in response. In relation to paragraphs 32 and 39 of the ASOC, the particulars expressed the following:

FURTHER AND BETTER PARTICULARS

…

6.    As to paragraph 10 of the request (relating to paragraph 32 of the ASOC), the Applicants refer to and rely upon the PDS for its full terms and effect and section 912A(1) of the Corporations Act 2001 (Cth). They say further that the obligations pleaded are to be implied:

(a)    from their respective contracts with Credit Suisse, which, as the holder of an AFSL, had obligations pursuant to section 912A(1) of the Corporations Act 2001 (Cth);

   (b)    by necessary implication; and

   (c)    by the course of dealings between the Applicants and Credit Suisse.

7.    As to paragraph 11 of the request (relating to paragraph 39 of the ASOC), Credit Suisse purported to exercise its discretion in calculating the SYR shares for the purpose of the Reference Asset Value at $1.75 (the same price at which it sold its hedged shares to Regal), resulting in a zero return to the Applicants, in circumstances where the price of the SYR shares on 4 April 2013 (the day when the Stop Loss Event occurred) had a high of $2.12, a low of $1.88 and an average share price of $1.97, thus bearing no resemblance to the Reference Asset Value determined by the First Applicant of $1.75. Had Credit Suisse acted in good faith, not placed undue weight upon its interest in unwinding its hedge position and insufficient weight upon its duties and/or not exercised its discretion in determining the Reference Asset Value unreasonably, arbitrarily, capriciously, dishonestly and/or for an improper purpose, it would have determined the Reference Asset Value at between $1.88 and $2.12.

8    On 2 July 2019, Credit Suisse’s solicitor made complaints regarding these particulars:

Paragraph 32

3    In respect of paragraph 21, your clients have provided no particulars of:

(a)    the alleged “respective contracts” referred to in paragraph 6(a) of the Particulars Response;

(b)    the basis upon which our client’s obligations as holder of an AFSL under section 912A of the Corporations Act 2001 (Cth) (“Act”) is alleged to be implied into the alleged “respective contracts”;

(c)    the alleged “necessary” implication referred to in paragraph 6(b) of the Particulars Response; or

(d)    the alleged “course of dealings” referred to in paragraph 6(c) of the Particulars Response.

4    Further, your client has not provided particulars as to the particular source of each of the alleged obligations in paragraphs 32(c)-(e) of the ASOC, noting that these alleged obligations are not set out in the PDS or (save in respect of an obligation to act dishonestly) in section 912A of the Act.

5    Please provide adequate particulars of paragraph 32 of the ASOC, including in respect of the matters set out in paragraph 3 and 4 above. The particulars sought are not “inquiries after matters of law” and are proper requests.

Paragraph 39

6    As to paragraph 39 of the ASOC, paragraph 7 of the Particulars Response does little more than repeat the facts already alleged in paragraphs 33 to 38, with the one exception referred to in paragraph 7 below. Your clients have failed to provide the particulars requested in our letter, which sought further particularity as to the rolled-up allegations in the paragraph. As matters stand, it is not apparent to our client what alleged conduct is alleged to amount to each breach set out in each sub-paragraph of paragraph 39 of the ASOC. This deficiency is particularly acute, having regard to the fact that the paragraph makes serious allegations against our client, which extend to allegations of dishonesty, bad faith and improper purpose. It is a fundamental and basic requirement of pleading that serious allegations such as these must be properly particularised. Please provide an adequate response to our client’s request for particulars of the paragraph.

7    Further, the particulars your clients have provided rely on the reference asset price being “the same price at which [Credit Suisse] sold its hedged shares to Regal”. In contract, your clients alleged in paragraph 37 of the ASOC that Credit Suisse determined the reference asset price “while unwinding its hedge position”. Please confirm that the matters contained in the Particulars Response represent the totality of the facts relied upon by your clients in this regard.

9    On 9 July 2019, the applicants’ solicitor emailed a letter to Credit Suisse’s solicitor. The letter disputed that the further and better particulars provided were inadequate. The letter relevantly stated the following:

1.     In relation to paragraph 32:

(a)     The “respective contracts” are the contracts formed between each of the Applicants and your client on the terms set out in the Product Disclosure Statements for the separate tranches of CS MINIs, and the terms attaching to those Product Disclosure Statements.

(b)     Further, we say that the legal analysis giving rise to the implied obligations proceeds as follows:

(i)     It is uncontroversial that in respect of its licence to provide financial services, your client had obligations pursuant to Section 912A of the Corporations Act 2001 (Cth) (Act) to “(a) do all things necessary to ensure that the financial services covered by the licence are provided efficiently, honestly and fairly” (See Section 912A(1)(a)”.

(ii)     Your client could not contract out of the obligations at Section 912A of the Act.

(iii)    It follows that during the currency of each agreement between your client and our clients, your client had concurrent obligations under:

(A)     section 912A of the Act; and

(B)     the respective contracts with our clients.

(iv)     Your client was therefore not permitted to act in respect of its licence in a way which would breach its obligations to our clients under their respective contracts, and was equally not permitted to do anything in respect of the contracts which would offend its obligations under Section 912A of the Act.

(v)     Therefore, your client’s contractual obligations to our client must be consistent with your client’s obligations under its licence.

(vi)     Since the contracts do not expressly import your client’s obligations pursuant to Section 912A of the Act, a term doing so must be implied on the basis of the requirements set out in Codelfa Construction Pty Ltd v State Rail Authority of NSW [1982] HCA 24, that such a term:

(A)     must be reasonable and equitable – in respect of which we say it must be, on the basis that the obligations in Section 912A of the Act are there for the protection of the consumer (our clients);

(B)     must be necessary to give business efficacy to the contract, so that no term will be implied if the contract is effective without it – in respect of which we say it must be, on the basis that the contract could not operate in a manner inconsistent with Section 912A of the Act;

(C)     it must be so obvious that it goes without saying – It is. It would be absurd to suggest that your client’s contractual obligations in relation to the provision of financial services and a financial product could relevantly conflict with the conditions under which your client is entitle to provide financial services;

(D)     it must be capable of clear expression – it is, your client was obliged to “do all things necessary to ensure that the financial services covered by the licence are provided efficiently, honestly and fairly”; and

(E)     it must not contradict any express term of the contract – it doesn’t, although there is an entire agreement clause in the contracts, that clause is not wide enough, nor could it be, to enable your client to contract out of its obligations under Section 912A of the Act.

2.    In relation to paragraph 32(c) and (d):

(a)     The Applicants assert that an obligation that your client act in good faith vis-à-vis the holders of the relevant MINI warrants is implied on the basis of the requirements set out in Codelfa Construction Pty Ltd v State Rail Authority of NSW [1982] HCA 24. See also, Cordon Investments Pty Ltd v Lesdor Properties Pty Ltd [2012] NSWCA 184.

(b)     As to the content of the alleged obligation of good faith, we note the following, for example, in Macquarie International Health Clinic Pty Ltd v Sydney South West Area Health Service [2010] NSWCA 268 [12]:

“[12] The usual content of the obligation of good faith that can be extracted from Renard Constructions (ME) Pty Ltd v Minister for Public Works (1992) 26 NSWLR 234, Hughes Bros Pty Ltd v Trustees of the Roman Catholic Church for the Archdiocese of Sydney (1993) 31 NSWLR 91, Burger King Corporation v Hungry Jack’s Pty Ltd [2001] NSWCA 187 ; (2001) 69 NSWLR 558; Alcatel Australia Ltd v Scarcella (1998) 44 NSWLR 349 and United Group Rail Services Ltd v Rail Corporation New South is as follows:

   (a)    obligations to act honestly and with a fidelity to the bargain;

(b)     obligations not to act dishonestly and not to act to undermine the bargain entered or the substance of the contractual benefit bargained for;

(c)     an obligation to act reasonably and with fair dealing having regard to the interests of the parties (which will, inevitably, at times conflict) and to the provisions, aims and purposes of the contract, objectively ascertained.

[13]     None of these obligations requires the interests of a party to be subordinated to those of the other. It is good faith or fair dealing between arm’s length commercial parties by reference to the bargain and its terms that is called for.”

(c)     In relation to paragraph 32(d), the Applicants say that, in order for your client to not act to undermine the bargain entered into, your client was not permitted to prefer its own interests to the interests of the holders of CS MINIs generally. Were your client permitted to do so, then the very substance of the bargain between our respective clients would be destroyed.

3.     In relation to paragraph 32(e), the Applicants say that the source of the obligation is:

(a)     the aforementioned implied obligation of good faith generally; and

(b)     implied common law fetters on the exercise of a contractual discretion.

The implied common law fetters referred to are not novel, and although we do not propose to exhaustively reference the authorities relied upon by the Applicants, we note for example the following authorities: Vodafone Pacific Ltd V Mobile Innovations Ltd [2004] NSWCA 15, Paragon Finance Plc v Staunton (2002) 2 All ER 248, Burger King (2001) 69 NSWLR 558, Alcatel (1998) 44 NSWLR 349, 368.

10    On 16 July 2019, Credit Suisse’s solicitors made a further complaint about what they characterised as the applicants’ “continuing failure to provide adequate particulars of the ASOC”.

11    On 26 July 2019, the applicants’ solicitors reiterated that the particulars provided in relation to paragraph 39 of the ASOC were satisfactory, but added the following:

Put another way, had your clients been acting honestly in respect of the Reference Asset Value, your clients would have determined a Reference Asset Value between $1.88 and $2.12. In the context of your client unwinding its hedge position, it did not, and it would be open to the Court to infer that your client’s motive was dishonest.

Relevant principles

Striking out of pleadings

12    Rule 16.21 of the Federal Court Rules 2011 (Cth) (Rules) provides for a strike out application:

Application to strike out pleadings

(1)     A party may apply to the Court for an order that all or part of a pleading be struck out on the ground that the pleading:

   (a)     contains scandalous material; or

   (b)    contains frivolous or vexatious material; or

   (c)     is evasive or ambiguous; or

(d)     is likely to cause prejudice, embarrassment or delay in the proceeding; or

(e)     fails to disclose a reasonable cause of action or defence or other case appropriate to the nature of the pleading; or

   (f)    is otherwise an abuse of the process of the Court.

(2)     A party may apply for an order that the pleading be removed from the Court file if the pleading contains material of a kind mentioned in paragraph (1)(a), (b) or (c) or is otherwise an abuse of the process of the Court.

13    The principles relevant to a strike out application are well established and were not in dispute between the parties. For the purposes of the application, all the facts alleged in the relevant pleading are to be accepted as true: Young Investments Group Pty Ltd v Mann [2012] FCAFC 107; 293 ALR 537 at [6] per Emmett, Bennett and McKerracher JJ. Provided that the pleading fulfils its basic function of identifying the issues, that it discloses an arguable cause of action and that it apprises the other party of the case that it has to meet at trial, the pleading should be allowed to stand: ibid at [6]-[7].

14    The power to strike out pleadings or portions of pleadings is discretionary and should be employed sparingly and only in a clear case: Australian Competition and Consumer Commission v Pauls Ltd [1999] FCA 1750 at [10] per O’Loughlin J, citing Brambles Holdings Ltd v Trade Practices Commission [1979] FCA 80; 28 ALR 191 at 193 per Bowen CJ. The power to strike out a pleading because it discloses no reasonable cause of action should only be exercised in a plain and obvious case: see Polar Aviation Pty Ltd v Civil Aviation and Safety Authority [2012] FCAFC 97; 203 FCR 325 at [42]-[44] per Perram, Dodds-Streeton and Griffiths JJ. It must be established that the applicants’ case is so untenable that it cannot possibly succeed: Granite Transformations Pty Ltd v Apex Distributions Pty Ltd [2018] FCA 725; 359 ALR 62 (Granite Transformations) at [4] per O’Callaghan J.

15    Any application to strike out pleadings must also be considered in the contemporary context of judicial case management. Martin CJ observed the following in Barclay Mowlem Construction Ltd v Dampier Port Authority [2006] WASC 281; 33 WAR 82 at [4]-[8]:

4.    It is, I think, important when approaching an issue of that kind to bring to mind the contemporary purposes of pleadings. The purposes of pleadings are, I think, well known and include the definition of the issues to be determined in the case and enabling assessment of whether they give rise to an arguable cause of action or defence as the case may be, and apprising the other parties to the proceedings of the case that they have to meet.

5.    In my view, the contemporary role of pleadings has to be viewed in the context of contemporary case management techniques and pre-trial directions. In this Court, those pre-trial directions will almost invariably include; firstly, a direction for the preparation of a trial bundle identifying the documents that are to be adduced in evidence in the course of the trial; secondly, the exchange well prior to trial of non-expert witness statements so that non-expert witnesses will customarily give their evidence-in-chief only by the adoption of that written statement; thirdly, the exchange of expert reports well in advance of trial and a direction that those experts confer prior to trial; fourthly, the exchange of chronologies; and fifthly the exchange of written submissions.

6.    Those processes leave very little opportunity for surprise or ambush at trial and, it is my view, that pleadings today can be approached in that context and therefore in a rather more robust manner, than was historically the case; confident in the knowledge that other systems of pre-trial case management will exist and be implemented to aid in defining the issues and apprising the parties to the proceedings of the case that has to be met.

7.    In my view, it follows that provided a pleading fulfils its basic functions of identifying the issues, disclosing an arguable cause of action or defence, as the case may be, and apprising the parties of the case that has to be met, the Court ought properly be reluctant to allow the time and resources of the parties and the limited resources of the Court to be spent extensively debating the application of technical pleadings rules that evolved in and derive from a very different case management environment.

8.    Most pleadings in complex cases, and this is a complex case, can be criticised from the perspective of technical pleading rules that evolved in a very different case management environment. In my view, the advent of contemporary case management techniques and the pre-trial directions, to which I have referred, should result in the Court adopting an approach to pleading disputes to the effect that only where the criticisms of a pleading significantly impact upon the proper preparation of the case and its presentation at trial should those criticisms be seriously entertained.

16    These passages have been cited with approval in numerous cases, including in Thompson v STX Pan Ocean Co Ltd [2012] FCAFC 15 at [13] per Greenwood, McKerracher and Reeves JJ; Sherrin Hire Pty Ltd v Sherrin Rentals [2015] FCA 1107 at [44] per Edelman J and Granite Transformations at [5] per O’Callaghan J.

Application for particulars

17    Rule 16.41(1) of the Rules requires that “[a] party must state in a pleading, or in a document filed and served with the pleading, the necessary particulars of each claim, defence or other matter pleaded by the party”.

18    Rule 16.45 provides for a party to apply for an order for particulars:

Application for order for particulars

(1)    If a pleading does not give a party fair notice of the case to be made against that party at trial and, as a result, the party may be prejudiced in the conduct of the party's case, the party may apply to the Court for an order that the party who filed the pleading serve on the party:

(a)     particulars of the claim, defence or other matter stated in the pleading; or

   (b)     a statement of the nature of the case relied on; or

   (c)     if there is a claim for damages—particulars of the damages claimed.

(2)    An application under subrule (1) may be made only if:

   (a)     the particulars in the pleading are inadequate; and

(b)    the party seeking the order could not conduct the party's case without further particulars.

(3)    A respondent who applies to the Court for an order under subrule (1) before filing the respondent's defence must satisfy the Court that an order is necessary or desirable to enable the respondent to plead.

19    In accordance with r 16.45(3), where a respondent, such as Credit Suisse in this case, applies to the Court for an order under r 16.45(1) before filing a defence, the Court must be satisfied that an order is necessary or desirable to enable the respondent to plead. In this case, the power in r 16.45 is only enlivened if the Court is satisfied that further particulars (i.e. particulars beyond those already provided by the applicants) are necessary or desirable to enable the respondent to plead.

20    The degree of particularity required depends upon the nature of the case: Power Infrastructure Pty Ltd v Downer EDI Engineering Power Pty Ltd (No 3) [2011] FCA 539 at [10], citing American Flange and Manufacturing Co Inc v Rheem Australia Pty Ltd [1963] NSWR 1121 at 1126. In Police & Nurses Credit Society Ltd v Burgess Rawson (WA) Pty Ltd [2006] FCA 1395 at [17], French J stated the following:

What are “necessary” particulars of any claim, defence or other matter pleaded is a matter of judgment. The underlying principle is that the case of each of the parties is adequately exposed to the other. It is important to maintain a sense of balance in the detail of particulars sought and ordered. The provision of particulars should not be allowed unduly to increase the cost and delay associated with litigation. In contemporary commercial litigation where, frequently, the court will direct the filing of witness statements or affidavits on either side subject to the right to cross examination, the necessity for elaborate particulars and lengthy debates about them is even more questionable.

21    Similarly, in Rush v Nationwide News Pty Ltd [2018] FCA 357; 359 ALR 473, Wigney J expressed the following at [44]:

In relation to the adequacy of particulars, r 16.41 of the Rules provides that “[a] party must state in a pleading … the necessary particulars of each claim, defence or other matter pleaded by the party”. The degree of particularity required by this general obligation depends on the circumstances of the case and the nature of the allegations. In that context, although trite, it is worth recalling that the basic purpose of a pleading, including particulars, is to clearly define the issues to be tried, and to allow the other party an opportunity to know the case that they are required to meet. If the particulars that are provided in a pleading are sufficient to achieve that objective, it is difficult to see why they should be regarded as being deficient and liable to be struck out, even if it is possible to conceive of ways the pleading could perhaps be improved.

22    As explained, Credit Suisse expressed that the main focus of the interlocutory application to strike out was paragraphs 32 and 39 of the ASOC. These paragraphs are now considered in turn.

Paragraph 32 of the ASOC

23    Paragraph 32 of the ASOC pleads as follows:

Following the rollover of the SYR KCC series into the SYR KCD series of the CS MINIs, and the subsequent Stop Loss Event on 4 April 2013, in determining the Reference Asset Value pursuant to the provisions of the PDS identified in paragraph 8(k) above, Credit Suisse was required to take into consideration matters including:

(a)     the market value of the Reference Asset at the time of determination; and

(b)     without limitation in relation to the Stop Loss Event, the market value of the Reference Asset; and

(c)    an obligation to act in good faith; and, further or alternatively

(d)     an obligation not to prefer its own interests to the interests of holders of CS MINIs generally; and, further or alternatively

(e)     an obligation not to exercise its discretion in determining the Reference Asset Value unreasonably, arbitrarily, capriciously, dishonestly or for an improper purpose.

24    Credit Suisse accepted that, for the purposes of this application, the allegations pleaded in paragraphs 32(c) and (e) are sufficiently arguable. However, it submitted that the allegation in paragraph 32(d) is untenable because that alleged term requires Credit Suisse to subordinate its interest to the interests of the applicants in determining the Reference Asset Value. In the submission of Credit Suisse, citing Macquarie International Health Clinic Pty Ltd v Sydney South West Area Health Service [2010] NSWCA 268 at [13] per Allsop P, any obligation to act in good faith of the kind alleged in paragraph 32(d) does not extend to requiring a party to subordinate its interest to the other party.

25    Credit Suisse further submitted that the alleged term in paragraph 32(d) is contrary to the express terms of the Product Disclosure Statement pursuant to which Credit Suisse offered the CS MINIs (PDS). Credit Suisse contended that the express terms of the PDS allowed Credit Suisse to take into account the market value of the SYR Shares while Credit Suisse was unwinding its hedge position in determining the Reference Asset Value.

26    I reject Credit Suisse’s submissions in relation to paragraph 32(d) of the ASOC. Credit Suisse’s submissions misconstrue the allegation pleaded in paragraph 32(d) as one which would require Credit Suisse to subordinate its interest to those of the applicants. That is not what has been pleaded. I accept the applicants’ submission that there is a fundamental difference between (a) not preferring one’s interest to those of another; and (b) subordinating one’s interest to those of another. Paragraph 32(d) pleads that Credit Suisse was required to take into account its obligation not to prefer its interest to those of the applicants. It does not plead expressly, or in effect, that Credit Suisse was required to subordinate its interests to those of the applicants.

27    In my view, it cannot be said that the pleading in paragraph 32(d) of the ASOC is untenable such that it could not possibly succeed at trial. I also do not accept Credit Suisse’s submission that the obligation pleaded in paragraph 32(d) of the ASOC is contrary to the express terms of the PDS. The applicants do not plead in paragraph 32(d) that Credit Suisse was not entitled to take into account the market value of the SYR Shares while unwinding its hedge position. That matter is expressly pleaded at paragraph 32(b) of ASOC. The applicants’ pleaded case is that Credit Suisse was required to take into consideration various matters, including the market value of the SYR Shares, the Stop Loss Event; the market value of the Reference Asset, its obligation to act in good faith, its obligations not to prefer its own interests to the interests of the applicants generally and its obligation not to exercise its discretion in determining the Reference Asset Value unreasonably, arbitrarily, capriciously, dishonestly or for an improper purpose. Those allegations are not inconsistent with the PDS and they are certainly not untenable.

28    As such, Credit Suisse has failed to satisfy the relevant criteria under r 16.21 of the Rules to strike out paragraph 32(d) or paragraph 32 as a whole.

29    Moreover, in the circumstances were Credit Suisse has not yet filed a defence, and where the applicants have provided the particulars in the correspondence set out above, my view is that further particulars are not necessary or desirable to enable Credit Suisse to plead to paragraph 32 of the ASOC.

Paragraph 39 of the ASOC

30    Paragraph 39 of the ASOC pleads as follows:

In breach of its obligations, identified in paragraph 32 above, to holders of CS MINIs cancelled as a result of the Stop Loss Event, by acting as alleged in paragraph 38 above, Credit Suisse:

(a)     failed to act in good faith; and, further or alternatively

(b)     placed undue weight upon its interest in unwinding its hedge position and insufficient weight upon its duties; and, further or alternatively

(c)     exercised its discretion in determining the Reference Asset Value unreasonably, arbitrarily, capriciously, dishonestly and / or for an improper purpose.

31    Credit Suisse submitted that these allegations were untenable. It submitted that the applicants’ pleaded case in paragraph 39 is that Credit Suisse was not allowed under the terms of the PDS to determine the Reference Asset Value in an amount equivalent to the actual price that Credit Suisse sold SYR Shares to Regal on 4 April 2013 ($1.75) whilst unwinding its hedge position. It said this was untenable because Credit Suisse was expressly entitled under the terms of the PDS, on the basis of the allegation in paragraph 8(m) of the ASOC, to determine the Reference Asset Value in its sole discretion and have regard to the market value of the SYR Shares whilst unwinding its hedge position. As such, the actual sale price as between Credit Suisse and Regal on 4 April 2013 ($1.75) was a matter which Credit Suisse was expressly entitled to take into account in the exercise of its sole discretion.

32    The applicants submitted that Credit Suisse had mischaracterised paragraph 39 of the ASOC. The applicants said that they do not plead that Credit Suisse was not permitted to take into consideration the market value of the Reference Asset while unwinding its hedge position during the Stop Loss Valuation Period. Paragraph 39 rather pleads that Credit Suisse placed undue weight upon its interest in unwinding its hedge position and insufficient weight on the exercise of its obligations as alleged in paragraph 32 of the ASOC. The applicants submitted, in other words, that Credit Suisse could take into account the fact that it was unwinding its hedge position but that was only one of several relevant matters that it was required to take into account.

33    I reject Credit Suisse’s submission that paragraph 39 as pleaded is untenable. The applicants’ claim pleaded in paragraph 39 of the ASOC is that Credit Suisse, in determining the Reference Asset Value, was required to take into consideration each of the matters identified in subparagraphs (a), (b), (c), (d) and (e) of paragraph 32. The applicants allege that Credit Suisse, in determining the Reference Asset Value as it did, failed to act in good faith (subparagraph 39(a)); placed undue weight upon its interest in unwinding its hedge position and insufficient weight upon its duties (subparagraph 39(b)); and exercised its discretion unreasonably, arbitrarily, capriciously, dishonestly and/or for an improper purpose (subparagraph 39(c)).

34    Understood in this way, paragraph 39, when read with paragraphs 32 and 38, cannot be said to be so untenable that it cannot possibly succeed. Paragraph 39 as pleaded, supplemented by the further particulars provided by the applicants in the correspondence set out above, are sufficiently clear to enable Credit Suisse to understand the nature of the case that it is required to meet at trial.

35    For these reasons, my view is that there is no basis for striking out paragraph 39 of the ASOC pursuant to r 16.21 of the Rules.

36    Moreover, in the circumstances were Credit Suisse has not yet filed a defence, and where the applicants have provided the particulars in the correspondence set out above, my view is that further particulars are not necessary or desirable to enable Credit Suisse to plead to paragraph 39 of the ASOC.

Conclusion

37    For these reasons, Credit Suisse’s interlocutory application dated 9 July 2019 will be dismissed with costs.

Associate:

Dated:        30 August 2019

SCHEDULE OF PARTIES