Jurisdiction - Australia
Australia – Standard & Poor Under Fire Around The World.

11 November, 2013



On 5 November 2012 the Federal Court of Australia handed down a landmark decision, believed to be the first of its kind in the common law world. In Bathurst Regional Council v Local Government Financial Services Pty Ltd (the S&P Decision), the Court ruled that Standard & Poor’s (S&Ps) AAA rating of certain investment products was misleading and deceptive and involved negligent misrepresentations to investors.

ABN Amro had engaged S&P to rate its “Rembrandt notes” products being a type of structured financial product known as constant proportion debt obligations (CPDOs). The court found that ABN Amro had “sandbagged” the S&P’s representatives, and that S&P had adopted ABN Amro’s assertions without making necessary and important calculations independently. ABN Amro and S&Ps were ordered to pay damages of AUD 30 million for losses caused to investors.

S&P have filed an appeal from the Federal Court decision which is expected to be heard by the Full Federal Court in early March 2014.

Further proceedings were commenced in April 2013 in Australia against S&P’s owners on behalf of about 90 investors (primarily local councils, charities and selfmanaged super funds) who purchased CDOs distributed by the now collapsed Lehman Brothers. The CDOs received AAA and AA ratings from S&P’s. These new proceedings are being funded by IMF, the same litigation funder responsible for funding the plaintiffs in the S&P Decision.

Impact Of The Australian S&P Decision Worldwide

It was a combination of specific factual circumstances which led to the Australian Federal Court’s significant findings in the S&P decision. However, around the world ratings agencies have come under heavy scrutiny as a result of their rating of complex financial products before and during the global financial crisis.

Although S&P was found liable to investors in the S&P Decision under misleading and deceptive conduct legislation which is peculiar to Australia, S&P and ABN Amro were also held to have breached duties of care owed to investors under common law negligence principles. It is this aspect of the decision which will potentially be relevant in many other jurisdictions around the world.

Australian Proceedings Pave The Way For Filings In Europe

Approximately EUR 2 billion worth of CPDOs are said to have been sold by ABN Amro (now a subsidiary of the Royal Bank of Scotland) and rated by S&P in Europe – known as Castle Finance or Chess notes. IMF has stated that it intends to approach investors around the world (including in the UK, Netherlands, Germany and France) to discuss potential similar lawsuits over the rating of CPDOs.

IMF executive director John Walker has said: “… filing in Australia will pave the way for further filings in Europe funded by IMF, on behalf of European pension funds, banks and other investors, seeking compensation for losses suffered after investing in complex financial products”.

In the Netherlands, IMF has established The Ratings Redress Foundation through which it intends to pursue RBS and S&P. In the UK, IMF is said to be investigating bringing proceedings against S&P and Moodys.

United States

Proceedings against S&P have also been commenced in the United States.
In February 2013, the United States Department of Justice filed a USD 5 billion lawsuit against S&P, alleging that it had engaged in a scheme to defraud investors through the issue of inflated ratings on mortgage-backed bonds and CDOs prior to the global financial crisis. The complaint also alleges that S&P’s desire for increased revenue and market share led it to favor the interests of certain investment banks over investors.

Fourteen US states and the District of Columbia have also commenced proceedings against S&P’s. These proceedings have been consolidated into a single proceeding before the US District Court in Manhattan.

S&P has expressed its intention to vigorously defend the lawsuits.


Clyde & Co


For further information, please contact:


Jenni Priestly, Partner, Clyde & Co
[email protected]


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