Investors in Australia, represented by Squire Patton Boggs in Sydney, have made history again with another big win over Standard & Poor’s (S&P). They were granted leave to pursue a “tort of deceit” claim, alleging that S&P intentionally altered its ratings methodology to achieve higher ratings in order to serve its business objectives. This is the first time that very technical and detailed allegations of fraud in S&P’s rating methodology have been pleaded worldwide.
As a result of adding the tort of deceit claim, the investors claim that the limitations period is paused from when they first suffered loss, until they could have reasonably discovered the deceit/fraud. Lead partner advising the investors, Amanda Banton, said it was major development for the case as many investors – including local councils and charity organisations – purchased the products more than 10 years ago. “This is very significant for these investors and other investors in structured products rated by S&P, who may now have further time to bring claims on losses suffered prior to or during the global financial crisis.”
Ms Banton, who is also acting on a number of other cases against ratings agencies said the decision could impact their outcomes as well. “The outcome of these cases, in particular the tort of deceit claim, is likely to have widespread ramifications for similar actions against S&P internationally, due to the number of products that were sold and rated throughout the world.”
Whilst written reasons for judgment have not yet been delivered by Justice Wigney, S&P have filed an application for leave to appeal from the decision to allow the deceit claim to be added. The proceedings are scheduled for an eight-week trial commencing in March 2018.
About the Dispute
The proceedings, Clurname Pty Ltd and Goulburn Mulwaree Council v McGraw Hill Financial Inc, Standard & Poor’s International LLC & Anor (Federal Court Proceedings) (NSD 957 of 2015), are class action proceedings in the Federal Court of Australia relating to the credit ratings that S&P assigned to certain synthetic collateralised debt obligations (SCDOs) which were sold by the Commonwealth Bank of Australia. Squire Patton Boggs also act on three other class actions against S&P relating to SCDOs sold by Lehman Brothers Australia Limited (in liquidation), Australia and New Zealand Banking Group and Oakvale Capital Limited. Group members include institutional investors, private high-net-worth individuals, councils across Australia, significant charitable organisations and churches.
The proceedings each concern claims that S&P was negligent and engaged in misleading and deceptive conduct by issuing credit ratings to various SCDOs that were not based on reasonable grounds, in addition to the tort of deceit claim. The proceedings are listed jointly for hearing in March 2018.
The outcome of these cases, in particular the tort of deceit claim, is likely to have widespread ramifications for similar actions against S&P internationally, due to the number of products that were sold and rated throughout the world.
Previously in 2016, a substantial settlement was achieved and approved by the Court for City of Swan (WA), Moree Plains Shire Council (NSW) and Baron-Hay Investments Pty Limited (WA) and 92 group members in a class action again run by Squire Patton Boggs against S&P with respect to its ratings of SCDOs. See our blog about that decision in 2016.