Excerpts from Justice Jayne Jagot's reasons for judgment in the matter of Bathurst Regional Council v Local Government Financial Services Pty Ltd (No 5) [2012] FCA 1200 (5 November 2012):
- For the reasons already given I do not accept that the GFC was the real, essential or effective cause of the loss or damage incurred by the councils…..
16. CONCLUSIONS
(a) the councils' claims for rescission of the agreements by which they purchased the Rembrandt 2006-3 CPDO notes from LGFS and restitution (both under statute and otherwise) should not be accepted;
(b) leaving aside some aspects of their claims immaterial to their overall entitlement to damages, the councils are each entitled to succeed in their various claims for damages against LGFS, S&P and ABN Amro;
(c) the claims of LGFS, S&P and ABN Amro against the councils for contributory negligence and being largely responsible for their own loss, with the consequence that the damages payable to each council must be reduced, should not be accepted;
(d) the councils have each proved that they suffered loss and damage as required to sustain their claims against LGFS, S&P and ABN Amro, the damage being the amount each paid for the Rembrandt 2006-3 CPDO notes less the amount they received on the cash-out of those notes. No deduction for coupon payments received by the councils should be made;
(e) this is also the proper measure of damages payable to Cooma and Corowa in respect of their breach of contract claims against LGFS;
(f) other than in respect of their claims for equitable compensation from LGFS for breach of fiduciary duty, the councils' damages claims against LGFS, S&P and ABN Amro attract the various proportionate liability provisions and liability for the councils' damages should be apportioned as between LGFS, S&P and ABN Amro as to 33⅓% each;
(g) the councils' claims for equitable compensation from LGFS for breach of fiduciary duty should also be sustained. While this compensation is not apportionable the measure of compensation is the same as the councils' damages claims;
(h) there is an outstanding issue as to the interest which the councils should receive, ABN Amro having argued that pre-judgment and perhaps post-judgment interest should not exceed the interest which would have been payable had the Rembrandt 2006-3 notes not cashed out and the other parties not having addressed that argument;
(i) LGFS is entitled to succeed in its various claims against ABN Amro and S&P including:
(i) proportionate liability of S&P and ABN Amro in terms of the councils' claims against LGFS (see above);
(ii) liability of S&P and ABN Amro to LGFS for damages in respect of the Rembrandt 2006-3 CPDO notes that LGFS purchased and did not sell to councils but sold instead to its parent company, LGSS, after S&P downgraded the rating of those notes from AAA to BBB+; and
(iii) liability of S&P and ABN Amro to make equitable contribution to LGFS in respect of LGFS's settlement of the StateCover claims against LGFS, S&P and ABN Amro relating to StateCover's purchase of the Rembrandt 2006-2 CPDO notes.
(j) the claims of S&P and ABN Amro against LGFS for contributory negligence and being largely responsible for its own loss in respect of the Rembrandt 2006-3 CPDO notes that LGFS purchased and did not sell to councils, with the consequence that the damages payable to LGFS on that account must be reduced, should not be accepted;
(k) LGFS has proved that it suffered loss and damage as required to sustain its claims against S&P and ABN Amro in respect of the Rembrandt 2006-3 CPDO notes it did not sell to councils, the damage being the amount LGFS paid for the Rembrandt 2006-3 CPDO notes less the amount LGFS received on the sale to its parent company. Again, no deduction for coupon payments received by LGFS should be made;
(l) LGFS's damages claims against S&P and ABN Amro attract the various proportionate liability provisions and liability for LGFS's damages should be apportioned as between S&P and ABN Amro as to 50% each;
(m) the issue of interest referred to above applies equally to LGFS;
(n) LGFS's claims against S&P and ABN Amro for damages or equitable contribution against S&P and ABN Amro in respect of LGFS's settlement of the StateCover proceedings should be accepted, with LGFS, S&P and ABN Amro each to contribute 33⅓% to the overall settlement sum including LGFS's costs of the proceedings;
(o) the cross-claims of S&P and ABN Amro against each other should be rejected;
(p) LGFS's claims against AHAC for indemnity under the contract of insurance should be accepted and AHAC's cross-claim against LGFS for reimbursement of defence costs already paid should be rejected; and
(q) costs, along with the outstanding issue of interest, may be argued.
3723. Directions will be made for the parties to confer about a timetable for the making of any further submissions on interest and costs, as well as the making of final orders in accordance with these reasons for judgment.
On 24 May 2012 the Australian Securities and Investment Commission revoked Local Government Financial Services Pty Ltd's Australian Financial Services license.
It has been reported that Standard & Poors intends to appeal the 5 November Federal Court judgment.
