26/06/2014

Notwithstanding the enormous hardship caused to literally millions of people around the world, it does not seem as if even one person has been gaoled as a result of the GFC.

The story is no different in Australia where no-one has been brought to account regardless of the many who have lost their life savings and now live lives that are much more limited as a result.

The failure of the justice system to even investigate these issues let alone hold someone responsible has been ameliorated slightly by the actions of our civil courts, which have been much more prepared to allocate responsibility and therefore liability and make those found responsible pay material sums as a result.

Following the decision in Wingecarribee Shire Council v Lehman Brothers Australia Ltd in 2012 (where a number of councils successfully sued Lehman Brothers Australia Ltd for selling high risk financial products under the guise that they were 'safer than the four major Australian banks') comes the Full Federal Court decision in ABN Amro v Bathurst Regional Council & Ors in which the Court has confirmed the trial judge's decision that:

-    a ratings agency may be liable to investors for its rating of a financial product;
-    a financial institution may be liable to investors in structuring and marketing a financial product to be sold to those investors; and
-    the reseller of a financial product may also be liable to the investors to whom it on-sells such products.

The decision confirms that a company involved in selling, arranging or rating complex financial products may be liable to investors in circumstances where:
 
-    there has been misleading or deceptive conduct, or
-    negligent misrepresentations are made to investors

even if there is no direct relationship between the entity and the investor.

Whether the $16 million judgement will act as any kind of a brake on people who wish to peddle exotic financial products with ill regard to the interests of the people buying them remains to be seen.  It is nevertheless heartening to see some measure of responsibility meted out, even if it does fall short of the only real deterrence for this kind of behaviour: a few years at Her Majesty’s pleasure.