The April 2013 edition of International Litigation News, the newsletter of the IBA’s Litigation Committee, has just come out yesterday (ahead of the Committe’s Annual Litigation Forum in Istanbul next week. If you are attending, let me know, it would be great to meet in person.) International Litigation News features contributions from five jurisdictions on litigation against credit rating agencies, namely in Australia, Italy, the United States, England and Germany.
The survey starts down under: Mike Hales and Emily Chappelow report that in Australia, a rating is “more than just an opinon”. In the Federal Court of Australia, Standard & Poor’s were found to be liable for its rating of a financial instrument. Extending to 993 pages, the Australian judgment appears to contain a wealth of information on the practice of ratings and the close collaboration between the rating agency and the issuer in designing the models on which the ratings were based.
Robert Schwinger and Michael Samalin review the position under US law, focusing on the First Amendment defence, which had for many years protected the rating agencies. Schwinger/Samalin argue that, “while the First Amendment has not changed, courts increasingly believe that rating agencies have.” The courts may not percieve them any longer as memers of the (financial) media. As a consequence, private credit ratings would not be regarded as not being matters of public concern. From this article, it appears that rating agencies are at risk of losing First Amendment protection for a certain class of cases.
Fabrizo Grasso looks at the situation in Italy, where criminal investigations are pending against managers of Standard & Poor’s and Fitch. As part of these proceedings, retail investors, supported by the consumer association ADUSBEF, have brought claims for damages. Fabrizo Grasso reviews the various theories under which the rating agencies could be held liable. In his opinion, one possibility would be for the courts to find a “contract by social contact” (contratto da contatto sociale) between rating agencies and retail investors. On that basis, the investors’ reliance on the ratings could be legally protected.
Tim Strong/Caroline Scullion report from England that the risk of rating agencies being sucessfully sued remains remote in their jurisdiction, and that in London at least, they “will be able to slept relatively easily”. Strong/Scullion, however, also point to the impact the new European Union regulations may have on rating agency liability.
Finally, I did contribute a brief note of the German position: As reported before, the federal Supreme Court (Bundesgerichtshof) has sofar only ruled on the issue of jurisdiction and has held that Standard & Poor’s can indeed be sued in Frankfurt. However, I am not yet aware of a German judgment on the merits of a claim against Standard & Poor’s.
All in all, still early days in the jurisdictions covered – we will report as matters progress.