Compensation for councils
Armidale Dumaresq Council says a successful class action legal challenge paves the way for it to claim compensation for ratepayers who ultimately lost out with some council investments about five years ago.
General manager Shane Burns said a federal court judgement had opened the door for Armidale and dozens of other local government bodies across NSW to recoup losses from the failed Lehman Bros liquidator.
Mr Burns said Justice Steven Rares’ judgment last Friday was handed down in relation to a class action legal challenge, involving 72 entities, including many councils across Australia, against Grange Financial Services. Grange Financial Services was taken over by Lehman Bros Australia.
Mr Burns said Justice Rares found that Grange Financial Services, and subsequently Lehman Bros Australia, were negligent and guilty of misleading and deceptive conduct, breaches of contract and breaches of fiduciary duties as an investment manager and adviser.
This decision now paved the way for dozens of councils to seek compensation from Lehman Bros Australia to recoup more than $200 million from the liquidator of Lehman Bros Australia.
The investment fund manager, Grange Bros, had invested into AAA-rated Collateral Debt Obligation (CDO) investments on Armidale council’s behalf, some of which have now defaulted. Grange Bros, on council’s behalf, had predominantly invested water and sewer funds, with a small amount of general fund monies, into CDO investments.
“Justice Rares’ decision was positive following other recent discussions held with Armidale council’s legal advisers in the United Kingdom, regarding the recovery of Dante series CDO investments, amounting to $3.2 million,” Mr Burns said.
“The Dante series investment notes are the subject of a separate class legal action in the USA/UK, relating to monies held in a UK bank account under trust.
“It is premature, at this stage, to exactly estimate the returns, as Justice Rares is yet to calculate the exact extent of final damages.
“The final extent of damages will then be the subject of final actions in relation to the Lehman Bros
Australia liquidation. Suffice to say, the majority of initial investment monies are likely to be recovered and the exact amounts will be advised to the community in
due course.”