A judgment was brought down on Friday, September 21, by Justice Steven Rares of the Federal Court in relation to a class action legal challenge, involving 72 entities including Armidale Dumaresq Council, against Grange Financial Services (previously Lehman Bros Australia).
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 advisor.
This decision now paves 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 ADC’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 ADC’s legal advisors in the United Kingdom, regarding the recovery of Dante series CDO investments, amounting to $3.2 million,” said ADC General Manager Shane Burns.
“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.”
