LOCAL councils that lost money on structured finance products could not sue the company they bought them from for breach of fiduciary duty simply because they trusted it, the Federal Court heard yesterday.
Local Government Financial Services Pty Ltd sold 13 councils constant proportion debt obligations marketed as Rembrandt Notes, which were created by the investment bank ABN AMRO and assigned a AAA rating by the credit rating agency Standard & Poor's.
Guy Parker, SC, for LGFS, said the councils could not succeed in a fiduciary duty claim because "there just was no relationship of trust and confidence in the relevant sense".
In its dealings with Bathurst Regional Council, there was no objective basis to say that "LGFS had to subordinate its own interests to Bathurst's," he said.
The 13 councils lost $16 million, or 93 per cent of the capital they invested in Rembrandt notes in 2006. They are suing LGFS, a subsidiary of the NSW Local Government Superannuation Scheme, as well ABN Amro and Standard & Poor's. Their claims include negligence and misleading or deceptive conduct.
LGFS, which retained $26 million of Rembrandt Notes on its own books, is also suing the bank and the agency. The hearing continues.