Perpetual bid to fend off links with Lehman lawsuit
Sydney Morning Herald
Monday March 21, 2011
PERPETUAL TRUSTEES will send lawyers to the Federal Court this week to resist producing details of a December out-of-court settlement it reached in a New York lawsuit against a United States arm of the collapsed Lehman Brothers investment bank.The US company, Lehman Brothers Special Financing Inc, will also send its own lawyers to protect its agreement with Perpetual that the terms of the settlement would remain confidential until May.The liquidator of Lehman Brothers Australia, Stephen Parbery, wants to know the details for potential use in his defence to a class action by former clients which began in Sydney on March 2.The New York case and the Sydney class action both concern collateralised debt obligations, or CDOs, marketed by Lehman Brothers Australia.Mr Parbery, a partner of PPB Advisory, said in February that even if the class action proved that Lehman had misled its clients and breached its fiduciary duty to them, the compensation payable by the Australian arm of the bank might be "minimal" because some of the CDOs had recovered in value in recent months and others had the potential to return investors their capital in full.Perpetual is the trustee for 1000 Australian investors, mostly individuals, who invested $125 million in CDOs called Mahogany notes.The class action involves 72 local councils, churches and charities seeking $260 million to recover losses incurred on 39 series of CDOs.The Mahogany notes and 12 of the class action series are in a special category because in addition to being marketed by Lehman Brothers Australia, they were originated by Lehman Brothers Special Financing.In the New York suit, Perpetual argued that a clause in the documents for the Mahogany notes favourable to the investors was triggered by the collapse of Lehman Brothers Special Financing along with the rest of the Lehman group in September 2008.If triggered, the clause gives investors immediate access to the collateral supporting the notes.If it is not triggered, the originator has first access to the collateral in the event of credit defaults by companies linked to the notes by a credit default swap.At a directions hearing on Friday, Justice Steven Rares asked Mr Parbery's barrister, James Hutton, how a private settlement could affect his determination of damages if the class action succeeded.The assessment by Perpetual of its prospects when it decided to settle might have been right or wrong, he said.Mr Hutton said there was legal precedent for Justice Rares to consider a fair price as well as a market price of the CDOs originated by Lehman Brothers Special Financing."And in assessing a fair price all the information about LBSF settling with other noteholders should be brought to bear," he said.Justice Rares will hear the confidentiality dispute on Thursday.