Local councils have scored another comprehensive win against financial institutions that sold them investments which collapsed in the GFC.

The full bench of the Federal Court has upheld a ruling that the councils are entitled to compensation for being misled when they were sold financial products with the safest AAA credit rating, which turned out to be highly risky investments.

ABN Amro Bank (owned by RBS), Standard & Poors' (a ratings agency owned by McGraw-Hill) and Local Government Financial Services (LGFS) appealed a judgment by a single judge of the Federal Court which awarded 13 New South Wales councils around $25 million in compensation for their financial losses.

The councils had invested in some structured financial products called Rembrandt notes that had been crafted by ABN Amro, rated AAA by S&P and on-sold to them through LGFS.

Claimants and their losses: Bathurst Regional Council: $1 million

Bathurst Regional Council: $1 million Cooma Monaro Shire Council: $1.86m

Cooma Monaro Shire Council: $1.86m Corowa Shire Council: $933,225

Corowa Shire Council: $933,225 Deniliquin Council: $466,613

Deniliquin Council: $466,613 Eurobodalla Shire Council: $466,612

Eurobodalla Shire Council: $466,612 Moree Plains Shire Council: $1.9m

Moree Plains Shire Council: $1.9m Murray Shire Council: $933,225

Murray Shire Council: $933,225 Narrandera Shire Council: $1.86m

Narrandera Shire Council: $1.86m Narromine Shire Council: $466,612

Narromine Shire Council: $466,612 Oberon Council: $933,225

Oberon Council: $933,225 Orange City Council: $1.4m

Orange City Council: $1.4m Parkes Shire Council: $2.8m

Parkes Shire Council: $2.8m City of Ryde: $933,225

However, a full bench of the Federal Court has today dismissed the appeal and found that the trial judge was correct in ruling that S&P's ratings were misleading and that the financial institutions selling the products knew, or should have know, that was the case.

"As the preceding analysis demonstrates, S&P's rating of the Rembrandt notes was unreasonable, unjustified and misleading (and ABN Amro knew that to be so)," Justices Jacobson, Gilmour and Gordon ruled.

S&P says it is disappointed with the ruling, echoing the statement it made when launching the appeal.

"We continue to believe that it is bad policy, and inconsistent with well-established laws outside Australia, to enforce a legal duty against a party like S&P, which has no relationship with investors who use rating opinions, yet impose no responsibility on those investors to conduct their own due diligence," the company said in a statement.

Litigation funder IMF Bentham's executive director John Walker says it is a big relief to the councils, but they are expecting that S&P might keep fighting given the precedent this case might set.

"What was hanging over their heads until today was that they'd have to repay the money and that Bentham IMF would have had to pay the costs of all the respondents if the appeals had been successful," he said.

"Unanimously they've been dismissed, but we expect that Standard & Poors', given their prior conduct, will seek leave to appeal to the High Court."

'Enormous implications'

Not only did the full Federal Court dismiss all appeals by the financial services companies, but it also ruled that each one was fully liable for the damages awarded to the councils because each either knew the ratings were incorrect, or were recklessly indifferent as to whether the ratings were accurate.

The trial judge had originally apportioned liability amongst the three firms one-third each.

However, the latest ruling means the councils will be able to enforce the entire damages award fully against any of the parties, which would then have to cross-claim against the other liable firms.

The effect of this decision is to protect the councils from any of the firms being unable to meet their share of the damages, as they could then claim their damages from the remaining wrongdoers.

This decision could have significant implications for a group of 70 charities, churches and other local councils that sued Lehman Brothers, but have not been able to recover all their losses due to its bankruptcy.

"After this decision, Standard & Poors', if it holds, will be liable for all of the losses of the churches councils and charities not already paid by Lehman," Mr Walker added.