Legal action by a group of 91 councils and charities against Standard and Poor’s (S&P) will proceed after the Federal Court last week rejected S&P’s objections.

The parties are claiming $150 million over S&P’s AAA rating of synthetic collateralised debt obligations (SCDOs) they bought from Lehman Brothers Australia before the global financial crisis. The value of the debt plummeted in the crisis.

The action follows the court’s ruling in a September 2012 action against Lehman. There is some overlap between the parties in the two cases.

The City of Swan in WA and Moree Plains Shire Council in NSW, representing the group, allege S&P made misleading, deceptive or negligent representations about credit ratings for eight SCDOs and that it was not independent of the debt’s issuers or promoters.

S&P argued the case should be dismissed because the Lehman Bros case found it was not a wrongdoer, that the councils were trying to re-litigate a claim that should have been run then and that they had no chance of success.

Justice Steven Rares says SCDOs are “a sophisticated bet”, with many risks, and the high credit ratings they were given were used as a selling point to the risk-averse councils.

He says although S&P is US-based, the ratings were provided in Australia and the court’s jurisdiction applies.

In arguing the case while claiming the court has no jurisdiction “S&P has tried to have its cake and eat it”.

Bentham IMF is funding the case. Executive Director John Walker told insuranceNEWS.com.au the claim, lodged in April last year, will proceed now that S&P’s “delaying tactic” has failed.

The action against Lehman led to a settlement allowing 80 claimants to recover about half the $180 million they invested.

Mr Walker says the claim against S&P seeks to recover the balance of losses.