No global release from liability by rating / analyst agencies

Three people are affected by ratings or analyses – the person being assessed (e.g. an initiator) with the subject of the rating (e.g. the current account), the assessor (the rating agency) and the readers/users of the rating or analysis. A subset are rankings in which, as a rule, only one criterion is examined at a time (e.g. a table sorted by value increase, or certain yes/no answers).

Rating agencies like to use clauses which then read “liability claims against the rating agency” are generally excluded?

And what is the real situation with regard to liability?

The same principles apply analogously to ratings, rankings and analyses:
The law clarifies in § 675 II BGB that a contractual or tortious legal claim is required, because otherwise no liability is accepted for ?advice, information, recommendation? Therefore, as a basis for a claim are especially possible:

  • The information or consultancy contract.
  • A guarantee assumed for the correctness (guarantee contract).
  • Any other contractual relationship.
  • Possible quasi-contractual relations.

As a rule, the rating agency has a contractual relationship with the initiator.


Liability according to case law:

Many years ago, case law has already clarified that the inner will of the rating agency not to stand up for advice and information (or not to do so vis-à-vis readers/users of ratings) (as often stated on the Internet and in printed editions with the words ‘Despite conscientious research … without commitment, without liability’) is irrelevant. In principle, it can therefore be said that rating agencies are always liable despite indications to the contrary.


Release from liability?

The CRA will be obliged to provide a sufficiently comprehensive, i.e. complete and accurate, presentation, to use existing knowledge, and above all “to present an answer to the question of the degree of uncertainty of the outcome of its own assessment”.


Cardinal duties:

Even slight negligence can hardly be ruled out for the rating agency, because the proper preparation of a rating according to scientific methods will be one of the so-called cardinal obligations of this expert service, for which an exclusion of liability can be ruled out due to slight negligence alone.


Liability towards readers or users of ratings

Case law developed the legal institution of the “contract with protective effect in favour of third parties” as an initially non-statutory (partial) basis for claims. Here, liability is assumed towards persons with whom no contract exists at the time, as is regularly the case with users of ratings.

The Federal Court of Justice (BGH) construes a liability if the information or advice was clearly of considerable importance for the recipient (third party) from the point of view of the adviser or informant (rating agency) and he (the recipient, i.e. the third party) made it the basis of his decision (in economic, legal or factual terms). The Federal Court of Justice assumes that the informant or adviser was aware that the information would be significant for further circles (third parties) and would serve as a basis for asset dispositions. In the past, the Federal Court of Justice did not allow it to be sufficient that the person providing information could only (perhaps) have expected that the information would be used against third parties.

The decisive factor today is that the third party has been included in the so-called scope of protection of the information or consultancy agreement. This is the case if according to the intention of the creditor (recipient of the information or advice) known to both contracting parties, the information or the expert opinion or advice is also intended for this third party. In the opinion of the Federal Court of Justice it is sufficient if the third party “in accordance with the matter” requires protection. The third party need not be known by name or in person at the time the rating is issued, but must be able to be individualised. The usual ratings are explicitly geared to the customer. The rating agency as the debtor (of information, advice, expert opinion) only needs to know that its rating is to be made the basis for important decisions by the third party.

Also in the comparable case of a securities analysis, the commissioning of an analyst by the credit institution may constitute a contract (with protective effect) for the benefit of third parties, namely the investor, although this could lead to an incalculable liability for the analyst. Just how real such liability can be, at least in the USA, is shown by the payment of a settlement sum of USD 100 million by the banking house Merrill Lynch on the basis of “ratings” by the in-house star analyst Henry Blodget: “In his analyses, he recommended buying shares that he allegedly described internally as junk and trash. Unfortunately, his e-mails also went to the public prosecutors,” as journalists from Spiegel-Online reported.


Insurance of ratings:

Contributory negligence on the part of the third party (“injured party”) is usually ruled out if the third party refers to the special expertise and technical knowledge of the debtor (the rating agency). It is well known that almost all rating agencies emphasise their specific expertise ? Very few people have an appropriate own detention strategy.


Ratings from an intermediary perspective:

A typical indication of inadequate risk management or awareness on the part of a rating agency is therefore likely to be useless liability clauses, as the example “Liability claims against the rating agency are generally excluded” shows. The enlightened intermediary will then wonder whether the rest of this agency’s work is even worth the paper it is written on? After all, ratings often deal with the question of trust in the assessment of risks, as a core competence. And if this is not even professionally mastered “in your own affairs”? If a rating does not bear an exact date of issue, discussions open up on the question of what level of information was used as a basis – also a conceivable indication of poor quality or unusability in practice.

Caution rating liability:

In the event of a loss, the value of a rating depends on the creditworthiness of the agency and whether the rating was sufficiently insured. A further indication of the search for the answer to the question of seriousness may be the rating agency’s own approach to transparency: Have the annual reports been properly filed with the commercial register? If the agency does not prove “lived transparency” in its own affairs, what might it look like in its own work, the ratings – many a mediator asks himself.


Mediator’s Tip:

Orient yourself to the central question of creditworthiness, see § 18 KWG. For each closed investment, a closely working auditor will examine the creditworthiness of the most important contractual partners (e.g. a main tenant). In rating, the question of the ability to take responsibility for inaccuracies is always part of the equation.

An indication of a lack of willingness to assume responsibility and transparency on the part of the rating agency may be the fact that there is no name of a responsible author or signature. In contrast, such formalities will always be present in a regular WP prospectus report according to the IDW-S4 standard.
If the basis for decisions is (also) a rating, the quality as well as the creditworthiness of the agency and the mostly necessary insurance cover should be questioned. These are “simple considerations” in the context of the plausibility check.

This must be particularly important to the agent, because the client ? after the slogan who pays, creates on – are often those enterprises, which wish themselves a favorable (er)es picture in the public and/or with investors and mediators.


by Dr. Johannes Fiala

published in Süsswarenproduktion, issue 5/2006

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About the author

Dr. Johannes Fiala Dr. Johannes Fiala

Dr. Johannes Fiala has been working for more than 25 years as a lawyer and attorney with his own law firm in Munich. He is intensively involved in real estate, financial law, tax and insurance law. The numerous stages of his professional career enable him to provide his clients with comprehensive advice and to act as a lawyer in the event of disputes.
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