Three persons are affected by ratings: the party to be rated (e.g. an initiator) with the rating subject (e.g. the performance record), the assessor (the rating agency) and the readers/users of the rating. The resulting question of the rating agency’s liability is clarified by Johannes Fiala, lawyer (Munich), M.B.A. (Univ. Wales), M.M. (Univ.), certified financial and investment advisor (A.F.A.), EC expert (C.I.F.E.) and banker in a report (“No global exemption from liability by rating/analyst agencies”), which is available for download at www.fiala.de. According to § 675 II BGB, a person who gives advice or a recommendation to another is generally not liable. This does not apply if a contractual or tortious legal claim exists against the rating agency. Thus, the bases for claims against the agency are the information or consultancy liability contract, the guarantee contract, another contractual relationship or any quasi-contractual relationships. CRAs like to use clauses such as “Liability claims against the CRA […] are generally excluded.” According to case law, an internal intention of the CRA not to be liable for advice and information is irrelevant. This means that despite these clauses, the CRA is liable. It is liable even for slight negligence, since the proper preparation of a rating according to scientific methods is one of the cardinal obligations. Cardinal obligations are all essential obligations that are owed by the client (the CRA) on the basis of the individual contract and are of eminent importance for the achievement of the objective of the contract. Thus, the credit rating agency is obliged to provide a sufficiently comprehensive, i.e. complete and correct, presentation, to make use of available knowledge and to provide an answer to the question of the degree of uncertainty of the result of its own assessment. Jurisprudence developed the legal institution of the “contract with protective effect in favour of third parties”. Here, liability is imposed on persons with whom no contractual relationship exists, such as between the rating agency and the readers of the rating. Thus, according to the Federal Court of Justice (BGH), liability arises vis-à-vis readers and users of ratings if the information or advice was recognisably of considerable importance to the recipient from the perspective of the rating agency. In addition, the recipient must have made it the basis of his decision. The BGH presupposes that the rating agency was aware that the information would be significant for further circles and would serve as a basis for asset dispositions. Contributory negligence on the part of the third party is usually excluded if the third party refers to the special technical and expert knowledge of the rating agency. This is emphasised by almost all rating agencies. According to Johannes Fiala, useless liability clauses are a typical indication of poor risk management or risk awareness on the part of a rating agency. Another indication of poor quality or uselessness in practice is the absence of the exact date of preparation. “This opens up discussions on the question of what level of information was the basis,” Fiala said. An indication of a serious rating, on the other hand, could be the rating agency’s own handling of transparency, according to Fiala: Were the annual reports properly filed with the commercial register? Is the name of a responsible author or a signature available? “If a rating is (also) the basis for decisions, the quality should be questioned in the same way as the creditworthiness of the agency and the insurance cover that is usually required. These are simple considerations in the context of the plausibility check. To the mediator this must be particularly important, because clients – after the slogan ?who pays, creates on? – are often those enterprises, which wish themselves a favorable(er) picture in the public and/or with investor and mediator? concludes Fiala its remarks. For further literature among other things in the magazine insurance right in June 2005 a scientific essay of Johannes Fiala, Christian Kohrs and Sabine Leuschner was published under the title “the adhesion of the ‘expert’ for anlagebeeinflussende expressions at the example of the adhesion for insurance Ratings”. In addition, Fiala is co-author of the book “Rechtsfragen im Rating” (“Legal Issues in Rating”), which was published as an edited work by Prof. Dr. Dr. Ann- Kristin Achleitner and Dr. Oliver Everling in 2005.
(Everling Internet Newsletter No. 21.2006)
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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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