Landmark case against Mayban Trustee and Kaf Discounts (3)

I wrote two weeks ago about this case. The press has also (belatedly, lawyers asked to comment needed to take their time, as usual) commented about this landmark case:

• The Star: "Court decision rattles bond market"
• KiniBiz: "Fed Court verdict a game changer for bond market"
• KiniBiz: "Tougher now for small corps to raise bonds"

(the last two articles behind a paywall).

There are a lot of valid points in those articles, and I guess the consequences of the ruling will be studied for some time, and possibly some rules will be changed.

The issue is:

"KAF’s duty as the lead arranger for the Pesaka Astana bonds, was to also verify the information that was given by Pesaka Astana against the original documents."

The High Court decided this and the Court of Appeal affirmed the decision, the Federal Court however disagreed:

Citing English case law, the Federal Court said the burden of verifying the content of the info memo was on the potential investors rather than KAF.

But also:

One of the key reasonings cited by the Federal Court was that bond holders were “sophisticated investors with vast experience in the capital market. They are no ordinary investors”.

That means that the ruling by the Federal Court might be different when the documents are targeted at retail investors.

I would prefer more clarity in this matter, I think that if a lead arranger lends its name to an issue of securities, it has to do a certain amount of due diligence (within all reason), and (for instance) checking if arrangements regarding ring fencing (the issue in the Pesaka Astana case) have been properly implemented should be one of those.