Officers of local government entities "could never have asked the right questions" about structured financial investments pushed by their favoured external advisers, the Federal Court has said.The full court of the Federal Court on Friday delivered judgement in the case of ABN AMRO versus Bathurst Regional Council and many others, all in connection with losses on CDO-style, high yield investments.All of them carried AAA credit ratings from Standard & Poor's based on shoddy foundations.Twelve local councils brought a claim against S&P, ABN Amro and a fund manager, Local Government Financial Services, over their investments in the derivatives.  In November 2012, Justice Jayne Jagot found that the respondents had misled the councils and failed to advise them of the significant risk involved in the investment.The full court was sympathetic to the uneven power balance between the council staff and the investment specialists."As we have said on more than one occasion, the witnesses' evidence made clear that 'they did not know what they did not know'," and thus could not be in a position "to obtain the relevant information," wrote justices Peter Jacobson, John Gilmour and Michelle Gordon.S&P accepted at the appeal that the rating behind the Rembrandt notes was flawed. Local Government Financial Services, a private firm, is tangled in the case.Jagot established at the first trial "an entitlement to equitable contribution" from ABN Amro and S&P on several matters.S&P and LGFS "advanced so many different appeal grounds," the judges noted "that it was necessary to tabulate those grounds in tables comprising 306 entries set out over more than 120 pages," or more than a fifth of a 500 page ruling."The attacks made on the findings made, and conclusions reached, by the primary judge fail," the full court said. "The qualifications have only a limited effect on the primary judge's final orders. "The rejection of the appeal has implications for billions of dollars of litigation pending around the world against S&P and the other major rating agencies. The US Department of Justice filed a US$5 billion suit against S&P in February, alleging that S&P engaged in a scheme to defraud investors in RMBS and CDOs.The lawsuit alleges that investors, many of them federally insured financial institutions, lost billions of dollars on CDOs for which S&P issued inflated ratings that misrepresented the securities' true credit risks. The complaint also alleges that S&P falsely represented that its ratings were objective, independent, and uninfluenced by S&P's relationships with investment banks when, in actuality, S&P's desire for increased revenue and market share led it to favour the interests of these banks over investors.Since the DoJ lodged its suit 16 other US states and Washington DC have lodged their own claims with US courts.Nevertheless, S&P said it was disappointed by the Australian ruling, adding that the law on duty of care in Australia is different from well-established laws in the US and Europe. Investors must take responsibility for conducting their own due diligence.