Illustration: Rocco Fazzari.

Illustration: Rocco Fazzari.

CREDIT rating agencies became part of the scourge of the global financial crisis, being called everything from the three horsemen of the Apocalypse to ''key enablers'' of the financial meltdown, with taxpayers left to foot the bill.

They are about to become the target of Australian litigation funder IMF, which is set to issue proceedings in the Netherlands, Britain and New Zealand after a small but potentially profound win in the Federal Court on Monday in relation to the sale of so-called constant proportion debt obligations (CPDOs) to 12 councils.

While the case yesterday was also aimed at an investment bank and a finance company, it was the first time a credit rating agency has been pinged in the courts anywhere in the world for the role they played in rating the complex derivatives, which later became worthless.

Given more than $1 trillion was lost in the multitude of AAA toxic derivatives including collateralised debt obligations and CPDOs, there has been little fallout - yet.

Yes there has been a lot of mud thrown at the ratings agencies, along with threats of global regulatory crackdowns and an investigation by the US Financial Crisis Inquiry Commission into the cause of the GFC, which concluded in August 2011 that ''credit rating agencies were essential cogs in the wheel of financial destruction''.

The agencies issued AAA ratings to complex derivatives worth trillions of dollars that turned out to be junk and, as Warren Buffett predicted in 2003, eventually blew up the financial system.

The credit rating agencies have been embroiled in about 40 cases in the US courts on various structured related products but most have been dismissed, withdrawn or appealed. Monday's court decision will also be appealed, according to Standard & Poor's in Australia.

Put simply, credit rating agencies, which rate everything from countries and states to companies and financial products, have survived virtually unscathed, with only some reputational damage, some erosion of confidence in their assumptions and some regulatory tinkering around the edges. While some quarters of the European Union have lobbied to have them banned from rating the debt of countries that have been bailed out, for the most part it is business as usual.

The Federal Court case, which awarded the 12 councils $13 million in damages, was small in the scheme of things but it could have a domino effect - if time permits.

In some jurisdictions a six-year statute of limitations applies from the time a toxic derivative was bought rather than when the product blew up. The upshot is litigation covering products that were sold in 2006 will need to be filed in the next few weeks to ensure they meet the deadline.

It comes as huge US pension fund California Public Employees Retirement System (CalPERS) got the green light to sue two credit rating agencies - S&P and Moody's - for negligence in giving their highest ratings to three financial products in which CalPERS invested $US1.3 billion in 2006 and which later suffered huge subprime mortgage losses.

The rating agencies tried to get the case thrown out of court on the basis that they should be protected by the First Amendment as their ratings are based on independent opinions. However, in January, San Francisco judge Richard Kramer said the suit could proceed because CalPERS had produced evidence that, if proved in the court, would establish liability.

Another case relating to a class action in the Federal District Court Manhattan had a win on the First Amendment protection front. According to The New York Times, which reported on the class action against Morgan Stanley and two agencies, Judge Shira Scheindlin ruled: ''The disclaimers in the Information Memoranda that 'a credit rating represents a rating agency's opinion regarding credit quality and is not a guarantee of performance or a recommendation to buy, sell or hold any securities', are unavailing and insufficient to protect the rating agencies from liability for promulgating misleading ratings.''

The brutal reality is, these products in their many iterations could not have been sold if they were not constructed and flogged by huge investment banks and had the necessary imprimatur from the credit rating agencies.

Four and a half years after the GFC wreaked havoc on the financial system, most of the big players are untouched and still rolling along. There have been few court cases partly because the companies and councils that bought the products feel like idiots because they didn't understand what they were buying.

Instead they relied on the rating given to the investment by the credit rating agency. This took great trust on the part of investors and brought great wealth to the agencies. But this privileged position could never have happened without the Securities Exchange Commission, which, years ago gave the rating agencies the ''full faith and credit'' of the US government.

As Michael Hudson's book The Monster says about the subprime crisis, it involved a complex web of actors. ''It was, in other words, an extensive line-up of buck passers who could argue that someone else - or no one at all - was responsible for predatory tactics used to arrange mortgages.''