Northern Rock shareholders were deprived of their property when the Government nationalised the stricken bank last year, Blackstone Chambers’ Lord David Pannick QC told a court today.
Instructed by White & Case partner John Reynolds and representing hedge fund SRM Capital, Northern Rock’s largest shareholder at the time it was nationalised, Pannick told the Administrative Court that the Government misappropriated shareholders’ property when it took the bank into public ownership.
Before judges Lord Justice Burnton and Mr Justice Silber, Pannick said that shares count as personal property, adding: “Taking Northern Rock into public ownership was a deprivation of that property by the State. Article 1 [of the European Convention on Human Rights] requires for compensation for that property.”
Pannick added that under the legislation laid out in the Banking (Special Provisions) Act shareholder compensation is likely to be nil.
“We say that this legislation does not provide for a compensation scheme, it provides for a no compensation scheme,” he said. “We say that in the circumstances of this case the denial of compensation is a breach of the fair value provisions of Article 1.”
Last year the Government appointed BDO Stoy Hayward valuations partner Andrew Caldwell, who is advised by Mayer Brown litigation partner Clare Canning, to calculate the value of the compensation scheme.
According to Pannick the assumptions Caldwell will be obliged to make when making his assessment will unfairly represent the shareholders.
“It’s a breach of the fair value test to oblige the valuer to apply assumptions, whether or not they are in his judgment appropriate, in assessing compensation for shareholders,” Pannick told the court. “He should be allowed to decide whether and when those assumptions are appropriate.
“Nil compensation cannot be said to be fair compensation in this case, even applying the test most favourable to the Treasury.”
SRM is one of three claimants against the Government, with fellow hedge fund RAB Capital and a group of small shareholders lining up to make their case.
RAB, which turned to Nabarro partner Peter Fitzpatrick, is being represented by Michael Beloff QC of Blackstone Chambers while the small shareholders, whose solicitor is Edwin Coe partner David Greene, are being represented George Bompass QC of 4 Stone Buildings.
The claimants are due to conclude their case in court tomorrow. On Thursday the Government’s representative, Lord Anthony Grabiner QC of One Essex Court, will make his case.
The trial is due to conclude on Friday.
For more on Northern Rock, see our Northern Rock blog post.