Northern Rock: Shareholder claim against the Treasury fails
Insurers of banks and financial institutions will no doubt have been following the high profile collapse and subsequent nationalisation of Northern Rock in 2007 with interest.
As part of the nationalisation process, the Government set up a scheme for the valuation of compensation for shareholders who lost their shares. The valuation was to be undertaken by an independent valuer, who was, however, required to assume that all State financial assistance was withdrawn before the nationalisation, that Northern Rock was unable to continue as a going concern, and that it was in administration.
The shareholders applied for judicial review of the valuation scheme, challenging the assumptions as unfair, relying in particular on the right to protection of private property set out in the Human Rights Act 1998. They also alleged that they had a legitimate expectation that Government financial assistance would continue, and that the tripartite authority (the Treasury, the FSA and the Bank of England) owed them a duty of care, which was breached.
Not surprisingly, the court rejected each of the claims brought by the shareholders. For our in depth analysis of this decision, please click here.
The claim against the Treasury (or indeed any of the tripartite authorities) was always going to be a difficult one for the shareholders to bring home. That the claim was pursued in the way it was is illustrative of the fact that, where significant losses are suffered, the likelihood of claims being brought is increased even if those claims, as framed, are unlikely to succeed (see also for example the claim brought by certain Lloyd’s names against the Government for alleged failure to implement a European Directive and regulate the insurance market. For our law now on this decision, click here).
The court decided that the FSA, Treasury and Bank of England owed no duty of care to shareholders (or for that matter depositors) of a regulated bank, regardless of any regulatory failure. Given the recent failures of various regulated entities, this decision has potentially far-reaching implications.
