Shareholders Fail in Human Rights Cases Against UK Government
By: Ainsley Brown
This is a follow up to: More Human Rights Cases Being Brought by Companies.
The former shareholders of Northern Rock, principally lead by the hedge funds SRM Global and RAB Capital, have failed in their attempt to use human rights law in their case against the UK government – HM Revenue & Customs and the Bank of England.
The shareholders, in the High Court test case, were unable to convince the Justices of the merits of their case. Lord Justice Stanley Burton, sitting with Mr. Justice Silber, while expressing sympathy for the shareholders’ loss, did not buy their arguments that the Government’s nationalization of the bank was unlawful, unfair and in breach of their human rights.
What in fact the shareholders were seeking was a declaration that the Government’s compensation scheme upon nationalization was incompatible with the human rights principles that guide government expropriation. That is to say that the government ought to pay compensation; in reasonable amount of time; and is to be as close as possible, taking account of the public interest, to the full and fair value of the property. Considering that the shareholders stand only to receive 5p a share, instead of the £3 – £4 per share based on their valuation of the company as a going concern, the above looks like a very sound argument.
However, Government lawyers countered by arguing that since Northern Rock received substantial government assistance, without which it would have gone into liquidation, the shares could not be valuated as if it were still a going concern. Instead, Northern rock would be valued as if it had indeed gone in to liquidation. At the end of the day this was the winning argument.
Northern Rock is a prime example what the global credit crunch is doing to seemingly sound financial institutions. It was for all intents and purposes a sound bank, well on paper at least, as their financial books reveal – its assets exceeded its liabilities.
However, it still ran into trouble.
The problem was that the bank could not meet its current liabilities as the fell due. This even went as far as not being able to pay back their depositors.
This unfortunate situation does not come as much of a surprise considering the tightening of the credit markets. Northern Rock found itself in a situation where it could not go in to the wholesale credit, like it once did, to fund its current liabilities.
All in all the case is very interesting and will undoubtedly not be the final chapter in this saga – I eagerly await the appeal to the Court of Appeal.
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