Rock Bottom Prices

In R (on the application of SRM Global Master Fund LP

and Others) v Treasury Commissioners [2009] EWHC 227 (Admin),

former shareholders of Northern Rock failed to persuade the

Divisional Court on judicial review that the statutory compensation

scheme established to value shares in the nationalised bank was

incompatible with their human rights.

Background

In the period following the collapse of the wholesale money

markets in August 2007, Northern Rock plc ("NR") was the

recipient of significant public financial assistance. On 14

September 2007, the Bank of England provided NR with a liquidity

support facility; on 20 September 2007, HM Treasury announced that

all existing deposits in NR would be guaranteed; on 9 October 2007,

additional facilities, repayable upon demand and subject to a time

limit, were granted to NR and the guarantee of NR deposits was

extended to all new retail deposits. By February 2008, the lending

extended by the government exceeded £20 billion. Private

sector proposals for the future of NR were sought, but the terms of

such proposals were not considered acceptable by the UK government.

Consequently, on 17 February 2008, the Chancellor announced that NR

would be taken into public ownership, with the creation of a

compensation scheme for its former shareholders.

The Relevant Legislation

On 21 February 2008, the Banking (Special Provisions) Act 2008

("the Act") was passed into law and gave the government

the power to nationalise NR. The nationalisation was effected by

the transfer of the shares in NR to the Treasury Solicitor. The

Northern Rock plc Compensation Scheme Order 2008 ("the

Order"), made on 12 March 2008, contained the formal

provisions for the appointment of an independent valuer to

establish the amount of compensation payable to a shareholder. The

key provisions within this legislation were section 5(4) of the Act

and paragraph 6 of the Order which provide:

"5(4)

In determining the amount of any compensation payable by the

Treasury...it must be assumed: (a) that all financial assistance

provided...has been withdrawn...and (b) that no financial

assistance would in future be provided ...".

"6

In determining the amount of any compensation payable by the

Treasury...it must be assumed (in addition to the assumptions

required to be made by section 5(4) of the Act that Northern Rock:

(a) is unable to continue as a going concern; and (b) is in

administration".

The former shareholders said that the effect of these

...