Vol 7 (2010) - Issue 3

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SRM Global Master Fund LP & Ors v Treasury Commissioners [2009] EWCA Civ 788

The statutory scheme established to compensate shareholders subsequent to the nationalisation of Northern Rock plc, on the basis of the assessment of the valuation of the shares by means of the statutory assumptions provided for in sections 5(4) of the Banking (Special Provisions) Act 2008 ('the 2008 Act') did not violate the shareholders' right to the protection of their property guaranteed under Article 1 of the First Protocol to the Convention for the Protection of Human Rights and Fundamental Freedoms (set out in Part II of Schedule 1 to the Human Rights Act 1998). Those statutory assumptions struck the balance, required by the Convention, between the demands of the general interest of the community and the requirements of the protection of the individual's fundamental rights.
The Court of Appeal (Sir Anthony Clarke MR, Waller LJ, Laws LJ) so held dismissing the appeals of the claimants, SRM Global Master Fund LP, a hedge fund holding 11.5% of Northern Rock’s issued ordinary share capital on the date of nationalisation; RAB Special Situations (Master) Fund Ltd, an investment company, having an 8.18% holding; and Dennis Grainger and others, representatives of some 150,000 small shareholders, against the decision of the Divisional Court (Stanley Burnton LJ and Silber J) on 13 February 2009 [2009] EWHC 227 (Admin) which dismissed their claims for judicial review challenging the compatibility of the legislation relating to the assessment of compensation payable to them as former shareholders of Northern Rock following its nationalisation.

The background
As many readers will be familiar, Northern Rock used to be a building society, mainly based in the north east of England. At the time of its nationalisation it was the fifth largest UK mortgage lender. The bank financed a large part of its loan book by borrowing money on the wholesale money market. While this initially allowed it to achieve high growth, it was particularly affected by the severe disruption in the global financial markets that began in or around July 2007. By August 2007, its liquidity problems had become critical. On 3 September 2007, the Tripartite Authorities (the Treasury, the Bank of England and the Financial Services Authority ('the FSA') agreed in principle that the Bank of England (in its capacity as the lender of last resort) would provide financial support so that Northern Rock could maintain its liquidity. On 13 September 2007 the fact that the company had sought and was to be provided with support was leaked to the press. There followed a run on the bank.
By 31 December 2007, the Bank of England had lent almost GBP 27bn to Northern Rock, and the Treasury had assumed contingent liabilities under certain guarantees it had provided to the tune of about GBP 29bn. Attempts to find a purchaser for the bank were unsucessful and in February 2008 the decision was taken to nationalise it. The 2008 Act was passed into law on 21 February 2008. On the same day the Northern Rock plc Compensation Order 2008 (SI 2008/718) ('the Transfer Order'), was made pursuant to section 3 of the 2008 Act. It came into force on 22 February and by paragraph 2 effected the transfer of Northern Rock's share capital to the Treasury Solicitor as at the beginning of that day.
Section 5(1) of the 2008 Act provided that the Treasury must by order make a scheme for determining the amount of any compensation payable by the Treasury to persons who held shares in Northern Rock immediately before they were transferred. Section 5(4) of the 2008 Act provided that in determining the amount of any compensation payable by the Treasury it must be assumed: (a) that all financial assistance provided by the Bank of England or the Treasury to the deposittaker in question has been withdrawn (whether by the making of a demand for repayment or otherwise); and (b) that no financial assistance would in future be provided by the Bank of England or the Treasury to the deposit-taker in question (apart from ordinary market assistance offered by the Bank of England subject to its usual terms).