Court action unlikely over Northern Rock

Any action brought against the government by shareholders over the nationalisation of Northern Rock is unlikely to succeed, lawyers say.

The chancellor, Alistair Darling, announced this week that the government was to take ownership of the bank after two bids were deemed too risky to consider. Darling said that the nationalisation was a temporary measure until a viable buyer could be found. Independent arbitrators will be appointed to assess the value of shares in the company and how much compensation, if any, investors are likely to receive. Andrew Head, partner at Forsters LLP, says the shareholders most likely to sue the government are the two largest hedge funds SRM Global and RAB Capital, although possible action could also come from smaller shareholders who may form an action group to pursue their claim. Head suggests, however, that any threat of litigation could “simply be a negotiating position…to extract a better deal for shareholder”. Head says that there could be a possible challenge to the award eventually made by the arbitrator but that as the government is likely to choose “very eminent arbitrators”, any challenge is unlikely to succeed. He also thought the chances of any action brought against the chancellor personally over misfeasance in public office would be unlikely to succeed.

“To succeed, the shareholders would have to show that Mr Darling acted maliciously with the intent of harming shareholder’s interests and that, as a result, the value of their shares had gone down. In practice this will be very difficult to prove, a similar action brought by Railtrack shareholders failed against Stephen Byers even though the judge accepted he had told an ‘untruth’ to Parliament,” he says.

Any case brought in the European Court of Human Rights was also likely to fail as it would be brought on the basis that nationalisation is a form of expropriation of property.

“Given that the shares are likely to have been worthless if the government hadn’t stepped in the chances of success would seem close to zero,” Head adds.