The Northern Rock case in the Court of Appeal

The Court of Appeal has given judgment today in SRM Global Master Fund v HM Treasury – the human rights challenge by Northern Rock shareholders to the government’s compensation scheme on nationalisation.

The complaint was based on the article 1 Protocol 1 Convention right to protection of property. The system for calculating compensation, so the argument went, was set up under section 5(4) of the Banking (Special Provisions) Act 2008 in such a way that shareholders were bound to receive nothing or virtually nothing from the government – even though Northern Rock still had considerable assets. This, it was argued, failed to strike the fair balance required by article 1 of Protocol 1 between the private rights of the shareholders, and the public interest.

Laws LJ giving the lead judgment rejects the argument entirely, I’m glad to say. He accepts that the shares were in truth worthless in the absence of government support; or at least, Parliament was entitled to take that view within the margin of discretion allowed to it under human rights law. Its approach was certainly not “manifestly without reasonable foundation”.

I have two thoughts about this judgment, apart from the fact that it’s obviously right. First, although I have no problem with the idea that companies enjoy Convention rights, and it’s important to recognise that this case involved small shareholders as well as hedge funds, there is a certain absurdity in the idea of a hedge fund based in the Cayman Islands claiming its human rights have been violated. It’s the kind of claim that brings human rights into disrepute.

Second, this is a prime example of the kind of case which shows how unfair it could be, and how contrary to the public interest, if the government’s legal advice, such as Law Officers’ advice, were unilaterally published. It would mean that SRM Global Master Fund was at a distinct advantage in the case, in that it would be able to supplement its arguments with points it may not have thought of, but which the government had considered; and it would be able to focus its arguments on points which the government, in writing, had admitted were the most doubtful parts of its case. It would be very difficult for the government to argue convincingly for a particular proposition – even if it believed it to be right – if the court had in front of it papers showing some government lawyers had doubts about the point. All this would skew the case in favour of the hedge fund: I say unfairly, because they might know their own case was pathetically weak in its entirety, but would not be forced into any such disclosure.