Northern Rock nationalisation probe

Shareholders claim their investments will effectively be rendered worthless because the Treasury is acting on the basis of false valuation criteria contained in the statutory provisions enabling the government takeover to go ahead.

As a result, they say, little or no compensation will be payable for the expropriation of their shares.

In a three-and-a-half-day court hearing beginning in London on Tuesday, judges will hear argument drawing a contrast between the Government's conduct in the Northern Rock rescue and its subsequent acquisition of stakes in other banks, such as Bradford & Bingley, whose shareholders were not wiped out.

The case is based on the principle, enshrined in human rights law, that the taking of property by the State without payment of an amount reasonably related to its value will normally constitute a disproportionate interference with property rights.

Shareholders say the Treasury's share valuation criteria assumed that the bank was in administration, was no longer a going concern and was no longer receiving financial assistance from the Bank of England or the Treasury when it was nationalised.

The criteria were false, they argue. Financial assistance remains in place; Northern Rock is a going concern (it has already repaid almost £4 billion of borrowed public money and expects to pay the rest by 2010), and it is not in administration.

A valuation expert appointed by the shareholders has valued Northern Rock shares, at the time of nationalisation, at no lower than £3 each and probably much more.

The same expert concluded that applying the false assumption that Northern Rock was in administration would almost inevitably result in a nil valuation.

The shareholders' case is being brought by the bank's biggest former investor, SRM Global (represented by Lord Pannick QC); RAB Capital (represented by Michael Beloff QC) and around 150,000 private shareholders who held as much as 25% of the company's shares.