Shareholders in nationalised mortgage lender Northern Rock went to court today to try to force the British government to compensate them for their now-worthless stocks.

Lawyers representing two institutional investors and about 150,000 small shareholders say the Treasury breached their human rights by offering "at best derisory compensation" for their shares.

David Pannick, lawyer for one of the claimants, hedge fund SRM Global, said the government's behavior "does not provide for a compensation scheme. Instead, it provides for a no-compensation scheme."

A respected bank with deep roots in the northeast of England, Northern Rock was the first major British casualty of the global credit crunch. It was nationalised in February after exposure to short-term money markets forced it to seek emergency funding from the Bank of England, leading to Britain's first bank run in more than a century.

The aggrieved shareholders are not challenging the government takeover, but claim the Treasury used the wrong criteria after the nationalisation to decide the value of their shares.

Under British rules on nationalisation, shareholders are offered compensation for their holdings at a level set by a government-appointed panel. The shareholders claim the government instructed the panel to treat Northern Rock as "unable to continue as a going concern" and "in administration," a form of bankruptcy protection - rendering the stocks virtually worthless.

The shareholders argue that the bank is still operating and is not in the hands of administrators. The shareholders want the High Court to rule that the compensation provisions breached their right to the protection of property under the European Convention on Human Rights, and to order the government to reconsider the value of their shares.

Pannick said expert advice had valued Northern Rock shares at 3 pounds ($4.50) each or more, significantly above the 90 pence they traded at just before nationalisation.

"Northern Rock was not a charity case," Pannick told two judges hearing the case. Instead it was "a solvent business with a strong asset base - albeit one with temporary liquidity difficulties."

The government maintains that without the 27 billion pounds in loans it pumped into Northern Rock, the bank would have failed.

The Treasury has stressed that it considers the nationalisation of the bank to be temporary, as it plans to eventually sell it back to the private sector.

Lawyers for the claimants say this amounts to theft of the shareholders' assets.

In written arguments, Pannick said the government "secured all the equity in Northern Rock, effectively for free, and at the expense of its former shareholders."

The legal challenge is being brought by investment firms SRM Global and RAB Capital and by the private shareholders, who held as much as a quarter of the company's shares.

Several dozen shareholders protested outside Northern Rock branches in London Monday, and some were in court for the start of the hearing. It is expected to last until Friday.

Dennis Grainger, 62, lead claimant for the small shareholders, said most were not savvy investors taking a calculated risk, but Northern Rock account holders who were given shares when the institution was floated on the stock exchange in the 1990s.

"They are not speculators - most wouldn't know how to sell a share. Most are over 70, some over 80," he said.

"The government has tried to rig the valuation. They think they can get away with it. We think they can't."