Rock investors begin legal fight for compensation

Investors in Northern Rock yesterday began their latest legal challenge to Treasury regulations on the way in which the failed bank should be valued, amid continuing anger that the rules mean they are almost certain not to get any compensation for their shares.

Lawyers acting for SRM Global and RAB Capital, two hedge funds that bought stakes in Rock before its collapse and nationalisation, as well as for a group of small shareholders, are seeking to overturn a previous court ruling.

Earlier this year, the High Court said the Government was entitled to instruct the accountant BDO Stoy Hayward, which it has hired to consider what, if any, compensation Rock shareholders should receive, to value Northern Rock on the basis that it was in administration prior to nationalisation.

However, Lord Pannick QC, acting for the shareholders, told the Court of Appeal yesterday that the court had "failed to have any regard" for the fact "the Government repeatedly emphasised Northern Rock was at all times a solvent business with a strong asset base". Lord Pannick added: "The Treasury has prevented the valuer from forming a judgement on crucial facts – the valuer is not able to balance the profits to the state against the interests of the shareholders."

SRM, RAB and other shareholders argue that Rock remained a going concern up until it was nationalised and that this was why the Bank of England had felt able to provide it with several injections of liquidity – help that would not have been available had the bank been considered bust.

Jon Wood, the founder of SRM, has accused Mervyn King, Governor of the Bank of England, of allowing an "obsession with moral hazard" of clouding his judgement over the way in which shareholders in the bank are treated.

The hearing is expected to last three days, with the investors already warning that they may take their case to the House of Lords or the European Court of Human Rights if they lose.