FOURTH SECTION
DECISION
Application no. 34940/10
Dennis GRAINGER and others
against the United Kingdom
The European Court of Human Rights (Fourth Section), sitting on
10 July 2012 as a Chamber composed of:
Lech Garlicki, President,
David Thór Björgvinsson,
Nicolas Bratza,
Päivi Hirvelä,
Ledi Bianku,
Nebojša Vučinić,
Vincent A. De Gaetano, judges,
and Lawrence Early, Section Registrar,
Having deliberated, decides as follows:
THE FACTS
The following summary of the facts is based on
the applicants’ submissions and the findings of the domestic courts.
A. The applicants
The names of the applicants and their
representatives are set out in the attached table. One of the applicants, SRM
Ltd Global Master Fund Partnership, is an investment fund incorporated in the Cayman Islands. As a result of transactions between 14 September 2007 and 12 February
2008 it became the largest shareholder in Northern Rock plc, with
48,452,655 shares, amounting to 11.5% of the issued ordinary share
capital. Another applicant, RAB Special Situations (Master) Fund Ltd is also an
investment company incorporated in the Cayman Islands. It acquired its shares
in Northern Rock by transactions between 19 September 2007 and 14 February
2008. By the date of Northern Rock’s nationalisation, it owned 34,444,299
shares, amounting to 8.18% of the issued ordinary share capital. The remaining
applicants are individual small shareholders, some of whom acquired their
shares on demutualisation; others of whom acquired theirs as employees under an
approved profit share scheme or share incentive plan, or other incentive
schemes, or by contributions to the company pension fund. Others were small
investors who bought their shares on the stock exchange. At the date of
nationalisation there were some 150,000 small shareholders.
B. The circumstances of the case
1. The nationalisation of Northern Rock
Northern Rock was originally a building society.
In 1997 it was converted into a public limited company, listed on the London
Stock exchange and authorised to carry on business as a bank. On its
demutualisation, shares were issued to its existing depositors. Its core
business remained residential mortgage lending. It grew to become the fifth
largest United Kingdom mortgage lender and the eighth largest United Kingdom
bank.
Unlike most other banks in the United Kingdom, Northern Rock financed a large part of the loans it made to lenders by
borrowing money and by issuing bonds backed by a pool of mortgage loans. As a
result of turbulence in the international financial markets, by August 2007 it
had become impossible for it to raise sufficient money on the wholesale market.
Moreover, the problems in the United States of America associated with the
securitisation of subprime mortgages made it impossible for Northern Rock to
raise funds by securitising its own mortgage book.
Northern Rock’s assets, as valued and stated in
its balance sheet, exceeded its liabilities. However, because of the
impossibility of borrowing in the wholesale financial markets it did not have
the liquid funds to pay its current liabilities and to repay depositors, and so
it could not pay its debts as they fell due.
On 13 August 2007 Northern Rock alerted the
Financial Services Authority to its liquidity problems and its doubts over the
sustainability of its situation. On 3 September 2007 the Treasury, the Bank of
England and the Financial Services Authority (“the Tripartite Authorities”)
agreed in principle to provide financial support, as a “Lender of Last Resort”
(“LOLR”), to allow Northern Rock to maintain liquidity. It was considered that
Northern Rock’s problems constituted a genuine threat to the stability of the
financial system, with a risk of serious disturbance in the wider economy.
LOLR Assistance is made under procedures set out
in a Memorandum of Understanding between the Tripartite Authorities, which
provides:
“14. In exceptional circumstances, there may be a
need for an operation which goes beyond the Bank’s published framework for
operations in the money market. Such a support operation is expected to happen
very rarely and would normally only be undertaken in the case of a genuine
threat to the stability of the financial system to avoid a serious disturbance
in the UK economy. If the Bank or the FSA identified a situation where such a
support operation might become necessary, they would immediately inform the
other authorities and invoke the co-ordination framework outlined in paragraph
16 below. Ultimate responsibility for authorisation of support operations in
exceptional circumstances rests with the Chancellor. Thereafter they would keep
the Treasury informed about the developing situation, as far as circumstances
allowed.
15. In any such exceptional circumstances, the
authorities’ main aim would be to reduce the risk of a serious problem causing
wider financial or economic disruption. In acting to do this, they would seek
to minimise both moral hazard in the private sector and financial risk to the
taxpayer arising from any support operation.”
The principles on which LOLR is provided by the Bank of England
were further explained in a lecture given at the London School of Economics in
1993 by the then Governor of the Bank. In particular, he underlined that LOLR
is designed not to protect the individual bank or its shareholders, but to
safeguard the financial system as a whole from contagion, thereby preventing
damage to the wider economy.
On 13 September 2007 the BBC broadcast leaked
information about the bank’s liquidity problems which, over the following three
days, led depositors to withdraw GBP 4.45 billion, nearly 20% of Northern Rock’s
retail deposits.
On 14 September 2007 the Tripartite Authorities
authorised the Bank of England to provide LOLR support, in the form of a
secured loan at a premium rate of interest. On 17 September 2007 the Chancellor
of the Exchequer announced that the Tripartite Authorities would guarantee the
safety of all existing deposits in Northern Rock. By 9 October 2007 the loan
provided by the Bank of England was virtually exhausted. To prevent the company
from collapsing, a further loan was put in place, which was repayable on
demand, again at a premium rate of interest and secured against all assets of
the company.
The Government had duly informed the European
Commission of the measures it had taken in relation to Northern Rock. On 5
December 2007 the Commission issued a decision. The Commission concluded that
the measures taken by the Government between 17 and 20 September 2007 and those
announced on 9 October 2007 constituted non-notified State aid pursuant to
Article 87(1) of the Treaty establishing the European Community. However, the
measures were compatible with the Common Market as rescue aid pursuant to
Article 87(3)(c), and the Commission raised no objection to them. Nonetheless,
it informed the Government that:
“The Commission expects your authorities to respect their
commitment to communicate to the Commission, not later than 17 March 2008, a
credible and substantiated restructuring plan or a liquidation plan or a proof
that the aid measures granted have been repaid in full and that the guarantees
have been terminated.”
On 21 January 2008 the Treasury announced that
the preference of the Tripartite Authorities was to find a private sector
solution for Northern Rock. However, if no suitable private sector solution
could be found, the Government would bring forward legislation which would
empower the Treasury to take Northern Rock into temporary public ownership,
since it was not considered that it would be in the public interest to allow
the bank to go into administration. If Northern Rock were taken into public
ownership, the legislation would provide for the assessment by an independent
valuer of compensation payable to the former shareholders. The principles for
assessing compensation, which would be set out in the legislation brought
forward, would reflect:
“the principle that the Government should not be required to
compensate shareholders for value which is dependent on taxpayers’ support and
the fact that public sector ownership would be an alternative to an
administration of the company. Accordingly, the compensation would be assessed
by the valuer on the basis, among other things that all financial assistance to
Northern Rock from the Bank of England or HM Treasury (including HM Treasury’s
existing guarantee arrangements) had been withdrawn and no other financial
assistance (apart from Bank of England assistance on its usual terms through
standing facilities or open market operations) were made available by them to
Northern Rock.”
By 17 February 2008 there were two private
sector proposals for the future of Northern Rock. However, both involved the
continuation of public financial support to the company, and the Government did
not consider that either would deliver sufficient value for money for the
taxpayer. The Chancellor of the Exchequer therefore announced that legislation
would be brought forward to take Northern Rock into a period of temporary
public ownership.
The power to nationalise Northern Rock was
conferred on the Government by the Banking (Special Provisions) Act 2008 (“the
2008 Act”), which was passed into law on 21 February 2008. The nationalisation
of the company was effected by the Northern Rock plc Transfer Order 2008, which
was made on the same date and came into force on 22 February 2008. It
transferred the shares in the company to the Treasury Solicitor as nominee of
the Treasury at the beginning of 22 February 2008.
The total amount lent by the Bank of England to
Northern Rock as at 31 December 2007 was some GBP 27 billion. In addition, the
Treasury had assumed contingent liability under guarantees of some GBP 29
billion. As at 31 March 2008, GBP 24.1 billion of the loans remained
outstanding.
Immediately before nationalisation, the market
price of Northern Rock shares was 90 pence, giving a market capitalisation of
approximately GBP 379 million.
The statutory instrument making provision for
the determination of the compensation payable to the former shareholders of
Northern Rock was the Northern Rock plc Compensation Scheme Order 2008
(“the Compensation Scheme Order”: see paragraph 26 below), made on 12
March 2008. It required the independent valuer, when calculating the amount of
compensation to be paid by the Treasury, to assume that Northern Rock was
unable to continue as a going concern and was in administration.
On 2 April 2008, the European Commission
informed the United Kingdom that it had decided to initiate the procedure laid
down in Article 88(2) of the EC Treaty in relation to State aid
potentially incompatible with the common market. However, it did not consider
that the proposed compensation scheme was incompatible, for the following
reasons:
“The decision of 5 December 2007 already established that
Northern Rock is a firm in difficulty. Its situation has not improved since
then. In particular, if all the rescue aid measures were withdrawn, the firm
would immediately exit the market. ...
The Commission has accordingly decided that the measures
implemented on 18 December 2007 are compatible with the EC Treaty and that
if the shareholders are only compensated on the basis of an independent
valuation of the company without any State support, the purchase of the shares
from existing shareholders does not constitute State aid.”
On 7 December 2009 the Valuer wrote to the
former shareholders informing them that his provisional view was that, applying
the statutory assumptions, there would be no residual value in the company and
therefore no compensation would be payable.
2. The domestic judicial review proceedings
The applicants challenged the assumptions
required by the Compensation Scheme Order by way of judicial review proceedings
in the Administrative Court. They contended that, contrary to Article 1 of
Protocol No. 1 to the Convention, the assumptions imposed on the Valuer failed
to strike a fair balance; gave rise to procedural unfairness, since the Valuer
could not take into account all relevant facts; and wrongly prevented the
regulatory failures of the State from being taken into account in the
assessment of compensation.
The Divisional Court dismissed the proceedings
on 13 February 2009 ([2009] EWHC 227 (Admin)). It took the view that the
statutory assumptions imposed on the Valuer reflected the fact that, but for
the support provided by the Bank of England, Northern Rock would have been
unable to pay its debts as they fell due and would have had to cease carrying
on business. The court further held that its function was one of review: to
determine whether the State had exceeded its margin of appreciation. It held
that the margin of appreciation in this case was narrower than it had been in
the cases of James and Others v. the United Kingdom, 21 February 1986,
Series A no. 98; Lithgow and Others v. the United Kingdom, 8 July 1986,
Series A no. 102; and Mellacher and Others v. Austria, 19 December 1989,
Series A no. 169, since the decision to nationalise Northern Rock was made on
narrower economic grounds, by comparing the financial benefits to the taxpayer
of nationalisation with the alternatives available. However, following Katikaridis
and Others v. Greece, 15 November 1996, Reports of Judgments and
Decisions 1996‑V, the court considered that the relevant test was
whether the determination under challenge was “manifestly without reasonable
foundation”, and it did not consider that the Compensation Scheme could be so
condemned. Moreover, there had been no procedural unfairness and Northern Rock’s
problems were due to the failures of its managers, rather than the State’s lack
of regulation.
The applicants’ appeal to the Court of Appeal
was dismissed on 28 July 2009 ([2009] EWCA Civ 788). The Court of Appeal held
that the Government support accorded to Northern Rock from September 2007
onwards had constituted a “Lending of Last Resort” (“LOLR”) operation, carried
out in the context of macro-economic policy, strictly and exclusively for the
protection of the banking system as a whole and not in the interests of
Northern Rock or its shareholders. As with all LOLR support, it was always
intended to be a short-term operation. The decision to take the company into
public ownership was a strategic exercise of Government policy, intended to
preserve for the sake of the national economy the benefits of the LOLR
operation at the least possible cost to the taxpayer. In these circumstances,
the margin of appreciation available to the State had to be wide. The court
should only interfere if it were to conclude that the State’s judgment as to
what was in the public interest was manifestly without reasonable foundation,
which was not the case here. LOLR assistance would not have been provided
if support had been available on the market and nationalisation was only
carried out because no commercial entity was prepared to acquire Northern Rock
except on terms that the Government continued to provide support and carried
the risk of default. There was no evidence to support the applicant’s
allegation that the Government were motivated by profit. The purpose of the
statutory assumptions was to put the shareholders in the position they would
have occupied had no LOLR support been provided. If the assumptions produced a
nil value for the shares, this was only because the business was shown to be
worthless without the support put in by the Government and there was nothing in
the assumptions to prevent the Valuer from attaching a premium value to
Northern Rock’s loan book and other assets.
The applicants were refused further permission
to appeal by the Supreme Court on 16 December 2009.
B. Relevant domestic law
1. The Banking (Special Provisions) Act 2008
The 2008 Act conferred power on the Treasury to
make an order transferring securities issued by an authorised United Kingdom deposit‑taker to the Treasury’s nominee. By virtue of section 2(1) read with
section 2(2) of the 2008 Act, the power was exercisable by the Treasury if it
considered it desirable to do so for either or both of the following purposes:
“(a) maintaining the stability of the UK financial system in circumstances where the Treasury consider that there would be a
serious threat to its stability if the order were not made;
(b) protecting the public interest in circumstances
where financial assistance has been provided by the Treasury to the
deposit-taker for the purpose of maintaining the stability of the UK financial system.”
Section 5 required the Treasury to make a scheme
for determining the amount of any compensation payable by the Treasury to
persons who held the securities immediately before they were transferred.
Section 5(4) read as follows:
“(4) In determining the amount of any compensation
payable by the Treasury by virtue of any provision in an order under this
section, it must be assumed –
(a) that all financial assistance provided by the
Bank of England or the Treasury to the deposit-taker in question has been
withdrawn (whether by the making of a demand for repayment or otherwise), and
(b) that no financial assistance would in future be
provided by the Bank of England or the Treasury to the deposit-taker in
question (apart from ordinary market assistance offered by the Bank of England
subject to its usual terms).”
“Ordinary market assistance” was defined in subsection (5)(b)
and did not include the financial support that had been provided to Northern
Rock since September 2007.
The nationalisation of Northern Rock was
effected by the Northern Rock plc Transfer Order 2008 made under the 2008 Act.
It came into force on 22nd February 2008, and transferred all the shares in
Northern Rock to the Treasury Solicitor as nominee of the Treasury with effect
from the beginning of that date.
2. The Northern Rock plc Compensation Scheme Order
2008
The Compensation Scheme Order 2008 gave effect
to the compensation scheme set out in the Schedule to the Order (“the Compensation
Scheme”). It required:
“The amount of compensation payable to a person [to] be an
amount equal to the value immediately before the transfer time of all shares in
Northern Rock held immediately before the transfer time by that person”.
The Compensation Scheme contained provision for
the appointment of an independent valuer to assess compensation and for any
person dissatisfied with his determination of compensation to refer the matter
to the Financial Services and Markets Tribunal.
Paragraph 6 of the Compensation Scheme provided:
“6. In determining the amount of any compensation
payable by the Treasury to any person in accordance with paragraphs 3 to 5, it
must be assumed (in addition to the assumptions required to be made by section
5(4) of the Act (compensation etc. for securities transferred etc.)) that
Northern Rock —
(a) is unable to continue as a going concern; and
(b) is in administration.”
COMPLAINTS
The applicants complained that the statutory
assumptions imposed on the Valuer, and the resultant lack of compensation for
shareholders following the nationalisation of the company, were a breach of the
Government’s obligations under Article 1 of Protocol No. 1.
THE LAW
Article 1 of Protocol No. 1 provides as follows:
“Every natural or legal person is entitled to the peaceful
enjoyment of his possessions. No one shall be deprived of his possessions
except in the public interest and subject to the conditions provided for by law
and by the general principles of international law.
The preceding provisions shall not, however, in any way impair
the right of a State to enforce such laws as it deems necessary to control the
use of property in accordance with the general interest or to secure the
payment of taxes or other contributions or penalties.”
A. The applicants’ submissions
The applicants complained about the requirement,
imposed by statute, for the Valuer to assume that all Government financial
support had been withdrawn from Northern Rock; that no such support would ever
again be provided; that Northern Rock was unable to continue as a going
concern; and that Northern Rock was in administration. They contended that
these assumptions inevitably resulted in the former shareholders receiving no
compensation in respect of the nationalisation, despite the fact that Northern
Rock shares were trading at GBP 0.90 immediately prior to the announcement of
nationalisation and its market capitalisation was just over GBP 379 million. It
was true that Northern Rock had suffered temporary liquidity problems as a
result of the unprecedented market circumstances prevailing towards the end of
2007, and that the Government had stepped in to prevent it going into
administration. However, when a person takes action to preserve a perishable
asset that would otherwise be destroyed, he is entitled to an equitable reward,
but not to take ownership of the asset.
Moreover, the assumptions did not allow the
Valuer to take into account the State’s responsibility as regulator for causing
the situation in which the nationalisation was deemed necessary. The Bank of
England had been criticised for failing to adopt a sufficiently proactive
response to the credit squeeze, in contrast to the central banks of other
countries. For example, the Treasury Select Committee, in the fifth report of
its 2007-2008 Session, entitled “The run on the Rock”, observed that the Bank
of England, the European Central Bank and the Federal Reserve had each pursued
a different course of action in response to the financial turmoil of August
2007. The report found that the Bank of England had been alone in taking no
contingency measures in August, because of its concern to avoid “moral hazard”
(that is, the risk that financial institutions would take on greater liquidity
risks based on an assumption that the Bank of England would provide assistance
in the event of a crisis). In addition, the applicants submitted that the
Financial Services Authority, which was responsible for authorising and
supervising Northern Rock, had failed to provide sufficiently rigorous
supervision and had also failed to take adequate steps to address “short
selling” of Northern Rock shares, which had contributed to the loss of
confidence and panic among depositors. The applicants contended that these
failings by State bodies were highly relevant to the question whether the
Compensation Scheme struck the right balance under Article 1 of Protocol No. 1,
since the Government should not be able to profit from its own failings.
In the applicants’ submission, the Government
had acquired an asset which they had recognised to be of substantial value and
from which they expected to realise a substantial cash surplus on resale. It
was manifestly disproportionate and inconsistent with any notion of “fair
balance” for the State to deny compensation to the shareholders on the grounds
of their provision of financial support where the Government: (i) confidently
expected the loans to be repaid; (ii) did not expect the guarantees provided to
be called upon; (iii) had received contractually agreed fees as well as
interest at a penal rate; (iv) recognised that Northern Rock had substantial
value at the time of nationalisation; and (v) expected to make a substantial
profit from selling it. Even if the provision of support to Northern Rock
entailed some cost or risk to the taxpayer, and even if the State were entitled
to recompense for that beyond the specific fees, it was clearly
disproportionate for the State to benefit from the full value of Northern Rock,
leaving nothing for the shareholders, some of whom had lost their life
savings. The disproportionality of the Compensation Scheme was further
demonstrated by the fact that two other major United Kingdom institutions, the
Royal Bank of Scotland and HBOS, were treated entirely differently by the
Government barely a year after the nationalisation of Northern Rock. These
institutions were provided with over GBP 60 billion of financial support, on a
secret basis, with the deal structured so as to avoid nationalisation and so as
to leave shareholders with some, albeit reduced, value.
The applicants contended that it would have been
fairer, and would have struck the right balance under Article 1 of Protocol No.
1, to have left it to the Valuer to exercise his own judgment as to the value
of Northern Rock shares at the date of nationalisation without being bound by
any assumptions. This would also have complied with the requirements of
procedural fairness under Article 1 of Protocol No. 1, because had the Valuer
not been fettered by the assumptions, the shareholders could have put before
him all the relevant evidence. If, as the Government contended, it was reasonable
to allow for the fact that the company had had financial assistance, then the
Valuer should have been trusted to take that into account. Given the
constraints on the Valuer, it was difficult for the applicants to accept that
the assumptions reflected the reality of the situation rather than a way of
ensuring that the shareholders received nil return and the Government made a
profit.
B. The Court’s assessment
1. Relevant general principles
As the Court has reiterated on a number of
occasions (see, for example, Scordino v. Italy (no. 1) [GC], no. 36813/97, § 78, ECHR
2006‑V and the cases cited therein), Article 1 of Protocol No. 1 contains
three distinct rules: the first rule, set out in the first sentence of the
first paragraph, is of a general nature and enunciates the principle of the
peaceful enjoyment of property; the second rule, contained in the second
sentence of the first paragraph, covers deprivation of possessions and subjects
it to certain conditions; the third rule, stated in the second paragraph,
recognises that the Contracting States are entitled, amongst other things, to
control the use of property in accordance with the general interest. These
rules are not “distinct” in the sense of being unconnected: the second and
third rules, which are concerned with particular instances of interference with
the right to the peaceful enjoyment of property, are to be construed in the
light of the principle laid down in the first rule.
The Court observes that it is well established
in its case-law that any interference with the right to the peaceful enjoyment
of possessions must, indeed, strike a “fair balance” between the demands of the
general interest of the community and the requirements of the protection of the
individual’s fundamental rights (see Scordino, cited above, § 93). The
concern to achieve this balance is reflected in the structure of Article 1 of
Protocol No. 1 as a whole, including therefore the second sentence, which
is to be read in the light of the general principle enunciated in the first
sentence. In particular, there must be a reasonable relationship of
proportionality between the means employed and the aim sought to be realised by
any measure applied by the State, including measures depriving a person of his
possessions (ibid.).
Because of their direct knowledge of their
society and its needs, the national authorities are in principle better placed
than the international judge to appreciate what is “in the public interest”.
Under the system of protection established by the Convention, it is thus for
the national authorities to make the initial assessment both of the existence
of a problem of public concern warranting measures of deprivation of property
and of the remedial action to be taken. Here, as in other fields to which the
safeguards of the Convention extend, the national authorities accordingly enjoy
a certain margin of appreciation (see James and Others, cited above, §
46). Moreover, a wide margin is usually allowed to the State under the
Convention when it comes to general measures of economic or social strategy
(see, for example, James and
Others, cited above, § 46; and National
& Provincial Building Society, Leeds Permanent Building Society and
Yorkshire Building Society v. the United Kingdom, 23 October
1997, § 80, Reports
1997-VII). Because of their direct knowledge of their society and its needs,
the national authorities are in principle better placed than the international
judge to appreciate what is in the public interest on social or economic
grounds, and the Court will generally respect the legislature’s policy choice
unless it is “manifestly without reasonable foundation” (ibid.).
Compensation terms under the relevant
legislation are material to the assessment of whether the contested measure
respects the requisite fair balance and, notably, whether it does not impose a
disproportionate burden on the applicants. It is clear that Article 1 of
Protocol No. 1 does not guarantee a right to full compensation in all
circumstances (see James and Others, cited above, § 54; and Scordino,
cited above, § 94). Legitimate objectives in the “public interest”, such as
those pursued in measures of economic reform or measures designed to achieve
greater social justice, may call for less than reimbursement of the full market
value. Furthermore, the Court’s power of review is limited to ascertaining
whether the choice of compensation terms falls outside the State’s wide margin
of appreciation in this domain (see James and Others, cited above, §
54). The Court has, however, previously indicated that the taking of property
without payment of an amount reasonably related to its value will normally
constitute a disproportionate interference and a total lack of compensation can
be considered justifiable under Article 1 of Protocol No. 1 only in exceptional
circumstances (see The Holy Monasteries v. Greece, 9 December 1994,
§ 71, Series A no. 301‑A; and The former King of Greece
and Others v. Greece [GC], no. 25701/94, § 89, ECHR 2000‑XII). Such
exceptional circumstances arose in the case of Jahn and Others v. Germany [GC],
nos. 46720/99, 72203/01 and 72552/01, § 117, ECHR 2005‑VI, where the
Court found that in the unique context of German reunification, the lack of any
compensation for an expropriation of property did not upset the “fair balance”
that had to be struck between the protection of property and the requirements
of the general interest.
2. Application of these principles to the facts of the
case
It was not contested by the parties to the
domestic litigation that the applicants’ shares in Northern Rock Plc were
possessions for the purposes of Article 1 of Protocol No. 1 and that by reason
of the Transfer Order they were deprived of those possessions. It was also
accepted that the nationalisation of Northern Rock was in the public interest
and in accordance with law. Before the domestic courts and in their application
to this Court, the applicants’ only challenge was to the Compensation Scheme,
and in particular the assumptions which the Valuer was required to make, which
they contended failed to strike the fair balance required by Article 1 of
Protocol No. 1.
The Court of Appeal took the view that the
Government should be afforded a wide margin of appreciation in this case, since
the impugned action arose in the context of macro-economic policy. The Court
agrees that given the exceptional circumstances prevailing in the financial
sector, both domestically and internationally, at the relevant time, a wide margin
of appreciation is appropriate. It is clear from the material before it that
the financial assistance provided by the Tripartite Authorities from 2007 (that
is, the LOLR support) was provided with the aim of protecting the financial
sector in the United Kingdom from the contagion that might spread to other key
institutions if Northern Rock were allowed to fail. The subsequent
nationalisation of Northern Rock served the same aim. Like the earlier loans,
it was carried out as a last resort, when no viable commercial solution could
be found which would have prevented the bank from going into liquidation
without continued support from public funds. The Court considers that the
Compensation Scheme must be seen as integrally linked to the series of support
measures which ended with nationalisation. Throughout the entire process, the
Government’s focus was on protecting a key sector of the national economy. In
accordance with its case-law, therefore, the Court must respect the decisions
of the national authorities unless it finds them to be “manifestly without
reasonable foundation”.
The applicants contend that the statutory
assumptions inevitably resulted in the payment of nil compensation to the
shareholders. However, like the Court of Appeal, the Court does not find this
to be the case. The assumptions required the Valuer to allow for the realities
of the situation, namely that Northern Rock had survived only because of the
provision of LOLR support and that the Government now sought to bring an end to
that support. There was nothing in the statutory assumptions to prevent the
Valuer from taking into account the company’s assets when deciding its total
net worth. The fact that he found the former shareholders to be entitled to no
compensation indicated that, in the light of the events of the preceding few
months, the company’s assets did not offset its losses.
The applicants further submit that the statutory
assumptions prevented the Valuer from giving due weight to the fact that
Northern Rock’s problems were in part attributable to regulatory failures on
the part of State institutions, such as the Bank of England and the Financial
Services Authority. The applicants have not established that the State
authorities acted negligently in their dealings with Northern Rock or, more
generally, in their handling of the financial turmoil of the Autumn of 2007.
Nor have they established that Northern Rock’s liquidity problems were caused
by any act of the State authorities. Moreover, even assuming that the
applicants could establish some fault on the part of the State, again the Court
does not see that the terms of the Compensation Scheme would have prevented the
Valuer from taking the equitable approach they advocate if he had considered it
appropriate.
As noted above, the Court accepts that the
Government’s objective throughout its dealings with Northern Rock during this
period was to protect the United Kingdom’s financial sector. As part of this
policy, they aimed to maintain depositor confidence in the safety of placing
money with banks. On the other hand, however, they also sought to avoid
encouraging the management boards of other financial institutions from making
bad business decisions on the assumption that the State would provide a safety
net. There was no obligation under domestic law for the Tripartite Authorities
to provide LOLR support, and no duty owed by the State to the shareholders to protect
their investments in Northern Rock. Nor does Article 1 of Protocol No. 1 impose
such a positive obligation on the State; indeed, the Court has stressed on many
occasions that this provision cannot be interpreted as imposing any general
obligation on the Contracting States to cover the debts of private entities
(see Kotov v. Russia [GC], no. 54522/00, § 111, 3 April 2012).
The LOLR support enabled Northern Rock to continue trading for a few more
months but the company was not able during this short period to restructure in
such a way as to enable it to survive without support. In the Court’s view, the
decision taken in the legislation that the former shareholders of Northern Rock
should not be entitled to take the value which had been created by the Bank of
England’s loan was far from being “manifestly without reasonable foundation”.
Instead, it was clearly founded on the policy of avoiding “moral hazard”, which
is at the heart of the principles which regulate the provision of LOLR. In the
Court’s view, it was entirely legitimate for the State authorities to decide
that, had the Northern Rock shareholders been permitted to benefit from the
value which had been created and maintained only through the provision of State
support, this would encourage the managers and shareholders of other banks to
seek and rely on similar support, to the detriment of the United Kingdom
economy.
It follows that the applicants’ complaint under
Article 1 of Protocol No. 1 is manifestly ill-founded and therefore
inadmissible, pursuant to Article 35 §§ 3 (a) and 4 of the Convention.
For these reasons, the Court unanimously
Declares the application inadmissible.
Lawrence Early Lech Garlicki
Registrar President
ANNEX : TABLE OF
APPLICANTS
|
Name
|
Nationality
|
Date and
place of birth
|
Solicitor
|
Barristers
|
|
GRAINGER, Dennis
|
British
|
23.04.1946
Sunderland, UK
|
Peter Fitzpatrick of
Nabarro LLP, London
|
Michael Beloff QC and Iain Steele of Blackstone Chambers, London
|
|
DAWSON, Anne
|
British
|
20.09.1957
Newcastle-upon-Tyne
UK
|
As per Dennis Grainger
|
As per Dennis Grainger
|
|
RAB Special Situations
(Master) Fund Limited
|
N/A
|
N/A
|
As per Dennis Grainger
|
As per Dennis Grainger
|
|
RIGBY, Graham
|
British
|
25.10.1941
St Helens, UK
|
As per Dennis Grainger
|
As per Dennis Grainger
|
|
SCHWEITZER, Stanley
|
British
|
13.06.1952
Nairobi, Kenya
|
As per Dennis Grainger
|
As per Dennis Grainger
|
|
SHANNON, Denis
|
British
|
13.06.1951
South Shields, UK
|
As per Dennis Grainger
|
As per Dennis Grainger
|
|
SHANNON, Doreen
|
British
|
04.12.1955
South Shields, UK
|
As per Dennis Grainger
|
As per Dennis Grainger
|
|
SRM Global Master Fund
Limited Partnership
|
N/A
|
N/A
|
John Reynolds of White
& Case LLP, London
|
Lord Pannick QC and Claire Weir of Blackstone Chambers, London
Matthew Collings QC of
Maitland Chambers, London
|
|
STROUD,
Ian
|
British
|
22.06.1942
London, UK
|
As per Dennis Grainger
|
As per Dennis Grainger
|
|
WALLACE,
Anne
|
British
|
18.06.1939
Morpeth, UK
|
As per Dennis Grainger
|
As per Dennis Grainger
|
|
WALLACE,
Robert
|
British
|
18.06.1939
Morpeth, UK
|
As per Dennis Grainger
|
As per Dennis Grainger
|
|
WARNER,
Mary
|
British
|
31.12.1950
Wadhurst, UK
|
As per Dennis Grainger
|
As per Dennis Grainger
|
