Northern Rock was secretly given a “substantial” valuation by the Government while shareholders received nothing in compensation when it was nationalised, the High Court was told yesterday.

Documents obtained under disclosure rules, which cannot be published, show that the Government knew that it was obtaining a “valuable asset”, Lord Pannick, QC, for SRM Global, the bank’s biggest investor, said.

The figures also showed how much the Government expected to make from the sale of the bank on the market once economic conditions improved, he said.

Northern Rock, he added, was “a solvent company with valuable assets facing short-term liquidity problems”.

That was “precisely the reason that the Government was so confident that it would be able in the medium term to sell the asset it had acquired back to the market for a very substantial sum of money”, he said.

Lord Pannick was opening a test case on behalf of Northern Rock shareholders who accuse the Government of setting up an unfair and unlawful “compensation” scheme for shareholders when the bank was nationalised a year ago.

He told Lord Justice Stanley Burnton, sitting at the High Court in London with Mr Justice Silber, that the “unfair” scheme was based on statutory criteria that inevitably led to shares being valued at zero, even though the Government had run no financial risk to itself or the public when it bailed out the bank.

The legislation on which compensation assessment was based “does not provide for a compensation scheme — instead, it provides for a ‘no compensation’ scheme’,” Lord Pannick said.

That, he added, amounted to a breach of the human rights principle that the taking of property by the state must be balanced by compensation reasonably related to the value of that property.

The state had stepped in to help Northern Rock but the bank had taken on the assistance in terms of loans and guarantees under agreed terms.

What had happened to Northern Rock was the equivalent of a ship full of valuable cargo hitting rocks and negotiating salvage by the Royal Navy, he said.

“The Treasury argument in this case is equivalent of the Royal Navy saying that without the act of salvage, the owners would have lost everything; confiscating the ship and saying that the Royal Navy is entitled to take all of the assets, notwithstanding the agreed price for the service [of salvage].”

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