UK government can sue French bank over 'mis-selling' to Northern Rock

The highest court in New York has ruled that Northern Rock Asset Management (NRAM), the UK taxpayer-owned institution salvaged from the ashes of the collapsed bank, should be allowed to take legal action against SocGen for mis-selling $34m of mortgage products in the run-up to the financial crisis, in a case which is expected to pave the way for a flurry of similar lawsuits.

The bank was nationalised with a £1.4bn bailout in February 2008, and later split into two. The good assets were sold to Virgin Money for £970m in a mix of cash and Tier 1 notes. The bad assets were placed into NRAM.

UK taxpayers have so far taken a loss of more than £250m on the sale of the failed lender.

The Government is suing SocGen for the $34m value of the products. While a relatively small figure, lawyers said the case would help clear the way for the Government to take action against other institutions that played a part in its collapse.

Bruce Grace, a lawyer at the Lewis Baach law firm which is representing the Government, said that the ruling will make it hard for banks to use fine print in marketing material to renounce responsibilities.

"That is a typical argument that the banks make in these deals. They look at the fine print and say you shouldn't have relied on anything that was in any of the marketing material. Here is a really powerful example of the court rejecting that," he told The Telegraph. "It shows the court's distaste for the type of argument the bank is making."

He added that there are "a number of cases" that are only now "wending their way through the court," and are likely to be admitted to trial in the same way.

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