Lloyds ordered to pay £3½m after being sued by charity

A SCOTTISH charity has secured a £3.5 million payout after taking its banking benefactor to court following a major merger in the industry.

Lloyds TSB Foundation for Scotland won the multi-million pound award after raising an action against Lloyds Banking Group at the Court of Session in Edinburgh.

Earlier this year Lord Glennie, ruled against the charitable foundation but three appeal judges have overturned his decision and ordered Lloyds to pay it £3,543,433.

The banking group and its charitable arm have been locked in a dispute over claims by the foundation that the bank breached a historic covenant.

Under the covenant, the foundation, is entitled to a share of 1 per cent of the bank’s pre-tax profits, but the banking group attempted to renegotiate.

The charity had claimed the money following Lloyds acquiring Halifax Bank of Scotland – while the banking group maintained it should be restricted to a minimum sum under the covenant of £38,920.

The argument centred around the definition of “pre-tax profits”, with Lord Glennie rejecting the charity’s legal move saying its figures did not include what is known as “negative goodwill” – a gain that arises when the price paid in a deal is less than the fair value of a company’s assets – resulting from the HBOS acquisition.

But the charity appealed and won before Scotland’s senior judge the Lord President, Lord Hamilton, sitting with Lord Carloway and Lord Kingarth.

After the takeover of HBOS, the banking group’s income statement stood at £11.1 billion, resulting in profit before tax of £1bn.

But if negative goodwill was not taken into account a loss of more than £10bn would have resulted.

Mary Craig, OBE, chief executive of the foundation, said the ruling justified the decision to continue the legal action.

“The court’s decision is extremely welcome and shows that the foundation’s trustees were right not to accept the original finding.

“But more importantly, this is great news for Scotland’s hard-pressed charities at a time when many are struggling.”

Last night, a spokesman for Lloyds Banking Group said: “We are disappointed with today’s decision from the court and are considering the implications including whether to appeal this judgment.

“Lloyds Banking Group is proud of its track record as one of the largest corporate funders in the UK, including Scotland. Going forward, we will, of course, strive to have a positive working relationship with the foundation throughout the remainder of the partnership.

“Lloyds Banking Group has channelled over £82 million over the last 25 years to the Lloyds TSB Foundation for Scotland supporting their work in some of the most disadvantaged communities in the UK and we remain committed to being one of the largest contributors to Scotland’s charities for the long term.”