£5m from Lloyds TSB Foundation legal victory is just the start

Business & management, Fundraising, News.. — By TFNadmin on 12/01/2012 11:59 pm

by Susan Smith

Banking giant likely to have to pay out millions more

A LANDMARK legal victory for a Scottish charitable trust could result in tens of millions of pounds for Scottish charities over the next decade.

The Lloyds TSB Foundation for Scotland has won the right to claim £5.25m that Lloyds Banking Group refused to pay it in 2010 and 2011, instead attempting to palm off the foundation with just £38,920 a year.

The judgement, which was issued by three of Scotland’s most senior judges on 29 December, means that for the next seven years, the bank will have to pay out a proportion of its pre-tax profits to the foundation.

The ruling could mean millions of extra pounds for the foundation, set to be distributed through its grant-giving programmes to Scottish charities working with disadvantaged people.

Mary Craig, chief executive of the foundation, said: “We’re delighted with this ruling as it will help us considerably to carry on with our work supporting charities throughout Scotland which are clearly focused on improving the quality of life for people who are disadvantaged or at risk of becoming so.

“We’ve always worked on the basis of taking the best advice we can, and this has kept us on the right track and vindicated the trustees’ decision to appeal against the original court ruling.

“Obviously the funds we receive for the remaining seven years of the covenant depend on the banking group’s performance, however the court’s clarity means there is a clear understanding going forward on how the money we are due is calculated.”

The Lloyds TSB Foundation for Scotland was formerly one of Scotland’s biggest trust funds, legally entitled to a share of one per cent of pre-tax profits from the Lloyds TSB Bank. In 2005 and 2006 this amounted to between £6m and £7m a year.

However, following the banking crisis of 2009 and the takeover of Halifax Bank of Scotland, Lloyds Banking Group tried to change the terms of its relationship with the foundation. It wanted to half its donation and put its own staff on the foundation’s board.

The following high-profile dispute resulted in the bank and foundation formally breaking their links, which will come into effect after nine years notice.

In 2010, however, the dispute continued when the banking group refused to pay out the full amount that the foundation claimed it was owed.

The foundation sued the bank for £3.5m, but in September 2011 Judge Lord Glennie ruled in favour of the bank.

In the appeal, heard in Edinburgh November, the foundation argued that based on the take-over of Halifax Bank of Scotland, Lloyds had made a significant profit in 2009. It said this is what the grant to the foundation should be based on.

Scotland’s senior judge the Lord President, Lord Hamilton, sitting with Lord Carloway and Lord Kingarth in Edinburgh’s Court of Session ruled that the foundation was in fact calculating the bank’s profits correctly.

The banking group has said it is considering another appeal. It has until the middle of February to decide whether to go ahead with this.

A spokesman said: “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.”

The decision could impact on how much the Lloyds TSB Foundation for Scotland gets 2012. The banking group reported losses in the first half of 2011 of £3.3bn – put down to mis-sold payment protection insurance payouts.

If it performed better in the second half of the year, the foundation could still be entitled to a larger payment however.