Lloyds has been told it must hand over legal advice related to its disastrous takeover of Halifax Bank of Scotland (HBOS) in a victory for disgruntled shareholders mounting a £350 million legal claim.
A High Court judge rejected the argument that the lender could claim legal privilege not to reveal the advice from law firm Linklaters ahead of the 2008 deal being put to a special shareholder meeting for approval.
The 6,000 claimants in the case, who all held Lloyds TSB shares at the time of the acquisition, say they were kept in the dark when they were asked to back the deal.
Following the takeover, the enlarged Lloyds Banking Group had to be rescued by taxpayers. The Treasury still owns just under 15% of the business.
Lawyers representing the claimants are seeking disclosure of the legal advice given to Lloyds ahead of the publication of a circular to shareholders in November 2008 about the deal.
The investors complain that they were not told about lifelines worth £25.65 billion and 18 billion dollars (£12 billion) provided by the Bank of England and the US Federal Reserve to HBOS, and a £10 billion loan facility from Lloyds.
More than 99% of shareholders voted to approve the takeover, among them some of those making claims today, the court heard.
Alan Steinfeld QC, for the investors, said: "Some of them voted for. Some of them voted against.
"But their common complaint is that shareholders were not given the information they should have been given when deciding how to vote."
The claimants allege that there were breaches of duty to shareholders in recommending the acquisition and providing information about the proposed deal and the financial circumstances of HBOS.
The argument on disclosure of legal advice turned on whether or not it was "privileged", as Lloyds tried to persuade the judge, Mr Justice Nugee.
The claimants argued that as shareholders they were entitled to see it and the only exception would be if the advice were provided in anticipation of potential legal action against the bank.
Mr Steinfeld said: "There is absolutely no basis for the contention that in this case any of the advice is privileged and certainly there could not have been any contemplation of litigation until the circular was issued."
But Helen Davies QC, for Lloyds, said it was "a significant transaction which by its nature may be one in relation to which shareholders may have a variety of different views including opposing views".
The judge rejected the bank's argument and is expected to give formal directions tomorrow.
Lawyers for the claimants are also seeking disclosure of communications between directors and the Treasury, the Bank of England, the Federal Reserve and officials from the then-regulator, the Financial Services Authority.
A Freedom of Information request relating to the case has been turned down.
Claimants include around 5,700 private shareholders as well as pension funds and other large investment funds based in the UK, Europe, the US, Canada and Asia.
Lawyers at Harcus Sinclair say it is one of the largest claims brought against a UK bank and its directors arising from the financial crisis.
The claimants argue that the value of their shares was reduced through the "gross over-valuation" of HBOS in the deal by Lloyds TSB to acquire it.
Lloyds said: "The group's position remains that we do not consider there to be any legal basis to these claims and we will robustly contest this legal action."