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Clydesdale Bank and its former owner National Australia Bank charged unfair break fees on loans sold to small businesses, London’s High Court heard on Monday.

Four businesses, which represent a much wider group action of 900 small firms, are suing National Australia Bank and Clydesdale Bank, which is now part of Virgin Money.

The High Court ruling in this case will have wide-ranging implications for the broader group. The current trial is examining whether there is any liability by the banks before it can determine any compensation.

No figure has been put on the value of the overall case but one estimate is that it could run into hundreds of millions of pounds. The lawsuit is being co-ordinated by RGL Management, a company that brings complex lawsuits against banks on behalf of small businesses. 

The four firms allege they suffered losses as a result of taking out so-called tailored business loans, which had a fixed rate of interest and were sold between 2002 and 2010.

The businesses allege that NAB and Clydesdale (CYB) falsely and unlawfully demanded break fee costs when the borrowers repaid their loans early. 

They also claim that the fixed rate on the loan was “fraudulently misrepresented” by bank staff as being a market rate — although it also included an “added value” income element that was not explained to them at the time.

The banks deny all the claims.

Andrew Onslow KC, barrister for the four businesses, opening the case on Monday, told the court that the banks “were charging large sums by way of break costs on what we say was an illegitimate basis”. He added: “We say they must pay back damages for breach of contract or restitution for unjust enrichment.”

In written arguments Bankim Thanki KC, representing the banks, said they “did not act fraudulently, negligently, or unfairly or otherwise (in CYB’s case) in breach of contract”.

In his written submissions, Thanki claimed the loan terms “entitled CYB to charge the break costs that it did”. He also said that allegations of misrepresentation by bank staff about the fixed rate loans “fail at the first hurdle” as a “simple consideration of what was said to the Claimants does not bear out the alleged representations having been made”.

The trial continues.