Northern Rock shareholders yesterday threw down the gauntlet to the Government - declaring: "Pay us fair compensation or we will sue".

The UK Shareholders Association (UKSA) took the first steps toward a judicial review by filing a letter before action.

They want payback for the compulsory purchase of their shares, claiming the Government has "rigged" the valuation, putting them in line for just five pence or less per share. It should be nearer £5, they said.

As many as 30,000 of NR's 150,000 shareholders could back its court case accusing the Government of a breach of human rights.

The UKSA argues in commercial disputes, anyone who damages the value of a business should not benefit as a result of any later valuation. They will suggest the Government and agencies caused many of the problems.

Roger Lawson of the UKSA said: "It is rigged and self-serving the compensation should be at the lowest level. Fighting this is a point that unites shareholders.

"It is like deciding the verdict before the jury is out. It seems the Government does not want to pay."

The Government breached human rights as the state cannot seize someone's shares unless it is a matter of national security, argued campaign solicitor David Greene. "We think they are in breach of human rights and we have a good case," he said.

It could take up to a year before the case gets to court, time which will be spent trying to bring more litigants on board and fund-raising.

Donations of £25 are being asked from every NR shareholder and a larger proportional amount from those with more than 1,000 shares.

* The man who oversaw the Financial Services Authority's stewardship of Northern Rock will part company with the watchdog, it has been announced.

Clive Briault, managing director for retail financial services at the FSA, will leave by "mutual consent", the regulator said yesterday.

Mr Briault becomes the sixth member of the seven-man team appointed by the FSA to oversee Northern Rock to leave.

* Meanwhile, Chancellor of the Exchequer Alistair Darling denied that the Federal Reserve's rescue of Bear Stearns shows that he took the wrong approach on Northern Rock.

Mr Darling told the Treasury Select Committee that Bear Stearns' share price had deteriorated so much in the space of a few days last week that the next logical move was for the Fed to support the takeover by JP Morgan Chase in the course of the weekend for a knock-down $2 a share.