The Supreme Court in London has ruled that the Lloyds Banking Group was right to give the Lloyds TSB Foundation for Scotland a funding settlement of only £38,920 for 2010 rather than the £3.5m it was awarded at a previous hearing.
The foundation has been in a long-running row with the group after the latter announced plans to reduce the amount it gives to its four UK foundations because of major losses incurred as a result of the 2008 banking crisis.
The foundation for Scotland was unable to agree a funding settlement with the group and was told in February 2010 that it would not receive any more funding from the bank once the existing covenant expired in 2019.
The foundation received £38,920 for 2010 under the agreement, but said it should have received more than £3.5m.
At an earlier case in June 2011, Lord Glennie ruled against the foundation, but at the end of 2011 three appeal judges overturned his decision and ordered the bank to pay it slightly more than £3.5m.
But in a written judgment issued on Wednesday, the Supreme Court reversed the appeal judges’ decision and said the foundation was owed only £38,920.
The foundation will cease to receive a share of the bank’s pre-tax profits once the existing covenant expires in 2019, but will retain control over the shares it has owned in the bank since its creation.
In a statement, Mary Craig, chief executive of the foundation, said: "After more than four years trying to resolve this situation, trustees are dismayed and bitterly disappointed by the decision of the Supreme Court. Regrettably, there is no other appeal route open to us and, reluctantly, we must accept the decision.
"In 2019, the formal covenant will end after the banking group invoked its right to terminate it in 2010. Since then, trustees have been actively considering how best to secure long-term funds for the foundation, irrespective of the outcome of this court action.
"With the uncertainty caused by this dispute now behind us, we will be able to turn our full attention to detailed planning for the future."
A spokeswoman for the foundation said it was still open for business to Scottish charities applying for grants. It has been receiving payments of £38,920 since 2010 because the bank has been reporting losses. It has been forced to dip into its reserves to continue funding charities, she said.
A spokeswoman for Lloyds Banking Group said: "We are pleased with yesterday’s decision by the Supreme Court. It is disappointing that we could not reach an agreement with the Lloyds TSB Foundation for Scotland at the outset, as we did with the group’s other foundations.
"We are proud of our track record as one of the largest corporate funders of charities in the UK, including Scotland. Lloyds Banking Group has channelled more than £82m over the past 26 years to the Lloyds TSB Foundation for Scotland."