The Lloyds TSB Foundation for Scotland has lost a court battle in which it claimed it was owed £3.5m by its principle benefactor, the Lloyds Banking Group.

The Foundation believes that it should have received a percentage of the £1.0bn pre-tax profits stated in the Banking Group’s accounts.

However, the Group successfully argued that due to the merger of Lloyds with Halifax Bank of Scotland, the accounts included £11.2bn for ‘negative goodwill’ which should not be counted, meaning that there was no pre-tax profit to take a percentage of.

The Foundation received just £38,000 from the Group in 2010, the minimum required under the terms of the covenant between the two organisations.

The Foundation’s chief executive Mary Craig (pictured) said she was “extremely disappointed”.

She added: “The trustees now need time to reflect on the decision and take further advice before deciding what, if anything, to do next.”

New foundation

Meanwhile, a spokesman for the Banking Group said its management was pleased with the court’s decision and would be continuing plans to invest in Scotland via a new foundation.

“Lloyds Banking Group had tried to reach an amicable agreement with the Foundation similar to that reached with the other three Lloyds TSB Foundations, which would have allowed us to work together to benefit Scottish charities for many years to come.

"It was frustrating that we were unable to reach that agreement, however we remain committed to being one of the biggest charitable funders in Scotland.

“The Bank of Scotland Foundation was launched last year and we have begun distributing grants to Scottish charities.”

The Foundation said it was unable to confirm whether it will appeal, although the spokesman for the Banking Group said he understood the Foundation was planning to do so.