A total of 5,803 former Lloyds TSB shareholders claimed they were “mugged” when the bank recommended the deal without disclosing HBOS’s true financial position which turned out to be burdened with bad mortgages.

Lloyds Bank was subsequently forced to accept a £20 billion state bailout and the government continued to own a stake of the bank until 2017.

A Lloyds Banking Group spokeswoman, said: “The group welcomes the court’s decision. Throughout this process, the group has sought to act in the interests of our shareholders as a whole.”

Damon Parker, founder and partner of law firm Harcus Parker, who represents 300 institutions as well as individual shareholders in the case, said: “Our clients are deeply disappointed by today’s judgment. They wish to assess their options and will be considering whether to appeal.”

The BBC reported that the judge was told Lloyd directors had failed to disclose the following facts:

• HBOS had received a covert loan from the Bank of England - known as “Emergency Liquidity Assistance” - totalling £25.65bn
• After announcing the intended acquisition, Lloyds had secretly loaned HBOS a further £10bn
• HBOS had also received covert financial support from the US Federal Reserve, then totalling $14.5bn (£11bn)

Despite these courtroom revelations, lawyers for Lloyds argued that the case was “entirely devoid of merit” and “fundamentally flawed at every level.”