Judgment Title: Dellway Investments & ors v NAMA & ors Neutral Citation: [2011] IESC 14 Supreme Court Record Number: 396/10 High Court Record Number: 2010 909 JR & 2010 222 COM Date of Delivery: 12/04/2011 Court: Supreme Court Composition of Court: Murray C.J., Denham J., Hardiman J., Fennelly J., Macken J., Finnegan J., McKchnie J. Judgment by: Murray C.J. Status of Judgment: Approved
Outcome: Allow And Set Aside Notes on Memo: Allow appeal on fair procedures ground. | ||||||||||||||||||||||||||||||||||||
THE SUPREME COURT 396/10 Murray C.J. Denham J. Hardiman J. Fennelly J. Macken J. Finnegan J. McKechnie J. BETWEEN DELLWAY INVESTMENTS LIMITED, METROSPA LIMITED, BERKLEY PROPERTIES LIMITED, MAGINOTGRANGE LIMITED, MAY PROPERTY HOLDINGS LIMITED, SCI 20 PLACE VENDOME, DIRECTDIVIDE TRADING LIMITED, SUBMITQUEST LIMITED, BELFAST OFFICE PROPERTIES LIMITED, THE FORGE LIMITED PARTNERSHIP, FINBROOK INVESTMENTS LIMITED, CONNIS PROPERTY SERVICES LIMITED, FORMCREST CONSTRUCTION LIMITED, CHESTERFIELD (THE PAVEMENTS) SUBSIDIARY LIMITED, ABEY DEVELOPMENTS LIMITED AND PATRICK McKILLEN APPLICANTS / APPELLANTS -v-
NATIONAL ASSET MANAGEMENT AGENCY, IRELAND AND THE ATTORNEY GENERAL RESPONDENTS Judgment of Murray C.J. delivered on the 12th day of April 2011. Introduction On the same date Fennelly J., with whom all other members of the Court agreed, delivered a judgment which dismissed the ground of appeal in which the appellants claimed that the statutory scheme established by the National Asset Management Agency Act 2009 enabling NAMA to acquire eligible bank assets was unlawful as being contrary to the law of the European Union governing State Aids. Consequent upon the judgment of the Court that there was not in law any decision of NAMA to acquire the relevant eligible bank assets the Court heard submissions from the parties concerning the question as to whether two outstanding issues which had been argued in the course of the appeal might be considered moot and therefore not requiring a decision of the Court in these proceedings. In general terms these two issues were as follows:
(b) Whether the Act of 2009, and in particular s. 84 which confers on NAMA the statutory power to exercise its discretion to acquire eligible bank assets, must be construed in accordance with the principles of constitutional justice so as to require NAMA to grant to borrowers in a position similar to that of the appellants the opportunity to make representations to it before NAMA makes a decision pursuant to s. 84 to acquire eligible bank assets. (As an alternative to this argument the appellants submitted that if such a right could not be implied that s. 84 should then be considered unconstitutional). Background to the Issues As was alluded to in the judgment delivered on 3rd day of February 2011 the appellants initiated these proceedings with due promptness, as the Rules of the Superior Courts require. In presenting the case counsel on behalf of the appellants placed particular emphasis on the general status and character of the credit facilities in issue, and in particular distinguished them from eligible bank assets where the borrowers have failed and/or are manifestly incapable of fulfilling obligations to repay or service their debts. I say the general status and character because the Court is not being asked in this appeal to decide whether the appellants’ loans, or any of them, could, for example, be considered to be “impaired” even though there may be an adverse change in the ratio of loan to value in respect of some properties on which the borrowings are secured. In this context counsel for the appellants have relied on certain facts relating to what have been described from time to time as Mr. McKillen’s loans. The reason for this is that Mr. McKillen, while one of 16 appellants has a dominant position as shareholder in the companies which comprise the remaining appellants. Among the facts relied upon by the appellants, which are also part of the findings of fact of the High Court, are the following:
(b) Mr. McKillen’s property portfolio is geographically spread between Ireland, the United Kingdom, France and the U.S.A. with just approximately 26% by value representing properties in Ireland. (c) The portfolio would appear to consist of 62 properties, 96% of which is let and it would appear that in most cases the lettings are to what have been described as “blue chip tenants on long leases predominantly with a twenty five year duration”. (d) Again, as the High Court found, at an aggregate level it would appear that interest cover is somewhere between 1.7 and 1.8, meaning that the income from the relevant properties is 1.7 to 1.8 times the interest payable at current interest rates. (e) Loans secured on those properties in favour of Irish banks who are participating institutions in NAMA amount to approximately €2.1 bn. (f) A significant portion of the McKillen loans are not directly loans in respect of land and development, but rather, are loans which come within the definition of eligible bank assets by virtue of the fact that those loans are to Mr. McKillen or entities associated with him, and thus are caught by the broad definition of eligible loans contained within the Act. (g) All interest payments due under the loans concerned had been paid to date (of the High Court judgment) and at least in current conditions and at current interest rates the High Court found that there appears to be sufficient income being generated by the properties concerned to service those loans in the sense of meeting all the interest payments due on them. Section 84(1) provides as follows:
It is also important to note that each discretionary decision made by NAMA under that section is to acquire a particular bank asset or assets and accordingly affects directly and individually the particular borrower or borrowers whose credit facilities relate to such an asset. Rights and Interests In that broad context, which is addressed in more detail in the judgments delivered today, it has been argued on their behalf that firstly s. 69 of the Act is unconstitutional because the excessively wide range of assets which can be treated as eligible bank assets by virtue of s. 69 in conjunction with the allegedly untrammelled discretion of NAMA to acquire them, gives rise to a disproportionate and therefore unconstitutional interference with those rights and interests. As regards the second issue the appellants have, again broadly speaking, argued that a direct interference with their rights and interests referred to by virtue of the exercise of a discretionary power by NAMA to acquire the eligible bank assets relating to their credit facilities they have a right, deriving from the principles of constitutional justice, to make representations to NAMA prior to it taking any such decision pursuant to s. 84. It is as well to underline at this point that the rights and interests involved in this case are property rights and interests derived from the ownership of certain properties by the appellants and related contractual rights, which, but for the provisions of the Act, they would normally be entitled to manage and deal with as they saw fit, within the ordinary parameters of the law. Persons in the position of the appellants would, but for the provisions of the Act, by reason of the rights and interests vested in them as owners of the development land in question, normally be entitled, as of right, to independently manage their affairs related to those properties, including negotiating with private institutions with whom they have credit facilities. It is in this sense that reference is made to rights and interests. Decision of the Court on the Constitutional Issue Decision on the Right to make Representations For the reasons set out in the several judgments delivered by members of the Court the Court has concluded that the provisions of the Act do not preclude NAMA from receiving and taking into account representations made on behalf of the appellants, (particularly having regard to their particular circumstances) but on the contrary, properly construed in the light of the Constitution and the consequential principles of interpretation which must be applied, the Act requires that NAMA accord persons such as the appellants the right to make representations concerning any decision which it proposes to take pursuant to s. 84 of the Act. This conclusion of the Court does not affect the fundamental functioning of the system established by the Act but rather the procedures to be followed by NAMA in the application of s. 84. Declaration of the Court JUDGMENT Having summarised the conclusions of the Court and the context in which they were reached I now turn to setting out, in relatively brief terms, the reasons why I consider that the appellants’ appeal on the issue of the right to be heard should be allowed. Interpretation in conformity with the Constitution For quite some time the general principles of fairness or due process derived from the Constitution have recognised, inter alia, that a person has a right to be heard by the decision maker exercising a statutory power before a decision is finally made when that decision may materially affect rights vested in them or impose obligations. The most oft cited judicial dicta on this question are those of Walsh J. to be found in East Donegal Co-operative Limited v. Attorney General [1970] I.R. 317. In that case this Court was concerned with the interpretation of certain provisions of the Livestock Marts Act 1967 which conferred statutory powers on the Minister for Agriculture to make discretionary decisions concerning individuals. At 343 of that report Walsh J. stated:
Again in McCormack v. Garda Siochana Complaints Board [1997] 2 IR 489 at 499 Costello P. stated:-
It is impossible therefore to reconcile the argument made on behalf of the respondents in these proceedings that the Act of 2009 not simply failed to provide for a procedure enabling the appellants to make representations to NAMA but actually prohibited or at least excluded by necessary implication any possibility of any representations to NAMA should a decision under s. 84 interfere with rights or impose obligations on persons directly affected by it. Of course there were other dimensions to the respondents’ arguments including the arguments that the decision of NAMA to acquire the assets in question had no material adverse effect on the appellants because it involved no more than a transfer of the relevant banks’ interests to NAMA leaving intact the appellants’ existing contractual rights and obligations in relation to their credit facilities. In short the bank itself had a right to sell and transfer its interest as mortgagee to a third party without reference to, let alone granting a hearing to, the appellants. The acquisition of the bank’s eligible assets by NAMA, it was argued, had the same effect so far as the appellants were concerned, except that it was done pursuant to a statutory procedure and power. I will refer to that aspect of the argument later. What I am concerned with at the moment is the manner in which s. 84 should be interpreted as a matter of principle. In the light of the interpretative principles referred to above and the constitutional requirements concerning fair procedures I am satisfied that s. 84 must be interpreted as meaning that NAMA must permit persons whose rights may be adversely affected, or on whom liabilities are imposed, as a consequence of a decision to acquire an eligible asset to make representations before such a decision is made. Given the well established principles of statutory interpretation according to which fair procedures must be observed by decision makers exercising discretionary statutory powers in such circumstances one would have thought that the Oireachtas, if it had intended to exclude the operation of procedures of this nature, would have done so expressly. Of course that would then have given rise to a distinct issue as to whether such an exclusion was compatible with the Constitution. Participating banks are of course also affected by a decision pursuant to s. 4. No issue has arisen concerning the position of the banks in this context and of course they are in a different position than persons such as the appellants since, inter alia, any such bank has taken its own decision and opted to participate in the NAMA statutory scheme and are given certain express, if limited, rights to make representations to NAMA before a decision is taken to acquire a particular eligible asset. Adverse Effects on the Rights and Interests of the Appellants and a Right to be Heard Neither the appellants nor the respondents take issue with a statement of principle in the judgment of the High Court concerning the circumstances in which a right to be heard may arise before a decision is made by a public authority pursuant to a statutory discretion. At paragraph 7.14 of its judgment the Court stated:
On the other hand the respondents argued, as indicated above, that any decision by NAMA would have no material effect on the appellants’ rights or that any effect was merely an indirect consequence of the substantive decision. For my own part I would not take issue with the statement of the High Court as recited above. However I do depart from the subsequent conclusion that there was no real risk of an adverse effect to the rights of the appellants in the event of an adverse decision by NAMA and in this respect I agree with the detailed analysis of the potential practical effects on the appellants of such a decision made by Fennelly J. and Finnegan J. in their respective judgments. As Fennelly J. points out NAMA has been given powers which a bank does not have and I agree with him when he says that s. 87(3)(b) of the Act of 2009 qualifies any assertion that NAMA simply takes over all the banks’ obligations and liabilities and in noting that the section enables NAMA, when acquiring an asset to set out “a statement of any obligations or liabilities excluded from the acquisition …”. Of particular significance is the analysis of Finnegan J. in his judgment of the relationship between mortgagor and mortgagee. In his judgment he points out that NAMA enjoys powers not enjoyed by any other mortgagee some of which impinge, in important ways, on the relationship between mortgagor and mortgagee. In particular he concludes that the appellants’ equity of redemption is capable of being adversely affected as a consequence of a decision to acquire by NAMA pursuant to s. 84 of the Act of 2009. I respectfully agree with the entire analysis of Finnegan J. and therefore with his conclusion that a decision by NAMA to acquire the bank assets represented by the credit facilities of the appellants carries with it, at the very least, a real risk that the property rights and interests of the appellants would be directly and adversely affected. It seems to me that it is relevant to bear in mind that it is not contended that the appellants in this case are, by reason of insolvency, burden of debt, or otherwise, incapable of fulfilling their borrowing obligations, conducting their business affairs including the management of their property portfolio and associated loans, in the ordinary course of their own business and for that purpose conduct their business with private institutions. The Bank of Ireland, with whom the vast bulk of their credit facilities are placed, have indicated a willingness to continue to do business with them as bank clients. As was pointed out at the outset of the judgment the High Court found, inter alia, that the appellants have discharged all interest due on their loans and have more than sufficient income being generated by their properties to service those loans. Ninety six percent of the properties are let to “blue chip tenants on long leases” with 26% of the property portfolio by value, being represented by properties in Ireland. These factors may or may not be considered to be of relevant weight by NAMA in any consideration as to whether it should acquire the eligible assets in question. That would be entirely a matter for NAMA. They are relevant however to considering the potential impact of an acquisition of the relevant assets by NAMA. Those factors underline the position of the appellants who would, but for the provisions of the Act, by reason of the rights and interested vested in them as owners of the development land in question, normally be entitled as of right to manage their affairs related to those properties, including by negotiating and dealing with private institutions with whom they have credit facilities. If the relevant eligible assets were to be acquired the appellants would be subject to the NAMA statutory scheme and all the potential effects referred to by Fennelly J. and in particular by Finnegan J. concerning equities of redemption and vesting orders. In short the appellants would be deprived of the right to deal with their property portfolio and associated loan contracts as they judged fit in the ordinary way on the commercial market even if subject to any vicissitudes of current market conditions. Again as Finnegan J. pointed out there is a risk that properties could be sold by NAMA in circumstances disadvantageous to the appellants in a way which could not be done by a mortgager exercising a power of sale. It is in that sense that I consider that there is a real risk that their property rights and interests may be directly affected by any decision of NAMA pursuant to s 84 and for that reason they should have a right to make representations to NAMA. It could indeed transpire that NAMA, having taken into account all relevant representations made on behalf of the appellants and other relevant factors would decide to acquire the assets in any event. But at least, as a matter of constitutional justice, the appellants would have had an opportunity to make their own case before the relevant assets are taken into the NAMA scheme. I should perhaps add that I do not attach a great deal of weight to the argument made on behalf of the appellants concerning their right to maintain their well established relationship with the Bank of Ireland in the sense, to put it in broad terms, that they would continue generally to profit or benefit from the positive relationship and lending policies which they have had with that bank as a customer in good standing. I do not think it can be assumed, particularly with regard to participating banks such as the Bank of Ireland, that even with the best of good will in the world that they would not be constrained by current day realties, such as difficulties concerning capitalisation of those banks and limitation on credit facilities, from according to the appellants the same banking facilities based on the same commercial policies or relationships as heretofore. What is of prime relevance however for the purposes of determining whether the appellants should be accorded a hearing is the fact that they would be deprived of the opportunity of actually managing their own affairs with their chosen bank within the parameters of the law and commercial practice, whatever that may be at any given time. Instead the credit facilities, with a potentially direct impact on the management and ultimate sale of properties securing those facilities, would be brought under the statutory NAMA regime. They would be potentially exposed to all the adverse effects to which Fennelly J. and Finnegan J. have referred to in their judgments. In the course of the hearing it was at one point argued on behalf of the State that the exclusion of a right to a hearing might be justified by reason of the crisis affecting the national banking system and the urgency of the measures needed to counter systemic threats to that system. I have to say that there was no evidence or material before the High Court to suggest that the time involved in permitting persons such as the appellants to make representations to NAMA before it made a final decision would impinge on, let alone be fatal for, its effective functioning. Moreover I find it difficult to envisage circumstances where the principles of constitutional justice ensuring that decisions are fair for the individual could be overridden. To do so would be to abrogate a constitutional protection which every citizen enjoys when the State decides to exercise a power which encroaches on individual rights. The State in exercising its powers through the organs of government designated by the Constitution have extensive powers to regulate and limit the exercise of individual rights in the interest of the common good and this may be relevant where the State is faced with a national crisis, such as one of a fiscal nature. The State has the power to act in the interests of the common good because the Constitution, in its provisions, expressly envisages that. It also envisages that in exercising such powers the State must act within the ambit of the Constitution as a whole. In a democratic State founded on the rule of law there are definite limits to the extent to which the State can interfere with or restrict constitutional rights or rights vested in or acquired by individuals - freedom of expression, assembly, freedom of religion, right to education, right to earn a livelihood, property rights (including contractual rights), right to strike - to name but some, even when it is acting or purporting to act in the interest of the common good in a national crisis. In common with international instruments, such as Covenants of the United Nations and the European Convention on Human Rights, the Constitution envisages that rights may be regulated and limited but not to an extent that it is disproportionate or in a manner which is arbitrary or discriminatory in an invidious sense. In particular the State cannot act in a manner which would abrogate a right or deprive it of its very essence. If the State were to succeed in its argument, namely that the Act of 2009 prohibits NAMA from giving any consideration to representations from persons in the position of the appellants, it would be denying the very essence of a right to a hearing, a concept at the core of the principle of constitutional justice and due process. Conclusion Declaration
The appellants raised five issues before this Court. These were as follows:- Decisions have been given on several of the issues. On the 3rd February, 2011, in a judgment of the Court delivered by Murray C.J., the Court held that NAMA had not made a decision to acquire the appellants' loans and that the appellants were entitled to a declaration to that effect. Thus the issue set out in paragraph (c) above has been determined in the appellants' favour.Also on the 3rd February, 2011, in a judgment delivered by Fennelly J., with whom the other members of the Court agreed, the European state aid issue, referred to in paragraph (e) above, was decided. In relation to that matter the appellants lost their appeal. On the 9th February, 2011, the Court heard legal submissions as to whether the remaining three issues were justiciable. In an ex tempore judgment, Murray C.J., giving the determination of the Court, ruled that the "relevant considerations" issue arose only in relation to the purported decision of NAMA which had been held to be a nullity. In those circumstances this issue is moot and it does not require any further decision. In light of the submissions made by counsel, the Chief Justice indicated that the Court would proceed to consider the other issues, either as to whether they are moot or on their merits. Consequently, two issues remain outstanding. These two issues are "the fair procedures" issue and "the constitutionality of the Act of 2009". This judgment addresses the "fair procedures" issue. Fair Procedures Background The general context of the national financial crisis includes the State’s three-pronged policy response to that crisis being:- (i) enactment of the Credit Institutions (Financial Support) Act, 2008, which provided a statutory basis for the State to enter into the guarantee; (ii) measures to recapitalise most of the main financial institutions in the State and to nationalise Anglo Irish Bank; and (iii) the establishment of NAMA under the Act of 2009 to address significant losses suffered by banks in the State as a result of the collapsing of the property bubble, through the acquisition of eligible assets from participating credit institutions in order to remove uncertainty about those assets and to alleviate the effect of such uncertainty on the credit institutions in the State. The High Court noted, at paragraphs 5.4 to 5.6, the context in which these three measures were taken, particularly concerning those institutions with which the appellants, Mr. McKillen and his companies, have significant loans:-
[5.5] in the absence of some significant executive and legislative response to those problems, it is almost certain that the existing banks operating in Ireland (including those with whom Mr. McKillen had long standing banking relationships) would have ceased to function or, at least, function in any way remotely resembling the traditional model of a bank. 5.6 While the true scale of losses in at least many of the participating institutions was not apparent at the time when the Act was passed, it does appear on the evidence to have been clear from an early stage that there were very significant losses in the banks which needed to be dealt with in some fashion. In that context, the Government announced in the Spring of 2009 (during the budget speech of the 7th April) that what has now become NAMA would be established. The relevant legislation was published in a preliminary form in July of that year, with the Act being passed by the Oireachtas in November and coming into force on the 21st December, 2009." As to the appellants’ business activities, the appellants own a portfolio of approximately 62 properties, 26% of which are located in Ireland, with the remainder in France, the United Kingdom and the United States of America. According to the expert evidence given in the High Court, these properties were valued at between €1.7bn and €2.28bn and they generate an approximate income of €150m per annum. Loans secured on those properties with banks in the State which are participating institutions under the NAMA scheme amount to approximately €2.1bn. The status of those loans, namely as to whether the loans could be considered as “impaired loans”, was disputed by the parties in the High Court. However, the High Court, having concluded that the loans were “eligible bank assets” within the meaning of reg. 2 of the National Asset Management Agency (Designation of Eligible Bank Assets) Regulations 2009 (S.I. No. 568 of 2009) (hereafter “the Regulations”), irrespective of whether they were deemed to be impaired or not impaired, considered it unnecessary to express any view as to whether those loans were impaired or non-impaired. The High Court did note that on the uncontested evidence of the appellants, 96% of those properties are let, the majority of the tenants being described as “blue chip tenants on long leases predominantly with a 25 year duration”, and that the income stream thus generated, at an aggregate level, appears to provide interest cover on the loans of between 1.7 and 1.8 times: that is to say, the income is between 1.7 and 1.8 times the interest payable on the loans at current interest rates. As this is an aggregate figure, the interest cover on certain individual loans may be lower. At paragraph 5.13 of its judgment the High Court referred to one particular feature of the appellants’ business model. It noted:-
As acknowledged by counsel for the appellants, some 2.5% to 5% of the appellants’ loans proposed to be transferred to NAMA are loans in respect of land and development; the remainder of the appellants’ loans are unrelated to land and development and come within the definition of an “eligible bank asset” solely by reason of their being owned by Mr. McKillen or the companies or partnerships in which he has an interest. Fair Procedures Issues
if the appellants have such a constitutional right of fair procedures in connection with such acquisition, can the Act of 2009 be construed so as to imply into that Act a right on the part of the person whose loans are to be so acquired to make representations in connection with the exercise by NAMA of its discretion to acquire a loan under section 84(1) thereof?
Is there an actual or potential interference with these constitutional rights? If there is an actual or potential interference with constitutional rights, counsel for the appellants submitted that the appellants are prima facie entitled to fair procedures. Has there been an interference with those fair procedures? (It is common case that the appellants were not heard by NAMA). Can there be a justification for such an interference with fair procedures? Counsel stressed that this submission relates to fair procedures and not to property rights. Counsel listed the constitutionally protected rights of the appellants as follows:-
Interest in the income stream from the properties. This is how Mr. McKillen earns his livelihood, so there is a "right to earn a livelihood" issue. A bundle of contractual rights with the banks. Mr. McKillen's reputation, which is critical in the field of commercial property. There was no dispute between the parties as to the existence of these four rights. National Asset Management Agency Act, 2009
(2) For the avoidance of doubt, NAMA may acquire, from a participating institution, performing or non-performing eligible bank assets. (3) For the avoidance of doubt, NAMA may, subject to Chapter 1 of Part 7, take steps to acquire an eligible bank asset even though the participating institution concerned has indicated in information provided to NAMA under section 80 that it does not consider the bank asset to be an eligible bank asset and that it objects to its acquisition." Section 87 sets out the next step after NAMA has decided to acquire an eligible bank asset. It provides for the service of an acquisition schedule in the following terms:-
(2) NAMA may nominate a NAMA group entity as the entity that is to acquire a bank asset identified for acquisition. (3) An acquisition schedule shall set out for each eligible bank asset to be acquired— (a) a statement of the eligible bank asset and the interest to be acquired, (b) a statement of any obligations or liabilities excluded from the acquisition, (c) the acquisition value, (d) details of how the acquisition value was calculated, (e) any obligations, additional to those imposed by this Act, to be imposed on the participating institution after the acquisition that are to take effect after the acquisition, (f) the date of acquisition, and (g) if the eligible bank asset is not to be acquired by NAMA itself, the NAMA group entity that will acquire it. (4) In addition to the matters required by subsection (3), NAMA may set out in an acquisition schedule any other matter (including any terms and conditions) that it considers necessary in the particular case. (5) For the avoidance of doubt, an acquisition schedule may specify any number of particular eligible bank assets. (6) For the avoidance of doubt, NAMA may serve more than one acquisition schedule on a participating institution. (7) The date of acquisition of a designated bank asset shall be at least 28 days after the relevant acquisition schedule is served on the participating institution concerned unless NAMA specifies a shorter period in the acquisition schedule." An important aspect of the statutory scheme is the provision in s.103 as to litigation. Section 103 provides:-
On the 3rd February, 2011, the Court held that NAMA had not made a decision under s.84 to exercise its discretion to acquire from the relevant banks their interests in the appellants' loans. At meetings on the 11th and 14th December, 2010, an interim management team, formed prior to the establishment of NAMA, following a direction by the Minister for Finance to the Chief Executive Officer of the National Treasury Management Agency to provide staff for such a team, decided to exercise a discretion to acquire the appellants' loans. However, this was not a decision by NAMA. The issue of fair procedures in these proceedings arises in relation to the powers given to NAMA under section 84. Thus that section is central to the analysis. When this matter was before the Court on the 9th February, 2011, counsel for the respondents said that NAMA would make a decision as to whether to acquire or not to acquire the appellants' loans under section 84. It was stated by counsel that it was anticipated that there would be a board meeting within the two following weeks at which a decision would be taken. Moot Under the doctrine of mootness it is well settled that a court will not deliver advisory judgments when an issue is no longer live between parties. In this case the Court has determined that NAMA did not make a decision pursuant to s.84 to acquire the loans. Consequently, as of the 9th February, 2011, that issue had been determined on the pleadings between the parties as to the decision, and there was no certainty as to the future actions of NAMA. However, after the hearing of the 9th February, 2011, and consistent with a request by the Chief Justice that the Court be informed of any relevant steps, the Court was informed that NAMA made a decision on the 1st March, 2011, under s.84, to acquire the appellants' loans. While that decision is not formally before the Court in these proceedings it is the reality of the situation. The question then is whether in the circumstances the issues are moot. If they are moot, then the question would be whether the Court should exercise its discretion and determine the issues. The matter of mootness was considered in Irwin v. Deasy [2010] IESC 35 (unreported, Supreme Court, 14th May, 2010) where Murray C.J. stated:-
Hardiman J.’s definition of the doctrine in G. v. Collins [2005] 1 ILRM 1, cited in O’Brien v. The Personal Injuries Assessment Board (Supreme Court, unreported, 16th November 2006), is a useful starting point: “proceedings may be said to be moot where there is no longer any legal dispute between the parties”. The mootness doctrine is applied by the courts to restrain parties from seeking advisory opinions on abstract, hypothetical or academic questions of the law by requiring the existence of a live controversy between the parties to the case in order for the issue to be justiciable. … The general practice of this Court is to decline, in principle, to decide moot cases. In exceptional circumstances where one or both parties has a material interest in a decision on a point of law of exceptional public importance, the Court may in the interests of the due and proper administration of justice determine such a question. However, the discretion to hear an appeal where there is no longer a live controversy between the parties should be exercised with caution, and academic or hypothetical appeals should not be heard. Exceptions may only arise where there is a question of exceptional public importance at issue and there are special reasons in the public interest for hearing the appeal." High Court on Fair Procedures The High Court considered, in case it was wrong in that view, what the situation would be if the appellants had constitutionally protected rights which were potentially interfered with in a significant and proximate way. Reference was made to East Donegal Co-Operative v. Attorney General [1970] I.R. 317. The High Court considered whether, in the event that the appellants had constitutionally protected rights which were exposed to interference in a significant and proximate way, a right to fair procedures could and should be read into the Act of 2009. The High Court held that it did not seem that an ordinary construction of the Act could lead to an implied entitlement on the part of a borrower to be heard in the process. The High Court heard this judicial application in a telescoped hearing. All arguments were heard from the parties on the basis that if leave were granted to apply, then one hearing could be treated as dealing with all matters. The High Court was satisfied that the issues raised in relation to fair procedures did raise a substantial issue which was sufficient to meet the statutory test for the grant of leave. Thus the High Court granted leave to apply for judicial review on this issue. However, the High Court held that the issues raised under this heading did not entitle the appellants to succeed in relation to any of the reliefs sought. The above decision was made subject to the query as to whether an entitlement should be "read in to" the Act of 2009. On this latter issue the High Court held that the Act of 2009 did not interfere with any constitutionally protected rights of the appellants and that it followed that the Act of 2009 was not inconsistent with the Constitution by reference to the appellants' rights. Further, the High Court held that even if its analysis of the interference by the Act with the appellants' rights was incorrect, it did not seem to the High Court that any such interference could be placed at a very high level. Also, the High Court held that even if it was wrong in its view that no constitutionally protected rights of the appellants were interfered with, then that analysis must, at a minimum, lead only to a conclusion that any interference with the rights of the appellants is at the lower end of the scale. The High Court held that any interference that might derive from the absence of a right to be heard did not infringe the principle of proportionality. The High Court refused leave to seek judicial review on this aspect of the case. Thus, on the issue of fair procedures, the High Court was of the view that any constitutionally protected rights which the appellants may have are either not interfered with by the Act of 2009, or are interfered with in such a minor or tangential way so as not to require that the appellants be heard prior to acquisition by NAMA, of their loans. The appellants sought leave to appeal to this Court. The High Court certified the following point of law:-
Submissions It was also submitted that the High Court erred in its judgment under this heading, in that the High Court misunderstood the constitutional position concerning what constitutes an interference with constitutional rights sufficient to trigger an entitlement to fair procedures; that the High Court incorrectly applied the test for interference with constitutional rights; and that in its assessment of the facts and its interpretation of the Act of 2009, the High Court failed to address the facts peculiar to the appellants' case by reference to the evidence. The appellants submitted that they have rights that may be affected by a decision of NAMA to acquire the appellants' credit facilities from the participating banks. Irrespective of whether that decision could be justified, the appellants submitted that they have an entitlement to be heard by NAMA prior to the taking of the decision under section 84. The issue turns on the effect (actual or potential) on the appellants' rights of NAMA's decision to acquire the loans. It was submitted that the appellants were engaged in private business with the banks, and that the Oireachtas stepped in to provide legislation that gave powers to NAMA radically to alter the basis upon which the appellants conduct their business. It was submitted that a decision of NAMA under s.84 to acquire the appellants' loans is a decision that interferes with the rights of the appellants and gives rise to a right to fair procedures. The appellants identified an impact on their rights in three main guises, as follows:-
Association with NAMA has cost implications for the appellants, in particular, tenants will be able to strike harder bargains, the appellants will need to incur the immediate expense of refinancing efforts and higher refinancing fees are likely. There will be an effect on the appellants' reputation; NAMA is viewed (primarily) as a bad bank, acquiring bad loans; any decision of NAMA to acquire the appellants' loans adversely affects the reputation of the appellants. The respondents adopted the conclusions of the High Court and submitted that:-
The threshold for determining whether there is an interference is whether there is a real prospect of an adverse effect to the appellants’ constitutional rights. Applying that threshold, that there is no interference with the appellants': (i) right to earn a livelihood; (ii) right to ownership of the underlying properties; or (iii) property rights in the form of contractual rights. Without prejudice to the foregoing, if there is an interference with a constitutional property right such as gives rise to a right to fair procedures, the exclusion of fair procedures under the Act is proportionate and justified. The right to be heard, audi alteram partem, is a fundamental right at common law, being one of the principles which were known as natural justice. Another principle, that no one could be a judge in his own cause, nemo index in causa sua, was also considered to be part of natural justice. These two fundamental principles were at the root of natural justice. In Ireland these principles have been subsumed into constitutional justice. I agree with the observation of McCarthy J. in The State (Furey) v. Minister for Defence [1988] I.L.R.M. 89, at 99:-
Although the right to be heard is not stated explicitly in the Constitution of Ireland, 1937, it is an inherent part of fair procedures and in that context, and as part of due process, is woven into the fabric of rights in the Constitution. There is a right to fair procedures, which includes the right to be heard. The right to be heard, as with other constitutional rights, is not absolute. In referring to the personal rights under Article 40, Kenny J. in Ryan v. Attorney General [1965] IR 294 stated at pp.312 to 313:-
In any analysis of the Act of 2009, it is presumed that procedures permitted by the Act are to be conducted in accordance with the principles of constitutional justice. This principle was described by Walsh J. in East Donegal Co-Operative Ltd. v. Attorney General [1970] I.R. 317 at p.341:-
NAMA has a discretion under s.84 to acquire loans, which it is presumed will be exercised fairly. The procedure to be adopted is for NAMA to determine in the first instance. NAMA is required to establish procedures, for appropriate cases, so as to comply with constitutional justice. In The State (Irish Pharmaceutical Union) v. Employment Appeals Tribunal [1987] I.L.R.M. 36 at 40, McCarthy J. stated:-
If the proceedings derive from statute, then, in the absence of any set or fixed procedures, the relevant authority must create and carry out the necessary procedures and if the set of fixed procedure is not comprehensive, the authority must supplement it in such a fashion as to ensure compliance with constitutional justice ..." Rights
Procedural Justice
In Doupe v. Limerick County Council [1981] I.L.R.M. 456 at 463 Costello J. stated:-
Exclusion of right - Exceptions Urgency
In this case the respondents have submitted that even if there is a risk of an adverse affect on the rights of the appellants, which would otherwise trigger an entitlement to fair procedures, the exclusion is justified. The respondents stressed the need for expedition and the unworkability of the exercise of fair procedures. However, the argument for expedition, for urgency, is not borne out by the facts of the case. The Act of 2009 expressly states that it is for the expeditious transfer of loans. It is clear that such procedures are complex. In this case six months elapsed in the process between the purported decision of NAMA in December, 2010 to acquire the appellants' loans, and the institution of these proceedings. In that time the Bank of Ireland was heard, albeit on limited grounds, and there was a review. In that time also, NAMA was required to carry out a detailed analysis of the loans. Thus while the Act of 2009 seeks expedition, it is not of the category of "emergency" such as in O'Callaghan v. Commissioner of Public Works. The framework of the Act of 2009 envisaged considerable activity by NAMA in the time prior to the service of the acquisition schedule. So NAMA would have been in a position to hear any relevant borrowers whose rights have been affected. Relevant borrowers would be few, being those such as the appellants who have very particular circumstances. Borrowers such as the appellants are very different to a borrower, for example, whose loans are in default, who has no value in his equity of redemption, or who has no income stream. Unworkable Necessity Exceptions to a General Rule Such cases are an exception in the system, not a system which is an exception. Such cases are exceptional cases which may arise contrary to the general rule. The justice of a case may require that it be regarded as an exception to a general rule. The Act of 2009 is not exempted from the requirements of the Constitution. It is not legislation pursuant to Article 28.3.3º of the Constitution; in other words it is not a law enacted for securing the public safety and the preservation of the State in time of war or armed rebellion. Rule of Law The Act of 2009 requires to be construed in accordance with the Constitution. Clearly the Act of 2009 was part of government policy introduced to meet the very serious banking crisis within the State. However, this does not exempt it from the principles of the Constitution. Section 103 Other Borrowers No Exception Applies Decision
To address a serious threat to the economy and to the systemic stability of credit institutions in the State generally by providing, in particular, for the establishment of a body to be known as the National Asset Management Agency for the purposes of –
Effecting the expeditious and efficient transfer of those assets to that agency, The holding, managing and realising of those assets by that agency (including the collection of interest and capital due, the taking or taking over of collateral where necessary and the provision of funds where appropriate), The taking by that agency of all steps necessary or expedient to protect, enhance and better realise the value of assets transferred to it, The performance by that agency of such other functions, related to the management or realisation of those assets, as provided in this Act or as directed by the Minister, and The facilitation of restructuring of credit institutions of systemic importance to the economy, and To provide for the valuation of the assets concerned and the review of any such valuation, To give the National Asset Management Agency certain powers and other functions in respect of land or an interest in land acquired by that agency, including powers relating to the development of land, To provide for the issue of debt securities by the Minister for Finance and by that agency in the performance of its functions under this Act, To provide for certain legal proceedings relating to assets acquired by that agency, to amend the Central Bank Act 1942, and to provide for related matters." The appellants have advanced four relevant constitutional rights, as set out earlier in this judgment. The existence of these rights was not contested. What is contested is whether there has been or is potential interference with those rights such that the appellants are entitled to be heard on the s.84 procedure under the Act of 2009. Evidence There were affidavits deposed on behalf of the appellants and the respondents. Many economists deposed learned affidavits, often with conflicting views. I have found it most interesting to read these opinions. Thus, for example, Joseph P. Belanger was of the view that the transfer of the appellants' loans to NAMA would result in immediate and lasting adverse economic consequences to the appellants owing to:-
• the adverse consequences for [Patrick McKillen's] reputation by virtue of an association with NAMA; and • the resulting decline in [the appellants'] property values and consequential loss of net worth."
Professor Stiglitz commenced his erudite affidavit by deposing:-
Governments always have an incentive to underpay for assets, and even more so when there are private beneficiaries (e.g. when the assets are sold to private developers). This is why systems of checks and balances, judicial scrutiny and the like, are important. These longstanding legal doctrines are grounded in concerns of equity; but they also are motivated by economics: security of property rights and the "sanctity" of contracts - both explicit and implicit - are foundational to a market economy. Involuntary transfers of assets represent a "taking" which should be undertaken only when there is a compelling public interest. Even then, it is important that there be full and adequate compensation. So too for the breaching of long-term relationships. If these basic principles are not followed, there is a serious risk to Ireland's reputation as a country respecting the rule of law, with consequent adverse short-term and long- term effects on its economy. It is striking that NAMA's only defences are the argument regarding systemic risks and the more troubling argument that transparent and due process in a democratic society can be ignored because they may complicate the implementation of the policy objectives embodied in NAMA. A relatively straightforward and expeditious model of due process that includes borrowers can be easi1y designed for NAMA and applied broadly on a voluntary basis, or, more narrowly just to borrowers that are deemed to be potential systemic risks." It is not necessary to decide the conflicting evidence given on the many issues addressed in the affidavits filed on behalf of the appellants and the respondents to determine the matter before the Court. Trading Nation Rights Affected It is presumed that the Oireachtas intends that procedures provided for in legislation will be conducted in accordance with the principles of constitutional justice. To paraphrase Walsh J. in East Donegal Co-Operative Ltd. v. Attorney General [1970] I.R. 317 at p.341, the Oireachtas intended that procedures and discretions provided for in the Act of 2009 are to be conducted in accordance with the principles of constitutional justice. A fundamental principle of constitutional justice is the right to be heard. Thus any analysis of the Act of 2009 should be made in light of these constitutional principles. The Act of 2009 addresses the insolvency of the banking sector in Ireland and the consequent economic crisis. That of itself does not exclude fair procedures. The process established under the Act of 2009 is not analogous to any of the exceptions provided under the Constitution or the law, so as to exclude the right to fair procedures. Nor are there any other factors, such as urgency, so as to exclude the right in light of the facts of the case. The relevant facts include both the length of time between the purported decision in December, 2010 and the issuing of the proceedings, the necessary time for NAMA to undertake the process required before exercising its discretion under s.84, the fact that the bank was heard, and there was a review, and the fact that on occasions other borrowers have been heard. I am satisfied that the Act of 2009 should not be construed as excluding the rights of the appellants. The next question is whether the appellants' rights have been affected or would be affected so as to entitle them to be heard prior to NAMA making a decision pursuant to section 84. To determine whether the appellants would be affected by such a decision of NAMA it is necessary to consider the potential effect of such a decision on their rights The appellants identified several matters which would impact on their rights if NAMA acquired the appellants' loans. I am satisfied that the appellants have successfully raised matters which could affect the rights of the appellants. The remit of NAMA is different to that of a bank, thus a change from a bank to NAMA is such that it could affect the appellants' rights. These include the following:- (a) NAMA is not a bank, it is a particular State institution, it is a work-out vehicle, which is contrary to the business model of Mr. McKillen's business. Its modus operandi will affect Mr. McKillen's business, including his income stream. (b) NAMA will move on the properties in a manner different to the banks, and this raises potential expenses and losses to the appellants. (c) There will be an effect on Mr. McKillen's reputation. Mr. McKillen earns his livelihood in the commercial world. It is a fact that NAMA is referred to in commercial circles as a "bad bank". This implies bad assets and consequently a bad borrower, which reflects adversely on Mr. McKillen's reputation. (d) I have read the judgment of Finnegan J. and agree with his comments on two aspects of the appellants' submissions, namely NAMA's statutory exemptions and powers in relation to mortgages, and the commercial consequences for a mortgagor of the transfer of a mortgage to NAMA. Consequently there is clear evidence which shows that a decision of NAMA to acquire the loans of the appellants will affect the constitutional rights of the appellants, any such decision by NAMA under s.84 of the Act of 2009 directly affects the appellants, and this triggers a right to be heard. Also, the commercial relationship between the appellants and the bank has been altered by the actions of the bank. The appellants submitted that the Bank of Ireland wished to continue with the appellants as customers. However, the Bank of Ireland had taken a step which deprived it of control of the loans. Bank of Ireland decided, in the vernacular, to go into NAMA. This was a commercial decision on its behalf. It is an important aspect of the case as the situation, at the bank's request, is now governed by NAMA and the Act of 2009. Consequently, when it was stated that the bank wished to continue to do business with the appellants, this must be read as subject to their prior decision that the bank join the NAMA process. The relationship between the bank and the appellants was thus changed forever by the bank's decision to join the NAMA process. The appellants have been affected by this unilateral action of the bank. This analysis may also be stated as follows. The appellants have constitutionally protected rights. An order under s.84 of the Act of 2009 directly affects the appellants and could affect the rights of the appellants, in that it might restrict their interest in the underlying properties; it might restrict the income stream from the properties, thus it might restrict Mr. McKillen's right to earn a livelihood; it might restrict their rights in contract; and it might damage Mr. McKillen's reputation. Thus there is potential interference with these constitutional rights. Such a possible result is sufficient to require that the procedures conform to constitutional justice, and so the appellants are prima facie entitled to fair procedures. These rights are not displaced by the Act of 2009, nor is there any justification to exclude the rights. The Context The Bank Heard Triggers Right to be Heard For the reasons given I am satisfied that a decision by NAMA to acquire the appellants' loans affects the rights of the appellants and triggers a right to be heard. It arises in the particular circumstances of this case where the appellants are directly affected, where, for example, Mr. McKillen has an income stream from the property, which is his livelihood, and where he has an equity of redemption, amongst other matters. The Act of 2009 does not exclude the appellants from being heard in the section 84 process. I construe the Act of 209 as enabling the appellants to be heard prior to a decision being made under section 84. This right arises in the particular circumstances of this case. The decision is fact specific. It is not a general right to all borrowers. It is a right limited to the appellants and to Mr. McKillen, in the particular circumstances. Further, while the nature of the procedures is initially a matter for NAMA to decide, it appears to me that in general it is not a right to an oral hearing. It is a right to make written representations as to the appellants' particular circumstances to NAMA. As a matter of constitutional justice these submissions should be considered by NAMA prior to any decision being made to acquire the loans. I would answer the point of law certified by the High Court in the negative. The High Court was not correct in concluding that the appellants did not have a right to be heard prior to a decision of NAMA to acquire loans in respect of which the appellants are borrowers. Therefore, I would allow the appeal of the appellants on the issue of fair procedures. I would make a declaration that NAMA should receive and consider submissions from the appellants prior to NAMA making a decision pursuant to section 84 of the Act of 2009. Conclusion Consequently, the appellants are entitled to fair procedures. This means that, in the circumstances of the case, the appellants are entitled to make representations which should be considered by NAMA prior to NAMA making a decision under s.84 of the Act of 2009.
That is the main issue in the case. The foregoing quotation is from an affidavit sworn for the purpose of these proceedings by one of the purported decision makers, Aideen O’Reilly. She also said:
Procedural History. Counsel for NAMA subsequently informed the Court, in light of that decision, that his client proposed now to consider exercising its power under s.84 of the NAMA Act, the section under which the previous purported decision was alleged to have been taken. The Court is thus constrained now to decide the balance of the issues in Mr. McKillen’s proceedings other than issues which were designated by the name “relevant considerations” which had been rendered moot by the decision of the 3rd February, 2011, and the issues in relation to State aid which had been resolved in favour of NAMA. I agree with Fennelly J. that, for the reasons which he gives, the fair procedures issues are not moot. It should also be noted that it is stated at p.15 of the NAMA business plan, published on 30th June 2010:-
The parties. The respondents. The second-named Defendant is the State and the third-named defendant is the Attorney General who represents the State. Issue. The appellants also say that their constitutional rights, including property rights, rights to a livelihood and right to their good name are all adversely affected. But, they say, they do not need to go that far in order to trigger the basic right to a hearing. General Response. It is said, firstly, that to establish a right to Fair Procedures it must be shown that a constitutional right of the applicants’ is implicated, which the respondents say has not been established. Specifically, they say that there is no right to resist transfer to NAMA of non-contractual “benefits” associated with banking relationships. Secondly the respondents submit that the applicants must establish that there is a real prospect of an adverse effect on their constitutional rights, in order to claim Fair Procedures. Thirdly it is submitted by the respondents that there is no interference with any constitution right of the applicants’. Fourthly and “without prejudice to the foregoing” it is claimed that if there is in fact an interference with a constitutional right of the applicants’ which gives rise to a right to Fair Procedures, the exclusion of Fair Procedures under the Act is proportionate and justified. No precedent was cited for this submission. Section 84 of the NAMA Act 2009.
(2) For the avoidance of doubt, NAMA may acquire, from a participating institution, performing or non-performing eligible bank assets. (3) For the avoidance of doubt, NAMA may, subject to Chapter 1 of Part 7, take steps to acquire an eligible bank asset even though the participating institution concerned has indicated in information provided to NAMA under section 80 that it does not consider the bank asset to be an eligible bank asset and that it objects to its acquisition. (4) Without prejudice to the generality of subsection (1), NAMA may, in deciding whether to acquire a particular eligible bank asset, take into account— (a) whether any security that is part of the bank asset is adequate, (b) whether any security that is part of the bank asset has been perfected, (c) the value of that security, (d) whether the relevant credit facility documentation is defective or incomplete, (e) whether the participating institution concerned or any other person has engaged in conduct concerning the bank asset that is or could be prejudicial to the position of NAMA, (f) whether the participating institution has complied with its contractual and legal obligations and its obligations under this Act in relation to the bank asset, or its eligible bank assets generally, (g) whether in NAMA’s opinion the participating institution has advanced a sufficient quantum of the credit facility concerned, (h) the quality of the title to any property held as security that is part of the bank asset, (i) any applicable legal, regulatory or planning requirement that has not been complied with in relation to development land held as security that is part of the bank asset, (j) any association with another bank asset of a participating institution, (k) the performance of the bank asset, (l) any matter disclosed in any due diligence carried out by the participating institution or NAMA, (m) the type of other eligible bank assets (whether of the participating institution or any other participating institution) that NAMA has acquired or proposes to acquire, and whether not acquiring the particular eligible bank asset concerned would contribute to the achievement of the purposes of this Act, and (n) ny other matter that NAMA considers relevant. (5) Where NAMA determines that the long-term economic value of the property comprised in the security for a credit facility that is an eligible bank asset is less than the market value of the property, NAMA shall not acquire the bank asset.” ______________________________ The taking of a decision under s.84(1) does not operate to vest any loan or property in NAMA. To achieve this objective NAMA must comply with s.87 of the Act: 87.— (1) When NAMA has identified an eligible bank asset of a participating institution that NAMA proposes to acquire, and has determined the acquisition value of that asset, NAMA shall serve on the institution a schedule (referred to in this Act as an “ acquisition schedule”). (2) NAMA may nominate a NAMA group entity as the entity that is to acquire a bank asset identified for acquisition. (3) An acquisition schedule shall set out for each eligible bank asset to be acquired— (a) a statement of the eligible bank asset and the interest to be acquired, (b) a statement of any obligations or liabilities excluded from the acquisition, (c) the acquisition value, (d) details of how the acquisition value was calculated, (e) any obligations, additional to those imposed by this Act, to be imposed on the participating institution after the acquisition that are to take effect after the acquisition, (f) the date of acquisition, and (g) if the eligible bank asset is not to be acquired by NAMA itself, the NAMA group entity that will acquire it. (4) In addition to the matters required by subsection (3), NAMA may set out in an acquisition schedule any other matter (including any terms and conditions) that it considers necessary in the particular case. (5) For the avoidance of doubt, an acquisition schedule may specify any number of particular eligible bank assets. (6) For the avoidance of doubt, NAMA may serve more than one acquisition schedule on a participating institution. (7) The date of acquisition of a designated bank asset shall be at least 28 days after the relevant acquisition schedule is served on the participating institution concerned unless NAMA specifies a shorter period in the acquisition schedule.
The Court’s attention was also drawn to a number of other Sections including Section 101 precluding the enforcement of certain representations etc. made by lenders in relation to a bank asset subsequently acquired by NAMA; s.139 permitting NAMA validly to transfer or otherwise dispose of an acquired asset notwithstanding “any restriction on such a disposal at law or in equity”, any contractual requirement for consent or notice or “provision of any enactment that would otherwise prohibit or restrict such disposal”; and Section 152-155 in relation to vesting orders and their consequences. These provisions, quite simply, do not apply to any other person or entity and themselves demonstrate particular, and potentially extremely deleterious, (for example in relation to equities of redemption) effects. It seems perfectly clear that the effect of a vesting order made pursuant to s.152 of the Act is, according to s.155, that:
(a) Extinguishes the chargors [i.e. the customers] equity of redemption in the land concerned, (b) Vests title to the land in NAMA or the NAMA group entity nominated by NAMA for that purpose, (c) Extinguishes the interest in the land of any other chargee, and (d) Satisfies the requirements of the Land Registration Rules, 1972 to 2008.
Moreover, in Mr. Frank Daly’s address to the Leinster Society of Chartered Accountants, quoted elsewhere in different contexts, the Chairman of NAMA and former Chairman of the Revenue Commissioners said:
It does not seem possible easy to gainsay that the foregoing constitutes the borrower as a “person affected” by the acquisition in a case where a vesting order is made. Even without a vesting order he is plainly a person potentially affected. It should also be noted that p.15 of the “NAMA business plan”, published on 30th June 2010 says:
Section 84 Consequences of Acquisition: The Business Plan: “realising down to zero”. Mr. Cush S.C. for Mr. McKillen trenchantly criticized the High Court judgment for confining itself to a purely legal analysis, not dealing at all with the facts peculiar to Mr. McKillen, and in particular the views expressed by his experts, and not looking to the reality of what would, most probably, happen to the McKillen assets. In my view these criticisms have substance. To appreciate what will in fact occur it is necessary to have regard to the NAMA business plan of the 30th June 2010 which was proved on the hearing of this appeal and which contains a great deal of vital information. In the “executive summary” it is said at p. 3:-
(ii) dealing expeditiously with the acquired assets …”
Table.
On p. 33 of its plan NAMA’s requirements of debtors are set out in some detail:-
A number of major features emerge from the business plan. First the entire life of NAMA is estimated at 7 to 10 years: this does not seem consistent with the business plan pursued by the McKillen interests as a whole, which is to buy first class property, generate an income from it sufficient to pay for the financing of the acquisition and create a “free” income over and above that, and to hold the property in the long term. NAMA, on the other hand, for reasons which may be understandable in its own terms, intend to “realise these assets down to zero” in the 7 to 10 year period and to do so, naturally, in the best interests of the State and not otherwise, i.e. not in the interests of Mr. McKillen and his companies, or their employees, creditors or contractors. The projected time plan for acquisitions and dispositions appears clearly in the table set out above and it might be thought or feared, depending on ones point of view, that “trophy” properties might be attractive for early disposition. It is important to stress that the court is not, in this case, concerned with the commercial viability of these plans, or with their constitutionality or legality in themselves. The only immediate issue is whether they affect, or may potentially affect the McKillen interests in such a way as to entitle them to be heard before the plans are implemented. There are two points of particular importance emerging from this and the preceding section of this judgment. The first is that the decision under s.84 is a discretionary one. It is explicitly so described in the affidavit of Ms. O’Reilly, the legal officer of NAMA. Secondly, the terms of s.84 itself, set out above, make it clear that the decision is a discretionary one in that NAMA may acquire an eligible asset “if [it] considers it necessary or desirable to do so …”. But it does not have to do so. In the words of the Statute it “is not obliged to acquire any particular, or any eligible bank assets… on any grounds”. It may acquire an asset whether it is a performing or a non-performing asset and it may, but need not, take into account any of the matters set out at sub-section 4 in making the acquisition decision. Finally, the decision described by the Statute itself is plainly a discretionary one and thus a decision of the sort to which the passage, quoted below, from the judgment of Mr. Justice Walsh in East Donegal Co-operative Marts v. Attorney General [1970] IR 317, at pp 343/44, applies.
The Court is not currently concerned with the legality or the constitutionality of these measures, but solely with the question of whether their affect on a bank customer whose assets are being concerned for acquisition is such as to require that such customer be given a hearing before his assets are taken. Mr. McKillen says he is entitled to be heard primarily because he is a person “affected” by the Act. Whether this is sufficient to trigger a right to fair procedures will be considered when the Irish jurisprudence on this question is examined, below. But the foregoing observations, as well as the matters previously cited, seem to leave little doubt of the proposition that a person whose loans are acquired by NAMA is indeed “affected” and his rights diminished, by legislation which is of an entirely exceptional character. But the legislation itself will not affect Mr. McKillen or his interests unless and until a decision under s.84 is made. That is the point on which he wishes to be heard. The broader background. A new layer of complexity is added by the events which have taken place in relation to the McKillen assets since December, 2009. Before NAMA was brought into being four individuals who were to be associated with it in very important roles met together and decided to acquire the McKillen assets. The circumstances in which they did so are described in Ms. O’Reilly’s two affidavits. While other people have also sworn affidavits about that decision, Ms. O’Reilly is the only one of the decision makers to go on affidavit on the question. This Court has already decided that the purported decision of the 11th and 14th December, 2009, is void for the reasons given in the Court’s judgment of the 3rd February, 2011. In reaction to this decision, and having been given time to consider its position, NAMA decided that it would at any early date consider the question of whether or not to acquire the McKillen assets pursuant to s.84 of the Act, set out above. It made quite clear that, in doing so, it would not permit a hearing to the McKillen interests. Accordingly, the Court must decide the question, on appeal from the High Court, of whether, having regard to the nature of the s.84 decision and all other relevant matters, the McKillen interests are entitled to a hearing before their loans are acquired pursuant to s.84. Before doing this it is desirable, and will make the legal issues more digestible, to set out some of the broader background to the present case, as gleaned from the evidence in this case. An old fashioned “plain vanilla” property bubble. The causes of the events leading to the Government actions, which events have had tragic consequences for a great many people, are still the subject of enquiry and of political and economic controversy, with which the Court has no particular concern. But it appears uncontroversial, certainly as far as the very detailed evidence in this case goes, that the underlying cause was a relatively simple one. Altogether elsewhere, the crisis which may be thought of as declaring itself in late September, 2008, had more complicated causes. In the United States the economic crisis which became overt at roughly the same time was driven by the widespread use of financial instruments (many of them property linked) which might (moderately) be described as exotic. But the Irish problem, according to Professor Patrick Honohan’s 2009 report for the World Bank was simply an “old fashioned property bubble”. In the terminology of an American economist who also wrote a report on the matter, referred to in the present case, it was “a plain vanilla property bubble”. The Irish economy had been permitted to become hugely dependent on the house building and other construction sectors to the extent that those sectors contributed 20% of the country’s gross domestic product in 2007. This level was significantly higher than that prevailing in any European country and was twice the contribution of those sectors in the United States. Equally, the same sectors contributed a disproportionate share of Irish tax receipts and provided a disproportionate share of Irish employment. The non-viability of this situation appears all too painfully evident in retrospect. Mortgages peaked both in number and amount in the third quarter of 2006: bank shares declined sharply from mid-2007. The graph of this decline became almost vertical in the summer of 2008, following the so-called “St. Patrick’s Day Massacre” of the Anglo-Irish share price in March. That eventful summer closed with the Lehman Brothers bankruptcy in the United States and the Irish Government’s bank guarantee at the end of September. Each of the main Irish banks share price had dropped by over 90% from January 2006 to January 2009 and the share price of Anglo-Irish Bank had dropped over 99% by the time its nationalisation was announced. Remarkably, no regulatory body appears to have anticipated or warned of the imminence of this disaster for the banks. These threatening developments had begun to bite when the returns on Irish property dropped dramatically from the middle of 2007. This development, when graphed, presents almost as vertical an appearance as the graph of the decline of the bank share prices. This is not coincidental. There does not appear to have been any effective regulatory warning of the drastic consequences which have in fact followed, and which might always have been expected to follow, the bursting of the bubble. Executive reaction to the crisis. After a series of late night and early-hours meetings on the night of the 29th/30th September the announcement of a bank guarantee on the 30th September, 2008, commenced the implementation of the government policy of which NAMA is part. No doubt appropriate advice was taken in the time available. There has been acute disagreement as to whether bank liabilities should have been guaranteed, as to whether all of them should have been guaranteed, as to whether the guarantee should have been renewed, and as to whether the banks’ bond holders should have been looked to in respect of the banks’ liabilities prior to the issue of a government guarantee. The guarantee was, of course, a tax payer funded guarantee. There has been acute controversy and concern even on the extremely basic question of what the actual amount of the banks’ liabilities might be. The expenditure cuts and increased taxes resulting from the State’s huge expenditure on, and exposure to, the banks have of course been controversial in themselves. The statutory formulation of the policy.
It was in this immediate context that the NAMA Act was passed. This (to put it very briefly indeed), gave NAMA compulsory powers to require Participating Institutions (Banks) to transfer “eligible bank assets” to NAMA or its Special Purpose Vehicle (S.P.V.). It is the decision to do this very thing, pursuant to s.84 of the NAMA Act, 2009, which is at the heart of the present case. The State parties in their submissions both oral and written emphasised that the context of the Act was that “the banks already owed their very existence to the State and could not, if left unaided, have meaningfully continued with those relationships with their customers”, including the appellants, “who thereby benefited in the meantime”. (See the “appendix to the submissions of the respondents”, para. 3). Accordingly, on the State case, the guarantee was the first step that was taken, the second step was the NAMA Act allowing NAMA to “remove the troublesome assets from the banks in order to identify the capital shortfall”. (ibid) The third step, in the State’s view of things, is that once the “troublesome” loans are removed from the banks and the banks’ true financial position is identified, “having regard to the reality of the recoverability of the loans”, a “crystallisation of losses” should occur. (ibid) Thereafter (and apparently consequentially) the third step will occur, namely “recapitalisation to enable the banks to get credit flowing within the economy”. (ibid) We have now, of course, passed the end of the twelve month period for the foregoing steps to take place, which period was envisaged by the decision on State Aid status sought by the State from the European Commission. This twelve month period ran from a date sixty days after the establishment day of NAMA, 21st December, 2009. It accordingly ended in February of this year. It is a matter for individual, political and economic judgment as to whether or not in reality, the steps outlined above have “[got] credit flowing within the economy”, (ibid) within that period. That is not an issue with which the Court needs to concern itself at all. But it is central to the success or otherwise of the NAMA policy. This policy is at the root of the purposive interpretation of s.84 of the NAMA Act for which the State contends. It is both fair and necessary to repeat that the three stage process outlined above, which may be thought of as State guarantees of banking liabilities plus acquisitions of “eligible banking assets” by NAMA plus recapitalisation of the banks, are the essential three steps of Executive, later Oireachtas, policy in relation to the present crisis. Thereby the Executive hopes to restore the ordinary flow of credit within the economy by means of which those who seek capital receive it from those who possess it through the nexus, mainly, of the banks. This is an immemorial form of exchange, prone to tightening and loosening in its flow and subject of course to variations in interest rates (that is to say the price paid for the use of capital) and in other conditions, but rarely drying up totally or almost totally as appears to have happened in Ireland of late. This exchange not merely underpins enterprise and employment but, on the suppliers’ side of the equation, underpins the mechanisms whereby pensions are provided and paid and vulnerable dependants are provided for. It is in these areas that some of the most acute human tragedies of the recent economic collapse have been seen. More immediate context. The amount in question.
(b) Loans secured on these properties in favour of Irish banks who are participating institutions in NAMA amount to approximately €2.1 billion.” In the following paragraphs it emerges that the Court considers that:
Security.
Terms and renewals.
Seventhly, it is important to recall what was found in relation to the question of geographical spread, which, it will be remembered is one of the criteria NAMA claims to have applied. In the same paragraph, the Divisional Court found:
Eighthly, the Court notes at para. 5.4 that it is accepted, for the purposes of the action, that the McKillen loans represent “eligible bank assets” within the meaning of the Act but the Court went on to note :
The reason why non land and development loans may be deemed, for NAMA purposes, to be land and developments loans on the basis that they are “associated” with other loans which are in that category, is explained elsewhere in this judgment. It is the result of “deeming” provisions within the Act and can have a very severe effect in terms of what it exposes the owner of the property to, under the Act. See ss.69 and 70. One significance of these matters appears to me to be that, on the basis of the Divisional Courts findings alone, there are many matters which might be urged on Mr. McKillen’s part, if he were granted a hearing. Patrick McKillen and his statutory “associates”: an effect of the Statute. The effect of this rather artificial statutory scheme is that, in a case such as the present, a whole bundle of assets may fall within the definition of “eligible bank assets”, even though only a small proportion of the total (in fact, about one fortieth) are actually “land and development” loans, on the basis that other, “L and D,” liabilities are “associated” with them. As to the proportions obtaining in this case, see the preceding section of this judgment on findings of the High Court. The relevant specific finding, at para. 5.15 is:
The statutory provisions in question do not in terms “deem” one thing to be another. But they permit loans (the great majority) which are not land and development loans as that phrase is used in the statutory instrument to be treated as if they were in that category for the purpose of constituting them as “eligible bank assets” liable to compulsory acquisition. Just as significantly, this remarkable step is taken years, and in some cases at least more than a decade, after the relevant loans were first sought and advanced. I repeat that the Court is not now concerned with the legality or constitutionality of this measure. But it seems to me impossible to deny that the measure “affects” the borrowers. On the undisputed affidavit evidence, Mr. McKillen is a businessman and property owner who has been engaged in property investment, both in Ireland and internationally, for approximately thirty-five years. It is undisputed that his businesses have throughout in that time been consistently successful. He says that the property assets held by him and his Companies are almost exclusively investments held long term for income generation, often on 25 years leases. Neither Mr. McKillen nor his Companies have purchased any Irish assets since 1998. Of the properties in question in this case, on the basis that they provide security for loans, almost three quarters (74%) by value are foreign properties and include some properties which are internationally famous and could fairly be described as “trophy properties”, such as leading London Hotels, and commercial property on Place Vendome, Paris. In the course of the hearing of this appeal counsel for the appellants emphasised on several occasions that Mr. McKillen was a property investor and not a property developer, I did not understand this to be contradicted on the other side. It appears that Mr. McKillen’s strategy is to invest in prime commercial property (shopping centres, high street retail units, offices and hotels). This property is acquired very selectively and held in the main as long term investments. The employees of the business are mostly engaged in the active management of the assets and specifically their letting over long periods of time. At para. 11 of his first affidavit in this case Mr. McKillen summed up his strategy by saying:
He also refers to commercial office investment property in Place Vendome in Paris; properties in Old Bond Street in London and other properties in Britain, France, the United States and Northern Ireland as well as in Ireland. Mr. McKillen emphasises that his credit facilities are not “impaired” and that there have been no defaults in repayments due. He complains that he has been given no opportunity whatever to engage with NAMA on the question of whether or not his loans should be acquired by it. He does not accept that the great bulk of his assets are in fact land or development loans and wishes to engage with NAMA, inter alia, on this point. He also says that he could refinance certain properties from sources which are not “participating institutions” if given a relatively short time to do so. He refers to various statutory powers and public statements by or on behalf of NAMA or associated persons and expresses concern that NAMA’s core commercial objective will be to recover for the taxpayer whatever it has paid for the loans or otherwise expended. NAMA is expected to have a life span of only five to seven years and is, in its Chairman’s view “a workout vehicle”. He is concerned that, accordingly it will “take a shorter term view than a bank would and will seek to maximise its returns by selling off loans to third parties or by calling in loans and realising security”. He said this would have a devastating effect on him personally and as guarantor of certain loans. He claims that NAMA have significantly undervalued various of his assets and that they or their agents (such as the “special purpose vehicle” described elsewhere in this judgment) “will focus primarily on the more valuable trophy assets and take outright possession of these assets”. There is no doubt that Mr. McKillen apprehends drastic consequences to him and to his Companies from their loans being taken into NAMA. In my view, and even apart from specific statutory provisions set out or mentioned above, he and they will be significantly affected by the transfer of his loans to NAMA. In the most general, and also the most fundamental, sense his loans will be transferred from a commercial bank to a body acting for a statutory “work out vehicle” which intends to “realise these assets down to zero” in a seven to ten year period. To do this, the assets and the debtors “must accept close monitoring by NAMA of their activities”. In my view this is the antithesis of the very long term, provenly successful and independent business plan adopted successfully by Mr. McKillen for very many years, and which is described elsewhere in this judgment. It seems to me highly plausible. I have no difficulty in regarding as plausible the statements by the appellants’ experts that an unconstrained commercial bank would continue to deal with Mr. McKillen, roll over his loans and not seek to rely on any loan to value or similar covenant. On the other hand, it seems more than plausible that NAMA will not do these things having regard to its statutory mandate, its business plan and its relatively short term focus. The appellants’ experts, Professor Stiglitz and his colleagues, were not cross-examined but, even apart from that, the case they make seems self evidently plausible, certainly sufficient to ground a real, and reasoned, apprehension that the McKillen interests will be gravely adversely affected by acquisition by NAMA. I do not consider that these matters are in any way answered by the fact, very often repeated by the State, that the McKillen historic bankers were in great difficulty and could not have continued their relationship with the McKillen Companies as before. This may well be so, but the loans are not being acquired in order to assist the McKillen interest. Indeed, according to the State, that interest does not even arise for consideration under s.84. Accordingly, they are being acquired in the State interest, as NAMA’s business plan amply demonstrates. It seems to me irrelevant to the issues raised by this fact to say that the banks could have sold on the McKillen loans in any event. No doubt they could, at least in the large majority of cases, but they could not have sold the loans to an institution with the legal characteristics, powers or mandate of NAMA because no such thing existed before December, 2009 and, apart from the statute, no such thing could have been conceived of. If there is a point of agreement between Mr. McKillen and NAMA, it is that NAMA is not a bank. NAMA itself said on several occasions during the hearing of the appeal that it could not accurately be described as a “bad bank”, most obviously because it is not a bank at all. It seems to me to be of the essence of Mr. McKillen’s complaints that his loans are being taken into a statutory Company, but will be managed by a majority privately owned “special purpose vehicle” with a mandate to recover its expenditure in a seven to ten year time span. He says that this is the antithesis of his business plan which involves long term holdings of property. He has deployed a good deal of expert banking and economic evidence to the effect that his loans do not create a “systemic risk”, are not impaired, and are attractive banking assets which he would be able to extend or roll over in the ordinary course of business. All of these appear to me to be relevant matters, which is not to say Mr. McKillen is necessarily right about them. That issue does not arise in these proceedings. In his affidavit Mr. McKillen sets out at some length the representations which he wished to make to NAMA. First, he wished to submit that certain of the credit facilities are not eligible bank assets and therefore cannot be acquired. Secondly, in at least one case which might be dubious as to whether or not it is an L & D loan, he wished to offer to refinance the relevant loan. Thirdly, he wished to make submissions on the discretionary aspects of whether or not to acquire the loans on the basis which he indicates and fourthly he wished to be heard on the valuation aspects of the securities underlying the individual loans. Mr. McKillen also makes detailed complaints about NAMA’s dealings with him which suggest that they were tardy, showed no sense of urgency, and were evasive and misleading over a six month period about whether they had decided to acquire his loans or not. The Divisional Court has already criticised NAMA in relation to its dealings with Mr. McKillen and this aspect will be discussed elsewhere. Its principal immediate relevance appears to be that any suggestion that extreme urgency justified a denial of Mr. McKillen’s right to be heard seems obviously inconsistent with the dilatory actual behaviour of NAMA itself after the acquisition decision had been taken. During the period of inaction, the fact that the acquisition decision had in fact been purportedly taken was calculatedly concealed from him by NAMA. “Impairment”.
Significance of “Impairment”. In those circumstances, and bearing in mind the terms of Section 84, and the elaborate contentions of the Attorney General in relation to a specific interpretation of the term “impaired”, it seems reasonable to have regard to the true meaning of the term, and the role which it appears to have in NAMA’S conception of the decision to be taken under Section 84, in considering whether Mr. McKillen is entitled to be heard before that decision is taken. It must also be borne in mind that, on the hearing of this appeal, NAMA purported to have adopted the alleged decision of the “decision makers” and indicated no dissent or variation from the approach to the decision outlined in the affidavit of Ms. O’Reilly. Though the alleged decision of December 2009 is void, I see no reason to exclude it and the processes and reasoning which led to it, from evidence on this appeal. There is no reason to think that the mindset which actuated the NAMA four in December, 2009 has ceased to represent NAMA’S view, especially since NAMA specifically affirmed it. The Attorney General, in his submissions on behalf of the State parties was repeatedly insistent, quite correctly, that the term “impairment” was not a statutory term, and did not represent an issue which the Divisional Court, or this Court on appeal, required to consider. The Attorney was correct in the first of these contentions: “impairment” is not a statutory term but was a term introduced by NAMA’s Ms. O’Reilly in stating the reasons leading to her and her colleagues’ purported decision under s.84. During the Attorney General’s submission on the 17th December, 2010 (at p.6ff of the transcript), he addressed the question of “impaired assets” - the words appeared between inverted commas in the European Commission decision referred to earlier - and what precisely they meant. The Attorney submitted that:
A little later, however, the Attorney General clarified that the sole meaning of the term “impaired borrower” is merely that he is a borrower for a particular purpose (land and development) and not a borrower who is impaired qua borrower. If this is so then, arguably, no qualitative assessment of the McKillen loans was needed, and the need for a hearing is to that extent diminished, as the State see it. The Attorney General conceded that the meaning for which he was contending is not the most obvious meaning and he further stated that the phrase was nowhere defined in that meaning, or at all. He says that he derives the meaning for which he contended from the European Commission decision and from the legislation. Asked whether the phrase was a quotation he said that he had not been able to identify it. He conceded that the use of inverted commas implied that the words should be read in some particular sense. It does not appear, on the basis of the paragraph of the judgment which is next referred to, that the Divisional Court accepted this rather artificial sense of the term “impaired”. At para. 5.11 of its judgment the Divisional Court concluded as follows:
Since the word “impaired” is not defined (save in International Accounting Standard 39, as to which see below) it must be read in its ordinary and natural meaning. Its roots are to be found in Latin, (im-par, unequal) through French and literally means “unequal” or “unfit”. See New Shorter Oxford English Dictionary, 1993. The examples given there of the usages of the term “impaired” tellingly include “an attack of rheumatic fever left his health permanently impaired” and, used of a driver of a vehicle, as meaning “adversely affected by alcohol or narcotics”. Official usages of the term “impaired”.
In terms of Section 69(2)(a) and (b) a “land and development loan” is a loan provided “for the purpose, whether direct or indirect and whether in whole or in part of purchasing, exploiting or developing development land”. If a loan is “provided” for this purpose then it was a “land and development loan” from its inception. On this analysis, there is little room, as a matter of law, logic or language, for the concept of a “potential land and development loan”. A loan is either in the nature of a “land and development loan” at the time it is provided, or it is not. This seems quite inconsistent with the term “impaired”, as in “potential impaired” in relation to a loan, as having no meaning other than that it is a loan for land and development purposes. Moreover, some of the other terms in official use, as will be seen below, equate the sort of loan which NAMA will acquire with “problem” loans; “toxic” loans, loans which are the result of “injudicious lending”; “delinquent loans”; and “high risk property related loans”. In the opening statement of Frank Daly, Chairman of NAMA, to the Committee on Public Accounts on the 18th November, 2010, he referred to the first phase of NAMA’s work - “namely the acquisition from the five participating banks of about 11,000 problem loans”; he said the role of NAMA was “to remove toxic lending from the Irish banking system”. In the same statement, delivered on the 18th November, 2010, Mr. Daly said “The NAMA process is equivalent to removing a tumour from the system, the initial impact is traumatic but it is a necessary prerequisite for long term recovery”. This metaphor of a tumour whose removal is a prerequisite for recovery is suggestive of something which is malignant or otherwise dangerous, even life-threatening. In a statement on the same occasion by Mr. Brendan McDonagh, Chief Executive of NAMA, he described the loans to be taken over by NAMA as “… the aftermath of this injudicious lending” and NAMA as having been established “with the aim of transferring certain higher risk property related exposures”. (All emphases added) Accordingly it would appear that the term impaired is used as synonym for “bad” debts, “risky” assets; “toxic” lending; “problem” loans and has been likened to a tumour whose removal is a prerequisite to recovery. These are all value judgements, not mere box-ticking, and all are qualitative in nature. Accordingly, in the absence of a special definition displacing the ordinary and natural meaning of the word, it appears to me quite impossible to construe the term “impaired” as used for example by Ms. O’Reilly in her affidavit other than as being a qualitative assessment of bad, risky or toxic. This condition is still clearer if the International Accounting Standard 39 is applied. IAS 39 In terms of International Accounting Standards, IAS 39 requires insofar as is relevant:
59. A financial asset or group of financial assets is impaired and impairment losses are incurred if, and only if, there is objective evidence of impairment as a result of one or more events that occurred after the initial recognition of the asset (“a loss event”) and that loss event or events has an impact on the estimated future cash flows of the financial asset or group of financial assets that can be reliably estimated. It may not be possible to identify a single, discrete event that caused the impairment. Rather the combined effect of several events may have caused the impairment. Loss is expected as a result of future events, no matter how likely, are not recognised. Objective evidence that a financial asset or group of assets is impaired includes observable date that comes to the attention of the holder of the asset about the following loss events: (a) Significant financial difficulty of the issuer or obliger (that is, the borrower): (b) A breach of contract such as a default or delinquency in interest or principal payments; (c) The lender for economic or legal reasons relating to the borrower’s financial difficulty, granting to the borrower a concession that the lender would not otherwise consider; (d) It becoming probable that the borrower will enter bankruptcy or other financial reorganisation; (e) The disappearance of an active market for that financial asset because of financial difficulties; or (f) Observable data indicating that there is a measurable decrease in the estimated future cash flows from a group of financial assets since the initial recognition of those assets, though the decrease cannot yet be identified with the individual financial assets in the group, including:
(ii) National or local economic conditions that correlate with defaults on the assets in the group (e.g. an increase in the unemployment rate in the geographical areas of the borrowers’, a decrease in property prices for mortgages in the relevant area, a decrease in oil prices for loan assets to oil producers, or adverse changes in industry conditions that affect the borrowers in the group), From a banking point of view, on the evidence, there are only two relevant categories of loan viz. “performing” and “non-performing”. A non-performing loan, within the meaning of the Basel II guidelines, which inform bank regulation globally, is a loan where either interest or capital repayments have not been met ninety days after they were due to be met. Such loans have to be reported on regulatory returns by banks. The un-contradicted evidence is that in the case of the McKillen loans, all interest is fully paid as indeed the finding of the Divisional Court above accepts in the terms quoted. Under the Accounting Standard referred to, a loan becomes impaired if for example there is significant financial difficulty of the borrower; a breach of contract, such as default in interest or principal repayments: or an act of bankruptcy by the borrower. If there were, or were considered by the bank to be, an impairment, a specific “impairment charge” would be raised by the bank. This is said not to have occurred, and there was no cross-examination on this. The appellant’s evidence is that there is no non-performing loan in his portfolio, and no impairment. For present purposes, however, the appellant’s need merely to show that, if the question of impairment is relevant at all (and Ms. O’Reilly of NAMA clearly said it was), then there is a case to be made by them of apparent plausibility for the view that there is no impairment. The State parties do not dispute this last proposition but they say that the question of impairment is simply irrelevant since impairment is not necessary to be established before the power of acquisition or seizure of the loans can be exercised. Accordingly (they say) the question of impairment was not considered by the four purported decision makers on the 11th and 14th December, 2009, in the State’s submission. This, plainly, is a non sequitar, since the NAMA evidence itself shows that impairment, or the risk of impairment, was a factor in the processes of the four high officials who considered themselves entitled to exercise NAMA’s discretion to acquire the McKillen assets. Their decision was later purportedly endorsed by NAMA. The salient point is that the question of impairment of Mr. McKillen’s loans was in fact considered by the four NAMA “decision makers”. This appears to be the plain meaning of the passage already much quoted from Ms. O’Reilly’s affidavit and referring to “impairment in an exposure of €2 billion”. It has already been demonstrated that this reference to an “exposure of €2 billion” is a reference to the McKillen loans. No other loan or bundle of loans to which these words could apply has been shown to exist. The risk of an impairment in the McKillen loans was therefore considered by the four NAMA decision makers and that fact is unaffected by the State parties’ much later contention that it need not have been, or should not have been. We are concerned with the decision actually, if invalidly, made at the end of the process which actually occurred, and with what that tells us about the decision now proposed to be considered. I am far from satisfied that the State parties’ contention that the size of the loan is the sole critical factor is correct, because it does not appear to me that the size or amount of a loan is capable of being what one of the American witnesses referred to as “a stand alone” indicator of risk. Indeed, the appellant’s evidence is to the effect that a portfolio such as the McKillen loans, established over a period of several decades and performing smoothly are inherently less risky than a number of smaller, completely separate, portfolios would be. It is not necessary to extend actual credence to this proposition to acknowledge that it is plainly a case capable of being made. But it was not made because there was no hearing. Reputational Damage.
NAMA and the State parties do not deny this. Indeed, it would be difficult to do so having regard to the highly reputable journals who regard NAMA as a “bad bank”. But they say that this view is based on a misconstruction of the statute and a misapprehension as to the nature of NAMA. Instead, claims the Attorney General, “impaired” is merely a technical term meaning, when it is applied to a loan, nothing more than that it is a “land and development loan”. I do not accept this as a matter of law, logic or reality, for the reasons set out above. It is inconsistent with statements of NAMA itself and of the Minister for Finance. But, still more significantly when one is considering reputational damage, the fact is that the view of reputable people with expertise on the subject is quite different to that of NAMA and the Attorney General and these people, who are involved in journals widely read by the financial community worldwide, are surely as much entitled to their view as Irish officialdom is. In order to be one of the category of “right thinking people” whose opinions are important in the law of defamation for the assessment of reputational damage, one does not have to share in a particular, somewhat tortured, view of the meaning of the term “impaired”. The attempts of NAMA to argue the contrary was, in my view, one of the points at which their argument most strikingly parted company with reality. The State’s argument was prone to seek to draw support from the terms of the NAMA Act itself. It is certainly true that this Act creates a highly artificial world in which, for example, certain bank assets are required to be treated as things which they manifestly are not. The State’s argument on the reputational effect of being acquired by NAMA, as on other topics, suffers from the fact that it is a narrow and entirely legal one, deliberately closing its eyes to the commercial and human realities. There is ample evidence, and more which could be cited, for the proposition that NAMA is generally regarded, nationally and internationally by experts and ordinary people as being a repository for bad debt i.e, in the shorthand which has grown up of late, a bad bank or a toxic bank. To this reality, the statement that this is not so in terms of a statute itself characterised by a high degree of artificiality is no answer at all. A hearing for the Banks - but not the customers.
In the course of the argument, this fact was addressed, perhaps in a rather oblique way, by the Attorney General who said (p.50 of the transcript of the 17th December):
In the extract just given from the Attorney General’s oral submissions there is also, of course, a suggestion that the banks were heard because the loan assets were being taken from the bank. This is quite clear in the last sentence of the quotation. I simply cannot understand why, if that was sufficient to trigger a right to make representations in an insolvent bank, about to be nationalised the following month at (still) incalculable expense, it was not sufficient to trigger a similar right in Mr. McKillen and his vehicles who are solvent and whose loans are performing loans. The Divisional Court, in the paragraph mentioned, went on to set out certain of the matters to which NAMA had regard. In particular it was stated:
(b) Another consideration was the borrowers’ geographical base and the extent of his/her connection with Ireland. This was particularly relevant in the case of some of the U.S. based exposures of AIB and BOI: most of the borrowers did not have any connection otherwise with Ireland and typically had relatively small exposures. Accordingly, they were not considered to be part of the systemic problem which NAMA was established to address”.
Secondly, the second affidavit of Ms. O’Reilly, at para. 15, states that:
No right to a hearing? What triggers the right? Dealing with the present position the sixth edition of De Smith’s internationally used work on Judicial Review of Administrative Action has this to say:
I agree with the de Smith formulation and would be prepared to adopt it as a statement of the position in Ireland. In particular, I wish to emphasise the statement that the Courts will insist, in the main, on “some degree of participation in reaching most official decisions by those whom the decisions will affect”. This seems to me to be established by a number of cases, some of an older vintage than might, perhaps, have been expected. The trigger for Fair Procedures is that the person claiming them is a person “affected” by the decision. But the State’s first submission, summarised above, contradicts this. It would deny a right to fair procedures unless a constitutional right is implicated. A recent judicial summary of the Irish position is to be found in Khan v. Health Service Executive [2008] IEHC 234 in which, albeit in a tone in which one detects an element of resignation, McMahon J. says:
More than a decade earlier, in Carna Foods Limited v. Eagle Star [1995] 1 IR 526, a case challenging the withdrawal of insurance cover without fair procedures in the form (in that case) of a statement of reasons, McCracken J. distinguished between the public and private realms as follows:
In that case McCracken J. declined to extend the principle into the realm of private contractual relationships because he considered that to do so would be a serious interference, with very wide ranging consequences, in the contractual position of parties to a commercial contract. But the present case is, of course, a case firmly within the realm of public law and the learned judge’s statement about that is unambiguous. Indeed, it might be said that the compulsory acquisition of the applicants “loans” without a hearing, and by a body with the remit that NAMA has, is itself a serious interference, with very wide ranging consequences, in the contractual position of parties to a commercial contract. Similarly, in Clarke v. Judge Hogan [1995] 1 IR 310 at 313 Barron J. said:
Very similar language was used by O’Higgins C.J. giving judgment in the Supreme Court in Garvey v. Ireland [1981] I.R. 75 at 97, a case about the dismissal by the Government of the Garda Commissioner. The former Chief Justice said:-
(Emphasis added)
This, emphatically, was not always the trigger for the application of fair procedures as a matter of natural justice or constitutional justice. But it has been the trigger or the standard in Ireland for at least 40 years now. Gwynn Morgan and Hogan (op. cit.) refer to the former position in the fourth edition of their work as follows:-
Having reviewed the case law up to that date he concluded:-
‘… By Article 40.3, there is guaranteed to every citizen whose rights may be affected by decisions taken by others the right to fair and just procedures. This means that under the Constitution powers cannot be exercised unjustly or unfairly’.” (All emphasis added)
In East Donegal Co-operative Marts v. Attorney General [1970] IR 317, statements which are of great importance to our public law generally were made. The case was an attack on the licensing provisions of the Livestock Mart Acts, 1967, on the ground, inter alia, that they would enable the Minister to use his discretion in the granting or refusal of licences to limit the number of Marts in operation. The plaintiffs were successful in their constitutional challenge in the High Court but lost on appeal on the basis that it was to be presumed that the Minister would operate within the requirements of natural and constitutional justice, and the requirements of the statute. The locus standi of the plaintiffs’ to bring the proceedings was very strongly challenged in the Supreme Court. The Court, per Walsh J. rejected the contention “that no-one can maintain such an action unless he can show that not merely do the provisions of the Act in question apply to activities in which he is currently engaged but that their application has actually affected his activities adversely”. This was because:
I conclude that unless the case can be brought within any of the recognised exceptions to the availability of fair procedures, a person “affected” by the exercise of a discretionary power by a public authority is entitled to be notified and heard before that power is exercised in a manner to which he takes exception. A constant but undeveloped theme in the submissions of the Attorney General was that the Act of 2009 in its own terms justifies the exclusion of fair procedures. In the main, this was by a process of implication, particularly implication from the statutory imperative for expedition. It will be clear from the earlier portion of this judgment that I would reject this approach, based simply on the facts of the case: Nama evinced no need for expedition and in fact temporised for a lengthy period after they believed they had taken the decision to acquire Mr. McKillen’s loans. In view of that, and of the undeveloped nature of the Attorney’s submissions (he did not, for example, identify in the Constitution or elsewhere any source of a prerogative executive power which might justify the exclusion of constitutional rights and protections) it is not necessary to spend any great length of time on this subject. Indeed, insofar as the need for a special dispensation arising from the present economic difficulties was hinted at at all, it was mainly by way of rhetorical flourishes. It may however be as well to bear a number of considerations in mind. The first is that the property rights of the citizen are not limited to land or “real property” to which one holds the title nor to the right to money or monies worth to which one is entitled. It has been recognised for a long time as being more extensive, and extending to established contractual rights, to the right to earn a living, to the rights to one’s entitlements under an appointment to an office or under a contract of employment, and to rights to pensions, gratuities or other emoluments for which one has contracted, or has earned. Thus, East Donegal is also authority for the proposition that “property rights” is not limited to the mere ownership of immovable property. O’Keeffe P. said at p.332:
Although not cited to us on the hearing of this appeal, my colleagues Fennelly J. and Macken J. have attached considerable importance to the decision of this Court in Haughey v. Moriarty [1999] 3 IR 1 and, on reflection, I agree with what they say and would adopt the portions cited by them. This case was, of course, grounded in a context quite different to the present one. The applicants complained that a Tribunal of Inquiry had infringed their constitutional rights by addressing orders for wide ranging discovery to a number of financial institutions with which they did business without notice to them. Hamilton C.J., in giving this judgment of this Court said:
Due to the richness of Irish jurisprudence on this subject I have not found it necessary to look at all to the jurisprudence of the European Convention on Human Rights. But I am happy to note Mrs. Justice Macken’s reference to Fazenda Publica v. Ministerio Publico (Case C - 349/07), delivered on the 18th December, 2008. I agree with what Macken J. says about this case and would only pause to remark that the need for “observance of the rights of the defence” is said by the Strasbourg Court to inhere in “the addressees of decisions which significantly affect their interests”. Here again, the similarity in language and scope with the Irish jurisprudence is striking. It appears to me, therefore, that there is ample authority both in Ireland and elsewhere for the existence of a right to fair procedures in the making of a discretionary decision by a public official or officials is based on the status of the person claiming such fair procedures as a person who is or may be “affected” or “adversely affected” by such decision. There is also ample authority for the proposition that property rights may extend to rights arising out of a private contract, or out of employment, or out of a professional relationship, as well as the right relating to ownership of real or personal external goods. Grounds for the exclusion of Fair Procedures. But it is the business of the law to identify such circumstances: otherwise the cry of “emergency” would be sufficient to set all rights aside at the whim of the Executive. Our Constitution makes specific provision for “war or armed rebellion”. It is not for the Courts to extend those provisions to a situation which is not one of war or armed rebellion. That would require a decision of the people in a referendum, if they thought it necessary or prudent to confer such unreviewable powers on the State. The cry of “emergency” is an intoxicating one, producing an exhilarating freedom from the need to consider the rights of others and productive of a desire to repeat it again and again. In the present case, however, the State parties have not argued that the NAMA Act is immune from scrutiny by the Court by reason of Article 28 of the Constitution or any similar provision, or any analogy with such a provision. They have sought to rely on the terms and context of the Statute itself for a justification for the exclusion of fair procedures. Submissions along those lines are amply met first by the finding, which is common to all the judgments in this case, that the Statute does not exclude a right to be heard in a person in the position of Mr. McKillen and secondly, by the remarkable dilatoriness of NAMA itself, wholly negativing any consciousness of urgency on its part. It must also be noted that the constitutional claim pursued by the appellants, and in which judgment has already been given by the Chief Justice today, is an extremely specific one. That claim was always addressed, it seemed to me, as an alternative to the claim in relation to fair procedures but over the course of the hearing it took on a life of its own. As the Chief Justice observes the focus of the claim “… is the breadth of the definition of eligible bank assets combined with a vagueness of the criteria according to which NAMA may acquire such assets that [on the appellants’ case] constitutes an unjust attack on the property rights of the appellants’, principally since it would have no opportunity of known the basis of which NAMA might consider or decide to acquire assets pertaining to them and that the appellants’ would not be in a position to bring an effective challenge to a decision by NAMA to acquire the assets relating to the appellants’ since the vagueness of those criteria would not permit a court to decide whether NAMA had acted intra vires or ultra vires its powers”. This topic of established exceptions to the need for fair procedures is addressed in some detail by the leading text books both in this country and in the United Kingdom. See, for example Administrative Law in Ireland, Fourth Edition by Hogan and Morgan (2010), under the title “Countervailing Factors”, at pp 718ff and De Smith’s Judicial Review of Administrative Action, Sixth Edition, Chapter Eight “Procedural Fairness: Exceptions”. Before discussing the established exceptions to the general requirement of Fair Procedures for persons affected by a decision of a public authority, there is a preliminary distinction which must be drawn. Mr. McKillen’s case is focussed on the procedures necessary before a decision which, it is alleged, will “affect” him and interfere with his property rights, if taken. This must be firmly distinguished from the separate question of what factors might justify the interference with the property and other rights in itself. We are not concerned with that latter question in this case. Mr. McKillen fully acknowledges that there are circumstances which justify, in one degree or another, interference with a citizen’s property rights. That is not the point he is making here. The question here is not whether the transfer to a State entity of certain bankers’ loans is or is not a permissible interference with the property rights of the bankers, or the borrowers; the question is whether a borrower is entitled to be heard before that step is taken. Great confusion as to the nature and effect of the present case will occur unless that distinction is borne firmly in mind. It follows from this that, apart from the very specific issues addressed in the judgment of the Chief Justice in his judgment on the appellants’ constitutional claims, this judgment is unconcerned with many broader constitutional issues which might arise, for instance, in relation to property rights, or in relation to the powers of the Oireachtas and the role of delegated legislation or any other matter not presently before the Court. In a number of cases countervailing factors have successfully been invoked to justify a failure to observe audi alteram partem. The dominant countervailing factor in these cases is extreme urgency: a need for immediate action in the circumstances of the case, sometimes caused by the person seeking to be heard. Thus in O’Callaghan v. Commissioners of Public Works [1985] ILRM 364, there was a very old promontory fort on a farmer’s land, which was listed as a national monument. The farmer started to plough the land around the fort and the Commissioner of Public Works intervened by making a preservation order. The Supreme Court rejected the contention that the farmer should have been allowed to be heard before the order was made, O’Higgins J. stating:
In the case of D.K. v. Crowley [2002] IR 744, this Court was concerned with an interim barring order made under s.4(3) of the Domestic Violence Act, 1996. The order was made ex parte and there was no procedure requiring the applicant for the order to bring the matter back before the Courts. The Section was found unconstitutional, Keane C.J. saying:
In discussing these and other cases in the section of their book already mentioned, Hogan and Morgan conclude (at para. 14.249):
(ii) The scheme of the Act appears to offer no prospect of revisiting the decision with an input from the borrower affected. (iii) There is in the evidence of the case, no proof nor even any convincing suggestion of urgency, much less of impossibility of performing the functions of the Act if fair procedures were granted. (iv) Though the borrowers were granted no hearing at all the banks, according to Ms. O’Reilly, were heard in relation to the acquisition decision and were assisted in making their case by apparently being given the criteria on which the decision was to be made. (v) There are in the Act various immunities and protections conferred on NAMA in respect of any form of subsequent challenge to the acquisition decision, or any claim for compensation. (vi) See s.84 of the Act. It is quite clear (as the State parties submitted) that the specific matters mentioned there as being permissible to take into account on the acquisition decision are not mandatory to be considered but may be considered at the decision takers’ discretion. But that fact does not exclude a consideration of the significance of the matters specifically mentioned by the legislator, insofar as they bear on the nature of the decision to be taken and thus the right to be heard. The matters mentioned, or most of them, appear to me to be inconsistent with a virtually automatic decision such as the State contends for and to indicate an exercise which is at least in part qualitative. This appears to me strongly to support the proposition that the person affected should be heard and should not easily be deemed to have been excluded from the right to a hearing. In attempting to categorise the general or residual category of circumstances in which fair procedures may be denied, it appears that urgency is an essential characteristic. This may be described in different ways: de Smith op cit describes it as:
In the present case the Attorney General argued a need for urgency from the mention in the statute and in the NAMA documentation of a need for expedition, variously phrased. But there was a lack of specific and convincing evidence on the topic. More to the point, I have to say that in my view the actions of NAMA itself, although opaque in certain ways about to be discussed, show quite clearly that NAMA was so little impressed with the need for expedition that, having taken a “decision” to acquire the McKillen loans in December 2008 it had still not taken the step necessary to act on that decision, the service of an Acquisition Schedule under s.87 of the Act, when Mr. McKillen commenced his proceedings more than six months later. Moreover, during most of that period Mr. McKillen, placed on inquiry by media reports, had raised direct questions as to whether or not his loans were part of a tranche which NAMA had decided to acquire. He never received a straightforward answer to this simple query and instead received letters full of platitudes, irrelevant statements and obvious assertions. I can only characterise this correspondence of NAMA’s as exhibiting evasiveness. It is discredible to a public body. Its authors devoted themselves for half a year or more to avoiding confirming to Mr. McKillen the fact that NAMA considered that it had taken a decision to acquire his assets. No explanation of why it did this was offered on the hearing of this appeal and indeed the correspondence was little referred to by counsel for NAMA. I do not intend to enlarge an already lengthy judgment by setting out the correspondence in full. But I would quote and adopt the moderate language of the Divisional Court dealing with this matter. At para. 5.16 of the judgment that Court said:
5.17 “However, independent of Mr. McKillen’s legal entitlements, the Court does wish to record that NAMA’s response to Mr. McKillen’s correspondence was less than open and transparent. NAMA has been given significant powers by the Act. The Court is required to consider whether those powers are constitutionally permissible and, if so, whether Mr. McKillen is entitled to be heard in the context of the exercise of those powers. However, independent of those considerations, it is the Court’s view that institutions vested with significant power can reasonably be expected to respond to legitimate enquiries from those who may directly or indirectly subject to the exercise of that power, in a more open and forthright fashion than was engaged in by NAMA in this case.” (Emphasis added) Most of the other recognised grounds for excluding fair procedures are manifestly inapplicable to the present circumstances. They are set out in Hogan and Morgan at p.708ff under the telling heading “The Rules do not (usually?) apply”. Headings such as “Criminal Investigation”, “Trivial Cases” or “Policy” seem inapplicable on the face of them to a discretionary decision in relation to defined assets. The policy informs the statute: the individual decision is for NAMA. A little more difficulty might be thought to attach to the exception discussed under the heading “Legislation”. However, it appears to me from a reading of s.84 that the legislative decision in this case was to give NAMA a discretion to acquire or not acquire individual bank assets. Cases such as Gorman v. Minister for the Environment [2001] 2 IR 414 (the case about deregulating the taxi industry) are authority for the proposition that “legislature decisions, on grounds, inter alia, of practicability, have traditionally been taken not to attract the rules of constitutional justice”, in the words of Carney J. But the decision to acquire the McKillen loans was not a legislature decision. It was a decision of NAMA under a power conferred by the legislature. I would therefore not deprive Mr. McKillen of the right to be heard, which I have held arises in this case, on any of the established grounds on which that can be done. It is trite law to say that a right to a hearing carries with it a right to notification of the proposed decision and to sufficient detailed information, including criteria, as may be necessary to allow the person to be affected to make the best case he can against the decision which he fears. He is also, very probably, entitled to reasons for the decision taken, if any. A finding that Mr. McKillen is entitled to be heard in the present case naturally imports these necessary consequences of the existence of that right. I do not see in the circumstances of the present case a positive need for an oral hearing, though NAMA’s obligations may of course be met in that way. I would not otherwise prescribe the nature of the hearing, which will ultimately depend on the circumstances of the individual case. The basis incidents of a hearing are well covered in familiar textbooks and well known decisions which will be familiar to NAMA’s advisors. No argument as to the nature of the hearing to which Mr. McKillen claimed to be entitled was addressed by either side. This was natural in view of the stark nature of NAMA’s case: that he was entitled to no hearing at all because his interests simply did not arise.
3. As the Chief Justice put it in his ex tempore judgment in O’Brien v Personal Injuries Assessment Board [2007] 1 IR 328, “[t]he question is whether this appeal can be considered moot in the sense of being purely hypothetical or academic.” He referred to “the reluctance or refusal of courts to try issues which are abstract, hypothetical or academic…” The Chief Justice cited the dictum of Hardiman J. in G. v. Collins [2005] 1 ILRM 1 to the effect that“proceedings may be said to be moot where there is no longer any legal dispute between the parties”. In that case, the applicant (the respondent on the appeal) had obtained a declaration from the High Court to the effect that the respondent (P.I.A.B., the appellant on the appeal), had acted unlawfully in the exercise of its statutory powers by refusing to deal with the applicant’s duly appointed solicitor in connection with his claim for damages for personal injuries. Some time after the High Court judgment, the applicant received notice from P.I.A.B. authorising him to institute proceedings in respect of his claim for personal injuries against his employer, so that he was no longer obliged to deal with that body. The Chief Justice held, at page 333, that it was “quite evident that the respondent has a real current interest in the issues pending on appeal before this Court for the purpose of a final determination of the controversy between the parties regarding the exercise of its statutory powers and of course the substantial question of costs.” 4. In Condon v. Minister for Labour [1981] I.R. 62, an association of bank officials challenged the constitutionality of temporary legislation restricting the pay and conditions of service of bank employees. The particular legislation under challenge had expired by the time the case came on for hearing. The State argued that the entire case was moot and appealed a decision of the High Court ruling against it to this Court, which was unanimous in holding that the proceedings were not moot. O'Higgins C.J. said at page 70:-
7. The appellants claim that they have the right to be heard by NAMA before it makes a decision to acquire their loans from the banks which have lent to them. It is common case that they were denied that right at the time of an earlier purported decision. NAMA has maintained throughout and still maintains that they do not have such a right. 8. In view of the complexity of the issues and the number of parties, it is best to make some remarks about nomenclature. The appellant companies are very closely identified with Mr. McKillen. Technically it is appropriate to refer to the appellants. However, on occasion it is more descriptive to refer to Mr. McKillen or to the McKillen loans. The loans were, in the main, made to the appellants by Bank of Ireland and, as the case set out, it was only concerned with those loans. As the case went on, references to AngloIrish Bank came into the case. Nothing turns on any distinction between these entities for the purposes of this judgment. I will use the statutory term, “financial institution” or the more familiar word, “bank” interchangeably. Similarly, I will use either the statutory term, “credit facility” or the more common one, “loan” interchangeably. It is also necessary to find a shorthand term for the decision made by NAMA pursuant to section 84 of the National Asset Management Agency Act 2009 (“the Act of 2009”) to acquire from a financial institution the credit facilities it has advanced to any particular debtor. I will use the expression “acquisition decision.” 9. By way of preliminary observation, I suggest that it is important to bear in mind that the purpose of the right to be heard is to enable the person potentially affected by the contemplated decision to make representations to the decision-maker concerning the effects any decision will have on him with a view to persuading the latter to make or not to make the decision or to make it in certain terms. 10. It follows that analysis of the right to be heard requires particular focus on:
• representations: The nature of the representations which the person wishes to make and, in particular, whether any proposed representations are such as relate to the grounds on which the decision-maker may make his decision. In other words, is the decision-maker permitted in law to have regard to representations of the sort the person proposes to make? 11. Mr. McKillen claimed, in the appellants’ statement grounding the application for judicial review, that NAMA’s procedures lack natural and constitutional justice in denying him the right to make representations:
b) that NAMA, in its discretion, ought not to acquire the loans; c) to be allowed a reasonable time to refinance his borrowings; and d) as to the value at which credit facilities will be transferred. 13. Mr. McKillen, in his grounding affidavit sworn on 30th June, 2010, said that the appellants wished to make representations in relation to a number of aspects of the proposed transfer of credit facilities to NAMA. The first, related to a) in the above list, was that the credit facilities are not eligible bank assets. This issue has never been pursued and can now be ignored. Counsel for the appellants said that it is accepted for the purposes of the litigation, that the McKillen loans represent eligible bank assets. (see also the High Court judgment at paragraphs 5.14 to 5.15). 14. The principal concern of Mr. McKillen, expressed at paragraph 34 of his affidavit, is that the acquisition of the McKillen loans by NAMA would have a “devastating effect on” the appellants, that the loans are not “distressed” and that they did not “appear to fall within the principal purposes of the 2009 Act.” At a later point he said (paragraph 55) that the appellants would “suffer serious injustice and prejudice in the event that the transfer proceeds…” 15. In substance, the appellants’ case has been pursued only by reference to the fact that NAMA has a discretion whether or not to acquire the loans (ground b) in the statement of grounds). Hence, implicitly, NAMA should exercise its discretion not to acquire because of what is claimed to be the devastating effect on Mr. McKillen if they are to be acquired. 16. This, the fair-procedures part of the claim, is not concerned with the considerations which should influence NAMA in the making of its decision, save in the single respect that it is claimed by the appellants and disputed by NAMA that the interests of the borrower are a relevant consideration. It is important to note that Mr. McKillen is concerned only with the effects of any decision on his own interests, a point to which I will return. 17. The appellants say that, because they have rights which may be affected by any decision of NAMA to acquire their loans, they have a right to be heard by NAMA before any such decision is made. In short, in view of the way in which the appellants have presented their application for judicial review, they are limited to arguing that they have a right to be heard by NAMA concerning the effects any acquisition decision will or may have on their own interests. Effects of the Decision on the McKillen Interests 19. Before turning to these, it should be noted that Mr. Cush was at pains to emphasise that the case was being made solely by reference to facts peculiar to Mr McKillen. He said, for example: “I am making a case for Mr. McKillen, not for every borrower who has to deal with NAMA;” and that it was a “fundamental error…..[that the High Court] did not deal with the facts peculiar to Mr McKillen…” At the same time, Mr Cush accepted that the High Court had been correct to decide that it was not part of its function to decide whether the loans were “impaired.” (High Court judgment at paragraph 5.11). 20. In so far as the facts specific to Mr. McKillen’s case are concerned, Mr. Cush was content to accept the summary set out in the High Court judgment, which, so far as material, was as follows:-
5.9 The status of those loans was the subject matter of some controversy in the course of the hearing before the Court. Certain facts can be stated with some degree of confidence. First, it is true to say that it would appear that all interest payments due under the loans concerned have been paid to date and, at least in current conditions and at current interest rates, there appears to be sufficient income being generated by the properties concerned to service those loans in the sense of meeting all interest payments due on them. Second, it would appear to be accepted that there are a number of loans in which there have been breaches of so-called loan to value covenants. Under such covenants it is a term of the banking facility concerned that the amount owing remain below a certain specified percentage of the value of the properties used as security for those loans. In general terms, and at least in the case of most of the loans with which these proceedings are concerned, a breach in the loan to value covenant occurs if the bank obtains an independent valuation which shows that, by reference to that valuation, the amount of the relevant loan exceeds the loan to value ratio specified in the facility letter concerned. It would appear that the legal consequences of a breach of such covenant is that it triggers an entitlement on the part of the relevant bank to call in the loan in its entirety. It does not appear that any of Mr. McKillen’s loans have, in fact, been formally called in in that way, although it is equally clear that, at least in the case of some of the loans in question, an entitlement on the part of the relevant bank to serve such a notice has arisen. There was some expert testimony, to which it will be necessary to refer to some extent in due course, as to what was likely in practice, as opposed to as a matter of law, to follow from a breach of a loan to value covenant. For completeness, it should also be noted that, in some cases, there would appear also to have been a breach of a similar interest cover covenants which required the maintenance of a specified ratio between the income being generated by a relevant property and the interest payments due under the loan in question. 5.10 In addition, it is clear that, in the case of some of the loans in question, same have expired so that, at least as a matter of law, the full sum due under the relevant loans was immediately payable. There was again expert testimony as to what was likely, in practice, to occur in such circumstances. 5.11 [not relevant at this point] 5.12 Turning to Mr. McKillen’s portfolio, same would appear to consist of approximately 62 properties comprising shopping centres, hotels and offices. The total income generated by those assets is of the order of €150m per annum. The properties would appear to be 96% let and it is said, without contradiction, that at least in most cases the lettings are to what have been described as “blue chip tenants on long leases predominantly with a 25 year duration”. At an aggregate level, it would appear that there is interest cover of somewhere between 1.7 and 1.8, meaning that the income from the relevant properties is 1.7 to 1.8 times the interest payable at current interest rates. Obviously the interest cover varies in individual cases so that, on a loan by loan basis, the cover can be above or below that average figure. 5.13 One particular feature of Mr. McKillen’s business model needs to be noted. Many of the loans in question are for a short term duration. It would appear that there has, in general terms, been a practice for Mr. McKillen to successfully negotiate renewals of such loans from time to time. However, the legal position does also need to be recorded. That legal position is to the effect that adopting a policy of financing long term property investments by short term loans undoubtedly leaves the borrower, to an extent, at the mercy of his banks who are in a position, on a regular basis, to revisit the question of whether they are to lend and, if so, on what terms. A party who, on the other hand, has long term loans, has the added security that, provided the terms of the loan are met, the relevant bank is given no opportunity to re-negotiate the terms of the loan until its expiry. It should also be noted that Mr. McKillen’s property portfolio is geographically spread between Ireland, the United Kingdom, France and the USA with, it would appear, approximately 26% by value representing properties in Ireland.
2. effects on their right to the income stream from their properties, i.e., their constitutionally protected right to earn a livelihood; 3. effects on their bundle of contractual rights, i.e., their contractual relations with their banks; 4. effects on their financial and commercial reputation, in particular on Mr. McKillen’s. Effects of Decision to Acquire on Underlying Properties 24. At paragraph 7.17, the High Court stated:-
26. In short, the appellants did not criticise the legal analysis of the High Court. They did not challenge the conclusion that the acquisition by NAMA of the loans does not affect the legal or equitable rights of Mr. McKillen under the credit facilities. They contended that the acquisition, because it is an acquisition by NAMA, has an effect on the market value of the underlying properties. In response to questions as to whether there is a right to have a value in property Mr. Cush placed particular emphasis on the decision the High Court and of this Court in MacPharthaláin v. Commissioners of Public Works [1992] 1 I.R. 111; [1994] 3 I.R. 353, which I will examine at a later point. Effects of Decision to Acquire on McKillen Loans on Income Stream and Right to Earn a Livelihood
7.21 It is also important to note that NAMA has no additional legal entitlement to require an accelerated payment of a relevant loan over and above that which the bank concerned currently has. It is true that it is anticipated that NAMA will complete its work in the medium term and, thus, ultimately cease to exist. However, that does not mean that NAMA is entitled to call in loans which would not otherwise be due simply because it wants to close its books. To the extent that any party has a long term loan with its existing bank and to the extent that the party concerned does not breach any terms of that loan in a manner which would entitle its bank to call in the loan concerned, then NAMA is likewise prevented from calling in the loan. In those circumstances, if NAMA wishes to close its books, it will be required to find a purchaser for the loan concerned. Subject, again, to the additional statutory powers of NAMA to which it will be necessary to return, the Court does not see that there is any legal interference with Mr. McKillen’s right to earn a livelihood. 29. He attached great importance to a speech delivered by the Chairman of NAMA, Mr. Frank Daly, on 5th May, 2010, to the Leinster Society of Chartered Accountants, which demonstrated, he said, that on transfer of the loans to NAMA there would be a real and significant change of relationship. Mr. McKillen formerly had a normal commercial banking relationship with his lenders. Now his relationship would be with NAMA which would pursue different declared objectives. 30. Mr. Daly described NAMA as a “work-out vehicle, not a mechanism for liquidation…” It was “not a ‘toxic’ or ‘bad bank’ but an asset management agency……” NAMA would pay a price for loans based on the current market value of the underlying property. In many cases that value would be uplifted to reflect NAMA’s view of the value it could “realistically expect to realise on the property over a seven to ten year horizon…” After acquisition of their loans, the largest one hundred borrowers (of which, Mr. Cush said, Mr. McKillen was one) would be “intensively managed by NAMA with key credit decisions and relationship management carried out by its staff.” Mr. Daly summed up NAMA’s objectives as follows:-
32. On 15th March, 2010, NAMA issued a document entitled “NAMA Debt or Business Plan Requirements,” accompanied by a “Datapack.” This document set out in great detail the instructions to debtors regarding the provision to NAMA of a business plan, as explained by Mr. Daly. That document included, for instance, a requirement that the debtor produce "a summary NAMA full repayment plan setting out… key actions necessary to fully repay NAMA…” 33. These documents, according to Mr. Cush, demonstrate that the NAMA business plan is directed towards realisations within a relatively short time-span. Where the appellants’ loan facilities provide for an annual review, NAMA will use that opportunity to seek full repayment of capital within 7 to 10 years as a core term of any new loan. This is fundamentally different from the approach taken by a normal bank and would force the appellants to a total change of investment strategy. Moreover, NAMA’s aim to seek the repayment of 25% of all loans within three years is totally at odds with the appellants’ business model. 34. It is now necessary to refer to some expert evidence upon which the appellants rely to show the extent of the effects on the business of Mr. McKillen and his companies. This evidence is relevant to two points in particular. Because of his business model of reliance on short term loans, it is conceded that at present and, indeed, at any point in time, some of his loans will have expired. Consequently, from a strictly legal point of view, he is in default and the loan, if not renewed, is repayable. The second point is that, because of the current widespread fall in property values generally, is it is clear—and it was found as a fact by the High Court—that, in some cases, the appellants are already in breach of loan-to-value covenants in the lending documentation. Before looking at the expert evidence, it is important to note three findings made, in very general terms, by the High Court: firstly, the appellants have not defaulted in respect of any interest payments; secondly, none of the loans have been called in for breach of loan-to-value covenants; thirdly, no loan has been called in because its term has expired. These findings are not to be regarded as permanent or conclusive. Background economic conditions are, to say the least, uncertain. The most that can probably be said is that, to all appearances, Mr. McKillen’s position is a lot better than most property owners. 35. I will now mention a small amount of the expert economic and business evidence. It is only fair to say, to Mr. McKillen’s credit, that he has produced evidence from experts of the highest quality and of international reputation. Much of what they have to say consists of policy criticism and is not relevant to the legal issues. It is useful only insofar as it tends to show that Mr. McKillen has points to make to NAMA when considering whether it will make an acquisition decision. 36. Mr. Joseph P. Belanger is an economic and business consultant attached to the Brattle Group at Carlisle, Massachusetts. He says that the transfer of the loans to NAMA will result in immediate and lasting adverse economic consequences for Mr. McKillen. He says that there was a reasonable expectation that "existing expired facilities would… be renewed as an administrative matter, but for the interjection of NAMA into the decision process” and that "the parties would routinely update the terms of technical covenants made obsolete by changes in loan amounts, terms and collateral of the renewed credit facilities.” He said: "The performing nature of the credit facilities, in combination with the absence of any default notice and the ongoing expectation on the part of both parties as to the administrative renewal of the expired facilities, are characteristic of a satisfactory and desirable banking relationship.” He also held a view, shared by others, that it was to be expected that tenants in the appellants’ properties would attempt to alter commercial terms as a consequence of the damage to Mr. McKillen’s reputation resulting from his association with NAMA. This would be opportunistic behaviour, not something which tenants have a right to do, but the relationship with NAMA would facilitate actions by tenants, which they would not normally try to take. 37. Mr. Marcus John Sewell Trench is a London-based consultant on risk management and banking. He believes that the benefits of Mr. McKillen’s long-standing relationship of trust and mutual respect with his bankers will be lost if loans are transferred to NAMA. He does not accept the contention of NAMA witnesses that the change to NAMA is like "a change of bank manager." He says that frequent and extensive media portrayal describes NAMA as a “bad” or “toxic” bank. He refers to the NAMA business plan requiring significant debt reduction within 2-3 years and that all debts be repaid by 2019. He contrasts NAMA’s declared policy with Mr. McKillen’s business model, which is to hold property for the long term, to add value to his assets and not to sell them. 38. Dr. Michael I. Cragg, an American economist of distinction, laid particular stress on the long term relationship which Mr. McKillen had established with his bankers. 39. Professor Joseph E. Stiglitz, a world-renowned economist and Nobel Prize winner, considered that NAMA’s “incentives for dealing with performing assets like the McKillen loans are fundamentally different than those of a commercial bank." He emphasised, in particular, the "relatively short time horizon and accelerated workout objectives" of the NAMA business plan, especially the need for asset sales in the context of current market conditions which he believes are not likely to recover for at least three years. Like Mr. Belanger, he mentioned the risk that tenants might act opportunistically: in particular, they might stop paying rent because of NAMA’s limited ability to find replacement tenants. 40. A summary of this evidence would be that banks renew credit facilities of sound and successful customers, where the interest payments are being fully serviced, on the expiry of the old credit facilities. A well functioning economy requires such implicit understandings. At the time the appellants’ credit facilities were drafted, no one could reasonably have foreseen that an entity such as NAMA could exist – accordingly transfer of the appellants’ loans to NAMA is inconsistent with the terms of the credit facilities. Similarly, banks are not interested in exercising their legal rights to call in loans for breach of loan-to-value covenants in a weak market, when the loan is performing. Huge importance is attached to a long-established and successful banking relationship. 41. Mr. Cush's complaint is that the High Court completely failed to address this extensive body of expert evidence. While he acknowledged that there was some contrary evidence in affidavits sworn on behalf of the respondents, he noted that the appellants’ witnesses were not cross-examined. To be fair, the High Court took the view that the transfer of the McKillen loans to NAMA did not, as can be seen from the paragraphs quoted above, in any way affect the legal rights of the appellants: in simple terms, in the view of the High Court, NAMA is in the same position as the banks; Mr. McKillen still owns his property; he still owes the same amount of money; he still has to pay the interest due on the loans. On this analysis, it can be seen that the High Court did not consider the expert evidence to be relevant. Hence, it made only the briefest reference to Dr. Cragg and Professor Stiglitz and did not mention the evidence of Mr. Belanger or Mr. Trench at all. Mr. Cush's criticism is that the High Court analysis was formalistic, relying excessively on abstract legal principle to the exclusion of any consideration of the effects of the decision. 42. At a later point, it will be necessary to consider whether the High Court was correct to restrict its analysis of the effects of a decision to its effects on legal rights. It is the central point in the case. Effects of Decision to Acquire McKillen Loans on Contractual Relationships 44. The appellants submit that NAMA does not operate in the same manner as a bank. It has important non-commercial objectives which fundamentally distinguish it from any other lending institution. Mr. Cush concentrated on what he described as the simple point that, as long as the banks wished to contract with the appellants, they had a prima facie right to contract with them. When NAMA takes over the contractual relationship, it interferes with that prima facie entitlement. Referring again to the evidence of Professor Stiglitz, Mr. Cush submitted that acquisition represents total and complete interference with the right of freedom of contract. Effects on Reputation of Decision to Acquire the McKillen Loans 46. It is accepted, of course, that NAMA is not a bank at all and therefore, in the strict sense, it cannot be a "bad bank." Mr. Cush responds that the High Court confused reputation with fact. Even if the authors of the highly reputable publications just mentioned were mistaken, it is a fact that they described NAMA as a “bad bank.” That is what affects the reputation of Mr. McKillen and his companies. The mere fact that the formal structure of the Act of 2009 does not coincide with the general perception of NAMA as a bad bank, does not mean that the general perception amounts to ill-informed comment. The High Court attached insufficient weight to the fact that the majority of loans which transfer to NAMA are bad loans. The Statutory Context 48. The appellants rely, in addition, on a number of specific provisions of the Act of 2009. It will suffice to mention some of these provisions. Finnegan J has analysed them very thoroughly in the judgment which he is about to deliver. Section 87(3)(b) of the Act requires NAMA, when acquiring an eligible bank asset, to set out “ a statement of any obligations or liabilities excluded from the acquisition…” This means that NAMA may, at its discretion, decide that any pre-existing obligation or liability, which it considers that it is not appropriate for NAMA to acquire, shall remain with the transferring financial institution. Section 101 excludes enforcement of representations, limitations, undertakings or like statements given by a bank prior to acquisition if not disclosed prior to acquisition; again, this does not prevent their enforcement against the original lending bank. Section 139 provides that NAMA may dispose of acquired bank assets notwithstanding restrictions on such disposals at law or in equity and notwithstanding any contractual requirement to the consent of or notice to any person. The High Court concluded that these provisions did not amount to any limitation of substance to the appellants’ rights. 49. Perhaps the provision to which the most importance was attached was that concerning "vesting orders" in sections 152 to 156. Where an asset acquired by NAMA includes a charge over land and a power of sale has become exercisable, NAMA may apply to the court for a vesting order. Subject to provisions regarding notice and advertising and the taking of accounts, the court, if it is satisfied that it is unlikely that the sum secured by the charge can be recovered by a sale within three months and there is no reasonable prospect of the borrower redeeming the charge, is obliged to make an order vesting the property in NAMA, if it applies for one. The effect of the vesting order is to extinguish the equity of redemption. The chargor is entitled, on a later sale of the property by NAMA, to be paid the value of the land determined by the court at the time of making the vesting order “were the land to be sold within three months after the application.” The appellants complain that this gives NAMA an advantage over any normal mortgagee in that it is allowed to retain any increase in value which it is able to realise after the vesting. General Nature of Effects of Decision to Acquire McKillen Loans on Mr. McKillen and his Companies 51. Firstly, the four headings under which the appellants have presented their case for effects on their constitutional rights are clearly not in separate watertight compartments. They are all aspects of their property rights or are closely related to them. The rights in respect of the underlying properties, the rights to the income stream from them and the contractual relationships of the appellants with their banks are inextricably bound together. Any damage to reputation is equally consequential. It is of a commercial character and also relates to the other three headings. 52. Secondly, there are no significant disputes as to fact or, at least, no disputes which affect the issues which the Court has to decide. The High Court’s description of the nature of Mr. McKillen’s business, as quoted from paragraphs 5.8 to 5.13 of the judgment and set out at paragraph 20 above, was accepted by the appellants. It is not disputed that the various publications cited by the appellants have, in fact, described NAMA as a “bad bank” or, in some instances, a “toxic bank.” Nor is it seriously disputed that the taking of the McKillen loans into NAMA would adversely affect the business of Mr. McKillen and his companies. This may be so particularly because his short term borrowing model exposes him to NAMA to a greater extent than those who borrow on a long term basis. Nonetheless, there is little dispute that he would be affected. 53. What then has to be considered is whether the appellants have the right to be heard by NAMA before it, in the exercise of its discretion, makes a decision to acquire the loans. As I have already explained, Mr. McKillen indicated clearly the matters in respect of which he wishes to be heard. He wishes to seek to persuade NAMA that it should not acquire his loans because of what he claims are the serious adverse effects acquisition would have on him and on his particular business, and because of the business model he follows. NAMA, on the other hand, submits that the appellants have no right to be heard and that NAMA has no obligation to hear them when considering whether to make a decision to acquire their loans. NAMA’s Decision 55. Whether the right to be heard exists in the present case requires the determination of two closely related, but nonetheless distinct legal questions. The first issue is whether NAMA, when deciding whether to acquire an asset under section 84, is bound to consider the interests of the borrower. NAMA claims that the power is to be exercised exclusively in the interests of NAMA, having regard to the objectives of the Act, and that, consequently, the borrower’s interests are, so far as NAMA is concerned, irrelevant. If that is so, NAMA need not hear any arguments that the acquisition will have adverse effects on the appellants. 56. The second issue concerns the nature of the effects on the appellants’ interests which produce a right to be heard. NAMA contends, and the High Court accepted, that it is necessary to demonstrate that the decision will have direct effects on legal rights, before there is a right to a hearing. If the interests of the borrower are, as a matter of law, irrelevant to NAMA’s decision-making, the second question does not arise. 57. Section 84, subsections (1) and (2) provide:-
(2) For the avoidance of doubt, NAMA may acquire from a participating institution, performing or non-performing eligible bank assets. 59. In order to see whether the borrower has a potential interest, it is necessary, in the first instance, to turn to section 69 of the Act and to the National Asset Management Agency (Designation of Eligible Assets) Regulations 2009 (S.I. No. 568 of 2009) (“the Regulations”), to find a definition of the assets which are prescribed pursuant to that section. Regulation 2 of the Regulations prescribes the following classes of bank assets as classes of eligible bank assets for the purposes of the Act:-
(i) to a debtor for the direct or indirect purpose, whether in whole or in part, of purchasing, exploiting or developing development land, (ii) to a debtor for any purpose, where the security connected with the credit facility is or includes development land, (iii) to a debtor for any purpose, where the security connected with the credit facility is or includes an interest in a body corporate or partnership engaged in purchasing, exploiting or developing development land, (iv) to a debtor for any purpose, where the credit facility is directly or indirectly guaranteed by a body corporate or partnership referred to in subparagraph (iii), or (v) directly or indirectly to a debtor who has provided security referred to in subparagraph (ii) or (iii), for any purpose; (b) credit facilities issued to, created for or otherwise provided to, directly or indirectly, a person who is or was at any time an associated debtor of a debtor referred to in paragraph (a), whether by a participating institution to which the debtor is indebted or by another participating institution; (c) credit facilities (other than credit facilities referred to in paragraph (a) and credit cards) issued to, created for or otherwise provided to, directly or indirectly, debtor referred to in paragraph (a) for any purpose; (d) any security relating to credit facilities referred to in paragraphs (a) to (c); (e) shares or other interest, or options in or over shares or other interests, in the debtors referred to in paragraph (a), in associated debtors, referred to in paragraph (b) or in any other person, which the participating institution acquired in connection with credit facilities referred to in paragraphs (a) to (c); (f) other bank assets arising directly or indirectly in connection with credit facilities referred to in paragraphs (a) to (c) or security referred to in paragraph (d), including – (i) a contract to which the participating institution is a party or in which it has an interest, (ii) a benefit to which the participating institution is entitled, and (iii) any other asset in which the participating institution has an interest; (g) financial contracts, including financial contracts within the meaning of section 1 of the Netting of Financial Contracts Act 1995, that relate in whole or in part to bank assets specified in paragraphs (a) to (f), but not including financial contracts between a participating institution and a financial institution (within the meaning of the Central Bank Act 1997).” 61. The borrower comes into sharper focus, when one looks at the decisions actually made by NAMA. A decision of NAMA pursuant to section 84 specifies a bank asset, in effect a credit facility, belonging to a financial institution. But the decision, in so doing, also identifies the debtor or borrower. It is common case, and it was fully accepted at the hearing of the appeal, that NAMA acquires loans by reference not merely to the particular financial institution which granted them but, at the same time, by reference to the named borrower or debtor. This can most readily be seen from the first affidavit sworn on behalf of NAMA by Ms. Aideen O’Reilly who spoke of the “scale of the borrowings from the five institutions of the 100 largest borrowers [which] is in the order of €50bn, of which Mr. McKillen's borrowings represent €2bn.” Indeed, one of the primary purposes of NAMA is to remove what are perceived to be dangerous or risky loans from the books of the banks. Section 10(2) of the Act provides:
(a) the acquisition from participating institutions of such eligible bank assets as is appropriate, (b) dealing expeditiously with the assets acquired by it, and (c) protecting or otherwise enhancing the value of the assets, in the interests of the State.” 62. It would also appear necessarily to follow, at least prima facie, that NAMA may take into account the interests of the borrower whose loans or, being absolutely precise, whose lender’s interests in loans made to him, are to be acquired by NAMA. 63. NAMA responds, however, to the first question by stating that, on a proper interpretation of the Act, the decision-making power is to be exercised exclusively by reference to the interests of NAMA and the objectives of the legislation and that the interests of the borrower are irrelevant to those considerations. The High Court appears to have accepted this submission. It held that “NAMA’s discretion is, in terms, one which is principally directed towards the fulfilment of the purposes of the Act.” (paragraph 6.22). At paragraph 6.25, the Court held:-
65. NAMA is not obliged to acquire any particular asset, where it is not desirable for it to do so, a proviso which, it is argued, further demonstrates that the power is exercisable for the benefit of NAMA and not for the benefit of any individual borrower. 66. Section 84(4) lists a number of discretionary considerations which NAMA may take into account when deciding whether to acquire a particular eligible bank asset. All of these, NAMA argues, suggest that the discretion is there to enable NAMA to exclude assets which it is not in its interests to acquire. The character of the considerations listed show an intention on the part of the Oireachtas that the discretion to exclude eligible assets be exercised for the benefit of NAMA. Section 84(4) is as follows:-
(a) whether any security that is part of the bank asset is adequate, (b) whether any security that is part of the bank asset has been perfected, (c) the value of that security, (d) whether the relevant credit facility documentation is defective or incomplete, (e) whether the participating institution concerned or any other person has engaged in conduct concerning the bank asset that is or could be prejudicial to the position of NAMA, (f) whether the participating institution has complied with its contractual and legal obligations and its obligations under this Act in relation to the bank asset, or its eligible bank assets generally, (g) whether in NAMA’s opinion the participating institution has advanced a sufficient quantum of the credit facility concerned, (h) the quality of the title to any property held as security that is part of the bank asset, (i) any applicable legal, regulatory or planning requirement that has not been complied with in relation to development land held as security that is part of the bank asset, (j) any association with another bank asset of a participating institution, (k) the performance of the bank asset, (l) any matter disclosed in any due diligence carried out by the participating institution or NAMA, (m) the type of other eligible bank assets (whether of the participating institution or any other participating institution) that NAMA has acquired or proposes to acquire, and whether not acquiring the particular eligible bank asset concerned would contribute to the achievement of the purposes of this Act, and (n) any other matter that NAMA considers relevant.” 68. In short, NAMA submits that the discretion contained in section 84(1) does not oblige NAMA and, by extension, does not permit NAMA to give consideration to the interests of an individual borrower or to allow him to argue that his loans should not be acquired because to do so would be damaging to his interests. A facility for such a process would be fundamentally at odds with, and indeed undermine, the manner in which the Act must work in order to achieve its objectives and the ultimate goal of ridding the banks’ balance sheets of problematic loans thereby addressing the systemic risk to the financial system.
69. NAMA set itself a very high threshold in undertaking to persuade the Court that the interests of a borrower are an irrelevant consideration, when it is contemplating acquiring the loans made to him by his lending bank. This submission is not made on an assessment of what those interests are or how they are affected. The proposition is that, as a matter of statutory construction and regardless of whether the borrower’s interests are in fact affected, and even if they may be severely compromised, that it is simply an irrelevant consideration. It could not even fall to be entertained as an “other matter that NAMA considers relevant”, pursuant to section 84(4)(n). 70. It is noteworthy that the Attorney General responded to a question as to whether the Act excluded Mr. McKillen’s right to have his argument considered by submitting that the Act is not structured that way. The Court has not been referred to any provision of the Act which, in terms, purports to preclude NAMA from considering the interests of the borrower. 71. Before proceeding with this analysis, I would note, in addition, the element of finality, set out at a level of detail to which I do not consider it necessary to recount here, in NAMA decisions. Section 87 provides for the service of an acquisition schedule. Section 90 provides for the effects of that step, i.e., that it operates to effect the acquisition of each specified bank asset in NAMA. Section 103 provides that no action is to lie against NAMA or any of its entities “by reason solely of the acquisition of a bank asset……” 72. As I have explained, I have decided to consider as a separate matter whether the appellants have shown that their rights or interests are in fact capable of being affected by a NAMA acquisition decision. I am posing, as a first question, whether NAMA and the State are correct in their submission that consideration of the borrower’s interest is excluded. I do so, therefore, on the hypothesis that Mr. McKillen’s interests are affected. 73. When the question is expressed thus, there can be only one answer. A person whose interests are capable of being affected by a decision of a public body exercising statutory powers, is ordinarily entitled to have notice of the intention to consider the making of the decision and to have his representations heard by the decision-maker with regard to those effects. 74. As the High Court remarked, it is well settled, at least since the decision of this Court in East Donegal Co-Operative Ltd. v. Attorney General [1970] I.R. 317, that an Act of the Oireachtas must be interpreted, so far as possible, in conformity with the constitutional guarantees of fair procedures. For that purpose, the Court will imply into statutory decision-making procedures an obligation to respect fair procedures. The appellants have relied particularly on the case of MacPharthaláin v Commissioners of Public Works [1994] 3 I.R. 353. In that case, however, the nature of the right was taken for granted to such an extent that it was not spelled out or discussed in any detail in the judgments. 75. Walsh J. stated in a famous passage at page 341 in East Donegal:-
79. That is what now needs to be considered. I am satisfied, however, that NAMA is incorrect in submitting that the Act, as a matter of statutory construction, precludes consideration by NAMA of the interests of a borrower whose loans are being acquired from the financial institution which made the loans. 80. The Attorney General also argued that, by reason especially of the national economic emergency and the urgency of NAMA’s work, the exclusion of the right to a hearing was justified. Nobody, of course, doubts the extreme seriousness of the burst of the property bubble, the financial crisis, the crisis in the public finances and the drastic effects of all these on the lives of citizens. However, we do not reach and do not need to consider, and I have not considered, whether the exclusion of the appellants’ right to be heard would be justified, if it is not, in fact and in law, excluded. It is not necessary to justify an exclusion, if, as here, there is no exclusion. For that reason, it is not necessary to consider whether the national financial emergency justifies it. Would a Decision of to acquire the Appellants’ Loans have the potential to affect their Interests so as to Entitle them to be Heard by NAMA? 81. I have set out earlier in this judgment the respects in which the appellants claim that their constitutional rights are liable to be affected by a NAMA decision to acquire their loans. The appellants have analysed these effects under four principal headings, which I now repeat:
2. effects on their right to the income stream from his properties. i.e., their constitutionally protected right to earn a livelihood; 3. effects on their bundle of contractual rights; 4. effects on their reputation. 83. The High Court rejected the appellants’ arguments essentially because it considered that the appellants’ legal position following acquisition would be no different vis-à-vis NAMA from what it had been in their relations with their banks prior to that event. The banks had the right to assign loans without Mr. McKillen’s consent; the acquisition did not change the terms of the loans; Mr. McKillen owed the same amount and on the same terms as he did in the case of the banks; NAMA remained bound by the terms of the lending and security documentation. The appellants accepted this analysis “as far as it goes”; they regard it as inadequate because of its preference for abstract legal principle and adherence to a strictly formalistic test over consideration of the practical effects on the appellants’ business model in the real world of commerce. 84. The High Court approached the matter as follows (paragraph 7.14 of the judgment):-
86. It is a surprise to discover a significant area of the law of judicial review that has not been thoroughly explored in a body of case law. There do not appear to be any cases where the courts have analysed the type of effect of a decision which an applicant must show to justify the right to be heard. 87. In view of the importance attached to it by the appellants, I will commence with MacPharthaláin. It is not, in truth, an entirely satisfactory authority. Neither the High Court nor the Supreme Court referred to the distinction relevant in this case between effects on legal rights and effects on the value of the exercise of those rights. There is little citation of authority—none in the Supreme Court judgment, which was delivered ex tempore. 88. MacPharthaláin concerned the designation as an area of scientific interest by the Wildlife Section of the Office of Public Works of an area of blanket bog near Clifden owned by the applicants. An adjoining area had already been so designated without affecting the applicants. The area was extended from 1987 so as to include the applicants’ lands by designation on a map but without notice to them. According to the applicants, the decision affected them adversely, because the designation meant that they could not obtain certain forestry grants which would have otherwise been available. The applicants applied for certiorari of the decision. Blayney J., who heard the case in the High Court, found as a fact that that “such grants [would] not be obtainable.” As a result he was “satisfied also that, as a result of this, the lands are considerably reduced in value.” It followed the applicants’ “ personal rights [had] been affected.” ([1992] 1 I.R. 111, at page 117) 89. This Court upheld the judgment of Blayney J. on appeal on more or less identical grounds. Finlay C.J., speaking for a unanimous Court, said “that the learned trial judge could only come to the one conclusion and that was that it was that designation which affected the lands.” “That being so,” he continued, “it is quite clear in my view that this decision fell within the categories of a decision reviewable by the courts and was of a judicial nature to that extent.” It had not been seriously contested that the decision “being a decision which affected the rights of these particular landowners, insofar as their land had never before been designated, it was reached in 1987 without giving to them any opportunity to be heard or to object or to make representations on that issue whether in a formal or informal way and as such was wanting in the first fundamental requirement of natural justice.” (At pages 358 to 359) 90. The judgments of the High Court and the Supreme Court in MacPharthaláin held that the decision “affected the rights” of the applicants. Does that mean that the rights themselves have to be infringed in their legal quality or does it include cases where the exercise of the rights is rendered more difficult, less valuable or merely less attractive? 91. A distinction has to made between decisions addressed to or closely connected with named or identifiable individual persons or bodies and decisions made in the general public interest. The High Court cited the following passage from the judgment of Costello P. in Hempenstall v. The Minister of the Environment [1994] 2 I.R. 20 at 21:-
93. I would add that I do not consider that the mere fact of diminution of property values would normally suffice to establish an individual right to be heard. The decision of a public body to embark on the construction of a bridge, an airport, sewerage works, a new motorway or the like may affect many people, in particular by adversely impacting on property values, but public consultation rather than individual judicial review is the preferred and appropriate means of balancing pubic and private interests. At any rate, I do not think that mere adverse effects on property values flowing from a public law decision can, on its own, trigger the right. I am prompted to recall the analogy with the rules for compensation for compulsory acquisition of property. The rules make a distinction between injurious affection caused by what is done on land taken from the claimant and on land not so taken. In other words, the claimant has to put up with the effects of the compulsory purchase order, insofar as they emerge from land not taken from him (see Chadwick v. Fingal County Council [2008] 3 IR 66.). Paul Howard constructed his comedy, “Between Foxrock and a Hard Place,” which recounts an episode in the life of the infamous Ross O’ Carroll-Kelly, around the property-price reduction feared to result from a change in postal districts. The characters saw bribery rather than judicial review as the remedy. 94. The central, and the most difficult, question in the appeal concerns whether the right to be afforded fair procedures in accordance with natural and constitutional justice depends on the contemplated decision amounting to an interference with rights, in the sense of legal rights only, guaranteed by the Constitution. 95. The appellants cited the decision of Murphy J in Chestvale Properties Ltd v. Glackin [1993] 3 I.R. 35 to the effect that provisions of the Companies Act 1990 conferring powers on inspectors to demand documents from solicitors and bankers “[did] impinge to some extent on their property rights insofar as the same consist of mutual contractual obligations between themselves and their bankers and solicitors respectively.” (page 45 of the judgment). Murphy J. held, however, that there was a limited intrusion on constitutional rights which was justified as a means of reconciling the exercise of properties with the common good. 96. Neither party cited the decision of this Court in Haughey v. Moriarty [1999] 3 IR 1, which seems to me to be a more helpful authority. The applicants had brought a wide-ranging challenge to the Tribunal of Inquiry (Payments to Politicians). One of many complaints was that the Tribunal had infringed their constitutional right to privacy in relation to their banking transactions by addressing orders for wide-ranging discovery to a number of financial institutions without notice to them. Geoghegan J., in the High Court, observed that the rights of the plaintiffs in relation to banking records could be viewed merely as contractual rights to confidentiality or might be protected by the constitutional right to privacy. Both Geoghegan J. and the Supreme Court considered that, in any event, the making of the orders by the Tribunal was justified in the interests of the common good. 97. Nonetheless, it was held both in the High Court and the Supreme Court that the plaintiffs should have been notified and heard before any such order was made. Hamilton C.J., speaking for a unanimous Supreme Court, dealt with the matter as follows at page 75:-
In the making of such orders the Tribunal had in relation to their making all such powers, rights and privileges as are vested in the High Court or a judge of that court in respect of the making of orders. Fair procedures require that before making such orders, particularly orders of the nature of the orders made in this case, the person or persons likely to be affected thereby should be given notice by the Tribunal of its intention to make such order, and should have been afforded the opportunity prior to the making of such order, of making representations with regard thereto. Such representations could conceivably involve the submission to the Tribunal that the said orders were not necessary for the purpose of the functions of the Tribunal, that they were too wide and extensive having regard to the terms of reference of the Tribunal and any other relevant matters.” (Emphasis added) 99. It does not appear to me that it has been established that the right to be heard before a contemplated decision is made depends on establishing interference with a specific and identifiable legal right. It is difficult to discern a principled basis for restricting the right in that way. The courts have never laid down rigid rules for determining when the need to observe fair procedures applies. Everything depends on the circumstances and the subject-matter. The fundamental underlying principle is fairness. If a decision made concerning me or my property is liable to affect my interests in a material way, it is fair and reasonable that I should be allowed to put forward reasons why it should not be made or that it should take a particular form. It would be unjust to exclude me from being heard. For the purposes of the right to be heard, I would not draw a sharp line, what is sometimes called a “bright line,” of distinction between an effect which modifies the legal content of rights and a substantial effect on the exercise or enjoyment of rights. I would fully endorse the first part of the statement of the High Court, quoted above as follows:-
100. Before turning to consider the actual effects on their rights alleged by the appellants, it is necessary to consider how the affidavit evidence produced by the appellants should be treated. Should the Court itself assess its strength or weigh its value? Should the Court arrive at a conclusion as to the likely effects on the appellants’ business of the NAMA business plan? I do not think it is necessary for the Court to go so far. It suffices, in my view, that there is an apparently credible body of evidence that the appellants’ business is likely to be significantly affected. It is not for the Court to decide on the weight to be attached to that evidence or whether it should be accepted at all. That would be to beg the question which arises, which is what NAMA should be required to take it into account when considering in its discretion to make an acquisition decision. I take the same view about the question of whether or not the appellants’ loans are impaired. As already noted, the High Court decided that it was not part of its function to decide whether the loans were “impaired,” an approach conceded to be correct by the appellants during the hearing of the appeal. There is some controversy as to whether the appellants’ loans are, in fact, impaired and as to the extent of any impairment. These are not matters that could be resolved without very close scrutiny of the lending documentation and the financial evidence. I have referred earlier to some general and tentative conclusions of the High Court regarding compliance with loan-to-value covenants. These are matters in respect of which the appellants would, no doubt, wish to make representations to NAMA. 101. The appellants’ case for effects on their interests can be summarised as follows. Their experts say that the mere fact of transfer of the loans to NAMA will result in immediate and lasting adverse economic consequences for the appellants. It is not like a mere change of bank manager. Professor Stiglitz contends that NAMA’s “incentives for dealing with performing assets like the McKillen loans are fundamentally different than those of a commercial bank.” 102. As shown by the NAMA business plan, NAMA sees itself as a “work-out” vehicle, or, in accordance with its title, an asset management agency. Borrowers are required to produce business plans including detailed and credible targets for reducing their debt including any asset disposals which would contribute to that end. There was a reasonable expectation that existing expired facilities would be routinely renewed as an administrative matter, whereas NAMA will be able to and is likely to rely on the legal fact of expiry. In a normal profitable and performing banking relationship, a lending bank would not, in practice, rely on breach of loan-to-value covenants to call in loans. NAMA has a core commercial objective of recovering for the taxpayer whatever it has paid for the loans in addition to whatever it has invested to enhance property assets underlying those loans. It is expected to have a lifespan of seven to ten years. This objective is incompatible with Mr. McKillen’s business model, which is to invest long-term and to enhance his portfolio. It is significant that the European Commission saw a distinction between a bank and NAMA so far as its relation with a borrower is concerned. It said at paragraph 44 of its Decision, which I dealt with more fully in my earlier judgment on the issue of State Aid:
104. The legal provisions of the Act which were, perhaps, most specifically highlighted were those in Chapter 4 of Part 9 concerning the right of NAMA, in certain circumstances, to apply for a vesting order, vesting mortgaged or charged property in NAMA and extinguishing the equity of redemption. The High Court analysed these provisions very carefully (see paragraphs 7.47 to 7.51). The Court pointed out that “the entitlement of NAMA to seek and obtain a vesting order only arises where NAMA would be entitled to sell the property itself and where there would be no reasonable prospect of that sale covering the debt and where the borrower concerned has no reasonable prospect of being able to otherwise discharge the debt.” It acknowledged that, “at a formal level, there appears to be a very limited effect on the legal entitlement of a borrower in those circumstances,” but “found it difficult to characterise any change in a borrower’s position in those circumstances as being a diminution in the borrower’s rights,” essentially because that “any interest which the borrower might have in those circumstances is of the aspirational or “hope” nature..” Thus, applying the test it had set for itself, as quoted above, this consequence was “insufficient to give rise to a constitutionally protected right such as would engage an entitlement to fair procedures.” 105. Finnegan J has analysed in his judgment today the foregoing and a number of other provisions of the Act conferring specific powers on NAMA. He has demonstrated that, at the very least, NAMA has powers which were not available to the financial institutions. Their precise effects cannot be judged in the abstract or apart from the context of a particular dispute. It is not possible to pass judgment definitively on these provisions. I believe, however, that, when considered in their entirety they show that the transfer of loans to NAMA has the potential to affect borrowers, at least to a sufficient extent to require NAMA to accord a hearing to the appellants prior to making an acquisition decision. 106. I have endeavoured above to give a brief summary of the appellants’ case for effects on their interests. There is dispute about the correctness of some of Mr. McKillen’s claims, in particular, about the extent to which his loans are impaired. The central point is, in my view, that the transfer to NAMA puts the appellants and Mr. McKillen in a fundamentally different situation. NAMA, a statutory body, with statutory powers and objectives replaces his banks with which he has had, up to now, a commercial relationship. His long-term business model is not compatible with NAMA’s statutory remit, which is essentially short-term. Where NAMA is in a position to rely on default by any of the appellants under their loan agreements, it is not only likely to but obliged to take action in pursuance of its statutory objectives, where a bank either would, or at least might, not do so. The consequence of an acquisition decision is to make a substantial change in the way in which the appellants are in a position to exercise their property rights. Their ability to manage their properties independently is reduced. 107. NAMA relies on the fact that each bank has the right to transfer the loans without consulting the appellants. They say that each bank has voluntarily sought the protection of NAMA and that it is that fact that enables NAMA to make acquisition decisions. I cannot accept that analogy. It is undoubtedly correct that the banks voluntarily applied to be included in the NAMA scheme. That occurred because of the severe banking crisis which followed the burst of the property bubble and placed them in a financially weak position. However, the acquisition decision is made pursuant to a statutory power under section 84 and is made for a statutory purpose. It is not to be compared with the voluntary assignment of loans. 108. NAMA also relies on the general economic and banking crisis. It says that the appellants’ banking relationship was never going to be the same following the crisis which led to the grant by the State of the banking guarantee in September, 2008. It has to be acknowledged that there is great force in that argument, which was accepted by the High Court in the following terms at paragraph 5.5:-
110. I have come to the conclusion that the appellants have the right to be heard by NAMA before it makes any acquisition decision in respect of their loans. That right relates, as I have already emphasised, only to representations with regard to the effects any acquisition decision is likely to have on their particular interests. It does not extend to making representations concerning the considerations, other than effects on the appellants, to which NAMA will have regard when considering whether to make a decision. I would emphasise that the right is to make representations. This is not a case where the decision maker will be proposing to deprive the subject of a proposed decision of an office or employment, a licence or other legal right or privilege. In such cases, where it is proposed to make a decision adverse to the holder, the law requires that notice be given of any intention to rely on any misconduct or breach of the terms of the relevant license or other legal instrument. (see for example State (Gleeson) v Minister for Defence [1976] 280.) In the present circumstances, it is the appellants and, in particular, Mr McKillen, who, as explained in the application for judicial review, wish to advance reasons why the decision should not be made by reason of matters peculiar to them. 111. I would not dictate the form or extent of any facility which NAMA should extend to the appellants. I do not suggest that they are entitled to an oral hearing before the Board of NAMA or any officer of NAMA. All these are matters to be decided by NAMA, in consultation with its advisers. NAMA is clearly entitled to have regard to any element of urgency attending the decision-making process. I would endorse the following passage from de Smith’s, Judicial Review, 6th Edition, Sweet & Maxwell (London, 2007) at page 377:-
Judgment of Macken, J. delivered on the 12th day of April, 2011 In this appeal the several appellants have sought to set aside the judgment of the High Court (Kearns, P., Kelly and Clarke, JJ) delivered on the 1st November 2011, and by which it refused leave to the appellants to seek judicial review concerning the decision by the first named Respondent (hereinafter “NAMA”) to take over certain “eligible assets” of two Irish Banks, represented by the loans of the appellants, on the basis that substantial grounds had not been made out in respect of any of the issues, on the basis that the provisions in issue do not materially alter the position of the appellants, and that none of the asserted rights were exposed to any alteration of a type, nature or extent, such as to create an entitlement to fair procedures.. The sole exception found by the High Court was based on its consideration of the position which would have arisen if that Court had held that there were constitutionally protected rights, and there should therefore be implied into the legislation an obligation that appropriate procedures be complied with – in this case, a right to be heard. In respect of that issue, on which it was held that the appellants had made out substantial grounds sufficient to meet the statutory requirement in that regard, the High Court, having granted leave on that narrow issue, nevertheless rejected the appellants’ case on the merits, and thereupon dismissed it. In that regard, the High Court, at the end of its analysis on this issue, stated:
(2) Their claim concerning the failure of NAMA to take particular or specific matters into consideration; (3) Their claim that the decision of NAMA to acquire the eligible assets was a nullity; (4) Their claim as to the constitutionality of the National Management Agency Act 2009 (“the Act of 2009”); and (5) Their claim arising out of the decision of the European Commission on its receipt of details of the NAMA scheme; Any decision by NAMA to take over loans of a borrower on the books of a bank is made pursuant to the provisions National Asset Management Agency Act, 2009 (“the Act of 2009”). The Act of 2009 is one of several pieces of legislation, including the Credit Institutions (Financial Support) Act, 2008 and the Credit Institutions (Financial Support) Scheme, 2008 established pursuant to statutory instrument, and others, which together were adopted with a view to addressing the financial crisis which developed in the State in 2008 and since. The intention of the Act of 2009 was, inter alia, (a) to establish what NAMA described, in affidavits filed on its behalf, as a “work out” vehicle for the disposal of certain assets the subject of the legislation; (b) to permit NAMA to acquire, hold and/or dispose of “eligible assets” as defined in the Act, being some at least of the book debts of participating banks, represented in the main by loans given to development borrowers; (c) to acquire as part of those eligible assts, the mortgagee/bank’s interest in the underlying securities supporting the borrowings; and (d) to facilitate the possibility that the eventual use or realisation of the securities would generate a profit sufficient, at least, to exceed the cost of the statutory scheme. In the context of the issues which arise on this appeal, it is critical to understand what the scheme envisages. It is not the intention of the scheme simply to acquire bad debts, whether all or some of them, of participating banks. What is intended, as is clear from the affidavits filed on behalf of NAMA, is that specific identifiable and identified “eligible assets” of named parties are first subject to scrutiny and analysis, and assessed by reference to the risks which they pose to the financial sector. NAMA also assesses the value of the eligible assets constituting the underlying securities for borrowings appearing in the books of the bank. All this occurs before NAMA decides whether or not, pursuant to Section 84 of the Act of 2009, to acquire any particular eligible assets. The specific eligible assets, the subject of this appeal, are those of or relating to the appellants and as were the subject of a decision by NAMA to acquire them. I have had the benefit of reading the judgment of Hardiman, J., with which I agree. I propose in this judgment to confine myself, on the fair procedures issue, to a few points which I wish to address separately, namely, (a) the extent to which the right to be heard is recognised as a general principle of law, and to what that right attaches, (b) whether it can, in the context of the issues arising in these proceedings, be set aside; (c) whether the appellants’ rights are, or risk being, interfered with, in a manner which, together with other matters, supports, on the merits, their asserted right to be heard, prior to NAMA making a decision to acquire eligible assets, and the consequences flowing therefrom. In this appeal, as was also the case in the High Court, four separate constitutional rights of the appellants were invoked on their behalf by senior counsel, Mr. Cush, as being those which support his contention that the appellants have a right to be heard before NAMA makes its decision, because such a decision will interfere with them. These are, in short:
(b) The appellants’ interests in the income stream from those properties, and/or from which, it is said, inter alia, Mr. McKillen earns his livelihood; (c) a bundle of contractual and other rights existing between the appellants and their banks; (d) Mr. McKillen’s reputation, which, it is alleged, is critical in the area of commercial property development.
• the determination of that right; and • the exercise of that right. Rather surprisingly, whereas several cases, both in this jurisdiction and elsewhere, deal with the application of rules or principles relating to the exercise of a right to be heard, they refer scarcely at all to the rationale grounding the basic principles generating the right. There is little detailed analysis found in any of the case law which assists in deciding the matter on a definitive basis. It may well be that, in light of the long existence of the common law rule of natural justice, represented by the principle audi alteram partem as a fundamental norm in administrative law, it has not been thought necessary to do so. It is, therefore, essential to start from first principles, and see what the law requires on the issue of the right to be heard, when a party claims his rights are, or may be, interfered with, before considering how the appropriate legal principles impact on the issues in this appeal. In the present appeal, the importance of understanding to what the right refers, and when it applies, is critical, because the appellants claim that they have certain constitutional rights, arising both from the ownership and the exercise of their property rights, as well as rights in their reputation, which must be protected and which, in order to be so protected, require that they be heard before any decision is taken. A bank, if a participating institution, has some right to be heard in some way, pursuant to the Act of 2009, in order to challenge whether or not the claimed “eligible assets” are just that, and that issue may be referred to an expert for determination. The Act of 2009, is, however, entirely silent on the existence of any right in borrowers, mortgagors or guarantors to be heard before any decision is taken by NAMA, and once “eligible assets” are acquired, the decision to acquire cannot, according to the Act of 2009, be challenged. Section 103 of the Act provides:
A starting point for considering whether there is a general right to be heard where actions or steps are proposed which will, or may, interfere with the rights of a party, might be thought to be the European Convention on the Protection of Human Rights and Fundamental Freedoms (“the Convention”). While Article 6 of the Convention, together with other articles, including those granting a right to private property, according to the case law of the European Court of Human Rights, recognises a right to have the determination of, inter alia, civil rights or obligations heard or disposed of in public, I am not satisfied, on a review of the case law, that any sufficiently clear assistance can be gleaned from the jurisprudence of that Court to assist definitively in determining whether a clear right to be heard arises in all cases of parties claiming interference with rights, or if not, in what circumstances such a right must be permitted, and what the applicable principles are for assessing the extent of the interference which must exist, in order to establish the right. The next possible source for the expression of such a right might be thought to be the Charter of Fundamental Rights (“the Charter”) of the European Union, adopted as part of the adoption of the Lisbon Treaty, and having the same standing as the Treaty itself. A consideration of the Charter discloses that the Member States of the Union have adopted, as an express fundamental right, the right to an effective remedy, and a right to a hearing. Article 47 provides that:
Everyone is entitled to a fair and public hearing within a reasonable time by an independent and impartial tribunal previously established by law. Everyone shall have the possibility of being advised, defended and represented.”
37. In accordance with that principle, the addressees of decisions which significantly affect their interests must be placed in a position in which they can effectively make known their views as regards the information on which the authorities intend to base their decision. They must be given a sufficient period of time in which to do so … 38 The authorities of the Member States are subject to that obligation when they take decisions which come within the scope of Community law, even though the Community legislation applicable does not expressly provide for such a procedural requirement.” (emphasis added) Further, according to that case, respect for the rights of the defence implies that, in order that the person entitled to those rights can be regarded as having been placed in a position in which he may effectively make known his views, the authorities must take note, with all requisite attention, of the observations made by the person or undertaking concerned. [para. 50] However, that case was decided on the principle of the right of defence, rather than by invoking an independent freestanding right to be heard. I read it nevertheless as suggesting that, where a decision of the type made there is proposed, and which significantly affects his interests, the addressee of the decision must be heard first. Nevertheless, I do not consider it to be applicable in the present case. The decision at issue in that case breached another cardinal precept of natural justice, namely, that no person should be condemned to any sanction, civil or criminal, without being afforded an opportunity of being heard. It does not assist in determining whether the second cardinal principle, namely that of audi alteram partem, will also be accepted by the European Court of Justice as a fundamental right or as a general principle of Community Law, and more importantly, in what circumstances a right to be heard must be guaranteed. It is nevertheless helpful in that the purpose of the first rule is to enable parties to present information evidence or argument as to why a decision should not be made, and therefore, has the same purpose as that arising on the exercise of a right to be heard in the present case. I, therefore, consider the view expressed in that case as informative. I am also satisfied, for the reasons explained above in relation to how and by reference to what the decision to acquire eligible assets, constitutes the appellants addressees of the decision of NAMA, in the sense used in case C-349/07. I also note that the Court has, during the course of 2010 and 2011 to date, since the adoption of the Charter, dealt with three cases in which the provisions of Article 47 have been in issue. These are Case C-317/08 Alassini and others v. Telecom Italia, Case C-407/08 P Gips v. Commission, and Case C-409/06 Winner v. Stadt Bergheim. In none of these cases, however, has the question which arises before this Court been the subject of comment or decision, and I have concluded therefore that the case law of the European Court of Justice on the right to be heard, as a particular element of the principle audi alteram partem, is not sufficiently instructive in this particular appeal to be of assistance. It is appropriate, before considering the next source to which I wish to refer, to say something in general about the right to be heard. Procedural fairness has come to be regarded as the bedrock of administrative law. So fundamental to administrative law is the principle audi alteram partem, that it may well that little is said as to its applicability in recent case law, save almost in passing. It seems to me, however, that the particular value underlying a procedural fairness rule of this nature relates to the principle that the individual affected by a decision should have the opportunity to present his case fully and fairly, and have a decision affecting his rights, interests or even privileges made using a fair and impartial process. That of course will depend also on the appropriateness of the process to any statutory, institutional and/or particular context in which the decisions are made. Clearly, that context must play a particularly important role in the assessment of the fair procedure in issue, in this case the right to be heard. There are several general criteria which could be propounded, I believe, for the purposes of assessing whether, in a given case, fair procedures require that a person be heard before a decision is made, including, for example: (a) the nature of the decision; (b) the nature of the statutory scheme; (c) the importance of the decision to the person invoking the right - in this case - to be heard; and (d) the choice of procedure, if any, adopted by the decision-maker. There may be others, such as legitimate expectation, and so forth, but the above are ones which resonate in the case law in this jurisdiction, to which I now turn. For the purposes of this appeal I am satisfied that, with the plethora of case law concerning administrative law and the rules of natural justice, including the right to be heard, the most important source of such a right, is clearly the Constitution, and/or the common law, and the jurisprudence on such rights, as developed in the case law of this jurisdiction. On behalf of the appellants, Mr. Cush did not invoke a free standing constitutional right to be heard. Rather, he submitted that the right to be heard flows from the fact that several constitutionally protected rights are being interfered with and that being so, the interference with those rights carries with it the right to be heard. I am in agreement with the analyses of Irish case law on the right to be heard, as an element in the right to fair procedures or natural justice, found in other judgments delivered on this appeal today. I do not consider it necessary therefore to embark on a separate treatment of all of that jurisprudence in this judgment, but will confine myself to addressing the following cases. They are Haughey v. Moriarty [1999] 3 IR 1, and O’Callaghan v. Mahon [2005] IESC 9, as well as some of the cases therein cited. In O’Callaghan v. Mahon, Hardiman, J. invoked, in a different context certainly, the following extract from the judgment of Ó Dálaigh in Re: Haughey [1971] I.R. 217
“ … In proceedings before any tribunal where a party to the proceedings is on risk of having his good name, or his personal property, or any of his personal rights jeopardised, the proceedings may be correctly classed as proceedings which may affect his rights, and in compliance with the Constitution the State either by its enactments or through the courts, must outlaw any procedures which will restrict or prevent the party concerned from vindicating these rights.” (emphasis added)
In light of the foregoing, as well as the more detailed analyses found in other judgments, I am satisfied that each of the claimed rights of the appellants, as invoked by them, when properly considered, is a genuinely serious constitutional right which they are justified in invoking for the purpose of asserting a right to be heard. First, they claim an interest in the underlying value of property owned by them. It is said to have a huge value, on the evidence adduced. This is a property right which, if it is established that it will, or may be, affected by a decision of NAMA to take over the loans, must entitle the appellants to the protection of the law. So too is a right to the income stream therefrom, which is used, inter alia, as a means of the last appellant earning a living, an important personal and property right. If the underlying property itself, or the value of it, free or otherwise, is also the subject of the claimed bundle of rights, inter alia, any contractual or quasi contractual rights, existing between a mortgagee bank and the appellants, these too are important rights being invoked. If they are established, and the decision of NAMA may threaten to interfere with them, or otherwise affect them, then such a right is one in respect of which a person affected may again seek the protection of the law, and, in this case, assert a right to be heard. As to the High Court’s assessment and analysis of the merits of the right to be heard, Mr. Cush, for the appellants, apart from arguing that the High Court was wrong in finding no real interference with the appellants’ rights had been established, also complains about the absence of any decision at all by that court on some of the above issues. He points to:
(b) the failure of the High Court to assess the real interference with the banker/customer relationship, called the “bundle of rights” existing in the appellants, based on the relationship between them, or to assess how the rights acquired by NAMA would, in practice, affect the appellants’ rights; The appellants claim that as to the first of the above matters, apart from the overall value of the entire portfolio, there is also an underlying “free” value amounting to many millions at any given time, including, it must be assumed, at the time of any decision. The answer to this, on the part of NAMA, is that this depends, at the end of the day, on the current value of the properties. That is no doubt true. However, while NAMA does say the effect of its decision will be minimal, it does not say that, if the appellants are found to be correct, such claimed effects would not constitute a material interference with their rights. NAMA did not allege that there could be and was no underlying value to the properties of a “free” nature, nor any income stream which might be available to the companies or to Mr. McKillen as a means of earning a living. They questioned of course, whether there might genuinely be any income at all, if the lenders had not benefited from the State assistance mentioned above. That being so, the eventual result of the exercise of a right to be heard, which may be affected by the properties’ then value, cannot be the decisive factor, unless NAMA could establish, in advance, that there was no reasonable basis in the appellants claim, in other words, that it was based on spurious or worthless or unsustainable evidence. I cannot find any such claim on the part of NAMA. Indeed, while some of the evidence adduced on behalf of the appellants is put in issue, properly so, by NAMA, this could not be said to place any of the appellants’ evidence into the category of being worthless or spurious or unsustainable. Rather, it would be more correct to classify the evidence presented on behalf of both parties as being valuable, strong, and carefully presented, but nevertheless conflicting. However, the High Court itself did not find that, if it were established, the interference would not constitute, on the merits, a “significant” interference (the test which was applied), such as to generate the right to be heard. The High Court found, on the contrary, that such significant claimed interference had not been established by the appellants. NAMA argues as follows, in brief: the Act of 2009 and the associated legislation, including certain regulations, which were adopted at a time of severe crisis in the banking sector of the Irish economy, have had extremely serious impacts on all sectors of the economy, on the Exchequer, and on the citizens of the State; what are being acquired are the “bad loans” on the books of the participating banks, that is to say, eligible assets on their books, who would then have more “attractive” books, so as to allow for appropriate recapitalisation of the banks; the Act of 2009 deliberately does not provide for any right in a borrower to be heard; that is a proportionate response to the crisis; the pre-existing private law relationship between the appellants and their banks permitted and envisaged the assignment of the very loans, mortgages and other securities in issue; it would be enormously onerous for NAMA and, indeed, would undermine the entire scheme of the legislation, if borrowers were granted a right to be heard;, to permit such a right to be exercised would also constitute an unduly delaying factor in the essential work of NAMA, a matter recognised by the Commission of the European Union when it did not demur from the relatively short target period fixed for the acquisition of eligible assets; and by reason of the critical nature of the events surrounding the near banking collapse, there was great urgency attaching to the timescale for acquiring the eligible assets, which would be put at risk if a right to be heard were granted to borrowers. With regard to interference, NAMA does not concede that, even if there is interference with property rights, even significant interference, as I understand the argument, such would give rise to a right to be heard, NAMA adhering to the position that the legislation justifiably intends there should be no such hearing, and that this restriction is proportionate. NAMA does nevertheless, allege that the actual transfer will have no or only a minimal effect on the appellants’ rights. I now return to the third right invoked on behalf of the appellants, which concerns their “bundle of relationships” with their bankers/mortgagees, including contractual ones, being vested rights protected by the Constitution. Depending on the precise nature of the various parts of a bundle of rights which are invoked, there may be some which are too amorphous to merit a sufficiently defined “right” or even “interest” to permit reliance to be placed on them, or even that the decision, in respect of those could genuinely “affect” a person in a manner which attracts a right to fair procedures, and thus the right to be heard. For example, NAMA’s claim that the likelihood that banks would, in the context of these appellants, and regardless of their financial strength, continue with existing arrangements with the appellants and therefore be in a position, for example, to roll over debts or mortgages, or even grant new loans, where the relationship was, on the admission of the appellants, short term in nature, and indeed deliberately so, appears reasonable to me, unless rather cogent evidence was adduced to the contrary. There is never the certainty, NAMA say, and there could probably never be such a certainty, that short term arrangements of the type in existence between the appellants and its bankers would never change. I do not consider that this court can come to a definitive view of such matters where such a view cannot, at this stage, be established with certainty, and where there is credible evidence on behalf of the appellants, that even in such circumstances, there are banks who would continue such support. On the other hand, however, the transfer of the loans of the appellants, together with the underlying security attaching to them, or any “related loans” as defined in the legislation, from the books of their banks to NAMA, does nevertheless, in my view, have the potential for significant interference with existing rights of the appellants, such as to justify the appellants’ claim to be “affected” within the meaning of the above case law, including their rights in the so called “free” value of the underlying property, in the income stream, and with their existing contractual or quasi contractual rights (or part of the bundle of rights existing between the appellants and their bankers). Mr. Cush argues that the High Court failed properly to analyse, in respect of these rights, how a decision of NAMA would affect the appellants and their loans and securities in practice, but rather limited itself to statements of the legal position, and resolved the issue on the latter basis. I consider there is merit in this argument. This requires, however, that the general position relating to mortgages and securities arrangements between banks and borrowers be set out briefly, so as to ascertain how, in general, borrowers could be could be affected, and quite materially, by a decision of NAMA, and to see whether and how the appellants might be so affected. Without citing chapter and verse of the overall NAMA legislation, save where necessary to do so, since a detailed analysis of this is found in the judgment of Finnegan, J., delivered today, and with which I agree, the following, as practitioners will well know, and as appear from the case law, the legislation and academic writings, is the position in general. Under the usual arrangements existing between a borrower and a financial institution, as in the present case of a developer borrower, it is a certainty that the borrowings will have been secured, inter alia, on underlying real property as well as on other interests, by means of a legal mortgage or charge. It is envisaged by the provisions of the Act of 2009, by the regulations and the related legislation, that NAMA clearly will - and it has in respect of other parties - when taking over the debts represented by loans on the books of the banks, take, as part of the eligible assets, the benefit of the mortgagee/bank’s interests in the mortgages/ charges/guarantees or other securities underpinning the original loans in question. That is part of the very rationale of the legislation and the scheme, as provided for. The consequences in so doing have, in my view, an effect on at least the original contract or loan agreement made between the borrower and the banks, and on the value of the underlying property, in particular, that part sometimes called the “free” element in the value of the property, and not simply an indirect or coincidental effect. NAMA argues there is no change in the legal position of the appellants. While Mr. Cush agrees that the appellants’ legal position remained in situ, he nevertheless contended that the High Court failed to analyse how NAMA’s powers arising from the decision would affect the appellants in practice. I confine myself to mentioning two or three specific examples where a borrower’s property interests and rights are, or there is potential for them to be, affected materially. Speaking only in general terms for the moment, ordinarily a borrower – typically a development company - enters into an agreement for finance with one or more banks. The terms upon which such borrowings are to be made available will be incorporated into a letter of loan approval, which will inevitably list several conditions, including one requiring the borrower to grant security for the loan(s). The securities are usually express, and may be very wide ranging. They certainly will be in the case of substantial borrowings. In due course, in respect of each property agreed to be given as security, there will be executed a charge/mortgage as well as guarantees. In the case of a development company, the underlying security will typically consist of the development site itself and buildings to be constructed on the site, together with, in appropriate circumstances, a charge over the rental income, so that rents coming from the properties in the development are deposited against the mortgage debt, unless the development is being sold on, in which event, part of the security may relate also to a charge over the eventual sale price(s), in particular, if constructed by a third party. There may be mortgages over related properties, and cross guarantees by related companies and/or individuals. Assuming everything goes well, in the case of a development being retained by a developer, the rents will usually meet the debt. Some agreements between the parties may provide for the creation of a sinking fund into which part, or all, of the rents will be paid, in order to discharge both the capital sum due at the end of a loan term, including the ongoing interest charges, or it may be that both capital and interest will be paid over the entire, or part of the term of the loan, or that the interest element only will be paid. There may be a deferral of payments for an initial period. The variations are numerous, and may be driven by what is tax efficient, or how the market is operating at a given moment. The terms may even be driven by what will benefit, not only to a developer but also, in the case of property being retained by a developer, what will suit some of the developer’s key tenants. While certain statutory provisions exist for the purposes of protecting parties, including, in particular, individuals or consumers, it has to be borne in mind, of course, that in the case of mortgages/charges between financial institutions and commercial undertakings, many of these statutory protections will be excluded, by consent, the mortgagee usually insisting on this, and the developer normally consenting. Eventually there may be a default. In a standard mortgage or charge there is always an express power of sale, and in any event such a power is permitted by the provisions of applicable legislation which I do not have to cite in the context of this general exposé. There is, however, no automatic entitlement in a bank/mortgagee to possession of the mortgaged premises, in the event of a default, or even when a financial institution decides to call in loans and exercise its power of sale. Therefore, without more, a mortgagee/bank seeking to sell, has no power to grant possession to a purchaser when closing a sale. In the event of default, frequently a bank will enter into negotiations with a borrower to allow the borrower time to sell, the borrower generally (but not always) being in possession. Occasionally, a borrower may consent to the mortgagee going into possession. However, a bank is not obliged to do so, and equally a borrower has no right to insist on being permitted to sell. In the event of agreement between a bank and a mortgagor, the bank does not have to go into possession, and the property will be sold by the borrower, with the mortgagee/bank’s agreement, the bank debt being discharged, and the borrower being in a position to give a good title, including possession, to the purchaser. Even when a mortgagor consents to possession vesting in the bank, this will not, in many cases, overcome the disadvantages for a bank, inherent in doing so. If a mortgagee/bank goes into possession of commercial premises, which are leased to tenants, it may, and usually will, become liable for such covenants in the leases as were also the liability or obligation of the borrower/mortgagor. The mortgagee bank may also become liable for the security of the property which in the case of, say, a commercial shopping mall, may be excruciatingly costly. Hence the desirability to deal, even with a defaulting borrower, in order to avoid such sample disadvantages, even if the costs or liabilities for these are, by consent, to be charged against the borrower eventually, a poor consolation for a bank with a non-paying borrower. Critically, in the event of default, if a bank calls in a loan and wishes to sell, and does not enter into any arrangements of the types above mentioned, it must seek an order for possession from the Court. On that application, again typically, a mortgagor will be entitled to argue against an order for possession, or may present to the court – and this often occurs even in domestic situations – a schedule or plan for its own sale of the premises. Provided the proposal is clear, certain and reasonable, a court may, and frequently will, exercise its discretion to refuse possession, by acceding to the plan, which may extend over a period in excess of a year, or more, provided, usually, that certain payments are made in the meantime to protect the mortgagee, and provided there is also remaining some underlying equity or “free” element in the property for the mortgagor. In general, this application for possession will have been preceded by negotiations, sometime lengthy, between the parties. A mortgagor may or will therefore have significant protection from the Court in such a situation. Nevertheless, a mortgagor’s original contract, represented by the letter of loan agreement, and/or the mortgage/charge, will envisage that a power of sale may eventually be exercised, and commercial borrowers recognise fully that the law envisages an application to court for possession being made, and that possession may be granted. Up to the point of sale, however, the mortgagor can always exercise his equity of redemption. But that, in law, is simply the right to redeem the mortgage, by paying off the loan (usually by refinancing). Sometimes this is referred to, loosely, as representing the balance of the underlying surplus value in the property, once the loan is paid off, although this is not, strictly speaking, correct. The equity of redemption is simply a “last chance saloon” type remedy in the hands of the mortgagor. Crucially, however, if it is exercised, it thereby allows the mortgagor to have ownership and control of any remaining surplus equity, a vital matter, in particular for a development company. The power to sell with a court order for possession may still occur, if the equity of redemption right is not exercised. When a mortgagee/bank calls in a loan, and exercises its right of sale in such circumstances, however, there is another equitable principle applicable, namely that the bank must look for and secure the very best price for the property. At the very least the bank must be able to establish that it has taken all appropriate steps to secure the best possible price. This principle applies so as to ensure that the position of the mortgagor (as well as that of subsequent mortgagees, if any) is appropriately protected. If it were possible for the mortgagee to sell mortgaged property at any price, as can occur under the law in some jurisdictions, then the mortgagor’s outstanding equity in the property could be seriously undermined. On the sale of mortgaged property, a mortgagee selling is obliged, first, to discharge the expenses arising on the sale, then to discharge to the mortgagee the primary debt and any outstanding interest on it, and then any debt due to a subsequent mortgagee, if any. The mortgagee must then return the entire of the surplus to the mortgagor. There may or may not be a surplus, of course, but if there is, it must be returned; that surplus represents the mortgagor’s remaining equity in the property, or “free” element. I can think of no circumstances in which a court would permit a mortgagee to purchase, for its own benefit, property mortgaged to it, save perhaps in the case of a mortgage from one family member to another. Such a purchase is ordinarily precluded by law. The reason, inter alia, for this is that a mortgagee cannot enrich himself by purchasing the mortgaged property and then hold on to any surplus arising on a sale. That is not the contractual arrangement entered into, which is to mortgage property to the extent to which it represents the borrowings made and the interest charges thereon, and no more. A third principle applicable is that a mortgagee, exercising a power of sale, may not delay selling the mortgaged property, subject always to the court, or the parties agreeing to this. This is so as to ensure that the mortgage debt does not continue to increase, to the detriment of the mortgagor, or of subsequent mortgagees, by reason of an improperly delayed sale. NAMA’s Position in Law It would rarely, I believe, be in NAMA’s interest to seek orders for possession with the attendant liabilities I have referred to above, and others, save in exceptional circumstances. Instead of merely having a power of sale, as an assignee from the banks, therefore, if it wished to dispose of property charged, and have control both over its realisation, over any free element and over the timing of any sale, it clearly needs something more than the right to seek a court order for possession, and the exercise of a mere power of sale. One of these additional rights, it seems to me, is the vesting order provided for under Chapter 4, Part 9 of the Act. I use this order, among the several new powers granted to NAMA and otherwise not available to a mortgagee, by way merely of example. There are several other provisions of the Act of 2009 granting powers or exemptions not available to a mortgagee/bank, including those concerning receivers of one or other type mentioned above, described in more detail in the judgment of Finnegan, J. The Act of 2009 envisages that NAMA, on a vesting order, will have a right of sale, clear of any requirement to seek possession. The vesting order right comes into play once the borrower is in default for a specified period, and once NAMA is of the opinion that the sum secured by a charge cannot be recovered by way of sale, and the borrower cannot redeem the charge within 3 months of the date of application, which is, by any standard, a very short period of time indeed. While the mortgagor is on notice of that application, unless the court is satisfied he can redeem the charge, then the Court “shall” make a vesting order, pursuant to the provisions of s.153 of the Act, upon being satisfied with the accounts before it. There are ancillary provisions granting other benefits to NAMA: It does not have to be registered as the owner of any of the property within the ambit of eligible assets, even those where an assignee or the beneficiary of a court order would ordinarily be required to become registered; similarly there are provisions under which a written document issued under the seal of NAMA is sufficient evidence of the conveyance or transfer of lands, and so forth. The Appellants’ Position However, as mentioned above, under the law relating to a sale pursuant to a mortgage or charge, first, a mortgagee may only take from the proceeds of sale what is due to it, and must return the balance to the mortgagor; secondly, there is an obligation on a mortgagee to get the best possible price; and, thirdly, in the case of a sale by a mortgagee bank in possession, either by consent or pursuant to Court Order, the sale may not be deferred so as to benefit the bank/mortgagee, to the detriment of a mortgagor. On the other hand, once a vesting order is made under the Act, it would appear – and indeed is intended by the legislation to be so – that NAMA is not obliged to sell at all, or within any specified period of time. NAMA, on the contrary, is entitled to hold onto the property to await a possible or expected upturn in the market, even for a period of years, and, in consequence, retain the entire profits accruing from any sale. A consequence of the vesting order and the legislation is that NAMA can choose also to continue to hold the property as long as it wishes, having purchased the eligible asset for a reduced price which is less than the original debt, selling the property later so as to benefit from an improving market, at a substantial profit, and for its own benefit. No doubt there is some diminution of the impact of a vesting order on a mortgagor, arising from the Court’s entitlement to fix a notional value for the property at the time of the making of the vesting order, pursuant to s.153 of the Act. But that, in itself, does not alter the ability of NAMA to delay the sale of property, even for several years, and thereby benefit exclusively from the profit generated by any upturn in the market. According to the High Court, it found that the position of NAMA was no different to that which occurs in the case of any sale, when a purchaser can take the benefit of any “uplift”. It seems to me that it is not the correct comparison to be made. The appropriate approach is to assess whether the decision of NAMA will, or will likely, affect the appellants’ position. A comparison with a person who purchases property on the open market from a willing seller is scarcely a true one. During the course of argument before this Court, it was said on behalf of NAMA, that the obligation to secure the best price continues to exist even after the vesting order. That may be so, but since there is no longer any obligation to the borrower, save in one respect mentioned below, any obligation to get the best possible price, even if it exists, appears to be for the benefit of NAMA, and deliberately not for the mortgagor. There may, therefore, be an independent obligation on NAMA to secure the best possible price to fulfil its own objectives, but that is an entirely different issue. This seems clear, not only in consequence of the provisions of the Act of 2009, but also what is clearly understood by NAMA itself and accepted by the High Court, that any increased price, including the best possible price, is intended to redound exclusively to its benefit. So, even without holding the property for any prolonged period, the “free” element may generate a profit in the immediate future, with, in consequence of a rising market in the medium or longer term, larger profits, depending on how long the property is held for. This is clearly its intention in all cases it chooses, as is evident from statements made by Mr. Frank Daly in his affidavit evidence. It is also what was clearly understood by the European Commission’s comments on the scheme’s recovery aims. The rationale behind the vesting order scheme appears to be:
(b) to permit NAMA to hold the property for so long as it, in its discretion, decides, so as to maximize the eventual price it will secure, and to facilitate the possibility of profit for it, another alteration in the position of the original mortgagee - who could not hold the property at its whim - and its relationship with the borrower; and (c) to ensure that at a certain time, either in the short or longer term, there is a sufficient amount of “free value”, or increased value, in the property to allow NAMA recoup more than the amount it has cost them. (d) to provide, within the legislation and the scheme, various acquisition powers and ancillary relief or exemptions so as to enable NAMA easier access to the underlying securities, both physically and also legally, with a view to having very keen control over the realisation of these in order to maximise their recovery value. As mentioned, the High Court found that NAMA was entitled, although a mortgagee bank would not be, to take the benefit of the “uplift”, simply stating that, as with any other person purchasing property, the purchaser was entitled to benefit from an improving market. That, however, does not establish either that the stated rationale is acceptable in law, in the sense of being either proportionate or justified, and clearly alters, or affects, the appellants’ rights, vis a vis, mortgagees. NAMA itself, as is clear from the exchanges of emails presented during the course of the appeal, appears to take the view that once the vesting order is granted, any “free” value in the underlying properties redounds to its benefit, and is under its exclusive control. That must mean the “free” value of the property claimed by the appellants to constitute both part of their constitutionally protected right in the underlying property and in the income stream accruing from it. In order to permit NAMA to benefit precisely from that “free” value, there is clearly an incentive in NAMA to control that free value as soon as possible. The only way to do this is by means of a short default period, as provided for in the Act of 2009, followed by a vesting order, with the immediate right to benefit from any uplift which would otherwise be returned to the mortgagor, or continue to use the property to secure rental streams from it. There appears also to be a disadvantage for any guarantor of underlying loans, and affects also the contractual position represented by guarantees. In the case of a bank/mortgagee, in the ordinary course, a sale by it in excess of the debt would discharge the primary debt and also would discharge the guarantor, unless the guarantee remained in place to meet other liabilities. In the alternative, a lesser sum on a sale would reduce, not only the primary debt, but the guarantor’s liability, by the same amount. The scheme, as provided for in the Act of 2009, appears to suggest that guarantors continue to be liable to NAMA under their original guarantees, as assigned from the mortgagees/banks. In the case of a vesting order, they also continue to be liable, under their guarantees, as they would have been originally, if a sale does not generate an amount sufficient to discharge the amounts due on the primary debt. What then is the position if NAMA secures a vesting order and holds on to property and profits from a subsequent sale? Assuming it benefits to a sum in excess of the original cost to it, as provided for under the Act, are the guarantors then relieved of their obligations, or by what amount, if any, are the guarantees reduced? If it be the case that the guarantor remains liable to NAMA for all of the original borrowing, or more than the above cost, this may or potentially affects the guarantors, possibly significantly, as an additional interference in the interests of the guarantor of any mortgage. A further possibility permitted to NAMA under the Act of 2009 and not permitted to a mortgagee bank, is that NAMA could secure a vesting order and then either directly, or through the appointment of a receiver or agent, continue to gather in all the rents accruing on a commercial property, while delaying the sale of the property until the market has improved. In such an event, there is no evidence that these rentals, originally charged to a bank and paid in reduction of a primary debt and/or interest, so that the borrowers and/or the guarantors benefit from an equivalent reduction, will continue to be applied in the same manner. Indeed, from responses given during the appeal hearing, it seems not. Under s.151, and other provisions of the Act of 2009, a receiver (whether before of after a vesting order) is not obliged to sell the property at any time, or at all. The above rights are not ones NAMA would have had at the point where it acquires eligible assets, since it is clear it only acquires the mortgagee’s interest in the securities in question. They are rights acquired only by virtue of the provisions in the Act of 2009, surrounding the vesting order, and other provisions of the Act, such as those relating to statutory receivers, for example. Conclusion As to the exercise of the right to be heard, which is the final matter I would wish to comment on, for a long number of years it has been clearly established in the case law of this jurisdiction, that the nature of any such hearing, is a matter entirely dependent on the circumstances of each particular case, in which the right is properly established. The gamut of the nature of the hearing is very wide indeed, and may range from a hearing which adopts all the panoply of a court hearing on the one hand, to a hearing in which the party exercising the right is limited to written submissions. There is, in law, no requirement that a person be physically present, himself, or through legal representation. It is sufficient that he is “heard” by exercising the right to make all representations or submissions to the decision maker which the right holder wishes to make, the ambit of which, provided it is relevant, remains under his control. The right is a right to be heard, and is an active right, which differs in a material way from other rights or obligations which may be enjoyed by a party or imposed on a decision maker. It falls to the decision maker to ensure that the mechanism for hearing the party affected is sufficient to permit him to make appropriate representations. In the above circumstances, I would allow the appeal and set aside the findings of the High Court on the issue of fair procedures, specifically on the right to be heard.
NAMA’S Statutory Exemptions and Powers in relation to Mortgages The NAMA Act confers exemptions and powers on NAMA which distinguish it from any other mortgagee and which affect a mortgagor. A mortgagor’s interest in the mortgaged property is the equity of redemption, the right at any time to redeem the mortgage. The right exists at any time during the term of the mortgage, and after the expiration of the mortgage term at any time up to the realisation of the security by the mortgagee entering into an enforceable contract for sale under the power of sale. It is a valuable interest in property and may be sold or mortgaged by way of a second or subsequent mortgage. Any express stipulation in a mortgage which is inconsistent with the right of redemption is void. A mortgage may not be made irredeemable, nor can the right to redeem be limited to particular persons or to a particular period: Re: Wells [1933] Ch. 29, Howard v Harris [1683] 1 Vern. 190, Spurgeon v Collier [1785] 1 Eden. 55. If the mortgage gives the mortgagee an option to purchase that term is void even if it is not oppressive to the mortgagor: Samuel v Jarrow Timber and Wood Paving Corp. Limited [1904] AC 323. Conveyancing Act 1881 and Land and Conveyancing Law Reform Act 2009 The Conveyancing Act 1881 and the Land and Conveyancing Law Reform Act 2009 (LCLR Act) both affect the relationship of mortgagor and mortgagee. The LCLR Act largely repealed the Conveyancing Act 1881 so far as the same related to mortgages but where it did so largely re-enacted the same. Part IV of the 1881 Act deals with mortgages in sections 15 to 29 inclusive: all except section 25 were repealed by the LCLR Act. As the LCLR Act came into force on the 1st December 2009 and so predated the NAMA Act which came into force on the 21st December 2009 it is only necessary to consider the position of mortgagor and mortgagee under the LCLR Act. The LCLR Act deals with mortgages in sections 89 to 114 inclusive and for the most part these sections are a restatement of the position under the Conveyancing Acts. Of these, sections 96 to 101 inclusive, with the exception of section 103, have application only where they are not excluded by the terms of the mortgage. A professionally drafted commercial mortgage will invariably exclude the provisions of the LCLR Act where this is permitted and this has been the almost invariable practice in relation to the provisions of the Conveyancing Acts. The LCLR Act section 103 is significant: it provides as follows:-
Quite apart from this provision a mortgagee in exercising a power of sale has a duty to act in good faith: Kennedy v DeTrafford [1896] 1 Ch 762. In addition the mortgagee is under a duty of care to the mortgagor to act with reasonable care: Holohan v Friends Provident and Century Life [1966] I.R. 1, Farrar v Farrars Limited [1889] 40 Ch. D. 395. The NAMA Act section 17 provides as follows:-
The remedies of a mortgagor to claim relief in respect of a breach of the duty of care are further restricted by the provisions of Part 10 of the NAMA Act in sections 182 and 192 limiting the court’s power to grant injunctive relief. In addition the provisions of section 146 of the NAMA Act are relevant. Section 146 provides as follows:-
In addition NAMA enjoys powers not enjoyed by any other mortgagee and these are contained in Part 9 of the NAMA Act. Some of these impinge on the relationship between mortgagor and mortgagee. A receiver appointed by NAMA will not be obliged to sell the property at any particular time: section 145. Part 10 chapter 3 provides for the appointment of a receiver by NAMA: such receiver has wide powers beyond those available to a receiver appointed by the court under the Companies Acts and may exceed those conferred by the mortgage. Section 148(4) provides that a statutory receiver appointed by NAMA is not subject to the restrictions on the powers of a receiver under the Conveyancing Act 1881 or the LCLR Act and so the receiver on exercising a power of sale has the same advantages as NAMA. As with the power of sale of a mortgagee, the receiver’s power of sale is not subject to the restriction in section 100(2) of LCLR Act whereby the same can not be exercised without a court order. He may take possession peaceably without a court order. He may delay a sale. The effect of these provisions of the NAMA Act on a mortgagor will depend on the terms of the mortgage but are potentially significant. Having regard to the foregoing I am satisfied that the appellants equity of redemption is capable of being affected by a decision to acquire by NAMA under section 84 of the NAMA Act. NAMA Act Part 9 Chapter 4. Vesting Orders
(a) an acquired bank asset includes a charge over land; (b) the chargee’s power of sale has become exercisable, and (c) NAMA forms the view that it is unlikely that the sum secured by the charge can be recovered by a sale within three months after the application.”
(b) there is no reasonable prospect of the mortgagor redeeming the charge concerned.
(a) extinguishes the chargors equity of redemption in the land concerned, (b) vests title to the land in NAMA or the NAMA group entity nominated by NAMA for that purpose, (c) extinguishes the interest in the land of any other chargee and (d) satisfies the requirements of the land registration rules 1972 to 2008.” Thus in circumstances where a mortgagee’s power of sale has arisen NAMA has an additional power which enables it to apply to the court for a vesting order with an obligation upon the court to make such an order provided it is satisfied on the two conditions set out in section 153. The effect of a vesting order is that NAMA obtains the land and the mortgage debt is reduced by the value of the land as ascertained by the court. NAMA may retain the land and is under no obligation to sell the same with the effect that NAMA obtains the benefit of any uplift in value in the lands and the income stream produced by the lands. The mortgagor derives no benefit from that uplift in value or the income stream by way of reduction of his liability on foot of the mortgage after the making of a the vesting order. In contrast to this if the power of sale should be exercised the mortgagee would obtain the benefit of any uplift in the period between the exercise of the power of sale and the completion of an agreement for sale entered into pursuant to an order for sale and also the benefit of the income stream during the same period. That benefit would, of course, be reduced by additional interest falling due during the period between the order for sale and the completion of the agreement for sale. A number of factors are relevant to the appellants’ position should a vesting order be made. It is not in dispute that as little as two and a half per cent and no more than five per cent of the appellants’ mortgages relate to development land as defined in the NAMA Act. The remainder of the mortgages relate to a portfolio of properties with a current value between €1.7bn and €2.28bn, the loans on which in favour of Irish banks who are participating institutions in NAMA amount to approximately €2.1bn. All interest payments due under the loans have been paid to date. At current interest rates and in current conditions the portfolio produces sufficient income to meet all interest payments due. The portfolio consists of approximately sixty two properties comprising shopping centres, hotels and offices. The total income generated by the portfolio is of the order of €150m. per annum. The properties are ninety six per cent let and in most cases the lettings are to “blue chip tenants on long leases predominantly with a twenty five year duration”. The rental income affords somewhere between 1.7 and 1.8 times cover for the interest payable at current interest rates. Having regard to the foregoing to avail of a vesting order will afford a significant benefit to NAMA over the alternative of exercising its power of sale or its power to appoint a receiver. Should the latter course be adopted the benefit of any uplift in value and the income stream would accrue to the appellants and not to NAMA. As the development land mortgages represent such a small proportion of the appellants’ liability on foot of mortgages the prudent commercial course for the appellants would be to redeem the development land mortgages in which case their indebtedness would fall outside the NAMA scheme. However, NAMA, in common with all other mortgagees (other than housing loan mortgagees) have a right to consolidate mortgages: (see LCLRA section 92). NAMA exercising that right can refuse to allow a mortgage to be discharged without all other mortgages held by NAMA being discharged including mortgages to other participating financial institutions which are acquired by NAMA. A mortgagee other than NAMA can only consolidate all mortgages held by it as mortgagor. The relief available to NAMA bears comparison with the now obsolete relief of foreclosure. By 1988 in the United Kingdom foreclosure was rarely sought: Fisher and Lightwood’s Law of Mortgage 10th edition. In Land Law in Ireland, Lyall, the remedy of foreclosure is said never to be granted in Ireland although the jurisdiction to do so existed until the commencement of the LCLR Act section 96 which abolished the same. Bruce v Brophy [1906] 1 I.R. 611 refers to the settled practice of the courts in Ireland for centuries of decreeing a sale and not foreclosure. See also Clinton v Bernard [1844] 6 Ir. Eq. R. 355 and In Re Edwards [1861] 11 Ir. Ch. R. 367. Foreclosure has not been granted in Ireland for well over a century. The attitude of the courts both in Ireland and England from the early seventeenth century was that a mortgage provided security for a sum of money and interest and should not yield a profit to the mortgagee over and above the sum due to the mortgagee and for this reason the courts preferred to make an order for sale rather than an order for foreclosure. The provisions of Part 9 Chapter 4 of the NAMA Act are even more disadvantageous to a mortgagor than foreclosure. The court has no power to make an order for sale in lieu. There were circumstances in which foreclosure could be reopened. Where within a reasonable time after foreclosure the mortgagor is in a position to redeem the foreclosure could be reopened. Again foreclosure could be reopened where the mortgagee sold the lands shortly after obtaining the order. If after foreclosure the mortgagee, claiming that the property is insufficient to satisfy the mortgaged debt, sued the mortgagor on his covenant for payment the foreclosure was reopened and the mortgagor became entitled to redeem. If the mortgagee sold the property he could not sue the mortgagor or a guarantor of the mortgagor’s covenant. A mortgagor in respect of whom a vesting order is made is accordingly in a worse position than a mortgagor against whom a foreclosure order was made. The mortgagor, notwithstanding any increase in value of the land in the hands of the mortgagee, and the receipt of an income stream by the mortgagee, can still be sued on his covenant. If a sale by the mortgagee after a vesting order is made achieves a price which together with the income stream enjoyed exceeds the liability on the mortgage the mortgagor still remains liable to be sued on his covenant for the excess of the mortgage debt over the valuation fixed by the court. A mortgagee may not purchase lands on a sale of the same under a mortgagee’s power of sale or a court order for sale: National Bank of Australasia v United Hand-in-Hand and Band of Hope Company [1879] 4 A.C. 391. A vesting order puts NAMA in the position to effectively do this. The courts of equity regarded foreclosure orders as oppressive of mortgagors, a view with which it seems the legislature concurs having abolished the remedy. For the reasons which I have mentioned the making of a vesting order is even more oppressive. It is no answer that the mortgagor whether on the exercise of a power of sale or on the making of a vesting order gets the benefit of the market value of the lands and so is not adversely affected by the additional power conferred upon NAMA. This is not so. The availability of a vesting order enables NAMA to proceed in a manner in which a prudent mortgagee in its own interest would not. A prudent mortgagee with a mortgagor in the appellants position as to the value of the mortgaged land and as to the excess of the income stream over liability for interest would have a strong incentive not to exercise a power of sale but to appoint a receiver and delay a sale to abide an expected improvement in land values and in the interim obtain the benefit of the income stream in satisfaction of interest as it falls due with the excess going towards reduction of capital. NAMA has no incentive to do this and on the contrary has the incentive to avail of a vesting order. Having regard to NAMA’s Business Plan it is more than a mere possibility that NAMA would exercise its right to obtain a vesting order. The European Commission decision on the establishment of a National Asset Management Agency of 26th February 2007 at paragraph 127 provides as follows:-
1. Power to make an order vesting in NAMA the interest in land concerned of a chargor (sections 152 to 156) of the Act. This remedy would allow NAMA to hold the land concerned rather than putting it up for sale immediately and then would avoid flooding the market with fire sales. The Commission recognises that the ability to work out a loan and its security over a longer time horizon is central to the valuation process of the asset and in line with requirements of the Impaired Assets Communication.” I am satisfied that the availability to NAMA of a vesting order is capable of affecting a mortgagor’s interests in a manner which will attract a right to fair procedures. Section 103
However NAMA acquires a mortgage not by virtue of it being freely transferable but by virtue of NAMA’s power to compulsorily acquire. On a transfer by a mortgagee the transferee steps into the shoes of the transferor and cannot stand in a better position than the transferor: Ashenhurst v James [1745] Atk. 270. The transferee is bound by such equities as would bind the transferor: Earl of Macclesfield v Fitton [1683] 1 Vern. 168. This is not the position on a transfer to NAMA which enjoys immunities and rights in addition to those enjoyed by the mortgagee. For this reason I am satisfied that a decision by NAMA under section 84 of the NAMA Act will trigger a right to be heard. In addition there was evidence before the divisional court that the mere circumstance of the acquisition by NAMA will affect the value of the underlying asset. Section 101 and section 139.
(a) it is alleged that a representation was made to, consent was given to, an undertaking was given to, or any other obligation was undertaken (by agreement or otherwise) in favour of, the debtor or another person by the participating institution from which the bank asset was acquired or by some person acting or claiming to act on its behalf, (b) no such representation, consent, undertaking or obligation was disclosed to NAMA in writing, before the service on the participating institution of the relevant acquisition schedule, (c) the records of the participating institution do not contain a note or memorandum in writing of the terms of any such representation, consent, undertaking or obligation or do not contain a record of any consideration paid in relation to any such representation, undertaking or obligation, and (d) the representation, consent, undertaking or obligation, if made, given or undertaken would affect the creditors’ rights in relation to the bank asset,
(ii) is enforceable and can be relied on, by the debtor, or any other person, if at all, only against a person other than NAMA or a NAMA group entity, and (iii) is not enforceable and cannot be relied on, by NAMA or the NAMA group entity against the debtor.
(3) The court shall not make an order under section 182 in relation to a claim to enforce a representation, undertaking or obligation referred to in subsection (1).”
(a) any restrictions on such a disposal at law or in equity. (b) any contractual requirement, or any requirement under any enactment, for the consent of, for notice to, or for a document from any person to such a disposal, or (c) any provision of any enactment that would otherwise prohibit or restrict such a disposal.” The appellants have not identified any representation, consent, undertaking or obligation as affecting any of their mortgages. Should any such exist I consider it unlikely that the existence would not be disclosed to NAMA having regard to the provisions of sections 81, 82 and 83 of the NAMA Act and the consequences of failure to disclose such information under section 7. Such an extremely significant collateral agreement is unlikely to be unrecorded in the banks records or in the mortgage itself. However if the situation should arise that NAMA acquired a mortgage without notice a significant consequence for the mortgagee is the non-availability of an injunction. The courts regard interests in land differently to interests in personality and, in general, damages are not considered to be an adequate remedy. It was for this reason that courts of equity developed the remedy of specific performance: Adderley v Dixon [1824] 1 Sim & St 607. Likewise a mortgagor can always obtain an injunction to restrain a mortgagee from wrongfully exercising his rights: Kerr on Injunctions 6th ed. @ pp 523-532. Thus while the appellants have not identified an actual restriction on their rights arising under the section there is a potential for a restriction of a mortgagor’s rights as if no notice is given to a mortgagor of the intention to exercise powers under section 84 and there is no opportunity to be heard, by the time a mortgagor becomes aware of the acquisition of its mortgage by NAMA it will be too late to put NAMA on notice of any equities coming within the section. A right to be heard would enable a mortgagor to ensure that NAMA had notice of any matter coming within the section prior to acquisition. Accordingly I am satisfied that mortgagors in general are potentially affected by the section to a sufficient extent to give rise to a right to be heard. I have linked sections 101 and 139 for this reason. In its submissions on section 139 the appellants claimed affectation of their interests as follows. If a facility letter referable to a loan acquired by NAMA obliged the bank not to assign the loan without notice to and/or consultation with and/or the consent of the borrower, NAMA would not be required to give such notice or to consult with the borrower or to obtain the consent of the borrower. Such a term is enforceable against a mortgagee by injunction: Quenell v Maltby 1979 1 All ER 568. However having regard to the provisions of section 101(2) an injunction is not available against NAMA upon the transfer to it of the mortgage. Such a provision, it is submitted on behalf of the appellant, would fall within section 139(b) as a contractual requirement. Section 139(b) must be read in conjunction with section 101. Section 101 is concerned with representations, consents, undertakings and obligations between the mortgagee and mortgagor and the mortgagee and a guarantor or other third party. If NAMA had notice of the same within the terms of section 101 they will continue to affect NAMA; if NAMA had no notice of the same then while NAMA will take free of the same the mortgagee remains liable on foot of the same. Section 139 on the other hand is concerned with the disposal by NAMA of mortgaged land and not with the acquisition of the loan by NAMA. It is directed to the rights of third parties rather than the rights of the mortgagor or a guarantor which are dealt with in section 101. However this section presents difficulties of interpretation. The breadth of the section makes it difficult to envisage circumstances in which it may have application. Section 139(a) could apply where land is held for charitable purposes or otherwise on trust limiting its use to a particular purpose or, as in First National Securities Ltd v Chiltern District Council [1975] 3 All E.R. 766, is held subject to a right of first refusal or pre-emption. Section 139(b) would have application to a leasehold interest. The terms of the lease may restrict the lessee’s right to assign or change use without the lessor’s consent. An example of a requirement under an enactment for consent is section 12 of the Land Act 1965 where consent of the Department of Agriculture is required. The Land Act 1965 section 45 as formerly operated would be an example of a restriction or prohibition within section 139(b). In short section 139 is directed to making land more freely transferable and in general the effect will be to enhance the value of the land when NAMA’s power of sale is exercised. The view I take of section 139 is that it is unlikely adversely to affect the interest of a mortgagee. However the effect of the section must await its interpretation by the courts where this arises as an issue. Section 7
“(1) A person on whom an obligation is imposed by or under section 202(2) and who intentionally does not comply with the obligation commits an offence. (2) A person who intentionally, recklessly or through gross negligence provides false or inaccurate information to NAMA commits an offence. (3) A person commits an offence if the person – (a) intentionally withholds information from NAMA in breach of an obligation to provide that information imposed by or under this Act, and (b) does so with the intention of having a material impact upon –
(ii) a decision by NAMA to refrain from dealing with a bank asset, or (iii) the value that NAMA determines for a bank asset. (a) the manner in which NAMA deals with the bank asset; (b) a decision by NAMA to refrain from dealing with a bank asset, or (c) the value which NAMA determines for a bank asset.” Section 202(2) of the NAMA Act does not apply to mortgagors and so the appellants are not affected by subsection (1). Subsections (3) and (4) only apply to persons acting in breach of an obligation under the NAMA Act to provide information to NAMA. No such obligation is imposed by the Act on mortgagors. Employees of NAMA, contractors to NAMA such as valuers or accountants and participating institutions and their employees are all potentially affected by these subsections. The only obligation to furnish information imposed by the Act on mortgagors arises under section 83, but that obligation is to provide information not to NAMA, but to the mortgagee. The penalty provided by the section for a breach of the obligation is that it will result in a liability to damages to the mortgagee. The section also provides for an application to the court to compel the furnishing of information. Under section 83 (3) the mortgagee may apply to the court for an order directing compliance with a request for information, with the consequences that will normally flow from a breach of such an order. Subsection (2), however, is of general application and so applies to a mortgagor. To suggest that a right exists to act in a manner which contravenes subsection (2) does not find favour with me. To so act must in many cases lead to consequences under the civil law and indeed under the criminal law. To require its citizens to act honestly under criminal sanction is a legitimate function of the State and to so require per se will not amount to an interference with a constitutional right. I accept that the subsection exposes mortgagors, and society in general, to criminal sanctions and that criminal sanctions might not attach to similar conduct in relation to a mortgagee. The argument that one should be entitled to, that is have a right to, engage in the conduct criminalised by section 7(2) in dealing with NAMA or with a mortgagee in volunteering information is not an argument which should find favour with the court. I am not satisfied that section 7 affects the appellants in a manner such as to give rise to a right to be heard. Approach to the Statutory Provisions. Summary The commercial consequences for a mortgagor of the transfer of a mortgage to NAMA Both in the High Court and before this court there was discussion as to whether the appellants loans are performing or non-performing or impaired or not. In summary the appellants contend that they are solvent, that the total of their indebtedness secured on land exceeds the total amount of the loans and that income generated by the lands comfortably exceeds the interest payments on the loans. The loans are interest only loans and are mostly short term. However the due date on some loans has passed. Some loans are subject to a condition that a specified loan to value ratio be maintained and the appellants are in some cases in breach of that condition. Nonetheless the mortgagors have not sought to exercise their rights exercisable as mortgagee where by reason of the due date having passed the principal is overdue. Neither have they invoked their rights under the loan to value conditions: the nature of such rights depends on the terms of the loan and mortgage and may vary, but usually will enable the mortgagee to require the mortgagor to reduce the amount of the loan to bring the loan into compliance with the required ratio and on default by the mortgagor to call in the loan. Having regard to the foregoing it seems to me irrelevant whether or not any loans are impaired or performing or not. The appellants’ position is that there has been forbearance by their mortgagees. There is no guarantee that this will continue. The mortgagees will consult their own interest. They may see a commercial benefit in continuing a business relationship with the appellants. They may prefer not to enforce their security now causing losses to crystallise if they foresee that by holding their hand to await an upturn in the property market the losses will be smaller on a later crystallisation or indeed may foresee that there will be no losses at all having regard to the circumstance that interest payments continue to be met. The appellants are at risk or, as it was put by the High Court, there is a prospect of impairment. Nonetheless the appellants have reason for some hope that their lenders will hold their hand. The significance of the appellants’ mortgagees forbearing is that it supports by concrete example the expert evidence adduced on behalf of the appellants as to how a bank can be expected to act in relation to debtors in the appellants’ position. The relationship between the appellants and NAMA. NAMA is not a bank. While a bank may transfer a mortgage to whomsoever it wishes such a transfer would not enhance the rights of the transferee of the mortgage or diminish those of the mortgagor. The acquisition of a loan by NAMA has both these effects. In addition the relationship which previously existed between mortgagor and mortgagee is altered. The objective of a mortgagee and any transferee will be to recover the amount due on foot of the mortgage and no more. A mortgagee will not make a profit beyond that. NAMA has by virtue of its powers to obtain a vesting order the possibility of making a profit. However as has been made clear by public statements by the chairman of NAMA the objective of NAMA is different:-
The right to obtain a vesting order puts NAMA in a unique position. Where a mortgagee forebears in its own commercial interests the mortgagor obtains the benefit of the advance in market value of the land and the income stream. Where a vesting order is obtained the benefit will be obtained by NAMA. Even if NAMA decides to forebear and not to obtain a vesting order it is probable that a lesser advance in the market value of mortgaged land will make it commercially advantageous for NAMA to exercise its rights as mortgagee and recover the amount paid by it to acquire the loans. I am satisfied that these differences between a bank and NAMA and their effect upon the appellants position are such that the acquisition of the appellants’ loans by NAMA is capable of directly affecting the interests of the appellants and so entitles the appellants to a right to be heard. Summary CONCLUSION Disposition |