JUDGMENT of Mr. Justice Fennelly delivered the 12th day of April 2011.
1. The Court has already decided in its judgment of 3rd February 2011 that NAMA has not to date made any decision to acquire the eligible bank assets represented by the appellants’ loans. This raises the question of whether the outstanding issues (other than the issue relating to state aid) are moot. The Court has already expressed the view that the issue concerning relevant considerations to be taken into account on the making of any NAMA decision, the second ground in the application for judicial review, is moot. There was controversy at the hearing as to what the actual grounds were on which the former purported NAMA decision was made. The Court would have been merely speculating as to which version of those grounds NAMA would adopt when making a future decision. It could not, therefore, adjudicate on the alternative hypotheses.
2. On the other hand, NAMA informed the Court on 9th February that it proposed to make a decision as to whether it would acquire eligible bank assets comprising the loans of the appellants. Furthermore, the Court has been informed that the Board of NAMA has, on 1st March, 2011, decided to acquire those loans, although that decision is not before the Court.
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:-
“Serious consequences could ensue if this Court pronounced that temporary legislation of this kind should be immune from judicial review merely because it had expired before the question of its validity could be examined. All legislation passed by the Oireachtas is presumed to be valid. If the Oireachtas were free to enact temporary legislation creating offences and providing for serious penalties (as this legislation does) and if that legislation, on its expiry, escaped examination in the Courts, a form of legislative intimidation could be exercised. However, a more serious aspect is that, by permitting such to happen, this Court would be failing to exercise that vigilance and care upon which constitutional rights and guarantees depend for their protection. In my view, this Court could not countenance such a development.”
5. Kenny J. reviewed a number of decisions of the Supreme Court of the United States. He quoted, for example, the view of Marshall J. in United States v. Phosphate Export Association 393 U.S. (1968) 199, at page 203, that:— "[a] case might become moot if subsequent events made it absolutely clear that the allegedly wrongful behavior could not reasonably be expected to recur," and other authorities to like effect. He summed the matter up as follows on page 72:-
“When an issue arises as to whether the court should decline to entertain a case because the legislation attacked is no longer in force, the question to be asked is whether similar legislation is likely to be introduced in the future. Unless the court is satisfied that such legislation will not be introduced again, it should decide the case even though the Act is not in force.”
6. The outstanding issue of whether the appellants are entitled to be heard in the context of a future decision by NAMA to acquire from financial institutions the credit facilities granted to them is clearly not a moot question. It is not, recalling the language of the Chief Justice, “abstract, hypothetical or academic.”It remains a live issue. In fact, neither party has contended that the issue is moot. It is appropriate, therefore, that this Court rule upon it.
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:
• effects: The manner and extent to which any proposed decision will potentially affect rights or interests of the person claiming the right; and
• 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?
The Appellants’ Claim in Judicial Review
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:
a) to the effect that his loans are not eligible bank assets;
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.
12. These grounds appear in the first version of the appellants’ statement of grounds of 1st July, 2010. They were not subsequently amended or extended.
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
18. The appellants allege probable or potential adverse effects on their constitutionally protected rights under four headings, outlined in written submissions and further explained by Mr. Michael Cush, Senior Counsel, at the hearing of the appeal.
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:-
5.8 Turning to the background facts specific to Mr. McKillen’s case, it is appropriate to start by noting that Mr. McKillen and his companies have an interest in a portfolio of properties with a current value which seems to lie somewhere between €1.7bn and €2.28bn, depending on what valuations are relied on. ……Loans secured on those properties in favour of Irish banks who are participating institutions in NAMA, amount to approximately €2.1bn…….
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.
21. The appellants allege that any decision by NAMA to acquire the McKillen loans will have adverse effects on their constitutional rights under the following four headings:
1. effects on the appellants’ underlying properties which provide security for loans, i.e., their constitutionally protected property rights;
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.
22. The arguments related to all these headings are inextricably interrelated; they overlap to a greater or lesser degree, especially in the case of the first two headings. Nonetheless, I will set out each of the headings separately, as that was how they were presented and considered in the High Court.
Effects of Decision to Acquire on Underlying Properties
23. The appellants’ properties will not, of course, themselves be the subject matter of any decision by NAMA to acquire loans from credit institutions. The function of the properties, the shopping centres, hotels, office blocks and the like, is to provide security for the loans. Hence, this property interest was also described as the equity of redemption. The High Court (paragraphs 7.16 and 7.17) thought that it was not apparent that the "equity of redemption would be interfered with." There was not "any suggestion that, in general terms, Mr. McKillen’s entitlements in respect of his equity of redemption in the various relevant properties, will be at impaired.” The Court was of the view that "the position of NAMA is the same as the position of the banks from whom relevant loans are acquired."
24. At paragraph 7.17, the High Court stated:-
“Mr. McKillen is entitled to pay off any loan which he owes to NAMA and thus, have the property given as security for that loan released from any mortgage in favour of NAMA. In that regard, he is in exactly the same position vis-à-vis NAMA as he would have been vis-à-vis the lending bank, had NAMA not acquired the loan in question. NAMA will only be entitled to decline to release a mortgage or charge over property on the basis of the continuing existence of other loans (i.e. those not then being paid off) if there is some legal nexus between the two loans. For example, if the banks concerned had provided for cross security between one loan and another such that the bank was entitled to rely on a property as security for a loan which was not directly connected to that property, then that entitlement would subsist in NAMA. However, the reason why that entitlement would subsist in NAMA is because it was an entitlement of the bank concerned in the first place. The entitlement to redeem any particular loan is not affected by the loan being acquired by NAMA. Subject to the points to which it will be necessary to return, arising out of NAMA’s additional statutory powers, it does not appear to the Court that there is any difference between Mr. McKillen’s right to redeem any loan or set of loans from the relevant bank in the event that the loans are not acquired by NAMA or from NAMA in the event that they are acquired.”
25. Mr. Cush accepted that this analysis of the effect on the equity of redemption is correct, “so far as it goes.” He criticised the High Court for dealing in "abstract legal ideas," while failing to address the specific facts of Mr. McKillen’s situation. The essence of the complaint is that the High Court failed to address the evidence as to damage to the value of the properties through association with NAMA. The legal right to enjoyment of an equity of redemption was, he said, hollow in circumstances where the value of that equity had become negative. The fault of the High Court was to decide the matter, not by reference to effects on value, but in accordance with "an abstract legal principle."
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
27. Any rights of Mr. McKillen in respect of the income from his properties would normally be considered to be part of his property rights. The appellants treat it separately with a view to invoking the constitutional right to earn a livelihood. The response of the High Court to this argument and the appellants’ criticism mirror the arguments under the preceding heading. The Court dealt with the matter as follows:-
7.20 In that context, it is appropriate to ask the question as to how it can property be said that Mr. McKillen will have his right to earn a livelihood interfered with by his loans “going into NAMA”. To the extent that Mr. McKillen’s livelihood derives from managing a property portfolio and hoping to make a profit from same, then, at least initially, Mr. McKillen’s position will be no different if his loans are acquired by NAMA than if they are not. He will still own the property portfolio. He will still owe the same amount of money, albeit to NAMA instead of to his banks, and will have the same obligation in respect of repayment of those loans and the payment of interest on them as currently exists in favour of his banks.
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.
28. Again, Mr. Cush accepted that these two passages constituted a completely correct legal analysis. In response, once more, his emphasis was on the factual evidence, in particular related to the fact that, in some cases, because of the general fall in property values the McKillen companies would find themselves in breach of what are called "loan-to-value covenants" in lending or security documentation. According to Mr. Cush, the appellants’ expert evidence showed that banks did not generally exercise their rights under those covenants.
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:-
“In essence, NAMA’s core commercial objective will be to recover 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. When it has achieved its core objective, it will be wound up. It is almost unique in that the more successful it is, the closer it will be to extinction …… It is unusual among financial institutions in that it starts off with a huge balance sheet and will be working to eliminate it over its life.”
31. Mr. Daly also explained that, after their loans had been acquired by NAMA, “borrowers [would] be asked to produce business plans which [would] set out detailed and credible targets for reducing their debt including any asset disposals which [would] contribute to that end.” He said that the first ten borrowers had already had meetings with NAMA and that their detailed plans “ based on a three-year horizon, must be submitted within a 30-day deadline and [that] NAMA [would] then approve the plans, reject them or refer them back to borrowers for amendment.”
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
43. The High Court considered that, in determining whether a constitutionally protected property right in the form of a contractual entitlement, can be said to have been interfered with, it is necessary to analyse the contract involved to determine whether, in fact, the contractual position of the party asserting an infringement has in truth been materially altered by the measure under challenge. It was not satisfied that there was any material alteration in Mr. McKillen’s contractual position as a result of his loans being acquired by NAMA and that NAMA has the same rights vis-à-vis any individual loan or set of loans as the bank from whom the loan was acquired previously had. It noted, in particular, that while the terms of the McKillen loans vary to some extent, none are in terms which preclude an assignment by the bank concerned and none are in terms which preclude an assignment only to another bank. The Court held that Mr. McKillen had no constitutionally protected right to whatever expectation he might previously have entertained concerning his banking relationship with the financial institutions from which he had borrowed. Such expectations would include the renewal of expiring loan facilities and non-reliance on loan-to-value covenants, at least in the absence of some serious underlying problem.
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
45. The appellants complain that the reputation of Mr. McKillen and his companies will be adversely affected by any decision of NAMA to acquire his loans. They rely on evidence of a widespread perception that NAMA is a “bad bank,” an expression used in such publications as the Financial Times, the New York Times, the Wall Street Journal and the Economist. According to the economist, James Power, "it seems inevitable…… that any business whose assets are transferred into NAMA would suffer reputational damage,” a view apparently shared by Mr. Trench. Professor Stiglitz says that "the principles of information economics indicate that any borrower improperly moved to NAMA will suffer a reputational loss, and certainly a loss of any benefits from a trusting banking relationship."
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
47. In general terms, the appellants claim that the transfer of the loans made to them by their banks to NAMA would represent a radical interference with their existing contractual arrangements. The relationship between a borrower and his banker is fundamentally different from that between the same borrower and NAMA following transfer.
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
50. Two general observations can be made about the claimed effects of the decision of NAMA to acquire the McKillen loans.
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
54. This appeal concerns the power of NAMA to decide whether it will acquire an eligible bank asset pursuant to section 84 of the Act of 2009. Mr. McKillen and his companies claim that they have the right to be heard by NAMA before it makes any such 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:-
58. Patently, the asset to be acquired under this provision belongs, not to the borrower, but to the financial institution. No property of the borrower is acquired. That is not, however, the whole story. The section does not leave the borrower completely out of the picture. The fact that the asset to be acquired does not belong to the borrower does not, as a matter of principle, exclude the possibility that the borrower has a relevant interest in whether or not a decision is made.
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:-
“(a) credit facilities issued, created or otherwise provided by a participating institution –
(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).”
60. As one would expect, it can immediately be seen that, in almost every case, the prescribed credit facilities are granted directly or indirectly to a debtor or a person associated with a debtor or are security for other facilities ancillary to such arrangements. There is necessarily, from its very nature, a counter party to every credit facility.
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:
“(1) NAMA’s purpose shall be to contribute to the achievement of the purposes specified in section 2 by-
(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.”
The acquisition decisions necessarily, therefore, designate the borrowers. Perhaps, it is to labour the obvious to point to other provisions which demonstrate, at least by necessary implication, that acquisition decisions are made by reference to identified credit facilities granted to identified borrowers. Sections 80 to 83 set out elaborate procedures and powers whereby credit institutions are obliged, “in utmost good faith” to provide NAMA with complete information about bank assets. NAMA may demand detailed information, documents, books and records. Section 83 obliges a debtor to provide and furnish all necessary information to his or its credit institution. Section 85 obliges NAMA to identify the credit facilities it proposes to acquire.
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:-
“That NAMA has a discretion which it can exercise so as not to acquire an eligible bank asset is not doubted. It is necessary to analyse the Act to determine the factors that can or must properly be taken into account by NAMA in the exercise of that discretion. The Court has concluded that the purpose of the discretion, as a matter of statutory construction, is not one which is designed as a means of protecting customers of a participating credit institution. Rather, the discretion is designed to give to NAMA the possibility, at its own discretion, not to acquire assets where there is some good reason (consistent with the overall objectives and purpose of the Act) for not so doing.” (Emphasis added).
64. NAMA made both written and oral submissions to this Court in support of the view that it is neither obliged nor empowered to consider the interests of the borrower when making a decision to acquire eligible bank assets under section 84 of the Act. Section 84(1), it is submitted, is so worded that the only statutory requirement imposed on NAMA in deciding whether to acquire eligible bank assets is that it must be satisfied that it is “necessary or desirable” to do so “having regard to the purposes of this Act and in particular the resources available to the Minister.” This, it is said, is inconsistent with the borrower-centred considerations advocated by the appellants.
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:-
“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) any other matter that NAMA considers relevant.”
67. All this begs the question, NAMA says, whether there could be other unexpressed, but nonetheless, mandatory considerations. It would appear that NAMA takes the view that even section 84(4)(n) which permits NAMA to take into account “any other matter that NAMA considers relevant” does not permit it to include any consideration of the interests of the borrower.
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:-
“… the presumption of constitutionality carries with it not only the presumption that the constitutional interpretation or construction is the one intended by the Oireachtas but also that the Oireachtas intended that proceedings, procedures, discretions and adjudications which are permitted, provided for, or prescribed by an Act of the Oireachtas are to be conducted in accordance with the principles of constitutional justice. In such a case any departure from those principles would be restrained and corrected by the Courts.”
76. Later, at pages 343 to 344, he said:-
“All the powers granted to the Minister by s. 3 which are prefaced or followed by the words "at his discretion" or "as he shall think proper" or "if he so thinks fit" are powers which may be exercised only within the boundaries of the stated objects of the Act; they are powers which cast upon the Minister the duty of acting fairly and judicially in accordance with the principles of constitutional justice, and they do not give him an absolute or an unqualified or an arbitrary power to grant or refuse at his will. Therefore, he is required to consider every case upon its own merits, to hear what the applicant or the licensee (as the case may be) has to say, and to give the latter an opportunity to deal with whatever case may be thought to exist against the granting of a licence or for the refusal of a licence or for the attaching of conditions, or for the amendment or revocation of conditions which have already attached, as the case may be.”
77. The right to be heard by a decision-maker exercising powers capable of affecting an individual has its origins in the common law rules of natural justice but has come to be recognised as an entrenched constitutional principle. It is implied, as a matter of course, into statutes. The exclusion of the right would require clear words. The principle was particularly clearly expressed by Costello P. in McCormack v. Garda Siochána Complaints Board [1997] 2 IR 489 at 499-500 as follows:-
“It is now established as part of our constitutional and administrative law that the constitutional presumption that a statute enacted by the Oireachtas intended that proceedings, procedures, discretions and adjudications permitted, provided for, or prescribed by Acts of the Oireachtas are to be conducted in accordance with the principles of constitutional justice. It follows therefore that an administrative decision taken in breach of the principles of constitutional justice will be an ultra vires one and may be the subject of an order of certiorari. Constitutional justice imposes a constitutional duty on a decision-making authority to apply fair procedures in the exercise of its statutory powers and functions.”
78. In the light of these principles, I am driven to the conclusion that the Act of 2009 did not exclude consideration of the interests of borrowers where they could show that their interests were liable to be affected by decisions taken pursuant to section 84.
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:
1. effects on their underlying properties, i.e., their constitutionally protected property rights;
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.
82. The parties have offered two theories of the test for entitlement to a hearing. According to NAMA, only interference with a legal right qualifies. The appellants propose a broader criterion for assessment of effects, which would not be limited to cases of probable encroachment on legal rights.
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):-
“The Court is not satisfied that any mere possibility that there might be an indirect consequence for a party’s rights affords the party concerned a right to fair procedures. There must be a real risk that a party’s rights will be interfered with in the event that there is an adverse decision. The adverse decision must be such as would directly interfere with those rights, or at least any interference must be so closely connected with any adverse decision so as to warrant that the party concerned be entitled to invoke a right to fair procedures. Obviously, the precise application of that general principle requires an analysis of the right which it is said might be interfered with and the manner in which it is said that an adverse decision would interfere with that right.”
85. The Court there excluded mere possibilities and indirect consequences. Subject to that, however, it did not think any effect which did not amount to an interference with legal rights would trigger the right to a hearing. Counsel for the appellants did not quarrel with this passage, except to the extent that it failed to take account of the decision of this Court in MacPharthaláin v. Commissioners of Public Works, cited above.
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:-
“. . . a change in law which has the effect of reducing property values cannot in itself amount to an infringement of constitutionally protected property rights. There are many instances in which legal changes may adversely affect property values (for example, new zoning regulations in the planning code and new legislation relating to the issue of intoxicating liquor licences) and such changes cannot be impugned as being constitutionally invalid unless some invalidity can be shown to exist apart form the resulting property value diminution.”
92. We are not here, of course, concerned with a legislative measure. Nonetheless, government and other public bodies may adopt decisions having general application, which, while they have effects on individuals, do not impose an obligation on the decision-maker to accord a hearing to affected persons. Planning authorities adopt development plans and designate or “zone” large areas of land for specified types of use. Such decisions are more relevant to this case than zoning regulations, mentioned by Costello J. The legislation provides its own mechanism for publication and objection. Decisions may be challenged on judicial review for want of vires or on other grounds. They do not, however, require observance of the rule of audi alteram partem.
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:-
“While the Tribunal is entitled to conduct the preliminary stage of its investigations in private, and to make such orders as it considers necessary for the purposes of its functions, that does not mean that in the making of such orders, it was not obliged to follow fair procedures.
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)
98. That passage appears to apply a test based on a person being “affected.” The discovery orders encroached on the plaintiffs’ rights to have their banking records treated as confidential and, possibly, on a constitutional right to privacy, but did not otherwise affect the legal relationship between them and their banks.
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:-
“The Court is not satisfied that any mere possibility that there might be an indirect consequence for a party’s rights affords the party concerned a right to fair procedures. There must be a real risk that a party’s rights will be interfered with in the event that there is an adverse decision.”
The problem is with the interpretation of the following statement that “[t]he adverse decision must be such as would directly interfere with those rights, or at least any interference must be so closely connected with any adverse decision so as to warrant that the party concerned be entitled to invoke a right to fair procedures.” If the requirement is that there be direct interference with the legal substance of the rights, the statement is too narrow. It should be capable of including material practical effects on the exercise and enjoyment of the rights. Subject to this qualification, which was crucial to the outcome of the case in the High Court, I would approve the passage at paragraph 7.14 (quoted at paragraph 85 above) as a correct statement of principle.
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:
“Some of the powers granted to NAMA are not available or go beyond those available to traditional market players operating on the real estate financing market in Ireland. According to Irish authorities such powers are essential for the discharge by NAMA of the obligations imposed on it by statute. They are essential for NAMA’s fundamental purpose of acquiring assets in order to address a serious threat to the economy and to the systemic stability of credit institutions in the State.”
103. It is also the case that NAMA has a number of statutory powers, summarised above, which would not be available to a bank. There has been much debate about whether any of these provisions would be likely to have a real and practical effect on the appellants. The fact remains, that NAMA has powers which a bank does not have. It seems clear that section 87(3)(b) of the Act of 2009 enables NAMA, when acquiring an asset, to set out “ a statement of any obligations or liabilities excluded from the acquisition…” This qualifies the general assumption that NAMA takes over all the bank’s obligations and liabilities. The High Court was of the view that this procedure did not in any way interfere with any rights which the borrower might otherwise have against the bank and that the only limitation is that those rights cannot be enforced against NAMA. That Court took a similar view in relation to section 101 of the Act, which excludes enforcement against NAMA of representations, limitations, undertakings or like statements given by a bank prior to acquisition if not disclosed prior to acquisition. Any such matter, if enforceable at all, is enforceable only against the transferring bank. Mr. Cush made the point, in argument, that these and other provisions, definitely put NAMA in a different, an enhanced, position compared to the position of the bank. It is difficult to dispute that. It is a matter of degree. The High Court did not consider such provisions significant.
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:-
“..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.”
109. Mr. McKillen, however, has a number of points to make which suggest that even this powerful consideration should not operate to deprive him of the comparatively modest facility of the right to be heard. He maintains that he has invested very little in Irish property, in none at all since 1998; that only a very small proportion of his loans (2.5% to 5%) are land and development loans; and that, in the main, his loans are performing. He has pointed to some evidence to the effect that his banks continue to want to do business with him. These are points which McKillen should be entitled to put to NAMA. The banking crisis does not deprive him of that right. In some respects, it strengthens it: he wishes to say that his position is different from other borrowers.
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:-
“The content of procedural fairness is infinitely flexible. It is not possible to lay down rigid rules and everything depends on the subject-matter. The requirements necessary to achieve fairness range from mere consultation at the lower end, upwards through an entitlement to make written representations, to make oral representations, to a fully fledged hearing with most of the characteristics of a judicial trial at the other extreme. What is required in any particular case is incapable of definition in abstract terms.”
112. I would allow the appeal and make a declaration to the effect that NAMA is obliged to permit the appellants to make representations regarding the effect that any acquisition decision is likely to have on them.
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:
“The Court is satisfied that the issues which have been addressed in this section do raise a substantial issue which is sufficient to meet the statutory test for the grant of leave. The Court, therefore, proposes to grant leave to seek judicial review based on the grounds which have been analysed in this section. However, for the reasons which the Court has sought to analyse, the Court has ultimately come to the view that the issues raised under this heading do not entitle Mr. McKillen to succeed in relation to any of the reliefs which he seeks based on those grounds.”
When the appeal commenced before this Court, there were five separate issues identified by the appellants, which were:
(1) Their claim concerning their right to be heard;
(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;
As is noted in other judgments also delivered today, this Court has already held, by judgments delivered on the 3rd and 9th February, 2011 respectively, that the original decision made by NAMA to acquire the appellants’ loans, referred to at (3) above, was a nullity; that the issue based on the alleged failure of NAMA to take into account six specific considerations when reaching its decision to acquire the relevant eligible assets, referred to at (2) above, was moot, having regard to this Court’s judgment on the nullity of the decision purportedly taken by NAMA; and that the High Court was correct in its interpretation of the European Commission’s approach to the NAMA scheme to acquire eligible assets, referred to at (5) above. There remained extant in the appeal, therefore, two issues, that is to say, the fair procedures issue and the constitutional issue. The Court, on the 9th February, 2011, having heard the parties on the question as to whether these issues were also moot, determined to deliver judgment on these issues.
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:
(a) The appellants’ interests in the underlying secured properties, or their value;
(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.
Both the appellants and NAMA have argued their respective viewpoints on the right to be heard with some considerable force, and the proper resolution of the issue is no easy task. There are, I believe, three stages to be looked at in relation to the particular fair procedures under consideration, that is, “the right to be heard”. These are:
The last of these creates no difficulty in the event the right is express, or the parties agree to the claiming party being heard. In this appeal, this Court is not concerned with whether or not, if the appellants are eventually heard, they succeed, or even, at this stage, are likely to succeed, in persuading NAMA not to take over the relevant eligible assets. The eventual outcome of any such hearing, if the appellants are successful in their appeal, is not for this Court. This court is only concerned (a) by the fact that NAMA has refused the appellants any hearing, claiming they are not entitled to one; and (b) whether NAMA is correct in that regard, as the High Court accepted, in rejecting the appellants on the merits.
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:
“No cause of action lies or is maintainable against NAMA or any NAMA group entity by reason solely of the acquisition of a bank’s assets by NAMA or a NAMA group entity.”
It seems to me that, when asserting a claim to fair procedures for the purposes of judicial review proceedings, an applicant must establish that there are genuine interests disclosed, or rights invoked, and if prima facie these are established, an applicant will ordinarily have overcome the first hurdle of being granted leave. The High Court did not accept in this case that the appellants had established “substantial grounds” a specific statutory requirement governing the application in this case, under the Act of 2009, based on the alleged interference with the constitutionally claimed rights as set out above, that statutory requirement representing a heavier burden on an applicant than is normally required in law. It then falls to a Court, if leave were granted, in the ordinary course of events, when assessing the eventual merits of the claim, to determine, according to the appropriate principles, whether there has been the required interference in those rights. In the present appeal, therefore, an assessment must be made first of the claimed rights underlying the invocation of the right to be heard, and then the question arises as to whether the High Court’s appreciation of the manner in which they may be, or will be affected, was correct. As stated above, the appellants claim that the four rights, already invoked by Mr. Cush, are all constitutionally protected rights which the decision of NAMA will, or may, on reasonable grounds, interfere with.
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:
That patently grants a right to be heard in respect of properly invoked rights. Its ambit is not, however, clearly spelt out. Although it suggests a hearing must be “public”, there is no guidance on what precisely is meant by or is included in “rights” in the first paragraph of Article 47. It is true that even before the adoption of the Charter by the Member States, but nevertheless after the Charter in an earlier version, had formed some element in the overall architecture of the Treaty and Protocols of the Union, the European Court of Justice had decided that a right to be heard, as part of the “right of defence”, constituted “a general principle of Community Law”. In case C-349/07 Fazenda Publica v. Ministerio Publico, delivered on the 18th December 2008, the Court stated, in the context of a fine affecting the complainant, imposed without the complainant being heard pursuant to the Customs Code:
“36. Observance of the rights of the defence is a general principle of Community law which applies where the authorities are minded to adopt a measure which will adversely affect an individual.
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)
It is clear from that judgment that the purpose of the rule that the addressee of a decision, significantly affecting their interests, must be placed in a position to submit observations before that decision is adopted, is to enable the competent authority effectively to take into account all relevant information. In order to ensure that the person or undertaking concerned is in fact protected, the purpose of that rule is, inter alia, to enable them to correct an error or submit such information relating to their personal circumstances as will argue in favour of the adoption or non-adoption of the decision, or in favour of its having a specific content. [para. 49]
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 Re Haughey [1971] IR 217 at 264 O Dalaigh C.J. said in a lapidary passage:
“ … 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)
Hardiman, J. also referred to Kiely v. Minister for Social Welfare [1977] IR 267 in which Henchy, J., stated, having referred to the position arising under case law in the United Kingdom:
“With great respect, I cannot accept that those decision or those dicta correctly represent the law in this State. I do not think it is open to judges here to adopt such a laissez-faire attitude to the vagaries of tribunals exercising quasi-judicial functions. This Court has held, in cases such as In re Haughey [1971] I.R. 217 that Article 40. s.3, of the Constitution implies a guarantee to the citizen of basic fairness of procedures. The rules of natural justice must be construed accordingly.” (emphasis added)
It should be noted in passing that the phrase “affect his rights” is one used also by Keane, C.J., in Maguire v. Ardagh [2002] 1 IR 385 in which he stated:
“… No citizen whose name may be affected by the proceedings of a committee of this nature and who is required by legal process to attend and give evidence before it can constitutionally denied in advance the right to cross-examine those whose evidence might so affect his rights. (emphasis added)
In Haughey v. Moriarty [1999] 3 IR 1, an issue arose concerning a claimed breach of a constitutional right to privacy, the nature of which is not important in the context of this appeal, save to say that it concerned a requirement to provide substantial material from the banking and other financial accounts of the applicants. In this Court, in the judgment of Hamilton, C.J., with which all other judges agreed, it was stated:
“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 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….” (emphasis added)
It will be seen that in each of the above cited passages, the test appears to be whether or not a person’s rights are affected by the proposed decision. Further, the test appears to be applied so as to ensure that, as between the party making the decision and the person whose rights are affected by it, the fundamental principle to be assured is the application of “fairness of procedures”. Of course the nature of the decision, its ambit, its effect and so forth will assist in determining whether there is a right to be heard, but that does not alter, in my view, either the nature of the right and the ambit of the right. However, the fact that a decision is one which is going to be taken in the exercise by a decision maker of a discretion even a very wide discretion, is not a ground, in itself, for departing from the basic principle of audi alteram partem. Neither the breadth of the discretion, which in the present case is very wide, nor the fact that it is described as the “sole” discretion of a decision maker, and thus may only be reviewed in very limited circumstances, or as here not at all, can, in law, lead to the conclusion that if that decision is one affecting the interests of a party, it does not attract the rules of natural justice. Indeed, it might be said that where the discretion afforded is very broad, as here, and the limits on possible review may be very narrow indeed, this makes it all the more important that an affected party should have the right to make submissions to the decision maker before a decision is made. If anything, the scale of the NAMA statutory discretion and its statutory powers, and the fact that there is no appeal from its decision to acquire eligible assets referred to above, emphasises the importance of scrupulous adherence to the rules of natural justice.
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:
(a) the failure of the High Court to consider at all, the first two issues raised, that is the underlying value of the property, and the right to and loss of an income stream from that property;
(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;
Having regard to my conclusion that the property rights claimed entitled the appellants to invoke the principle of fair procedures to the statutory level required, a matter not accepted by the High Court, the question which arises for this Court, in the absence of any such decision by the High Court, is whether those claimed rights are, or are likely to be, “affected” by decision of NAMA, and the extent to which the appellants’ rights are likely to be so affected. As to the question of the underlying property, it is difficult to imagine, in the field of development, a greater interference with a property right than with one affecting the underlying value of a property portfolio, not simply the residual or “free” value of the property, but its entire value. It is the essential raison d’etre of a development company that its portfolio, and each element of a portfolio, must seek to retain its underlying value so as to permit growth arising from increases in that value over a period of time due to natural market forces, or which, because of the nature of a particular part of the portfolio, it enjoys the likelihood of an increase in its value. There will be other factors, but I confine myself to these two. Of course, a property portfolio may lose value just as it may gain value. But the claimed effects arising from the decision of NAMA to acquire the eligible assets, if established, must be classified as “sufficient” or, it might even be said, significant, and must therefore satisfy the test, unless NAMA can establish it is otherwise, or there are good grounds for justifying the refusal to be heard. That is not to say that the appellants will be successful at the end of the day in persuading NAMA not to take over the eligible assets in question. As stated above, that is not the role of this Court. But nor can it be assumed either that the appellants will not succeed. The eventual outcome – unless absolutely clear – must be a neutral factor in this Court’s analysis and assessment of the likely effects of the decision. Similar considerations apply in relation to the claim that the decision of NAMA will affect the right to earn a living from the expected income stream arising from the underlying properties. Assuming it is established, on reasonable facts, that it is likely to be affected by the decision of NAMA, I am satisfied it attracts the right to be heard.
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
NAMA, according the statutory scheme under which it operates, initially acquires, not the underlying property itself, but rather the bank debts represented by the various borrowings of development companies, together with the benefit of certain securities. The scheme envisages NAMA paying for the removal of the eligible assets, being the bad debts on the books of the banks, represented by the developers’ borrowings, and the banks’ interest in all the underlying security, in the hands of the mortgagee banks, that is, in the mortgages or charges, in the rental streams, if any, in any guarantees, and in any other security given for the original borrowings. On the ordinary law relating to such interest on transfer or assignment – and it has always been the case that such security could be sold or assigned by a mortgagee – NAMA can only stand in the shoes of the assignor/bank. It has, of course, purchased the above eligible assets for a figure, the nature of which I do not have to consider here, accepted by all parties as being a price far less than the value appearing in the books of the banks, and certainly far less than the original borrowings. The mere purchase of the book debts and the underlying security, or acquisition of the “eligible assets”, does not, however, and could not, in law, grant NAMA any larger or newer rights in the underlying securities than existed in the mortgagee/banks. In consequence, it would have the same power of sale and, as a mere assignee, the same entitlement to seek, from a Court, orders for possession, as the mortgagee/banks had under a mortgage/charge. NAMA, qua assignee, would also have the same rights to appoint a receiver to the companies whose mortgages/charges have been transferred or assigned, as existed in the banks, subject to any restrictions in relation to the same found, for example, in the Companies Act, 1963, and as amended, and it would also step into the shoes of the banks in relation to any guarantees, and have the same rights, if any, to appoint a receiver over the properties.
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
The provisions of Part 9 of the Act of 2009, including s.153, cause an alteration both of the original contract between the bank and the mortgagor, represented by the terms of the letter of loan, and were never envisaged or agreed between the parties. Part 9 constitutes a significant enlargement of the rights being granted to the assignee of the mortgagee/bank’s interest in the security, also never envisaged in terms of the original mortgage or charge executed by the appellants, never agreed with the appellants, and not previously provided in favour of a mortgagee by statute, or otherwise. Further, the legal effect of the vesting order, and its consequences, in my view, also affects the appellants, or has the clear potential to do so, vis a vis, the original contract with a mortgagee/bank, and certainly alters the existing arrangements between them. Once the vesting order is made, according to the provisions of the Act of 2009, the equity of redemption is ended. That is, in my view, not legally offensive in itself. Its only consequence, as a pure equity of redemption right, is that the mortgagor cannot himself insist on discharging the loan after the vesting order is made. If he does not exercise that option to do so by refinancing or redeeming the loan, a borrower cannot complain if the formal right to redeem is lost.
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:
(a) to vest the property without having to negotiate with the borrower or go through the process of securing possession by means of a court order and thereby to bypass, for NAMA’s exclusive benefit, the disadvantages otherwise accruing to it. This is an alteration in the position of the original mortgagee in its relationship with the borrower;
(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.
The intention found at the last paragraph appears to be supported by the statements of the European Commission’s view, set out in the Commission’s assessment of the NAMA scheme. The Act of 2009, as I read it, is intended to ensure that NAMA should be able to make a profit, to offset the cost to it of operating the scheme.
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
For the above reasons I consider that the effect on the rights underlying the property, and the rental stream, as well as on the exercise of those rights, and the alteration of contractual, or quasi contractual, rights of the mortgagor, and/or the realignment of the interests of a borrower with his mortgagee bank, as part of the bundle of rights invoked, are, or threaten to be, affected in a material way by a decision to acquire eligible assets. I am satisfied that the decision does so in a manner which requires the application of fair procedures, such as the right to be heard, and that no sufficient justification has been furnished to the contrary for the automatic blanket prohibition invoked by NAMA. I am satisfied that the High Court, in finding that no sufficiently significant interference in rights had been established by the appellants, erred in law.
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.
Judgment of Mr Justice Finnegan delivered on the 12th day of April 2011
I have had the benefit of reading the judgment of Fennelly J. and I agree with the same. In particular I agree that a person whose interests are capable of being affected directly 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 considered by the decision maker. As to the application of that test to the appellants’ circumstances I wish to add some comments on two aspects of the appellants’ submissions:-
The appellants submit that their property rights and interests are altered to their detriment by the transfer of its mortgages from a bank to NAMA and that in consequence they have a constitutional right to due process in the form of a right to be heard before a decision to acquire under section 84 of the NAMA Act is made. I do not propose to deal with the transfer of other securities such as guarantees held by a bank or, having regard to section 87(3)(b) of the NAMA Act, the exclusion and non-transfer of some of a bank’s obligations or liabilities.
NAMA’S Statutory Exemptions and Powers in relation to Mortgages
The equity of redemption
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:-
“103(1) In the exercise of the power of sale conferred by this Chapter or any express power of sale, the mortgagee, or any receiver or other person appointed by the mortgagee, shall, notwithstanding any stipulation to the contrary in the mortgage, ensure as far as is reasonably practicable that the mortgaged property is sold at the best price reasonably obtainable.”
For present purposes I am prepared to assume that section 103 should be read as imposing a duty rather than a restriction on a mortgagee and so is unaffected in its application to NAMA by section 103 of the NAMA Act. The section has effect notwithstanding any stipulation in the mortgage.
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:-
“17 Without prejudice to any defence otherwise available to, or immunity otherwise enjoyed at law by NAMA, a NAMA group entity or a person specified in section 34(1), no action for damages shall lie against NAMA, a NAMA group entity or such a person in respect of or arising out of the performance or non-performance in good faith of any of the functions provided for in Parts 4, 5 and 6 or in respect of any decision made in good faith to perform or not to perform any of the functions provided for in Parts 8 and 9.”
Part 4 relates to the designation of credit institutions for the purposes of the Act, Part 5 provides for the valuation methodology, and Part 8 relates to the relationship between NAMA and participating institutions, none of which bear upon the relationship of mortgagor and mortgagee. Parts 6 and 9, however, do bear on that relationship and in particular on the mortgagee’s duty of care in exercising the power of sale. Should NAMA exercise its power of sale in breach of duty to the mortgagor, in any action for damages it will have available to it a defence of having acted in good faith that defence not being available to other mortgagees.
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:-
“Section 146. The enforcement of a security by NAMA is not subject to the restrictions in the Conveyancing Act 1881 or the Land and Conveyancing Law Reform Act 2009.”
The LCLR Act imposes restrictions on a mortgagee in sections 96(1)(c), 97(1) 99,100 (2.) and 108. Thus under section 96(1)(c) the powers and rights of a mortgagee under Part 10 do not become exercisable unless their exercise is for the purpose of protecting the mortgaged property or realising the mortgagee’s security. Under section 97(1) a mortgagee may not take possession of the mortgaged property without a court order or the consent in writing of the mortgagor. Prior to the enactment of section 97 a mortgagee could take possession without a court order or consent if it could do so peaceably: Gale v First National Building Society [1985] I.R. 609. The right was very rarely exercised. NAMA, unlike any other mortgagee, retains a right to take possession peaceably. Section 99 requires a mortgagee in possession, or after a receiver has been appointed a receiver, to take steps within a reasonable time to exercise the power of sale, or if it is not appropriate to sell, to lease the property. Section 100 requires the mortgagee to give notice to the mortgagor prior to exercise of the power of sale and section 108 requires notice prior to exercise of the power to appoint a receiver. As these sections may be excluded by the mortgaged terms and will frequently be so excluded, and as the court has no knowledge of the terms of the appellants’ mortgages, it is not possible to say whether or not the release of NAMA from the operation of the sections will in fact affect the appellants.
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
The appellants draw attention to a number of provisions in the NAMA Act which place NAMA in a position different to that of any other mortgagee, the more significant provisions being those contained in Part 9 Chapter 4 and sections 103, 101, 139 and 7.
Part 9 Chapter 4. Vesting Orders
Section 152 provides as follows
“152(1) NAMA may apply to the court for a vesting order if –
(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.”
The remainder of section 152 deals with the procedure for an application for a vesting order. Section 153 provides that the court shall make a vesting order if it is satisfied that –
Further if a vesting order is made the court shall determine the amount likely to be raised were the land to be sold within three months after the application and shall make an order for possession of the land in favour of NAMA. Section 154 is concerned with other mortgages on the land and which are prior to or rank equally with NAMA’s mortgage. Section 155(1) provides as follows so far as a mortgagor is concerned:-
“155(1) Notwithstanding any other enactment or rule of law, a vesting order –
(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.”
The section further provides that the extinguishing of a mortgage does not extinguish the debt secured by the same, that the debt of the mortgagee secured by the mortgage shall be reduced by the value fixed by the court pursuant to section 154 and that the making of a vesting order does not impose on NAMA any obligation to sell the land within any particular period or at all.
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:-
“The Commission notes, however, that a number of powers, rights and exemptions are granted to NAMA for the management of the assets post-acquisition with a view to help the agency achieve the maximum recovery value for the assets. Such powers, in particular, when they are specific to NAMA and not available to market operators are potential sources of competition distortions. In its assessment the Commission has in particular focussed on those specific powers which it considers to be potentially more distortive. For those the Commissioners asked commitments from the Irish authorities 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.”
Thus the objective of providing NAMA with power to obtain a vesting order is to enable NAMA to hold land rather than putting it up for sale immediately and thereby avoid flooding market with fire sales. A prudent mortgagee would share this objective, but the only manner in which it could be achieved is by appointing a receiver. I have already adverted to the difference in consequences for a mortgagor between the appointment of a receiver and the making of a vesting order.
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
Section 103 provides as follows:-
“103. No cause of action lies or is maintainable against NAMA or any NAMA group entity by reason solely of the acquisition of a bank asset by NAMA or a NAMA group entity.”
Mortgages are freely transferable: Turner v Smith [1901] 1 Ch 213, Simmons v Montague [1909] 1 I.R. 87, Re Tahiti Cotton Company Ex p. Sargent [1874] L.R. 17 Eq. 273. The concurrence of the mortgagor is not required. The acquisition of a mortgage does not give rise to a cause of action against the mortgagee or the transferee of the mortgage. Historically mortgages were a major investment vehicle and free transferability was important. Before the emergence of modern stock exchanges the only other secure investments available were government securities and Consols. Less secure investments were shares in joint stock companies engaged in banking, canals, railways and gas and lighting companies. Mortgages were bought and sold regularly: thus the Trustee Act 1893 section 5 provided that, unless expressly forbidden by the trust, trustees were authorised to invest in mortgages of long leases and of real securities. In more recent times banks created securitised mortgage investments and bundles of mortgages which were sold to investors such as insurance companies, pension funds and hedge funds. I know of no case which restricts the right of transfer, and none has been cited to the court, so that a mortgagee may not sell to whomever he may wish. That the transferee might have a different business model to a bank, for example a hedge fund, did not confer any right in the mortgagor to object to the transfer. A corollary of this is that a transferee of a mortgage equally enjoys freedom to acquire.
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.
Section 101 provides as follows:-
“101(1) If in relation to a bank asset that NAMA or a NAMA group entity has acquired-
(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,
then the representation, consent, undertaking or obligation -
Section 139 provides as follows:-
“139 NAMA may validly transfer, assign, convey, sell on or otherwise dispose of an acquired bank asset to any person notwithstanding –
(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.”
Under the general law a transferee of a mortgage will take subject to equities and so subject to any such representation, consent, undertaking or obligation referred to in section 101: Turner v Smith [1901] 1 Ch 213. An improper exercise of a power of sale will be restrained by injunction: Forsyth v Blundell [1973] 129 C.L.R. 477. The effect of section 101 is that where NAMA is not on notice of a representation, consent, undertaking or obligation no action lies against NAMA but an action lies against the mortgagee. If NAMA is on notice it will take subject to the same but injunctive relief which would affect NAMA is not available to the mortgagor. The mortgagor’s only relief will be in damages. Even if on notice NAMA may avail of section 87(3)(b) to avoid being liable in damages. As the NAMA Act is part of a scheme of State support for financial institutions the ability of a bank mortgagee to satisfy a claim in damages is not in issue. The mortgagor, however, is denied the availability of an injunction to enforce the representation, consent, undertaking or obligation which would affect NAMA, that is an injunction against the bank, NAMA or a purchaser from NAMA.
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
Section 7 in subsection (1), subsection (2), subsection (3) and subsection (4) creates offences. These subsections provide as follows:-
“(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 –
(4) A person who intentionally withholds information from NAMA in breach of an obligation to provide that information imposed under this Act commits an offence if the withholding of the information has a material impact upon –
(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.”
The appellants submit that the transfer of their mortgages to NAMA exposes them to criminal sanctions in circumstances where they would not otherwise be so exposed.
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.
In dealing with the statutory provisions relied upon by the appellant I must not be taken to have definitively interpreted the same. The interpretation of the provisions must await cases in which they arise as an issue inter partes. I have considered the statutory provisions only insofar as they have the potential to affect the appellants.
Summary
The provisions of the NAMA Act contained in Part 9 Chapter 4 and section 103 directly affect the rights and interests of the appellants. The provisions of sections 101 and 139 are capable of directly affecting such rights and interests. For that reason the appellants are entitled to have notice of the intention to make a decision under section 84 of the NAMA Act and to have their representations considered by NAMA before a decision under section 84 is made.
The commercial consequences for a mortgagor of the transfer of a mortgage to NAMA
The relationship between the appellants and their lenders.
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.
If only because of the availability to NAMA of a vesting order there is no incentive to NAMA to adopt a wait and see approach and forbear in the exercise of its rights where any of the appellants’ loans are overdue for repayment or in breach of a required loan to value ratio. Where a mortgagee forebears the mortgagor will obtain the benefit of any uplift in value and of the income stream. NAMA by obtaining a vesting order can for itself obtain that benefit. It can achieve the effect of purchasing the lands at a mortgagee’s sale, something which a mortgagee cannot do. Thus the incentive for NAMA is to exercise its rights in the event of default and particularly so where the income stream significantly exceeds the interest requirement. The exercise by NAMA of its rights as mortgagee on even one loan having regard to the right to consolidate all mortgages held by NAMA as security for all loans to the appellants compulsorily acquired by NAMA would have catastrophic consequences for the appellants’ entire business. NAMA could refuse to allow the loan in default to be redeemed and the default could trigger defaults on other loans by virtue of their connection with the loan in default through cross-guarantees or other mortgage terms.
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:-
“to recover for the taxpayer whatever it has paid for the loans”.
In many cases the amount paid by NAMA this will be less than the amount secured by the mortgage and in some cases substantially so. As NAMA’s exposure on a particular loan may well be substantially below that of the mortgagee from whom the loan has been acquired the point in time at which it becomes commercially advantageous for NAMA to exercise its rights as mortgagee will arise when the current market value of the lands approximates to or exceeds the amount paid by NAMA for the loan rather than when it approximates to or exceeds the amount of the loan. A mortgagee is not under any obligation to postpone a sale in order to obtain a better price: Kennedy v De Trafford.
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
For the reasons hereinbefore set out I am satisfied the differences between the appellants commercial relationship with their bankers and the relationship with NAMA adversely affects the appellants in a manner sufficient to give rise to a right to be heard.
CONCLUSION
I am satisfied that the provisions of the NAMA Act affect the appellants’ property rights and their equity of redemption. I am satisfied that the differences which I have identified between NAMA, having regard to NAMA’s exemptions and powers conferred by Statute, and any other mortgagee is such as to directly affect the property rights and interests of the appellants where I have so indicated. I am satisfied that the effect of a transfer of mortgages to NAMA on the appellants’ relationship with their bank is such as to affect the appellants’ interests. In consequence the appellants have a right to be heard before a decision is made by NAMA under section 84 of the NAMA Act.
Disposition
I would allow the appeal on the ground that the appellants have a right to be heard prior to a decision being made to acquire the appellants’ loans under section 84 of the NAMA Act.
