SUPREME COURT OF IRELAND
12 APRIL 2011
On the 3rd day of February 2011 the first judgment of the Court in this case was delivered which declared invalid and of no effect a purported decision of the respondents, the National Asset Management Agency, generally known as NAMA, to acquire from particular banks certain eligible bank assets directly relating to loans made by those banks to the appellants as borrowers.
On the same date Fennelly J., with whom all other members of the Court agreed, delivered a judgment which dismissed the ground of appeal in which the appellants claimed that the statutory scheme established by the National Asset Management Agency Act 2009 enabling NAMA to acquire eligible bank assets was unlawful as being contrary to the law of the European Union governing State Aids.
Consequent upon the judgment of the Court that there was not in law any decision of NAMA to acquire the relevant eligible bank assets the Court heard submissions from the parties concerning the question as to whether two outstanding issues which had been argued in the course of the appeal might be considered moot and therefore not requiring a decision of the Court in these proceedings.
In general terms these two issues were as follows:
Whether s. 69 of the Act of 2009 should be considered incompatible with the Constitution, in particular the provisions of Article 40.3.2 or Article 43 thereof, on the grounds that the meaning given to eligible bank asset pursuant to that section is so broad as to represent an unjust and disproportionate attack on the appellants’ property rights given what the appellants say is the “untrammelled” discretion of NAMA to acquire such a broad range of assets encompassed by the statutory definition.
Whether the Act of 2009, and in particular s. 84 which confers on NAMA the statutory power to exercise its discretion to acquire eligible bank assets, must be construed in accordance with the principles of constitutional justice so as to require NAMA to grant to borrowers in a position similar to that of the appellants the opportunity to make representations to it before NAMA makes a decision pursuant to s. 84 to acquire eligible bank assets. (As an alternative to this argument the appellants submitted that if such a right could not be implied that s. 84 should then be considered unconstitutional).
As appears from the judgment of the Court on the first issue and the several judgments of the Court on the issue concerning the right of the appellants to be heard, as delivered to date, the Court has concluded that it should address these two issues in these proceedings.
Background to the Issues
Although the background facts and circumstances have been amply referred to in the judgment of the High Court and in the earlier judgment of this Court and although they are also addressed, so far as relevant, in the several judgments delivered today I think it is appropriate, at this point, for the limited purpose of placing the foregoing issues in context, to make some reference to certain salient aspects of the case.
As was alluded to in the judgment delivered on 3rd day of February 2011 the appellants initiated these proceedings with due promptness, as the Rules of the Superior Courts require.
In presenting the case on behalf of the appellants counsel placed particular emphasis on the general status and character of the credit facilities in issue in particular distinguishing them from eligible bank assets where the borrowers have failed and/or are manifestly incapable of fulfilling obligations to repay or service their debts. I say the general status and character because the Court is not being asked in this appeal to decide whether the appellants’ loans, or any of them, could, for example, be considered to be “impaired” even though there may be an adverse change in the ratio of loan to value in respect of some properties on which the borrowings are secured.
In this context counsel for the appellants have relied on certain facts relating to what have been described from time to time as Mr. McKillen’s loans. The reason for this is that Mr. McKillen, while one of 16 appellants has a dominant position as shareholder in the companies which comprise the remaining appellants.
Among the facts relied upon by the appellants, which are also part of the findings of fact of the High Court, are the following:
Mr. McKillen and his companies have an interest in a portfolio of properties with a current value which seems to lie somewhere between €1.7 bn. and €2.2 bn. depending on what valuations are relied upon.
Mr. McKillen’s property portfolio is geographically spread between Ireland, the United Kingdom, France and the U.S.A. with just approximately 26% by value representing properties in Ireland.
The portfolio would appear to consist of 62 properties, 96% of which is let and it would appear that in most cases the lettings are to what have been described as “blue chip tenants on long leases predominantly with a twenty five year duration”.
Again, as the High Court found, at an aggregate level it would appear that interest cover is somewhere between 1.7 and 1.8, meaning that the income from the relevant properties is 1.7 to 1.8 times the interest payable at current interest rates.
Loans secured on those properties in favour of Irish banks who are participating institutions in NAMA amount to approximately €2.1 bn.
A significant portion of the McKillen loans are not directly loans in respect of land and development, but rather, are loans which come within the definition of eligible bank assets by virtue of the fact that those loans are to Mr. McKillen or entities associated with him, and thus are caught by the broad definition of eligible loans contained within the Act.
All interest payments due under the loans concerned had been paid to date (of the High Court judgment) and at least in current conditions and at current interest rates the High Court found that there appears to be sufficient income being generated by the properties concerned to service those loans in the sense of meeting all the interest payments due on them.
Section 84(1) provides as follows:
|NAMA may acquire an eligible bank asset of a participating institution if NAMA considers it necessary or desirable to do so having regard to the purposes of this Act and in particular the resources available to the Minister. NAMA is not obliged to acquire any particular, or any, eligible bank asset of such an institution on any grounds.|
It is clear from the provisions of s. 84(1) that the power of NAMA to acquire an eligible bank asset is a discretionary one to be exercised within the ambit of the criteria or purposes referred to in subsection (1) and with reference, when considered appropriate, to other criteria referred to in other subsections of s. 84.
It is also important to note that each discretionary decision made by NAMA under that section is to acquire a particular bank asset or assets and accordingly affects directly and individually the particular borrower or borrowers whose credit facilities relate to such an asset.
Rights and Interests
Mr. McKillen, and the other appellants, complained that in their business activities certain rights and interests protected by the Constitution and the law would be seriously and adversely affected by any decision of NAMA to acquire the eligible bank assets represented by the credit facilities afforded to them by the relevant banks and in particular by the Bank of Ireland.
In that broad context, which is addressed in more detail in the judgments delivered today, it has been argued on their behalf that firstly s. 69 of the Act is unconstitutional because the excessively wide range of assets which can be treated as eligible bank assets by virtue of s. 69 in conjunction with the allegedly untrammelled discretion of NAMA to acquire them, gives rise to a disproportionate and therefore unconstitutional interference with those rights and interests.
As regards the second issue the appellants have, again broadly speaking, argued that a direct interference with their rights and interests referred to by virtue of the exercise of a discretionary power by NAMA to acquire the eligible bank assets relating to their credit facilities they have a right, deriving from the principles of constitutional justice, to make representations to NAMA prior to it taking any such decision pursuant to s. 84.
It is as well to underline at this point that the rights and interests involved in this case are property rights and interests derived from the ownership of certain properties by the appellants and related contractual rights, which, but for the provisions of the Act, they would normally be entitled to manage and deal with as they saw fit, within the ordinary parameters of the law. Persons in the position of the appellants would, but for the provisions of the Act, by reason of the rights and interests vested in them as owners of the development land in question, normally be entitled, as of right, to independently manage their affairs related to those properties, including negotiating with private institutions with whom they have credit facilities. It is in this sense that reference is made to rights and interests.
Decision of the Court on the Constitutional Issue
For the reasons set out in a judgment which I have delivered separately on behalf of the Court, the Court has decided that the ground of appeal in which the appellants seek to impugn the constitutionality of s. 69 of the Act should be dismissed. The Court has concluded that the criteria according to which NAMA is required to exercise its discretion pursuant to s. 69 is sufficiently delineated in the Act and does not confer on NAMA an arbitrary or untrammelled discretion as claimed by the appellants.
Decision on the Right to make Representations
Central to the arguments of NAMA on the question of the right to be heard is that the Act of 2009, and in particular s. 84, not only fails to provide for representations to be made by the appellants to NAMA but that the Act must be interpreted as prohibiting NAMA from receiving or considering such representations concerning any proposed decision to acquire the eligible assets in question. In other words when NAMA decides pursuant to s. 84 to acquire an eligible bank asset a borrower, such as the appellants, whose borrowings relate to such an asset, has no right to make representation concerning the potential effect of such a decision on the borrower’s property, including contractual, rights and interests irrespective of how prejudicial those effects might be considered to be. According to NAMA only the bank concerned may make representations for the limited purpose expressly provided for in certain provisions of the Act itself.
For the reasons set out in the several judgments delivered by members of the Court the Court has concluded that the provisions of the Act do not preclude NAMA from receiving and taking into account representations made on behalf of the appellants, (particularly having regard to their particular circumstances) but on the contrary, properly construed in the light of the Constitution and the consequential principles of interpretation which must be applied, the Act requires that NAMA accord persons such as the appellants the right to make representations concerning any decision which it proposes to take pursuant to s. 84 of the Act.
This conclusion of the Court does not affect the fundamental functioning of the system established by the Act but rather the procedures to be followed by NAMA in the application of s. 84.
Declaration of the Court
As a consequence of the judgments delivered in this issue today the Court declares that the appellants are entitled to be duly informed by NAMA of any intention to consider making a decision to acquire eligible bank assets related to their credit facilities with participating banks so as to afford them an opportunity of making appropriate representations concerning such a proposed decision.
Having summarised the conclusions of the Court and the context in which they were reached I now turn to setting out, in relatively brief terms, the reasons why I consider that the appellants’ appeal on the issue of the right to be heard should be allowed.
Interpretation in conformity with the Constitution
I have already adverted above to the fact that a decision of NAMA pursuant to s. 84 to acquire an eligible bank asset is a discretionary decision which is intended to affect the position of the particular borrower or borrowers whose credit facilities relate to a particular asset. Section 84 of the Act permits NAMA, in making such a decision, to have regard, inter alia, to the title, value and adequacy of the underlying security provided by the borrower. If an asset is transferred to NAMA the borrower(s) concerned must respond to and deal with the policies and practices of NAMA. Legitimate as all that may be it means that the borrowers are directly affected.
For quite some time the general principles of fairness or due process derived from the Constitution have recognised, inter alia, that a person has a right to be heard by the decision maker exercising a statutory power before a decision is finally made when that decision may materially affect rights vested in them or impose obligations.
The most oft cited judicial dicta on this question are those of Walsh J. to be found in East Donegal Co-operative Ltd v Attorney General  I.R. 317. In that case this Court was concerned with the interpretation of certain provisions of the Livestock Marts Act 1967 which conferred statutory powers on the Minister for Agriculture to make discretionary decisions concerning individuals. At 343 of that report Walsh J. stated:
|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 license or for the refusal of a license or for the attaching of conditions, or for the amendment or revocation of conditions which have already been attached, as the case may be ....|
In Glover v BLN Ltd  I.R. 388 Walsh J. with reference to the principles of constitutional justice in the field of public law observed:
|It is sufficient to say that public policy and the dictates of constitutional justice require that statutes, regulations or agreements setting up machinery for taking decisions which may affect rights or impose liabilities should be construed as providing for fair procedures.|
Again in McCormack v Garda Siochana Complaints Board  2 I.R. 489 at 499 Costello P. stated:-
|It is now established as part of our constitutional and administrative law that the Constitution 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 for 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.|
Furthermore, as Walsh J. pointed out in the East Donegal case the presumption of constitutionality which attaches to every piece of legislation passed by the Oireachtas means that such legislation must be interpreted on the presumption that discretions and adjudications which are prescribed by an Act of the Oireachtas are to be conducted in accordance with the principles of constitutional justice governing fair procedures. This is a presumption which has been restated and applied by this Court repeatedly over the decades when interpreting Acts of the Oireachtas.
It is impossible therefore to reconcile the argument made on behalf of the respondents in these proceedings that the Act of 2009 not simply failed to provide for a procedure enabling the appellants to make representations to NAMA but actually prohibited or at least excluded by necessary implication any possibility of any representations to NAMA should a decision under s. 84 interfere with rights or impose obligations on persons directly affected by it.
Of course there were other dimensions to the respondents’ arguments including the arguments that the decision of NAMA to acquire the assets in question had no material adverse effect on the appellants because it involved no more than a transfer of the relevant banks’ interests to NAMA leaving intact the appellants’ existing contractual rights and obligations in relation to their credit facilities. In short the bank itself had a right to sell and transfer its interest as mortgagee to a third party without reference to, let alone granting a hearing to, the appellants. The acquisition of the bank’s eligible assets by NAMA, it was argued, had the same effect so far as the appellants were concerned, except that it was done pursuant to a statutory procedure and power. I will refer to that aspect of the argument later. What I am concerned with at the moment is the manner in which s. 84 should be interpreted as a matter of principle.
In the light of the interpretative principles referred to above and the constitutional requirements concerning fair procedures I am satisfied that s. 84 must be interpreted as meaning that NAMA must permit persons whose rights may be adversely affected, or on whom liabilities are imposed, as a consequence of a decision to acquire an eligible asset to make representations before such a decision is made.
Given the well established principles of statutory interpretation according to which fair procedures must be observed by decision makers exercising discretionary statutory powers in such circumstances one would have thought that the Oireachtas, if it had intended to exclude the operation of procedures of this nature, would have done so expressly. Of course that would then have given rise to a distinct issue as to whether such an exclusion was compatible with the Constitution.
Participating banks are of course also affected by a decision pursuant to s. 4. No issue has arisen concerning the position of the banks in this context and of course they are in a different position than persons such as the appellants since, inter alia, any such bank has taken its own decision and opted to participate in the NAMA statutory scheme and are given certain express, if limited, rights to make representations to NAMA before a decision is taken to acquire a particular eligible asset.
Adverse Effects on the Rights and Interests of the Appellants and a Right to be Heard
The question remains as to whether the effect of any decision by NAMA to acquire assets related to the appellants’ credit facilities would, at least potentially, involve a real risk that their rights would be directly affected so as to give rise to a right to be heard on their part.
Neither the appellants nor the respondents take issue with a statement of principle in the judgment of the High Court concerning the circumstances in which a right to be heard may arise before a decision is made by a public authority pursuant to a statutory discretion. At paragraph 7.14 of its judgment the Court stated:
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 will be such as would directly interfere with those rights, or at least any interference must be so closely connected with any adverse decision as to warrant that the party concerned be entitled to invoke a right to fair procedures. Obviously, the precise application of that 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.
As a statement in the abstract the appellants did not argue against such an approach but counsel for the appellants submitted that the High Court in reaching its final conclusions failed to take account of the practical effects which a decision by NAMA could potentially have on their rights and interests.
On the other hand the respondents argued, as indicated above, that any decision by NAMA would have no material effect on the appellants’ rights or that any effect was merely an indirect consequence of the substantive decision.
For my own part I would not take issue with the statement of the High Court as recited above. However I do depart from the subsequent conclusion that there was no real risk of an adverse effect to the rights of the appellants in the event of an adverse decision by NAMA and in this respect I agree with the detailed analysis of the potential practical effects on the appellants of such a decision made by Fennelly J. and Finnegan J. in their respective judgments.
As Fennelly J. points out NAMA has been given powers which a bank does not have and I agree with him when he says that s. 87(3)(b) of the Act of 2009 qualifies any assertion that NAMA simply takes over all the banks’ obligations and liabilities and in noting that the section enables NAMA, when acquiring an asset to set out “a statement of any obligations or liabilities excluded from the acquisition …”
Of particular significance is the analysis of Finnegan J. in his judgment of the relationship between mortgagor and mortgagee. In his judgment he points out that NAMA enjoys powers not enjoyed by any other mortgagee some of which impinge, in important ways, on the relationship between mortgagor and mortgagee. In particular he concludes that the appellants’ equity of redemption is capable of being adversely affected as a consequence of a decision to acquire by NAMA pursuant to s. 84 of the Act of 2009. I respectfully agree with the entire analysis of Finnegan J. and therefore with his conclusion that a decision by NAMA to acquire the bank assets represented by the credit facilities of the appellants carries with it, at the very least, a real risk that the property rights and interests of the appellants would be directly and adversely affected.
It seems to me that it is relevant to bear in mind that it is not contended that the appellants in this case are, by reason of insolvency, burden of debt, or otherwise, incapable of fulfilling their borrowing obligations, conducting their business affairs including the management of their property portfolio and associated loans, in the ordinary course of their own business and for that purpose conduct their business with private institutions. The Bank of Ireland, with whom the vast bulk of their credit facilities are placed, have indicated a willingness to continue to do business with them as bank clients.
As was pointed out at the outset of the judgment the High Court found, inter alia, that the appellants have discharged all interest due on their loans and have more than sufficient income being generated by their properties to service those loans. Ninety six percent of the properties are let to “blue chip tenants on long leases” with 26% of the property portfolio by value, being represented by properties in Ireland.
These factors may or may not be considered to be of relevant weight by NAMA in any consideration as to whether it should acquire the eligible assets in question. That would be entirely a matter for NAMA. They are relevant however to considering the potential impact of an acquisition of the relevant assets by NAMA.
Those factors underline the position of the appellants who would, but for the provisions of the Act, by reason of the rights and interested vested in them as owners of the development land in question, normally be entitled as of right to manage their affairs related to those properties, including by negotiating and dealing with private institutions with whom they have credit facilities.
If the relevant eligible assets were to be acquired the appellants would be subject to the NAMA statutory scheme and all the potential effects referred to by Fennelly J. and in particular by Finnegan J. concerning equities of redemption and vesting orders.
In short the appellants would be deprived of the right to deal with their property portfolio and associated loan contracts as they judged fit in the ordinary way on the commercial market even if subject to any vicissitudes of current market conditions. Again as Finnegan J. pointed out there is a risk that properties could be sold by NAMA in circumstances disadvantageous to the appellants in a way which could not be done by a mortgager exercising a power of sale.
It is in that sense that I consider that there is a real risk that their property rights and interests may be directly affected by any decision of NAMA pursuant to s 84 and for that reason they should have a right to make representations to NAMA.
It could indeed transpire that NAMA, having taken into account all relevant representations made on behalf of the appellants and other relevant factors would decide to acquire the assets in any event. But at least, as a matter of constitutional justice, the appellants would have had an opportunity to make their own case before the relevant assets are taken into the NAMA scheme.
I should perhaps add that I do not attach a great deal of weight to the argument made on behalf of the appellants concerning their right to maintain their well established relationship with the Bank of Ireland in the sense, to put it in broad terms, that they would continue generally to profit or benefit from the positive relationship and lending policies which they have had with that bank as a customer in good standing. I do not think it can be assumed, particularly with regard to participating banks such as the Bank of Ireland, that even with the best of good will in the world that they would not be constrained by current day realties, such as difficulties concerning capitalisation of those banks and limitation on credit facilities, from according to the appellants the same banking facilities based on the same commercial policies or relationships as heretofore.
What is of prime relevance however for the purposes of determining whether the appellants should be accorded a hearing is the fact that they would be deprived of the opportunity of actually managing their own affairs with their chosen bank within the parameters of the law and commercial practice, whatever that may be at any given time. Instead the credit facilities, with a potentially direct impact on the management and ultimate sale of properties securing those facilities, would be brought under the statutory NAMA regime. They would be potentially exposed to all the adverse effects to which Fennelly J. and Finnegan J. have referred to in their judgments.
In the course of the hearing it was at one point argued on behalf of the State that the exclusion of a right to a hearing might be justified by reason of the crisis affecting the national banking system and the urgency of the measures needed to counter systemic threats to that system. I have to say that there was no evidence or material before the High Court to suggest that the time involved in permitting persons such as the appellants to make representations to NAMA before it made a final decision would impinge on, let alone be fatal for, its effective functioning. Moreover I find it difficult to envisage circumstances where the principles of constitutional justice ensuring that decisions are fair for the individual could be overridden. To do so would be to abrogate a constitutional protection which every citizen enjoys when the State decides to exercise a power which encroaches on individual rights.
The State in exercising its powers through the organs of government designated by the Constitution have extensive powers to regulate and limit the exercise of individual rights in the interest of the common good and this may be relevant where the State is faced with a national crisis, such as one of a fiscal nature. The State has the power to act in the interests of the common good because the Constitution, in its provisions, expressly envisages that. It also envisages that in exercising such powers the State must act within the ambit of the Constitution as a whole. In a democratic State founded on the rule of law there are definite limits to the extent to which the State can interfere with or restrict constitutional rights or rights vested in or acquired by individuals - freedom of expression, assembly, freedom of religion, right to education, right to earn a livelihood, property rights (including contractual rights), right to strike - to name but some, even when it is acting or purporting to act in the interest of the common good in a national crisis. In common with international instruments, such as Covenants of the United Nations and the European Convention on Human Rights, the Constitution envisages that rights may be regulated and limited but not to an extent that it is disproportionate or in a manner which is arbitrary or discriminatory in an invidious sense. In particular the State cannot act in a manner which would abrogate a right or deprive it of its very essence.
If the State were to succeed in its argument, namely that the Act of 2009 prohibits NAMA from giving any consideration to representations from persons in the position of the appellants, it would be denying the very essence of a right to a hearing, a concept at the core of the principle of constitutional justice and due process.
For the foregoing reasons I am of the view that the appellants should succeed on this aspect of their appeal. The process according to which a person is given an opportunity to make representations will often depend on the nature, scope and purpose of the decision being made, the rights involved and the manner in which they may be affected. The Courts have always held that the nature of the procedural process therefore should be one which is flexible but sufficient to give a reasonable opportunity to the party concerned to present their case having regard to all the relevant circumstances. Should the need for such a process arise in this case, because NAMA seeks to acquire the assets in question, I agree with Fennelly J. that it is difficult to foresee why there would be a need for a process that would go beyond a written procedure and that in any such procedure the right of the appellants would be to make representations concerning the manner in which it submits that their interest would be adversely affected. The Act of 2009 contains express provisions requiring banks, when furnishing information to NAMA, to do so expeditiously. In the case of a decision pursuant to s. 84 it seems obvious that all parties concerned would be entitled to expect that the process would be completed with all reasonable expedition.
Subject to any submissions of the parties as to the final form of order of the Court I would hold that the appellants are entitled to a declaration that they should be duly informed by NAMA of any intention to consider making a decision to acquire any eligible bank asset related to their credit facilities with participating banks so as to afford them an opportunity of making appropriate representations concerning such a proposed decision.
. This is one of a series of judgments delivered in these proceedings between the parties. The applicants/appellants are referred to as "the appellants", except on a few occasions when it is more appropriate to refer to "Mr. McKillen". The respondents are referred to as "the respondents" and on occasions reference is made to "NAMA".
The appellants applied to the High Court for certain reliefs by way of judicial review against the respondents. The application related to a purported decision of NAMA to acquire from certain banks "eligible bank assets" within the meaning of s.69 of the National Asset Management Agency Act 2009, hereinafter referred to as "the Act of 2009". These bank assets are substantial loans by the Bank of Ireland to the appellants. The High Court refused the application.
The appellants have brought an appeal to this Court seeking to set aside the judgments of a divisional court of the High Court (Kearns P., Kelly, Clarke JJ.) dated the 1st November, 2010, and the 8th November, 2010, and the order perfected on the 11th November, 2010.
The appellants raised five issues before this Court. These were as follows:-
Whether the failure or refusal of NAMA to receive and consider submissions from the appellants prior to taking the decision to acquire the relevant eligible assets constituted a breach of their constitutional right to fair procedures. This is referred to as "the fair procedures" issue.
Whether any decision taken by NAMA to acquire the loans of the appellants was invalid or unlawful by reason of the failure of NAMA to consider and take into account six matters referred to at paragraph (e) (xvC) of the statement of grounds contained in the appellants’ application for judicial review. This is referred to as "the relevant considerations" issue.
Whether the decision of NAMA to acquire the loans of the appellants with the Bank of Ireland was a nullity because the actual decision was made prior to the establishment of NAMA and was one which could not have been, or alternatively was not, ratified or adopted by NAMA after it was established pursuant to statute. This issue was referred to by the parties and the High Court as the "timing issue", but this Court considered it to be more appropriately characterised as an issue as to whether any decision having a legal effect was made by NAMA. In this particular context a parallel question also arose as to whether s. 17 of the Interpretation Act 2005 could be relied upon by NAMA as permitting it to rely on a decision to acquire taken by the interim team prior to the coming into force of the Act of 2009. This issue is referred to as the question as to whether NAMA had made any decision to acquire the loans.
As an alternative, and as the High Court pointed out, as a “fallback” position on the part of the appellants to the above contentions, it was argued that if a proper construction of the Act of 2009 meant that NAMA was not under an obligation to give a hearing to the appellants prior to a decision to acquire its loans, or that the Act conferred on NAMA a power to acquire both impaired and unimpaired loans, this raised a question as to whether the Act is inconsistent with the Constitution in either or both regards. This is referred to as the issue of "the constitutionality of the Act of 2009".
Whether the decision of the European Commission dated 26th February, 2010, on the NAMA scheme, as state aid requires that NAMA be precluded from acquiring loans from borrowers that are not impaired. This is referred to as the "European state aid issue".
Decisions have been given on several of the issues. On the 3rd February, 2011, in a judgment of the Court delivered by Murray C.J., the Court held that NAMA had not made a decision to acquire the appellants' loans and that the appellants were entitled to a declaration to that effect. Thus the issue set out in paragraph (c) above has been determined in the appellants' favour.
Also on the 3rd February, 2011, in a judgment delivered by Fennelly J., with whom the other members of the Court agreed, the European state aid issue, referred to in paragraph (e) above, was decided. In relation to that matter the appellants lost their appeal.
On the 9th February, 2011, the Court heard legal submissions as to whether the remaining three issues were justiciable. In an ex tempore judgment, Murray C.J., giving the determination of the Court, ruled that the "relevant considerations" issue arose only in relation to the purported decision of NAMA which had been held to be a nullity. In those circumstances this issue is moot and it does not require any further decision. In light of the submissions made by counsel, the Chief Justice indicated that the Court would proceed to consider the other issues, either as to whether they are moot or on their merits.
Consequently, two issues remain outstanding. These two issues are "the fair procedures" issue and "the constitutionality of the Act of 2009". This judgment addresses the "fair procedures" issue.
To consider the fair procedures issue it is necessary to revisit some of the background history. The factual background was set out in the judgment of the High Court, in particular in paragraphs 5.1 to 5.20. These facts are not in issue and will not be restated in detail. However, they are referred to in summary form to put the issue of fair procedures in context.
The general context of the national financial crisis includes the State’s three-pronged policy response to that crisis being:-
enactment of the Credit Institutions (Financial Support) Act, 2008, which provided a statutory basis for the State to enter into the guarantee;
measures to recapitalise most of the main financial institutions in the State and to nationalise Anglo Irish Bank; and
the establishment of NAMA under the Act of 2009 to address significant losses suffered by banks in the State as a result of the collapsing of the property bubble, through the acquisition of eligible assets from participating credit institutions in order to remove uncertainty about those assets and to alleviate the effect of such uncertainty on the credit institutions in the State.
The High Court noted, at paragraphs 5.4 to 5.6, the context in which these three measures were taken, particularly concerning those institutions with which the appellants, Mr. McKillen and his companies, have significant loans:-
It must be recalled that the context in which the bank guarantee was given was the view that, at a minimum, most of the Irish banks were, in September, 2008, arriving at a position where they would be unable to obtain adequate funding to carry on their business. If there had been no major policy intervention, then it seems almost certain that the consequences for some, if not all, of the institutions which became participating institutions in the NAMA scheme, would have been severe. In the case of Anglo, it is now apparent that that bank had become insolvent and having regard to the scale of the losses which have now been shown to have been incurred, it seems certain that, in the absence of major intervention, Anglo would have ceased to trade in any way and would, as a matter of high probability, have gone into liquidation. Mr. McKillen had, of course, significant dealings with Anglo. The other bank with whom Mr. McKillen had major dealings was Bank of Ireland. There can be little doubt but that the scale of Bank of Ireland’s problems were less than those in the other participating institutions but, nonetheless, were significant. The Government has been required to place an additional sum of €3.5bn into Bank of Ireland as a recapitalisation.
.... 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.
While the true scale of losses in at least many of the participating institutions was not apparent at the time when the Act was passed, it does appear on the evidence to have been clear from an early stage that there were very significant losses in the banks which needed to be dealt with in some fashion. In that context, the Government announced in the Spring of 2009 (during the budget speech of the 7th April) that what has now become NAMA would be established. The relevant legislation was published in a preliminary form in July of that year, with the Act being passed by the Oireachtas in November and coming into force on the 21st December, 2009.
Prior to, and in anticipation of, the establishment of NAMA under the Act of 2009 a significant level of preparatory work was carried out by senior officials of the National Treasury Management Agency (NTMA).
As to the appellants’ business activities, the appellants own a portfolio of approximately 62 properties, 26% of which are located in Ireland, with the remainder in France, the United Kingdom and the United States of America. According to the expert evidence given in the High Court, these properties were valued at between €1.7bn and €2.28bn and they generate an approximate income of €150m per annum.
Loans secured on those properties with banks in the State which are participating institutions under the NAMA scheme amount to approximately €2.1bn. The status of those loans, namely as to whether the loans could be considered as “impaired loans”, was disputed by the parties in the High Court. However, the High Court, having concluded that the loans were “eligible bank assets” within the meaning of reg. 2 of the National Asset Management Agency (Designation of Eligible Bank Assets) Regulations 2009 (S.I. No. 568 of 2009) (hereafter “the Regulations”), irrespective of whether they were deemed to be impaired or not impaired, considered it unnecessary to express any view as to whether those loans were impaired or non-impaired.
The High Court did note that on the uncontested evidence of the appellants, 96% of those properties are let, the majority of the tenants being described as “blue chip tenants on long leases predominantly with a 25 year duration”, and that the income stream thus generated, at an aggregate level, appears to provide interest cover on the loans of between 1.7 and 1.8 times: that is to say, the income is between 1.7 and 1.8 times the interest payable on the loans at current interest rates. As this is an aggregate figure, the interest cover on certain individual loans may be lower.
At paragraph 5.13 of its judgment the High Court referred to one particular feature of the appellants’ business model. It noted:-
|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.|
Under the statute “eligible bank assets” may be acquired by NAMA. Regulation 2 of the Regulations provides a broad definition of “eligible bank assets” which may be transferred from participating institutions to NAMA. The principal assets under this definition are what may be termed land and development loans which are held by a borrower, but the definition also covers a wide range of other types of loans held by a borrower who has land and development loans.
As acknowledged by counsel for the appellants, some 2.5% to 5% of the appellants’ loans proposed to be transferred to NAMA are loans in respect of land and development; the remainder of the appellants’ loans are unrelated to land and development and come within the definition of an “eligible bank asset” solely by reason of their being owned by Mr. McKillen or the companies or partnerships in which he has an interest.
Fair Procedures Issues
The issue to be considered under the heading "Fair Procedures" was agreed by the parties in the form of two questions:-
is any constitutional right of the appellants to be adversely affected by the acquisition of the loans of the appellants with Bank of Ireland by NAMA, such as to give rise to a right on behalf of the appellants to constitutional fair procedures in connection with that acquisition; and
if the appellants have such a constitutional right of fair procedures in connection with such acquisition, can the Act of 2009 be construed so as to imply into that Act a right on the part of the person whose loans are to be so acquired to make representations in connection with the exercise by NAMA of its discretion to acquire a loan under section 84(1) thereof?
Counsel for the appellants stated that there was a consensus as to the approach to be adopted to this issue, it was a five step analysis. These five steps are:-
Do the appellants have constitutionaly protected rights?
Is there an actual or potential interference with these constitutional rights?
If there is an actual or potential interference with constitutional rights, counsel for the appellants submitted that the appellants are prima facie entitled to fair procedures.
Has there been an interference with those fair procedures? (It is common case that the appellants were not heard by NAMA).
Can there be a justification for such an interference with fair procedures? Counsel stressed that this submission relates to fair procedures and not to property rights.
Counsel for the appellants accepted the depth of the financial crisis in the State, but submitted that such a matter is relevant to the issue of property rights and proportionality, and not to the issue of fair procedures.
Counsel listed the constitutionally protected rights of the appellants as follows:-
Interest in the underlying properties, which on current valuations is approximately €200 million; 26% of which are in Ireland.
Interest in the income stream from the properties. This is how Mr. McKillen earns his livelihood, so there is a "right to earn a livelihood" issue.
A bundle of contractual rights with the banks.
Mr. McKillen's reputation, which is critical in the field of commercial property.
There was no dispute between the parties as to the existence of these four rights.
When this issue was argued before the Court, NAMA submitted that it had decided to acquire eligible bank assets of the appellants, pursuant to s.84 of the Act of 2009. In the making of that decision, NAMA submitted that the appellants were not entitled to be heard. The appellants, on the other hand, submitted that they were entitled to fair procedures, and to be heard at that stage of the process.
National Asset Management Agency Act, 2009
The Act of 2009 provides for several stages in the process of acquisition. Section 84 enables NAMA to acquire eligible bank assets and provides:-
Section 84(4) states that without prejudice to the generality of subsection (1), NAMA may, in deciding whether to acquire a particular eligible bank asset, take into account matters listed in paragraphs (a) to (n). Also, s.84(5) provides that where NAMA determines that the long-term economic value of the property comprised in the security for a credit facility that is an eligible bank asset is less than the market value of the property, NAMA shall not acquire the bank asset.
Section 87 sets out the next step after NAMA has decided to acquire an eligible bank asset. It provides for the service of an acquisition schedule in the following terms:-
It is clear from the terms of this section that it was anticipated that in identifying and determining the value of an asset NAMA would undertake considerable work prior to serving an acquisition schedule.
An important aspect of the statutory scheme is the provision in s.103 as to litigation. Section 103 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 asset by NAMA or a NAMA group entity.|
Thus once an acquisition schedule has been served, litigation is limited. This places the prior decision under s.84 in critical perspective and the limitation on litigation is a relevant factor in analysing rights and section 84.
On the 3rd February, 2011, the Court held that NAMA had not made a decision under s.84 to exercise its discretion to acquire from the relevant banks their interests in the appellants' loans.
At meetings on the 11th and 14th December, 2010, an interim management team, formed prior to the establishment of NAMA, following a direction by the Minister for Finance to the Chief Executive Officer of the National Treasury Management Agency to provide staff for such a team, decided to exercise a discretion to acquire the appellants' loans. However, this was not a decision by NAMA.
The issue of fair procedures in these proceedings arises in relation to the powers given to NAMA under section 84. Thus that section is central to the analysis.
When this matter was before the Court on the 9th February, 2011, counsel for the respondents said that NAMA would make a decision as to whether to acquire or not to acquire the appellants' loans under section 84. It was stated by counsel that it was anticipated that there would be a board meeting within the two following weeks at which a decision would be taken.
The issue of fair procedures arises in circumstances where the Court has held that NAMA has not made a decision under s.84 to acquire the appellants' loans, and where the Court was informed that NAMA would be making a decision, whether to acquire the loans or not to acquire the loans, in the future. The question arises as to whether, NAMA having lost the issue in these proceedings as to whether a decision had been made, the remaining issues are live between the parties.
Under the doctrine of mootness it is well settled that a court will not deliver advisory judgments when an issue is no longer live between parties. In this case the Court has determined that NAMA did not make a decision pursuant to s.84 to acquire the loans. Consequently, as of the 9th February, 2011, that issue had been determined on the pleadings between the parties as to the decision, and there was no certainty as to the future actions of NAMA.
However, after the hearing of the 9th February, 2011, and consistent with a request by the Chief Justice that the Court be informed of any relevant steps, the Court was informed that NAMA made a decision on the 1st March, 2011, under s.84, to acquire the appellants' loans. While that decision is not formally before the Court in these proceedings it is the reality of the situation.
The question then is whether in the circumstances the issues are moot. If they are moot, then the question would be whether the Court should exercise its discretion and determine the issues.
The matter of mootness was considered in Irwin v Deasy  IESC 35 (unreported, Supreme Court, 14th May, 2010) where Murray C.J. stated:-
The question is therefore raised as to whether this appeal should be allowed to proceed, having regard to the doctrine of mootness.
Hardiman J.’s definition of the doctrine in G. v Collins  1 I.L.R.M. 1, cited in O’Brien v The Personal Injuries Assessment Board (Supreme Court, unreported, 16th November 2006), is a useful starting point: “proceedings may be said to be moot where there is no longer any legal dispute between the parties”. The mootness doctrine is applied by the courts to restrain parties from seeking advisory opinions on abstract, hypothetical or academic questions of the law by requiring the existence of a live controversy between the parties to the case in order for the issue to be justiciable.
The general practice of this Court is to decline, in principle, to decide moot cases. In exceptional circumstances where one or both parties has a material interest in a decision on a point of law of exceptional public importance, the Court may in the interests of the due and proper administration of justice determine such a question.
However, the discretion to hear an appeal where there is no longer a live controversy between the parties should be exercised with caution, and academic or hypothetical appeals should not be heard. Exceptions may only arise where there is a question of exceptional public importance at issue and there are special reasons in the public interest for hearing the appeal.
In this case, the Court held that the purported decision of NAMA in December, 2010 to acquire the loans of the appellant was void. However, the situation is more complex than that single issue. The factual context built upon by the appellants for the court hearings related to the purported decision of NAMA in December, 2010. But when the proceedings initially commenced the appellants did not know of the purported decision of 2010. Subsequently NAMA informed the appellants of the purported December decision and the appellants amended their proceedings to include this fact. The statutory scheme is such that a potential hearing would be required prior to the s.84 decision, as once, under s.87, an acquisition schedule is served, the Act explicitly by s.103 limits litigation against NAMA. Further, at all times the respondents indicated that they intended making a decision as to the appellants' loans. And indeed, after the hearings the Court has been informed that a decision was taken on the 1st March, 2011, to acquire Mr. McKillen's loans. In addition, this is an issue of exceptional public importance to NAMA, to banks, and to borrowers; and as NAMA has been developed as an important institution in the current fiscal crisis it has a central role in the management of the crisis. In all the circumstances I am satisfied that the issue of fair procedures is not moot. Thus there is no bar to proceeding to determine the matter.
As the High Court pointed out, the issue of fair procedures turns on the fundamental question as to whether the appellants have an entitlement to be heard. The High Court held that it was not satisfied that any of the asserted rights are exposed, by the acquisition of the appellants' loans, to any, or any sufficient and proximate, risk of an interference with a constitutionally protected right, so as to require fair procedures to be adhered to, prior to the acquisition of the appellants' loans.
The High Court considered, in case it was wrong in that view, what the situation would be if the appellants had constitutionally protected rights which were potentially interfered with in a significant and proximate way. Reference was made to East Donegal Co-Operative v Attorney General  I.R. 317. The High Court considered whether, in the event that the appellants had constitutionally protected rights which were exposed to interference in a significant and proximate way, a right to fair procedures could and should be read into the Act of 2009. The High Court held that it did not seem that an ordinary construction of the Act could lead to an implied entitlement on the part of a borrower to be heard in the process.
The High Court heard this judicial application in a telescoped hearing. All arguments were heard from the parties on the basis that if leave were granted to apply, then one hearing could be treated as dealing with all matters.
The High Court was satisfied that the issues raised in relation to fair procedures did raise a substantial issue which was sufficient to meet the statutory test for the grant of leave. Thus the High Court granted leave to apply for judicial review on this issue. However, the High Court held that the issues raised under this heading did not entitle the appellants to succeed in relation to any of the reliefs sought.
The above decision was made subject to the query as to whether an entitlement should be "read in to" the Act of 2009. On this latter issue the High Court held that the Act of 2009 did not interfere with any constitutionally protected rights of the appellants and that it followed that the Act of 2009 was not inconsistent with the Constitution by reference to the appellants' rights. Further, the High Court held that even if its analysis of the interference by the Act with the appellants' rights was incorrect, it did not seem to the High Court that any such interference could be placed at a very high level. Also, the High Court held that even if it was wrong in its view that no constitutionally protected rights of the appellants were interfered with, then that analysis must, at a minimum, lead only to a conclusion that any interference with the rights of the appellants is at the lower end of the scale. The High Court held that any interference that might derive from the absence of a right to be heard did not infringe the principle of proportionality. The High Court refused leave to seek judicial review on this aspect of the case.
Thus, on the issue of fair procedures, the High Court was of the view that any constitutionally protected rights which the appellants may have are either not interfered with by the Act of 2009, or are interfered with in such a minor or tangential way so as not to require that the appellants be heard prior to acquisition by NAMA, of their loans.
The appellants sought leave to appeal to this Court. The High Court certified the following point of law:-
"Whether the Court was correct in concluding that the [appellants] did not have a right to be heard prior to a decision of NAMA to acquire loans in respect of which the [appellants] are borrowers."
The High Court held that such a point of law is of public importance and that it is desirable in the public interest that an appeal should be taken to the Supreme Court.
I shall set out in broad brush only the submissions. Counsel for the appellants focused primarily on the issue of fair procedures. It was contended that the appellants enjoy certain rights connected to the bank loans and that due to interference, or potential interference, with these rights arising from NAMA’s decision to acquire the said loans, the appellants are entitled to be heard before the decision to acquire is made by NAMA. The appellants contended, in this context, that the Act of 2009 can, and should, be interpreted as affording the appellants an entitlement to be heard prior to that decision being made.
It was also submitted that the High Court erred in its judgment under this heading, in that the High Court misunderstood the constitutional position concerning what constitutes an interference with constitutional rights sufficient to trigger an entitlement to fair procedures; that the High Court incorrectly applied the test for interference with constitutional rights; and that in its assessment of the facts and its interpretation of the Act of 2009, the High Court failed to address the facts peculiar to the appellants' case by reference to the evidence.
The appellants submitted that they have rights that may be affected by a decision of NAMA to acquire the appellants' credit facilities from the participating banks. Irrespective of whether that decision could be justified, the appellants submitted that they have an entitlement to be heard by NAMA prior to the taking of the decision under section 84. The issue turns on the effect (actual or potential) on the appellants' rights of NAMA's decision to acquire the loans.
It was submitted that the appellants were engaged in private business with the banks, and that the Oireachtas stepped in to provide legislation that gave powers to NAMA radically to alter the basis upon which the appellants conduct their business. It was submitted that a decision of NAMA under s.84 to acquire the appellants' loans is a decision that interferes with the rights of the appellants and gives rise to a right to fair procedures. The appellants identified an impact on their rights in three main guises, as follows:-
NAMA is fundamentally different from a bank; NAMA is not licensed under Irish law to operate as a bank and will not operate in the same manner as a bank; NAMA is a work-out vehicle.
Association with NAMA has cost implications for the appellants, in particular, tenants will be able to strike harder bargains, the appellants will need to incur the immediate expense of refinancing efforts and higher refinancing fees are likely.
There will be an effect on the appellants' reputation; NAMA is viewed (primarily) as a bad bank, acquiring bad loans; any decision of NAMA to acquire the appellants' loans adversely affects the reputation of the appellants.
The Attorney General, on behalf of the respondents, submitted that the conclusions of the High Court on fair procedures were correct. It was submitted that there is no interference or potential interference with any constitutional right which triggers an entitlement to fair procedures in favour of the appellants, that the test for interference with constitutional rights was correctly applied by the High Court and that, if this Court on appeal was to find that acquisition of the said loans does constitute an interference with the appellants' constitutional rights sufficient to trigger a right to a fair procedures, the exclusion of an entitlement to fair procedures in the Act of 2009 is proportionate and justifiable. It was submitted that the Act of 2009 cannot be interpreted as requiring or permitting an entitlement to be heard.
The respondents adopted the conclusions of the High Court and submitted that:-
In considering whether a right to fair procedures exists, the Court must first be satisfied that a constitutional right in fact exists before it even considers whether there has been interference. This is conceded by the appellants. It is submitted that there is no constitutional right which entitles the appellants to resist transfer to NAMA or which protects non-contractual “benefits” associated with banking relationships – what the appellants now term “commercial value of banking relationships”.
The threshold for determining whether there is an interference is whether there is a real prospect of an adverse effect to the appellants’ constitutional rights.
Applying that threshold, that there is no interference with the appellants':
Without prejudice to the foregoing, if there is an interference with a constitutional property right such as gives rise to a right to fair procedures, the exclusion of fair procedures under the Act is proportionate and justified.
The right to be heard, audi alteram partem, is a fundamental right at common law, being one of the principles which were known as natural justice. Another principle, that no one could be a judge in his own cause, nemo index in causa sua, was also considered to be part of natural justice. These two fundamental principles were at the root of natural justice. In Ireland these principles have been subsumed into constitutional justice. I agree with the observation of McCarthy J. in The State (Furey) v Minister for Defence  I.L.R.M. 89, at 99:-
|In my view the two principles of natural justice as they pre-existed the Constitution are now part of the human rights guaranteed by the Constitution.|
In Ireland these principles have evolved into fundamental principles of constitutional law. They are strong strands in the fabric of constitutional justice.
Although the right to be heard is not stated explicitly in the Constitution of Ireland, 1937, it is an inherent part of fair procedures and in that context, and as part of due process, is woven into the fabric of rights in the Constitution. There is a right to fair procedures, which includes the right to be heard.
The right to be heard, as with other constitutional rights, is not absolute. In referring to the personal rights under Article 40, Kenny J. in Ryan v Attorney General  I.R. 294 stated at pp.312 to 313:-
|None of the personal rights of the citizen are unlimited: their exercise may be regulated by the Oireachtas when the common good requires this. When dealing with controversial social, economic and medical matters on which it is notorious views change from generation to generation, the Oireachtas has to reconcile the exercise of personal rights with the claims of the common good and its decision on the reconciliation should prevail unless it was oppressive to all or some of the citizens or unless there is no reasonable proportion between the benefit which the legislation will confer on the citizens or a substantial body of them and the interference with the personal rights of the citizen.|
This analysis may be applied to other constitutional rights, such as the right to be heard.
In any analysis of the Act of 2009, it is presumed that procedures permitted by the Act are to be conducted in accordance with the principles of constitutional justice. This principle was described by Walsh J. in East Donegal Co-Operative Ltd. v Attorney General  I.R. 317 at p.341:-
.... 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.
This approach is central to the determination of the issue of fair procedures in this appeal. Thus, in construing the Act of 2009, it is presumed that the Oireachtas intended that procedures are to be conducted in accordance with constitutional justice. This includes the right to be heard, in essence that there will be fairness.
NAMA has a discretion under s.84 to acquire loans, which it is presumed will be exercised fairly. The procedure to be adopted is for NAMA to determine in the first instance. NAMA is required to establish procedures, for appropriate cases, so as to comply with constitutional justice. In The State (Irish Pharmaceutical Union) v Employment Appeals Tribunal  I.L.R.M. 36 at 40, McCarthy J. stated:-
Whether it be identified as a principle of natural justice derived from the common law and known as audi alteram partem or, preferably, as the right to fair procedures under the Constitution in all judicial or quasi-judicial proceedings, it is a fundamental requirement of justice that person or property should not be at risk without the party charged being given an adequate opportunity of meeting the claim, as identified and pursued.
If the proceedings derive from statute, then, in the absence of any set or fixed procedures, the relevant authority must create and carry out the necessary procedures and if the set of fixed procedure is not comprehensive, the authority must supplement it in such a fashion as to ensure compliance with constitutional justice ....
Thus applying that analysis, as the proceedings here derive from statute, there being no fixed procedures, NAMA must create and carry out the necessary procedures, NAMA must supplement it in such a fashion as to ensure compliance with constitutional justice.
At issue is whether the exercise of this statutory discretion by NAMA has an effect on the rights of the appellants. The test was described by Walsh J. in McDonald v Bord Na gCon  I.R. 217. That case was about the making of an exclusion order to exclude a person from being at any greyhound racetrack, any authorised coursing meeting, or any public sale of greyhounds. Walsh J. stated, at p.242:-
|It is correct that when such exclusion order is enforced in the manner described it could affect the rights of the prohibited person in that it might restrict his existing right to trade or his right to enjoy some benefits contracted for. Such a possible result is sufficient to require that the procedure which can lead to that result must conform to the principles of natural justice. In the context of the Constitution natural justice might be more appropriately termed constitutional justice and must be understood to import more than the two well established principles that no man shall be judge in his own cause and audi alteram partem.|
Applying that statement of the law, the appellants are entitled to fair procedures in the s.84 decision-making process if the exercise of the statutory discretion by NAMA could affect the rights of the appellants or restrict their existing rights.
The right to be heard is a fundamental right in procedural justice. The fact that the right is a procedural right does not diminish its importance. The right requires fairness in procedures. It may vary from process to process. As Barron J. stated in Flanagan v U.C.D.  I.R. 724 at pp.730 to 731:-
|Procedures which might afford a sufficient protection to a person concerned in one case, and so be acceptable, might not be acceptable in a more serious case.|
So what is sought is fairness, which will depend on all the circumstances of a case, and vary from one type of procedure to another.
In Doupe v Limerick County Council  I.L.R.M. 456 at 463 Costello J. stated:-
|The rule of [audi alteram partem] does not require that every administrative order which may adversely affect rights must be preceded by a judicial-type hearing involving the examination and cross examination of witnesses. It requires that adequate notice of the case which an applicant has to meet be given to him, and that an adequate opportunity be afforded to answer any objections which may be taken to his application. And it is clear that the requirements of the rule may be fully satisfied by the adoption of quite informal procedures. In some cases an applicant may be entitled to make his submissions orally, in others a written submission will meet the requirements of the rule.|
Thus the right to be heard requires an analysis of the Act of 2009 and the circumstances to determine what type of hearing is appropriate prior to a decision under s.84, if the appellants' rights could be affected by the decision of NAMA.
Exclusion of right - Exceptions Urgency
There are exceptions to the general principles as to rights. A right may be excluded in exceptional circumstances. Thus a right may be excluded if there is a great urgency in the circumstances. These are usually situations where there is a need for extraordinary expedition. As O'Higgins C.J. stated in O'Callaghan v Commissioners of Public Works  I.L.R.M. 364 at pp. 373 to 374:-
|Here, an emergency had been created by the plaintiff's own action in defiance of his legal obligations. If the Commissioners had hesitated in acting as they did, the monument which it was their duty to preserve would have been seriously damaged or destroyed. Further, it was not possible to contact the plaintiff because his address was not then known and did not become known to the Commissioners until some time later.|
In that case the plaintiff had instructed a contractor to recommence ploughing a field which threatened an historic site.
In this case the respondents have submitted that even if there is a risk of an adverse affect on the rights of the appellants, which would otherwise trigger an entitlement to fair procedures, the exclusion is justified. The respondents stressed the need for expedition and the unworkability of the exercise of fair procedures.
However, the argument for expedition, for urgency, is not borne out by the facts of the case. The Act of 2009 expressly states that it is for the expeditious transfer of loans. It is clear that such procedures are complex. In this case six months elapsed in the process between the purported decision of NAMA in December, 2010 to acquire the appellants' loans, and the institution of these proceedings. In that time the Bank of Ireland was heard, albeit on limited grounds, and there was a review. In that time also, NAMA was required to carry out a detailed analysis of the loans. Thus while the Act of 2009 seeks expedition, it is not of the category of "emergency" such as in O'Callaghan v Commissioner of Public Works. The framework of the Act of 2009 envisaged considerable activity by NAMA in the time prior to the service of the acquisition schedule. So NAMA would have been in a position to hear any relevant borrowers whose rights have been affected. Relevant borrowers would be few, being those such as the appellants who have very particular circumstances. Borrowers such as the appellants are very different to a borrower, for example, whose loans are in default, who has no value in his equity of redemption, or who has no income stream.
The submission by NAMA that a hearing by Mr. McKillen would be unworkable also fails on an analysis of the facts. The facts have been set out earlier in this judgment and in the judgment of the Court delivered on the 3rd February, 2011. The relevant facts include the length of time taken by NAMA to process the analysis prior to a decision to acquire, the hearing given to the bank, and a review of that decision. The type of hearing necessary to a borrower such as the appellants would be limited and workable within the timeframe anticipated under the Act.
In considering the issue of the exclusion of a right, in extremely rare circumstances the rule of necessity may apply. However, that does not arise in this case. It is a rule which has on occasion been considered in relation to the principle that no one should be a judge in his own cause, when a court may have a special relationship with a party: see O'Byrne v Minister for Finance  I.R. 1; Flynn v Allen (Unreported, High Court, Lynch J, 2nd May, 1988). However, it is rarely applicable, and is not relevant to the issues in this appeal.
Exceptions to a General Rule
In Ireland, when analysing a concept and determining a general rule, it is not, however, uncommon to state that, the general rule may not apply in certain exceptional circumstances. The Constitution refers to exceptions, to exceptional cases, but these are the exceptions to a general principle.
Such cases are an exception in the system, not a system which is an exception. Such cases are exceptional cases which may arise contrary to the general rule. The justice of a case may require that it be regarded as an exception to a general rule.
The Act of 2009 is not exempted from the requirements of the Constitution. It is not legislation pursuant to Article 28.3.3º of the Constitution; in other words it is not a law enacted for securing the public safety and the preservation of the State in time of war or armed rebellion.
Rule of Law
The State is addressing a financial crisis principally arising out of a failure of the banks. In a democratic society, where the rule of law governs, the right of a state institution to interfere with the rights or vested interests of a person on the basis that there is an emergency, is a matter for very careful consideration. Certainly, while the Act of 2009 addresses issues of a financial crisis, there is no suggestion in the legislation that the Oireachtas was abandoning the rule of law.
The Act of 2009 requires to be construed in accordance with the Constitution. Clearly the Act of 2009 was part of government policy introduced to meet the very serious banking crisis within the State. However, this does not exempt it from the principles of the Constitution.
In considering the submissions on an exclusion of the right to be heard, it should be analysed in context, i.e. the limitation of the appellants' cause of action once the acquisition schedule is served. This is a consequence of s.103 of the Act of 2009, which limits litigation after the acquisition schedule is served. This limiting provision on the right of access to the courts is a relevant factor in analysing the process.
Finally, the respondents argued this case on the basis of a total exclusion of the right to be heard. However, it is apparent that, in fact, on occasions, other borrowers have been heard by NAMA.
No Exception Applies
I am satisfied that in all the circumstances, in relation to the appellants, who have rights in their own property, none of the exceptions apply. While the Act of 2009 is drafted to meet the financial crisis and the banking and fiscal crisis, the structures put in place in the legislation are not of such a nature as to expressly exclude fair procedures and the appellants from being heard. Thus the legislation must be construed from the aspect of constitutional justice to see if the appellants have a right to be heard.
Ireland is suffering from a severe banking and financial crisis with extremely harsh financial and economic consequences. In response to this crisis the Government introduced a tripartite policy, which includes the Act of 2009. The Act of 2009 is specifically stated, in the long title to the Act, to be:-
An Act -
To address a serious threat to the economy and to the systemic stability of credit institutions in the State generally by providing, in particular, for the establishment of a body to be known as the National Asset Management Agency for the purposes of –
The acquisition by that agency of certain assets from certain persons to be designated by the Minister for Finance,
Effecting the expeditious and efficient transfer of those assets to that agency,
The holding, managing and realising of those assets by that agency (including the collection of interest and capital due, the taking or taking over of collateral where necessary and the provision of funds where appropriate),
The taking by that agency of all steps necessary or expedient to protect, enhance and better realise the value of assets transferred to it,
The performance by that agency of such other functions, related to the management or realisation of those assets, as provided in this Act or as directed by the Minister, and
The facilitation of restructuring of credit institutions of systemic importance to the economy, and
To provide for the valuation of the assets concerned and the review of any such valuation,
To give the National Asset Management Agency certain powers and other functions in respect of land or an interest in land acquired by that agency, including powers relating to the development of land,
To provide for the issue of debt securities by the Minister for Finance and by that agency in the performance of its functions under this Act,
To provide for certain legal proceedings relating to assets acquired by that agency, to amend the Central Bank Act 1942, and to provide for related matters.
The purpose of the Act of 2009 is further explained in s.2, where, inter alia, it is stated to be to address the serious threat to the economy and the stability of credit institutions, to facilitate the availability of credit in the economy of the State, to resolve the problems created by the financial crisis in an expeditious and efficient manner, and to achieve a recovery of the economy. There can be no doubt but that Ireland faces a banking and financial crisis and that the Act of 2009 is one of the remedies advanced by the Government.
The appellants have advanced four relevant constitutional rights, as set out earlier in this judgment. The existence of these rights was not contested. What is contested is whether there has been or is potential interference with those rights such that the appellants are entitled to be heard on the s.84 procedure under the Act of 2009.
The evidence before the High Court was on affidavit, there was no oral evidence. Thus this Court is in the same position as was the High Court as to the evidence.
There were affidavits deposed on
behalf of the appellants and the respondents. Many economists deposed
learned affidavits, often with conflicting views. I have found it most
interesting to read these opinions. Thus, for example, Joseph P.
Belanger was of the view that the transfer of the appellants' loans to
NAMA would result in immediate and lasting adverse economic consequences
to the appellants owing to:-
the extraordinary non-commercial powers granted to NAMA that will serve
to deprive [the appellants] of contract rights under the loan
the adverse consequences for [Patrick McKillen's] reputation by virtue
of an association with NAMA; and
the resulting decline in [the appellants'] property values and
consequential loss of net worth.
the extraordinary non-commercial powers granted to NAMA that will serve to deprive [the appellants] of contract rights under the loan agreements;
the adverse consequences for [Patrick McKillen's] reputation by virtue of an association with NAMA; and
the resulting decline in [the appellants'] property values and consequential loss of net worth.
The affidavit of Marcus John Sewell Trench also considered matters in detail. He referred to the affidavit of Aideen O'Reilly sworn on the 30th July, 2010. As to paragraph 54 of her affidavit, where she states "borrowers should experience no effects as a consequence of the change" he deposed:-
|At both banks [the appellants are] now dealing with NAMA officers and the previous relationship management team, where all the goodwill and trust rested, no longer manages the account. There has been a considerable change in attitude to facility renewals since NAMA took control. [The appellants are] now being managed like a recoveries situation by recoveries managers who report directly to NAMA.|
The affidavit of Dr. Michael I. Cragg makes interesting reading on the issue of systemic risk.
Professor Stiglitz commenced his erudite affidavit by deposing:-
|I make this affidavit at the request of the [appellants] in the above entitled proceedings, for the purpose of providing an expert opinion to the Court. I understand that the duty and the role of an expert witness are to assist the court and that experts have a duty to be impartial. I have abided to this duty and make this affidavit from facts within my knowledge, save where otherwise appearing and where so appearing I believe the same to be true.|
While much of Professor Stiglitz's affidavit is addressed to issues which are not under consideration for determination by this Court, he does analyse the due process issue from the aspect of an economist. Having discussed NAMA and its incentives system, and that some private entities may be the beneficiaries of the powers granted by NAMA, he deposed, commencing at paragraph 77:-
Public policy structures that allow - or even worse, provide incentives - for this kind of transfer of wealth should be particularly suspect. The fact that NAMA's conduct in transferring performing assets to itself is consistent with its incentives should be even more troubling.
Governments always have an incentive to underpay for assets, and even more so when there are private beneficiaries (e.g. when the assets are sold to private developers). This is why systems of checks and balances, judicial scrutiny and the like, are important. These longstanding legal doctrines are grounded in concerns of equity; but they also are motivated by economics: security of property rights and the "sanctity" of contracts - both explicit and implicit - are foundational to a market economy. Involuntary transfers of assets represent a "taking" which should be undertaken only when there is a compelling public interest. Even then, it is important that there be full and adequate compensation. So too for the breaching of long-term relationships.
If these basic principles are not followed, there is a serious risk to Ireland's reputation as a country respecting the rule of law, with consequent adverse short-term and long- term effects on its economy. It is striking that NAMA's only defences are the argument regarding systemic risks and the more troubling argument that transparent and due process in a democratic society can be ignored because they may complicate the implementation of the policy objectives embodied in NAMA.
A relatively straightforward and expeditious model of due process that includes borrowers can be easi1y designed for NAMA and applied broadly on a voluntary basis, or, more narrowly just to borrowers that are deemed to be potential systemic risks.
The concern expressed for the economy in the absence of due process, from an economist's point of view, is noteworthy. This view is, of course, from the purely economic angle. However, the rule of law is fundamental to the State, not just from the economic aspect.
It is not necessary to decide the conflicting evidence given on the many issues addressed in the affidavits filed on behalf of the appellants and the respondents to determine the matter before the Court.
We are a small open economy, a trading nation, whose international trade is vital to the State. The fact that our legal system is based on common law, with constitutional underpinnings, with easy access to the courts, including the Commercial Court, is important to those who do business in, and with, Ireland. The rights protected by the Constitution are central, indicating as they do the general constitutional framework of our society. Also, in the context of commerce, it is critical for those who engage in trade and business in this jurisdiction, and with the State, that the due process applies.
While the right to be heard is not expressly stated in the Constitution, it is woven into the fabric of the Constitution in both fair procedures and due process. It is a procedural right of fairness.
It is presumed that the Oireachtas intends that procedures provided for in legislation will be conducted in accordance with the principles of constitutional justice. To paraphrase Walsh J. in East Donegal Co-Operative Ltd. v Attorney General  I.R. 317 at p.341, the Oireachtas intended that procedures and discretions provided for in the Act of 2009 are to be conducted in accordance with the principles of constitutional justice. A fundamental principle of constitutional justice is the right to be heard. Thus any analysis of the Act of 2009 should be made in light of these constitutional principles.
The Act of 2009 addresses the insolvency of the banking sector in Ireland and the consequent economic crisis. That of itself does not exclude fair procedures. The process established under the Act of 2009 is not analogous to any of the exceptions provided under the Constitution or the law, so as to exclude the right to fair procedures. Nor are there any other factors, such as urgency, so as to exclude the right in light of the facts of the case. The relevant facts include both the length of time between the purported decision in December, 2010 and the issuing of the proceedings, the necessary time for NAMA to undertake the process required before exercising its discretion under s.84, the fact that the bank was heard, and there was a review, and the fact that on occasions other borrowers have been heard. I am satisfied that the Act of 2009 should not be construed as excluding the rights of the appellants.
The next question is whether the appellants' rights have been affected or would be affected so as to entitle them to be heard prior to NAMA making a decision pursuant to section 84. To determine whether the appellants would be affected by such a decision of NAMA it is necessary to consider the potential effect of such a decision on their rights
The appellants identified several matters which would impact on their rights if NAMA acquired the appellants' loans. I am satisfied that the appellants have successfully raised matters which could affect the rights of the appellants. The remit of NAMA is different to that of a bank, thus a change from a bank to NAMA is such that it could affect the appellants' rights. These include the following:-
NAMA is not a bank, it is a particular State institution, it is a work-out vehicle, which is contrary to the business model of Mr. McKillen's business. Its modus operandi will affect Mr. McKillen's business, including his income stream.
NAMA will move on the properties in a manner different to the banks, and this raises potential expenses and losses to the appellants.
There will be an effect on Mr. McKillen's reputation. Mr. McKillen earns his livelihood in the commercial world. It is a fact that NAMA is referred to in commercial circles as a "bad bank". This implies bad assets and consequently a bad borrower, which reflects adversely on Mr. McKillen's reputation.
I have read the judgment of Finnegan J. and agree with his comments on two aspects of the appellants' submissions, namely NAMA's statutory exemptions and powers in relation to mortgages, and the commercial consequences for a mortgagor of the transfer of a mortgage to NAMA.
Consequently there is clear evidence which shows that a decision of NAMA to acquire the loans of the appellants will affect the constitutional rights of the appellants, any such decision by NAMA under s.84 of the Act of 2009 directly affects the appellants, and this triggers a right to be heard.
Also, the commercial relationship between the appellants and the bank has been altered by the actions of the bank. The appellants submitted that the Bank of Ireland wished to continue with the appellants as customers. However, the Bank of Ireland had taken a step which deprived it of control of the loans. Bank of Ireland decided, in the vernacular, to go into NAMA. This was a commercial decision on its behalf. It is an important aspect of the case as the situation, at the bank's request, is now governed by NAMA and the Act of 2009. Consequently, when it was stated that the bank wished to continue to do business with the appellants, this must be read as subject to their prior decision that the bank join the NAMA process. The relationship between the bank and the appellants was thus changed forever by the bank's decision to join the NAMA process. The appellants have been affected by this unilateral action of the bank.
This analysis may also be stated as follows. The appellants have constitutionally protected rights. An order under s.84 of the Act of 2009 directly affects the appellants and could affect the rights of the appellants, in that it might restrict their interest in the underlying properties; it might restrict the income stream from the properties, thus it might restrict Mr. McKillen's right to earn a livelihood; it might restrict their rights in contract; and it might damage Mr. McKillen's reputation. Thus there is potential interference with these constitutional rights. Such a possible result is sufficient to require that the procedures conform to constitutional justice, and so the appellants are prima facie entitled to fair procedures. These rights are not displaced by the Act of 2009, nor is there any justification to exclude the rights.
When analysing a potential decision of NAMA to acquire a loan under s.84 of the Act of 2009, the process requires to be considered in the context of the scheme of the Act. Thus if NAMA decides to acquire a loan, it may then proceed to serve an acquisition schedule under section 87. After that the appellants' cause of action is limited by section 103. Consequently, in the process under the Act of 2009, a window of opportunity in which the appellants may be heard is prior to the decision of NAMA under s.84, which therefore places an emphasis on the importance of the procedures prior to a decision under section 84.
The Bank Heard
Provision is made for the banks to be heard in the process. Indeed the Bank of Ireland was heard in relation to these loans. Under s.85 if a bank does not consider a particular bank asset that NAMA proposes to acquire to be an eligible bank asset and it objects to its acquisition, then NAMA may either not acquire the bank asset or "continue with the proposed acquisition and refer the matter to the expert reviewer". Where it is provided expressly in the Act of 2009 that a bank may raise certain, albeit limited, issues, but that no express provision is made for a borrower to be heard, then the question arises as to the implicit rights of a borrower.
Triggers Right to be Heard
In light of the constitutional right to be heard, to fair procedures, the question is whether any such right to be heard by the appellants arises implicitly in the Act of 2009 and in the circumstances of the case.
For the reasons given I am satisfied that a decision by NAMA to acquire the appellants' loans affects the rights of the appellants and triggers a right to be heard. It arises in the particular circumstances of this case where the appellants are directly affected, where, for example, Mr. McKillen has an income stream from the property, which is his livelihood, and where he has an equity of redemption, amongst other matters.
The Act of 2009 does not exclude the appellants from being heard in the section 84 process. I construe the Act of 209 as enabling the appellants to be heard prior to a decision being made under section 84. This right arises in the particular circumstances of this case. The decision is fact specific. It is not a general right to all borrowers. It is a right limited to the appellants and to Mr. McKillen, in the particular circumstances. Further, while the nature of the procedures is initially a matter for NAMA to decide, it appears to me that in general it is not a right to an oral hearing. It is a right to make written representations as to the appellants' particular circumstances to NAMA. As a matter of constitutional justice these submissions should be considered by NAMA prior to any decision being made to acquire the loans.
I would answer the point of law certified by the High Court in the negative. The High Court was not correct in concluding that the appellants did not have a right to be heard prior to a decision of NAMA to acquire loans in respect of which the appellants are borrowers.
Therefore, I would allow the appeal of the appellants on the issue of fair procedures. I would make a declaration that NAMA should receive and consider submissions from the appellants prior to NAMA making a decision pursuant to section 84 of the Act of 2009.
This judgment addresses the issue of fair procedures. The decision in this case is based on a fundamental constitutional principle. When an order could affect the rights of a person in that it might restrict his existing right to trade or his right to enjoy some benefits contracted for, such a possible result is sufficient to require that the procedure which can lead to that result must conform to the principles of constitutional justice, which includes the right to be heard. In this case an order under s.84 of the Act of 2009 could affect the rights of the appellants in that it might restrict their rights to trade or to enjoy some benefit contracted for in the manner submitted by counsel, in relation to the four constitutional rights of the appellants raised, which are set out earlier in this judgment. Such a possible result is sufficient to require that the procedure under s.84 of the Act of 2009 conform to constitutional justice, including the right to be heard. Section 84 should be considered so as to imply into the Act of 2009 a right to the appellants to make representations in connection with the exercise by NAMA of its discretion to acquire loans under section 84.
Consequently, the appellants are entitled to fair procedures. This means that, in the circumstances of the case, the appellants are entitled to make representations which should be considered by NAMA prior to NAMA making a decision under s.84 of the Act of 2009.
The defendant, NAMA, came into being on the 21st December, 2009, on foot of an order in that behalf by Statutory Instrument made pursuant to the National Assets Management Agency Act, 2009. The Board of NAMA was appointed on the following day.
A short time before that date, on the 11th and 14th December, 2009, a group of four people, Aideen O’Reilly, Brendan McDonagh, John Mulcahy and Séan Ó Faoláin, all of whom had been designated to have important various functions in NAMA as soon as it came into being, met together and
.... decided to exercise our discretion to acquire Mr. McKillen’s loans because of our belief that the extent of the aggregate exposure of the relevant participating institutions to Mr. McKillen and his Companies .... under credit facilities granted by those institutions, being the sum of approximately €2 billion, was such as to create a systemic risk.
This decision was said by NAMA to have been made under s.84 of the above mentioned Act. Mr. McKillen was not informed that the alleged decision was being considered, and was given no hearing. NAMA have continued to maintain that even a solvent customer whose loans are being serviced, is not entitled to any notice or hearing whatever before his or her loans are compulsorily taken.
That is the main issue in the case.
The foregoing quotation is from an affidavit sworn for the purpose of these proceedings by one of the purported decision makers, Aideen O’Reilly. She also said:
The decision to exercise the discretion of NAMA to acquire the loans connected with Mr. McKillen was taken by a group consisting of myself, Brendan McDonagh, John Mulcahy and Séan Ó Faoláin on the 11th and 14th December, 2009.
This decision, however, was not communicated to Mr. McKillen for many months despite requests by him or on his behalf to know whether such a decision had been taken. It was finally revealed in mid 2010.
By the time the purported taking of this decision was at length revealed by NAMA and later confirmed in Ms. O’Reilly’s affidavit, Mr. McKillen, not knowing (despite many enquiries) whether such decision had been made or not, had initiated proceedings. In these proceedings he claimed various reliefs but most relevantly claimed a declaration that he was entitled to be heard before any such decision was taken. When he became aware that, on Ms. O’Reilly’s account, the decision had already been taken many months previously, and before NAMA came into being, he amended the proceedings to claim that the decision was in any event void because it predated NAMA’s existence. This latter issue was decided in favour of NAMA by the High Court but, on appeal, this Court upheld Mr. McKillen’s submissions to the effect that the purported decision was void. This occurred on the 3rd February, 2011. Having regard to that decision, certain other issues were left over for decision later, if that became relevant.
Counsel for NAMA subsequently informed the Court, in light of that decision, that his client proposed now to consider exercising its power under s.84 of the NAMA Act, the section under which the previous purported decision was alleged to have been taken. The Court is thus constrained now to decide the balance of the issues in Mr. McKillen’s proceedings other than issues which were designated by the name “relevant considerations” which had been rendered moot by the decision of the 3rd February, 2011, and the issues in relation to State aid which had been resolved in favour of NAMA. I agree with Fennelly J. that, for the reasons which he gives, the fair procedures issues are not moot.
It should also be noted that it is stated at p.15 of the NAMA business plan, published on 30th June 2010:-
.... in order to achieve its objectives, NAMA establishes a special purpose vehicle (SPV), National Asset Management Limited, which is responsible for the management and disposal of loan assets from participating institutions and financing such purchases through the issuance of debt securities.
On the hearing of this appeal it was undisputed that this special purpose vehicle is a majority privately owned company which is intended to show a profit for its investors. Thus, although NAMA itself is a statutory organisation, the company which will manage and dispose of loan assets acquired under Section 84 (see below) is a privately controlled body which will naturally seek to make a profit for its investors.
The first fifteen appellants are Companies, bodies corporate and/or partnerships carrying on business in the State, in the United Kingdom, in the U.S.A. and in France and in respect of each of which the sixteenth appellant, Mr. Patrick McKillen, has either a 50/% or a 100% beneficial interest. Mr. McKillen himself is an Irish businessman and property investor. The appellants have extensive loans and credit facilities with Anglo-Irish Bank and the Bank of Ireland, the vast bulk with the latter bank. For the purposes of these proceedings it was not disputed that these borrowings from the banks are “eligible assets” of the banks within the meaning of s.69 of the NAMA Act, 2009 and Regulation 2 of the NAMA (designation of eligible bank assets) Regulations 2009. The terms of this Section will be discussed shortly.
The National Asset Management Agency, generally referred to as NAMA, was established under the Act of 2009 under which it has powers compulsorily to acquire the interest of certain participating institutions (i.e. banks) which are “eligible assets”, including those relating the appellants. NAMA came into being on foot of a Ministerial order on the 21st December, 2009. The Board was appointed on the 22nd December, 2009.
The second-named Defendant is the State and the third-named defendant is the Attorney General who represents the State.
The issue to which this judgment is addressed is as to whether the appellants are, or are not, entitled to notice and entitled to be heard before NAMA considers the exercise of a power to make a decision to the same effect as the one purportedly made on the 11th and 14th December, 2009, under s.84 of the NAMA Act. The appellants contend that they have such a right because they will be affected by the decision which it is proposed to address if the NAMA decision makers decide to acquire the banks assets related to the appellants. That, say the appellants, is all they need show, and that criterion is well established in Irish and international law for decades now.
The appellants also say that their constitutional rights, including property rights, rights to a livelihood and right to their good name are all adversely affected. But, they say, they do not need to go that far in order to trigger the basic right to a hearing.
It is the respondent’s fundamental response to this claim that, in all the circumstances, the appellants have no right at all to fair procedures (which include a right to be heard) in relation to the decision proposed to be considered. The precise formulation of the State’s proposition on this topic is set out at para. 41 of their written submissions, under four sub-headings. NAMA denies that McKillen’s interests are at all relevant to the s.84 decision.
It is said, firstly, that to establish a right to Fair Procedures it must be shown that a constitutional right of the applicants’ is implicated, which the respondents say has not been established. Specifically, they say that there is no right to resist transfer to NAMA of non-contractual “benefits” associated with banking relationships.
Secondly the respondents submit that the applicants must establish that there is a real prospect of an adverse effect on their constitutional rights, in order to claim Fair Procedures.
Thirdly it is submitted by the respondents that there is no interference with any constitution right of the applicants’.
Fourthly and “without prejudice to the foregoing” it is claimed that if there is in fact an interference with a constitutional right of the applicants’ which gives rise to a right to Fair Procedures, the exclusion of Fair Procedures under the Act is proportionate and justified. No precedent was cited for this submission.
Section 84 of the NAMA Act 2009
The decision which, the McKillen interests claim, demands a prior hearing is a decision that NAMA acquire “the loans connected with Mr. McKillen”. This decision will be considered by NAMA under the powers conferred by s.84 of the NAMA Act, 2009. It is convenient now to set out the terms of this Section:
The taking of a decision under s.84(1) does not operate to vest any loan or property in NAMA. To achieve this objective NAMA must comply with s.87 of the Act:
It is also necessary to consider the terms of s.103 of the Act:
|No cause of action lies or is maintainable against NAMA or any NAMA group entity by reasons solely of the acquisition of a bank asset by NAMA or a NAMA group entity.|
The wording of this Section is somewhat confusing. It seems open to the meaning either that no challenge relating to any aspect of the acquisition of assets can be maintained, or that though the actual acquisition cannot be challenged the process by which the decision was made can be. I do not find it necessary to resolve this issue but would merely point out that it is undeniable that Mr. McKillen or anyone in his position is now afflicted with a limitation, of uncertain scope, on his right of access to the Courts arising from the NAMA acquisition of his loans.
The Court’s attention was also drawn to a number of other Sections including Section 101 precluding the enforcement of certain representations etc. made by lenders in relation to a bank asset subsequently acquired by NAMA; s.139 permitting NAMA validly to transfer or otherwise dispose of an acquired asset notwithstanding “any restriction on such a disposal at law or in equity”, any contractual requirement for consent or notice or “provision of any enactment that would otherwise prohibit or restrict such disposal”; and Section 152-155 in relation to vesting orders and their consequences. These provisions, quite simply, do not apply to any other person or entity and themselves demonstrate particular, and potentially extremely deleterious, (for example in relation to equities of redemption) effects.
It seems perfectly clear that the effect of a vesting order made pursuant to s.152 of the Act is, according to s.155, that:
Notwithstanding any other enactment or rule of law, a vesting order -
The chargors or mortgagors equity of redemption is a most valuable asset which prevents a mortgagee from simply selling the house or land for what it can get in the short term, leaving the mortgagor to discharge the rest. It is worth restating the legal nature of the equity of redemption which this statute purports to extinguish on the making of a vesting order. According to the 27th Edition of Snell’s Principles of Equity, p. 378:
|The mortgagor’s equitable right to redeem, coupled with his other rights in the property, constitute his ‘equity of redemption’. At first this was regarded as a mere right but later it was held to be an equitable estate in the land, which amounts to ownership of the property subject to the mortgage. Thus, subject to the mortgagees’ rights the mortgagor might exercise all rights of ownership over the land and settle devise or again mortgage it; and on his death intestate the mortgagor’s equitable estate descended to his heir .... just as if it were a legal estate. The equitable right to redeem and the equity of redemption were thus distinct; the former did not exist until the legal date for redemption had passed, whereas the latter existed as soon as the mortgage was made ....|
A significant aspect of the equity of redemption is that the mortgagee with the power of sale must account to the mortgagor for any excess over the latter’s debt which is realised on sale and must look to the mortgagor’s interest in deciding to sell. But the statute purports to “extinguish” the equity of redemption so that the mortgagee appears to cease to be a trustee of any sort for the mortgagor on a sale. In the words of McEntagart and Byrne “The National Management Asset Agency Act, 2009” at p. 304 remarked that:
|NAMA .... is not answerable to the chargor for any amount in excess of that payable .... all proceeds from a subsequent sale of land accrued to NAMA .... without reference to the chargor or any subsequent chargee, who would otherwise have had the benefit of the provisions of the Land and Conveyancing Law Reform Act, 2009, s.107.|
The latter is the Section which requires the proceeds of a sale of property to be applied, after lawful encumbrances have been discharged, to the mortgagor, i.e. the borrower. See s.107(2). As this right appears to be abolished by s.155 of the NAMA Act. In this regard, I agree with the judgment of Finnegan J., delivered today.
Moreover, in Mr. Frank Daly’s address to the Leinster Society of Chartered Accountants, quoted elsewhere in different contexts, the Chairman of NAMA and former Chairman of the Revenue Commissioners said:
|It is inevitably the case that the outcome of this process cannot be positive for all borrowers and the result will be foreclosure. NAMA will take whatever action it considers necessary to protect taxpayers interests, including the appointment of statutory receivers or the use of vesting orders or other enforcement mechanisms.|
The effect of this is that the vesting order, which extinguishes the equity of redemption, has been discussed by the Chairman of NAMA in the context of “foreclosure”. But s.96 of the Land and Conveyancing Law Reform Act, 2009, abolishes the mortgagee’s right to foreclosure by s.96(2). In fact, foreclosure is not used in practice in Ireland for upwards of a century: see the judgment of Fitzgibbon L.J. in Antrim County Land Building and Investment Co Ltd v Stewart  2 IR 357, at 369. Thus the classic mortgagee’s right of foreclosure, in desuetude in Ireland for over a century, and formally abolished in 2009, has now been restored in substance and probably in form as well as one of the consequences of a vesting order under the NAMA Act. Mr. Daly actually uses the term:
.... the result will be foreclosure.
The result of this in turn is well put in a passage at p.820 of Paget, Law of Banking:
|The essence of foreclosure is that it enables the lender to take the mortgaged property and treat it as its own, free from any right of the borrower to redeem the mortgage, he right to sue the borrower on the covenant to pay continues, notwithstanding the foreclosure, as long as the lender retains the property. A foreclosure order absolute vests the borrower’s interest in the property in the lender subject to any legal mortgage having priority to the lender’s mortgage .... The lender stands to make a profit from this ....|
It is true that the vesting order application must be made to a court but the powers of the Court do not seem to me sufficient to prevent this significant and harsh consequence of a vesting order.
It does not seem possible easy to gainsay that the foregoing constitutes the borrower as a “person affected” by the acquisition in a case where a vesting order is made. Even without a vesting order he is plainly a person potentially affected.
It should also be noted that p.15 of the “NAMA business plan”, published on 30th June 2010 says:
|.... in order to achieve its objectives, NAMA establishes a special purpose vehicle (SPV), National Asset Management Limited, which is responsible for the management and disposal of loan assets from participating institutions and financing such purchases through the issuance of debt securities.|
On the hearing of this appeal it was undisputed that this special purpose vehicle is a majority privately owned company which is intended to show a profit to its investors. Thus, although NAMA itself is a statutory organisation the company which will and dispose of loan assets acquired under Section 84 (see below) is a privately controlled body which will naturally seek to make a profit for its investors.
A number of observations can be made about the text of s.84. First of all, it clearly describes a compulsory process. NAMA may acquire an eligible bank asset without regard to the opinion the bank, the borrower, or indeed anyone else such as an employee of a company whose loans are being acquired, who fears for his or her job. It may acquire such assets regardless of whether they are performing or non-performing. It does not, however, have to acquire any particular bank asset: it has a discretion therefore, whether or not to acquire any particular asset. This is a central point. Before acquisition, the bank is entitled to a limited hearing on the question of whether the asset is or is not an eligible bank asset and (as will be seen below) was in fact given a hearing on the commercial merits of acquisition as well. But the borrower (here the McKillen interest) was given no hearing and the statute does not require that any such hearing be provided. Equally, it does not exclude it. Finally, subsection (4) sets out a series of matters which may be considered, but do not have to be considered. The nature of these, most obviously are those set out at sub paragraphs (c), (h) and (k), all seem to involve a qualitative assessment of the asset or the security property which is part of the asset, and not simply an assessment its nature or size. The relevance of this is to certain contentions of the respondents and will be clear when the contentions are themselves explained.
Although s.84 and other provisions of the Act are relevant in that they affect the owners of acquired assets in different ways (including limiting or precluding his right of access to the Courts), none of them spell out what will in fact happen to the assets.
Mr. Cush S.C. for Mr. McKillen trenchantly criticized the High Court judgment for confining itself to a purely legal analysis, not dealing at all with the facts peculiar to Mr. McKillen, and in particular the views expressed by his experts, and not looking to the reality of what would, most probably, happen to the McKillen assets. In my view these criticisms have substance.
To appreciate what will in fact occur it is necessary to have regard to the NAMA business plan of the 30th June 2010 which was proved on the hearing of this appeal and which contains a great deal of vital information. In the “executive summary” it is said at p. 3:-
NAMA is an unusual organisation in that it will start its existence with a portfolio of approximately €81 billion of eligible assets acquired from five participating institutions (consisting of about 1500 individual debtors with about 15,000 individual loans and will manage and realise these assets down to zero in the best interests of the State and to obtain the best achievable financial return.
One gleans the period of time over which the above will occur from the following passage on p. 4:-
.... the final price NAMA will pay for its assets and the amount it can be expected to realise on these assets over its expected life of 7 to 10 years .... NAMA has commenced an intensive engagement process with debtors and as part of that, will be undertaking a detailed review of the debtor business plans submitted .... NAMA will endeavour to work with debtors wherever possible but in certain cases this may not be feasible. However where NAMA does work with debtors, this will be because it is the optimal commercial decision to do so. This will only occur where debtors are cooperative, make full disclosure and are realistic in terms of asset funding and of the lifestyle implications for them of NAMA support. They must also accept close monitoring by NAMA of their activities.
The transaction costs of the projected activities of NAMA will be considerable and on p. 5 it is estimated that:-
The fees that NAMA will pay over its expected 10 year life amount to about €1.6 billion.
Having set out the objectives of NAMA, the plan then provides for their achievement as follows:-
acquiring assets from participating institutions;
dealing expeditiously with the acquired assets ....
NAMA’S “mission statement” is described at p. 7:
to manage acquired loans efficiently and expeditiously and in the best interest of the State.
At p. 10, NAMA sets out its debt reduction targets for its 10 year duration as follows:
NAMA will pursue all debts and debtors to the greatest extent feasible. The Board sets targets for debt reduction over its expected life.
Debt Reduction Targets
Year % of NAMA debt paid down
NAMA may work with certain debtors where it takes the view that this is in the optimal commercial strategy in the circumstances. However, this will only occur where debtors are co-operator, make full disclosure and are realistic in terms of asset funding and of the lifestyle implications for them of NAMA support. They must also accept close monitoring by NAMA of their activities.
Control of asset(s)
Where management/debtor is not adding value and in default, NAMA will, where appropriate, seek to take control of the asset(s).
NAMA will reflect market conditions in its decision as to whether to sell individual properties with the goal of disposing of assets in a phased and orderly manner. However, NAMA will not engage in any speculative hoarding of assets. Strategy will be shaped by a neutral view as to future market movements on a portfolio basis.
NAMA will not adopt a specific policy to deal with specific geographical area. Any asset/debtor activity and management has to be in accordance with attaining the best achievable returns.
On p. 33 of its plan NAMA’s requirements of debtors are set out in some detail:-
In its evaluation of business plans, NAMA requires that debtors set targets for a significant debt reduction over a three year horizon. Stabilisation or modest reduction of their debt over the medium term is not sufficient. For most debtors this means that they must identify assets which can be sold or refinanced to raise cash to repay a NAMA debt. A debtor must convince NAMA that he has not only the financial capacity but also the managerial ability to deliver on any debt reduction target agreed with NAMA. When a debtor cannot convince NAMA that he cannot meet the target, the likely option is foreclosure. NAMA will pursue all debts and debtors to the maximum extent feasible.
On p. 35 it is stated:-
|While NAMA will initially acquire loan assets, it will of necessity acquire direct control of certain property assets. The key asset management objectives will be to stabilise the acquired assets, and to develop an asset management plan aligned to the overall approved strategy, and to implement that strategy.|
It is also envisaged that:-
Key asset disposal targets will be identified across the whole portfolio. Property management for major assets that reflect strategic asset disposal timing will be developed ....
Significance of the Foregoing
A number of major features emerge from the business plan. First the entire life of NAMA is estimated at 7 to 10 years: this does not seem consistent with the business plan pursued by the McKillen interests as a whole, which is to buy first class property, generate an income from it sufficient to pay for the financing of the acquisition and create a “free” income over and above that, and to hold the property in the long term. NAMA, on the other hand, for reasons which may be understandable in its own terms, intend to “realise these assets down to zero” in the 7 to 10 year period and to do so, naturally, in the best interests of the State and not otherwise, i.e. not in the interests of Mr. McKillen and his companies, or their employees, creditors or contractors.
The projected time plan for acquisitions and dispositions appears clearly in the table set out above and it might be thought or feared, depending on ones point of view, that “trophy” properties might be attractive for early disposition. It is important to stress that the court is not, in this case, concerned with the commercial viability of these plans, or with their constitutionality or legality in themselves. The only immediate issue is whether they affect, or may potentially affect the McKillen interests in such a way as to entitle them to be heard before the plans are implemented.
There are two points of particular importance emerging from this and the preceding section of this judgment. The first is that the decision under s.84 is a discretionary one. It is explicitly so described in the affidavit of Ms. O’Reilly, the legal officer of NAMA. Secondly, the terms of s.84 itself, set out above, make it clear that the decision is a discretionary one in that NAMA may acquire an eligible asset “if [it] considers it necessary or desirable to do so ....” But it does not have to do so. In the words of the Statute it “is not obliged to acquire any particular, or any eligible bank assets .... on any grounds”.
It may acquire an asset whether it is a performing or a non-performing asset and it may, but need not, take into account any of the matters set out at sub-section 4 in making the acquisition decision. Finally, the decision described by the Statute itself is plainly a discretionary one and thus a decision of the sort to which the passage, quoted below, from the judgment of Mr. Justice Walsh in East Donegal Co-operative Marts v Attorney General  IR 317, at pp 343/44, applies.
The fact that NAMA intends, and is apparently obliged, to acquire assets by a compulsory process and then “realise these assets down to zero” over a seven to ten year period is a matter of the greatest importance. As mentioned above it is a policy quite contrary to Mr. McKillen’s long standing and entirely lawful business plan which is to hold assets in the long term. It is undisputed that this approach has been uniformly successful for the McKillen interests over 35 years to date. Secondly, NAMA’s is a mandate quite different to the policy which any unconstrained bank would pursue in the case of a reliable client with loans which are uniformly performing loans. The findings of the High Court on these and other relevant topics are summarised below and tend to emphasise the points just made.
On the basis of the statutory constitution of NAMA itself, and of the content of the business plan it is has issued and of certain statements of its high executives, it is possible to say, grounded on evidence, that the Act enables the agency to derogate from well established legal norms and expressly exempts it from statutory and legal standards for the purposes identified in the long title and in sections 2 and 10. It also restricts a customer’s right of access to the Courts in certain ways discussed above. Taken as a whole, it is a measure purporting to enable acts decidedly outside the norms and conventions of established law. NAMA, NAMA group entities, the Minister for Finance and Others are afforded exemptions from the ordinary legislative framework and from accustomed norms. Remedies against NAMA are dramatically restricted. The ordinary rules governing the right to seek interim or injunctive relief have been fortified in favour of NAMA, for example by s.192.
The Court is not currently concerned with the legality or the constitutionality of these measures, but solely with the question of whether their affect on a bank customer whose assets are being concerned for acquisition is such as to require that such customer be given a hearing before his assets are taken.
Mr. McKillen says he is entitled to be heard primarily because he is a person “affected” by the Act. Whether this is sufficient to trigger a right to fair procedures will be considered when the Irish jurisprudence on this question is examined, below. But the foregoing observations, as well as the matters previously cited, seem to leave little doubt of the proposition that a person whose loans are acquired by NAMA is indeed “affected” and his rights diminished, by legislation which is of an entirely exceptional character. But the legislation itself will not affect
Mr. McKillen or his interests unless and until a decision under s.84 is made. That is the point on which he wishes to be heard.
The broader background
The foregoing outlines the rather unusual statutory and procedural context against which the issue identified arises. To summarise: a statute - the NAMA Act, 2009 - authorises NAMA to acquire certain assets which, insofar as this case is concerned, are the banks contractual rights over the loans and the securities offered by the McKillen interests in relation to those loans. NAMA does not have to acquire these assets: as Ms. O’Reilly’s affidavits make clear, it has a discretion whether to do so or not. The McKillen interests object to the assets being acquired and wish to address NAMA before it makes its decision whether or not to acquire them. NAMA have absolutely refused to give them a hearing, of any kind, on the grounds summarised above. The issue now arises as to whether the McKillen interests are entitled to a hearing.
A new layer of complexity is added by the events which have taken place in relation to the McKillen assets since December, 2009. Before NAMA was brought into being four individuals who were to be associated with it in very important roles met together and decided to acquire the McKillen assets. The circumstances in which they did so are described in Ms. O’Reilly’s two affidavits. While other people have also sworn affidavits about that decision, Ms. O’Reilly is the only one of the decision makers to go on affidavit on the question.
This Court has already decided that the purported decision of the 11th and 14th December, 2009, is void for the reasons given in the Court’s judgment of the 3rd February, 2011. In reaction to this decision, and having been given time to consider its position, NAMA decided that it would at any early date consider the question of whether or not to acquire the McKillen assets pursuant to s.84 of the Act, set out above. It made quite clear that, in doing so, it would not permit a hearing to the McKillen interests. Accordingly, the Court must decide the question, on appeal from the High Court, of whether, having regard to the nature of the s.84 decision and all other relevant matters, the McKillen interests are entitled to a hearing before their loans are acquired pursuant to s.84. Before doing this it is desirable, and will make the legal issues more digestible, to set out some of the broader background to the present case, as gleaned from the evidence in this case.
An old fashioned “plain vanilla” property bubble
This case has its roots in the financial crisis which afflicted Ireland in the last several years and which became overt in September, 2008. At that time, in the context of a major global financial crisis and of a collapse in the share prices of the Irish Banks, there was a run in the wholesale market on one of Ireland’s largest banks, Anglo-Irish Bank. In an acute and rapidly deteriorating situation, various banking interests had recourse to the Minister for Finance. Almost immediately, on the 30th September, 2008, the Government decided to guarantee all the deposits and the “senior debt” of the Irish banks. Over the following months the Government nationalised Anglo-Irish (January, 2009) and invested billions of euros in the two largest remaining retail banks, Allied Irish Banks and Bank of Ireland (February, 2009) and instituted an unprecedented level of State control of banking by statutory instrument (S.I. 411 of 2008).
The causes of the events leading to the Government actions, which events have had tragic consequences for a great many people, are still the subject of enquiry and of political and economic controversy, with which the Court has no particular concern. But it appears uncontroversial, certainly as far as the very detailed evidence in this case goes, that the underlying cause was a relatively simple one.
Altogether elsewhere, the crisis which may be thought of as declaring itself in late September, 2008, had more complicated causes. In the United States the economic crisis which became overt at roughly the same time was driven by the widespread use of financial instruments (many of them property linked) which might (moderately) be described as exotic. But the Irish problem, according to Professor Patrick Honohan’s 2009 report for the World Bank was simply an “old fashioned property bubble”. In the terminology of an American economist who also wrote a report on the matter, referred to in the present case, it was “a plain vanilla property bubble”. The Irish economy had been permitted to become hugely dependent on the house building and other construction sectors to the extent that those sectors contributed 20% of the country’s gross domestic product in 2007. This level was significantly higher than that prevailing in any European country and was twice the contribution of those sectors in the United States. Equally, the same sectors contributed a disproportionate share of Irish tax receipts and provided a disproportionate share of Irish employment.
The non-viability of this situation appears all too painfully evident in retrospect. Mortgages peaked both in number and amount in the third quarter of 2006: bank shares declined sharply from mid-2007. The graph of this decline became almost vertical in the summer of 2008, following the so-called “St. Patrick’s Day Massacre” of the Anglo-Irish share price in March. That eventful summer closed with the Lehman Brothers bankruptcy in the United States and the Irish Government’s bank guarantee at the end of September. Each of the main Irish banks share price had dropped by over 90% from January 2006 to January 2009 and the share price of Anglo-Irish Bank had dropped over 99% by the time its nationalisation was announced.
Remarkably, no regulatory body appears to have anticipated or warned of the imminence of this disaster for the banks. These threatening developments had begun to bite when the returns on Irish property dropped dramatically from the middle of 2007. This development, when graphed, presents almost as vertical an appearance as the graph of the decline of the bank share prices. This is not coincidental. There does not appear to have been any effective regulatory warning of the drastic consequences which have in fact followed, and which might always have been expected to follow, the bursting of the bubble.
Executive reaction to the crisis
The Executive reaction to the crisis is the immediate background to the statutory power in question here.
After a series of late night and early-hours meetings on the night of the 29th/30th September the announcement of a bank guarantee on the 30th September, 2008, commenced the implementation of the government policy of which NAMA is part. No doubt appropriate advice was taken in the time available.
There has been acute disagreement as to whether bank liabilities should have been guaranteed, as to whether all of them should have been guaranteed, as to whether the guarantee should have been renewed, and as to whether the banks’ bond holders should have been looked to in respect of the banks’ liabilities prior to the issue of a government guarantee.
The guarantee was, of course, a tax payer funded guarantee. There has been acute controversy and concern even on the extremely basic question of what the actual amount of the banks’ liabilities might be. The expenditure cuts and increased taxes resulting from the State’s huge expenditure on, and exposure to, the banks have of course been controversial in themselves.
The statutory formulation of the policy
The initial response on the part of the Executive arm of government to the financial crises which had become acutely urgent by the 29th September, 2008, was to introduce the bank guarantee. This measure, given a statutory basis by the Credit Institutions (Financial Support) Act, 2008, has in many ways dictated the policy followed over the next few years up to the present. This was expressed in the National Assets Management Agency Act, 2009, which is the statute in question in this case, the Credit Institutions (Stabilisation) Act, 2010 and the Financial Emergency Measures in the Public Interest Act 2010. All of these Acts reflect a policy, or the consequences of a policy, based firstly and fundamentally on the bank guarantee. This was initiated in circumstances of great urgency and tension. These statutes are described in the State’s submissions in the present case as forming:
.... part of an unprecedented scheme of legislative intervention in privately run commercial activity directed towards preserving the economic wellbeing of the State from immediate and substantial threats.
Section 6(1) of the Credit Institutions (Financial Support Act, 2008), generally referred to as the CIFS Act, provides as follows:
|As from the relevant date [30th September, 2008], the Minister may provide financial support in respect of the borrowings liabilities and obligations of any credit institution or subsidiary which the Minister may by Order specify having regard to the matters set out in s.2, the extent and nature of the obligations (including the degree of control over possible abuse of financial support) undertaken and which might be undertaken in the future and the resources available to him or her in that behalf.|
The substantive actual support given at this time was the guarantee. However a statutory instrument under the Act (S.I. 411 of 2008) made provision for detailed controls over virtually every aspect of banking activity.
It was in this immediate context that the NAMA Act was passed. This (to put it very briefly indeed), gave NAMA compulsory powers to require Participating Institutions (Banks) to transfer “eligible bank assets” to NAMA or its Special Purpose Vehicle (S.P.V.). It is the decision to do this very thing, pursuant to s.84 of the NAMA Act, 2009, which is at the heart of the present case. The State parties in their submissions both oral and written emphasised that the context of the Act was that “the banks already owed their very existence to the State and could not, if left unaided, have meaningfully continued with those relationships with their customers”, including the appellants, “who thereby benefited in the meantime”. (See the “appendix to the submissions of the respondents”, para. 3).
Accordingly, on the State case, the guarantee was the first step that was taken, the second step was the NAMA Act allowing NAMA to “remove the troublesome assets from the banks in order to identify the capital shortfall”. (ibid) The third step, in the State’s view of things, is that once the “troublesome” loans are removed from the banks and the banks’ true financial position is identified, “having regard to the reality of the recoverability of the loans”, a “crystallisation of losses” should occur. (ibid) Thereafter (and apparently consequentially) the third step will occur, namely “recapitalisation to enable the banks to get credit flowing within the economy”. (ibid)
We have now, of course, passed the end of the twelve month period for the foregoing steps to take place, which period was envisaged by the decision on State Aid status sought by the State from the European Commission. This twelve month period ran from a date sixty days after the establishment day of NAMA, 21st December, 2009. It accordingly ended in February of this year. It is a matter for individual, political and economic judgment as to whether or not in reality, the steps outlined above have “[got] credit flowing within the economy”, (ibid) within that period. That is not an issue with which the Court needs to concern itself at all. But it is central to the success or otherwise of the NAMA policy. This policy is at the root of the purposive interpretation of s.84 of the NAMA Act for which the State contends.
It is both fair and necessary to repeat that the three stage process outlined above, which may be thought of as State guarantees of banking liabilities plus acquisitions of “eligible banking assets” by NAMA plus recapitalisation of the banks, are the essential three steps of Executive, later Oireachtas, policy in relation to the present crisis. Thereby the Executive hopes to restore the ordinary flow of credit within the economy by means of which those who seek capital receive it from those who possess it through the nexus, mainly, of the banks. This is an immemorial form of exchange, prone to tightening and loosening in its flow and subject of course to variations in interest rates (that is to say the price paid for the use of capital) and in other conditions, but rarely drying up totally or almost totally as appears to have happened in Ireland of late. This exchange not merely underpins enterprise and employment but, on the suppliers’ side of the equation, underpins the mechanisms whereby pensions are provided and paid and vulnerable dependants are provided for. It is in these areas that some of the most acute human tragedies of the recent economic collapse have been seen.
More immediate context
I now propose to set out certain findings of fact by the Divisional Court which were not challenged on the hearing of this appeal, and a much smaller number of other facts which do not appear to be in dispute. I do this primarily to put Mr. McKillen’s position in context, especially since the respondents’ cited a considerable volume of contextual material in the form of speeches or statements by the Minister for Finance, Mr. Frank Daly, former Chairman of the Revenue Commissioners and currently Chairman of NAMA, civil servants such as Ms. Anne Nolan and other cited in the affidavits. The contextual material cited below, however, all has a direct bearing on Mr. McKillen and his Companies. Secondly, the material is cited, though it may not be strictly necessary to do so, to illustrate that there exists a considerable body of material which is relevant, from Mr. McKillen’s point of view, to the criteria to be applied by NAMA. For example, the nature, age and standing of his loans, the proportion of them related to land and development, the geographical spread of the buildings on which they are secured all appear directly relevant. That is not to say that there is no other relevant material, which however has no bearing on this litigation but is relevant to the s.84 decision. I have not thought it necessary to enter into material which is controversial in any significant degree, preferring to cite the findings of the Divisional Court.
The amount in question
As paragraph 5.8 of the judgment of the Divisional Court it is stated that:
.... Mr. McKillen and his Companies have an interest in a portfolio of properties with a current value which seems to lie somewhere between €1.7 billion and €2.28 billion depending on what valuations are relied on.
Loans secured on these properties in favour of Irish banks who are participating institutions in NAMA amount to approximately €2.1 billion.
Loans are performing
In the following paragraphs it emerges that the Court considers 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.
The Court also found that whereas, in general, income generated by the security properties is between 1.7 and 1.8 times the interest required to be paid, in individual cases it is less and in individual cases also there may have been breaches of income to interest covenants of 1.1 or 1.2 to 1.
Fifthly, a useful description of the security properties occurs in the judgment as follows:
|Turning to Mr. McKillen’s portfolio, the same would appear to consist of approximately sixty-two properties, comprising of shopping centres, hotels and offices. The total income generated by these assets is in the order of €150 million 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 the income for the relevant properties is 1.7 to 1.8 times the interest payable at current interest rates.|
There is, accordingly a significant stream of income to Mr. McKillen’s Companies over and above his and their obligations to the banks. This was described in argument as a stream of “free” income.
Sixthly, at para. 5.13 the Court found:
|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.|
The Court then continued:
|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.|
Seventhly, it is important to recall what was found in relation to the question of geographical spread, which, it will be remembered is one of the criteria NAMA claims to have applied. In the same paragraph, the Divisional Court found:
|It should also be noted that Mr. McKillen’s property portfolio is geographically spread between Ireland, the United Kingdom, France and the U.S.A. with, it would appear, approximately 26% by value representing properties in Ireland.|
Elsewhere Mr. McKillen has deposed without contradiction that he and his corporate vehicles have not acquired any property in Ireland since 1998.
Eighthly, the Court notes at para. 5.4 that it is accepted, for the purposes of the action, that the McKillen loans represent “eligible bank assets” within the meaning of the Act but the Court went on to note :
|that a significant portion of the McKillen loans are not directly loans in respect of land and development, but rather loans that come within the definition of eligible bank assets by virtue of the fact that those loans are to Mr. McKillen or entities associated with him and, thus, are caught by the broad definition of eligible loans contained in the Act.|
It should also be noted that on the Affidavit evidence on behalf of Mr. McKillen, the proportion of land and development loans in the McKillen loans is in the order of 2.5%. This was not contradicted, nor was it the subject of cross-examination but in the course of argument Mr. Michael Cush S.C. for the McKillen interests conceded:
|They were passages in the affidavit of Ms. O’Reilly from which one might infer that NAMA were contending for a figure in the order of 5%, maybe even a little more, but in our calculations about 5%. But, on any analysis the percentage of McKillen loans that can be described as land and property loans is tiny. But we acknowledge that because of the way the definition is framed, if you’re in at all, you’re in.|
Status of non “Land and Development” loans
The reason why non land and development loans may be deemed, for NAMA purposes, to be land and developments loans on the basis that they are “associated” with other loans which are in that category, is explained elsewhere in this judgment. It is the result of “deeming” provisions within the Act and can have a very severe effect in terms of what it exposes the owner of the property to, under the Act. See ss.69 and 70.
One significance of these matters appears to me to be that, on the basis of the Divisional Courts findings alone, there are many matters which might be urged on Mr. McKillen’s part, if he were granted a hearing.
Patrick McKillen and his statutory “associates”: an effect of the Statute
Mr. McKillen is, of course, the only natural person amongst the plaintiffs, but his importance goes beyond that. Because he is a shareholder in all of the corporate plaintiffs, those plaintiffs are deemed, by virtue of s.70 of the Act, to be “associated debtors” of Mr. McKillen, and of each other. The borrowings of each of the plaintiffs are, of course, assets in the hands of the banks which advanced money. They are, accordingly, all “associated bank assets”. By virtue of the provisions of s.69(2)(d), bank assets associated with other bank assets which fall within s.69(2)(a) and (b) may themselves be regarded as “eligible bank assets for the purpose of liability to transfer to NAMA”. The subsections mentioned refer primarily to credit facilities provided “for the purpose, whether direct or indirect and whether in whole or in part, of purchasing, exploiting or developing development land”, and assets for associated purposes. These are often referred to as “L and D” assets.
The effect of this rather artificial statutory scheme is that, in a case such as the present, a whole bundle of assets may fall within the definition of “eligible bank assets”, even though only a small proportion of the total (in fact, about one fortieth) are actually “land and development” loans, on the basis that other, “L and D,” liabilities are “associated” with them. As to the proportions obtaining in this case, see the preceding section of this judgment on findings of the High Court. The relevant specific finding, at para. 5.15 is:
|On any view, it should, however, be noted that a significant portion of the McKillen loans are not directly loans in respect of land and development, but rather, are loans which come within the definition of eligible bank assets by virtue of the fact that those loans are to Mr. McKillen or entities associated with him and thus, are caught by the broad definition of eligible loans contained within the Act.|
It appears to me that these provisions are in the nature of deeming provisions and are capable of distorting the very nature of various commercial assets for example by permitting them to be treated as “eligible bank assets” even though only an extremely small proportion of them are in fact within that category. The mechanism of this is that the Minister is entitled to designate classes of bank assets as “eligible bank assets”. This was in fact done by SI 568 of 2009, which at Article 2(a)(i) designated loans “provided by [a bank] to a debtor for the direct or indirect purpose, whether in whole or in part, of purchasing exploiting or developing development land”. By reason of the statutory provisions referred to above. a vast tranche of loans can be regarded as being in this category even though only a small proportion are actually of the relevant nature.
The statutory provisions in question do not in terms “deem” one thing to be another. But they permit loans (the great majority) which are not land and development loans as that phrase is used in the statutory instrument to be treated as if they were in that category for the purpose of constituting them as “eligible bank assets” liable to compulsory acquisition. Just as significantly, this remarkable step is taken years, and in some cases at least more than a decade, after the relevant loans were first sought and advanced. I repeat that the Court is not now concerned with the legality or constitutionality of this measure. But it seems to me impossible to deny that the measure “affects” the borrowers.
On the undisputed affidavit evidence, Mr. McKillen is a businessman and property owner who has been engaged in property investment, both in Ireland and internationally, for approximately thirty-five years. It is undisputed that his businesses have throughout in that time been consistently successful. He says that the property assets held by him and his Companies are almost exclusively investments held long term for income generation, often on 25 years leases.
Neither Mr. McKillen nor his Companies have purchased any Irish assets since 1998. Of the properties in question in this case, on the basis that they provide security for loans, almost three quarters (74%) by value are foreign properties and include some properties which are internationally famous and could fairly be described as “trophy properties”, such as leading London Hotels, and commercial property on Place Vendome, Paris.
In the course of the hearing of this appeal counsel for the appellants emphasised on several occasions that Mr. McKillen was a property investor and not a property developer, I did not understand this to be contradicted on the other side. It appears that Mr. McKillen’s strategy is to invest in prime commercial property (shopping centres, high street retail units, offices and hotels). This property is acquired very selectively and held in the main as long term investments. The employees of the business are mostly engaged in the active management of the assets and specifically their letting over long periods of time.
At para. 11 of his first affidavit in this case Mr. McKillen summed up his strategy by saying:
|My funding strategy is to maintain a sensible balance of funding between debt and equity so as to maintain a low risk, comfortable, financial position over the long term through the economic cycles.|
This involves a strategy where he acquires high end properties which, for example, including the London Hotels referred to above.
He also refers to commercial office investment property in Place Vendome in Paris; properties in Old Bond Street in London and other properties in Britain, France, the United States and Northern Ireland as well as in Ireland.
Mr. McKillen emphasises that his credit facilities are not “impaired” and that there have been no defaults in repayments due. He complains that he has been given no opportunity whatever to engage with NAMA on the question of whether or not his loans should be acquired by it. He does not accept that the great bulk of his assets are in fact land or development loans and wishes to engage with NAMA, inter alia, on this point. He also says that he could refinance certain properties from sources which are not “participating institutions” if given a relatively short time to do so. He refers to various statutory powers and public statements by or on behalf of NAMA or associated persons and expresses concern that NAMA’s core commercial objective will be to recover for the taxpayer whatever it has paid for the loans or otherwise expended. NAMA is expected to have a life span of only five to seven years and is, in its Chairman’s view “a workout vehicle”. He is concerned that, accordingly it will “take a shorter term view than a bank would and will seek to maximise its returns by selling off loans to third parties or by calling in loans and realising security”. He said this would have a devastating effect on him personally and as guarantor of certain loans. He claims that NAMA have significantly undervalued various of his assets and that they or their agents (such as the “special purpose vehicle” described elsewhere in this judgment) “will focus primarily on the more valuable trophy assets and take outright possession of these assets”.
There is no doubt that Mr. McKillen apprehends drastic consequences to him and to his Companies from their loans being taken into NAMA. In my view, and even apart from specific statutory provisions set out or mentioned above, he and they will be significantly affected by the transfer of his loans to NAMA. In the most general, and also the most fundamental, sense his loans will be transferred from a commercial bank to a body acting for a statutory “work out vehicle” which intends to “realise these assets down to zero” in a seven to ten year period. To do this, the assets and the debtors “must accept close monitoring by NAMA of their activities”.
I do not consider that these matters are in any way answered by the fact, very often repeated by the State, that the McKillen historic bankers were in great difficulty and could not have continued their relationship with the McKillen Companies as before. This may well be so, but the loans are not being acquired in order to assist the McKillen interest. Indeed, according to the State, that interest does not even arise for consideration under s.84. Accordingly, they are being acquired in the State interest, as NAMA’s business plan amply demonstrates. It seems to me irrelevant to the issues raised by this fact to say that the banks could have sold on the McKillen loans in any event. No doubt they could, at least in the large majority of cases, but they could not have sold the loans to an institution with the legal characteristics, powers or mandate of NAMA because no such thing existed before December, 2009 and, apart from the statute, no such thing could have been conceived of.
If there is a point of agreement between Mr. McKillen and NAMA, it is that NAMA is not a bank. NAMA itself said on several occasions during the hearing of the appeal that it could not accurately be described as a “bad bank”, most obviously because it is not a bank at all. It seems to me to be of the essence of Mr. McKillen’s complaints that his loans are being taken into a statutory Company, but will be managed by a majority privately owned “special purpose vehicle” with a mandate to recover its expenditure in a seven to ten year time span. He says that this is the antithesis of his business plan which involves long term holdings of property. He has deployed a good deal of expert banking and economic evidence to the effect that his loans do not create a “systemic risk”, are not impaired, and are attractive banking assets which he would be able to extend or roll over in the ordinary course of business. All of these appear to me to be relevant matters, which is not to say Mr. McKillen is necessarily right about them. That issue does not arise in these proceedings.
In his affidavit Mr. McKillen sets out at some length the representations which he wished to make to NAMA. First, he wished to submit that certain of the credit facilities are not eligible bank assets and therefore cannot be acquired. Secondly, in at least one case which might be dubious as to whether or not it is an L & D loan, he wished to offer to refinance the relevant loan. Thirdly, he wished to make submissions on the discretionary aspects of whether or not to acquire the loans on the basis which he indicates and fourthly he wished to be heard on the valuation aspects of the securities underlying the individual loans.
Mr. McKillen also makes detailed complaints about NAMA’s dealings with him which suggest that they were tardy, showed no sense of urgency, and were evasive and misleading over a six month period about whether they had decided to acquire his loans or not. The Divisional Court has already criticised NAMA in relation to its dealings with Mr. McKillen and this aspect will be discussed elsewhere. Its principal immediate relevance appears to be that any suggestion that extreme urgency justified a denial of Mr. McKillen’s right to be heard seems obviously inconsistent with the dilatory actual behaviour of NAMA itself after the acquisition decision had been taken. During the period of inaction, the fact that the acquisition decision had in fact been purportedly taken was calculatedly concealed from him by NAMA.
A matter hotly disputed between the parties on the hearing of this appeal was whether or not the “decision makers” of December, 2009, considered at all, in any way, the question of impairment, or the risk of impairment, of Mr. McKillen’s loans. It seems manifest to me, on a reading of Ms. O’Reilly’s affidavit, that this topic was considered by the four purported decision makers. The fundamental criterion imposed upon them, in statutory language, was as to whether or not the acquisition of Mr. McKillen’s loans was necessary or desirable to further the purposes of the Act. They concluded, on Ms. O’Reilly’s account, that the acquisition of his loans was necessary to further the purposes of the Act and did so because, paraphrasing as before:
|The risk to the banking system of impairment in [Mr. McKillen’s exposure of €2 billion] was such that NAMA considered the acquisition of Mr. McKillen’s credit facilities was necessary to further the purposes of the Act.|
Accordingly, the statutory opinion was alleged by those who held it to have been reached on the basis of an assessment of the risk to the banking system of impairment in Mr. McKillen’s loans being “such” as rendered their acquisition necessary for the statutory purpose. I cannot see how that assessment could be rationally carried out without some assessment of a qualitative nature, of those loans. Not for the first time, the phraseology of Ms. O’Reilly’s affidavit is so diffuse as to make analysis difficult. The phrase “the risk to the banking system of impairment .... being such ....” seems almost designed to seek ambiguity. But the “impairment” is “impairment in an exposure of €2 billion” which is plainly a reference to impairment in the McKillen loans. The conclusion that this impairment “was such” that the statutory criterion was met appears to me rationally to require an assessment both of the consequences of an impairment of the size mentioned to the banking system, and of the likelihood and extent of impairment to the McKillen loans. One is, after all, speaking of risk, and not certainty: the nature and consequences of the risk cannot be assessed in isolation for the question of a likelihood of the risk event occurring, and the extent to which it will occur.
Significance of “Impairment”
The significance of the concept of “impairment” (and of the associated “systemic risk”) arises from two separate sources. Firstly, it was a subject of extensive submissions by the Attorney General, which are about to be discussed, and he contended for a very specific, and admittedly artificial, meaning to be given to it. The second is that the reality of, or potential for, impairment in Mr. McKillen’s loans appears to have been regarded, by the four “decision makers” as a central criterion to be used by them when they were taking the “decision” of December, 2009. This decision has, of course, already been held by this court to be void for the reasons already set out, and NAMA have said they will address the question of whether to acquire the loans in the near future. NAMA have not indicated to Mr. McKillen the criteria proposed to be used by them for the purpose of this exercise.
In those circumstances, and bearing in mind the terms of Section 84, and the elaborate contentions of the Attorney General in relation to a specific interpretation of the term “impaired”, it seems reasonable to have regard to the true meaning of the term, and the role which it appears to have in NAMA’S conception of the decision to be taken under Section 84, in considering whether Mr. McKillen is entitled to be heard before that decision is taken. It must also be borne in mind that, on the hearing of this appeal, NAMA purported to have adopted the alleged decision of the “decision makers” and indicated no dissent or variation from the approach to the decision outlined in the affidavit of Ms. O’Reilly. Though the alleged decision of December 2009 is void, I see no reason to exclude it and the processes and reasoning which led to it, from evidence on this appeal. There is no reason to think that the mindset which actuated the NAMA four in December, 2009 has ceased to represent NAMA’S view, especially since NAMA specifically affirmed it.
The Attorney General, in his submissions on behalf of the State parties was repeatedly insistent, quite correctly, that the term “impairment” was not a statutory term, and did not represent an issue which the Divisional Court, or this Court on appeal, required to consider. The Attorney was correct in the first of these contentions: “impairment” is not a statutory term but was a term introduced by NAMA’s Ms. O’Reilly in stating the reasons leading to her and her colleagues’ purported decision under s.84.
During the Attorney General’s submission on the 17th December, 2010 (at p.6ff of the transcript), he addressed the question of “impaired assets” - the words appeared between inverted commas in the European Commission decision referred to earlier - and what precisely they meant. The Attorney submitted that:
.... what it means is borrowers who are indebted in respect of the loans which are identified in paragraph 15 of the decision as the riskiest loans, namely the land and development loans and associated commercial borrowers, those loans have been classified, in general terms as impaired because of the burst of the real estate bubble and these are borrowers that are indebted in respect of those loans.
In other words, the State is contending for the proposition that the word “impairment” in relation to loans means nothing more than that they are land or development loans, regardless of whether they are performing or not.
A little later, however, the Attorney General clarified that the sole meaning of the term “impaired borrower” is merely that he is a borrower for a particular purpose (land and development) and not a borrower who is impaired qua borrower. If this is so then, arguably, no qualitative assessment of the McKillen loans was needed, and the need for a hearing is to that extent diminished, as the State see it.
The Attorney General conceded that the meaning for which he was contending is not the most obvious meaning and he further stated that the phrase was nowhere defined in that meaning, or at all. He says that he derives the meaning for which he contended from the European Commission decision and from the legislation. Asked whether the phrase was a quotation he said that he had not been able to identify it. He conceded that the use of inverted commas implied that the words should be read in some particular sense.
It does not appear, on the basis of the paragraph of the judgment which is next referred to, that the Divisional Court accepted this rather artificial sense of the term “impaired”.
At para. 5.11 of its judgment the Divisional Court concluded as follows:
|It does not seem to the Court that it is either necessary or appropriate for the Court to reach any concluded view as to the status of Mr. McKillen’s loans. It will be necessary to deal with certain aspects of the status of those loans in the context of a case made by Mr. McKillen in respect of what is said to be an entitlement of fair procedures. However, whether the loans can properly be described as impaired or non-impaired is not a matter on which the Court expresses any view.|
As has been pointed out in the evidence, Ms. O’Reilly’s affidavit uses a number of terms, all more or less derogatory, in relation to the McKillen loans. These include “default”, “breach”, “impaired”, “problem” and others. NAMA have elsewhere described the loans they want to remove from the Banks as “troublesome”, “toxic”, “problem” and likened the loans to be removed to tumours in the human body.
Since the word “impaired” is not defined (save in International Accounting Standard 39, as to which see below) it must be read in its ordinary and natural meaning. Its roots are to be found in Latin, (im-par, unequal) through French and literally means “unequal” or “unfit”. See New Shorter Oxford English Dictionary, 1993. The examples given there of the usages of the term “impaired” tellingly include “an attack of rheumatic fever left his health permanently impaired” and, used of a driver of a vehicle, as meaning “adversely affected by alcohol or narcotics”.
Official usages of the term “impaired”
The term has been widely used in connection with NAMA and the loans it is to acquire. These usages are more than suggestive as to its meaning in official use. In the speech of the Minister for Finance to the Joint Oireachtas Committee on Finance in the Public Sector delivered by the Minister on the 26th May, 2009, he said:-
.... I announced the Government’s decision to set up NAMA, under the aegis of the NTMA, with a view to addressing in a comprehensive way the problem of impaired or potential impaired assets in the banking system[;]
Assets will be transferred from the banks to NAMA to strengthen their bank balance sheets and to ensure that uncertainty over bad debts is reduced[;]
I should remind members that many of the difficulties relating to managing impaired loans .... will also arise in the context of a nationalised banking system ....
It seems to me that the above formulation, and in particular the reference to “impaired or potential impaired assets”, may not be consistent with the proposition advanced by the Attorney General, to the effect that “impaired” in relation to assets means only that they are land and development loans.
In terms of Section 69(2)(a) and (b) a “land and development loan” is a loan provided “for the purpose, whether direct or indirect and whether in whole or in part of purchasing, exploiting or developing development land”. If a loan is “provided” for this purpose then it was a “land and development loan” from its inception. On this analysis, there is little room, as a matter of law, logic or language, for the concept of a “potential land and development loan”. A loan is either in the nature of a “land and development loan” at the time it is provided, or it is not. This seems quite inconsistent with the term “impaired”, as in “potential impaired” in relation to a loan, as having no meaning other than that it is a loan for land and development purposes.
Moreover, some of the other terms in official use, as will be seen below, equate the sort of loan which NAMA will acquire with “problem” loans; “toxic” loans, loans which are the result of “injudicious lending”; “delinquent loans”; and “high risk property related loans”.
In the opening statement of Frank Daly, Chairman of NAMA, to the Committee on Public Accounts on the 18th November, 2010, he referred to the first phase of NAMA’s work - “namely the acquisition from the five participating banks of about 11,000 problem loans”; he said the role of NAMA was “to remove toxic lending from the Irish banking system”. In the same statement, delivered on the 18th November, 2010, Mr. Daly said “The NAMA process is equivalent to removing a tumour from the system, the initial impact is traumatic but it is a necessary prerequisite for long term recovery”. This metaphor of a tumour whose removal is a prerequisite for recovery is suggestive of something which is malignant or otherwise dangerous, even life-threatening.
In a statement on the same occasion by Mr. Brendan McDonagh, Chief Executive of NAMA, he described the loans to be taken over by NAMA as “.... the aftermath of this injudicious lending” and NAMA as having been established “with the aim of transferring certain higher risk property related exposures”. (All emphases added)
Accordingly it would appear that the term impaired is used as synonym for “bad” debts, “risky” assets; “toxic” lending; “problem” loans and has been likened to a tumour whose removal is a prerequisite to recovery. These are all value judgements, not mere box-ticking, and all are qualitative in nature.
Accordingly, in the absence of a special definition displacing the ordinary and natural meaning of the word, it appears to me quite impossible to construe the term “impaired” as used for example by Ms. O’Reilly in her affidavit other than as being a qualitative assessment of bad, risky or toxic. This condition is still clearer if the International Accounting Standard 39 is applied.
On the undisputed evidence in this case the term “impaired” is an accounting term and (pace the Attorney General) is defined, in International Accounting Standard 39. The word “impaired” has a very specific meaning in the context of the balance sheet of banks that have adopted the International Financial Reporting Standards, as both Bank of Ireland and Anglo-Irish had done.
In terms of International Accounting Standards, IAS 39 requires insofar as is relevant:
An entity shall assess at the end of each reporting period whether there is any objective evidence that a financial asset or group of financial assets measured at amortised cost is impaired. If any such evidence exists, the entity shall apply para. 63 to determine the amount of any impairment lost.
A financial asset or group of financial assets is impaired and impairment losses are incurred if, and only if, there is objective evidence of impairment as a result of one or more events that occurred after the initial recognition of the asset (“a loss event”) and that loss event or events has an impact on the estimated future cash flows of the financial asset or group of financial assets that can be reliably estimated. It may not be possible to identify a single, discrete event that caused the impairment. Rather the combined effect of several events may have caused the impairment. Loss is expected as a result of future events, no matter how likely, are not recognised. Objective evidence that a financial asset or group of assets is impaired includes observable date that comes to the attention of the holder of the asset about the following loss events:
The disappearance of an active market because an entity’s financial instruments are no longer publicly traded is not evidence of impairment. A downgrade of an entity’s credit rating is not, of itself, evidence of impairment though it may be evidence of impairment when considered with other available information. A decline in the fair value of a financial asset below its costs or amortised cost is not necessarily evidence of impairment (for example the decline in the fair valued investment in a debt instrument that results for an increase in the risk free interest rate).
There is no evidence of the reporting of any financial asset of the appellants’ as being impaired. The Accounting Standard appears to furnish the only example of a precise or defined meaning for the term “impaired”. I am satisfied that its primary ordinary meaning is that the loan to which the adjective is applied is impaired in the sense that repayments on it, whether of interest or capital, have fallen due and have not been paid. The evidence is to the effect that this has not occurred in the case of the McKillen loans.
From a banking point of view, on the evidence, there are only two relevant categories of loan viz. “performing” and “non-performing”. A non-performing loan, within the meaning of the Basel II guidelines, which inform bank regulation globally, is a loan where either interest or capital repayments have not been met ninety days after they were due to be met. Such loans have to be reported on regulatory returns by banks. The un-contradicted evidence is that in the case of the McKillen loans, all interest is fully paid as indeed the finding of the Divisional Court above accepts in the terms quoted.
Under the Accounting Standard referred to, a loan becomes impaired if for example there is significant financial difficulty of the borrower; a breach of contract, such as default in interest or principal repayments: or an act of bankruptcy by the borrower. If there were, or were considered by the bank to be, an impairment, a specific “impairment charge” would be raised by the bank. This is said not to have occurred, and there was no cross-examination on this.
The appellant’s evidence is that there is no non-performing loan in his portfolio, and no impairment. For present purposes, however, the appellant’s need merely to show that, if the question of impairment is relevant at all (and Ms. O’Reilly of NAMA clearly said it was), then there is a case to be made by them of apparent plausibility for the view that there is no impairment.
The State parties do not dispute this last proposition but they say that the question of impairment is simply irrelevant since impairment is not necessary to be established before the power of acquisition or seizure of the loans can be exercised. Accordingly (they say) the question of impairment was not considered by the four purported decision makers on the 11th and 14th December, 2009, in the State’s submission. This, plainly, is a non sequitar, since the NAMA evidence itself shows that impairment, or the risk of impairment, was a factor in the processes of the four high officials who considered themselves entitled to exercise NAMA’s discretion to acquire the McKillen assets. Their decision was later purportedly endorsed by NAMA.
The salient point is that the question of impairment of Mr. McKillen’s loans was in fact considered by the four NAMA “decision makers”. This appears to be the plain meaning of the passage already much quoted from Ms. O’Reilly’s affidavit and referring to “impairment in an exposure of €2 billion”. It has already been demonstrated that this reference to an “exposure of €2 billion” is a reference to the McKillen loans. No other loan or bundle of loans to which these words could apply has been shown to exist. The risk of an impairment in the McKillen loans was therefore considered by the four NAMA decision makers and that fact is unaffected by the State parties’ much later contention that it need not have been, or should not have been. We are concerned with the decision actually, if invalidly, made at the end of the process which actually occurred, and with what that tells us about the decision now proposed to be considered.
I am far from satisfied that the State parties’ contention that the size of the loan is the sole critical factor is correct, because it does not appear to me that the size or amount of a loan is capable of being what one of the American witnesses referred to as “a stand alone” indicator of risk. Indeed, the appellant’s evidence is to the effect that a portfolio such as the McKillen loans, established over a period of several decades and performing smoothly are inherently less risky than a number of smaller, completely separate, portfolios would be. It is not necessary to extend actual credence to this proposition to acknowledge that it is plainly a case capable of being made. But it was not made because there was no hearing.
Another aspect of the usages just discussed relates to the appellants’ claim that they will suffer reputational damage by having their loans compulsorily acquired by NAMA. I have no doubt that this is so and in any event there was on the hearing of the appeal direct evidence that it was so. This is because of a widespread perception that NAMA is a “bad bank”. NAMA hotly denied this, most obviously on the somewhat reductive basis that it is not a bank at all. But the undeniable fact is that the term “bad bank” was used of NAMA by publications such as the Financial Times, the New York Times, the Economist, and the Wall Street Journal and by certain learned authors. Though it is somewhat perhaps otiose, Professor Stiglitz says that:
.... the principles of information economics indicate that any borrower improperly moved on to NAMA will suffer a reputational loss, and certainly a loss of any benefits from a trusting banking relationship.
It is difficult to accept that being acquired by a statutory company whose purpose is to remove “impaired assets”, also described as “troublesome loans”, “bad debts”, “problem loans”, “toxic lending”, whose removal from the banking system is, according to the Chairman of NAMA and former Chairman of the Revenue Commissioners “equivalent to removing a tumour from the system” would not cause reputational damage. If one is, in fact, a performing borrower, this is most unfair, and gravely damaging.
NAMA and the State parties do not deny this. Indeed, it would be difficult to do so having regard to the highly reputable journals who regard NAMA as a “bad bank”. But they say that this view is based on a misconstruction of the statute and a misapprehension as to the nature of NAMA. Instead, claims the Attorney General, “impaired” is merely a technical term meaning, when it is applied to a loan, nothing more than that it is a “land and development loan”. I do not accept this as a matter of law, logic or reality, for the reasons set out above. It is inconsistent with statements of NAMA itself and of the Minister for Finance. But, still more significantly when one is considering reputational damage, the fact is that the view of reputable people with expertise on the subject is quite different to that of NAMA and the Attorney General and these people, who are involved in journals widely read by the financial community worldwide, are surely as much entitled to their view as Irish officialdom is.
In order to be one of the category of “right thinking people” whose opinions are important in the law of defamation for the assessment of reputational damage, one does not have to share in a particular, somewhat tortured, view of the meaning of the term “impaired”. The attempts of NAMA to argue the contrary was, in my view, one of the points at which their argument most strikingly parted company with reality. The State’s argument was prone to seek to draw support from the terms of the NAMA Act itself. It is certainly true that this Act creates a highly artificial world in which, for example, certain bank assets are required to be treated as things which they manifestly are not. The State’s argument on the reputational effect of being acquired by NAMA, as on other topics, suffers from the fact that it is a narrow and entirely legal one, deliberately closing its eyes to the commercial and human realities. There is ample evidence, and more which could be cited, for the proposition that NAMA is generally regarded, nationally and internationally by experts and ordinary people as being a repository for bad debt i.e, in the shorthand which has grown up of late, a bad bank or a toxic bank. To this reality, the statement that this is not so in terms of a statute itself characterised by a high degree of artificiality is no answer at all.
At para. 6.33 of the Judgment the Divisional Court referred to a paper written for the Board of NAMA. This, insofar as it was extracted in the High Court decision, began as follows:
During December, 2009, the five financial institutions likely to be designated as participating institutions by the Minister for Finance, submitted lists of loan assets which they considered, in the light of the NAMA legislation, to be eligible for acquisition by NAMA. As part of that process, the institutions were asked to identify loans which, though eligible, should not, in their view be acquired by NAMA and to outline the reasons why these loans should not be acquired. The interim team reviewed the objections raised by the institutions and accepted or rejected them in line with a number of criteria.
It is necessary to pause here to note a number of relevant matters. Firstly, the extract makes clear that the banks, but not the customers, were invited to set out reasons why they did not consider that specific loans should be acquired, notwithstanding that they were “eligible assets”.
In the course of the argument, this fact was addressed, perhaps in a rather oblique way, by the Attorney General who said (p.50 of the transcript of the 17th December):
|So, there is no interaction with the borrowers in the process, that is correct, but the bank has an obligation of utmost good faith to provide information, not just information relating to whether an asset is an eligible bank asset or not, but the broader issue of whether the asset might be acquired by NAMA, to enable NAMA to make a decision on acquisition. And key to the structure of the Act and understanding of the position is the legislature thought it appropriate that NAMA’s interaction should be the bank that would in the ordinary course [have] all of the relevant information concerning the borrower as that was an efficient way of dealing with this and, of course, the whole purpose was to take the assets, the loan assets from the bank.|
Firstly, this passage plainly suggests that there are topics other than simply the size of the loan which are relevant to the acquisition decision. Secondly, it suggests that “all of the relevant information concerning the borrower” was relevant to that decision, which information plainly and in terms goes beyond the simple issue of the amount of the loan. But thirdly, although this is not the only occasion in the course of the submissions when it seems to me the State parties tended to identify the bank with the borrower, it has not in fact been pleaded that NAMA’s obligations about fair procedures, and specifically to afford Mr. McKillen a hearing, have been met by permitting the banks a hearing. In answer to a direct question, the Attorney General said that he was not making that case.
In the extract just given from the Attorney General’s oral submissions there is also, of course, a suggestion that the banks were heard because the loan assets were being taken from the bank. This is quite clear in the last sentence of the quotation. I simply cannot understand why, if that was sufficient to trigger a right to make representations in an insolvent bank, about to be nationalised the following month at (still) incalculable expense, it was not sufficient to trigger a similar right in Mr. McKillen and his vehicles who are solvent and whose loans are performing loans.
The Divisional Court, in the paragraph mentioned, went on to set out certain of the matters to which NAMA had regard. In particular it was stated:
that “As part of the review, NAMA also looked at the scale of a borrowers L & D exposure relative to his/her total exposure across all the institutions and, in particular, the extent to which an L & D exposure was incidental to the main business carried out by the borrower. In the case of some borrowers, the L & D exposure may have been acquired with the intention of developing a business premises e.g. the purchase of sites for warehouses/offices/retail outlets etc.
Another consideration was the borrowers’ geographical base and the extent of his/her connection with Ireland. This was particularly relevant in the case of some of the U.S. based exposures of AIB and BOI: most of the borrowers did not have any connection otherwise with Ireland and typically had relatively small exposures. Accordingly, they were not considered to be part of the systemic problem which NAMA was established to address.
The Divisional Court went on, in the next paragraph, to conclude that;
|on the evidence it is clear that those criteria were adopted and applied by the senior officials concerned. It is also clear that the relevant participating institutions (or, perhaps, more accurately those who were anticipated to be likely to become such) were informed of the relevant criteria at the time. The Board of NAMA approved the criteria at a meeting on the 7th January, 2010.|
These are findings of great significance.
Firstly it appears that the banks, but not the borrowers, were informed of the criteria to be applied in deciding whether or not to acquire specific loans and were permitted to make representations on that basis. Accordingly it appears that NAMA had no objection, and may have considered itself obliged, to hear the objections of the banks. NAMA, therefore, did not consider that the time and effort required to hear and consider such representations were prohibitive. But this is one of the grounds said to justify a total denial of Fair Procedures to Mr. McKillen.
Secondly, the second affidavit of Ms. O’Reilly, at para. 15, states that:
|The first-named respondent reviewed the lists of eligible assets submitted by the relevant institutions and exercised its discretion whether or not to acquire the bank asset listed. I should observe that many of the objections noted by the relevant institutions were directed to commercial considerations, rather than issues as to eligibility.|
It would therefore appear that commercial objections, i.e. objections of the same general nature as those which Mr. McKillen wish to make (see below) were received and considered from the banks, but not from individual borrowers. This was so although the Banks’ statutory entitlement to make representations seems limited to the question of eligibility. But the phrase “loans which, though eligible, should not in their view be acquired” (6.33) plainly goes beyond this.
No right to a hearing? What triggers the right?
Both in Ireland and in other Common Law jurisdictions the scope of the requirement for fair procedures has expanded considerably beyond its previous bounds. Previous limitations, such as those based on whether the decision is of a quasi judicial or of an administrative nature, or whether the decision making body has “the trappings of a court” have long been abandoned.
Dealing with the present position the sixth edition of De Smith’s internationally used work on Judicial Review of Administrative Action has this to say:
The term ‘natural justice’ has largely been replaced by a general duty to act fairly which is a key element of procedural propriety. On occasion, the term ‘due process’ has been invoked. Whichever term is used, the entitlement to fair procedures no longer depends upon the adjudicative analogy, nor on whether the authority is required or empowered to decide matters analogous to a legal action between two parties. The law has moved on; not to the state where the entitlement to procedural protection can be extracted with certainty from a computer, but to where the Courts are able to insist upon some degree of participation in reaching most official decisions by those whom the decisions will affect in widely different situations, subject only to well established exceptions.
But the State say that Mr. McKillen is entitled to no participation whatever in the NAMA decision.
I agree with the de Smith formulation and would be prepared to adopt it as a statement of the position in Ireland. In particular, I wish to emphasise the statement that the Courts will insist, in the main, on “some degree of participation in reaching most official decisions by those whom the decisions will affect”. This seems to me to be established by a number of cases, some of an older vintage than might, perhaps, have been expected. The trigger for Fair Procedures is that the person claiming them is a person “affected” by the decision. But the State’s first submission, summarised above, contradicts this. It would deny a right to fair procedures unless a constitutional right is implicated.
A recent judicial summary of the Irish position is to be found in
.... the H.S.E. must comply with rules which adhere to fair procedure / standards. The H.S.E. might like it to be otherwise. To those involved in administration, adherence to fair procedure standards may appear cumbersome, irritating and even irksome on some occasions. Undoubtedly, the necessary adherence may slow down the administrators and may not be conducive to efficiency. But that is the way it is. The battle between fair procedures and efficiency has long since been fought and fair procedures have won out. Insistence on fair procedures governs all decision makers in public administration.
But there is of course no necessary antithesis or inconsistency between fair procedures and “efficiency” properly understood. Gwynn Morgan and Hogan reflect in the preface to the fourth edition of their work on Administrative Law:
|As regards the law relating to fair procedures in public administration, there is truth in the basic theory here, that fair procedure encourages an appropriate substantive result; and also that the dignity of the individual requires fair procedure.|
More than a decade earlier, in Carna Foods Ltd v Eagle Star  1 IR 526, a case challenging the withdrawal of insurance cover without fair procedures in the form (in that case) of a statement of reasons, McCracken J. distinguished between the public and private realms as follows:
.... where a decision is taken to exercise a function in the public realm, the person affected is entitled to know the reasons for the decision. This is because statutory powers must be determined and exercised reasonably. The plaintiffs’ here seek to extend this principle into the realm of private contractual relationships.
It may be noted that, again, the procedural rights question arose, in McCracken J’s view, from the status of the person seeking it as a person “affected”.
In that case McCracken J. declined to extend the principle into the realm of private contractual relationships because he considered that to do so would be a serious interference, with very wide ranging consequences, in the contractual position of parties to a commercial contract. But the present case is, of course, a case firmly within the realm of public law and the learned judge’s statement about that is unambiguous. Indeed, it might be said that the compulsory acquisition of the applicants “loans” without a hearing, and by a body with the remit that NAMA has, is itself a serious interference, with very wide ranging consequences, in the contractual position of parties to a commercial contract.
Similarly, in Clarke v Judge Hogan  1 IR 310 at 313 Barron J. said:
.... what is done must be seen to be fair. What is fair in any given situation depends upon the consequences for the person adversely affected by the exercise of the power.
Similarly, in The State (Philpott) v Registrar of Titles  ILRM 499, the Registrar of Titles had entered into the Register of Freeholds an inhibition against dealings with Mr. Philpott’s land. Philpott was engaged in selling the land at the time and, he was not given notice of the proposal to enter the inhibition. He obtained certiorari of the decision to enter the inhibition on the grounds that the Registrar had failed to exercise the power to enter an inhibition in accordance with the requirements of natural and constitutional justice. At p.507, Gannon J. said:
Because of the grave nature of the interference with rights over land… I am of opinion that, unless the urgency of the circumstances otherwise requires, justice requires that notice should be given to the person whose rights may be affected of the intention to enter such an inhibition and an opportunity given to show cause why it should not be entered.
Gannon J. went on to deal with the circumstances in which that requirement for natural justice might be disapplied saying:
|There is no evidence to suggest an urgency which it made necessary to proceed without communication to the registered owner, nor of circumstances suggesting that do so might in anyway defeat the purposes of s.121.|
In reaching this conclusion, Gannon J. quoted from the judgment of Walsh J. in East Donegal, cited below.
Very similar language was used by O’Higgins C.J. giving judgment in the Supreme Court in Garvey v Ireland  I.R. 75 at 97, a case about the dismissal by the Government of the Garda Commissioner. The former Chief Justice said:-
|.... Article 43.3, there is guaranteed to every citizen whose rights be affected by decisions taken by others the right to fair and just procedures. This means that under the Constitution powers cannot be exercised unjustly or unfairly.|
More generally, Costello P. in McCormack v The Garda Síochána Complaints Board  2 I.R. 489 said:-
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.
It is cases like those cited above, and others which could be cited, which account for the statement in the fourth edition of Kelly The Irish Constitution at paragraph 6.1.52:-
.... a person affected by, or with an interest in the outcome of an administrative decision has the right to have an adequate notice of this decision and to be given an adequate opportunity to make his case before that administrative body. What the courts will require as an 'adequate opportunity' will very much depend on the circumstances since the requirements of natural justice are not fixed and unchanging.
The similarity between the first part of this quotation and the passage from de Smith, cited above, is very striking. What is especially striking is the adoption, in both leading texts, of the low threshold of being a “person affected” or “with an interest in the outcome” as the trigger for the availability of fair procedures.
This, emphatically, was not always the trigger for the application of fair procedures as a matter of natural justice or constitutional justice. But it has been the trigger or the standard in Ireland for at least 40 years now. Gwynn Morgan and Hogan (op. cit.) refer to the former position in the fourth edition of their work as follows:-
|The former line of law which drew a distinction between an administrative and a quasi judicial function reached its high water mark in the view that it is only where some legal right is affected by a decision that the rules of constitutional justice are engaged. But this view is not probably part of contemporary Irish judicial review.|
It appears to me that this is the result, not so much of a positive decision to lower the threshold at which a right to fair procedure becomes available in the taking of a decision, but of a constitutionalisation of the right to fair procedures itself. The case for this was made by Dr. Hogan, now Mr. Justice Hogan, in a 1984 Article entitled Natural and Constitutional Justice – adieu to Laissez-Faire 19(2) JUR 309.
Having reviewed the case law up to that date he concluded:-
|.... it is not easy to understand why the right to natural justice and basic fairness of procedures –one of the most fundamental of human rights – should not itself be accorded the status and dignity of a constitutional right. If rights such as the right to earn a livelihood or the right of access to the courts are recognised as coming within the ambit of Article 40.3, why, then, should anyone object to the principle in Haughey’s case .... in Kiely v Minister for Social Welfare I.R. 267, Henchy J. declared that the guarantee of fair procedures contained in Article 40.3 did not permit the courts to hold a Laissez-Faire attitude to the observance of the rules of natural justice by administrative bodies. The judgment of McCarthy in Furey – in as much as it holds that mere delay will not of itself preclude redress for a breach of natural justice, and insofar as its suggests that the right to fair procedures should be elevated to the status of a constitutional right – may be regarded, as far as attitudes to the rules of natural justice are concerned, as a judicial adieu to laissez-faire.|
By the year 2000, Professor Casey in his Constitutional Law in Ireland, [3rd Edition], considered that a right to fair procedures had already been elevated to constitutional status. He said:
The common law concept of natural justice guaranteed a right to fairness of procedure in decision making. At a minimum, this meant that a person affected by a decision had a right to a fair hearing by an unbiased body. Now that common law doctrine has been elevated to constitutional status. In Garvey v Ireland  IR 75, the Supreme Court held the doctrine applicable to s.6(2) of the Police Forces Amalgamation Act, 1925, under which the government was empowered at any time to remove the Garda Commissioner from office. O’Higgins C.J. (Parke J. concurring) said at 97:
[all emphasis added]
Professor Casey continued:
One consequence of this elevation would plainly be that a statute, or statutory regulations, requiring decisions to be made following unfair procedures would be presumptively invalid. But such a situation is unlikely to occur, since it will usually be possible to read an obligation to follow fair procedures into the relevant permissions.
I may add that this is precisely what the appellants asked the court to do in the circumstances of the present case. Casey continues:-
|The true importance of constitutionalising the right to a fair hearing seems to lie elsewhere – e.g. in emphasising the need for its recognition and application by the courts so that it does not suffer the temporary eclipse natural justice underwent in Britain before R. v Baldwin  AC 60; in broadening the scope of the principle so as to embrace more than the two classical maxims nemo judex in causa sua and audi alteram partem; and in creating an Irish analogue of the fertile Due Process clauses of the United States Constitution.|
The importance of the foregoing is very considerable. If the right to fair procedures has been “constitutionalised”, as Professor Casey says, and is itself a right arising directly from Article 40.3, then that proposition is fatal to the elaborate edifice of the State’s case. Three of the four points advanced by the State are dependent on the proposition that the appellants have failed to establish a constitutional right of theirs which is implicated in the decision; that they had failed to establish an adverse effect on such constitutional rights; and that they have in fact failed to establish any interference whatever with any such constitutional right. I am far from saying, in the circumstances of this case, that the appellants’ property rights, rights to livelihood and rights to good name have not been implicated in the exposure of the appellants to NAMA. But I do not find it necessary to reach a settled conclusion on these points firstly because I consider that, for the reasons set out above, the appellants are persons affected by any prospective NAMA decision under s.84 of the Act. Apart from that, I would, if necessary, follow O’Higgins C.J. in considering a right to fair procedures, in the public law realm, as being, in itself, a constitutional right, at least where matters of serious significance to a citizen are in question.
In East Donegal Co-operative Marts v Attorney General  IR 317, statements which are of great importance to our public law generally were made. The case was an attack on the licensing provisions of the Livestock Mart Acts, 1967, on the ground, inter alia, that they would enable the Minister to use his discretion in the granting or refusal of licences to limit the number of Marts in operation. The plaintiffs were successful in their constitutional challenge in the High Court but lost on appeal on the basis that it was to be presumed that the Minister would operate within the requirements of natural and constitutional justice, and the requirements of the statute. The locus standi of the plaintiffs’ to bring the proceedings was very strongly challenged in the Supreme Court. The Court, per Walsh J. rejected the contention “that no-one can maintain such an action unless he can show that not merely do the provisions of the Act in question apply to activities in which he is currently engaged but that their application has actually affected his activities adversely”. This was because:
To afford proper protection, the provisions [of the Constitution] must enable the person invoking them not merely to address a wrong resulting from an infringement of the guarantees but also to prevent the threatened or impending infringement of the guarantees and to put to the test an apprehended infringement of those guarantees”.
More specifically, at pages 343/4 of the report, Walsh J. 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 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 license or for the attaching of conditions or for the amendment or revocation of conditions which have already attached, as the case may be.
This is a passage of general application in relation to discretionary powers. It has been at the centre of our jurisprudence on this topic for over forty years now and I would be sorry to see the ambit of procedural justice in discretionary decisions, cut down by any exception to it which is not already well recognised in law. To do so would be a gravely retrograde step.
I conclude that unless the case can be brought within any of the recognised exceptions to the availability of fair procedures, a person “affected” by the exercise of a discretionary power by a public authority is entitled to be notified and heard before that power is exercised in a manner to which he takes exception.
A constant but undeveloped theme in the submissions of the Attorney General was that the Act of 2009 in its own terms justifies the exclusion of fair procedures. In the main, this was by a process of implication, particularly implication from the statutory imperative for expedition. It will be clear from the earlier portion of this judgment that I would reject this approach, based simply on the facts of the case: Nama evinced no need for expedition and in fact temporised for a lengthy period after they believed they had taken the decision to acquire Mr. McKillen’s loans. In view of that, and of the undeveloped nature of the Attorney’s submissions (he did not, for example, identify in the Constitution or elsewhere any source of a prerogative executive power which might justify the exclusion of constitutional rights and protections) it is not necessary to spend any great length of time on this subject. Indeed, insofar as the need for a special dispensation arising from the present economic difficulties was hinted at at all, it was mainly by way of rhetorical flourishes.
It may however be as well to bear a number of considerations in mind. The first is that the property rights of the citizen are not limited to land or “real property” to which one holds the title nor to the right to money or monies worth to which one is entitled. It has been recognised for a long time as being more extensive, and extending to established contractual rights, to the right to earn a living, to the rights to one’s entitlements under an appointment to an office or under a contract of employment, and to rights to pensions, gratuities or other emoluments for which one has contracted, or has earned.
Thus, East Donegal is also authority for the proposition that “property rights” is not limited to the mere ownership of immovable property. O’Keeffe P. said at p.332:
|Property rights may include rights other than ownership of immovables, such as contractual rights ....|
Similarly, in Cox v Ireland  2 IR 503 a case in which a former civil servant challenged his loss of his job, salary and pension rights and his prohibition from further employment in the Civil Service as a result of a conviction in the Special Criminal Court, Finlay C.J. said:
|It is clear that the provisions of s.34 of the Act of 1939, when it becomes applicable to any person convicted of a scheduled offence in a Special Criminal Court, potentially constitutes an attack, firstly on the unenumerated constitutional right of that person to earn a living and, secondly, on certain property rights protected by the Constitution, such as the right to a pension, gratuity or other emoluments already earned, or the right to the advantages of a subsisting contract of employment.|
This was the case, the former Chief Justice continued, in part because:
|.... the unilateral variation or suspension of contractual rights, including rights which may involve the entitlement to a pension to which contribution over a period has been made, constitutes a major invasion of those particular property rights.|
Similarly, in Chestvale Properties Ltd v Glackin  2 IR 35, Murphy J. said:
|I accept that the applicants are correct in saying that the legislation does 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.|
If there is a difficulty in interfering with vested or accumulated rights, with which we are not immediately concerned, there must be a still greater difficulty in undertaking that interference, by the decision of a public body, without any provision for a hearing.
Although not cited to us on the hearing of this appeal, my colleagues Fennelly J. and Macken J. have attached considerable importance to the decision of this Court in Haughey v Moriarty  3 IR 1 and, on reflection, I agree with what they say and would adopt the portions cited by them. This case was, of course, grounded in a context quite different to the present one. The applicants complained that a Tribunal of Inquiry had infringed their constitutional rights by addressing orders for wide ranging discovery to a number of financial institutions with which they did business without notice to them. Hamilton C.J., in giving this judgment of this Court said:
|Fair procedures require that before making such orders, particularly orders of the nature of the orders made in this case, that 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 on making representations with regard thereto.|
The similarity in phrasing, in defining the class of persons whose rights to a hearing were triggered, is manifestly very similarly to the “affected person” language used in the other cases cited.
Due to the richness of Irish jurisprudence on this subject I have not found it necessary to look at all to the jurisprudence of the European Convention on Human Rights. But I am happy to note Mrs. Justice Macken’s reference to Fazenda Publica v Ministerio Publico (Case C - 349/07), delivered on the 18th December, 2008. I agree with what Macken J. says about this case and would only pause to remark that the need for “observance of the rights of the defence” is said by the Strasbourg Court to inhere in “the addressees of decisions which significantly affect their interests”. Here again, the similarity in language and scope with the Irish jurisprudence is striking.
It appears to me, therefore, that there is ample authority both in Ireland and elsewhere for the existence of a right to fair procedures in the making of a discretionary decision by a public official or officials is based on the status of the person claiming such fair procedures as a person who is or may be “affected” or “adversely affected” by such decision. There is also ample authority for the proposition that property rights may extend to rights arising out of a private contract, or out of employment, or out of a professional relationship, as well as the right relating to ownership of real or personal external goods.
Grounds for the exclusion of Fair Procedures
But it must be clear to even the strongest proponent of the need for the decisions of public authorities to be approached applying fair procedures, that it must, in rare and clearly defined circumstances, yield place to other imperatives. A property owner has a clear right to have his property respected by the State and safeguarded from trespass or seizure by others; but there may be imperatives arising from a state of war or armed rebellion, an accident, or an acute emergency created by fire, natural disaster or other sudden and extreme circumstances which justify transient trespass upon his property without his consent or without taking the time to see if he, as owner, wishes to urge any reason against it. Thus, the placing of a fireman’s ladder in one’s garden, to save imperilled life and property, does not require audi alteram partem if the garden’s owner’s is absent.
But it is the business of the law to identify such circumstances: otherwise the cry of “emergency” would be sufficient to set all rights aside at the whim of the Executive. Our Constitution makes specific provision for “war or armed rebellion”. It is not for the Courts to extend those provisions to a situation which is not one of war or armed rebellion. That would require a decision of the people in a referendum, if they thought it necessary or prudent to confer such unreviewable powers on the State. The cry of “emergency” is an intoxicating one, producing an exhilarating freedom from the need to consider the rights of others and productive of a desire to repeat it again and again.
In the present case, however, the State parties have not argued that the NAMA Act is immune from scrutiny by the Court by reason of Article 28 of the Constitution or any similar provision, or any analogy with such a provision. They have sought to rely on the terms and context of the Statute itself for a justification for the exclusion of fair procedures. Submissions along those lines are amply met first by the finding, which is common to all the judgments in this case, that the Statute does not exclude a right to be heard in a person in the position of Mr. McKillen and secondly, by the remarkable dilatoriness of NAMA itself, wholly negativing any consciousness of urgency on its part.
It must also be noted that the constitutional claim pursued by the appellants, and in which judgment has already been given by the Chief Justice today, is an extremely specific one. That claim was always addressed, it seemed to me, as an alternative to the claim in relation to fair procedures but over the course of the hearing it took on a life of its own. As the Chief Justice observes the focus of the claim “.... is the breadth of the definition of eligible bank assets combined with a vagueness of the criteria according to which NAMA may acquire such assets that [on the appellants’ case] constitutes an unjust attack on the property rights of the appellants’, principally since it would have no opportunity of known the basis of which NAMA might consider or decide to acquire assets pertaining to them and that the appellants’ would not be in a position to bring an effective challenge to a decision by NAMA to acquire the assets relating to the appellants’ since the vagueness of those criteria would not permit a court to decide whether NAMA had acted intra vires or ultra vires its powers”.
This topic of established exceptions to the need for fair procedures is addressed in some detail by the leading text books both in this country and in the United Kingdom. See, for example Administrative Law in Ireland, Fourth Edition by Hogan and Morgan (2010), under the title “Countervailing Factors”, at pp 718ff and De Smith’s Judicial Review of Administrative Action, Sixth Edition, Chapter Eight “Procedural Fairness: Exceptions”.
Before discussing the established exceptions to the general requirement of Fair Procedures for persons affected by a decision of a public authority, there is a preliminary distinction which must be drawn. Mr. McKillen’s case is focussed on the procedures necessary before a decision which, it is alleged, will “affect” him and interfere with his property rights, if taken.
This must be firmly distinguished from the separate question of what factors might justify the interference with the property and other rights in itself. We are not concerned with that latter question in this case. Mr. McKillen fully acknowledges that there are circumstances which justify, in one degree or another, interference with a citizen’s property rights. That is not the point he is making here. The question here is not whether the transfer to a State entity of certain bankers’ loans is or is not a permissible interference with the property rights of the bankers, or the borrowers; the question is whether a borrower is entitled to be heard before that step is taken. Great confusion as to the nature and effect of the present case will occur unless that distinction is borne firmly in mind.
It follows from this that, apart from the very specific issues addressed in the judgment of the Chief Justice in his judgment on the appellants’ constitutional claims, this judgment is unconcerned with many broader constitutional issues which might arise, for instance, in relation to property rights, or in relation to the powers of the Oireachtas and the role of delegated legislation or any other matter not presently before the Court.
In a number of cases countervailing factors have successfully been invoked to justify a failure to observe audi alteram partem. The dominant countervailing factor in these cases is extreme urgency: a need for immediate action in the circumstances of the case, sometimes caused by the person seeking to be heard.
Thus in O’Callaghan v Commissioners of Public Works  ILRM 364, there was a very old promontory fort on a farmer’s land, which was listed as a national monument. The farmer started to plough the land around the fort and the Commissioner of Public Works intervened by making a preservation order. The Supreme Court rejected the contention that the farmer should have been allowed to be heard before the order was made, O’Higgins J. stating:
|Here, an emergency had been created by the plaintiff’s own action in defiance of his legal obligations. If the Commissioners had hesitated in acting as they did the monument which it was their duty to preserve would have been seriously damaged or destroyed. Further, it was not possible to contact the plaintiff, because his address was not then known and did not become known to the Commissioners until some time later.|
Similarly, in O’Ceallaigh v An Bord Altranais  4 I.R. 54 the Board applied to the High Court, pursuant to the Nurses’ Act of 1985, for a temporary order preventing the applicant from practising as a Midwife. In that case, I remarked in relation to the decision to hold an enquiry under s.38 that:
.... there may be circumstances in which the Board will have to act so rapidly that it is not a practical possibility to give notification of the complaints.
Cases like these depend on circumstances of extreme urgency, combined, perhaps, with an intrinsic difficulty in the giving of notice. Nothing of the sort has been established here. The fact that, for more than six months after the present “decision” was taken, NAMA abstained from notifying Mr. McKillen of that fact, despite enquiries and took no step actually to acquire the properties in question, seems wholly to negative the existence of circumstances of urgency, even in the eyes of NAMA.
In the case of D.K. v Crowley  IR 744, this Court was concerned with an interim barring order made under s.4(3) of the Domestic Violence Act, 1996. The order was made ex parte and there was no procedure requiring the applicant for the order to bring the matter back before the Courts. The Section was found unconstitutional, Keane C.J. saying:
|The procedures prescribed by s.4 of the Domestic Violence Act, 1996, in failing to prescribe a fixed period of relatively short duration during which an interim barring order made ex parte is to continue in force, deprived the respondents to such applications of the protection of the principle of audi alteram partem in a manner and to an extent which is disproportionate, unreasonable and unnecessary.|
In this case it will be observed, on the basis of certain sections of the Statute, considered elsewhere, not merely that there is no provision for reconsideration or for appeal but that NAMA enjoys considerable legal immunity in respect of its actions taken in pursuance to the decision.
In discussing these and other cases in the section of their book already mentioned, Hogan and Morgan conclude (at para. 14.249):
|These authorities suggest that there is a reservoir of discretionary power to identify situations in which the principles of constitutional justice do not apply, which is wider than any of the specific examples so far identified. It is noteworthy that the Courts have chosen to create a distinct ground of exemption rather than simply to exercise their long established discretion to refuse to grant relief .... there must however be a proper (and proportionate) balance between the need for speed and the applicant’s rights, as is illustrated by D.K. v Crowley (cited above).|
In considering whether this case could be considered to be within the scope of any “situation in which the principles of constitutional justice do not apply”, I would identify as relevant certain features of the present case.
The “decision” of the 11th and 14th December and the later decision mentioned by NAMA were in no sense a temporary or interlocutory decision as many of the decisions in the cases cited were e.g. the decision to prevent the Midwife from practising pending the outcome of the hearing in O’Ceallaigh. Nor would any fresh decision to the same effect be of a temporary nature.
The scheme of the Act appears to offer no prospect of revisiting the decision with an input from the borrower affected.
There is in the evidence of the case, no proof nor even any convincing suggestion of urgency, much less of impossibility of performing the functions of the Act if fair procedures were granted.
Though the borrowers were granted no hearing at all the banks, according to Ms. O’Reilly, were heard in relation to the acquisition decision and were assisted in making their case by apparently being given the criteria on which the decision was to be made.
There are in the Act various immunities and protections conferred on NAMA in respect of any form of subsequent challenge to the acquisition decision, or any claim for compensation.
See s.84 of the Act. It is quite clear (as the State parties submitted) that the specific matters mentioned there as being permissible to take into account on the acquisition decision are not mandatory to be considered but may be considered at the decision takers’ discretion. But that fact does not exclude a consideration of the significance of the matters specifically mentioned by the legislator, insofar as they bear on the nature of the decision to be taken and thus the right to be heard. The matters mentioned, or most of them, appear to me to be inconsistent with a virtually automatic decision such as the State contends for and to indicate an exercise which is at least in part qualitative. This appears to me strongly to support the proposition that the person affected should be heard and should not easily be deemed to have been excluded from the right to a hearing.
The fourth matter listed above seems particularly significant, given the facts of this case. None of the recognised grounds for excluding fair procedures, nor any of the cases on the topic, remotely justify the exclusion of one person or class of persons affected by a decision, while another affected person or class of persons is granted fair procedures and permitted to be heard in respect of the self same decision. The fact that one class of person affected is granted a right to be heard seems logically and realistically to exclude any consideration of urgency or efficiency as a ground as to establish the lawful exclusion of fair procedures. Moreover, there are in practice only two classes of people - the banks and the borrowers, whose interest might be directly affected and it seems extraordinary to permit one to be heard to exclude the other, and the smaller class of solvent and performing borrowers.
In attempting to categorise the general or residual category of circumstances in which fair procedures may be denied, it appears that urgency is an essential characteristic. This may be described in different ways: de Smith op cit describes it as:
Where an obligation to give notice and opportunity to be heard would obstruct the taking of prompt action.
Hogan and Morgan, op cit, at para. 14 - 245 say:
|The most common type of such countervailing policies are that observing the rules would cause a delay and so defeat the object of the public authorities’ action.|
and they quote O’Callaghan, cited above, as an example.
In the present case the Attorney General argued a need for urgency from the mention in the statute and in the NAMA documentation of a need for expedition, variously phrased. But there was a lack of specific and convincing evidence on the topic.
More to the point, I have to say that in my view the actions of NAMA itself, although opaque in certain ways about to be discussed, show quite clearly that NAMA was so little impressed with the need for expedition that, having taken a “decision” to acquire the McKillen loans in December 2008 it had still not taken the step necessary to act on that decision, the service of an Acquisition Schedule under s.87 of the Act, when Mr. McKillen commenced his proceedings more than six months later. Moreover, during most of that period Mr. McKillen, placed on inquiry by media reports, had raised direct questions as to whether or not his loans were part of a tranche which NAMA had decided to acquire. He never received a straightforward answer to this simple query and instead received letters full of platitudes, irrelevant statements and obvious assertions. I can only characterise this correspondence of NAMA’s as exhibiting evasiveness. It is discredible to a public body. Its authors devoted themselves for half a year or more to avoiding confirming to Mr. McKillen the fact that NAMA considered that it had taken a decision to acquire his assets. No explanation of why it did this was offered on the hearing of this appeal and indeed the correspondence was little referred to by counsel for NAMA. I do not intend to enlarge an already lengthy judgment by setting out the correspondence in full. But I would quote and adopt the moderate language of the Divisional Court dealing with this matter. At para. 5.16 of the judgment that Court said:
Finally, it is necessary to touch on the dealings, or perhaps, more accurately, the lack of them, between NAMA and Mr. McKillen concerning the potential acquisition of the McKillen loans. It will be necessary to deal more fully with those dealings in the course of addressing the specific issues which arise in these proceedings. Some correspondence passed between solicitors acting on behalf of Mr. McKillen and NAMA in the course of 2010. It does have to be noted that it was quite some time before NAMA, in the context of replying to that correspondence, informed Mr. McKillen that a decision had already been taken to acquire his loans. In that, and in certain other respects, it seems to the Court that NAMA is open to legitimate criticism for not having properly or adequately responded to Mr. McKillen’s correspondence. It is, of course, the case that the Court will have to turn to the question of whether Mr. McKillen was, as a matter of law, entitled to be heard in respect of the proposal to acquire the McKillen loans. Whether there are any legal consequences arising from the position which NAMA adopted is, of course, dependant on whether Mr. McKillen had any legal right to be so heard.
However, independent of Mr. McKillen’s legal entitlements, the Court does wish to record that NAMA’s response to Mr. McKillen’s correspondence was less than open and transparent. NAMA has been given significant powers by the Act. The Court is required to consider whether those powers are constitutionally permissible and, if so, whether Mr. McKillen is entitled to be heard in the context of the exercise of those powers. However, independent of those considerations, it is the Court’s view that institutions vested with significant power can reasonably be expected to respond to legitimate enquiries from those who may directly or indirectly subject to the exercise of that power, in a more open and forthright fashion than was engaged in by NAMA in this case.
The main significance for present purposes of NAMA’s long and wholly unexplained delay in acting on their purported decision, and of the furtivity of their correspondence, is that it is quite inconsistent with any perception of its part on a need for urgency in the acquisition of the loans. Moreover, the fact that a method was found, apparently without too much difficulty, to give a hearing to the banks, but not to their customers, is destructive of any suggestion that the need to give a hearing in some form would necessarily and in itself cause unacceptable delay, as the State contended.
Most of the other recognised grounds for excluding fair procedures are manifestly inapplicable to the present circumstances. They are set out in Hogan and Morgan at p.708ff under the telling heading “The Rules do not (usually?) apply”. Headings such as “Criminal Investigation”, “Trivial Cases” or “Policy” seem inapplicable on the face of them to a discretionary decision in relation to defined assets. The policy informs the statute: the individual decision is for NAMA.
A little more difficulty might be thought to attach to the exception discussed under the heading “Legislation”. However, it appears to me from a reading of s.84 that the legislative decision in this case was to give NAMA a discretion to acquire or not acquire individual bank assets. Cases such as Gorman v Minister for the Environment  2 IR 414 (the case about deregulating the taxi industry) are authority for the proposition that “legislature decisions, on grounds, inter alia, of practicability, have traditionally been taken not to attract the rules of constitutional justice”, in the words of Carney J. But the decision to acquire the McKillen loans was not a legislature decision. It was a decision of NAMA under a power conferred by the legislature.
I would therefore not deprive Mr. McKillen of the right to be heard, which I have held arises in this case, on any of the established grounds on which that can be done.
It is trite law to say that a right to a hearing carries with it a right to notification of the proposed decision and to sufficient detailed information, including criteria, as may be necessary to allow the person to be affected to make the best case he can against the decision which he fears. He is also, very probably, entitled to reasons for the decision taken, if any. A finding that Mr. McKillen is entitled to be heard in the present case naturally imports these necessary consequences of the existence of that right. I do not see in the circumstances of the present case a positive need for an oral hearing, though NAMA’s obligations may of course be met in that way. I would not otherwise prescribe the nature of the hearing, which will ultimately depend on the circumstances of the individual case. The basis incidents of a hearing are well covered in familiar textbooks and well known decisions which will be familiar to NAMA’s advisors. No argument as to the nature of the hearing to which Mr. McKillen claimed to be entitled was addressed by either side. This was natural in view of the stark nature of NAMA’s case: that he was entitled to no hearing at all because his interests simply did not arise.
. 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.
. 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.
. As the Chief Justice put it in his ex tempore judgment in O’Brien v Personal Injuries Assessment Board  1 I.R. 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  1 I.L.R.M. 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.”
. In Condon v Minister for Labour  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.|
. 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.|
. 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.
. 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.
. 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.”
. 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.
. 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
. 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:
to the effect that his loans are not eligible bank assets;
that NAMA, in its discretion, ought not to acquire the loans;
to be allowed a reasonable time to refinance his borrowings; and
as to the value at which credit facilities will be transferred.
. These grounds appear in the first version of the appellants’ statement of grounds of 1st July, 2010. They were not subsequently amended or extended.
. 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).
. 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…”
. 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.
. 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.
. 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
. 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.
. 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).
. 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:-
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 ....
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.
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.
[not relevant at this point]
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.
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.
. 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:
effects on the appellants’ underlying properties which provide security for loans, i.e., their constitutionally protected property rights;
effects on their right to the income stream from their properties, i.e., their constitutionally protected right to earn a livelihood;
effects on their bundle of contractual rights, i.e., their contractual relations with their banks;
effects on their financial and commercial reputation, in particular on Mr. McKillen’s.
. 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
. 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."
. 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.|
. 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."
. 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  1 I.R. 111;  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
. 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:-
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.
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.
. 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.
. 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.
. 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.|
. 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.”
. 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…”
. 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.
. 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.
. 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.
. 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.
. 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.
. 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.
. 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.
. 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.
. 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.
. 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
. 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.
. 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
. 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."
. 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
. 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.
. 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.
. 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
. Two general observations can be made about the claimed effects of the decision of NAMA to acquire the McKillen loans.
. 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.
. 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.
. 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.
. 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.
. 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.
. 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.
. Section 84, subsections (1) and (2) provide:-
. 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.
. 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:-
credit facilities issued, created or otherwise provided by a participating institution –
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;
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;
any security relating to credit facilities referred to in paragraphs (a) to (c);
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);
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 –
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).
. 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.
. 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:
NAMA’s purpose shall be to contribute to the achievement of the purposes specified in section 2 by-
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.
. 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.
. 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.
. 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.
. 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.
. 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—
. 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.
. 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.
. 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).
. 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.
. 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 ....”
. 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.
. 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.
. 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  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  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.
. 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.|
. 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.|
. 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  2 I.R. 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.|
. 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.
. 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.
. 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?
. 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:
effects on their underlying properties, i.e., their constitutionally protected property rights;
effects on their right to the income stream from his properties. i.e., their constitutionally protected right to earn a livelihood;
effects on their bundle of contractual rights;
effects on their reputation.
. 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.
. 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.
. 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.|
. 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.
. 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.
. 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.
. 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.” ( 1 I.R. 111, at page 117)
. 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)
. 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?
. 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  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.|
. 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.
. 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  3 I.R. 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.
. 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.
. The appellants cited the decision of Murphy J in Chestvale Properties Ltd v Glackin  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.
. Neither party cited the decision of this Court in Haughey v Moriarty  3 I.R. 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.
. 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.
. 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.
. 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.
. 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.
. 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.”
. 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.
. 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.
. 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.”
. 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.
. 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.
. 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.
. 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.
. 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.
. 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  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.
. 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.|
. 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.
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:
Their claim concerning their right to be heard;
Their claim concerning the failure of NAMA to take particular or specific matters into consideration;
Their claim that the decision of NAMA to acquire the eligible assets was a nullity;
Their claim as to the constitutionality of the National Management Agency Act 2009 (“the Act of 2009”); and
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. The intention of that Act of 2009 was, inter alia,
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;
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;
to acquire as part of those eligible assts, the mortgagee/bank’s interest in the underlying securities supporting the borrowings; and
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,
the extent to which the right to be heard is recognised as a general principle of law, and to what that right attaches,
whether it can, in the context of the issues arising in these proceedings, be set aside;
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:
The appellants’ interests in the underlying secured properties, or their value;
The appellants’ interests in the income stream from those properties, and/or from which, it is said, inter alia, Mr. McKillen earns his livelihood;
a bundle of contractual and other rights existing between the appellants and their banks;
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 invocation of the right to be heard;
the determination of that right; and
the exercise of that right.
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:
Everyone whose rights and freedoms guaranteed by the law of the Union are violated has the right to an effective remedy before a tribunal in compliance with the conditions laid down in this Article.
Everyone is entitled to a fair and public hearing within a reasonable time by an independent and impartial tribunal previously established by law. Everyone shall have the possibility of being advised, defended and represented.
That clearly 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:
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.
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 ....
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.
It is clear from that judgment that the purpose of the rule is 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, 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 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 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.
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 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:
the nature of the decision;
the nature of the statutory scheme;
the importance of the decision to the person invoking the right - in this case - to be heard; and
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 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  3 I.R. 1, and O’Callaghan v Mahon  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 O’Dulaigh in Re: Haughey  I.R. 217
In Re Haughey  IR 217 at 264 O Dalaigh C.J. said in a lapidary passage:
Hardiman, J. also referred to Kiely v Minister for Social Welfare  I.R. 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  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.
It should be noted in passing that the phrase “affect his rights” is one used also by Keane, C.J., in Maguire v Ardagh  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.
In Haughey v Moriarty  3 I.R. 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 ....
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, 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, 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, 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:
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;
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 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. 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 minimal affect 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 the 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 mortgagees/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 agreed 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 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 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 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 may be 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 the same rights, if any, to appoint a receiver of 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 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, his 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 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:
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;
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
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.
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, is 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.
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.
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:-
NAMA’s statutory exemptions and powers in relation to mortgages.
The commercial consequences for a mortgagor of the transfer of a mortgage to NAMA.
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  Ch. 29, Howard v Harris  1 Vern. 190, Spurgeon v Collier  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. Ltd  A.C. 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:-
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  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  I.R. 1, Farrar v Farrars Ltd  40 Ch. D. 395. The NAMA Act section 17 provides as follows:-
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:-
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  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.
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.
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 –
it is unlikely that the sum secured by the mortgage would be recovered were the land to be sold within three months after the application, and
there is no reasonable prospect of the mortgagor redeeming the charge concerned.
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:-
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  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  6 Ir. Eq. R. 355 and In Re Edwards  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 Co  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 provides as follows:-
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  1 Ch. 213, Simmons v Montague  1 I.R. 87, Re Tahiti Cotton Company Ex p. Sargent  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  Atk. 270. The transferee is bound by such equities as would bind the transferor: Earl of Macclesfield v Fitton  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:-
Section 139 provides as follows:-
NAMA may validly transfer, assign, convey, sell on or otherwise dispose of an acquired bank asset to any person notwithstanding –
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  1 Ch 213. An improper exercise of a power of sale will be restrained by injunction: Forsyth v Blundell  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  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. E.R. 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  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 in subsection (1), subsection (2), subsection (3) and subsection (4) creates offences. These subsections provide as follows:-
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.
A person who intentionally, recklessly or through gross negligence provides false or inaccurate information to NAMA commits an offence.
A person commits an offence if the person –
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 –
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.
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 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.
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.
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.
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.
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