Supreme Court rules NAMA must provide a hearing to loan customers before compulsory acquisition of assets.

THE SUPREME COURT

Murray C.J.

396/2010

Denham J.

Hardiman J.

Fennelly J.

Macken J.

Finnegan J.

McKechnie J.

BETWEEN:

DELLWAY INVESTMENTS LIMITED, METROSPA LIMITED,

BERKLEY PROPERTIES LTD., MAGINOTGRANTE LIMITED,

MAY PROPERTY HOLDINGS PROPERTY HOLDINGS LIMITED, SCI 20 PLACE VENDOME, DIRECTDIVIDE TRADING LIMITED,

SUBMITQUEST LIMITED,

BELFAST OFFICE PROPERTIES LIMITED,

THE FORGE LIMITED PARTNERSHIP,

FINNSBROOK INVESTMENTS LIMITED,

CONNIS PROPERTY SERVICES LIMITED,

FORMCREST CONSTRUCTION LIMIITED,

CHESTERFILED (THE PAVEMENTS) SUBSIDIARY LIMITED,

ABBEY DEVELOPMENTS LIMITED AND PATRICK MCKILLEN

APPLICANTS/APPELLANTS

AND

NATIONAL ASSET MANAGEMENT AGENCY,

IRELAND AND THE ATTORNEY GENERAL

RESPONDENTS

JUDGMENT of Mr. Justice Hardiman delivered the 12th day of April, 2011.

Background.

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.

Procedural History.

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 parties.

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 respondents.

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.

Issue.

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.

General Response.

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:

84.— (1) 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.

(2) For the avoidance of doubt, NAMA may acquire, from a participating institution, performing or non-performing eligible

bank assets.

(3) For the avoidance of doubt, NAMA may, subject to Chapter 1 of Part 7, take steps to acquire an eligible bank asset

even though the participating institution concerned has indicated in information provided to NAMA under section 80 that it

does not consider the bank asset to be an eligible bank asset and that it objects to its acquisition.

(4) Without prejudice to the generality of subsection (1), NAMA may, in deciding whether to acquire a particular eligible

bank asset, take into account—

(a) whether any security that is part of the bank asset is adequate,

(b) whether any security that is part of the bank asset has been perfected,

(c) the value of that security,

(d) whether the relevant credit facility documentation is defective or incomplete,

(e) whether the participating institution concerned or any other person has engaged in conduct concerning the

bank asset that is or could be prejudicial to the position of NAMA,

(f) whether the participating institution has complied with its contractual and legal obligations and its obligations

under this Act in relation to the bank asset, or its eligible bank assets generally,

(g) whether in NAMA’s opinion the participating institution has advanced a sufficient quantum of the credit facility

concerned,

(h) the quality of the title to any property held as security that is part of the bank asset,

(i) any applicable legal, regulatory or planning requirement that has not been complied with in relation to

development land held as security that is part of the bank asset,

(j) any association with another bank asset of a participating institution,

(k) the performance of the bank asset,

(l) any matter disclosed in any due diligence carried out by the participating institution or NAMA,

(m) the type of other eligible bank assets (whether of the participating institution or any other participating

institution) that NAMA has acquired or proposes to acquire, and whether not acquiring the particular eligible bank

asset concerned would contribute to the achievement of the purposes of this Act, and

(n) ny other matter that NAMA considers relevant.

(5) Where NAMA determines that the long-term economic value of the property comprised in the security for a credit

facility that is an eligible bank asset is less than the market value of the property, NAMA shall not acquire the bank

asset.”

______________________________

The taking of a decision under s.84(1) does not operate to vest any loan or property in NAMA. To achieve this objective

NAMA must comply with s.87 of the Act:

87.— (1) When NAMA has identified an eligible bank asset of a participating institution that NAMA proposes to acquire,

and has determined the acquisition value of that asset, NAMA shall serve on the institution a schedule (referred to in this

Act as an “ acquisition schedule”).

(2) NAMA may nominate a NAMA group entity as the entity that is to acquire a bank asset identified for acquisition.

(3) An acquisition schedule shall set out for each eligible bank asset to be acquired—

(a) a statement of the eligible bank asset and the interest to be acquired,

(b) a statement of any obligations or liabilities excluded from the acquisition,

(c) the acquisition value,

(d) details of how the acquisition value was calculated,

(e) any obligations, additional to those imposed by this Act, to be imposed on the participating institution after the

acquisition that are to take effect after the acquisition,

(f) the date of acquisition, and

(g) if the eligible bank asset is not to be acquired by NAMA itself, the NAMA group entity that will acquire it.

(4) In addition to the matters required by subsection (3), NAMA may set out in an acquisition schedule any other matter

(including any terms and conditions) that it considers necessary in the particular case.

(5) For the avoidance of doubt, an acquisition schedule may specify any number of particular eligible bank assets.

(6) For the avoidance of doubt, NAMA may serve more than one acquisition schedule on a participating institution.

(7) The date of acquisition of a designated bank asset shall be at least 28 days after the relevant acquisition schedule is

served on the participating institution concerned unless NAMA specifies a shorter period in the acquisition schedule.

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:

(1) Notwithstanding any other enactment or rule of law, a vesting order -

(a) Extinguishes the chargors [i.e. the customers] equity of redemption in the land concerned,

(b) Vests title to the land in NAMA or the NAMA group entity nominated by NAMA for that purpose,

(c) Extinguishes the interest in the land of any other chargee, and

(d) Satisfies the requirements of the Land Registration Rules, 1972 to 2008.

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 Company Limited v. Stewart [2004] 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.

Section 84

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.

Consequences of Acquisition: The Business Plan: “realising down to zero”.

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” (emphasis added).

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.” (Emphasis added)

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:-

“(i) acquiring assets from participating institutions;

(ii) 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:

Table.

Policy Decision Explanatory Memorandum

NAMA will pursue all Debt Reduction Targets

debts and debtors to the

greatest extent feasible. Year % of NAMA debt paid down

The Board sets targets

for debt reduction over 25%

its expected life. 40%

80%

95%

100%

Debtors 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).

Asset Disposals 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.

Northern NAMA will not adopt a specific policy to deal with

Ireland/UK/USA/Europe specific geographical area. Any asset/debtor activity and

management has to be in accordance with attaining the

best achievable returns. [Emphasis added]

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.” (Emphasis added)

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 …” (Emphasis added)

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 [1970] 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:

(a) “… 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.

(b) 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”. (Emphasis added)

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.

Security.

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.

Terms and renewals.

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.”

Geographical spread.

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”.

In my view this is the antithesis of the very long term, provenly successful and independent business plan adopted successfully by

Mr. McKillen for very many years, and which is described elsewhere in this judgment. It seems to me highly plausible. I have no

difficulty in regarding as plausible the statements by the appellants’ experts that an unconstrained commercial bank would continue to

deal with Mr. McKillen, roll over his loans and not seek to rely on any loan to value or similar covenant. On the other hand, it seems

more than plausible that NAMA will not do these things having regard to its statutory mandate, its business plan and its relatively

short term focus. The appellants’ experts, Professor Stiglitz and his colleagues, were not cross-examined but, even apart from that,

the case they make seems self evidently plausible, certainly sufficient to ground a real, and reasoned, apprehension that the McKillen

interests will be gravely adversely affected by acquisition by NAMA.

I do not consider that these matters are in any way answered by the fact, very often repeated by the State, that the McKillen

historic bankers were in great difficulty and could not have continued their relationship with the McKillen Companies as before. This

may well be so, but the loans are not being acquired in order to assist the McKillen interest. Indeed, according to the State, that

interest does not even arise for consideration under s.84. Accordingly, they are being acquired in the State interest, as NAMA’s

business plan amply demonstrates. It seems to me irrelevant to the issues raised by this fact to say that the banks could have sold

on the McKillen loans in any event. No doubt they could, at least in the large majority of cases, but they could not have sold the

loans to an institution with the legal characteristics, powers or mandate of NAMA because no such thing existed before December,

2009 and, apart from the statute, no such thing could have been conceived of.

If there is a point of agreement between Mr. McKillen and NAMA, it is that NAMA is not a bank. NAMA itself said on several occasions

during the hearing of the appeal that it could not accurately be described as a “bad bank”, most obviously because it is not a bank at

all. It seems to me to be of the essence of Mr. McKillen’s complaints that his loans are being taken into a statutory Company, but will

be managed by a majority privately owned “special purpose vehicle” with a mandate to recover its expenditure in a seven to ten year

time span. He says that this is the antithesis of his business plan which involves long term holdings of property. He has deployed a

good deal of expert banking and economic evidence to the effect that his loans do not create a “systemic risk”, are not impaired, and

are attractive banking assets which he would be able to extend or roll over in the ordinary course of business. All of these appear to

me to be relevant matters, which is not to say Mr. McKillen is necessarily right about them. That issue does not arise in these

proceedings.

In his affidavit Mr. McKillen sets out at some length the representations which he wished to make to NAMA. First, he wished to submit

that certain of the credit facilities are not eligible bank assets and therefore cannot be acquired. Secondly, in at least one case which

might be dubious as to whether or not it is an L & D loan, he wished to offer to refinance the relevant loan. Thirdly, he wished to

make submissions on the discretionary aspects of whether or not to acquire the loans on the basis which he indicates and fourthly he

wished to be heard on the valuation aspects of the securities underlying the individual loans.

Mr. McKillen also makes detailed complaints about NAMA’s dealings with him which suggest that they were tardy, showed no sense of

urgency, and were evasive and misleading over a six month period about whether they had decided to acquire his loans or not. The

Divisional Court has already criticised NAMA in relation to its dealings with Mr. McKillen and this aspect will be discussed elsewhere. Its

principal immediate relevance appears to be that any suggestion that extreme urgency justified a denial of Mr. McKillen’s right to be

heard seems obviously inconsistent with the dilatory actual behaviour of NAMA itself after the acquisition decision had been taken.

During the period of inaction, the fact that the acquisition decision had in fact been purportedly taken was calculatedly concealed

from him by NAMA.

“Impairment”.

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…”. (All ibid)

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.

IAS 39

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:

58. “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.

59. A financial asset or group of financial assets is impaired and impairment losses are incurred if, and only if, there is

objective evidence of impairment as a result of one or more events that occurred after the initial recognition of the asset

(“a loss event”) and that loss event or events has an impact on the estimated future cash flows of the financial asset or

group of financial assets that can be reliably estimated. It may not be possible to identify a single, discrete event that

caused the impairment. Rather the combined effect of several events may have caused the impairment. Loss is expected

as a result of future events, no matter how likely, are not recognised. Objective evidence that a financial asset or group

of assets is impaired includes observable date that comes to the attention of the holder of the asset about the following

loss events:

(a) Significant financial difficulty of the issuer or obliger (that is, the borrower):

(b) A breach of contract such as a default or delinquency in interest or principal payments;

(c) The lender for economic or legal reasons relating to the borrower’s financial difficulty, granting to the borrower a

concession that the lender would not otherwise consider;

(d) It becoming probable that the borrower will enter bankruptcy or other financial reorganisation;

(e) The disappearance of an active market for that financial asset because of financial difficulties; or

(f) Observable data indicating that there is a measurable decrease in the estimated future cash flows from a group

of financial assets since the initial recognition of those assets, though the decrease cannot yet be identified with

the individual financial assets in the group, including:

(i) Adverse changes in the payment status of borrowers in the group (e.g. an increased number of

delayed payments or an increased number of credit card borrowers who have reached their credit limit

and are paying the minimum monthly amount); or

(ii) National or local economic conditions that correlate with defaults on the assets in the group (e.g. an

increase in the unemployment rate in the geographical areas of the borrowers’, a decrease in property

prices for mortgages in the relevant area, a decrease in oil prices for loan assets to oil producers, or

adverse changes in industry conditions that affect the borrowers in the group),

60. 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.

Reputational Damage.

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.

A hearing for the Banks - but not the customers.

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”.

(Emphasis added)

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:

“(a) 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.

(b) Another consideration was the borrowers’ geographical base and the extent of his/her connection with Ireland. This

was particularly relevant in the case of some of the U.S. based exposures of AIB and BOI: most of the borrowers did not

have any connection otherwise with Ireland and typically had relatively small exposures. Accordingly, they were not

considered to be part of the systemic problem which NAMA was established to address”.

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.” (Emphasis added)

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 Khan v. Health Service Executive [2008] IEHC 234 in which, albeit in a

tone in which one detects an element of resignation, McMahon J. says:

“… 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.” (Emphasis added)

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 Limited v. Eagle Star [1995] 1 IR 526, a case challenging the withdrawal of insurance

cover without fair procedures in the form (in that case) of a statement of reasons, McCracken J. distinguished between the public

and private realms as follows:

“… 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.” (Emphasis added)

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 [1995] 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”. (Emphasis added)

Similarly, in The State (Philpott) v. Registrar of Titles [1986] 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.” (Emphasis added)

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 [1981] 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 [1997] 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.”

(Emphasis added)

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) 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 [1977]

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 [1981] 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:

‘… By Article 40.3, there is guaranteed to every citizen whose rights may be affected by decisions taken by others

the right to fair and just procedures. This means that under the Constitution powers cannot be exercised unjustly or

unfairly’.” (All emphasis added)

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 [1964] 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 [1970] IR 317, statements which are of great importance to our public law

generally were made. The case was an attack on the licensing provisions of the Livestock Mart Acts, 1967, on the ground, inter alia,

that they would enable the Minister to use his discretion in the granting or refusal of licences to limit the number of Marts in

operation. The plaintiffs were successful in their constitutional challenge in the High Court but lost on appeal on the basis that it was

to be presumed that the Minister would operate within the requirements of natural and constitutional justice, and the requirements of

the statute. The locus standi of the plaintiffs’ to bring the proceedings was very strongly challenged in the Supreme Court. The Court,

per Walsh J. rejected the contention “that no-one can maintain such an action unless he can show that not merely do the provisions

of the Act in question apply to activities in which he is currently engaged but that their application has actually affected his activities

adversely”. This was because:

“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”. (Emphasis

added)

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.” (Emphasis added)

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 [1992] 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 Limited v. Glackin [1993] 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 [1999] 3 IR 1 and, on reflection, I agree with what they say and

would adopt the portions cited by them. This case was, of course, grounded in a context quite different to the present one. The

applicants complained that a Tribunal of Inquiry had infringed their constitutional rights by addressing orders for wide ranging

discovery to a number of financial institutions with which they did business without notice to them. Hamilton C.J., in giving this

judgment of this Court said:

“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 [1985] ILRM 364, there was a very old promontory fort on a farmer’s land,

which was listed as a national monument. The farmer started to plough the land around the fort and the Commissioner of Public Works

intervened by making a preservation order. The Supreme Court rejected the contention that the farmer should have been allowed to

be heard before the order was made, O’Higgins J. stating:

“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 [2000] 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 [2002] IR 744, this Court was concerned with an interim barring order made under s.4(3) of the

Domestic Violence Act, 1996. The order was made ex parte and there was no procedure requiring the applicant for the order to bring

the matter back before the Courts. The Section was found unconstitutional, Keane C.J. saying:

“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.

(i) 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.

(ii) The scheme of the Act appears to offer no prospect of revisiting the decision with an input from the borrower

affected.

(iii) There is in the evidence of the case, no proof nor even any convincing suggestion of urgency, much less of

impossibility of performing the functions of the Act if fair procedures were granted.

(iv) Though the borrowers were granted no hearing at all the banks, according to Ms. O’Reilly, were heard in relation to

the acquisition decision and were assisted in making their case by apparently being given the criteria on which the

decision was to be made.

(v) There are in the Act various immunities and protections conferred on NAMA in respect of any form of subsequent

challenge to the acquisition decision, or any claim for compensation.

(vi) See s.84 of the Act. It is quite clear (as the State parties submitted) that the specific matters mentioned there as

being permissible to take into account on the acquisition decision are not mandatory to be considered but may be

considered at the decision takers’ discretion. But that fact does not exclude a consideration of the significance of the

matters specifically mentioned by the legislator, insofar as they bear on the nature of the decision to be taken and thus

the right to be heard. The matters mentioned, or most of them, appear to me to be inconsistent with a virtually automatic

decision such as the State contends for and to indicate an exercise which is at least in part qualitative. This appears to

me strongly to support the proposition that the person affected should be heard and should not easily be deemed to have

been excluded from the right to a hearing.

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.”

5.17 “However, independent of Mr. McKillen’s legal entitlements, the Court does wish to record that NAMA’s response to

Mr. McKillen’s correspondence was less than open and transparent. NAMA has been given significant powers by the Act.

The Court is required to consider whether those powers are constitutionally permissible and, if so, whether Mr. McKillen is

entitled to be heard in the context of the exercise of those powers. However, independent of those considerations, it is

the Court’s view that institutions vested with significant power can reasonably be expected to respond to legitimate

enquiries from those who may directly or indirectly subject to the exercise of that power, in a more open and forthright

fashion than was engaged in by NAMA in this case.” (Emphasis added)

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 [2001] 2 IR 414 (the case about deregulating the taxi industry)

are authority for the proposition that “legislature decisions, on grounds, inter alia, of practicability, have traditionally been taken not

to attract the rules of constitutional justice”, in the words of Carney J. But the decision to acquire the McKillen loans was not a

legislature decision. It was a decision of NAMA under a power conferred by the legislature.

I would therefore not deprive Mr. McKillen of the right to be heard, which I have held arises in this case, on any of the established

grounds on which that can be done.

It is trite law to say that a right to a hearing carries with it a right to notification of the proposed decision and to sufficient detailed

information, including criteria, as may be necessary to allow the person to be affected to make the best case he can against the

decision which he fears. He is also, very probably, entitled to reasons for the decision taken, if any. A finding that Mr. McKillen is

entitled to be heard in the present case naturally imports these necessary consequences of the existence of that right. I do not see

in the circumstances of the present case a positive need for an oral hearing, though NAMA’s obligations may of course be met in that

way. I would not otherwise prescribe the nature of the hearing, which will ultimately depend on the circumstances of the individual

case. The basis incidents of a hearing are well covered in familiar textbooks and well known decisions which will be familiar to NAMA’s

advisors. No argument as to the nature of the hearing to which Mr. McKillen claimed to be entitled was addressed by either side. This

was natural in view of the stark nature of NAMA’s case: that he was entitled to no hearing at all because his interests simply did not

arise.