Supreme Court allows appeal granting right to be heard before NAMA acquires mortgages under section 84 Act.

THE SUPREME COURT

396/2010

Murray C.J.

Denham J.

Hardiman J.

Fennelly J.

Macken J.

Finnegan J.

McKechnie J.

BETWEEN:

DELLWAY INVESTMENTS LIMITED, METROSPA LIMITED, BERKLEY PROPERTIES LIMITED, MAGINOTGRANGE LIMITED, MAY

PROPERTY HOLDINGS LIMITED, SCI 20 PLACE VENDOME, DIRECTDIVIDE TRADING LIMITED, SUBMITQUEST LIMITED, BELFAST

OFFICE PROPERTIES LIMITED, THE FORGE LIMITED PARTNERSHIP, FINBROOK INVESTMENTS LIMITED, CONNIS PROPERTY

SERVICES LIMITED, FORMCREST CONSTRUCTION LIMITED, CHESTERFIELD (THE PAVEMENTS) SUBSIDIARY LIMITED, ABBEY

DEVELOPMENTS LIMITED AND PATRICK McKILLEN

APPLICANTS/APPELLANTS

AND

NATIONAL ASSET MANAGEMENT AGENCY, IRELAND AND THE ATTORNEY GENERAL

RESPONDENTS

Judgment of Mr Justice Finnegan delivered on the 12th day of April 2011

I have had the benefit of reading the judgment of Fennelly J. and I agree with the same. In particular I agree that a person whose

interests are capable of being affected directly by a decision of a public body exercising statutory powers is ordinarily entitled to have

notice of the intention to consider the making of the decision and to have his representations considered by the decision maker. As to

the application of that test to the appellants’ circumstances I wish to add some comments on two aspects of the appellants’

submissions:-

1. NAMA’s statutory exemptions and powers in relation to mortgages.

2. The commercial consequences for a mortgagor of the transfer of a mortgage to NAMA.

The appellants submit that their property rights and interests are altered to their detriment by the transfer of its mortgages from a

bank to NAMA and that in consequence they have a constitutional right to due process in the form of a right to be heard before a

decision to acquire under section 84 of the NAMA Act is made. I do not propose to deal with the transfer of other securities such as

guarantees held by a bank or, having regard to section 87(3)(b) of the NAMA Act, the exclusion and non-transfer of some of a bank’s

obligations or liabilities.

NAMA’S Statutory Exemptions and Powers in relation to Mortgages

The equity of redemption

The NAMA Act confers exemptions and powers on NAMA which distinguish it from any other mortgagee and which affect a mortgagor.

A mortgagor’s interest in the mortgaged property is the equity of redemption, the right at any time to redeem the mortgage. The right

exists at any time during the term of the mortgage, and after the expiration of the mortgage term at any time up to the realisation of

the security by the mortgagee entering into an enforceable contract for sale under the power of sale. It is a valuable interest in

property and may be sold or mortgaged by way of a second or subsequent mortgage. Any express stipulation in a mortgage which is

inconsistent with the right of redemption is void. A mortgage may not be made irredeemable, nor can the right to redeem be limited to

particular persons or to a particular period: Re: Wells [1933] Ch. 29, Howard v Harris [1683] 1 Vern. 190, Spurgeon v Collier [1785] 1

Eden. 55. If the mortgage gives the mortgagee an option to purchase that term is void even if it is not oppressive to the mortgagor:

Samuel v Jarrow Timber and Wood Paving Corp. Limited [1904] A.C. 323.

Conveyancing Act 1881 and Land and Conveyancing Law Reform Act 2009

The Conveyancing Act 1881 and the Land and Conveyancing Law Reform Act 2009 (LCLR Act) both affect the relationship of

mortgagor and mortgagee. The LCLR Act largely repealed the Conveyancing Act 1881 so far as the same related to mortgages but

where it did so largely re-enacted the same. Part IV of the 1881 Act deals with mortgages in sections 15 to 29 inclusive: all except

section 25 were repealed by the LCLR Act. As the LCLR Act came into force on the 1st December 2009 and so predated the NAMA

Act which came into force on the 21st December 2009 it is only necessary to consider the position of mortgagor and mortgagee under

the LCLR Act. The LCLR Act deals with mortgages in sections 89 to 114 inclusive and for the most part these sections are a

restatement of the position under the Conveyancing Acts. Of these, sections 96 to 101 inclusive, with the exception of section 103,

have application only where they are not excluded by the terms of the mortgage. A professionally drafted commercial mortgage will

invariably exclude the provisions of the LCLR Act where this is permitted and this has been the almost invariable practice in relation to

the provisions of the Conveyancing Acts.

The LCLR Act section 103 is significant: it provides as follows:-

“103(1) In the exercise of the power of sale conferred by this Chapter or any express power of sale, the mortgagee, or

any receiver or other person appointed by the mortgagee, shall, notwithstanding any stipulation to the contrary in the

mortgage, ensure as far as is reasonably practicable that the mortgaged property is sold at the best price reasonably

obtainable.”

For present purposes I am prepared to assume that section 103 should be read as imposing a duty rather than a restriction on a

mortgagee and so is unaffected in its application to NAMA by section 103 of the NAMA Act. The section has effect notwithstanding

any stipulation in the mortgage.

Quite apart from this provision a mortgagee in exercising a power of sale has a duty to act in good faith: Kennedy v DeTrafford

[1896] 1 Ch. 762. In addition the mortgagee is under a duty of care to the mortgagor to act with reasonable care: Holohan v Friends

Provident and Century Life [1966] I.R. 1, Farrar v Farrars Limited [1889] 40 Ch. D. 395. The NAMA Act section 17 provides as

follows:-

“17 Without prejudice to any defence otherwise available to, or immunity otherwise enjoyed at law by NAMA, a NAMA

group entity or a person specified in section 34(1), no action for damages shall lie against NAMA, a NAMA group entity or

such a person in respect of or arising out of the performance or non-performance in good faith of any of the functions

provided for in Parts 4, 5 and 6 or in respect of any decision made in good faith to perform or not to perform any of the

functions provided for in Parts 8 and 9.”

Part 4 relates to the designation of credit institutions for the purposes of the Act, Part 5 provides for the valuation methodology, and

Part 8 relates to the relationship between NAMA and participating institutions, none of which bear upon the relationship of mortgagor

and mortgagee. Parts 6 and 9, however, do bear on that relationship and in particular on the mortgagee’s duty of care in exercising

the power of sale. Should NAMA exercise its power of sale in breach of duty to the mortgagor, in any action for damages it will have

available to it a defence of having acted in good faith that defence not being available to other mortgagees.

The remedies of a mortgagor to claim relief in respect of a breach of the duty of care are further restricted by the provisions of Part

10 of the NAMA Act in sections 182 and 192 limiting the court’s power to grant injunctive relief.

In addition the provisions of section 146 of the NAMA Act are relevant. Section 146 provides as follows:-

“Section 146. The enforcement of a security by NAMA is not subject to the restrictions in the Conveyancing Act 1881 or

the Land and Conveyancing Law Reform Act 2009.”

The LCLR Act imposes restrictions on a mortgagee in sections 96(1)(c), 97(1) 99,100 (2.) and 108. Thus under section 96(1)(c) the

powers and rights of a mortgagee under Part 10 do not become exercisable unless their exercise is for the purpose of protecting the

mortgaged property or realising the mortgagee’s security. Under section 97(1) a mortgagee may not take possession of the mortgaged

property without a court order or the consent in writing of the mortgagor. Prior to the enactment of section 97 a mortgagee could

take possession without a court order or consent if it could do so peaceably: Gale v First National Building Society [1985] I.R. 609.

The right was very rarely exercised. NAMA, unlike any other mortgagee, retains a right to take possession peaceably. Section 99

requires a mortgagee in possession, or after a receiver has been appointed a receiver, to take steps within a reasonable time to

exercise the power of sale, or if it is not appropriate to sell, to lease the property. Section 100 requires the mortgagee to give notice

to the mortgagor prior to exercise of the power of sale and section 108 requires notice prior to exercise of the power to appoint a

receiver. As these sections may be excluded by the mortgaged terms and will frequently be so excluded, and as the court has no

knowledge of the terms of the appellants’ mortgages, it is not possible to say whether or not the release of NAMA from the operation

of the sections will in fact affect the appellants.

In addition NAMA enjoys powers not enjoyed by any other mortgagee and these are contained in Part 9 of the NAMA Act. Some of

these impinge on the relationship between mortgagor and mortgagee. A receiver appointed by NAMA will not be obliged to sell the

property at any particular time: section 145. Part 10 chapter 3 provides for the appointment of a receiver by NAMA: such receiver

has wide powers beyond those available to a receiver appointed by the court under the Companies Acts and may exceed those

conferred by the mortgage. Section 148(4) provides that a statutory receiver appointed by NAMA is not subject to the restrictions on

the powers of a receiver under the Conveyancing Act 1881 or the LCLR Act and so the receiver on exercising a power of sale has the

same advantages as NAMA. As with the power of sale of a mortgagee, the receiver’s power of sale is not subject to the restriction in

section 100(2) of LCLR Act whereby the same can not be exercised without a court order. He may take possession peaceably without

a court order. He may delay a sale. The effect of these provisions of the NAMA Act on a mortgagor will depend on the terms of the

mortgage but are potentially significant.

Having regard to the foregoing I am satisfied that the appellants equity of redemption is capable of being affected by a decision to

acquire by NAMA under section 84 of the NAMA Act.

NAMA Act

The appellants draw attention to a number of provisions in the NAMA Act which place NAMA in a position different to that of any

other mortgagee, the more significant provisions being those contained in Part 9 Chapter 4 and sections 103, 101, 139 and 7.

Part 9 Chapter 4. Vesting Orders

Section 152 provides as follows

“152(1) NAMA may apply to the court for a vesting order if –

(a) an acquired bank asset includes a charge over land;

(b) the chargee’s power of sale has become exercisable, and

(c) NAMA forms the view that it is unlikely that the sum secured by the charge can be recovered by a sale within

three months after the application.”

The remainder of section 152 deals with the procedure for an application for a vesting order. Section 153 provides that the court shall

make a vesting order if it is satisfied that –

(a) it is unlikely that the sum secured by the mortgage would be recovered were the land to be sold within three months

after the application, and

(b) there is no reasonable prospect of the mortgagor redeeming the charge concerned.

Further if a vesting order is made the court shall determine the amount likely to be raised were the land to be sold within three

months after the application and shall make an order for possession of the land in favour of NAMA. Section 154 is concerned with

other mortgages on the land and which are prior to or rank equally with NAMA’s mortgage. Section 155(1) provides as follows so far

as a mortgagor is concerned:-

“155(1) Notwithstanding any other enactment or rule of law, a vesting order –

(a) extinguishes the chargors equity of redemption in the land concerned,

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

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

(d) satisfies the requirements of the land registration rules 1972 to 2008.”

The section further provides that the extinguishing of a mortgage does not extinguish the debt secured by the same, that the debt of

the mortgagee secured by the mortgage shall be reduced by the value fixed by the court pursuant to section 154 and that the

making of a vesting order does not impose on NAMA any obligation to sell the land within any particular period or at all.

Thus in circumstances where a mortgagee’s power of sale has arisen NAMA has an additional power which enables it to apply to the

court for a vesting order with an obligation upon the court to make such an order provided it is satisfied on the two conditions set out

in section 153. The effect of a vesting order is that NAMA obtains the land and the mortgage debt is reduced by the value of the land

as ascertained by the court. NAMA may retain the land and is under no obligation to sell the same with the effect that NAMA obtains

the benefit of any uplift in value in the lands and the income stream produced by the lands. The mortgagor derives no benefit from

that uplift in value or the income stream by way of reduction of his liability on foot of the mortgage after the making of a the vesting

order. In contrast to this if the power of sale should be exercised the mortgagee would obtain the benefit of any uplift in the period

between the exercise of the power of sale and the completion of an agreement for sale entered into pursuant to an order for sale and

also the benefit of the income stream during the same period. That benefit would, of course, be reduced by additional interest falling

due during the period between the order for sale and the completion of the agreement for sale.

A number of factors are relevant to the appellants’ position should a vesting order be made. It is not in dispute that as little as two

and a half per cent and no more than five per cent of the appellants’ mortgages relate to development land as defined in the NAMA

Act. The remainder of the mortgages relate to a portfolio of properties with a current value between €1.7bn and €2.28bn, the loans

on which in favour of Irish banks who are participating institutions in NAMA amount to approximately €2.1bn. All interest payments due

under the loans have been paid to date. At current interest rates and in current conditions the portfolio produces sufficient income to

meet all interest payments due. The portfolio consists of approximately sixty two properties comprising shopping centres, hotels and

offices. The total income generated by the portfolio is of the order of €150m. per annum. The properties are ninety six per cent let

and in most cases the lettings are to “blue chip tenants on long leases predominantly with a twenty five year duration”. The rental

income affords somewhere between 1.7 and 1.8 times cover for the interest payable at current interest rates. Having regard to the

foregoing to avail of a vesting order will afford a significant benefit to NAMA over the alternative of exercising its power of sale or its

power to appoint a receiver. Should the latter course be adopted the benefit of any uplift in value and the income stream would

accrue to the appellants and not to NAMA.

As the development land mortgages represent such a small proportion of the appellants’ liability on foot of mortgages the prudent

commercial course for the appellants would be to redeem the development land mortgages in which case their indebtedness would fall

outside the NAMA scheme. However, NAMA, in common with all other mortgagees (other than housing loan mortgagees) have a right

to consolidate mortgages: (see LCLRA section 92). NAMA exercising that right can refuse to allow a mortgage to be discharged

without all other mortgages held by NAMA being discharged including mortgages to other participating financial institutions which are

acquired by NAMA. A mortgagee other than NAMA can only consolidate all mortgages held by it as mortgagor.

The relief available to NAMA bears comparison with the now obsolete relief of foreclosure. By 1988 in the United Kingdom foreclosure

was rarely sought: Fisher and Lightwood’s Law of Mortgage 10th edition. In Land Law in Ireland, Lyall, the remedy of foreclosure is

said never to be granted in Ireland although the jurisdiction to do so existed until the commencement of the LCLR Act section 96

which abolished the same. Bruce v Brophy [1906] 1 I.R. 611 refers to the settled practice of the courts in Ireland for centuries of

decreeing a sale and not foreclosure. See also Clinton v Bernard [1844] 6 Ir. Eq. R. 355 and In Re Edwards [1861] 11 Ir. Ch. R. 367.

Foreclosure has not been granted in Ireland for well over a century. The attitude of the courts both in Ireland and England from the

early seventeenth century was that a mortgage provided security for a sum of money and interest and should not yield a profit to the

mortgagee over and above the sum due to the mortgagee and for this reason the courts preferred to make an order for sale rather

than an order for foreclosure.

The provisions of Part 9 Chapter 4 of the NAMA Act are even more disadvantageous to a mortgagor than foreclosure. The court has

no power to make an order for sale in lieu. There were circumstances in which foreclosure could be reopened. Where within a

reasonable time after foreclosure the mortgagor is in a position to redeem the foreclosure could be reopened. Again foreclosure could

be reopened where the mortgagee sold the lands shortly after obtaining the order. If after foreclosure the mortgagee, claiming that

the property is insufficient to satisfy the mortgaged debt, sued the mortgagor on his covenant for payment the foreclosure was

reopened and the mortgagor became entitled to redeem. If the mortgagee sold the property he could not sue the mortgagor or a

guarantor of the mortgagor’s covenant. A mortgagor in respect of whom a vesting order is made is accordingly in a worse position

than a mortgagor against whom a foreclosure order was made. The mortgagor, notwithstanding any increase in value of the land in

the hands of the mortgagee, and the receipt of an income stream by the mortgagee, can still be sued on his covenant. If a sale by

the mortgagee after a vesting order is made achieves a price which together with the income stream enjoyed exceeds the liability on

the mortgage the mortgagor still remains liable to be sued on his covenant for the excess of the mortgage debt over the valuation

fixed by the court.

A mortgagee may not purchase lands on a sale of the same under a mortgagee’s power of sale or a court order for sale: National Bank

of Australasia v United Hand-in-Hand and Band of Hope Company [1879] 4 A.C. 391. A vesting order puts NAMA in the position to

effectively do this.

The courts of equity regarded foreclosure orders as oppressive of mortgagors, a view with which it seems the legislature concurs

having abolished the remedy. For the reasons which I have mentioned the making of a vesting order is even more oppressive. It is no

answer that the mortgagor whether on the exercise of a power of sale or on the making of a vesting order gets the benefit of the

market value of the lands and so is not adversely affected by the additional power conferred upon NAMA. This is not so. The

availability of a vesting order enables NAMA to proceed in a manner in which a prudent mortgagee in its own interest would not. A

prudent mortgagee with a mortgagor in the appellants position as to the value of the mortgaged land and as to the excess of the

income stream over liability for interest would have a strong incentive not to exercise a power of sale but to appoint a receiver and

delay a sale to abide an expected improvement in land values and in the interim obtain the benefit of the income stream in

satisfaction of interest as it falls due with the excess going towards reduction of capital. NAMA has no incentive to do this and on the

contrary has the incentive to avail of a vesting order. Having regard to NAMA’s Business Plan it is more than a mere possibility that

NAMA would exercise its right to obtain a vesting order.

The European Commission decision on the establishment of a National Asset Management Agency of 26th February 2007 at paragraph

127 provides as follows:-

“The Commission notes, however, that a number of powers, rights and exemptions are granted to NAMA for the

management of the assets post-acquisition with a view to help the agency achieve the maximum recovery value for the

assets. Such powers, in particular, when they are specific to NAMA and not available to market operators are potential

sources of competition distortions. In its assessment the Commission has in particular focussed on those specific powers

which it considers to be potentially more distortive. For those the Commissioners asked commitments from the Irish

authorities as follows:-

1. Power to make an order vesting in NAMA the interest in land concerned of a chargor (sections 152 to 156) of the

Act. This remedy would allow NAMA to hold the land concerned rather than putting it up for sale immediately and

then would avoid flooding the market with fire sales. The Commission recognises that the ability to work out a loan

and its security over a longer time horizon is central to the valuation process of the asset and in line with

requirements of the Impaired Assets Communication.”

Thus the objective of providing NAMA with power to obtain a vesting order is to enable NAMA to hold land rather than putting it up for

sale immediately and thereby avoid flooding market with fire sales. A prudent mortgagee would share this objective, but the only

manner in which it could be achieved is by appointing a receiver. I have already adverted to the difference in consequences for a

mortgagor between the appointment of a receiver and the making of a vesting order.

I am satisfied that the availability to NAMA of a vesting order is capable of affecting a mortgagor’s interests in a manner which will

attract a right to fair procedures.

Section 103

Section 103 provides as follows:-

“103. No cause of action lies or is maintainable against NAMA or any NAMA group entity by reason solely of the acquisition

of a bank asset by NAMA or a NAMA group entity.”

Mortgages are freely transferable: Turner v Smith [1901] 1 Ch. 213, Simmons v Montague [1909] 1 I.R. 87, Re Tahiti Cotton

Company Ex p. Sargent [1874] L.R. 17 Eq. 273. The concurrence of the mortgagor is not required. The acquisition of a mortgage does

not give rise to a cause of action against the mortgagee or the transferee of the mortgage. Historically mortgages were a major

investment vehicle and free transferability was important. Before the emergence of modern stock exchanges the only other secure

investments available were government securities and Consols. Less secure investments were shares in joint stock companies

engaged in banking, canals, railways and gas and lighting companies. Mortgages were bought and sold regularly: thus the Trustee Act

1893 section 5 provided that, unless expressly forbidden by the trust, trustees were authorised to invest in mortgages of long leases

and of real securities. In more recent times banks created securitised mortgage investments and bundles of mortgages which were

sold to investors such as insurance companies, pension funds and hedge funds. I know of no case which restricts the right of

transfer, and none has been cited to the court, so that a mortgagee may not sell to whomever he may wish. That the transferee

might have a different business model to a bank, for example a hedge fund, did not confer any right in the mortgagor to object to the

transfer. A corollary of this is that a transferee of a mortgage equally enjoys freedom to acquire.

However NAMA acquires a mortgage not by virtue of it being freely transferable but by virtue of NAMA’s power to compulsorily

acquire. On a transfer by a mortgagee the transferee steps into the shoes of the transferor and cannot stand in a better position

than the transferor: Ashenhurst v James [1745] Atk. 270. The transferee is bound by such equities as would bind the transferor: Earl

of Macclesfield v Fitton [1683] 1 Vern. 168. This is not the position on a transfer to NAMA which enjoys immunities and rights in

addition to those enjoyed by the mortgagee. For this reason I am satisfied that a decision by NAMA under section 84 of the NAMA Act

will trigger a right to be heard.

In addition there was evidence before the divisional court that the mere circumstance of the acquisition by NAMA will affect the value

of the underlying asset.

Section 101 and section 139.

Section 101 provides as follows:-

“101(1) If in relation to a bank asset that NAMA or a NAMA group entity has acquired-

(a) it is alleged that a representation was made to, consent was given to, an undertaking was given to, or any

other obligation was undertaken (by agreement or otherwise) in favour of, the debtor or another person by the

participating institution from which the bank asset was acquired or by some person acting or claiming to act on its

behalf,

(b) no such representation, consent, undertaking or obligation was disclosed to NAMA in writing, before the service

on the participating institution of the relevant acquisition schedule,

(c) the records of the participating institution do not contain a note or memorandum in writing of the terms of any

such representation, consent, undertaking or obligation or do not contain a record of any consideration paid in

relation to any such representation, undertaking or obligation, and

(d) the representation, consent, undertaking or obligation, if made, given or undertaken would affect the creditors’

rights in relation to the bank asset,

then the representation, consent, undertaking or obligation -

(i) is not enforceable, and cannot be relied on, by the debtor or any other person against NAMA or the NAMA group

entity;

(ii) is enforceable and can be relied on, by the debtor, or any other person, if at all, only against a person other

than NAMA or a NAMA group entity, and

(iii) is not enforceable and cannot be relied on, by NAMA or the NAMA group entity against the debtor.

(2) A claim based on a representation, consent, undertaking or obligation referred to in subsection (1) gives rise only to a

remedy in damages or other relief that does not in any way affect the bank asset, its acquisition, or the interest of NAMA

or the NAMA group entity or (for the avoidance of doubt) any property the subject of any security that is part of such a

bank asset.

(3) The court shall not make an order under section 182 in relation to a claim to enforce a representation, undertaking or

obligation referred to in subsection (1).”

Section 139 provides as follows:-

“139 NAMA may validly transfer, assign, convey, sell on or otherwise dispose of an acquired bank asset to any person

notwithstanding –

(a) any restrictions on such a disposal at law or in equity.

(b) any contractual requirement, or any requirement under any enactment, for the consent of, for notice to, or for

a document from any person to such a disposal, or

(c) any provision of any enactment that would otherwise prohibit or restrict such a disposal.”

Under the general law a transferee of a mortgage will take subject to equities and so subject to any such representation, consent,

undertaking or obligation referred to in section 101: Turner v Smith [1901] 1 Ch 213. An improper exercise of a power of sale will be

restrained by injunction: Forsyth v Blundell [1973] 129 C.L.R. 477. The effect of section 101 is that where NAMA is not on notice of a

representation, consent, undertaking or obligation no action lies against NAMA but an action lies against the mortgagee. If NAMA is on

notice it will take subject to the same but injunctive relief which would affect NAMA is not available to the mortgagor. The

mortgagor’s only relief will be in damages. Even if on notice NAMA may avail of section 87(3)(b) to avoid being liable in damages. As

the NAMA Act is part of a scheme of State support for financial institutions the ability of a bank mortgagee to satisfy a claim in

damages is not in issue. The mortgagor, however, is denied the availability of an injunction to enforce the representation, consent,

undertaking or obligation which would affect NAMA, that is an injunction against the bank, NAMA or a purchaser from NAMA.

The appellants have not identified any representation, consent, undertaking or obligation as affecting any of their mortgages. Should

any such exist I consider it unlikely that the existence would not be disclosed to NAMA having regard to the provisions of sections 81,

82 and 83 of the NAMA Act and the consequences of failure to disclose such information under section 7. Such an extremely

significant collateral agreement is unlikely to be unrecorded in the banks records or in the mortgage itself. However if the situation

should arise that NAMA acquired a mortgage without notice a significant consequence for the mortgagee is the non-availability of an

injunction. The courts regard interests in land differently to interests in personality and, in general, damages are not considered to be

an adequate remedy. It was for this reason that courts of equity developed the remedy of specific performance: Adderley v Dixon

[1824] 1 Sim & St 607. Likewise a mortgagor can always obtain an injunction to restrain a mortgagee from wrongfully exercising his

rights: Kerr on Injunctions 6th ed. @ pp 523-532.

Thus while the appellants have not identified an actual restriction on their rights arising under the section there is a potential for a

restriction of a mortgagor’s rights as if no notice is given to a mortgagor of the intention to exercise powers under section 84 and

there is no opportunity to be heard, by the time a mortgagor becomes aware of the acquisition of its mortgage by NAMA it will be too

late to put NAMA on notice of any equities coming within the section. A right to be heard would enable a mortgagor to ensure that

NAMA had notice of any matter coming within the section prior to acquisition. Accordingly I am satisfied that mortgagors in general

are potentially affected by the section to a sufficient extent to give rise to a right to be heard.

I have linked sections 101 and 139 for this reason. In its submissions on section 139 the appellants claimed affectation of their

interests as follows. If a facility letter referable to a loan acquired by NAMA obliged the bank not to assign the loan without notice to

and/or consultation with and/or the consent of the borrower, NAMA would not be required to give such notice or to consult with the

borrower or to obtain the consent of the borrower.

Such a term is enforceable against a mortgagee by injunction: Quenell v Maltby 1979 1 All. E.R. 568. However having regard to the

provisions of section 101(2) an injunction is not available against NAMA upon the transfer to it of the mortgage.

Such a provision, it is submitted on behalf of the appellant, would fall within section 139(b) as a contractual requirement. Section

139(b) must be read in conjunction with section 101. Section 101 is concerned with representations, consents, undertakings and

obligations between the mortgagee and mortgagor and the mortgagee and a guarantor or other third party. If NAMA had notice of the

same within the terms of section 101 they will continue to affect NAMA; if NAMA had no notice of the same then while NAMA will take

free of the same the mortgagee remains liable on foot of the same. Section 139 on the other hand is concerned with the disposal by

NAMA of mortgaged land and not with the acquisition of the loan by NAMA. It is directed to the rights of third parties rather than the

rights of the mortgagor or a guarantor which are dealt with in section 101. However this section presents difficulties of interpretation.

The breadth of the section makes it difficult to envisage circumstances in which it may have application. Section 139(a) could apply

where land is held for charitable purposes or otherwise on trust limiting its use to a particular purpose or, as in First National

Securities Ltd v Chiltern District Council [1975] 3 All E.R. 766, is held subject to a right of first refusal or pre-emption. Section 139(b)

would have application to a leasehold interest. The terms of the lease may restrict the lessee’s right to assign or change use without

the lessor’s consent. An example of a requirement under an enactment for consent is section 12 of the Land Act 1965 where consent

of the Department of Agriculture is required. The Land Act 1965 section 45 as formerly operated would be an example of a restriction

or prohibition within section 139(b). In short section 139 is directed to making land more freely transferable and in general the effect

will be to enhance the value of the land when NAMA’s power of sale is exercised. The view I take of section 139 is that it is unlikely

adversely to affect the interest of a mortgagee. However the effect of the section must await its interpretation by the courts where

this arises as an issue.

Section 7

Section 7 in subsection (1), subsection (2), subsection (3) and subsection (4) creates offences. These subsections

provide as follows:-

“(1) A person on whom an obligation is imposed by or under section 202(2) and who intentionally does not comply with

the obligation commits an offence.

(2) A person who intentionally, recklessly or through gross negligence provides false or inaccurate information to NAMA

commits an offence.

(3) A person commits an offence if the person –

(a) intentionally withholds information from NAMA in breach of an obligation to provide that information imposed by

or under this Act, and

(b) does so with the intention of having a material impact upon –

(i) the manner in which NAMA deals with a bank asset;

(ii) a decision by NAMA to refrain from dealing with a bank asset, or

(iii) the value that NAMA determines for a bank asset.

(4) A person who intentionally withholds information from NAMA in breach of an obligation to provide that information

imposed under this Act commits an offence if the withholding of the information has a material impact upon –

(a) the manner in which NAMA deals with the bank asset;

(b) a decision by NAMA to refrain from dealing with a bank asset, or

(c) the value which NAMA determines for a bank asset.”

The appellants submit that the transfer of their mortgages to NAMA exposes them to criminal sanctions in circumstances where they

would not otherwise be so exposed.

Section 202(2) of the NAMA Act does not apply to mortgagors and so the appellants are not affected by subsection (1). Subsections

(3) and (4) only apply to persons acting in breach of an obligation under the NAMA Act to provide information to NAMA. No such

obligation is imposed by the Act on mortgagors. Employees of NAMA, contractors to NAMA such as valuers or accountants and

participating institutions and their employees are all potentially affected by these subsections. The only obligation to furnish

information imposed by the Act on mortgagors arises under section 83, but that obligation is to provide information not to NAMA, but

to the mortgagee. The penalty provided by the section for a breach of the obligation is that it will result in a liability to damages to

the mortgagee. The section also provides for an application to the court to compel the furnishing of information. Under section 83 (3)

the mortgagee may apply to the court for an order directing compliance with a request for information, with the consequences that

will normally flow from a breach of such an order.

Subsection (2), however, is of general application and so applies to a mortgagor. To suggest that a right exists to act in a manner

which contravenes subsection (2) does not find favour with me. To so act must in many cases lead to consequences under the civil

law and indeed under the criminal law. To require its citizens to act honestly under criminal sanction is a legitimate function of the

State and to so require per se will not amount to an interference with a constitutional right. I accept that the subsection exposes

mortgagors, and society in general, to criminal sanctions and that criminal sanctions might not attach to similar conduct in relation to

a mortgagee. The argument that one should be entitled to, that is have a right to, engage in the conduct criminalised by section 7(2)

in dealing with NAMA or with a mortgagee in volunteering information is not an argument which should find favour with the court. I am

not satisfied that section 7 affects the appellants in a manner such as to give rise to a right to be heard.

Approach to the Statutory Provisions.

In dealing with the statutory provisions relied upon by the appellant I must not be taken to have definitively interpreted the same.

The interpretation of the provisions must await cases in which they arise as an issue inter partes. I have considered the statutory

provisions only insofar as they have the potential to affect the appellants.

Summary

The provisions of the NAMA Act contained in Part 9 Chapter 4 and section 103 directly affect the rights and interests of the

appellants. The provisions of sections 101 and 139 are capable of directly affecting such rights and interests. For that reason the

appellants are entitled to have notice of the intention to make a decision under section 84 of the NAMA Act and to have their

representations considered by NAMA before a decision under section 84 is made.

The commercial consequences for a mortgagor of the transfer of a mortgage to NAMA

The relationship between the appellants and their lenders.

Both in the High Court and before this court there was discussion as to whether the appellants loans are performing or non-performing

or impaired or not. In summary the appellants contend that they are solvent, that the total of their indebtedness secured on land

exceeds the total amount of the loans and that income generated by the lands comfortably exceeds the interest payments on the

loans. The loans are interest only loans and are mostly short term. However the due date on some loans has passed. Some loans are

subject to a condition that a specified loan to value ratio be maintained and the appellants are in some cases in breach of that

condition. Nonetheless the mortgagors have not sought to exercise their rights exercisable as mortgagee where by reason of the due

date having passed the principal is overdue. Neither have they invoked their rights under the loan to value conditions: the nature of

such rights depends on the terms of the loan and mortgage and may vary, but usually will enable the mortgagee to require the

mortgagor to reduce the amount of the loan to bring the loan into compliance with the required ratio and on default by the mortgagor

to call in the loan.

Having regard to the foregoing it seems to me irrelevant whether or not any loans are impaired or performing or not. The appellants’

position is that there has been forbearance by their mortgagees. There is no guarantee that this will continue. The mortgagees will

consult their own interest. They may see a commercial benefit in continuing a business relationship with the appellants. They may

prefer not to enforce their security now causing losses to crystallise if they foresee that by holding their hand to await an upturn in

the property market the losses will be smaller on a later crystallisation or indeed may foresee that there will be no losses at all having

regard to the circumstance that interest payments continue to be met. The appellants are at risk or, as it was put by the High Court,

there is a prospect of impairment. Nonetheless the appellants have reason for some hope that their lenders will hold their hand.

The significance of the appellants’ mortgagees forbearing is that it supports by concrete example the expert evidence adduced on

behalf of the appellants as to how a bank can be expected to act in relation to debtors in the appellants’ position.

The relationship between the appellants and NAMA.

If only because of the availability to NAMA of a vesting order there is no incentive to NAMA to adopt a wait and see approach and

forbear in the exercise of its rights where any of the appellants’ loans are overdue for repayment or in breach of a required loan to

value ratio. Where a mortgagee forebears the mortgagor will obtain the benefit of any uplift in value and of the income stream. NAMA

by obtaining a vesting order can for itself obtain that benefit. It can achieve the effect of purchasing the lands at a mortgagee’s sale,

something which a mortgagee cannot do. Thus the incentive for NAMA is to exercise its rights in the event of default and particularly

so where the income stream significantly exceeds the interest requirement. The exercise by NAMA of its rights as mortgagee on even

one loan having regard to the right to consolidate all mortgages held by NAMA as security for all loans to the appellants compulsorily

acquired by NAMA would have catastrophic consequences for the appellants’ entire business. NAMA could refuse to allow the loan in

default to be redeemed and the default could trigger defaults on other loans by virtue of their connection with the loan in default

through cross-guarantees or other mortgage terms.

NAMA is not a bank. While a bank may transfer a mortgage to whomsoever it wishes such a transfer would not enhance the rights of

the transferee of the mortgage or diminish those of the mortgagor. The acquisition of a loan by NAMA has both these effects. In

addition the relationship which previously existed between mortgagor and mortgagee is altered. The objective of a mortgagee and any

transferee will be to recover the amount due on foot of the mortgage and no more. A mortgagee will not make a profit beyond that.

NAMA has by virtue of its powers to obtain a vesting order the possibility of making a profit. However as has been made clear by

public statements by the chairman of NAMA the objective of NAMA is different:-

“to recover for the taxpayer whatever it has paid for the loans”.

In many cases the amount paid by NAMA this will be less than the amount secured by the mortgage and in some cases substantially

so. As NAMA’s exposure on a particular loan may well be substantially below that of the mortgagee from whom the loan has been

acquired the point in time at which it becomes commercially advantageous for NAMA to exercise its rights as mortgagee will arise

when the current market value of the lands approximates to or exceeds the amount paid by NAMA for the loan rather than when it

approximates to or exceeds the amount of the loan. A mortgagee is not under any obligation to postpone a sale in order to obtain a

better price: Kennedy v De Trafford.

The right to obtain a vesting order puts NAMA in a unique position. Where a mortgagee forebears in its own commercial interests the

mortgagor obtains the benefit of the advance in market value of the land and the income stream. Where a vesting order is obtained

the benefit will be obtained by NAMA. Even if NAMA decides to forebear and not to obtain a vesting order it is probable that a lesser

advance in the market value of mortgaged land will make it commercially advantageous for NAMA to exercise its rights as mortgagee

and recover the amount paid by it to acquire the loans.

I am satisfied that these differences between a bank and NAMA and their effect upon the appellants position are such that the

acquisition of the appellants’ loans by NAMA is capable of directly affecting the interests of the appellants and so entitles the

appellants to a right to be heard.

Summary

For the reasons hereinbefore set out I am satisfied the differences between the appellants commercial relationship with their bankers

and the relationship with NAMA adversely affects the appellants in a manner sufficient to give rise to a right to be heard.

CONCLUSION

I am satisfied that the provisions of the NAMA Act affect the appellants’ property rights and their equity of redemption. I am satisfied

that the differences which I have identified between NAMA, having regard to NAMA’s exemptions and powers conferred by Statute,

and any other mortgagee is such as to directly affect the property rights and interests of the appellants where I have so indicated. I

am satisfied that the effect of a transfer of mortgages to NAMA on the appellants’ relationship with their bank is such as to affect the

appellants’ interests. In consequence the appellants have a right to be heard before a decision is made by NAMA under section 84 of

the NAMA Act.

Disposition

I would allow the appeal on the ground that the appellants have a right to be heard prior to a decision being made to acquire the

appellants’ loans under section 84 of the NAMA Act.