A seven-judge Supreme Court has begun hearing the appeal by property investor Paddy McKillen aimed at preventing the proposed transfer to the National Asset Management Agency (Nama) of some €2.1 billion loans made to himself and his companies.
That proposed acquisition would be “a commercial disaster” for Mr McKillen and was based on a total denial of his constitutional right to fair procedures, Michael Cush SC, for Mr McKillen, argued today.
While the State would argue the economic crisis justified the total abrogation of that right in the Nama Act 2009, legal cases from the McCarthy era in the United States showed the courts must guard this right “in times of calm and of trouble”, counsel said.
Counsel stressed he was urging this right only on behalf of Mr McKillen in circumstances where, unlike many others going into Nama, he was not a loan defaulter, most of his loans were performing and only a tiny percentage were land and development loans.
The Irish courts had never sanctioned a total denial of the right to fair procedures and the High Court, in dismissing Mr McKillen’s bid to stop the loan transfer, failed to properly analyse the justification for the breach of fair procedures, confusing it with the justification for breach of property rights, he added.
Mr Cush said the value of the properties on which his client's loans are secured, after the clearance of mortgages and other encumbrances, is some €200 million now. Because Nama is a “work-out vehicle”, it would seek to sell either the properties or the loans within a shorter time frame contrary to Mr McKillen’s business model of long-term investment and in breach of his constitutional rights to property, to earn a livelihood and his contractual rights with his banks.
Mr Cush was opening the appeal by Mr McKillen and 15 of his companies against the rejection by a three judge High Court last month of their challenge to the transfer to Nama of their loans with Bank of Ireland. The appeal, listed for three days, has implications for other loans held by the applicants with other participating financial institutions in Nama.
A central issue in the appeal is the fair procedures point - whether the High Court was correct in finding, under the Nama Act 2009, Mr McKillen had no right to be heard prior to the decision by Nama to acquire the loans at issue.
The appeal raises all five issues that formed the basis of Mr McKillen’s case in the High Court.
The first issue, the fair procedures argument, is a claim the McKillen appellants were entitled to be heard before any decision was made by Nama to acquire the loans on the basis such acquisition interferes with their constitutionally protected rights, including to property and to earn a livelihood.
The fair procedures issue is of “real substance and of exceptional public importance” and the factual background to the Nama decision to acquire these loans was “instructive”, it is argued. The appellants say four individuals, before Nama itself was established, decided to acquire a loan portfolio valued at €2.1 billion without any qualitative assessment of that portfolio.
Mr Cush said e-mails between various Nama board members about whether Mr McKillen should be given time to refinance facilities related to London properties showed some board members wanted the McKillen loans because they would yield a profit for Nama.
The second issue is that Nama failed to take into account relevant considerations when deciding to acquire the loans. The third issue is that the Nama decision to acquire the loans is legally flawed as it was taken prior to the agency coming into existence.
The fourth issue is a claim that the European Commission decision permitting the State to grant aid under the Nama Act imposed an obligation on Nama to only acquire loans from impaired borrowers. Mr McKillen contends he is not an impaired borrower.
The fifth issue - the Constitutional issue - raises two constitutional points. It is claimed, if Mr McKillen is correct he is entitled to fair procedures but the State is correct there is no implied entitlement to fair procedures in the Nama Act, then the relevant provisions of that Act are unconstitutional.
If there is no entitlement for Mr McKillen to be heard and if the Act permits loans to be acquired from impaired borrowers, it is argued those provisions of the Act defining “eligible bank assets” - bank assets capable of transfer to Nama - are unconstitutional.
Mr Cush contended the High Court decision contained a number of errors, including failure to properly consider the breach of Mr McKillen’s reputational rights through the proposed transfer to Nama.
Many well-informed commentators - including from the Wall Street Journal, the Financial Times and the Economist - had described Nama as a "bad bank" with 75 per cent of non-performing loans but the High Court had rejected this commentary as ill-informed, counsel said.
The High Court also failed to take into account factual matters peculiar to Mr McKillen, including the geographical spread of his property portfolios with just 26 per cent in Ireland, that only between 1 and 5 per cent of his loans are land and development loans and his €150 million rental income a year from his properties, of which 96 per cent were rented.
The High Court also ignored the fact the redemption value of his properties would be very badly affected by going into Nama, counsel said.
