Agency's bid to acquire loans worth €211m a total abrogation of rights, says developer

A LEGAL action by property investor Paddy McKillen with crucial implications for the work of the National Asset Management Agency (Nama) has opened before the High Court.

The court heard a claim that Nama’s decision to acquire €211 million worth of loans from Bank of Ireland to Mr McKillen involved a “total” and “unprecedented” abrogation of his rights.

Mr McKillen claims there is no basis for Nama’s view the total exposure of himself and his companies of some €2.1 billion through loans from the five participating institutions in Nama represents a “systemic risk” to Irish banking, justifying the loans’ acquisition.

He claims his loans are fully performing, unimpaired and he is meeting interest repayments.

With 15 of his companies, he has brought judicial review proceedings claiming the Bank of Ireland loans acquisition is unjustified, unfair, breaches his constitutional rights to property and fair procedures and breaches the February 2010 European Commission decision approving the establishment of Nama on grounds that the decision relates to acquisition of loans from “impaired” borrowers.

He also argues the link with Nama, which he describes as a “bad bank”, means serious adverse effects for him personally and his business interests.

Nama was set up by the Government last year to remove the most toxic loans from the banks. It is acquiring land and development loans and associated investment property and other loans totalling €73 billion from five banks: Anglo Irish Bank, Allied Irish Banks, Bank of Ireland, Irish Nationwide Building Society and the Educational Building Society.

The case opened yesterday before a divisional High Court consisting of the president of the High Court, Mr Justice Nicholas Kearns, Mr Justice Peter Kelly and Mr Justice Frank Clarke. The importance attached to the case by the State was underlined by Attorney General Paul Gallagher, heading the Nama legal team.

During the hearing, Mr Justice Kearns observed Prof Dermot McAleese of Trinity College had, in an affidavit for Nama, said there could be no return to the “status quo” and had also asked, if it were not for Nama, where would the banks be?

Opening the judicial review proceedings, Michael Cush SC, with John Gleeson SC and Shane Murphy SC, for Mr McKillen, said the case was not about whether Nama was a good or bad idea or an effective model to deal with the State’s economic difficulties. Nor had the court to rule on the merits of Nama’s decision to acquire Mr McKillen’s unimpaired loans or unimpaired loans generally, whether his loans represented a “systemic risk” or the precise valuations of his properties. While there was “a real debate” on some of those issues, the court was being asked to determine public, not private, law matters.

Mr Cush said Mr McKillen is principally a property investor with a portfolio of 62 properties valued somewhere between €1.7 billion and €2.8 billion.

Most of the properties are located in the UK, France and the US with some 26 per cent in Ireland. Loans secured on them totalled some €2.1 billion, with all loan repayments being met. Income generated by the properties was some 1.7 times the interest repayable on the borrowings, an “excellent performance” in the current climate, while the assets were generating €150 million per year and some 96 per cent were let, mainly to blue-chip tenants on 25-year leases.

While there may be some breaches of some bank covenants and some loans had expired, this did not mean repayments were under threat, counsel added. Historically, all of Mr McKillen’s loans had been renewed as he always met repayments.

Only a very small proportion of the loans, about 2.5 per cent, were land and development loans within the meaning of the Nama Act 2009.

Mr Cush said his case centred on five key points.

Firstly, the procedure adopted by Nama and the broad definition of “eligible bank assets” in the Nama Act denied Mr McKillen’s constitutional right to property and fair procedures. There was no legal case that allowed complete abrogation of the right to make representations prior to acquisition of loans and Mr McKillen was shut out by the Nama Act from any remedy.

Secondly, it was argued that Nama, in exercising its discretion whether to acquire the loans, failed to have regard to relevant considerations.

Thirdly, the December 11th/14th 2009 decision to acquire the loans was taken at a meeting prior to the actual establishment of Nama, was not validly ratified and was null, void and of no effect.

Fourthly, having regard to the February 2010 EC decision approving Nama, it was argued at least some of a borrower’s loans must be impaired before any are acquired, but none of Mr McKillen’s loans were impaired.

If that was incorrect and it was also wrong to argue fair procedures must be read into the Nama scheme, then, finally, the relevant provisions of the Nama Act are unconstitutional given the breadth of the definition of eligible loans.

Nama’s only record of its decision to acquire €2.1 billion in Mr McKillen’s loans was contained in one word — “disagree” – on an Excel spreadsheet, counsel said.

Nama contended that word recorded Nama’s disagreement with bank objections to the eligibility of the loans for acquisition on the basis the loans involved no land and development exposure.

Nama denies the claims, arguing it is entitled to acquire both performing and non-performing loans and also disputes Mr McKillen’s claims that none of his loans are impaired.

The case continues.