Court hears of Nama letter

A letter from Fine Gael Senator Eugene Regan to the European Commission seeking clarification of the Commission’s decision approving the National Assets Management Agency (Nama) scheme appeared to have been written at the “instigation” of property investor Paddy McKillen, counsel for the State has told the High Court.

Maurice Collins SC, for the State, today rejected arguments that the reply to Seator O’Regan from a European Comnission official indicated the Commission’s February 10th approval for the Nama scheme meant only “impaired” loans could be transferred to the agency.

The official’s letter had no legal status, was inadmissible and irrelevant, counsel said. Mr McKillen and his companies had no entitlement to question the unanimous decision of the Commission.

Mr McKillen was arguing the letter meant the Commission’s approval for the Nama scheme was approval only for the transfer of loans of “impaired” borrowers, counsel said.

If Mr McKillen was correct, that meant the Commission, when approving the scheme, either fundamentally misunderstood what was being proposed despite having the full draft Nama Bill before it or had instead, “by a side wind” imposed a “dramatically different” definition of eligible loans in the scheme, counsel said.

These were both “incredible propositions”, the Commission’s decision was clear, it was approving a “macro approach” by the government aimed at procuring a “clean break” from risky loans and could only be understood as approval for the Nama scheme as ratified.

The draft Nama Bill provided that the agency could acquire land and development loans, associated loans of a borrower and commercial loans associated with that borrower and it could not be suggested the breadth of the definition of “eligible bank assets” in the legislation was not understood by the Commission.

Even if Nama could only acquire the loans of an “impaired borrower” — and the State insisted that was clearly not the case — Nama could still acquire Mr McKillen’s loans as some of these were impaired, counsel said.

Mr Collins was making legal submissions in the continuing hearing of the action by Mr McKillen and 15 of his companies to prevent the transfer of their Bank of Ireland loans to Nama. He claims those loans amount to some €211 million while the agency claims they total some €297 million.

The action has implications for the entire €2.1 billion loan portfolio of the applicants with the five participating institutions in Nama.

Mr Collins will conclude his arguments tomorrow morning after which Shane Murphy SC will reply for Mr McKillen. The three judge court is expected to reserve judgment when submissions have closed.

In other submissions today, Mr Collins rejected arguments on behalf of Mr McKillen that the decision to acquire his loans is null, void and of no legal effect because it was taken on December 11th/14th 2009 prior to the actual establishment of Nama on December 21st.

Mr Collins said the decision was taken by persons in the National Treasury Management Agency who remain on the Nama Board, was also clearly adopted by the Board of the agency days later and also notified to the participating institutions in Nama. The Oireachtas’ intention was Nama should “hit the ground running”.

Counsel argued there was a loans acquisition process and the decision of December 11th/14th was just to set that process in train. There had been no service of a schedule of loans to be acquired and no actual acquisition of loans and judicial review did not arise as the December 11th/14th decision had no effect in itself, he argued.

In exchanges with counsel, the President of the High Court, Mr Justice Nicholas Kearns, said the applicants’ case was not that Nama was precluded from doing preparatory work but it had taken off before the “starter pistol” was fired. Mr Justice Peter Kelly said every journey begins with a first step and, if that was not lawfully valid, nor were the other steps.

Mr Collins said that depended on the nature of the first step and the consequences of it and of further steps. Nothing had occurred on December 11/14th which could properly be the subject of judicial review. There was also a clear statutory mandate for expedition in the exercise of Nama’s functions and urgency was at the core of the Act, he added.

It could not be the case all the work done prior to Nama’s establishment should be set at nought and that it was required to start again, counsel said.

Earlier yesterday, in exchanges with Brian Murray SC, also for the State, Mr Justice Kearns said “a key issue” in the case was the nature of the discretion, set out in the Nama Act 2009, to acquire eligible loans. Mr Murray argued that discretion is confined to Nama and is not intended to allow for the exclusion of loans in the interests of borrowers.

The discretion was provided for in circumstances where Nama was not capable of acquiring all of the loans eligible for acquisition. Mr McKillen’s loans were eligible because his €2.1 billion exposure represented a “systemic risk” to the financial system and the definition of systemic risk in the Nama Act did not involve borrowers being taken into account. Borrowers had no rights to make representations as to the exercise of Nama’s discretion, counsel argued.