Judgment reserved in Anglo notes case

A law giving the minister for finance “unusual” power to create €31 billion sovereign debt via promissory notes given to Anglo Irish Bank and other institutions did not amount to an unlawful “blank chequebook” to spend public money without limit and must be seen in the context of the financial crisis then engulfing Ireland, the State has argued before the High Court.

When Mr Justice Gerard Hogan said the promissory notes have imposed an “enormous cost” on the taxpayer for years into the future, Michael McDowell SC, for the State, said he accepted that but rejected arguments the notes were unconstitutional.

Mr McDowell was making submissions for the Minister and State on the fourth and final day of the hearing of the challenge by United Left TD Joan Collins to the issuing of the notes in favour of Anglo, the Educational Building Society and the Irish Nationwide Building Society. The case involves issues of major importance affecting the entire basis of the State's finances and was heard by a three-judge court comprising Mr Justice Peter Kelly, Ms Justice Mary Finlay Geoghegan and Mr Justice Hogan. Mr Justice Kelly said it would come as "no surprise" that the court was reserving its judgment.

Public funds
The promissory notes were issued by the minister in 2010 under the 2008 Credit Institutions Financial Support Act, enacted that year to provide for up to €440 billion in public funds to financial institutions via the State's "bank guarantee".

Section 6 of the Act says the minster may provide “financial support” to credit institutions. Ms Collins argues the power given to the minister under section 6 is impermissibly vague and unconstitutional in that it encroaches on the exclusive power of the Dáil to appropriate public funds for expenditure.

Yesterday, Mr McDowell denied section 6 allows the minister power to create public liabilities with no time or amount limits. The minister had to issue the €31 billion in promissory notes in 2010 to recapitalise Anglo and the other institutions because it was vital for the financial stability of the State and to avoid a possible banking collapse, he said. Because Anglo was by 2010 in State ownership, it was the State's "problem" and allowing it collapse was "not an option".

Sovereign debt
While the 2008 Act gave the minister "unusual" power to create sovereign debt, it did not give him freedom to do what he liked or "throw money" at the problem. The State was facing an "unprecedented" financial crisis threatening to collapse the banking sector and economy and it was imperative the minister take swift and decisive action.

The Act required the minister to consider whether there was a threat to the stability of the financial system necessitating him to take steps. The steps taken were necessary in the public interest to remedy a serious disturbance in the economy and the issuing of the promissory notes under section 6 constituted “financial support” within the meaning of that section.

There was no impermissible delegation of legislative power and the State did not accept the term “appropriation” in the Constitution involved a policing by the Dáil of spending of public money.

When Mr Justice Hogan asked whether the Act required the minister to save “hopelessly insolvent” institutions, counsel said it required him to do what was necessary to ensure the State’s financial stability.

Closing the case for Ms Collins, Ross Maguire SC, said the minister had no power to spend public money on an unlimited basis and such a power could not be excused on the basis of a crisis. If the court upholds the State’s arguments, the Minister continues to have unlimited powers to support financial institutions, he added.