Property investor Paddy McKillen has failed in his legal challenge stopping the transfer of his bank loans to the National Asset Management Agency (Nama).
The Commercial Court ruled this morning Mr McKillen had not made a substantial issue in relation to constitutionality of the legislation establishing the agency. It ruled unanimously against the businessman on all five grounds.
"The court has concluded that the [Nama] act is a proportionate response to the very grave financial situation in which the State finds itself and which has particular relevance to financial institutions within the State," the special three-judge division of court said in their ruling.
The judgment was delivered by President of the High Court Mr Justice Nicholas Kearns sitting with Mr Justice Frank Clarke and Mr Justice Peter Kelly.
The court said it was prepared to grant Mr McKillen leave to seek judicial review only in respect of his right to fair procedures but refused to grant this, saying the court was not satisfied Mr McKillen was ultimately entitled to succeed on those grounds.
"The court is not concerned with deciding whether the policy options adopted by the Oireachtas as a solution to the banking crisis are the best solutions," the judges said.
"Rather, the court is concerned with the question of whether there is a rational basis for the selection of those policy options." The judges said the court was "satisfied that there was such a rational basis".
Michael Cush SC, for Mr McKillen, told the court they would need to consider the judgment but indicated they would let the court know on Friday whether they would seek to apply for an appeal to the Supreme Court.
Nama was set up the Government last year to take the most toxic loans out of the banking system. It is acquiring €74 billion of loans from five participating financial institutions.
Mr McKillen challenged Nama on the transfer of his loans from Bank of Ireland to the agency, but the case has implications for his loans of €2.1 billion with lenders participating in the Nama scheme.
The investor and 15 of his companies were seeking a judicial review of the decision of Nama to acquire their Bank of Ireland loans, estimated by them at some €211 million and by Nama at €297 million. Nama proposes to acquire a total of €2.1 billion loans held by the McKillen applicants.
The seven-day case concluded last month at the Commercial Court.
In their ruling today, the judges said it was not for the court to determine what the best or proper procedure should be but rather to decide whether the policy option by the Oireachtas is permissible.
Mr McKillen had argued that his loans should not be transferred to Nama as he was repaying them in full and that the transfer of his loans would damage his ability to refinance the loans with non-Nama banks.
The court found that Mr McKillen did not have "a constitutionally protected right" to have his loans dealt with by a commercial bank rather than by Nama.
Without the range of Government measures adopted, Mr McKillen would not be able to conduct "normal banking relationships with those banks", the court concluded.
"In those circumstances, Mr McKillen would have been required, in the absence of Government intervention, to have procured other banks willing to lend to him on normal commercial terms," the judges said.
"That right remains open to him as he has the clear right to redeem any or all of his loans from Nama if he can persuade another non- participating bank to lend him money so as to take out loans which will 'go into Nama'."
The judges said that it did not seem to be a central consideration whether Mr McKillen's loans can be said to be impaired.
"Very many people will be paying both in money, in jobs and in other ways, for a very considerable period of time, to pay the price of solving the problems of Irish banks," the court said in its ruling.
"The vast majority of those persons had nothing to do with creating the problem. Yet they will be required to play their part in its solution to their cost."
Loans were not going into Nama as punishment for borrowers whose problems may have contributed to the financial crisis which has hit the banks, the judges said.
They are being transferred to Nama as the scheme is part of a range of policy measures deemed necessary by the Government and the Oireachtas to solve the problem in the Irish banks.
Other parts of the policy mix will "require significant public funding which will place an interest burden on the State of a very significant amount on a more or less indefinite basis", the court said. "Many will pay the price for [that]."
Even compliant borrowers with eligible loans will find their loans going into Nama as part of an overall solution to solving the problems of the banks, they said.
The creation of Nama was "a reasonable and proportionate policy response" to the problems that the act setting up the agency seeks to address.
There was no doubt that Nama's definition of what is an "eligible asset" is extremely broad, the court found, but that this was no reason for questioning the "constitutional validity" of the legislation.
The definition is designed "to ensure that all loans associated with a borrower who has at least some land and development is caught", said the judges.
The court said that it was open to Nama to acquire loans which were of sufficient scale that they might regarded as contributing to the systemic risk to Irish financial institutions.
The court unanimously rejected Mr McKillen's challenge on the five issues it was asked to determine in the case.
The judges ruled that any discretion Nama had to decline acquiring an eligible bank asset was a discretion solely for Nama under the legislation and "not one which requires, in its exercise, a detailed analysis of the loan or loans in question".
Any constitutionally protected rights which Mr McKillen might are either not interfered with or are interfered with "in such a minor or tangential way" that it does not require Mr McKillen to be heard prior to the loan being acquired.
He also should not be granted leave to seek a judicial review on Nama's decision to acquire his loans was taken on December 11th and 14th before the agency was established because of its subsequent action, the court said.
Mr McKillen was not entitled to challenge Nama on the question of European state aid as the court is satisfied that the European Commission's decision does not limit Nama to acquire bank assets which are either impaired loans or connected with impaired loans.
The court was not satisfied that it was appropriate to take into account correspondence between Fine Gael Senator Eugene Regan and a Commission official.
On the fifth issue, the court said that it was not satisfied that Mr McKillen had made a substantial issue in relation to the constitutionality of the Nama act.
