In Flynn v National Asset Loan Management Limited, Judge Cregan examined the events surrounding a demand for repayment of a loan to Leona Flynn.  In the course of this examination, issues such as breach of fair procedures by NAMA, setting out the real reasons for calling in a loan, differing treatment of members of a consortium under a loan agreement were addressed.


  • The case concerned a loan arrangement between a consortium of investors (including the Plaintiff and other members of her family (the Flynn Family)) and Anglo Irish Bank Corp plc (Anglo) in respect of the development of Belfield office park (the Property).  
  • The Property was purchased by a company called Maldonado Limited and held the Property on trust for the beneficiaries of the trust. Beneficiaries of the trust included (i) the Flynn Family (25%); (ii) The Kelly Family (37.5%); (iii) The Linders Group (25%) and (iv) The Dockfield Group (McCabes) (12.5%) (together the Consortium).  
  • In June 2002, Anglo refinanced the loan facilities for €84,000,000 and took new security which included:
    • A Mortgage of beneficial interests in loan from the Consortium;
    • A Guarantee and indemnity of the liabilities of the Consortium limited to beneficial interests in the Property;
    • A Guarantee (joint and several) of each member of Flynn Family for €20m.
  • As Mrs Flynn was a US citizen and was spending more time in the US, there was a concern that she would become liable to US tax laws on her rental income from the Property and was advised by her tax advisor to transfer her interest in the Property to her husband, Mr Flynn.   
  • At that time (September 2007), Mr Flynn telephoned David Drumm of Anglo to obtain his consent to this transfer. Mr Flynn gave evidence that Mr Drumm had said "that was fine" or "there was no problem".   
  • From September 2007 to December 2008, there was correspondence between solicitors for the Flynns and Anglo but no documentation regarding the transfer of Mrs Flynn's beneficial interest was put in place.  Mr Flynn instructed his solicitor to draw up the assignment of Mrs Flynn's interest in the Property and to let Anglo know "in case they need to amend any documentation".  
  • The contract for sale of Mrs Flynn's interest to her husband, together with the deed of assurance, was signed on 15 December 2008 but was backdated to 1 January 2008.  
  • The loans were transferred to NAMA in 2010. NALM sought a statement of affairs from each of the Flynn Family members and other members in the consortium in relation to the loan. Mrs Flynn refused to provide such a statement on the basis that she no longer had an interest in the loan.  
  • NALM then demanded repayment of the loan.  The plaintiff then instituted proceedings against NALM seeking declaration that as she had transferred her interest in the Property with the full knowledge and consent of the CEO of Anglo, that she no longer owes any money to Anglo and is not an "obligor" of NAMA/NALM. NALM then counterclaimed against Mrs Flynn and the other Flynn Family members for repayment of the loan and guarantees in the sum of €21.9m.    
  • NALM did not call in the loans of the other Consortium members.

Issues considered

Did Mrs Flynn transfer her interest in the Property to her husband?

  • The Judge was satisfied that the Contract for Sale and Deed of Assurance was entered into for valid and lawful tax planning reasons.  
  • In relation to whether or not the Contract for Sale and the Deed of Assurance were lawfully backdated, the Judge determined that due to the fact that there was a prior oral arrangement in relation to the transfer in January 2008 and the agreement was entered into for bone fide tax planning purposes, the backdating of the document was lawful.

Could the transfer from Mrs Flynn to Mr Flynn be effective as between Mrs Flynn and Mr Flynn without binding Anglo or NALM?

  • The Judge stated that the assignment between Mrs Flynn and Mr Flynn was effective but was not binding on Anglo or NALM for the following reasons:
    • Judge acknowledged that due to the complex structure of the commercial transaction involving a number of parties together with legal and beneficial ownership interests, a number of steps would be required to transfer an interest in the Property including a deed of release from Anglo in relation to Mrs Flynn's debt under the loan agreement and a new personal guarantee and mortgage of beneficial interest by Mr Flynn.  
    • The Judge dismissed the argument raised of estoppel in relation to the conversation with Mr Drumm.  The cornerstones of estoppel are "representation" and "detrimental reliance" – neither element was present in this case.  
    • It was clear from the loan agreement that prior consent of Anglo was required.  
    • There was no evidence that Anglo had consented to the "extinguishment" of Mrs Flynn's loan – Mrs Flynn has simply assigned to her husband her debt for which he was already liable, on a joint and several basis.

Other points of law considered

  • NAMA – Officer proving the debt
    • Mr B O'Brien of NAMA confirmed in evidence that he was "an officer of NAMA within the meaning of the 2009 Act". However the definition of "officer" under the 2009 Act means the CEO of NAMA and any person assigned to NAMA from the NTMA.    
    • Mr O'Brien did not fulfil either requirement and therefore was not an officer of NAMA within meaning of NAMA Act 2009.  Mr O'Brien's evidence in proving the Flynn debt was inadmissible.
  • Bankers' Book of Evidence and NAMA Act
    • The Judge acknowledged that Section 191 of NAMA Act modifies the Bankers' Book of Evidence Act 1879 and provides that on the assumption that a debt has been acquired by NAMA, it can be formally proved by an officer of NAMA.
  • Section 190 Certificate – Evidence – Amount of Debt Due 
    • Where a bank seeks to prove a debt against a debtor, the bank must produce evidence of the running account in respect of that debt.  No such evidence was put forward in this case.  The Judge found the absence of a "running account" of considerable significance as there was no evidence of what the figure was that the Flynn's actually owed. The sum claimed by NAMA did not appear to take into account amounts of principal repaid and other sums which had been paid in connection with the Property.
  • Abuse of Process
    • The plaintiff claimed that the claim brought by NALM against the other members of the Flynn Family was an abuse of process as the proceedings were only instituted to compel Mrs Flynn to acknowledge that she was indebted to NALM.    
    • The Judge however agreed with NALM that as the debt was owed by the Flynn Family members on a joint and several basis, there was no abuse of process.
  • Was there an event of default under the loan agreement?
    • No events of default were provided for in the loan agreement and the loan was expressed to be repayable "on demand" but in any event on or before 31 December 2002. Due to the fact that Anglo did not demand for repayment after 31 December 2002 and to the evidence of acquiescence on the part of the bank to the loan continuing as an on-demand loan – there was no event of default on the part of the Flynn Family.
  • Breach of Fair Procedures by NAMA
    • The plaintiffs submitted that they were treated so unfairly by NALM that it amounted to a breach of their natural and constitutional rights to fair procedures and to a breach of statutory duty by NALM.  
    • Additional background information to this claim: the Consortium was requested by NALM to submit a business plan in respect of the Property. NALM responded to all members of the Consortium by saying that the plan was reviewed and assessed in detail but was rejected for various reasons detailed to the Consortium.  The four investor groups then wrote again to NAMA seeking to revise the business plan to address concerns. NAMA responded to the effect that it was considering "the most appropriate course of action for it to take…" but only to the Flynn family members.    
    • The Judge reviewed the "Letter of Reasons" sent by NALM to the Flynn family which purported to set out the reasons for calling in the Flynn loans. It was established on cross-examination of Mr O'Brien from NALM that the only "significant reason" for singling out the Flynn family from the other investor groups was the fact that Mrs Flynn had refused to provide a statement of affairs.
  • Legal principles considered:
    • NAMA Codes of Practice: Judge noted that NAMA has a statutory duty and an obligation to treat all of the investor groups equally unless there is an objective justification for treating one member of the group differently.  
    • Duty of Transparency: Judge stated that in order to act in a transparent manner, as NAMA is required to do under Section 11(6) of the NAMA Act, it must, in relation to its letter of demand (i) set out all its real reasons for its decision to call in a loan and (ii) not put forward reasons which are misleading.   
    • NAMA did not comply with this obligation are therefore in breach of its statutory duty of transparency.

Is the decision of NALM to call in the Flynn Loan a private right or a public power?

  • NALM submitted that it enjoys private rights as well as public powers and that the right to demand repayment of a loan and pursue enforcement rights.  
  • The Judge stated that this submission was a "deeply unattractive proposition" and "is not supported by authority". The decision by NALM to call in the loan was an exercise of a public power and not a private right.  
  • As a public power, it is therefore subject to the requirements of natural and constitutional justice and fair procedures:
    • the right to be heard; and   
    • the duty on the part of NALM to act fairly and in a reasonable manner.

The right to be heard

  • This "means that the person affected must know the action which is being proposed and the reasons for that action." The Judge went on to say that "if a statutory body such as NAMA does not give full substance to the right to be heard it creates insidious and undesirable effects".  
  • The Judge determined that the failure by NALM to state the real reason i.e. the fact that Mrs Flynn denied that she was an obligor and failed to submit a statement of affairs, in the Letter of Reasons deprived the Flynn Family an opportunity to make representations and to be heard.

Duty to act in a fair and reasonable manner – Obligation on NALM not to "target" the Flynn Family unlawfully.

  • The Judge determined that the actions of NALM to date, in treating the Flynn group differently, were justified on the basis that Mrs Flynn had denied her liability and her refusal to produce a statement of affairs.    
  • However, on the basis that Mrs Flynn now provides such a statement, and unless there are other significant differentiating factors, it would not be lawful for NALM to call in the loans of the Flynn family.  
  • Given the Judge's findings in relation to the rights to be heard and the duty to act fairly and reasonably, NALM failed to provide a full opportunity to the Flynn Family to be heard. Therefore the letter of demand for the repayment of loan facilities and guarantee was not a proper valid and lawful demand and was set aside.

The adverse inference of the absent witness

  • The Judge also considered the circumstances in which it should draw adverse inferences from the absence or silence of a witness who might be expected to have material evidence to give on an issue in an action.   The Judge noted that the Flynns' solicitor, Mr Marsh, had played a significant role in the events surrounding the purported assignment and indeed a witness statement from him had been filed in the proceedings.  However, Mr Marsh was not called as a witness in the trial.  
  • Counsel for NALM argued that the court should draw an inference from Mr Marsh's failure to give evidence, saying that his absence as a witness was analogous to Hamlet without the prince and that the obvious reason he was not called as a witness was because what he would have to say as an experienced conveyancer was contrary to the case which Mrs Flynn sought to put forward.  The Flynns argued that the decision not to call Mr Marsh as a witness for the defendants was made for bona fide tactical reasons.   
  • The court considered the decision in Fyffe’s v. Dublin City Council and Others [2005] IEHC 477 where Laffoy J adopted the principles outlined in Wisniewski v. Central Manchester H.A. [1998] Lloyds Rep. Med 223 as helpful guidelines when a court was asked to draw an inference from the failure to call witnesses on key issues in a case.   Those principles were:-  "1. In certain circumstances the court may be entitled to draw adverse inferences from the absence or silence of a witness who might be expected to have material evidence to give on an issue in an action.  2. If a court is willing to draw such inferences they may to go to strengthen the evidence adduced on that issue by the other party or to weaken the evidence, if any, adduced by the party who might reasonably have been expected to call the witness. 3. There must, however, have been some evidence, however weak, adduced by the former on the matter in question before the court is entitled to draw the desired inference: in other words, there must be a case to answer on that issue. 4. If the reason for the witness’s absence or silence satisfies the court then no such adverse inference may be drawn. If, on the other hand, there is some credible explanation given, even it is not wholly satisfactory, the potentially detrimental effect of his/her absence or silence may be reduced or nullified.”  
  • In Fyffes Laffoy J. concluded that not calling the witness was a legitimate tactical decision for the defendants to make in the context of the adversarial process and accordingly she would not draw an inference from the failure of the defendants to do so.   
  • In Flynn, the Judge also took the view that the decision by the defendants not to call Mr. Marsh was a legitimate tactical decision for the defendants to make in the adversarial process applying in the Irish legal system.  Although Mr. Marsh had tendered a witness statement and although it was surprising that he was not called as a witness for the defendants, the judge did not believe, in the circumstances, that it would be appropriate to draw an adverse inference from the defendants’ refusal to call him.  
  • This aspect of the decision reinforces the reluctance of courts to draw adverse inferences where key witnesses are absent provided that some legitimate reason is given for their absence.  That said, the decision of Charleton J  inLeopardstown Club Limited -v- Templeville Developments Limited & anor [2013] IEHC 526 should be noted.  There, one of the (many) disputes before the court concerned the existence and location of an ESB cable which the defendant claimed it had no knowledge of.  The defendant further claimed that the mediation agreement was undermined by misrepresentation by the plaintiff about the existence of the cable.  However, the evidence showed that in 2007, a representative of the defendants – Mr Brendan O'Sullivan - had engaged with the ESB, regarding the cable in question.    
  • While the court indicated that making an inference on the basis of the failure of a litigant to call readily available and highly important evidence should only be engaged in sparingly, it rejected the defendants' contention that it had no knowledge of the ESB cable, finding that the absence of Mr O'Sullivan as a witness was fatal to the defendant's claim of surprise and misrepresentation.