The Commercial Court has rejected the legal challenge taken by Mr. Paddy McKillen and 15 of his companies in which he sought to prevent some of his loans being transferred to the National Asset Management Agency (NAMA).

In the context of the overall challenge, the three judges (Kearns P, Kelly J and Clarke J) devoted the opening paragraphs of the judgment to highlighting that it had not been the function of the court in this case to form a judgment on the merits or otherwise of NAMA or individual aspects of the National Asset Management Act 2009 Act (the Act). Rather, they said, they were engaged in interpreting the Act, applying the Act to the facts of Mr. McKillen's case and determining whether the Act, as interpreted, was within the bounds of what was constitutionally permissible. There were five submissions made to the Court.

Submission: Fair procedures

Mr. McKillen argued that the Act interfered in a significant way with his constitutionally protected rights. He claimed that under the Act, he should have been afforded an opportunity to be heard before any decision by NAMA to acquire his loans from qualifying financial institutions was made. NAMA claimed that there is no entitlement to be heard under the Act.

Court Finding

The judges said that it was clear from the facts that Mr. McKillen had not been afforded any opportunity to be heard. They said that the principal issue concerned whether a decision by NAMA to acquire the McKillen loans amounted to the type of decision which could interfere with Mr. McKillen's rights in such a way as to trigger an entitlement to be heard. (These rights included various property rights including the right to earn a livelihood as well as various contractual entitlements.)

The judges said that the issues raised by Mr. McKillen were sufficient to grant leave to seek judicial review and that they were prepared to grant this. However, they went on to say that they were not satisfied that Mr. McKillen was entitled to ultimately succeed on those grounds, and, therefore, having granted leave, they dismissed this claim also. They said that any constitutionally protected rights which Mr. McKillen might have were either not interfered with by the Act, or were interfered with in such a minor or tangential way so as not to require that Mr. McKillen be heard prior to the acquisition of his loans.

Submission: The NAMA decision

Mr. McKillen claimed that NAMA did not take into account appropriate considerations when coming to its conclusion that his loans should be acquired by NAMA. In court, the parties had disagreed about the proper considerations which NAMA was required to take into account in deciding to include a loan in its acquisition process.

Court Finding

The judges refused to grant judicial review under this heading. They said that, on a true construction of the Act, any discretion given to NAMA to decline to acquire an eligible bank asset is a discretion solely for the benefit of NAMA, and not one which requires, in its exercise, a detailed analysis of the loan or loans in question.

Submission: Timing of decision to acquire loans

Mr. McKillen claimed that the decision to acquire the McKillen loans was taken before NAMA came into existence and therefore the decision was not legally capable of ratification and had not been either ratified or retaken by NAMA in a legally permissible fashion. NAMA argued that the decision to acquire the McKillen loans was valid.

Court Finding

The judges refused to grant judicial review under this heading. They said that they were satisfied that the decisions made on 11 and 14 December, 2009 to acquire Mr. McKillen's loans were adopted by subsequent action of NAMA following its establishment.

Submission: European State Aid

Mr. McKillen argued that an earlier decision of the European Commission (which determined that the state aid contained in the Act is permitted under Article 107(2) (b) of the Treaty on the Functioning of the European Union), imposed an obligation on NAMA to only acquire "impaired loans". NAMA argued that the Court had no jurisdiction to consider the issues raised and that the relevant Commission decision did not impose such a limitation.

Court Finding

The judges also refused to grant judicial review under this heading. They said they were satisfied that the decision of the Commission on state aid did not require NAMA to limit the acquisition of bank assets to loans which are either impaired loans or are connected with impaired loans.

Constitutional challenge

Finally, Mr. McKillen argued that if the Act were to be interpreted in such a way as to prevent him being heard regarding the acquisition of the McKillen loans, then the Act is unconstitutional in that regard. He also claimed that the Act may be incompatible with the European Convention on Human Rights.

Court Finding

The judges rejected Mr. McKillen's claim under this heading. They said they had concluded that the Act was 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.

Next Steps

An application will be heard on Friday next, 5 November, for application for leave to appeal this ruling to the Supreme Court. We will keep you informed of the outcome of this application.