Nama loses challenge by developer McKillen to ruling on loan transfers

THE NATIONAL Asset Management Agency has lost a legal challenge in the Supreme Court taken by property investor Paddy McKillen to stop the transfer of €2.1 billion of loans to the State’s “bad bank”.

The seven-judge court unanimously allowed his appeal – overturning a High Court ruling – after it found Nama had never at any stage made a legally valid decision to acquire Mr McKillen’s loans.

The Supreme Court ruled the decision taken by Nama to acquire his loans was taken before the agency was legally set up and no subsequent act changed this.

As a result of the judgment, if Nama still wants to acquire the McKillen loans, it will have to make a formal decision to that effect and start the process again.

Mr McKillen, who owns shopping centres, office blocks and investment properties in Ireland and overseas, took the first legal action against the State agency.

The court ruling is a blow to Nama, whose defence of the Supreme and High Court cases against the agency was led by the Attorney General, Paul Gallagher.

The court deferred until next Wednesday a hearing on three broader objections made by Mr McKillen in the case, including the constitutionality of the Nama Act and his right to fair procedures.

Mr McKillen’s victory means that he may also avoid paying legal costs in the proceedings, which amount to about €1 million for each side, legal sources estimated.

Frank Daly, chairman of Nama, said the ruling was “a disappointment” and that the agency would study it carefully over the coming days and consider its options.

“However, it is important to note that the decision relates specifically to the particular case as presented by Mr McKillen and does not have implications for other acquisitions now completed by Nama,” said Mr Daly.

The State agency had argued that it had to acquire Mr McKillen’s loans as they posed a systemic risk to the banking system.

The Chief Justice, Mr Justice John Murray, said that the case was “focused entirely” on the particular circumstances of the proceedings taken by 15 of Mr McKillen’s companies and their loans.

The decision to acquire the loans was taken by Nama’s interim team on December 11th and 14th, 2009, but before Nama was legally set up on December 21st, 2009, so the decision was invalid and had no legal effect, the court said.

The court said that it was of “critical importance” in the case that Nama had not served on Mr McKillen’s banks a schedule of the loans it was acquiring.

Serving such a schedule would have meant the loans were acquired and that the decision to acquire them would have been considered “from a different perspective”, the court stressed.

Contrary to the High Court’s ruling, the interim decision was given no legal effect by any subsequent act by Nama, the court said.

“This is no mere matter of form,” Mr Justice Murray said.

“It is fundamental to the functioning of a statutory body that it, itself, take such decisions as it is empowered to make by the statute and exercise any discretions conferred on it.”