Supreme Court ruling on CPO puts spanner in IDA’s works

Rejection of compulsory purchase order in Kildare threatens agency’s land policy

 

It’s no secret that foreign direct investment has been in the vanguard of Ireland’s economic wars. Pharmaceuticals, manufacturing and tech giants have been lured by the overtures of low taxes and educated workers.

This is a major chapter in the post-colonial Irish story and, somewhere in the background, IDA Ireland, the State’s inward investment muscle, has toiled to lubricate ease of access. It has turned around millions of euro in property deals and sweet-talked household names in big industry.

Quietly, it has enjoyed the admiration of a business community that sees it as having kept an economic engine ticking over long before the Celtic Tiger stole the show in a brash, short-lived myth of self- perpetuating economic success.

And then, against the narrative tide of benevolent industrial development, the Supreme Court sided with Thomas Reid, an unassuming bachelor farmer from Co Kildare who didn’t want to sell his land.

It was a seemingly minor blow but one that may yet have larger future implications.

Under 1986 legislation, the IDA has the power to issue a compulsory purchase order (CPO) on properties it requires for strategic industrial development.

In an affidavit to the Supreme Court, former chief executive Barry O’Leary said the organisation’s “property solutions” were a “pivotal component” in winning investment and jobs. They are “a key element in the decision-making process undertaken by prospective investors,” he said.

Infrastructure

Enter Reid and his 72-acre “Hedsor House” estate, complete with listed, historical home, not far from the Intel campus to the east. He represents the third generation of a family who have worked the land since the turn of the 20th century.

The surrounding area is not zoned for development and so Reid would never have expected an approach from the IDA when it came in December, 2011.

In a letter, preceded by two face-to-face encounters in which he rejected its advances, the IDA pointedly informed him that given its mandate to secure investment and jobs, it had a “duty to progress this matter via all alternative means and if necessary the compulsory acquisition of the lands”.

Reid, who lives alone and can be found tending to his farm in torn woolly jumpers and wellingtons, is the archetypal Irish farmer – not somebody one would suspect of picking a fight with a heavyweight State agency. But he did, and in so doing unravelled a legislative weapon the IDA had, until then, never used.

This can be interpreted as an indicator of how little the IDA has had to rely on forced purchase, having amicably settled hundreds of property transactions over the years.

If the Reid case proves anything, though, it is that the IDA will use its powers when it sees a tract of land as being of absolute strategic importance whether or not owners consent. The problem is that Reid’s recalcitrance has undermined this ability.

Although upheld by the High Court, the IDA’s position was ultimately struck down by the final court of appeal on two key principles: problems around the issue of “land-banking” where the IDA does not have a specific use for the land it seeks to buy (Intel had no role in the proceedings and has never been formally linked to the property in question);and an apparent conflict of interest or bias on the part of a key executive involved in the process.

Reid argued that if land is to be acquired for no specific, immediate use, it can be done only with agreement from the owner. A CPO under the powers of the Industrial Development Act 1986 must offer a specific purpose.

For its part, the IDA itself submitted it was sufficient to state simply “industrial development”.

Undeveloped

Typically, services companies might put in place facilities very quickly, whereas other sectors, like pharmaceuticals, have longer timeframes.

The IDA is tasked, under legislation, with acquiring land for development. These strategic holdings or land banks include sites in Cruiserath, Dublin; Carrigtwohill and Ringaskiddy in Cork; Athenry and Oranmore in Galway; Belview in Kilkenny; and Mullagharlin in Louth.

It has a committee that governs “the financing, provision, maintenance and disposal of property”, clearing expenditure of up to €12 million. Financial statements for 2014 showed the IDA held industrial property assets to the value of more than €111 million.

In every case – bar Reid’s and a preceding CPO in the late 1970s regarding land in the Shannon Development scheme under different legislation – the IDA has reached amicable agreement with vendors.

The Supreme Court, however, found that when it comes to the long game, the provisions of the 1986 legislation did not make CPOs compatible.

There are several constitutional rights to private property and, in his judgment, Mr Justice William McKechnie said the legislation “does not confer any power on the IDA to acquire lands not required for immediate use, but which might be utilised at some future time.

“For such to be the case, there would have to be an express statutory provision to that effect.”

This remark is particularly problematic for the IDA, essentially flagging a “back to the drawing board” scenario, according to legal opinion on the ruling.

“It effectively said that the IDA didn’t have the ability to build up a land bank and this was fatal to the case against Thomas Reid,” said Mark Tottenham, a barrister specialising in property law. “I would imagine the IDA would want legislation that would allow them to build up a land bank.”

The idea of legislative change to facilitate strategically ambiguous transactions like Hedsor House has been sidestepped. The IDA declined to comment on any aspect of the ruling or on its potential response, if any.

The Department of Jobs, Enterprise and Innovation, which would have responsibility for redrafting legislation, said only that “IDA Ireland frequently acquires property around the country to plan strategically for future industrial needs. The Department and IDA Ireland will carefully study this detailed judgment before deciding how to proceed”.

Regardless, any legislative revision is almost certainly off the cards for the remainder of this Dáil.

Reid was also successful in arguing bias in his case, the second element of the decision which led to the IDA’s defeat.

He claimed then IDA chairman Liam O’Mahony took part in the decision making process but was also at the time a non-executive director of the PM Group, a consultancy commissioned by the IDA to advise it on available lands, in particular relating to north Kildare. This crossover was not immediately disclosed.

The IDA said this was an “irrational perception” and that O’Mahony played no role in retaining the PM Group or in the report it ultimately produced, and so there could be no reasonable perception of bias.

Mr Justice McKechnie stressed there was no allegation of his being motivated by bias and that the challenge did not affect O’Mahony’s integrity. But, he continued, O’Mahony “would have taken charge of the relevant meetings and regulated their conduct and affairs.

Position of influence

The potential for a perceived conflict of interest or “bias” is specific to this case and not something the department or the IDA need look to the legislature to remedy. But there is a problem with the aforementioned lack of third-party scrutiny.

The Supreme Court felt that in a process where the IDA is “at one corner and the property rights of the landowner at the other”, a “major” conflict of interest is created.

In the Reid case, hearings were conducted by a barrister employed by the IDA as an “adjudicator” in keeping with the 1986 Act. Evidence was given on behalf of all parties, including Reid.

However, the Supreme Court felt the “intervention of an independent third party inspires confidence in the process and . . . should be provided for”.

This lack of independent arbitration was exposed by the bias argument involving O’Mahony and, illustrative of the potential damage its absence can cause, is something else the IDA may wish to consider.

“It’s very significant,” says Tottenham. “The Supreme Court was sufficiently unimpressed by his dual role that it alone would have invalidated the CPO. The court suggested that an independent review process might have dealt with this issue. If the IDA wants legislation to be impregnable to challenge, it should have an independent review process built into it.”

Comparison has been made to the strictures surrounding local authority CPOs for public infrastructure projects in which the council must give reasons for its intended purchase.

While there was never any suggestion Kildare County Council would acquire Reid’s land, it is unlikely they could do so for the benefit of a private entity, even if purchased ostensibly on behalf of the IDA.

In a statement, the local authority said it had never bought land under CPO for the IDA and that, besides, it could only use this power where a specific use was identified, such as the provision of roads.

Given the IDA’s apparent use of its CPO powers as a means of absolute last resort, the fact it has only engaged them once under current legislation and their failure to withstand the judicial stress test (and not to overlook the IDA’s trenchant battle to maintain their integrity in the courts), the question must be asked why they exist in the first place.

Opposition

Perhaps Ireland’s future FDI experience will be somewhat stymied by a shrinking land stock. Perhaps it needed to show its teeth. Without any indication from the body itself, there is little to go on but conjecture.

“There is probably not a [land] scarcity in overall volume terms, but in certain locations,” says Nigel Healy, European director and commercial property expert at Jones Lang Lasalle. “Do employees necessarily want to be travelling two hours every day? That is an issue. Firms want to locate where they can actually get their staff. In my experience it’s Dublin, Cork, Limerick, Galway.”

Property still exists in all these areas, but the size and nature of availability often depends on what type of enterprise client companies are seeking to establish.

Land prices are rising too. For example, in northwest Dublin, where “big swathes” remain available between the M2 and M4 motorways, and where prices were about €100,000 per acre 15 months ago, the values now are around €125,000 to €150,000 depending on location and access to infrastructure (particularly motorways).

The future might have more to do with investment in services and zoning. Ireland’s vastly improved road network has made cities more attractive.

“To be fair to the IDA, they have an extremely difficult job because first of all they have to catch international fish and then they want [to settle in those areas],” says Healy.

“You can’t keep everybody happy all of the time. At the end of the day, what do you do if the query is: I am coming to Ireland and I want to go to Limerick? By and large, they do it extremely well.”

The issue of CPOs is unlikely to trouble the IDA any time soon and there is plenty of time to tinker with legislation. Reid will continue to farm his land, as was always his singular intention, and for now at least everyone seems to have options.

“They could probably identify a site of five to 10 acres in every single county in Ireland,” says Healy of a future where industry will remain king. “I think there will be a supply of lands for some period of time [to come].”

But what if Intel needs to expand its existing footprint?