NAMA cock-a-hoop at today’s UK High Court judgment against Paddy McKillen

[The full judgment is now available online here]

In reality, NAMA had already won its case with Paddy McKillen – over the sale of €800m of loans associated with the Maybourne group to the Barclay brothers last September 2011 – when the UK’s appeal court ruled in NAMA’s favour in June of this year. However, NAMA is pretty pleased with itself this morning with the handing down of the judgment in the main McKillen v Barclay brothers case which centred on whether Paddy’s rights had been infringed by the billionaire 77-year old British twins, who also control the Daily Telegraph newspaper and the Ritz Hotel in London.

And NAMA has good reason to be pleased today, the UK High Court judge, Mr Justice David Richards, is pretty complimentary in his judgement, about the NAMA witnesses who gave evidence during the hearings and also at the NAMA approach in general. The judge’s impression of the NAMA witnesses – John Mulcahy, head of asset management and NAMA board member, and Paul Hennigan, a NAMA portfolio manager – was already obvious to those that attended the hearing.

There was an extraordinary episode during the hearing when John was on the witness stand, and Paddy McKillen’s barrister was obviously setting out to undermine the evidence given. And like any good barrister, he started out with questions to which he already knew the answer, but it became pretty apparent that this wouldn’t work with the garrulous John, who not only belted out direct answers but accompanied the responses with impressive detail. At one stage John was asked why he had congratulated Paddy for the recent strong performance of the Maybourne hotels and if that signalled that John and NAMA had confidence in Paddy’s business acumen, and the surprising response was no, John was “only having a dig” at Paddy who had previously claimed his business would be damaged by its association with NAMA. The judge suppressed a smile at the candour and at the flummoxed barrister, and John Mulcahy’s time on the stand was over in less than 30 minutes – a record for any of the many witnesses during the two month hearing; John was indeed sublime and his colleague Paul was impressive.

So NAMA exits – and for all intents and purposes had exited on 27th June – the Paddy McKillen saga with its finances intact. It could have been so different, and in February this year when Paddy was victorious in one issue in the case, it seemed as if NAMA might be exposed to an enormous damages bill, perhaps €50m, and it might also have seen its biggest single transaction to date – the €800m sale of Maybourne loans – undermined.

Turning then to Paddy, the successful developer and investor who started out with DC Exhauts but grew a worldwide property empire that includes the Jervis Street shopping centre on Henry Street in Dublin, and at one point Paddy was a joint-owner of the NAMA HQ at Treasury Building. Today, he and his family control a chain of Dublin restaurants, and as was revealed in the UK hearing Paddy owns property in Vietnam, Argentina, California, London, France, Dubai, Germany, Dublin and Kazakhstan. In fact, so globally diversified are Paddy’s property holdings that at one stage during the court hearing Paddy was unable to confirm his country of domicile, prompting the judge to impatiently intervene and ask him directly “where do you call home”. What today’s ruling means for Paddy is that his interests have not yet been unlawfully prejudiced by the Barclays, but should the Barclays now act in such a way as threatens Paddy, then we may have yet another court case.

Paddy of course still has a 36% stake in the Maybourne group, and we may not yet have heard the last of Derek Quinlan’s 36% stake, despite today’s judgment. Paddy’s fear must be that the Barclays who already have a 28% stake, in some way acquire Derek Quinlan’s stake and then decide to use their majority to call up more capital from the shareholders, and if Paddy can’t come up with the readies, then he risks seeing his stake diluted to the point that he loses any control of the group. Remember there is still a pre-emption agreement in place that should Derek Quinlan seek to dispose of his shares, he needs to give Paddy first (joint) dibs. However, it seems on here that Paddy is at risk, even if the Barclays don’t formally acquire Derek Quinlan’s shares.

Paddy’s loss is in many ways a shame, as it was a source of national pride to see the Irish flag unfurled outside Claridge’s, the Berkeley and the Connaught and at one time, the Savoy. And whilst Paddy has his enemies, his business smarts and army of friends were in evidence during the recent hearing. Although today’s judgment doesn’t deprive Paddy of the possibility of ultimately securing control over the hotels – for example if Derek Quinlan were to be bankrupted and was forced to offer his shares to Paddy – it does mark a defeat with the Barclays who have options in how they pursue their stated wish to take control of the hotels.

Paddy may appeal today’s judgment.

UPDATE: 10^th August, 2012. It is mentioned in passing in today’s judgment that Paddy McKillen – having been denied leave to appeal the NAMA decision by the appeal court in June 2012, that’s the decision which said NAMA’s sale of the €800m loans to the Barclays last year was lawful – has applied directly to the UK’s Supreme Court for permission to appeal, so that strand of the case, the one which affects NAMA, has still not been put 100% to bed, though you would have to say that NAMA must feel fairly secure in the decision of the appeal court.

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