[UPDATE: The NAMA reply to Gerry Adams is available here]
You may have missed a High Court judgment just before Christmas which involved NAMA; the case is Peleton Limited (in receivership) v Companies Acts and the judgment was published online last week The judge, Ms Justice Mary Laffoy notes in the introduction to the judgment that “although this is not disclosed on the originating notice of motion dated the 11th October, 2011 which initiated this application, the applicant is the National Asset Management Agency” Peleton Developments, one of Jack Ronan’s companies – Jack having becoming a household name in recent weeks on the back of the Vita Cortex dispute – was the subject of a NAMA receivership in July 2011 when Declan Taite of Farrell Grant Sparks was appointed a statutory receiver. The High Court case was interesting because what was at issue was the Company Registration Office (CRO) refused to recognise the appointment of NAMA’s receiver because the loan in 2004 to Peleton upon which there was subsequent default, wasn’t registered with the CRO. And because the CRO wouldn’t recognise the appointment of a receiver, this gave NAMA a problem with dealing with the assets of Peleton. So what NAMA did was applied to the High Court to be given special permission to register the 2004 loan. In the event, NAMA was successful at the High Court but its prospects were by no means certain. But you might have thought that surely if adequate due diligence had been conducted when NAMA acquired the loan from AIB, that this issue wouldn’t have arisen at all.
Which brings us to the subject of NAMA’s legal costs for 2010, 2011 and 2012 which were detailed in a written response by NAMA’s CEO, Brendan McDonagh to a question from Sinn Fein’s Gerry Adams. The written response is described as a “parliamentary question” in today’s Irish Times which describes the content of the response, but I cannot yet see any such parliamentary question online, and also it is usual for a minister to respond to a parliamentary question, not a third party to the Oireachtas like Brendan McDonagh.
According to the written response reported in the Irish Times today, NAMA incurred €9.75m of legal fees in 2010, €16.46m in 2011 and €1.35m so far in 2012. The total so far is €27.55m and of this, €10.14m relates to due diligence on the acquisition of loans – like those acquired from Peleton above – and was recharged to the banks. Remember the NAMA scheme allowed the due diligence and valuation fees incurred in the acquisition of loans to be recharged to the original banks; that’s not widely appreciated by the general public, but since we own Anglo, INBS, EBS and AIB and own 15% of Bank of Ireland, it might be a moot point.
But what about the remaining €17.41m which wasn’t due diligence? This is where this matter becomes fudged. NAMA issued a press statement yesterday evening which said “The legal costs incurred in 2010 and 2011 relate to legal due diligence conducted on loans which NAMA acquired from the participating institutions. Arising from these reviews, questions were raised about the enforceability of security in certain cases and as a result legal discounts amounting to €368m were imposed; this reduced correspondingly the acquisition cost of the loans. This relates only to the first five tranches; the value of discounts applied in later tranches is currently being quantified. Therefore, the saving to the State in carrying out this due diligence was a large multiple of the legal costs incurred.”
Maybe NAMA is suffering from the Enda Kenny ailment of omitting the word “some” from its statements. Maybe it meant that “some” of the “legal costs incurred in 2010 and 2011 relate to legal due diligence” But again, what about the remaining €17.41m?
I don’t know to what this €17.41m relates, and neither apparently does Gerry Adams because it is not described in the NAMA answer. But it may well relate to NAMA’s failed legal struggle with developer/investor Paddy McKillen, where Paddy won several points of his case at the Supreme Court and after which, there circulated estimates in the media that NAMA would incur some €7m of costs relating that case. Might the €7m have been an underestimate? When quizzed by Sinn Fein’s Pearse Doherty about the costs of the Paddy McKillen case which ended at the Supreme Court on 12th April 2011, the NAMA CEO Brendan McDonagh told an Oireachtas committee in September 2011 that “the Deputy raised the issue of costs involved in that case. We are still waiting for the costs on McKillen’s side to be submitted to us and the matter will go to the Taxing Master in terms of seeking to reduce them. The costs on the NAMA side were not significant because we did a good deal of the work through the Attorney General’s office and the Chief State Solicitor’s office and, with the agreement of the Attorney General, we only used external counsel and legal firms where necessary.” The view on here was that NAMA had legally cocked-up by failing to ratify a decision, originally made before the company was incorporated.
So if Paddy McKillen case’s costs were “not significant” on the NAMA side, then were the costs on Paddy’s side which NAMA was footing, far more than €7m? Who knows? Certainly not Gerry Adams, because this case is apparently not referred to at all in the written response.
What other legal costs might NAMA have incurred? NAMA has appointed receivers to well over 100 companies at this point. But the Agency apparently cocked up the appointment of receivers to the Grehans back in April 2011, and had to stand them down for a few weeks. NAMA is involved in litigation in the US, where an employee at a NAMAed property is suing the Agency in Georgia and in Florida the Agency was involved in a dispute over a development in Sarasota. NAMA is also exposed to substantial damages for ignoring a term in its loan agreement with Paddy McKillen, which may mean that the Agency’s sale of €800m of loans in the Maybourne hotel group may yet cost the Agency millions in damages and costs. NAMA is being sued by a receiver, Carl Dillon in a 2011 application and only last week Laing O’Rourke made an application against the Agency in Dublin’s High Court.
I wonder will Gerry Adams have appreciated the breadth of NAMA’s legal problems when he received the written answer. I wonder has he the information to ask if NAMA is incurring millions of euros in legal fees through incompetence, either in NAMA or at solicitors engaged by the Agency? Maybe another parliamentary question is needed.