This page is devoted to what is the first legal challenge to NAMA, an application for a judicial review made by Paddy McKillen (rumoured to be one of the NAMA Top 10, though that is denied by Paddy). An application was made to Ireland’s High Court on 1st July, 2010 to judicially review NAMA’s operation and its effect on Paddy. Scroll down to the bottom of the page for details on the parties, their representatives, key dates, the content of the application and other information. The NAMA Business Plan has been moved to the About TAB.
Here is the latest:
UPDATE: 16th July, 2011. Concluding thoughts on the Paddy McKillen case here.
UPDATE (3): 15th July, 2011. RTE is reporting, without citing sources, “that costs of the proceedings taken by Mr McKillen… which must now be paid by the State, are being estimated at between €5m-€7m.” My reading of this is that the €5-7m represents Paddy McKillen’s costs only and that NAMA will have incurred perhaps a similar level of costs, which might place the cost of this action between €10-14m. (EDIT: An RTE Legal Affairs correspondent, Orla O’Donnell has tweeted to say that she think sthe €5-7m is the total cost, that is, both NAMA’s and Paddy’s)
UPDATE (2): 15th July, 2011. NAMA has issued a statement in respect of its decision not to acquire some of Paddy’s loans. NAMA is not at this point disclosing its costs which have not been finalised yet. NAMA’s statement “Re: Proposed Referendum on Article 35 “It is confirmed that the Board of the National Asset Management Agency (NAMA) has decided not to acquire approximately €1.4 billion in loans relating to Mr. Paddy McKillen and which were the subject of an appeal by Mr. McKillen to the Irish Supreme Court. In line with the recent Supreme Court judgement on this matter the decision not to acquire the remaining loans was taken by the Board on the basis of the current rather than the historical composition of the relevant loan portfolio. The decision of the Board not to acquire reflects the fact that the composition of the loans under consideration changed substantially. The land and development exposure declined significantly since December 2009 and the loans were no longer deemed material in the way they had been in December 09. It is important to bear in mind that NAMA successfully defended two of the four grounds on which Mr. McKillen objected to the agency’s original decision to acquire his loans; namely that the NAMA Act was unconstitutional and that it breached State Aid rules. The fact that the Supreme Court found in favour of NAMA on these critical issues was hugely significant for NAMA. The Agency is now making significant progress on managing the €72.3 billion of loans it has acquired from the five participating banks and maximising the return for the taxpayer. That remains our overriding objective.”
UPDATE (1): 15th July, 2011. News coming in (via RTE and the Irish Times) that the Supreme Court costs hearing has concluded with costs “estimated at several million” awarded AGAINST NAMA and a further revelation that NAMA has abandoned its plans to acquire Paddy McKillen’s loans.
UPDATE: 8th July, 2011. With thanks to Paul McMahon of legal blog extempore.ie for pointing this out, the costs hearing in the McKillen case will be held at Dublin’s Supreme Court on 15th July, 2011 at 10.30am. The case reference is 396/10 Dellway Investments & ors v NAMA & ors. Still no word from NAMA on the acquisition of the McKillen loans.
UPDATE: 19th May, 2011. We are still in the dark as to NAMA’s intentions with Paddy’s loans. NAMA said in speeches this morning “an additional €3.4 billion may be transferred over the coming months depending on the outcome of litigation and the ongoing engagement with debtors whose loans are considered eligible”. Separately the Irish Times reports today that NAMA (or more specifically, National Asset Loan Management Limited) now owns (unspecified) ordinary shares plus 15% preference shares in Coroin, the holding company for the Maybourne group of hotels. The newspaper goes on to report that Kyran McLaughlin stepped down as a director of Coroin in April 2011.
UPDATE: 5th May, 2011. The Irish Independent claims that Paddy McKillen’s loans have been reduced from a previously reported €2.1bn to “well under €1bn”. This seems to be a result of the sale of the loans in respect of the Maybourne Group to a “Malaysian sovereign wealth fund” (presumably 1MDB as reported on 17th April, 2011 below). Of course NAMA would have been pulling the strings when it came to the sale of these loans unless they were sold at par. The Independent gets its information from sources and it is of the “it is understood” variety which doesn’t always turn out to be accurate.
UPDATE: 3rd May, 2011. We are still waiting for a date for the costs in this case to be dealt with by the Supreme Court. Costs will be substantial and it is not clear to what extent there will be awarding of costs. Meantime today, the Irish Independent reports that Paddy is making additional, presumably non-contractual, payments on his loans to emphasise that the loans are performing and shouldn’t be considered systemic. The newspaper goes on to report “NAMA is expected to ask Mr McKillen to make representations to the agency over the summer” ; “over the summer”? could NAMA still be cogitating in August? The newspaper claims that NAMA’s stance on the loans hasn’t changed which presumably means NAMA still wants to absorb the loans, in which case it is taking its precious time with making a decision to absorb them.
UPDATE: 17th April, 2011. Whilst we wait to see how NAMA will deal with Paddy McKillen’s loans there is a newspaper report that Derek Quinlan’s loans in respect of the Maybourne Group have been sold to Malaysian sovereign wealth fund, One MDB and the claim is that NAMA has made a €60m profit on the sale. It is unclear from the report what the nominal value of the loans was, what the loans sold for, what NAMA paid for the loans and if the loans have any connection with Derek Quilan’s equity involvement in Maybourne.
UPDATE (2): 12th April, 2011. The judgment is available in seven parts here but the Court’s summary is here if you don’t have the time. The upshot is that the Supreme Court has not judged the NAMA Act unconstitutional but has judged that Paddy should be consulted before his loans are absorbed. It is not clear from what I have read what the rules of consultation are or if NAMA is obliged to take objections into account or what framework might be used to allow the developer to press home his wishes. So in terms of this case, I would say that it is 3-2 to Paddy in the sense that NAMA was not judged to have made an effective legal decision to acquire his loans and the Court has today ruled that Paddy must be consulted prior to to the absorption of his loans. On the other hand NAMA is not judged unconstitutional in terms of its operation pursuant to the NAMA Act which must have been the agency’s number one concern. Costs which are likely to run to several million euro will be addressed by the Court after Easter but the betting is that NAMA will end up swallowing several hundred thousand euros of costs at a minimum.
UPDATE (1): 12th April, 2011. With nary a mention of it in the mainstream media, the Supreme Court will deliver a judgment in Paddy’s appeal which will probably have far wider implications than the partial judgment at the start of February 2011. The Court may determine aspects of the NAMA Act or NAMA’s procedures unconstitutional or legally unfair. There will be updates here shortly.
UPDATE (2): 6th April, 2011. The Supreme Court is to issue a ruling next Tuesday 12th April, 2011 at 10.45am. The ruling judges will be The Chief Justice John Murray, Mrs. Justice Denham, Mr. Justice Hardiman, Mr. Justice Fennelly, Mrs. Justice Macken, Mr. Justice Finnegan, Mr. Justice McKechnie.
UPDATE (1): 6th April, 2011. Still no news from the Supreme Court with respect to the outstanding strands to Paddy’s appeal and remember we are now some two months on from the handing down of the first part of the decision. Paddy’s business continues unhindered of course and it is reported today that the Wagamama franchise which he controls in Ireland has just signed up for an outlet in Dundrum Town Centre paying €120,000 per annum for a 3,175 sq ft unit (€38 psf) on a 20-year lease with a 9-month rent holiday.
UPDATE: 29th March, 2011. It seems that NAMA has been given the green light by new Minister for Finance, Michael Noonan, to proceed to acquire Paddy’s loans (and those of the other objectors said to now total €2bn). The Irish Independent today reports that the Department of Finance has written to NAMA “recently” and said that the Programme for Government commitment to stop further NAMA transfers applied to the sub-€20m exposures at AIB and Bank of Ireland only and not to the loans whose transfer was stopped by developer/bank objections.
UPDATE: 25th March, 2011. No white smoke coming from either NAMA or the Supreme Court to signal progress with either taking over Paddy’s loans or judging the outstanding strands to Paddy’s appeal. Meantime, events at Paddy’s Maybourne group continue to percolate. Neil Callanan, formerly of the now defunct Tribune but now seemingly of the Irish Times, reports that the Barclay twins are pressing their hand, having now definitively acquired the ~28% shareholdings of Kyran McLoughlin and the Green family. Robert Tchenguiz, recently arrested and released without charge by the UK’s Serious Fraud Office is still in the game it seems. The Barclays are said to have teamed up with the Qataris whereas Robert Tchenguiz is said to be partnered with the Abu Dhabi royal family. The Chinese, Singaporean and Norwegian sovereign wealth funds are also said to be interested in the group. “Inundated” as the Maybourne group was keen to explain last August…
UPDATE: 9th March, 2011. The Tchenguiz brothers (see 6th March below) have reportedly been arrested in London in an operation involving 135 police and UK Serious Fraud Office officers. Robert Tchenguiz was reported to have acquired loans from NAMA last week that related to Paddy’s Maybourne group of luxury London hotels. It is understood that the arrests followed a joint UK/Icelandic investigation into the failed Icelandic bank Kaupthing which had extensive dealings with the brothers. The Daily Mail reports that the brothers have issued a statement and are “confident of being cleared of any allegation of wrong-doing”. The Guardian reports that Robert Tchenguiz had borrowed €2bn from Kaupthing and also was a director of the bank. Property Week report from Vincent’s yacht in Cannes where the bi-annual property exposition, MIPIM is in full-flow and provide some background to the Tcenguiz brothers. The Financial Times provides some detailed background to the two brothers and their involvement with Kaupthing. No mainstream reporting has yet linked the arrests to the report in the Daily Mail on the 6th March (see below) that Robert Tchenguiz has bought NAMA loans in respect of the Maybourne group.
UPDATE: 8th March, 2011. No word from NAMA, the government-in-waiting, the Supreme Court or Paddy himself on any developments with his loans. However there is some intrigue about whether or not Paddy’s loans at AIB were included in the €1.1bn which that bank said yesterday had just been transferred to NAMA.
UPDATE: 7th March, 2011. Yesterday’s Programme for Government agreed with new coalition partners Fine Gael and Labour says that a halt will be put to transfers to NAMA “which are unlikely to improve confidence in either the banks or the State”. Given the claim that Paddy’s loans are performing and in good quality assets, it would seem that NAMA might find itself prevented from making a fresh decision to absorb Paddy’s loans. That said, NAMA is nominally an independent agency and governed by a commercial remit and the existing NAMA Act. The new Minister for Finance, expected to be Michael Noonan might issue a direction to NAMA in respect of Paddy’s loans. There hasn’t been a mig out of NAMA since its appearance at the Supreme Court almost a month ago when it said it expected to make a fresh decision on Paddy’s loans “in a couple of weeks” after convening a special board meeting.
UPDATE: 6th March, 2011. Still no word from NAMA as to the outcome of their deliberations that were supposed to have concluded over a week ago, deliberation as to whether or not the agency would make a fresh decision to take over Paddy’s loans. One possible reason for the delay may be linked to ongoing transactions at the Maybourne group ; remember the Barclay brothers are reported to have concluded the purchase of 25% of the group and now the Daily Mail is reporting that the Barclay brothers have signed a deal to buy Derek Quinlan’s 35% share – it is not clear if Derek Quinlan has also signed the deal and he would presumably need NAMA’s approval. But now there appears to be another player reportedly interested in the Maybourne group. Robert Tchenguiz, the Iranian (part Iraqi as claimed by the Mail in the sense that their family fled Iraq in 1949 after the creation of Israel and the Jewish Tchenguizes were apparently persecuted) tycoon who together with his brother Vincent blazed a trail through UK property in the 2000s through their company Rotch, is reported to have bought loans from NAMA which give him some control over the hotel group “He and Sheik Mansour have bought some of the debts controlled by Nama, which are thought to be valued in the tens of millions. Tchenguiz says ownership of that debt gives him and his business partners a claim over 20 per cent of Quinlan’s shares – seven per cent of Maybourne” says the Mail. Sheikh Mansour is a member of the ruling family of Abu Dhabi and owns Manchester City Football Club and he controls Aabar Investments which has stakes in Virgin Atlantic and Daimler. So although NAMA hasn’t yet absorbed Paddy’s loans, it is entitled to do so under the provisions of the NAMA Act and indeed has control of the loans on the banks’ balance sheets until that happens. If NAMA sells Paddy’s loans then NAMA doesn’t need make a decision to absorb them and face a potentially new challenge from Paddy. And to conclude, we are also waiting for the Supreme Court to rule on the three outstanding strands to Paddy’s appeal not determined last month.
UPDATE: 28th February, 2011. No word from NAMA as to the outcome of their deliberations or indeed from the Supreme Court on the three outstanding strands to Paddy’s appeal but it is being reported that the Barclay Brothers have finally won control of Maybourne Hotels Limited with their agreement to buy Derek Quinlan’s 35% of the group to add to their existing 25% holding. There is still some white noise about Qatar Holdings LLC and the Chinese government being interested in the group and there is the obligatory reference to a GBP 1bn (€1.2bn) “bids for the group”.
UPDATE: 20th February, 2011. Another week, another “inundation” of expressions of interest reported in Paddy McKillen’s Maybourne group. This time it is a sovereign wealth fund from Malaysia, 1Malaysia Development Berhad (formerly known as the the Terengganu Investment Authority) which alongside Qatar Holdings, a Chinese sovereign wealth fund, the Sultan of Brunei and US casino/resorts dollar-billionaire, Steve Wynn (sounds like Christie Moore’s collection of “Arab sheikhs, Hindu Sikhs, Jesus freaks”) are all reported to be interested in a stake in the hotels group. Interestingly the Independent is claiming the group is worth €1.2bn, a good 20%+ premium on what they were reportedly worth last year. We should find out in the forthcoming week if NAMA intends to make a new decision to acquire Paddy’s loans – I would have said the betting is that it will.
UPDATE: 14th February, 2011. The sword of Damocles hangs over NAMA as the Supreme Court may at any time hand down its decision in respect of the outstanding issues in Paddy’s case and should it uphold Paddy’s position then the agency might be plunged into uncertainty, particularly of other developers decided to jump on Paddy’s legal bandwagon. Elsewhere London’s Evening Standard is reporting that a “roster of international investors” is waiting in the wings if the Barclays’ overtures towards Paddy’s Maybourne group come to nowt. NAMA said last week that it needed another two weeks to convene a special board meeting to decide its future intentions with respect to Paddy’s loans. Wouldn’t it be ironic if NAMA decided to abandon Paddy’s loans and the Supreme Court decided aspects of NAMA were unconstitutional?
UPDATE (2): 9th February, 2011. Hearing presently taking place (just after midday) in Ireland’s Supreme Court. With the hearing concluded for today, the main points to emerge are (1) NAMA is to convene a special board meeting in the next two weeks to consider whether or not to acquire Paddy’s loans; this sounds serious as, even though Steven Seeling is a non-resident board member, a meeting even via telephone could have been organised more quickly (2) the Supreme Court will issue its judgment presently on two of the remaining three strands to Paddy’s appeal having decided that one strand is no longer relevant – the two strands are the fairness of NAMA’s procedures and the constitutionality of the Act, the one strand not judged any longer relevant was (I’m assuming) the eligibility of Paddy’s assets (3) according to RTE “the court was told that NAMA had made contact with the [European] Commission and the Commission was likely to accommodate an extension of this period [ending 28th February, 2011, the deadline for completing transfers under the EU Decision in February, 2010] for Mr McKillen’s loans and other loans which were ‘in suspense’ pending the outcome of the court proceedings [yesterday’s Anglo unaudited full year statement showed €1.1bn par value of remaining NAMA loans with a €0.1bn provision – Paddy was reported to have €899m of Anglo loans at par value so it seems that it is more than just Paddy objecting to loans being absorbed]. There is more comprehensive reporting of the hearing from the Irish Times.
UPDATE (1): 9th February, 2011. Not a mig out of NAMA officially since last Thursday though there are rumours that the agency has a few major issues to contend with at present. The parties are due back in court today where NAMA’s intentions should become clear (the betting is that they will move to absorb Paddy’s loans). It is unclear at this point if there will be a decision with respect to Paddy’s other strands to his appeal (essentially fairness of NAMA’s procedures and constitutionality of NAMA) or if the judges will need retire to consider the matter further. Of course NAMA might decide to abandon Paddy’s loans or the parties might come to an agreement as to the transfers. Updates later today.
UPDATE: 7th February, 2011. NAMA has now had four days to consider the Paddy McKillen judgment and would be expected to announce today its decision as how to proceed with this case. The betting is that they will ratify the pre-21st December, 2009 decision to absorb Paddy’s loans which would mean that the Supreme Court may need to rule on the other aspects of Paddy’s claim which relate to the NAMA Act and NAMA’s procedures which exclude the borrower from any decision on absorbing loans. The Supreme Court has stated that it will return to this case this coming Wednesday, 9th February and will want to hear how NAMA intends proceeding. Elsewhere the wily Barclay brothers are showing no signs of slowing down in their dotage (the twins are 75 years old) as they pursue their interests in Paddy’s Maybourne group. The Financial Times (free registration required) reports that the twins have bought Bank of Scotland debt – funny how Paddy objected to NAMA buying his debt but the Barclays’ move seems to have gone unchallenged – and apparently the BoS debt can be converted to equity. Remember the Barclays are already said to own Peter Green’s 25% share of Maybourne and are said to be awaiting approval from NAMA for the purchase of Derek Quinlan’s 35%. Paddy owns 37% and Kyran McLaughlin a reported 3%.
3rd February, 2011. The headline will be Paddy wins, but in truth the decision this morning is akin to the firing squad somehow missing the condemned man, they’ll simply reload and shoot again. The decision by the Supreme Court upheld one strand of Paddy’s appeal, that the decision taken by NAMA in early December 2009 was not validly made by the agency that only formally came into being on 21st December, 2009. The agency is likely to formalise the decision to acquire Paddy’s loans today which will then trigger the Supreme Court’s ruling on the other three strands of the appeal.
2nd February, 2011. The judgment will be handed down by the Supreme Court tomorrow morning, it is reported by the Irish Times. I would tend to think that this matter might be more closely judged than at the special division of the High Court. On a simplistic level NAMA’s powers in relation to property and borrowers are colossal and the Supreme Court might be more uneasy about this. That said, I think it would be surprising if Paddy succeeded in his appeal. Comment and analysis here tomorrow.
25th January, 2011. News that the Barclay brothers have increased their stake in Maybourne from 25% to 60% with the acquisition of Derek Quinlan’s stake. Paddy is reported to still hold 37% of Maybourne.
24th January, 2011. Still no sign of the decision by the Supreme Court but Paddy’s Maybourne group has a new investor : the Barclay brothers.
17th January, 2011. No sign yet of the decision by the Supreme Court but Property Week reported on Friday last that NAMA had agreed to extend Maybourne’s GBP £660m financing for two years. Of course NAMA has not yet absorbed the loans despite winning the case against Paddy at the High Court late last year and the NAMA CEO Brendan McDonagh referred to €3bn of loans not yet acquired by the agency at last week’s Committee of Public Accounts hearing which included Paddy’s loans. So NAMA is presumably exercising its rights under the NAMA Act which allow the agency to direct banks’ actions in respect of NAMA-bound loans. Still though, it’s interesting that the agency that Paddy is fighting tooth-and-nail has thrown him a lifeline.
Day 5 (no hearing on Tuesday 21st) at the Supreme Court (22nd December, 2010) – In part based on reporting from the Irish Times, and RTE. The case concluded with closing speeches from both sides. Again, nothing new in terms of argument or fact. As expected the judgment was reserved and is expected to be handed down in the New Year – the new legal term begins on 11th January, 2011.
Day 4 at the Supreme Court (20th December, 2010) – In part based on reporting in the Irish Times, Irish Examiner and RTE. Well this is turning into a right old snoozathon as the Attorney General Paul Gallagher continues to rehash the State’s arguments that defeated Paddy at the High Court. Not an iota of new information or argument reported for Monday. The court will not be sitting in the case on Tuesday and is set to complete the hearing on Wednesday (22nd December, 2010) with a decision expected in the New Year. The Irish Times leads with one of the many puzzling aspects of this case – Paddy has had the best part of two years to refinance his loans with a non-NAMA bank and hasn’t. The position on here with respect to the Paddy McKillen case is neutral but it is incredible that NAMA has not moved to absorb Paddy’s loans, particularly after NAMA’s victory in the High Court on 1st November, 2010.
19th December, 2010. Neil Callanan in Ireland’s Sunday Tribune has been doing some digging and has found that one of Paddy’s companies (and one of the 15 taking the action against NAMA), May Property Holdings Limited has a qualified audit report in its 2009 accounts, the auditors being KPMG. KPMG were concerned that the valuations of property did not reflect reality – “the effect of its omission [downward revaluation of property] is likely to materially overstate the carrying value of the company’s fixed assets and understate its losses for the year and retained earnings at 31 December 2009”. Back in October, 2010 we reported on one of Paddy’s companies, Belfast Office Properties Limited which was about to be struck off for not filing accounts (remedied at the last minute) – the company reported losses of GBP £4.5m for 2009 compared with a profit of GBP £2m the year before. It remains a mystery on here as to why NAMA do not immediately move to absorb Paddy’s loans and obtain a statement of assets and an overview of the financial condition of Paddy’s empire.
Day 3 at the Supreme Court (17th December, 2010) – In part based on reporting in the Irish Times and RTE (they both seem to get their pieces from the same pool). Attorney General Paul Gallagher took to the stage to open NAMA’s reply to Paddy’s appeal. It was the High Court case Redux as the same replies were made to the same arguments on Paddy’s side. There doesn’t seem to have been any new information or argument though the reporting of Anglo’s decision to object to Paddy’s loans being transferred from Anglo to NAMA seems weak – both RTE and the Independent say “While Anglo Irish Bank CEO Mike Aynsley had said Anglo wanted to keep the McKillen loans, that followed Anglo’s voluntary decision to go into NAMA which would take over the rights and obligations of the bank regarding the loans ‘and no more’, the Attorney said.” To be clear there is a facility in the NAMA Act whereby the Participating Institutions (PIs – AIB. Anglo, BoI, EBS and INBS) were able to object to certain loans being classed as eligible. It is understood that Anglo objected to Paddy’s loans being transferred. (the procedure for review by an expert reviewer of any designation is set out at Part 7 of the Act). I’m not sure this point was adequately covered in the High Court (roughly from para 6.30 in the High Court decision) and there may indeed be a story in there as to Anglo’s motivations in keeping Paddy’s loans. The case is now to continue on Monday next and the betting is that the hearing will be concluded before Christmas with a decision in the New Year. Meanwhile Paddy has a reported GBP 610m to refinance in respect of the Maybourne group in the next two weeks – tick, tock…
Day 2 at the Supreme Court (16th December, 2010) – In part based on reporting in the Irish Times and Irish Examiner. Paddy’s legal team led by Michael Cush SC continued to rehash their failed campaign in the High Court. Attorney General Paul Gallagher will reply on behalf of NAMA on Friday. What was of note on Thursday was the claim that Paddy had rejected a €1bn offer for the Maybourne hotel group in London “but he may have sold had he been aware of Nama’s intention” say the Irish Times. Now this is interesting. Remember that Coroin acquired what was then the Savoy group of hotels (the three remaining Maybourne hotels – Claridge’s, the Berkeley and the Connaught – and the Savoy) in 2004 for GBP 750m. In 2005, just eight months later, the Savoy Hotel was sold for an estimated GBP 250m to Fairmont Hotels (a concern controlled by Kingdom Holding Company in turn controlled by Prince Alwaleed Bin Talal Bin Abdulaziz Alsaud of Saudi Arabia). NAMA didn’t even exist as a concept until the start of 2009, and the implication on Paddy’s side seems to be that the €1bn offer coincided with NAMA’s existence (from its conception in early 2009). So what Paddy’s side seem to be claiming is that the rump of the Savoy group (Claridge’s, the Connaught and Berkeley) which were worth a residual GBP 500m in 2004/5 increased in value to some GBP 809 – 973m (using euro: GBP high and low rates of 0.9773 and 0.8093 between say January 2009 and July 2010 when Paddy launched his legal action). Commercial values in the UK reached a peak in June 2007 and continued to decline until July 2009 so that between Jan 2009 and Jul 2010 average commercial prices were down 35-45% from peak. So in very rough terms the Maybourne hotels if valued at GBP 500m in mid-2004 would need to have increased by 40-50% per annum compound in each of the three years to mid-2007 before dropping by an average of 40% (the average commercial drop from mid-2007 to Jan 09-Jul 10) to be worth GBP 809 – 973m. I would have said that was optimistic, even if the Maybourne hotels are unique assets. Though perhaps not relevant to NAMA’s arguments on Friday, it would be interesting if Paul Gallagher explored the seriousness, context and detail of the €1bn offer.
DAY 1 at the Supreme Court (15th December, 2010) – Based on reporting from the Irish Times, Independent and RTE. Paddy’s appeal got underway before the seven judge Supreme Court on Wednesday and is pencilled in to last three days. Michael Cush SC continues to lead Paddy’s defence and opened the case by attempting to ressurrect all five strands of Paddy’s case as presented at the High Court (see waaay below). In terms of new information, it was asserted that if Paddy’s loan assets were liquidated today, Paddy would still have €200m left over after paying the banks which seems at odds with the most recent 2009 Sunday Times Rich List which put Paddy’s wealth at €75m (equivalent) though commercial property in the UK has enjoyed a reasonably good year being up 7%-odd in the 11 months to November 2010. Still for what seems like a highly leveraged asset holding, €200m looks high to say the least. NAMA continues to restrain itself in acquiring the loans pending the outcome of the appeal. The Supreme Court decision is expected in the New Year. Should Paddy lose what then? An appeal to Europe? The appeal process could take years. Is NAMA going to wait that long before absorbing Paddy’s loans which should have been absorbed by May 10th, 2010?
15th December, 2010. It has been pretty quiet on the Paddy McKillen front in advance of the opening of the appeal at the Supreme Court in Dublin today. The Guardian last week reported that the refinancing talks relating to the Paddy’s Maybourne group which owns the 5-star Claridge’s, the Connaught and the Berkeley hotels in London had “stalled” though Paddy’s spokeswoman is quoted as saying “the refinancing of the hotels is in the final stages and we are not in a position to comment on it until it is complete “. RTE is reporting that the appeal today will be heard by all seven judges of the Supreme Court. At €258,000 each for the judges led by Mr Justice Adrian Hardiman and with the expected horde of barristers and solicitors it is expected to be another expensive display of justice. The betting is the decision will be handed down in the New Year. Paddy continues to hold on to his loans pending the outcome of the appeal which could potentially be Euro-bound next year – it is deeply puzzling as to why NAMA has not absorbed the loans on the back of the High Court decision.
2nd December, 2010. RTE is reporting that the hearing of the appeal at the Supreme Court has been set down for 15th December, 2010 and is scheduled to last “a number of days”. The judgment is likely to be in January 2010. Paddy’s loans still haven’t been transferred to NAMA.
18th November, 2010. The Irish Times is reporting that the appeal will be heard by the Supreme Court before 21st December, 2010, possibly well before. NAMA has agreed to continue the stay on transferring Paddy’s loans pending the outcome of the appeal.
15th November, 2010. The special division of the High Court which examined Paddy’s application for leave to appeal has produced its written determination on the courts.ie website. There is little in it which hasn’t been reported and of course the bottom line is that Paddy has been granted leave to appeal on two grounds (constitutionality of the NAMA Act which is an automatic ground and the fair procedures strand to his case) and as recorded by the Court, Paddy is entitled to try to raise the other strands of his case including the EU decision when his appeal is actually heard. We should have greater clarity come this Thursday as to when the appeal will be heard.
13th November, 2010. The Irish Times reports that both NAMA and Paddy have agreed to defer the hearing for the application for the stay on transferring Paddy’s loans until Thursday next 18th November, 2010. With respect to the appeal, apparently Thursday next is also when both sides will ask for an early hearing. But after the Supreme Court, then Europe? (should Paddy lose of course!). It is now six months since NAMA should have absorbed Paddy’s loans and by now they should have had a business plan showing full exposures & indeed full details of Paddy’s own assets which the Sunday Times valued at about €75m in 2009 .
12th November, 2010. D-Day for Paddy. In my opinion the hearing today, where Paddy is expected to seek a stay on NAMA acquiring his loans pending the outcome of any appeal (to the Supreme Court? to Europe?), is more significant than the judicial review itself. It seems to be the case that NAMA has not acquired any of Paddy’s loans, despite ambiguous reporting previously which suggested that some of the BoI loans had indeed transferred. Paddy accordingly has not produced a business plan for NAMA showing his total exposure (€2.1bn is to NAMA banks apparently, but how much is owed to non-NAMA banks?). And despite protestations about the health of his businesses, the fact remains that loans which have expired have not been repaid (Paddy seems to argue that this is normal and he has not been served with a formal default notice). And the property secured by €2.1bn of loans seems to be worth €1.7-2.28bn, so there would appear to be no small amount of risk to the lending. So a key hearing today.
11th November, 2010. The case was back in the courts this morning and it seems certain now that Paddy will appeal. However barristers representing Paddy and NAMA (and the AG and State) were told that although both sides want an early appeal, the Supreme Court has other complex and detailed cases to dispose of this term. Of more interest (I think) is RTE’s report that Paddy will apply tomorrow to the Supreme Court for a stay on NAMA’s transfer of his loans pending the outcome of the appeal. It is to be hoped that NAMA strenuously and robustly oppose this application – it seems that none of Paddy’s loans has transferred to NAMA so far despite some ambiguous reporting over the summer. Paddy has been trying to refinance the Maybourne loans for some time now without any apparent success and NAMA need to get a cross-bank overview of the condition of the loans and a plan that will see them repaid.
9th November, 2010. Confusion as to whether Paddy might throw in the towel and the date of any substantive appeal hearing. Mary Carolan in the Irish Times probably has the best report on yesterday’s proceedings at the High Court and she claims that Paddy “may” apply to the Supreme Court this week to have his appeal heard (the Independent is reporting that the substantive case might be heard this week or early next week but that seems unlikely). The reporting yesterday of a substantive Supreme Court hearing this week seems misplaced, though no-one (aside from the Independent) seems to be offering an estimated date when the appeal might be heard if Paddy decides to proceed with it (we seem to have more uncertainty about Paddy’s intentions – might he be about to throw in the towel?). The Irish Times also makes the point that any appeal at the Supreme Court can include an application to appeal strands which have not been certified by the High Court so Paddy could theoretically re-open the EU decision, the timing of NAMA’s decision which pre-dated the agency’s inception and whether NAMA considered relevant matters.
6th November, 2010. RTE is reporting that the special division of the High Court that heard Paddy’s application has granted an appeal on two grounds (the constitutionality of NAMA which was an automatic grounds for an appeal and also whether the procedures used by NAMA were fair). They dismissed the other grounds for an appeal (EU only intended NAMA to be for impaired loans, whether NAMA considered relevant matters in acquiring the loans, the date that NAMA decided to acquire Paddy’s loans pre-dated the legal inception of NAMA) as they were not of sufficiently significant public importance. RTE are reporting the appeal hearing may take place before the Supreme Court by the end of this week.
6th November, 2010. Mary Carolan at the Irish Times reports that costs (which “may be up to €2m”) have been awarded against Paddy who is reported not to have resisted the application for costs (that doesn’t mean he necessarily will accept €2m of costs and may seek for the costs to be taxed. ie assessed by the court service). The Irish Times claim that both sides will ask for the appeal (now being reported as “being taken” , that is, for definite) to be fast-tracked to the Supreme Court. Paddy has an automatic right of appeal on challenging the constitutionality of legislation, what remains for the special three-judge division of the High Court to decide is if there are other grounds, additional to the constitutionality, to decide. Section 194 of the NAMA Act precludes appeals on non-constitutional issues raised in legal challenges to the Act unless the High Court certifies the issues are of exceptional public importance. The Independent is reporting that Paddy’s side told the court yesterday that it believed that where an appeal was on constitutional grounds then all points raised in the case (I suppose he is referring to all five strands of Paddy’s case) can be appealed – the judges will decide on Monday whether or not to accept that.
5th November, 2010. RTE report that the three judges in the case will decide on Monday next, 8th November 2010 the grounds on which Paddy can appeal the decision with an acceptance that he can appeal on at least one ground – the constitutionality of the legislation. RTE claim “it is expected that Mr McKillen will proceed with his appeal very shortly after that [decision by judges on the ground of an appeal]”
5th November, 2010. The High Court will again address this case this morning when the not insubstantial issue of costs will be considered with speculation that Paddy may be on the hook for a cool €1m. Paddy has now had four days to consider his next move and all eyes will be on the court to see if he accepts defeat or seeks to appeal the decision to Ireland’s highest court, the Supreme Court. A challenge beyond these shores in Europe is no doubt also being considered. It emerged in the hearing that NAMA has not yet taken over Paddy’s loans. With NAMA expected to complete the transfer of Anglo this week-end it will be interesting to see if NAMA will make a statement on the matter and whether Paddy’s estimate €900m Anglo loans will be absorbed by the agency. In the Seanad yesterday, Senator Eugene Regan, whose correspondence with the EC in August 2010 led to Paddy seeking to expand his application at a late stage to claim the EU never intended NAMA to control unimpaired loans, likened the NAMA legislation to a “Soviet Union-style expropriation of profitable business enterprises for reasons of State.” (according to the Irish Times). Meanwhile there is no update on Maybourne’s latest fling, Northwood Investors and the talks about injecting finance into the luxury hotels’ group or indeed the refinancing of a reported €400m of loans that are due within the next 60 days.
1st November, 2010. The judgment was handed down. Paddy lost all strands of his claim (summary here). The case will be considered again on Friday 5th November 2010 when the issue of costs will be addressed. It is also likely that Paddy will seek an appeal to the Supreme Court. No statement from NAMA but it is to be hoped that get on lickety-split and transfer the €2.1bn of loans and engage fully with Paddy. The man himself may be secretive but his association with NAMA comes down to cents and euros and NAMA should now be moving as quickly as possible to secure its position. UPDATE. NAMA has issued a written statement to the press (not available from the NAMA.ie website yet) in which they express relief at the decison and affirm their commitment to getting on with the work at hand. As at the Academy Awards they thank the many people that made the legal case a success. Some some €900m owing to Anglo by Paddy and his companies, it is to be hoped that NAMA now get on and transfer those loans.
28th October, 2010. No real news on the case, though it is remarkable how quiet the media has been in the aftermath of the hearing. The judgement is due to be handed down on Monday next 1st November, 2010 at 10am. A strong signal was irritatingly given by Paddy’s legal team that an appeal would be closely considered (the signal being the request that all points of Paddy’s case be referred to in any judgement which irked the judges). So there’s unlikely to be an appeal lodged by 10.15am, but the betting is that it is probable that Paddy will appeal if he loses. NAMA will almost definitely appeal should it lose. There is some Paddy-related news appearing on Sky today as it seems that the Maybourne group is locked in intensive refinancing discussions lwith a group led by Northwood Investors headed by John Kukral. A company associated with the refinancing as late as August, Westbrook, seems to have dropped out of the frame. The Northwood deal might see GBP £200m injected into the group alongside a GBP £400m refinancing of debt through Deutsche Bank. Meanwhile Westminster Council have put back to 18th November 2010 their decision regarding the Claridges re-development (the decision being whether to re-instate lapsed planning consent to add 40 rooms to the 5-star hotel).
Day 7 (14th October, 2010) Judgement to be handed down 10am, 1st November, 2010
According to RTE the case concluded this afternoon after Shane Murphy SC responded to the State’s position which it had been setting out over the last three days of the hearing. Nothing remarkable to report from the hearing it seems and certainly nothing new. The judgement will be handed down at 10am on Monday 1st November, 2010. I don’t think anyone at NAMA will lose any sleep about this case
Day 6 (13th October, 2010) Regan letter “written at least at the instigation of Mr McKillen and his companies”
Brian Murray SC for NAMA handed the baton onto Maurice Collins SC who continued to set out the State’s case. The highlight of the day was the treatment of Senator Eugene Regan’s letter to the European Commission in August 2010 and the response from a Commission official which suggested, it is claimed by Paddy’s team, that the EC had always intended that NAMA restrict is operations to impaired loans. The letter and response are available here along with a discussion of their significance. The State argued, according to RTE, “there was no explanation as to how Senator Regan’s letter had come to be written or how it had found its way into the possession of Mr McKillen and his companies. (I obtained both from Senator Regan’s website on 21st September, 2010 which seems to be around the same time as when Paddy sought to expand his application and introduce Senator Regan’s exchange as evidence – so the cheeky answer to the absence of an explanation as to how they came into Paddy’s possession might be via the magic that is the world wide web). Mr Collins went on to say, again according to RTE, that “it now appeared that the letter had been written at least at the instigation of Mr McKillen and his companies”. Senator Regan of course led the FG charge into Europe at the start of this year objecting to NAMA and the question of including impaired loans was previously raised by him, so an implication that he was acting for a businessman to de-rail in court the State’s plans seems a little mischievous. You can see Senator Regan’s previous letters here and here.
Regardless of the circumstances in which the letter was written by Senator Regan, Mr Collins argued that the letter was irrelevant and that furthermore, it was incredible that the Commission did not understand the NAMA legislation (which came into effect in 2009) before issuing their decision on 26th February, 2010.
There seems to have been some intensive questioning by the three judges about NAMA’s decision to transfer Paddy’s loans, and it seems to be accepted that the decision was made on 11th and 14th December, 2009 before NAMA legally came into existence on 21st December, 2009. The judges queried why the decision wasn’t ratified at a NAMA board meeting on 23rd December, 2009. NAMA say that they needed to hit the ground running and there was a substantial programme of work undertaken before December 21st, 2009.
The Irish Examiner makes reference to a hitherto unknown (at least on here) statement from NAMA chairman, Frank Daly, in which NAMA claim that “it is essential for the agency to only deal with financial institutions and not borrowers who have many incentives to forestall its work”. What those “many incentives” are, isn’t reported. And lastly the State argued that instead of his rights being violated, Paddy has in fact benefited from State intervention and regulation of the banking system in the past two years.
The betting is that the case will be wound up later today once Paddy’s team, led by Shane Murphy SC taking over from Michael Cush SC, has made its reply and that judgment will be reserved, meaning the decision will be made at a later date.
Day 5 (12th October, 2010) “9 out of 13”
That’s the rating that BoI gave to Paddy’s loans according to AG Paul Gallagher who started the day yesterday leading the State’s defence. 13, by the way, is worst which demonstrated the uncertain quality of Paddy’s loans and according to RTE, “meant that there would have to be enhanced security and enhanced pricing before any increased exposure by the bank (sic)”. The AG seemed particularly dismissive of some of Paddy’s expert witnesses and claimed that they were wrong to portray Paddy’s loans as good when some had expired without being repaid and others had breached covenants in the loan agreements. The Irish Examiner says that the AG “said that “no credibility” should be placed on the statement of US banking expert Joe Belanger” because “Mr Belanger did not consider the fact that the banks on which Mr McKillen depended would not be in business without huge state support”. And that amazingly there was a failure to recognise the changed capacity of the banks from the party days back in 2007 where “comfortable relationships” existed with the banks, loans were regularly renewed and debt refinanced rather than repaid – this was not sustainable according to an affidavit on NAMA’s side from TCD’s Professor Dermot McAleese. Indeed were it not for State intervention, the banks would be insolvent. Paddy’s experts were also adopting very narrow definitions of “systemic risk” which were not consistent with the definition in the NAMA Act (which I would say is both wide-ranging and imprecise). And that Nobel laureate Joseph Stiglitz’s claim that NAMA will underpay for Paddy’s loans was “absolutely wrong” (I would say that is about right as NAMA is paying an average of 10% so far over the current market values of the loans as LEV and deducting less than that 10% for enforcement and due diligence costs and the NAMA premium – however if NAMA loses Paddy’s loans and if they are good loans then NAMA will be forgoing a profit on its enforcement cost contribution from the banks, that’s an elegant but important distinction).
Brian Murray SC (oddly reported by RTE alone as “Bryan” Murray) then picked up the baton for the State and said that Paddy’s relationship with the banks was governed by contracts and that the Constitution didn’t provide for the protection of “hopes and expectations” not written into the contracts and that Paddy had no right to a long-term banking relationship with roll-over of loans. Again, it was argued, Paddy’s interests should be considered in the context of the overwhelming public interest in NAMA fulfilling its purpose.
Paddy’s legal team took issue with the AG’s attack on Joe Belanger though the judges apparently said that it was appropriate for the AG to take issue with any perceived shortcomings in the witness statements on Paddy’s side.
The State will continue its submissions at 11am this morning in Court 4 in a special divisional court at the High Court. Paddy’s legal team then has a right of reply. The hearing is scheduled to last until Friday this week. The betting is that another two days will be enough.
11th October, 2010. At 11am this morning in Court 4, the hearing will continue with the Attorney General picking up on his opening statements. The case is scheduled to last until Friday this week. Weekend reporting on the case hasn’t added very much though we did learn from the Sunday Times that NAMA’s Head of Tax and Legal, Aideen O’Reilly has apparently confirmed that NAMA is willing to refinance €675m of loans at the Maybourne group (owners of the Berkeley, Connaught and Claridges hotels in London) “on purely commercial terms and based upon a business plan submitted by Maybourne”. We learned from the Sunday Business Post that Paddy has given personal guarantees of €135m on the €2.1bn of NAMA borrowings which apparently include €899m of borrowings from Anglo. The 2009 Sunday Times Rich List cited Paddy’s wealth at GBP £66m (€75m approx at current exchange rates). The SBP article also says that if Paddy’s NAMA assets were disposed of in the short term, he would lose €373m in equity and NAMA would need write off €420m.
Day 4 (8th October, 2010) The elephant in the room – “Paddy can’t repay his loans”
Paddy’s loans came under direct scrutiny yesterday as Attorney General Paul Gallagher SC continued to lead the respondents’ case. Whilst it is claimed that most or all of Paddy’s loans are being serviced, the AG claimed that Paddy could not pay the principal back “today or tomorrow”. Some of the loans have expired which means that he has to pay them back and he can’t claims the AG and there was no better definition of a non-performing or impaired loan than that. Paddy also apparently initially said none of his loans were development loans when that was not the case, and had not disclosed breaches in loan agreements. A suggestion of deliberate non-disclosure by Paddy about the state of his loans was examined and the AG said the matter was of “serious concern”. NAMA’s work could not be held up to allow Paddy time to refinance his loans which he has so far failed to do. Paddy’s case did not stand up to analysis “for one minute” according to the AG.
Some of the matters raised were addressed in part by a reported second affidavit from Paddy in which he claimed established practices allowed loans to remain uncalled-in after expiry.
The AG also took a few swipes at Paddy’s expert witnesses saying it was amazing that the seemingly adverse condition of some of Paddy’s loans was not addressed in witness statements. Nobel prize laureate Joseph Stiglitz’s statement came in for some particular reported criticism – his statement did not recognize definitions within the NAMA Act and in particular did not recognize that the property market had seized up and was not liquid. The significance of this latter point is that although the property may have a theoretical value under normal market conditions, the fact that it was difficult to offload the property at that level would impair loans (even further).
There is an analysis of Paddy’s loan finances at an overview level in the Independent where it is pointed out that the €150m annual rent roll on Paddy’s properties represents just 7.1% of the €2.1bn outstanding to NAMA banks (and Paddy seemingly has exposure to other banks – an article in the Irish Times which reported on the imminent striking off of one of Paddy’s companies due to non-filing of accounts – avoided, according to his spokeswoman by the filing of the accounts yesterday –states that the company, Belfast Office Properties Limited, had exposure to Ulster Bank, a non-NAMA Participating Institution). At a 3% annual rate of interest and assuming a repayment of €150m at the end of each year it would take 18-19 years to repay just the NAMA loans. But the €150m is the gross rent roll and deducted from that would at least be management charges and a provision for obsolescence. Also how much is owed to non-NAMA banks? And Paddy claims he is not a developer but an investor. And whilst the outlook for commercial property in the State is distinctly negative, it is mixed for the UK and US. The Independent point out that the imminent sale of the Liffey Valley Shopping Centre (which has been dragging on for some time) is for a reported €350m and it will have a rent roll of €34m (up from €30m today) and therefore will equate to a 9.7% yield. As the Independent points out if you apply that yield, 9.7%, to Paddy’s rent roll of €150m, you get an indicative valuation of €1,544m (150/0.097) – lower than even the lowest valuation of €1.7bn of Paddy’s property, and quite a ways less than the €2.1bn owed to NAMA banks alone.
The Liffey Value Shopping Centre is co-owned by the Duke of Westminster’s Grosvenor Group. NAMA might hope that the Duke of Westminster does not become a role model for Paddy – the Duke fought (and lost) a seven year legal battle over leasehold reform with the UK government during the 1980s. I am sure NAMA would like certainty in their case (or at least operational certainty allowing them to control Paddy’s loans) in a shorter timeframe.
The case continues before the three judge panel on Tuesday next and is presently penciled in to last until the end of the week.
A day of two halves with Paddy’s team winding up their opening arguments by 1pm and afterwards the respondents (NAMA, the Attorney General and the State) started to set out their position. For only the second time since becoming AG in 2007, Paul Gallagher SC appeared in court in person to lead the respondents’ case.
On Day 1, it was stated by Paddy’s team that he had not wanted to take this action and on Day 3, they concluded by saying that the objective was not to “strike down” NAMA but were adamant that Paddy’s loans should not transfer to NAMA and that Paddy should “get the rights he is entitled to within the NAMA model”. Of gossipy value was the claim that the €40m so-called Golden Circle loan was non-recourse “on which he had no obligations to make payment”, though the claim that this loan has expired may have relevance to whether Paddy has impaired loans. Of greater interest with respect to NAMA was the claim that some email exchanges involving NAMA suggested that NAMA had a profit objective in acquiring Paddy’s loans – a claim apparently contested by the State (though why I don’t know, if you acquire performing loans you get paid an enforcement contribution by the banks which will presumably not be spent and will therefore be profit?).
Paul Gallagher SC claimed it was now accepted by Paddy that his loans were eligible for NAMA and that Paddy’s destiny was largely set from the decision to guarantee the banks in September 2008, that without that guarantee Paddy’s banks might not exist so there wouldn’t be any long-term relationship to damage. And without the banks “Mr McKillen would have been faced with urgent refinancing, transfer or enforcement of his loans by liquidators” according to respondent witness Anne Nolan. The “gasp” moment was possibly when an email was produced from Anglo to Paddy which was claimed to show complaining that Paddy had not engaged with Anglo with refinancing an expired loan (“gasp” because on Day 2 the Anglo CEO had described Paddy in glowing terms). A question commonly asked about Paddy’s loans and asked in court yesterday was why hadn’t Paddy refinanced his loans with non-NAMA Participating Institutions (PIs – AIB, Anglo, BoI, EBS, INBS) if he wanted to avoid NAMA. Of interest also was the legal argument that claimed Paddy had not established grounds for a judicial review. A constant theme was that NAMA is a macro-level response to a financial crisis and cannot carve out separate procedures for micro situations.
An affidavit from NAMA board member and formerly of the IMF, Steven Seelig, claimed that if NAMA had to stop to consult with borrowers over whether they should be admitted to NAMA, and if even 1/3rd of the 1500 borrowers (that would be 850 after last week’s announcements?) availed of such consultation then that would require a significant amount of resource at NAMA and would delay the NAMA project considerably. Again macro versus micro. Of interest also is that Paddy’s loans at BoI were apparently the subject of a review process outlined in the NAMA Act whereby a State-appointed independent expert reviewer (Senior Counsel John McBratney) determined that Paddy’s loans at BoI were eligible. And according to Steven Seelig, Paddy is better off with NAMA than say the proposed new Anglo Asset Recovery Bank because NAMA can at least advance working capital.
In terms of loans which might be classed as impaired, there were claims
(1) Paddy has borrowed €251 million from Anglo on the value of his 50 per cent share of the Jervis Shopping Centre in Dublin, yet this share had a market value of €118.5 million in November 2009
(2) Paddy had breached Loan To Value (LTV – means the value of a loan as a proportion of the value of the property) limits on Bank of Ireland loans, including a loan of €24 million on a building at Place Vendome in Paris which had an LTV of 113 per cent against an agreed limit of 82 per cent
(3) With the sale of a property on London’s Bond Street, Paddy would only agree to sell the property if he received any proceeds over GBP £15 million without disclosing the sale price. NAMA apparently refused because Paddy had more than £29 million in debts within that “collateralised group”.
Day 2 (6th October, 2010) : NAMA’s seat of the trousers, back of an envelope approach to some aspects of its work came under the spotlight again today when Paddy’s team argued that no qualitative assessment of Paddy’s €2.1bn-odd portfolio of loans had been undertaken by NAMA before the decision was taken that these loans were eligible – they saw the amounts, they were with NAMA banks and were property-related and that was enough for NAMA to decide to snaffle Paddy’s loans – or at least that is the gist of what seems to be claimed.
Paddy’s legal team asked the Court that the EU approval of the NAMA scheme in February 2010 be referred back to Brussels if necessary to clarify aspects. Remember it is Paddy’s contention that the EU never intended unimpaired borrowers (and there seems to be disagreement about what “unimpaired” means) to be brought within NAMA control. Referring the approval back to the EU could take “up to four months” according to the Independent’s Legal Editor Dearbhail McDonald.
Anglo’s new-ish CEO, Australian Mike Aynsley is reported to have told the Court that Anglo had objected to the transfer of Paddy’s loans to NAMA, that Paddy was a person that could help the State recover from its economic problems and that Anglo had urged NAMA to meet with Paddy who was “disillusioned, frustrated and alienated” at the process that might see his loans transferred to NAMA. From Anglo’s point of view (and remember that Paddy is reported to have €1.3bn of exposure to AIB and BoI), development loans account for €5m out of €800m.
Several of Paddy’s expert witnesses’ statements including that of Joseph Stiglitz were made public and there is a précis of this statement here. The other statements are being analysed presently. It is also hoped that the statements themselves can be made available here shortly. It seems that the expert witnesses are not present and are not to be cross examined on their submissions which is a shame given the significance of the case – this is being clarified at present.
Paddy’s side should conclude their submissions this afternoon before the State, Attorney General and NAMA swing into action. It is expected that the Attorney General himself Paul Gallagher SC will lead the respondents’ case.
Day 1 (5th October 2010): It’s Paddy’s application and so opening for him yesterday was senior counsel Michael Cush who outlined what Paddy was (and just as importantly wasn’t) setting out to achieve. Paddy is arguing
(1) That the procedures adopted by NAMA in its interpretation of the NAMA Act (particularly in relation to eligible assets) were a denial of a Constitutional right to fair procedures
(2) NAMA failed to exercise relevant considerations when judging the inclusion of Paddy’s loans in NAMA
(4) Under a correct interpretation of the EC approval to the NAMA scheme, at least some of a borrower’s loans must be impaired
(5) The NAMA legislation relating to the definition of eligible loans is so broad as to be unconstitutional
Reasons 1-2 are textbook reasons for launching judicial reviews in Ireland. Reason 3 is new to me in the context of this case. Reason 4 is the cause of the hullabaloo a couple of weeks ago when Paddy sought to include some recent correspondence and to expand his application.
Paddy wasn’t questioning
(1) If NAMA was a good or bad idea or a good or efficient model to deal with the State’s difficulties
(2) The merits of NAMA acquiring Paddy’s loans
(3) The merits of NAMA acquiring unimpaired loans generally
(4) NAMA’s valuation procedures
(5) Whether Paddy’s €2bn-odd of loans were a systemic risk to the banking system
Other detail to emerge was that Paddy had 62 properties (shopping centres, hotels and offices) valued at €1.7bn-€2.28bn (Simon Carswell says €2.8bn) and there are loans totalling about €2.1bn secured against those properties with banks participating in NAMA, all of the loan repayments are being met and that the €150m income being generated on the properties amount to 1.7 times the required interest to be paid. They are 96 per cent let on 25-year leases to blue-chip tenants. It was conceded that the interest cover might have fallen below the permitted ratios on some loans as agreed with the banks but overall it was well above the typical level of 1.2 times interest cover. 26% of the property portfolio is in Ireland, with most of the remainder in the UK (with “many” in Northern Ireland), France and the US. Just 2.5% of his portfolio was land and development. Yesterday it emerged that the offending loan was for a reported GBP £35m on a property adjacent to Paddy’s Berkeley Hotel in London’s Knightsbridge. Of course it would depend on the LTV of the loan and what the property is now worth but 2.5% would seem to relate more to €1.7bn of property (a barrister being tendentious, no!)
5th October, 2010: The hearing starts today in Court 4 at 11am. Remember first off, Paddy needs to secure permission to pursue the judicial review. The betting is that he’ll get that but it’s not a foregone conclusion. There’s another case before the High Court presently where NAMA is listed as an interested party where two developers are seeking a declaration that judicial reviews can be pursued against NAMA action. There’s pretty poor reporting of the case in the press today but Simon Carswell at the Irish Times does seem to have some new detail on the relatively modest loan that has caused Paddy’s €2bn of loans to come NAMA’s way – it’s reportedly for GBP £35m and relates to a property adjacent to the Berkeley Hotel in London’s Knightsbridge (pictured above) – there is a dispute about whether it is a development loan.
25th September, 2010: Buried in the press reporting today of Paddy’s big victory in getting his claim expanded to include the EU letter last week (and frankly given he could have initiated another application to deal with that same issue renders the victory neutral), we get some more details on the case and Paddy McKillen. The Irish Times reports that the €80m Bank of Ireland loan which is the subject of this application (though if this test case succeeds Paddy could presumably argue its application to his reported €2bn of NAMA-bound loans) has in fact been transferred to NAMA. This contradicts earlier reporting that NAMA was placing the transfer of ALL of Paddy’s loans on hold until this legal case had been resolved. Elsewhere the Irish Examiner reports that the judge yesterday said “I am inclining to agree with submissions made by Mr Maurice Collins, counsel for the state and NAMA, when he argued that the decision of the European Commission is the legal instrument and therefore a letter written by an official, no matter how senior, cannot amend or change what is to be found in the decision”. Again the view on here is that the letter in question is not significant though it is significant that Paddy McKillen is throwing everything at this case.
24th September, 2010: RTE report that in the latest case management hearing today, the judge Mr Justice Frank Clarke has granted Paddy’s wish to expand his claim to include the letter sent by the EC to Senator Eugene Regan last week. Although Paddy’s application to include the letter was late, the judge ruled that (a) there were reasons why it was late ie the letter was only sent last week and (b) this is a matter of public interest. Also in my own view as a matter of common sense it is better to dispose of this aspect now rather than wait for a fresh application.
24th September, 2010: Carol Coulter at the Irish Times reports that the case will be heard by a 3-judge panel in a special division of the High Court, which according to Carol signifies how critical this case is. The President of the Court, Mr Justice Nicholas Kearns will hear the case with two wing members, Mr Justice Frank Clarke and the redoubtable Mr Justice Peter Kelly. The Times report that the case is scheduled to last four days which is at odds with recent reports that 2 weeks have been pencilled in.
23rd September, 2010: RTE report that Paddy McKillen is trying to expand his statement of claim to include a reference to the recent correspondence between the EC and Senator Eugene Regan, reported on here. Paddy it seems wants to argue that in approving NAMA, the EC never intended that the scheme apply to unimpaired borrowers. NAMA will dispute this though apparently they claim Paddy is impaired anyway – perhaps a reference to declining property values breaching LTV covenants. There is an error in the RTE report -the case is scheduled to begin on the first day of Michaelmas term on 5th October, 2010 not the 4th as claimed in the report.
21st September, 2010: The Independent reports on what appears to have been a case management hearing at the High Court yesterday where the judge Mr Justice Frank Clarke heard that expert witnesses in the case may need to be cross examined in person. Probably the most high profile of the authors of the 16 confirmed witness statements is Joseph Stiglitz, 2001 joint Nobel economics prize laureate (with George Akerlof and Michael Spence) and NAMA critic. It appears that the case itself is scheduled to last for two weeks and that Paddy McKillen is seeking to amend his statement of claim (no surprise there!). The Irish Independent’s legal editor speculates about whether a letter reported to have been sent from the European Commission to FG senator Eugene Regan last week which implied NAMA’s remit was confined to impaired loans only is relevant to the change in the statement of claim. As reported on here this letter is a red herring and merely re-iterates what was in the EU Decision of 26th February, 2010 which was in turn based on a review which included the NAMA eligible bank asset regulation.
11th September, 2010: Well it seems as if the summer hols are well and truly over as regards this case. Activity is ramping up and we are still four weeks away from the day itself when the case is set for an airing at Dublin’s Commercial Court. Today the Independent report that Paddy McKillen has €2bn of loans with Bank of Ireland and Anglo, which is an considerable increase on previous estimates which have centered on a €800m facility from Anglo. So Paddy McKillen alone apparently represents 2.5% of all of NAMA’s loans. And if, as he asserts, his loans are performing then the eventuality that Paddy wins his case would indeed represent a major blow to NAMA’s finances and particularly its early years cashflow. The Independent also seems to have the inside track on some of the content of the argument and indeed witness statements from Paddy’s side. Paddy’s side, it seems, is going to strike at the very soul of NAMA, questioning its utility in addressing the financial crisis. It seems that NAMA’s very existence is to be debated by world-class economists (on both sides) in a way that it wasn’t a year ago in the Dail.
10th September, 2010: Simon Carswell at the Irish Times today reports that affadavits have been sworn in support of Paddy McKillen’s case by Nobel economics prize winner Joseph Stiglitz, a prominent critic of NAMA in 2009 together with eight others. Simon would probably want to be careful with the use of the word “recruit” when talking about expert witnesses. Seven of Paddy’s nine witnesses (assuming 1 witness statement = 1 distinct witness) are reported to be
(1) Joseph Stiglitz, Nobel economics prize winner
(2) Jim Power, economist at Friends First in Ireland
(3) Michael Cragg, Columbia University economics professor
(4) Joe Belanger, US banking consultant
(5) Ciarán Ó hOghartaigh, professor of accounting at UCD
(6) Connor O’Malley, banking consultant
(7) Marcus Sewell Trench, UK banker
27th August 2010: Simon Carswell at the Irish Times today reports that affidavits have been sworn by two Trinity College Dublin economists in support of NAMA’s case at the forthcoming judicial review. The two named economists are Philip R. Lane and Dermot McAleese. According to the Irish Times, Prof Lane declined to comment on the matter and Prof McAleese could not be contacted. Simon Carswell says that it is believed that the affidavits address points raised in an “affidavit filed by Mr McKillen last month setting out his grievances with Nama’s purchase of his loans”. Paddyy McKillen is reported to be filing his expert statements next month in advance of the hearing which is set to begin on 5th October, 2010. The Irish Times article also claims that affidavits have been sworn on behalf of NAMA’s position by
Brendan McDonagh, NAMA CEO
John Mulcahy, NAMA’s Head of Portfolio Management
Aideen O’Reilly, NAMA’s Head of Legal and Tax
Ian Goldsworthy, both senior executives at UK investment bank HSBC (and selected service provider to NAMA for banking and finance advisory services)
Neither Philip Lane or Dermot McAleese were amongst the 46 signatories to that letter to the Irish Times on 26th August 2009 which questioned aspects of NAMA’s operation. Philip Lane is a contributor to the irisheconomy.ie forum where economic issues including NAMA are debated.
25th August, 2010. The Belfast Telegraph has apparently contacted NAMA to establish whether any Paddy McKillen loans transferred in tranche 2. They say “NAMA refused to confirm whether McKillen’s loans were included in the second tranche.”. Let us be reminded that it was the Independent story on 19th July, 2010 which said “NAMA told Mr McKillen that it would not transfer any of his loans pending the outcome of his judicial review proceedings”.
24th August, 2010. Simon Carswell at the Irish Times manages to muddy the waters today by claiming that “some McKillen loans [were] excluded from second Anglo NAMA transfer” and “it’s understood that the transfer of MOST [my emphasis] of his loans to Nama are on hold, pending the outcome of his judicial review against their sale.” NAMA have given us to understand that none of his loans will be transferred until the judicial review has been disposed of. The status of NAMA’s involvement in the Maybourne group is also muddied – earlier this month, the Irish Independent reported “part of Maybourne’s hotel assets have been placed with NAMA, although that decision is being challenged in the courts by Mr McKillen.” Meanwhile there is no further news from Maybourne since the start of August regarding the “inundation” of expressions of interest in the refinancing of the group.
6th August, 2010. Paddy McKillen’s Maybourne Group (owners of Claridges, the Connaught and Berkeley Court hotels in London) seems keen to emphasise that refinancing of the group is imminent. Today the Irish Times reports that Maybourne are claiming they’re “inundated” with expressions of interest in providing finance to the group. Westbrook Partners are cited and there’s an unnamed US property trust, then there’s unnamed Middle Easterns (the Savoy which was once owned by Maybourne was sold to Saudi Arabian businessman al-Walid bin Talal).
3rd August, 2010. One of Paddy’s companies and one of the 15 joined applcants for the judicial review, Metrospa Limited is reported to have sold the freehold in a property on London’s Bond Street, a sale which Paddy had previously said was being prevented by his lender, Bank of Ireland.
1st August, 2010. Buried in Daniel McConnell’s analysis-of-NAMA piece in today’s Independent is confirmation, it would seem, that Paddy McKillen was not one of the NAMA Top 10 transferred in tranche 1. His Top 10 slot appears to have gone to Joe, Peter and Michael Cosgrave and their flagship company, the Cosgrave Property Group. So it really seems that NAMA are not transferring Paddy’s loans until the judicial review business is disposed of.
31st July, 2010. Britain’s Daily Telegraph reports that the Maybourne Group in which Paddy McKillen is a major shareholder is “close” to a deal with two US property companies, one unnamed property trust and Westbrook Partners, to refinance Maybourne’s debt with NAMA financial institutions (AIB and Anglo). As NAMA have apparently said that they will not transfer Paddy McKillen’s loans until his judicial review application has been disposed of, it may be that the group which runs Claridges, the Connaught and Berkeley hotels in London may remain outside NAMA. Whether any of part of Maybourne is in NAMA’s control is unclear – Derek Quinlan is also a major shareholder in the group and his loans reportedly transferred in tranche 1.
25th July, 2010. The Sunday Business Post report that it seems that the Maybourne hotel group (parent company is Coroin in which Paddy McKillen has a major shareholding) is about to complete the refinancing of loans with non-NAMA banks, loans that would have been going to NAMA. And indeed these loans would probably already be with NAMA if NAMA hadn’t given an undertaking not to attempt to transfer Paddy McKillen’s loans pending the outcome of the application for the judicial review.
25th July, 2010. Bank of Ireland, whose €80m of loans to Paddy are the subject immediately at issue in Paddy’s judicial review, are reported by the Independent to have written to Paddy’s tenants directing them to pay their rent directly to Bank of Ireland. In an email to Paddy, BoI claim they are “perfecting” the security underlying the loans. NAMA recently said that they were shocked to find that some lenders had failed to take control of rent-rolls of borrowers, so BoI’s action might be a consequence of that shock. The Indepedent also reports that Paddy seems to be barred from meeting NAMA by dint of the NAMA Act, (maybe when Mary Hanafin is meeting with NAMA to discuss family-owned hotels, Paddy could sneak in behind her).
22nd July 2010. The Irish Times reports that a hearing date for the case has been brought forward one week to October 5th, 2010 by mutual consent and apparently a review is ongoing as to whether the reported €800m of loans belong to Paddy and his companies at Anglo “should be transferred”. It would be helpful to know what “review” this is. Is this a review prompted by Anglo’s protests as to the eligibility of the loans? Is this NAMA reviewing whether to transfer the loans regardless of the judicial review proceedings/outcome? Yesterday it was reported that NAMA had agreed not to transfer the loans pending the outcome of the judicial review – is that still the case?
21st July, 2010. The Independent reports that the transfer of Paddy’s loans to NAMA have been put on hold pending the outcome of the judicial review. Paddy may also be on the hook for costs including commercial losses incurred by NAMA including “a drop in the market value of the properties”.
20th July, 2010. Simon Carswell writing in the Irish Times reveals some detail on the apparent attempt by Anglo to stop the transfer of Paddy’s loans to NAMA. The protest by Anglo is apparently the subject of a review though Paddy is excluded from it, much to Paddy’s annoyance. Of particular interest is the report that Anglo accused NAMA of making “factual errors” in representing the status of Paddy’s loans to Paddy’s representatives.
19th July, 2010. Mary Carolan at the Irish Times has turned in a very informative report on today’s proceedings at the High Court/Commercial Court. In particular she cites an affadavit produced by Ann Nolan, Assistant Secretary in the Department of Finance which sets out in a little more detail the State’s opposition to Paddy’s application. Mary also tells is that the case is pencilled in to last 4 days when it starts on 12th October, 2010.
19th July, 2010. Case is set down for a substantive hearing at the Commercial Court on 12th October, 2010.
19th July, 2010. The Sunday Business Post yesterday reported that the Attorney General (reported to be one of the counterparties to Paddy’s application) has given assurances as to the State’s position. Only an hour to go before the matter comes before the courts though today might be confined to directions and there may be nothing of substance to report.
14th July, 2010 – application by NAMA (apparently unopposed) to attempt to have the case transferred to the Commercial Court (Ireland’s successful division of the High Court where certain commercial transactions are dealt with). The application will be heard on 19th July, 2010.
1st July, 2010 – application for a judicial review by Paddy McKillen made to Ireland’s High Court
Paddy McKillen and 15 of his companies
1. Dellway Investments
3. Berkeley Properties
5. May Property Holdings
6. SCI 20 Place Vendome
7. Directdivide Trading
9. Belfast Office Properties
10. the Forge Limited Partnership
11. Finbrook Investments
12. Connis Property Services
13. Formcrest Construction
14. Chesterfield (The Pavements) Subsidiary
15. Abey Developments
NAMA, the State and the Attorney General (Paul Gallagher)
Ref: 2010 909 JR
Relates to €80m (reporting on 5th October, 2010 suggests that it is €211m, the Irish Examiner claims on 8th October, 2010 that NAMA considers the sum to be €297m) of Paddy’s loans held by Bank of Ireland earmarked for NAMA. Although the application has not been published, it is reported that it touches on the following
1. Paddy’s loans aren’t NAMA eligible assets.
2. Paddy wasn’t given enough time to re-finance his assets
3. NAMA valuations are lower than Paddy’s valuations
4. To be associated with NAMA is damaging to your commercial reputation
5. NAMA offends the Constitution and EU rules with respect to property rights
Paddy has other substantial loans with NAMA financial institutions including a reported €800m with Anglo. Paddy has reserved his position in respect of these other loans.
1st July, 2010 – Paddy McKillen submits application to Ireland’s High Court for a judicial review of NAMA’s dealings with his loans
14th July, 2010 – Application made by the State (unopposed by the applicant) to have the matter transferred from the High Court to the Commercial Court
19th July 2010 – approval to transfer case from the High Court to the Commercial Court, case set down for 4 days in October, 2010
5th October, 2010 – consideration of the application which if accepted, will be followed by a hearing of the application itself. Two weeks have been allocated. The Irish Times says on 24th September, 2010 that the case is scheduled to last four days.
14th October, 2010 – the hearing at the special division of the High Court concludes
1st November, 2010 – the judgment at the High Court was handed down.. Paddy loses on all counts.
18th November, 2010 – terms of appeal to the Supreme Court decided by the High Court
15th December, 2010 – opening of appeal hearing at the Supreme Court
23rd December, 2010 – hearing of appeal at the Supreme Court concludes
3rd February, 2011 – judgment expected from the Supreme Court
The Commercial Court division of the High Court – on 24th September, 2010 the Irish Times claimed that the case will be heard in a special division of the High Court by a panel of three judges led by the President of the High Court, Mr Justice Nicholas Kearns with Mr Justice Peter Kelly and Mr Justice Frank Clarke acting as wings.
The Supreme Court where a seven judge panel is hearing the appeal (normally three, five or seven judge panels will hear appeals – seven judges indicates the appeal is of the highest significance)