You can’t make a decision if you don’t exist, rules Supreme Court

AS John B Keane’s widow Mary is fond of saying: “you have to be awful smart when you’re dealing with stupid people”.

The Supreme Court didn’t quite put it that way but they could be forgiven for having been in that frame of mind when considering the ramifications surrounding the Government’s handling of Ireland’s economic freefall.

Yesterday the nation’s seven most senior judges held in favour of developer Paddy McKillen in his legal challenge to stop the state’s “bad bank”, the National Asset Management Agency (NAMA), taking control of €2.1 billion in loans, overturning an earlier ruling that NAMA properly acquired the loans owed by the property investor’s companies.

The court found the initial decision to acquire the loans by NAMA, an organisation which came into force on December 21, 2009, to clear Irish banks of their mountain of property debt, was invalid as it was taken by an interim team prior to the agency coming into existence.

In other words, you can’t make a decision if you don’t exist. Yet that is exactly what the embryonic version of the organisation — a kind of unborn NAMA — purported to do and what the state tried to defend, spending tens of thousands of taxpayers’ money in order to do so.

As Chief Justice John Murray put it: “It is axiomatic that NAMA could not make any decision before it came into existence. It is a matter of fundamental legal principle that a statutory body may only perform its functions as authorised by its founding statute.

“It follows that the decision of the interim team made at meetings on December 11 and 14, 2009, was, in law, at the time when it was made, a nullity and had no legal effect.”

The developer, who has 62 properties including shopping centres, hotels and offices, has extensive loans with both state-owned Anglo Irish Bank and the Bank of Ireland. His legal team argued that most of his loans were performing well in the current climate and almost all properties are occupied by tenants.

Attorney General Paul Gallagher, who represented the state, said the acquisition of loans was necessary because of the extent of exposure to the financial institutions participating in NAMA.

Finance Minister Brian Lenihan said he needed to study the judgment before making a comment. He then went on to do exactly the opposite. “He may have won on a technical issue but lost on the merits,” said the minister, who is a barrister and graduate of the King’s Inns in Dublin.

The minister is wrong on both counts. Firstly, this is hardly a “technical” victory. It goes to the heart of how he and his team have handled the economic crisis since 2008. It is extraordinary that nobody would have raised red flags along the way to warn that any decision made — particularly one involving more than €2bn in loans — would have to be beyond question.

It also beggars belief that when NAMA came into existence that any decisions reached prior to that date could not have been copper-fastened afterwards. In fact, the Supreme Court raises that very issue.

“NAMA could have made a valid decision following establishment,” says the judgment. “It could have done this independently of any prior work of the interim team. It could also have done so by reference to that work. In either event, the essential point is that it would have to be a decision of the NAMA board.”

Counsel for the state argued that while NAMA made no explicit decision, it could be implied, an argument won in the High Court last year.

However, that was an implication too far for the Supreme Court. In any event the NAMA board considered that the decision on the loans had already been made, which begs the question of how a further decision — implied or otherwise — would have been considered necessary.

The Chief Justice put it succinctly: “It is clear from a reading of all the material offered that the board of NAMA and its officers considered the matter to have been decided on 11th and 14th December. There being in their minds no need for a further decision, it is not surprising that they never purported to make one.”

Despite the ruling, it would probably be presumptive of any straitened developer to crack open the Champagne just yet. The decision is based on the merits of an individual case and is unlikely to have broader implication. Any decisions by NAMA — after it was properly constituted — to acquire loans are likely to be upheld by the courts here, so long as proper procedure and due consideration is shown.

In any event, Paddy McKillen is expected to be involved in future legal jousts with NAMA and the prospect is that he may not emerge as triumphant next time round.