THE STATE is facing a legal costs bill estimated at up to €7 million following property investor Paddy McKillen’s successful legal challenge to the proposed acquisition by the National Assets Management Agency of about €1.4 billion in loans of his companies.
Mr McKillen secured a legal costs order from a seven-judge Supreme Court against Nama yesterday as it emerged the agency has now decided not to acquire the loans that were at the centre of High and Supreme Court proceedings lasting 12 days and involving huge costs.
Lawyers for Mr McKillen yesterday received a letter from Nama stating it no longer proposed to acquire the loans.
As a result of Supreme Court decisions earlier this year, Nama, if it wished to acquire the McKillen loans, would have had to re-start the entire acquisition process and would have had to provide Mr McKillen with an opportunity to make submissions against acquisition.
Mr McKillen’s lawyers had indicated the possibility of a further legal challenge, depending on how Nama conducted any such process.
The decision against acquisition came yesterday just before the Supreme Court awarded Mr McKillen his legal costs against Nama following his successful challenge to the proposed acquisition of loans of McKillen entities with Bank of Ireland. The case had implications for additional loans of the McKillen entities.
Last year, the High Court was told by the then attorney general Paul Gallagher those entities had total loan exposure of €2.1 billion to the participating financial institutions, including €800 million to Anglo Irish Bank. Yesterday, Nama said the loans affected totalled about €1.4 billion.
Last February, the seven-judge Supreme Court allowed Mr McKillen’s appeal against a three-judge High Court decision clearing the way for the proposed acquisition.
The Supreme Court ruled Nama never made any lawful decision to acquire the loans, but deferred to April its judgment on other issues central to the work of Nama.
Just after the February decision, Nama said it would make a formal decision within weeks on whether or not to acquire the McKillen loans. The court also heard a number of loans to other parties were “in suspense” due to the McKillen action.
Dealing with costs issues yesterday, Michael Cush SC, for Mr McKillen, sought his costs for all of the proceedings in the High and Supreme Courts, which ran for a total of 12 days. Counsel sought the costs of the proceedings, all reserved costs, costs of discovery of documents and the costs of an overnight transcript of the case.
Brian Murray SC, for Nama, said while the normal rule is that costs go to the winning side, it had been acknowledged in some cases that, where the winning party did not succeed on all issues raised, the losing side could recover some costs.
Mr Justice Nial Fennelly noted Mr McKillen had won on the “fundamental” issue concerning the decision to acquire the loans.
Chief Justice John Murray said the court believed Mr McKillen was entitled to his costs against the defendants.
COURT CASE: DEVELOPER GOT MUCH OF WHAT HE WANTED
BOTH PADDY McKillen and Nama were claiming victory yesterday after the Supreme Court heard the State assets agency has decided not take control of €1.4 billion worth of loans from the Irish banks to the developer.
The hearing was the last round in the challenge brought last year by McKillen against Nama, claiming, among other things, that the agency had no right to take control of his loans, that it was unconstitutional and its activities amounted to a form of state aid banned by EU law.
Nama began taking control of McKillen’s loans in December 2009 before legislation brought it officially into being. Last February, the court ruled Nama did not lawfully acquire the loans.
In a deferred judgment in April, the court stated the agency had to give the developer a fair hearing and an opportunity to tell it why it should not take control of debts he owed the banks. This knocked the whole process back to square one.
McKillen paid off some of the capital due to the banks, and projects previously classed as “land and development”, placing them firmly in Nama’s remit, were now classed as “investment”, or outside its brief. So, as the status of the loans changed, Nama no longer felt it was necessary to take charge of them.
McKillen, whose assets include Dublin’s Jervis Street shopping mall and a number of plush London hotels, has got much of what he wanted. He has kept €1.4 billion worth of debt out of Nama. In a further boost to his claim that he won the day, the Supreme Court awarded costs, around €7 million, against Nama. The “losing” litigant normally picks up the tab for the whole party.
But Nama can also claim to have won something from the case as a whole. The Supreme Court shot down McKillen’s claim that the agency’s activities were unconstitutional and an illegal state aid. If it had ruled for these arguments, Nama would have been sunk and the whole process would have to be unwound.
It is still getting around €700 million of McKillen’s total €2.1 billion portfolio, and the case has not stopped it taking over about 95 per cent of the €70 billion property development loans it originally set out to take off the five Irish banks’ balance sheets.
Those banks, or what’s left of them, are the silent partners in all this. Nama’s decision means they hold on to McKillen’s business.
BARRY O'HALLORAN
