Ireland's National Asset Management Agency won a High Court legal battle against Treasury Holdings earlier this week, but it may end up losing the war. Finlay Geoghegan J.'s judgment,  IEHC 297, cannot have been well received at NAMA headquarters. Over at NAMA Wine Lake, the editors wonder out loud "if indeed the Agency is panicking at the prospect of floodgates of legal action in the wake of yesterday’s judgment".
Perhaps panic is too strong a word, but the judgment is troubling from NAMA's point of view.
To simplify, NAMA is the government entity that purchased property loans from Irish banks. Treasury had borrowed large sums of money secured on various properties. These loan facilities were taken into NAMA. Treasury's loans were non-performing, however.
There was much back and forth between Treasury and NAMA about Treasury's plan to service the loans. NAMA was clear that an arrangement would have to be reached to its satisfaction.
Apparently NAMA never explicitly threatened to 'call in' the loans. Treasury proceeded on the basis that an agreement could be worked out with NAMA. In particular, fearing reputational damage if the loans were called in, Treasury wanted to make an arrangement with some third parties (anyone but NAMA). One of its officers suggested in a meeting that there was some third party interest.
Ultimately, Treasury was unable to satisfy NAMA and the loans were called in, though only after failed negotiations with a third party. Notably, Treasury agreed in principle to the third party negotiations.
So much for the facts. The first legal question was whether the decision to call in the loans was subject to judicial review in the first place. Finlay Geoghegan J. held that it was (see paras. 80-81), on the basis that NAMA was exercising statutory powers and its authority to make the impugned decision did not derive solely from contract (see O'Donnell v. Tipperary (South Riding) County Council,  IESC 18).
That hurdle surmounted, Treasury had another to surmount: whether any duty of procedural fairness arose. The Supreme Court had held in Dellway Investments v. NAMA,  IESC 14, that a decision to purchase an individual's loans and take them into the NAMA superstructure in the first place triggered a right to be heard.
The facts in Dellway Investments were different, because the individual in question (Paddy McKillen) was servicing his loans. But the principle that emerges from Dellway Investments is a very broad one. A duty of fairness attaches wherever a decision would have "material practical effects on the exercise and enjoyment of the rights of the applicants" (see para. 93).
Finlay Geoghegan J. concluded that Treasury had sufficient rights to trigger a duty of procedural fairness, because it had custody and control of the underlying assets, was managing them, and was receiving a percentage of the rental income (at para. 104).
That's bad news for NAMA: even debtors who, like Treasury, are not servicing their loans and not in great financial shape, are entitled to be heard before NAMA takes action to call in the loans. Whether the negative public perception caused by having the loans called in is sufficient, on its own, to trigger a right to be heard is left unclear (at para. 110).
Worse news for NAMA was that it failed to discharge its obligation of fairness. Finlay Geoghegan J. concluded that NAMA should have notified Treasury that it was considering calling in the loans (at para. 114) and that Treasury should have been given the opportunity to make submissions as to why NAMA should not call in the loans (at para. 120).
Worse again, Finlay Geoghegan J. also held that NAMA had acted unreasonably by failing to take into account all relevant considerations. In deciding to call in the loans, it did not have regard to Treasury's suggestion that there were third party investors interested in purchasing the loans (at para. 124).
This is all very bad for NAMA. In terms of the fairness finding it seems from the facts that NAMA was thoroughly engaged in a process of negotiation with Treasury. NAMA had made its position clear -- that things would have to be done to its satisfaction -- but channels of communication were left open. There was thus ample opportunity for Treasury to voice any concerns it had about its loans being called in. Indeed, it is extremely unlikely that experienced commercial operators would be surprised that non-performing loans would be called in. And it does not seem particularly startling that NAMA did not lay all of its cards on the table: frustrating, no doubt, for Treasury, but quite possibly smart practice by NAMA.
The worst news may lie in the reasonableness finding. On the facts, it seems that a Treasury officer mentioned at a meeting that Treasury had engaged in discussions with third parties who had "a serious interest in financing". This suggestion may have been made in passing. To hold NAMA's decision unreasonable on this basis almost puts an onus on it to seek out relevant information. It could not have seriously taken this suggestion into account without following up with Treasury and asking for a detailed explanation.
But surely any burden here should have been on Treasury to give NAMA the relevant information. Indeed, if the information in question was commercially sensitive (which is probable), NAMA might not have been able to access it at all. NAMA cannot be expected to take into account considerations of which it is not, or could not be, aware, but Finlay Geoghegan J.'s logic comes perilously close to requiring NAMA to seek out all relevant information about the commercial relationships of its debtors.
As a doctrinal matter, holding that the existence of interested third parties was a mandatory relevant consideration is a little bit strange. Mandatory relevant considerations must be express or necessarily implicit in the statute, but Finlay Geoghegan J. does not identify any statutory source. And if it was not a mandatory relevant consideration, then it was up to NAMA to decide what weight to accord to it, if any.
How was this a victory in any sense for NAMA? Once the decision to call in the loans had been made, Treasury protested. It was agreed that NAMA would attempt to find alternative purchasers for the loans. They were unable to do so. But having agreed to allow NAMA to find alternative purchasers, Treasury could not later turn around and protest that NAMA did not achieve a satisfactory outcome. They had waived their rights (at para. 165). And given that NAMA had incurred costs in their search for alternatives, relying on the agreement, Treasury was estopped from objecting to the calling in of the loans (at para. 164).
Even here, the news is not all good for NAMA. Why would any company in a similar (or stronger) position to Treasury reach an agreement with NAMA? Stalling and refusing to co-operate is by far the better response to an enforcement threat from NAMA. The lesson here is that waiver and estoppel are to be avoided at all costs. Best not to agree at all with NAMA and then try to persuade the High Court that NAMA did not take all relevant factors into account or did not keep all relevant parties 'in the loop'.
Treasury has announced that it will be appealing the decision. I expect a cross-appeal from NAMA is inevitable.
Curiously, in concluding, Finlay Geoghegan J. states: "If Treasury were not now estopped from pursuing its claim the Court would exercise its discretion against granting orders of certiorari..." I take it that she means that the estoppel argument trumps the waiver argument. There is no other basis in the judgment for not granting the relief sought by Treasury.