Irish Bank Resolution Corporation Ltd -v- Moran [2013] IEHC 40 (25 January 2013)

Judgment Title: Irish Bank Resolution Corporation Ltd -v- Moran

Neutral Citation: [2013] IEHC 40

High Court Record Number: 2011 3213 S

Date of Delivery: 25/01/2013

Court: High Court

Composition of Court:

Judgment by: Kelly J.

Status of Judgment: Approved

Neutral Citation [2013] IEHC 40

THE HIGH COURT

COMMERCIAL

[2011 No. 3213 S]

BETWEEN

IRISH BANK RESOLUTION CORPORATION LIMITED

PLAINTIFFS

AND

JOHN (ALSO KNOWN AS JOHNNY) MORAN

DEFENDANT

JUDGMENT of Mr. Justice Kelly delivered on the 25th day of January, 2013

Introduction
1. In these proceedings, the plaintiff claims €19,282,828 against the defendant. The claim is made in respect of his alleged liability as surety for the borrowings of two companies. The first is known as JRM Hotels Limited (JRM) which is now in receivership. The second is known as Blarney Inn Limited (Blarney) which is also in receivership. The defendant is a director of those companies and is alleged to be a direct or indirect shareholder in them.

2. The plaintiff alleges that the defendant executed a guarantee and indemnity under seal in respect of JRM’s borrowings on 30th June, 2005. Restructuring of JRM’s borrowings took place in June 2008. On that occasion, it is alleged that the defendant executed a deed of confirmation confirming that the earlier guarantee of 2005 would continue as security for JRM’s borrowings.

3. It is alleged that on 30th June, 2008, the defendant entered into a guarantee and indemnity under seal in respect of Blarney’s borrowings. It is alleged that he also executed confirmations appended to facility letters confirming his agreement to guarantee the obligations of the two companies.

4. It is alleged that the companies defaulted in their obligations as a result of which the defendant’s guarantees were called in July 2011.

5. A lengthy defence has been delivered by the defendant. Amongst other things he denies that he entered into the guarantees but, if he did, he alleges that he is released from his obligations by reason of a variation of the loan agreements to which he did not consent. The defence also alleges an estoppel, misrepresentation – both fraudulent and negligent – and a breach by the plaintiff of s. 60 of the Companies Act thus rendering the loans and guarantees voidable.

6. The final part of the defence which commences at para. 62 deals with alleged inequality of treatment.

Alleged Inequality
7. The relevant paragraphs of the defence are as follows:-

“62. The defendant claims and asserts that he has been subjected to a profound inequality of treatment and/or invidious discrimination by agencies of the State which constitutes and continues to constitute a breach of his rights guaranteed by the Constitution of Ireland.

63. The plaintiff is a financial institution licensed in the State and fully owned and controlled by the State and/or its agents.

64. The State in recognising the need to address the serious threat to the economy and the instability of credit institutions in the State generally and the need for the maintenance and stabilisation of the financial system in the State and recognising the need to facilitate the availability of credit in the economy of the State, to resolve the problems created by the financial crisis in an expeditious and efficient manner and achieve a recovery in the economy and to contribute to the social and economic development of the State, enacted the National Asset Management Agency Act 2009.

65. Under the terms of the said legislation the plaintiff has been designated as a participating institution. In that regard certain of the plaintiff’s loans have been transferred to the National Asset Management Agency (NAMA) and borrowers of those loans now deal with the Agency.

66. The principals’ loans, by reason of the fact that they do not exceed €20m were not transferred to NAMA and remain on the balance sheet of the plaintiff. NAMA, in acquiring loans from the defendant (sic), purchased same at a substantial discount to their face value.

67. Having acquired the loans, NAMA requires each borrower to submit a business plan whose primary purpose is to present a complete account of its financial affairs and to provide a detailed plan of how and when all liabilities to NAMA will be repaid. It is to be noted that the liability to NAMA is represented by the discounted price paid by NAMA for the original loans.

68. The borrower’s business plan is reviewed by an independent business reviewer who assesses the reasonableness of assumptions used by the borrower, conducts a detailed analysis of cash flow projections and presents an independent critique of the plans. The plan and the associated independent business review are then considered by the NAMA board, credit committee, chief executive or senior management, based on a cascading system of delegated authorities approved by the board. Other factors to take into account at this stage include the degree of the borrower’s cooperation with NAMA and the quality of its corporate governance arrangements.

69. The business plan process leads ultimately either to approval of the borrower’s business plan, possibly subject to changes and the imposition of certain conditions, or to enforcement. The latter applies in the case of borrowers who are unable to prove that they have the capacity to meet their debt obligations, even if restructured, or where they have failed to cooperate with the process. NAMA has stated that enforcement is not its preferred option but that its stated objective is to try and achieve a consensual workout with as many borrowers as possible.

70. Further, credit activity continues whilst this process of engagement with borrowers is under way. NAMA has provided significant credit to borrowers.

71. In circumstances where approval of the borrower’s plan is made NAMA do not move to enforce security and do not call in personal guarantees or indemnities.

72. The defendant claims and asserts that he is being treated in a manner which is both unequal to the way in which guarantors in NAMA are treated and further claims that were the principals’ loans to have been transferred to NAMA that NAMA would have accepted a business plan and would not have proceeded to enforcement.

73. In those circumstances the defendant claims that he has been discriminated against in such a way as to be unjustified and/or invidious. The defendant further pleads that there can be and is no legitimate reason for the inequality of treatment made between the defendant, alleged to have guaranteed and/or indemnified loans to borrowers whose loans remain on the balance sheet of the plaintiff, and persons who guaranteed or indemnified loans of borrowers whose loans have been transferred to NAMA.

74. Further, the defendant specifically pleads that borrowers such as the principals whose loans have remained on the balance sheet of the plaintiff have been specifically targeted for enforcement by reason of the requirements placed upon the plaintiff to wind its operations down and/or to create cash flow or profit from which to discharge debts. The defendant is directly adversely affected thereby.

75. In the circumstances the conduct of the plaintiff is such as to constitute a breach of the defendant’s rights and in particular his right to equality. In particular the defendant pleads that the plaintiff has breached his rights in the following manner but without prejudice to his right to rely on further particulars:

(i) appointing receivers to the assets of the principals;

(ii) appointing receivers when it knew or ought to have known that the receivers appointed would not act in the best interest of the principals;

(iii) refusing or denying directors and managers of the principals from engaging in the management of the principals’ asset and/or business;

(iv) failing to negotiate in good faith or at all in respect of the principals’ indebtedness;

(v) determining to appoint receivers in circumstances where no proper opportunity was afforded to the principals to repay, renegotiate or refinance the debts;

(vi) failing to give any or any adequate consideration to business plans submitted by or on behalf of the principals;

(vii) permitting the loss of the ‘Holiday Inn’ brand;

(viii) refusing to take such steps as were necessary to retain the ‘Holiday Inn’ brand;

(ix) closing or causing to be closed the assets and/or business of the principals and dismissing the employees;

(x) failing to afford the principals and defendant proper or fair procedures in determining to move to enforcement;

(xi) acting in a manner which in all the circumstances was unreasonable, unfair, irrational, capricious and unjustified;

(xii) failing to take any or any adequate steps to protect the property of the principals and/or the defendant;

(xiii) the defendant reserves the right to rely on further particulars.”

8. A reply was delivered to this defence on 29th March, 2012. By it, the plaintiff denied or did not admit that it engaged in any of the wrongful activities pleaded in the defence. It also did not concede any of the allegations made in respect of alleged inequality of treatment. Furthermore, it pleaded that its reply was without prejudice to any application which it might make to strike out paras. 62 – 75 of the defence on any ground including without limitation the following:-

“(i) Allegations that the defendant’s constitutional or other rights have been breached should properly proceed by way of counterclaim.

(ii) The proper parties to address the issues pleaded at paras. 62 – 75 of the defence (namely NAMA, Ireland and Attorney General) are not parties to the within proceedings.

(iii) The matters pleaded are embarrassing, frivolous, vexatious, calculated to delay the progress of these proceedings and are otherwise an abuse of process and/or disclose no defence to the plaintiff’s claim in these proceedings.”

The Current Application
9. The defendant now seeks leave from the court to permit him to deliver an amended defence and counterclaim. Reliance is placed on O. 28 of the Rules of the Superior Courts in support of this claim.

10. The amendment which is proposed consists exclusively of a counterclaim. No amendment is sought to any part of the defence already delivered. In particular, no amendment is sought to the paragraphs which I have quoted earlier in the judgment. The amendments amount to in excess of forty additional paragraphs, some of which are themselves divided into subparagraphs.

11. The counterclaim, in addition to being made against the plaintiff, is also sought to be made against the Minister for Finance (the Minister), Ireland and the Attorney General as defendants to it.

The Proposed Counterclaim
12. In his proposed counterclaim, the defendant alleges that he is a citizen of this State and is entitled to certain specified rights bestowed upon him “my (sic) operation of law”. Among the rights guaranteed to him is the right to be held equal before the law, he says.

13. The counterclaim then identifies the plaintiff as a body established pursuant to the provisions of the Anglo Irish Bank Act 2009, which is wholly owned by the first defendant to the proposed counterclaim, namely, the Minister. It is alleged that the Minister is in effective control of the management and operations of the plaintiff and is responsible for its conduct and actions and is obliged to ensure that it operates in accordance with law.

14. The proposed counterclaim then goes on (paragraphs 84 through 95) to allege misrepresentation on the part of the plaintiff. The alleged misrepresentation is characterised as fraudulent and/or negligent. This plea would not appear to involve the proposed additional defendants to the counterclaim but is exclusively directed to the plaintiff.

15. The parts of the proposed counterclaim which are relevant to the additional proposed defendants are as follows:-

“Right to Equality

96. Pursuant to Article 40.1 of the Constitution of Ireland the defendant, as a human person, is entitled to, and shall be held equal before the law.

97. The defendant claims and asserts that he has been subjected to a profound inequality of treatment and/or invidious discrimination by the plaintiff and the defendant to the counterclaim herein, being agencies and/or officers of the State, which said treatment constitutes and continues to constitute a breach of right to equality guaranteed by the Constitution of Ireland. As a result therefore the defendant has suffered and continues to suffer loss and damage.

NAMA

98. The State, in purported recognition of the need to address a serious threat to the economy and the instability of credit institutions in the State generally, and the need for the maintenance and stabilisation of the financial system in the State, and recognising the need to facilitate the availability of credit in the economy of the State, and to resolve the problems created by the financial crisis in an expeditious and efficient manner and to achieve a recovery in the economy and to contribute to the social and economic development of the State enacted the National Asset Management Agency Act, 2009.

99. Pursuant to the terms of the said legislation, the plaintiff has been designated as a ‘participating institution’ within the meaning of s. 2 of the NAMA Act 2009.

100. In that regard, certain of the plaintiff’s loans were transferred to the National Asset Management Agency (NAMA) and borrowers of those loans and guarantors of those transferred loans now deal with NAMA. The determination of which of the plaintiff’s loans were to be transferred to NAMA was at the discretion of the Minister.

NAMA Methodology

101. NAMA, in acquiring loans from the plaintiff, purchases same at a substantial discount to their face value.

102. Having acquired the loans, NAMA requires each borrower of a transferred loan to submit a business plan whose primary purpose is to present a complete account of its financial affairs and to provide a detailed plan of how and when all liabilities to NAMA would be repaid. Liability to NAMA, in the context of the business plan, is represented by the discounted price paid by NAMA for the original loan.

103. The borrower’s business plan is then reviewed by an independent business reviewer who assesses the reasonableness of assumptions used by the borrower, conducts a detailed analysis of cash flow projections and presents an independent critique of the plan. The plan and the associated independent business review are then considered by the NAMA board, credit committee, chief executive or senior management, based on a cascading system of delegated authorities approved by the board. Other factors to take into account at this stage include the degree of the borrower’s cooperation with NAMA and the quality of its corporate governance arrangements.

104. The business plan process leads ultimately either to approval of the borrower’s business plan, possibly subject to changes and the imposition of certain conditions, or to enforcement. The latter applies in the case of borrowers who are unable to prove that they have the capacity to meet their debt obligations, even if restructured or where they have failed to cooperate with the process. NAMA has stated that enforcement is not its preferred option but that its stated objective is to try and achieve a consensual workout with as many borrowers as possible.

105. Furthermore, credit activity continues whilst this process of engagement with the borrowers is underway. NAMA has provided significant credit to borrowers. As a matter of fact NAMA has advanced credit to borrowers amounting to multiple billions of euro.

106. Borrowers and guarantors of NAMA loans are, by operation of law, entitled to fair procedure in and about their dealings with NAMA. Furthermore, borrowers and guarantors are entitled to the benefit of the NAMA methodology set out above and can challenge any adverse finding on the public law grounds of a breach of fairness or fair procedure. Furthermore, and according to NAMA itself, in most cases NAMA does not move to enforcement, either against borrowers or guarantors.

Inequality

107. The loans purportedly guaranteed by the defendant were not transferred to NAMA and remain on the balance sheet of the plaintiff.

108. The defendant claims that borrowers and guarantors of the transferred loans are subject to treatment, which is far more benign and favourable to them, that (sic) borrowers and guarantors of loans remaining of (sic) the balance sheet of the plaintiff. This inequality of treatment, insofar as same applies to the defendant is both arbitrary and capricious; is not capable of justification on any objective criteria.

109. Further, the State has determined by its law to provide an economic and monetary benefit to certain citizens, at the expense or exclusion of the defendant. This determination, by reason of the requirement placed upon the State to afford equality of treatment to citizens, constitutes an egregious breach of the defendant’s right to be held equal before the law and the defendant has suffered and continues to suffer loss and damage as a result thereof.

110. Further, the Minister, has by Act of the Oireachtas and in particular pursuant to the powers vested in him by s. 3 of the Anglo Irish Bank Act 2009, the power to direct the plaintiff to do, or to refrain from doing, anything which is, in the opinion of the Minister, necessary or expedient in the public interest, subject to regulatory requirements. The defendant asserts that the Minister has both statutory power and duty to direct the plaintiff to act in a manner consistent with Article 40.1 of the Constitution, which, by definition is in the public interest, but has failed to do so and/or if he has done so, the plaintiff has failed to comply with such direction.

111. In the circumstances the defendants to the counterclaim have failed and continue to fail to vindicate the defendant’s rights and permit and preside over a system designed to be unequal and to unfairly advantage one class of citizen over another.

112. The said failure on the part of the plaintiff and defendant to the counterclaim constitutes a breach of the defendant’s rights.

The Defendant’s Position

113. The defendant, as a guarantor of a loan to the plaintiff, is not entitled to the benefits of which a NAMA borrower or guarantor is entitled. On the contrary, the plaintiff, being wholly owned and controlled by the State, assets (sic) that it is entitled to rely exclusively on the strict contractual terms of the agreement entered into with the defendant.

114. The defendant claims and asserts that he has been, and is being treated in a manner which is both unequal to the manner in which guarantors of NAMA loans are treated and further claims that, had the loans, the subject of his guarantee, been transferred to NAMA, NAMA would have accepted a business plan submitted by the borrowing entities and would not have proceeded to enforcement against the defendant.

115. He further asserts that NAMA would have supported the business plan and made credit available as and when same was necessary.

116. Further, had the loans, the subject of the defendant’s guarantee been transferred to NAMA, NAMA would have been required, at a very minimum, to consider and evaluate the viability of the underlying business, in conjunction with the defendant; NAMA would have been required to take account of the defendant’s cooperation; NAMA would not have been entitled to mislead the defendant; NAMA would have been required to take account of all submissions made by or on behalf of the defendant; and in all the circumstances NAMA would have been required to support the underlying business whether through forbearance, advance of credit, restructuring of loans or in such a manner as was likely to promote the stabilisation and growth of the business.

117. In those circumstances, NAMA, by operation of law, would not have sought to rely on the guarantees and/or indemnities provided.

118. Contrary to what the defendant would have been entitled to expect from NAMA, the plaintiff, denying any duty to the defendant, and relying solely on an asserted contractual right, refused to consider and evaluate the viability of the underlying businesses, either in conjunction with the defendant or at all; failed to take account of the defendant’s cooperation; failed to support the underlying businesses either through the provision of credit or at all; misled the defendant, failed to take account of the submissions made by and on behalf of the defendant and the borrowers; and determined not to support the underlying businesses.

119. Further the plaintiff has sought to rely on guarantees provided.

120. In those circumstances the defendant claims that he is being discriminated against in such a way as to be unjustified and/or invidious.

121. The defendant further pleads that there can be and is no legitimate reason for the inequality of treatment between guarantors such as the defendant, whose guaranteed loans remain on the balance sheet of the plaintiff and guarantors whose guaranteed loans have been transferred to NAMA.

122. Further, the defendant specifically pleads those guarantors, such as the defendant, whose guaranteed loans have remained on the balance sheet of the plaintiff, have been specifically targeted for enforcement by reason of the requirements placed upon the plaintiff to wind its operations down and/or to create cash flow or profit from which to discharge debts.

123. In the circumstances, the conduct of the plaintiff and the defendants to the counterclaim is such as to constitute a breach of the defendant’s right to equality, as a consequence whereof the defendant has suffered and continues to suffer loss and damage.”

16. The counterclaim then goes on to set out particulars of alleged breach of constitutional rights and failure to vindicate such rights on the part of the defendants to the counterclaim.

17. The complaints in the proposed counterclaim are reflected in the reliefs sought. They include “a declaration that the defendants to the counterclaim have failed to vindicate the defendant’s constitutionally protected rights” and that the “provision of treatment afforded by the National Asset Management Agency to borrowers and guarantors of loans transferred to it by operation of the National Management Agency Act 2009 is unequal to the treatment afforded to the defendant by the plaintiff and that the said inequality of treatment constitutes a failure to vindicate the defendant’s right to be held equal before the law”.

18. A declaration is also sought that the “maintenance by the State of a dual system for dealing with borrowers and/or guarantors of loans is unfair, capricious, not justifiable by any objective criteria, contrary to Article 40.1 of the Constitution and is unlawful”. The defendant also counterclaims for an order directing the Minister for Finance to exercise the powers vested in him under s. 3 of the Anglo Irish Bank 2009 to vindicate the defendant’s rights.

Amendment
19. Order 28, rule 1 of the Rules of the Superior Courts provides that:-

“The Court may, at any stage of the proceedings, allow either party to alter or amend his indorsement or pleadings in such manner and on such terms as may be just, and all such amendments shall be made as may be necessary for the purpose of determining the real questions in controversy between the parties.”

20. The terms of that rule were considered by the Supreme Court in Croake v. Waterford Crystal Limited [2005] 2 IR 383. There Geoghegan J. said that it “is intended to be a liberal rule”.

21. As I said of the rule in Cuttle v. ACC Bank [2012] IEHC 105:-

“The notion behind it is that justice is best served if the real matters in dispute between litigants are brought before the court and determined by it. This is clear from another passage from the judgment of Geoghegan J. in the same case where he said:-

‘While undoubtedly there is a discretion in the court as to whether to make the order or not and other factors may come into play, the primary consideration of the court must be whether the amendments are necessary for the purpose of determining the real questions of controversy in the litigation.’”

22. Later in the same judgment, I said:-

“On an application of this sort, it is not the task of the court to adjudicate on the merits of the proposed amendments or to speculate on the likelihood of their success at trial. In Cornhill v. Minister for Agriculture [1998] IEHC 47, O’Sullivan J. in dealing with an application for leave to amend a statement of claim was confronted by two opposing approaches to that issue. The defendants argued that there was an onus on the plaintiffs to establish by credible evidence that the proposed amendments raised a real issue between the parties and that the plaintiffs had failed to do so. The plaintiffs argued that the appropriate test was whether the proposed plea, if part of the original statement of claim, would have survived an application to strike out in limine on the basis of it having no reasonable prospect of success. O’Sullivan J. clearly preferred the submission of the plaintiffs and expressed the view that:

‘an amendment of the pleadings should be allowed if it would have been appropriate in the original pleadings and would have withstood an attack under Order 19, rule 28.’

In the present case, the parties have agreed that the approach of O’Sullivan J. is the one which I ought to adopt. So the net question is, if these amendments are permitted will they survive an application that they be struck out under the inherent jurisdiction of the court? That jurisdiction allows the court to stop cases with no reasonable prospect of success in their tracks and not permit them to go to trial.

This approach of the parties in the present case is consistent with various judicial dicta on amendment of pleadings and in particular with the observations of Clarke J. in Woori Bank v. KDB Ireland Limited [2006] IEHC 156. That judge was of opinion that the court should lean in favour of allowing an amendment unless it is clear that the issue sought in the amended pleading must fail. This is not to say that the court ought to enter into the merits of the issues sought to be raised save to the extent of asking itself whether the party seeking the amendment will necessarily fail on the issue which will require to be tried as a result of the amended pleading.”

23. I then went on to discuss the jurisdiction to strike out a claim in limine pursuant to the inherent jurisdiction of the court. This is what I said:-

“In Barry v. Buckley [1981] I.R. 306, Costello J. reanimated and confirmed the inherent jurisdiction of the court to strike out or stay proceedings over and above that contained in Order 19, rule 28. The inherent jurisdiction may be utilised if the proceedings are frivolous or vexatious or are bound to fail. He said that this jurisdiction ‘exists to ensure that an abuse of the process of the Courts does not take place.’ If, therefore, the court is satisfied that the plaintiff’s case must fail then ‘it would be a proper exercise of its discretion to strike out proceedings whose continued existence cannot be justified and is manifestly causing irrevocable damage to a defendant’. Whilst this is a jurisdiction that is capable of being exercised in virtually any type of case, it must be borne in mind that it is an order that will only be made in very clear cases. As Costello J. said, the jurisdiction is one to be ‘exercised sparingly and only in clear cases’. A similar approach was adopted by McCarthy J. in Sun Fat Chan v. Osseous Limited, who said that ‘generally, the High Court should be slow to entertain an application of this kind’. The explanation for this restrained approach was as that judge said:-

‘Experience has shown that the trial of an action will identify a variety of circumstances perhaps not entirely contemplated at earlier stages in the proceedings; often times it may appear that the facts are clear and established but the trial itself will disclose a different picture.’

It follows that in approaching the exercise of my discretion here and in asking myself whether the amendments, had they been in the original statement of claim, would have survived a strikeout application, I must bear in mind the very limited circumstances in which such an application can be successfully made.”

24. I mention the above line of authority because one of the major objections taken by the plaintiff to permitting the amendment which is sought here is that the claim sought to be advanced in the amended counterclaim is one which has no reasonable prospect of success. Other objections are also made namely an insufficiency of reasons to warrant the amendment being permitted, and a deficit of evidence to support the application. In this regard, particular reliance is placed upon the fact that the defendant has not sworn any affidavit in support of this application. Rather the affidavit is sworn by his solicitor in a fairly anodyne form containing little or no evidence pertinent to the counterclaim.

25. The argument based on likelihood of failure of the proposed counterclaim against the Minister and other State defendants was principally anchored in a decision of McGovern J. in a case of City Wide Leisure Limited v. Irish Bank Resolution Corporation [2012] IEHC 220.

The City Wide Decision
26. The decision of McGovern J. in City Wide dealt, amongst other things, with an application by the plaintiffs in those proceedings to amend their statement of claim. The defendant in this action was a director of the plaintiff in the City Wide proceedings. He was also the direct or indirect owner of the shares in the City Wide companies.

27. The amendment which was sought to be made to the statement of claim in the City Wide proceedings included a plea which is practically identical to the constitutional rights claim which is sought to be made in the present proceedings.

28. McGovern J. refused to allow the amendment. He did so, inter alia, because he was of the view that an allegation of discrimination in the treatment of borrowers pursuant to the NAMA Act 2009 compared to how borrowers are supposedly treated by the plaintiff in this case was not a claim that could be made against the plaintiff. Such a claim was a challenge to the constitutionality of the NAMA Act 2009 and was a claim that could only be made against the State.

29. McGovern J. pointed out that NAMA is a statutory entity whilst the plaintiff in these proceedings is not. It is correct that the plaintiff’s solvency depends of promissory notes issued by the Minister for Finance and that its management is appointed by the same Minister. But the judge also noted that the plaintiffs claimed in the City Wide case that:-

“they are being treated in one way by a body which is wholly owned by the State and other persons or bodies whose loans have gone into NAMA are being treated in a fundamentally different way.”

Thus the plaintiffs in the City Wide case were alleging that they were entitled to equality of treatment. That, of course, is precisely the same case as is sought to be made in this proposed counterclaim.

30. Having dealt with allegations of delay, McGovern J. dealt with the NAMA/constitutional claim in the following way. He said:-

“17. The proposed amendment is based on the assertion that there is inequality of treatment or invidious discrimination between borrowers whose loans have been transferred to NAMA and other borrowers such as the plaintiffs, whose loans have not. The defendant claims that no evidence is adduced to support this allegation, nor is evidence adduced in support of the proposition that the plaintiffs’ loans are capable of acquisition by NAMA pursuant to the National Asset Management Agency Act 2009 (‘the 2009 Act’). It also argues that no evidence is adduced to support the proposition that a borrower whose loan has been acquired by NAMA has its liability reduced to the discounted price by NAMA, notwithstanding the provisions of s. 99 and s. 102 of the 2009 Act, and no evidence is adduced to indicate any basis for the proposition that NAMA would have entered into a restructuring or compromise with the plaintiffs had the plaintiffs’ loan and security with the defendant been acquired. Nor do the plaintiffs state how such evidence could be produced. On this basis, the defendant argues that the claim must fail. In the amendment proposed, the plaintiffs claim that NAMA legislation should have provided for loans of the plaintiffs’ type and quantity to be included in it. If that is so, the defendant argues that the claim could only be made against Ireland and the Attorney General since the claim is based on an assertion that the NAMA legislation is itself a breach of constitutional obligations to ensure equality. This would be so because it either breaches Arts. 40 or 43 of the Constitution.

18. If such a claim is made, the defendant argues that it could only be made against the State on the basis that it had introduced a scheme that was discriminatory and which did not adequately protect the property rights of the plaintiffs. This is a challenge to the legislation. But such a challenge is not made in this case.

19. The plaintiffs contend that if their loans had gone into NAMA, their property rights would have been improved. But, the defendant argues, this is not something that can be laid at the door of the defendant. It is, in effect, a constitutional challenge to the 2009 Act, and the defendant says this would have to be an action against Ireland and the Attorney General and not against the defendant.

20. I agree with this submission. The plaintiffs’ scheme under the proposed amendment is based on an assumption that borrowers whose loans are transferred to NAMA will have a liability represented by the discounted price paid by NAMA for the original loan. This is, in fact, incorrect. Sections 99 and 102 of the 2009 Act provide that the borrower’s obligations to the bank remain the same as they were when the loan was transferred to NAMA. While NAMA may have paid a discounted price to the bank for the transfer of the loan, the full amount of the loan remains due and owing to NAMA by the borrower.

21. The claim made in the proposed amendment is bound to fail because there is no right to have an asset acquired by NAMA. The 2009 Act does not impose any benefit on a borrower nor is there any duty owed to borrowers, so the plaintiffs can have no claim in respect of any non-acquisition of their loan by NAMA. If there was such a claim, it is a challenge to the legislation and would require to be made against the State by naming Ireland and the Attorney General as defendants. Just because there is legislation (i.e. the 2009 Act) providing for a different entity and imposing different statutory obligations and duties on that entity, does not mean that another organisation such as the defendant in this case has to deal with plaintiffs in the same way as they might have been dealt with had their loans been transferred to NAMA….

24. The commercial relationship between the plaintiffs and Anglo gave rise to rights and obligations on both sides. No factual allegations have been made that would sustain a claim against the defendant for breach of the plaintiffs’ constitutional rights. Insofar as complaint is made that there was no transfer of the plaintiffs’ assets to NAMA, this is not a complaint which can be made against the defendant as it is not something for which the defendant could be held responsible. Therefore, matters set out in the proposed amendment and relating to this issue are not part of the real issues to be tried between the parties.

25. Since I am satisfied that the proposed amendment raises issues which are bound to fail and which are not necessary to determine the real issues between the parties, I refuse the application to amend the statement of claim in respect of para. 43. I now turn to the issue of security for costs.”

31. These quotations from the judgment of McGovern J. make it clear that any claim based on an alleged breach of the defendant’s constitutional rights arising from the allegation that JRM’s or Blarney’s loan and consequently his guarantees did not go into NAMA is a claim which cannot be advanced against the plaintiff.

32. It is of course true, that here it is sought to join the additional State parties as defendants to the counterclaim. That might appear to answer one part of McGovern J’s reasoning but even with their joinder, it is to be noted that it is no challenge to the legislation. Nowhere in the amendment is any declaratory relief sought concerning the constitutionality of the legislation.

33. That is so notwithstanding the views expressed by McGovern J. The sort of claim which was sought to be advanced in the City Wide case, which is virtually identical to that which is sought to be advanced here, would amount to a challenge to the legislation.

34. McGovern J. also pointed out the lack of any evidential basis presented to him justifying the allowing of the amendment.

35. A similar criticism is made of the evidential material put before me in this case. I must now turn to a consideration of it.

The Evidence
36. Given that the permitting of an amendment to pleadings is a discretionary one, it is necessary to place evidence before the court which would justify the exercise of such discretion in favour of an applicant.

37. In the present case the defendant has not filed any affidavit to support this application. Rather, an affidavit is sworn by his solicitor and provides little by way of factual information that would support any of the counterclaims made against the proposed additional defendants to the counterclaim.

38. In particular it is to be noted that no evidence is adduced by the defendant to support the proposition that JRM’s or Blarney’s loans and consequently the defendant’s guarantees are capable of acquisition by NAMA. There is no factual basis deposed to in support of the proposition that a borrower whose loan has been acquired by NAMA has its liability reduced to the discounted price paid by NAMA. No evidence is adduced to seek to explain this proposition which is in the teeth of the provisions of ss. 99 and 102 of the NAMA Act 2009 and the findings by McGovern J. (in particular para. 20 of his judgment) to which I have referred.

39. There is no factual material put before the court to support the notion that NAMA would have entered into a restructuring or compromise with the defendant had the loan and guarantees been acquired by NAMA.

40. Finally, there is no explanation given why the defendant waited for in excess of a year since the proceedings were instituted in July 2011 to assert the alleged breaches of the defendant’s constitutional rights.

Order 21, Rule 10
41. The amendments sought by the defendant involve asserting a counterclaim against the additional parties, the Minister, Ireland and the Attorney General. Nowhere either in the notice of motion or in the affidavit grounding the application is this issue addressed.

42. Order 21, rule 10 provides:-

“Where a defendant by his defence sets up any counterclaim which raises questions between himself and the plaintiff along with any other persons, he shall add to the title of his defence a further title similar to the title in a statement of claim setting forth the names of all the persons who, if such counterclaim were to be enforced by cross-action, would be defendants to such cross-action, and shall deliver his defence to such of them as are parties to the action within the period within which he is required to deliver it to the plaintiff.”

43. The jurisdiction of the court to permit amendments involving the joinder of non-parties pursuant to O. 21, r. 10 was considered by Laffoy J. in Shell E and P Ireland Limited v. McGrath [2006] 2 ILRM 299.

44. In the course of her detailed judgment, Laffoy J. noted, with approval, the submission made to her that pursuant to the decision in O’Connor v. Anderson [1880] 14 ILTR 14, a non-party may only be joined pursuant to O. 21, r. 10:-

“where there is a connection between the third person sought to be made a defendant and the original cause of action and the relief sought against the third person and that sought against the plaintiff.”

45. In that case, Laffoy J. held that there was such a connection. This was because the plaintiff’s cause of action arose from an entitlement to construct a pipeline which derived from a consent granted by the relevant Minister. Thus, the proposed counterclaim against the Minister, Ireland and the Attorney General had a sufficient connection with the plaintiff’s original claim.

46. In the present case, the constitutional rights claim which the defendant seeks to assert is not maintainable against the plaintiff. This is clear from the decision of McGovern J. in City Wide. The defendant has no case against the plaintiff arising out of the NAMA/constitutional rights claim.

47. I do not believe that there is any sufficient connection demonstrated between the additional parties who are sought to be joined, the plaintiff’s claim and the defendant’s defence on foot of the guarantees.

Decision
48. In my view, the only element of the proposed amendment which should be permitted to be made is that dealing with the counterclaim which is made on foot of the allegation of misrepresentation against the plaintiff.

49. That part of the proposed amendment which seeks to assert the NAMA/constitutional rights claim should not be permitted. That is so for the reasons which I have already identified.

50. The proposed amendment alleging misrepresentation against the plaintiff will be allowed. The other elements of it will not.

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You are here: BAILII >> Databases >> High Court of Ireland Decisions >> Irish Bank Resolution Corporation Ltd -v- Moran [2013] IEHC 40 (25 January 2013) URL: http://www.bailii.org/ie/cases/IEHC/2013/H40.html Cite as: [2013] IEHC 40

High Court of Ireland Decisions