Sunday 6 May 2012

Nama and taxpayers face colossal damages claim




TAXPAYERS face the biggest damages claim in the history of the state -- up to €5bn -- in the landmark case being taken by Treasury Holdings against Nama, the State's bad bank.
High Court documents filed this weekend, which have been seen by the Sunday Independent, claim that Nama effectively misled developers Johnny Ronan and Richard Barrett over the appointment of receivers to company assets last year.
Nama is being sued by Treasury for catastrophic damage that is alleged to have arisen from the appointment receivers to Treasury loans of more than €1bn. It is also facing a constitutional challenge to its special powers granted by its governing legislation.
An explosive 23-page sworn affidavit, sent by Treasury Holdings' managing director John Bruder to Nama last Friday afternoon, makes a number of serious charges against the agency.
In response, Nama said yesterday: "In respect of the actions being taken against NAMA, the agency strongly maintains that there is no basis to these claims and we will fully defend our position.
"On the constitutionality of the Nama Act, which was enacted by the Oireachtas, the defence of any claims on this issue is a matter for the Attorney General."
Mr Bruder argued strongly that not only was Treasury not given sufficient notice that Nama was to move against it, but that Nama said it was prepared to work with the developer, while enforcement proceedings were being readied between October and December of last year.
"The fact that both Nama and KBC Bank had approved an enforcement strategy as against Treasury is something that was never made known to Treasury at all -- still less were they given an opportunity to make any representations in relation to same," the affidavit added.
Mr Bruder has also claimed that Nama redacted key documents given to the High Court, claiming privilege, but which he said could be crucial to the case, and questioned the redaction of these documents.
Mr Bruder denied that Treasury was aware of Nama's assertion that there had been a "serious escalation of non-co-operation", saying Treasury had never been informed of such a breakdown in relations.
"We were never advised that Nama felt we were being uncooperative. . . Nama never made us aware that it felt there had been delays or mis-information on our part," Mr Bruder's affidavit said.
He also accused Nama of placing great strain on Treasury's financial position by "not releasing working capital it had undertaken to provide" in a Memorandum of Understanding on December 13, 2011.
Treasury says it had to meet the cost of running many of its properties in its portfolio from its "own unencumbered cash resources".
Nama's enforcement has also placed a number of jobs at the company in jeopardy, it has been claimed.
Mr Bruder also referred to a letter from Nama, dated November 11, 2011, that made no reference to the decision by the board taken the previous day that "proposed enforcement".
News of the court case emerged last Wednesday. However, the full size of the claim and the scale of the legal action did not emerge.
In January, Treasury was found to be in breach of the covenants on the borrowings and deemed insolvent when Nama called in the loans.
But in March, Mr Ronan and Mr Barrett won leave to pursue a judicial review of Nama's decision to move against it. According to the new documents, Treasury is now launching two separate but related legal cases against Nama over its actions.
The first case will focus on the "massive and dire" financial consequences for Treasury of Nama's decision to appoint receivers.
Those damages are estimated to be for up to €5bn.
While this case primarily relates to claims of damage done to the Battersea Power Station project, which was the subject of a bid from Chelsea Football Club on Friday, it also relates to many of Treasury's assets in Ireland, which it is alleged have been "stopped entirely" because of Nama.
According to documents, Treasury will highlight the losses it potentially incurred as a result of losing its effective 41 per cent interest in the multibillion-pound redevelopment of Battersea Power Station in London.
Treasury is to argue that the collapse of the Battersea deal and the loss of its control of the redevelopment project has caused it to lose up to £4.5bn (€5.6bn) profit, in which Treasury had a share.
Also, Mr Ronan and Mr Barrett are to argue that Treasury could have earned more than £400m (€493m) in management fees over 15 years once the Battersea project was completed.
Treasury lost its interest in the project when Lloyds Bank in the UK and Nama appointed Ernst Young as administrators last December.
Nama is owed about £137m (€169m) relating to Treasury's interest in Battersea.
It will also be argued that Nama's refusal to engage in negotiations with a Malaysian company called SP Setia, which was willing to make a cash offer at par value in relation to Treasury's interest in the loan, damaged the deal.
Treasury will also argue that it has incurred substantial reputation damage from Nama s actions, particularly in overseas projects in St Petersburg and China. In addition, it will argue that Nama's actions have stalled the sale of apartments in Dublin's Spencer Dock and deprived its investor clients of cash flow from rents paid on 200 suites at the Ritz Carlton hotel in Enniskerry.
The second, and potentially more significant case, is to test the constitutionality of the Nama Act 2009 and of the way in which Nama used its powers when moving against Treasury.
Separately, Fianna Fail's Michael McGrath has criticised Nama for engaging in "private deals" to sell properties without them being placed on the open market, which he said was clearly "not in the best interests of the taxpayer."
Following the revelations that Nama sold a landbank in Cork that was previously worth €100m for just €7m, without it being placed on the open market, Mr McGrath asked Nama how widespread the practice is.
In response, Finance Minister Michael Noonan said: "I am advised that the Nama Board has issued guidelines to be followed by its debtors and receivers in terms of the disposal of assets, which require, wherever feasible, their sale on the open market and their public advertisement.
"I am advised by Nama that this covers the vast majority of such sales."
Mr McGrath said the entire process lacked proper transparency and the only way the public could have confidence in it is that properties are placed on the open market.
"The minister's reply was simply not good enough. This needs political leadership and he is the minister responsible for Nama. This entire process lacks proper transparency and accountability," Mr McGrath said.
In response to Mr McGrath, Nama said: "The sale by debtors, which are used as security for loans held by Nama, is undertaken by the property owners or, in the case of enforcement, by appointed receivers and not directly by Nama. Up to the end of March last, 663 sales of such properties located in Ireland have occurred -- with a total value of €508m . . . all of which were competitive sales."
A Nama spokesman added: "In relation to the transaction to which you refer, Nama only paid agricultural land value to the bank for this loan as it always knew that it could only ever be sold as agricultural land. The price secured for the land was 40 per cent above two independent valuations (one by the agent appointed by the debtor and one commissioned by Nama) and was for the full amount of land rather than individual plots. This secured a much better deal for the taxpayer."

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