High Court: Government’s order directing the €4bn “stabilisation” of Irish Life not unreasonable

About this case:

• Judgment:
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Dismissing an application which sought to set aside the direction order, Ms Justice Iseult O’Malley noted that the order was “radical” but that the applicants had failed to demonstrate that the Minister was unreasonable in deciding that the order was necessary.

First Judgment of the High Court

The issues in the case arose out of the making of a direction order in respect of Irish Life and Permanent Group Holdings plc by the High Court, in July 2011, pursuant to the provisions of the Credit Institutions (Stabilisation) Act 2010.

Under the Credit Institutions (Stabilisation) Act 2010, the Minister for Finance may, if he or she considers it necessary to secure the achievement of a purpose of the Act, make a “proposed order” proposing that a credit institution covered by the Act be directed to take or refrain from taking a specified action or actions.

Justice O’Malley explained that it was made clear in the first judgment that “the effects of a direction order can be extremely wide-ranging”, and that there was “no doubt but that they were radical in this case”.

The applicants – Gerard Dowling, Padraig McManus, Piotr Skoczylas, and Scotchstone Capital Fund Limited – sought an order pursuant to s.11 of the Act to set aside the Direction Order.

To succeed, they had to establish that there was non-compliance with the requirements of s.7, or that the opinion of the Minister as to the necessity for a direction order was unreasonable or was vitiated by an error of law.

Section 11 of the Credit Institutions (Stabilisation) Act 2010 provides that the relevant institution, or any member thereof, may apply to the High Court to have the direction order set aside.

The court may accede to the application only if it believes there has been non-compliance with any of the requirements of s.7 or that the opinion of the Minister was unreasonable or vitiated by an error of law.

The first judgment dealt with the test to be applied by the Court in deciding on an application under s.11 of the Credit Institutions (Stabilisation) Act 2010, and three issues arose to be determined:

1. Whether there had been any failure to comply with the procedural requirements of the statute, as provided for in s.7, in the making of the application for the Direction Order – it was concluded that there had not. The argument made by the applicants in that respect had been that counsel had failed to inform the High Court that the Direction Order was invalid having regard to the relevant EU law and in particular Council Directive 77/91/EEC; however it was held that there was no breach of duty to the Court.

2. Whether the opinion of the Minister that the Order was “necessary” was reasonable. Justice O’Malley accepted the argument of the respondent that the Minister did not have to show that the proposed action was the sole method of achieving the statutory purpose. In any event, Justice O’Malley took the view that whether the Minister’s opinion was reasonable did not need to be answered, because if the Minister’s opinion was vitiated by legal error there would be little point in determining whether it had been reasonable.

3. In considering whether the opinion of the Minister was vitiated by any legal error, Justice O’Malley considered that the concept of “legal error” included questions of constitutional and EU law, as well as the interpretation of the Credit Institutions (Stabilisation) Act 2010. The use of the word “vitiated” implied that not every error of law would result in the setting aside of the Direction Order. The relevant considerations, should this latter issue arise, would include the nature of the error and its consequences, which would in turn engage the question of proportionality and the existence of alternative remedies.

This third question was not answered in the first judgment because it was necessary to seek a preliminary ruling from the CJEU.

CJEU

Reference to the CJEU was necessary as it was not clear whether the situation was definitively governed by certain EU judgments concerning the rights of shareholders under the provisions of Council Directive 77/91/EEC.

The formal part of the ruling setting out the answer to the questions was as follows:

“Articles 8(1) and Articles 25 and 29 of the Second Council Directive 77/91/EEC of 13 December 1976 on coordination of safeguards which, for the protection of the interests of members and others, are required by Member States of companies within the meaning of , in respect of the formation of public limited liability companies and the maintenance and alteration of their capital, with a view to making such safeguards equivalent, must be interpreted as not precluding a measure, such as the Direction Order at issue in the main proceedings, adopted in a situation where there is a serious disturbance of the economy and the financial system of a Member State threatening the financial stability of the European Union, the effect of that measure being to increase the share capital of a public limited liability company, without the agreement of the general meeting of that company, new shares being issued at a price lower than their nominal value and the existing shareholders being denied any pre-emptive subscription right.”

Conclusion

A claim was raised in respect of the Commission’s decision on the tax treatment afforded to Apple in this State – it was said that this demonstrated that Ireland had available to it alternative sources of funds, and that therefore less onerous alternatives to the Direction Order existed. Justice O’Malley stated that the Court had no jurisdiction to consider this argument in the context of these proceedings.

Dismissing the application, Justice O’Malley held that the applicants had failed to demonstrate that the opinion of the Minister that the Direction Order was necessary to achieve the statutory purposes for which it was sought was unreasonable, or was vitiated by legal error.