From 2008 onwards, a number of Irish banks encountered serious financial difficulties resulting from the ongoing financial crisis. One of those banks was Irish Life and Permanent Group Holdings plc (ILP). In 2010, the legislature of Ireland adopted the Credit Institutions (Stabilisation) Act that gave the Minister for Finance the power to intervene in the banking sector. Under the Act, the Minister may (at the first stage) issue a ‘proposed order’ to a bank in which the Minister requests the bank to undertake certain measures, and may (at the second stage) apply to the High Court of Ireland to validate the proposed order by giving a ‘direction order’ to the bank. Under the Act, the High Court shall allow the direction order if the opinion of the Minister as expressed in the proposed order ‘is reasonable and is not vitiated by any error of law’ (para. 2 of the judgment of 31 July 2017). In late 2010, the Irish State came to an agreement with the European Commission, the European Central Bank and the International Monetary Fund to recapitalise by 31 July 2011 Irish banks that were regarded ‘viable’. As a result of this agreement, the Central Bank of Ireland required that ILP raise its equity capital by € 4 billion. However, as the High Court of Ireland noted:
‘On the balance of probabilities, the required capital could not have been raised from private investors’, ‘On the balance of probabilities, the required capital could not have been raised from existing shareholders’, and ‘On the balance of probabilities, failure to recapitalise by the deadline would have led to a failure of the Bank’(para. 8).
As a consequence, the Minister for Finance issued a proposed order that requested ILP inter alia to issue shares to the Irish State to the amount of € 2.3 billion, which would make the Irish State the 99.2% shareholder of ILP. The board of directors of ILP reluctantly agreed on implementing the proposed order, because it ‘considered that the Company had no other option available to it in terms of achieving the required recapitalisation’ (para. 8). However, an extraordinary general meeting of shareholders of ILP that was held on 20 July 2011 rejected the proposed order, because it ‘wished to explore other potential avenues for the raising of the required capital’ (para. 8). The Minister then asked the High Court to give a direction order to ILP in conformity with the proposed order. On 26 July 2011, the High Court granted the Minister’s request for the direction order. As the High Court considered: ‘The decision by the State to invest in the recapitalisation was made in fulfilment of its legal obligations and in the interests of the State’s financial system, the citizens of the State and the citizens of the European Union’ (para. 8).
Following this judgment, a number of interested parties appealed to the High Court to set aside (or at least vary) the direction order. This appeal, in the case of Dowling & others v The Minister for Finance & others, led to two subsequent judgments of the High Court. In the words of the High Court, the appeal could be successful only if the court would find that the opinion of the Minister for Finance that led to the direction order ‘was unreasonable or was vitiated by legal error’ (para. 4).
On 15 August 2014 the High Court delivered a first judgment in this case. In this judgment, by Ms. Justice Iseult O’Malley, the court considered on the earlier application by the Minister for Finance for a direction order: ‘The Court would be conscious of the fact that the application might be made in circumstances of urgency, where time would not permit of exhaustive analysis. The Court would also have due regard to the role and responsibilities of the Minister, and to the fact that the Minister would have had access to expert advice in forming the opinion’ (para. 12).
On 31 July 2017 the High Court delivered a second judgment. In this judgment, the court considered: ‘The risks created by the Bank’s situation were considered to be very real by the State, the Commission and the External Partners, and I accepted the reality of those risks. […] The proposition that there was no need to intervene, and therefore no need to dilute the shareholders’ rights […] ignores […] the catastrophic possibility of the collapse of the financial system in this State, with the consequential effects in other member States’ (para. 75).
For these reasons, the High Court dismissed the applicants’ appeal.
The judgment of the High Court of Ireland can be found at: www.courts.ie, English, judgments & determinations, judgments by court, High Court, 2017, 31-07-2017 Dowling & ors v The Minister for Finance & ors.