AG: Banks will benefit 'considerably' from mica scheme

The attorney general told Darragh O’Brien it may be legally and morally justifiable to require banks to pay into the state mica scheme because of the benefits they receive – without actually contributing.

Housing minister O'Brien ignored this advice – included in unpublished correspondence from attorney general Paul Gallagher – along with Gallagher’s warning that new legislation would be required to enact it.

“The banks will in fact benefit very considerably from these payments,” wrote Gallagher, explaining that payments from the state to mica homeowners would help banks secure their loans because the value of affected properties would be maintained.

But because the state planned to make payments without accepting liability, it would be unable to retrieve money from banks even though they stood to make financial gains from the mica scheme, Gallagher said.

‘There is mention that the banks are making no contribution whatsoever’

On June 15, 2021, then attorney general Paul Gallagher wrote to housing minister Darragh O’Brien about potential amendments to the controversial state mica redress scheme.

The attorney general pointed to an issue he wanted to bring to O’Brien’s attention “immediately.”

While banks have no direct liability for damage caused by defective blocks, they stood to benefit significantly from payments to affected homeowners, Gallagher wrote.

But because the state is denying liability for the mica homes, it has no legal basis to recoup funds from these banks – whose loans would be secured as a direct result of the scheme.

“There is mention that the banks are making no contribution whatsoever,” Gallagher wrote. “While I understand that any banking issues, including the imposition of an liability on the banks may give rise to much wider considerations this is an issue that can be considered if you think it would be of assistance. Banks would have no direct liability in respect of the damage but they are benefiting from the state payments. As these state payments will be voluntarily made, ie without legal obligation, the state cannot at present make any claim for recoupment, of any of the monies paid to homeowners, against the banks on the basis that the banks have benefited from the payments.”

Gallagher suggested it would be fair to require banks to contribute but that new legislation would likely be needed.

“However the banks will in fact benefit very considerably from these payments in terms of its security and as a matter of legal principle it would not be unfair to require that the banks make some contribution in respect of the benefit received. For that to happen it would almost certainly be necessary to introduce some legislative provision giving the state the right to seek some measure of recoupment,” he wrote.

Gallagher also told O’Brien to ensure homeowners transfer any legal rights they have to sue for defective materials to the state and that this transfer should be a condition for receiving payments.

“If you are considering amendments to the scheme it is vital to ensure that any causes of action which the homeowner may have in respect of the defective materials is assigned to the state as a condition of getting payments,” he wrote. “If it is not, then the state will not be entitled to sue those at fault assuming there is a cause of action and it is not statute-barred.”

Gallagher said the state should be able to pursue legal action against potentially responsible third parties, despite many cases likely falling outside the statute of limitations.

“A possibility of a cause of action against a third party owner makes it imperative that the scheme is reviewed from a legal perspective to ensure inclusion of any conditions which would enable a cause of action to be pursued against a third party,” he wrote.

The Department of Housing has been contacted for comment.