Developer brothers Michael and John O’Flynn have been in the news for all the right reasons recently, doing what they do best – buying land and building property.

Having clubbed up with global fund manager Blackrock Real Assets, last year they delivered the country’s largest off-campus student accommodation on a former CIE site in the Dublin docklands. Point Campus has 966 bedrooms and is being managed by another O’Flynn entity, Host. 

Last August DWS, the asset management arm of Deutsche Bank, was cited as an interested buyer of the development for a ballpark price tag of €160 million.

Student accommodation has long been an area of expertise for the O’Flynns, particularly in the UK, but the Cork developers have also been behind a number of sizeable residential and commercial ventures of late in Ireland, including the former Hewlett Packard site in Leixlip and a scheme for more than 600 homes in Glanmire, Cork.

It is a long way forward from the dark post-crash days of 2010 when the National Asset Management Agency (Nama) acquired the O’Flynn Group’s €1.8 billion loan book. The bank loans were subsequently acquired by US private equity group Blackstone for a reputed €1.1 billion in 2014. When the borrowings were called in, Michael O’Flynn took Blackstone to court and prevailed. Armed with a funding package of around €400 million, he was able to secure control of his business and exit Nama.

The O’Flynns have had their share of run-ins with the state agency, lodging a successful complaint with Data Protection Commissioner Helen Dixon over the agency’s handling of their personal information and settling legal proceedings in December 2018 over the leaking of confidential information by former Nama official Enda Farrell. Farrell disclosed information about the business dealings of the group to a third party in 2012 and was handed down a two-year suspended sentence after he pleaded guilty before the Circuit Court to charges of unlawfully disseminating data in breach of the Nama Act.

The O’Flynn brothers argued the leaks about property portfolio valuations had a material impact on the prices achieved in disposing of their assets.

Nama had to issue an unreserved apology to the O’Flynns as part of a private legal settlement.

Since then, The Irish Times reported that Michael O’Flynn, along with developers Paddy McKillen and David Daly, had withdrawn an appeal to an EU court over Nama related complaints. One of their arguments was that moves by the government to extend Nama’s remit into residential property development would be in breach of state aid rules. The developers believed the issues raised by their case had been dealt with outside of court and that legal action was no longer necessary.

All in all, the cycle of boom, bust, recovery has worked out for the O’Flynns. As players in the construction business since the 1970s, they are back on top of their game.

But the past and Nama, it seems, haven’t fully gone away.  Not according to previously unreported allegations brewing in a long-running court row initiated by O’Flynn against former employees of his property development companies.

The Nama claims are vehemently denied by the O’Flynn parties. These “most unusual” defence pleas are irrelevant to the case, unsupported by evidence and ‘simply incorrect’

The case, lodged in 2016, is primarily concerned with claims by O’Flynn’s side that former staff member Patrick Cox, and other parties, made millions of euros by secretly diverting lucrative business opportunities away from the O’Flynn’s development empire. The 16 day hearing of the action is scheduled to begin in the fast track Commercial Court next Tuesday before Justice David Barniville.

Cox is the son of the former president of the European Parliament Pat Cox. He was a senior executive at the O’Flynn group from 2010 until he left in 2015 to start his own property development venture Carrowmore Property. As an investment director with Tiger Developments (now known as Carbon Developments), an entity in the O’Flynn group, his job was to track down investors and leads. The court has heard he allegedly earned hundreds of thousands of euro between 2012 and 2015 for his work in the construction group and related entities.

Under particular scrutiny in the case is the sale of a site on Gardiner Street in Dublin, used to construct accommodation for up to 500 students. It is alleged Cox actively pursued the €60 million deal from early 2014 in breach of his contract.

O’ Flynn’s side claim they lost as much as €12.5 million on phase one of that development and at least a further €2.6 million on phase two. They are suing for the loss and damage allegedly suffered. In court documents, they refer to emails allegedly sent by Cox in January 2015, while he was employed by the O’Flynn Group and after planning permission was granted, stating that the Gardiner Street project be “kept under the radar”.

Alongside O’Flynn Construction, the companies in the developer’s stable bringing the action include student accommodation vehicle Victoria Hall Management, Palm Tree, Grey Willow, Albert Project Management and O’Flynn Capital Partners. These are property entities variously registered in Ireland, England, Wales and Jersey.

Cox and Carrowmore are defendants in the case along with Rockford Advisors,  Foley Project Management and former O’Flynn hires, Liam Foley and Eoghan Kearney who left and joined Cox’s venture.  

The claims are denied by Cox’s side. In the court proceedings, Cox places reliance on a letter from Tiger Developments, issued in July 2014, allegedly giving him approval to engage in real estate activities in Dublin. The O’Flynn side maintains the letter did not authorise the Gardiner Street development and was obtained by Cox through misrepresentation. This is denied.

The defendants are also accused of copying or taking more than 37,000 documents from the O’Flynn Group and related companies, including confidential intellectual property.

These contested allegations, made by O’Flynn’s side, have been previously reported. 

But, despite being opened in court, what has not yet been disseminated in public are the defendants’ claims of irregular dealings by the O’Flynn parties; allegations that a bid was sought and that a ‘middleman’ was used in a £1 million UK land deal “to disguise the true market value of the site from Nama”. 

Cox’s side has cited “statutory obligations” in relation to the State agency claiming the reliefs sought by O’Flynn’s construction companies, including damages, should fail, potentially on public policy grounds.

The Nama claims are vehemently denied by the O’Flynn parties. These “most unusual” defence pleas are irrelevant to the case, unsupported by evidence and ‘simply incorrect’, according to an affidavit sworn by John Nesbitt, a senior executive of several O’Flynn entities, including O’Flynn Capital Partners, Victoria Hall Management and Albert Project Management.

The court was told by Nesbitt that an unsworn witness statement made in support of the defendants’ claims by Tony Barry, a former employee of the O’Flynn Group from 2004 to 2014, contained “exaggerations, innuendo, inaccuracies, misinformation and falsehoods”.

But the issue remains live in the proceedings.

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Nama and the UK land deal

Up for scrutiny is the sale of valuable lands at Alma Road in Coventry and Selly Oak, Birmingham by the O’Flynn Group (OFG) entity Victoria Hall in 2012. The Group was in Nama at the time and the land parcels were put on the market with Nama approval.

The defendants claim, through papers opened in court, the construction group informed Nama in advance of the sale that Victoria Hall Management and Grey Willow, O’Flynn companies alleged to be outside of the OFG may be involved in a management capacity with the sites following their disposal.

The buyer for around £1 million was UK businessman Tony Gallagher, whose firm was the highest bidder, according to court filings by the O’Flynn side. However, the defendants allege in opened papers that in advance of the sale, Grey Willow and Victoria Hall Management valued the sites at five times the price. 

After the acquisition by Gallagher, Grey Willow is claimed to have bought the Coventry and Birmingham lands for over £5 million as part of a  joint venture to build student accommodation. The transaction was allegedly arranged by Michael O’Flynn and John Nesbitt. 

Grey Willow is alleged to have done well from the land deals, realising capital from its joint venture partner and gaining a 10% equity interest in future profits. It is claimed that the O’Flynn company earned more than £10 million from the subsequent sale of the developed sites in or about September –November 2013, making it a lucrative transaction. Again, O’Flynn and his team are denying any allegations of impropriety.

As a former employee, Cox says he worked on the structuring of the joint venture. He claims he was told that the entities developing Birmingham and Coventry weren’t part of the O’Flynn Group and that he was not to disclose any information relating to the business of those entities to the OFG finance director.

Cox claims he was unaware of the alleged details of the deal with Gallagher. However, he alleges that in July 2015, Nesbitt sought repayment from Gallagher of £1.4 million, another allegation which is denied. On affidavit, Cox claims he was shown an email which Nesbitt received telling him not to raise the issue with Gallagher as he “would deal directly with Mr O’Flynn in relation to the issue”.

Another former employee of an O’Flynn Group entity who now works with Carrowmore as a development manager, Simon Fox, swore on affidavit that in early 2012, John Nesbitt personally informed him that he and Michael O’Flynn allegedly struck an agreement with Tony Gallagher that the businessman would acquire the Birmingham and Coventry sites from Victoria Hall and sell them on to a structure involving Nesbitt and/or O’ Flynn. Fox claims Nesbitt also asked him to procure a bid for the two sites as part of the sales process to Gallagher but that he was uncomfortable with the request and refused to do it. Again this is vehemently denied. 

The defendants say they also rely on findings made by accountant Sean Murray of Conlan Crotty Murray in a report last July based on an analysis of documents relating to the Coventry and Birmingham transactions.

The Nama allegations are denied by the O’Flynn side who have sworn affidavits and exhibited documents which they say clarify that their intentions to work as part of a joint venture was properly disclosed to the State agency.

The O’Flynn side also denies allegations that they in any way contravened legislative provisions or breached their statutory obligations.

Sources close to the O’Flynn camp say the case we have taken will be dealt with fully by the Courts in January, and strenuously denied the accusations made against his side and added: “We am confident of our position and have full confidence in the Court process,” according to a source.

When the defendants’ lawyers Crowley Miller were contacted, they said their clients did not wish to comment ahead of the hearing.

During various pretrial discovery battles, both sides pushed to get their opponents to hand over more and more documents, a drawn-out process described as “particularly contentious” by Justice Barniville.

There were wins on both sides.

The plaintiffs successfully fought to access further information about agreements and redacted contracts relating to the Gardiner Street development.

The defendants requested details of contracts and all of the correspondence between O’Flynn entities and Nama in respect of the UK sites, including details of planning permission applications made in 2011 and the wider sales process. Much was granted. As part of this dig for information, the defendants also sought, unsuccessfully, information about loan facility offers from Royal Bank of Scotland (RBS) and the Co-Op Bank to fund the joint venture partners. Also sought were details of any correspondence with Gallagher in respect of payment or repayment requests.

“It is accepted (and has never been denied) that the Plaintiffs made significant profits from that joint venture”

O’Flynn Director John Nesbitt

The court was told that the reason they wanted such records was to get a full picture of the Coventry and Birmingham deal and what was and was not allegedly disclosed to Nama.

The O’Flynn parties maintained a ‘nothing to see here’ approach.  They were successful in dampening down the most recent requests from their opponents for better discovery aimed at shoring up the Nama claims. Justice Barniville also criticised as “not appropriate” the defendants use of an unsworn witness statement, rather than a sworn affidavit, as a tool to level Tony Barry’s allegations against the O’Flynn side. But he did not deem the statement inadmissible. 

“Clearly, the defendants were disappointed to find no such incriminating information and now wish to extend their fishing expedition further in the hope of finding something to latch onto in support of their speculative and vague pleas,” Nesbitt suggested on affidavit during the last discovery battle.

Nesbitt said the Coventry and Birmingham sites were put up for sale in compliance with Nama’s policy of debt reduction by means of asset disposal. He told the court this was done with the agency’s approval and that Gallagher was the highest bidder. He claims he personally engaged with Gallagher and others around the time of the sale, actively looking for opportunities to participate in the development and possible operations of the sites. Gallagher is alleged to have been non-committal about any such arrangement but according to Nesbitt, Nama was kept in the loop about the possibility of a joint development venture before the sale was approved. He says email exchanges from March 2012 show this to be the case. 

The court heard despite Nesbitt’s efforts, Gallagher chose not to develop the sites after he acquired them. Instead, he sold them on to two companies that were 90 per cent owned and controlled by a Luxembourg fund called Coral and 10 per cent controlled by one of the plaintiff entities Grey Willow, a company with no liability to Nama and “free to avail of any investment or contractual opportunities available on the market”.

Nesbitt said these companies developed the sites with the assistance of another O’Flynn entity, Albert Project Management. The resulting student accommodation is operated by Victoria Hall Management.

“It is accepted (and has never been denied) that the Plaintiffs made significant profits from that joint venture,” Nesbitt said. 

However, he denies that Gallagher was “interposed” as a middleman or that Nama was somehow kept in the dark about significant facts or “deprived of the profits from the development”. 

He says the allegation in relation to profits fails to acknowledge, not only the disclosure of the joint venture but the borrowing, contracting and investment restrictions imposed by Nama on those whose loans it acquired. 

 “The O’Flynn Group companies could never have participated in the structure which ultimately purchased and developed the sites as they would have had to assume risk including risk associated with borrowing. Similar joint venture opportunities proposed by the O’Flynn Group to Nama were rejected by Nama and evidence of this will be delivered at the trial of these proceedings,” Nesbitt says on affidavit.

A full exploration of the acrimonious claims can be expected in next week’s Commercial Court showdown. Aside from the rancour between the parties, the 16-day action promises to be an expensive confrontation. In pre-trial court filings, the O’Flynn parties said they had spent more than €1.2 million to date and that only covered the cost of handling discovery requests made by their opponents.