John McGuinness (Carlow-Kilkenny, Fianna Fail)
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We will now deal with No. 7, the 2012 Annual Report of the Comptroller and Auditor General and Appropriation Accounts: chapter 2 - Government debt, chapter 28 - accounts of the National Treasury Management Agency, chapter 29 - clinical indemnity scheme, and the 2012 annual report and accounts of the National Pensions Reserve Fund.

I remind members, witnesses and those in the Visitors Gallery to turn off their mobile telephones because they interfere with the sound transmission. I advise witnesses that they are protected by absolute privilege in respect of the evidence they are to give to this committee.

If they are directed by the committee to cease giving evidence on a particular matter and they continue to so do, they are entitled thereafter only to qualified privilege in respect of their evidence. They are directed that only evidence connected with the subject matter of these proceedings is to be given. They are asked to respect the parliamentary practice to the effect that, where possible, they should not criticise or make charges against any person or persons or entity by name or in such a way as to make him, her or it identifiable. Members are reminded of the provisions of Standing Order 163 that the committee should refrain from inquiring into the merits of a policy or policies of the Government or a Minister of the Government or the merits of the objectives of such policies.

I welcome Mr. John Corrigan, chief executive officer of the National Treasury Management Agency, and I invite him to introduce his colleagues.

Mr. John Corrigan:

I am accompanied by Mr. Paul Carty, chairman of the National Pensions Reserve Fund Commission; Mr. Eugene O'Callaghan, chief investment officer of the National Pensions Reserve Fund; Mr. Oliver Whelan, head of funding and debt management, NPRF; Mr. Ian Black, chief financial officer, NTMA; Ms Eileen Fitzpatrick, director responsible for NewERA; and Mr Ciaran Breen, director responsible for the State Claims Agency.

Mr. Nico Petris:

I represent the Department of Finance.

John McGuinness (Carlow-Kilkenny, Fianna Fail)
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I welcome all the witnesses and I invite the Comptroller and Auditor General to make his opening statement.

Mr. Seamus McCarthy:

The National Treasury Management Agency was established in 1990 to manage borrowing on behalf of the State. Since then, it has evolved into a complex organisation with multiple functions and roles. We have tried to provide an overview of those many roles and functions in Chapter 28.

The sets of financial statements produced by the agency reflect the complex structure that exists and the funds it manages. The various financial statements are explained in paragraphs 28.5 to 28.7. The committee may wish to note that, with the agreement of the Minister for Finance, five small accounts which were accounted for separately in prior years have been incorporated into the 2012 national debt accounts, for efficiency reasons. The level of information presented is not affected. Legislation is planned to revise the structure and governance of the agency and its constituent bodies. Those proposals will, in due course, require further restructuring of the financial statements and accounts.

The NTMA’s primary function remains the management of borrowing on behalf of the State. The results of that borrowing activity are reported in the agency’s national debt account, which is also reproduced by the Department of Finance as part of the annual finance accounts. General Government debt is the standard measure used to report Government debt under Maastricht treaty provisions. At the end of 2012, general Government debt stood at around €192 billion, an increase of €23 billion or 14% year on year. The end of 2012 debt represented 117% of gross domestic product, compared with 104% a year earlier.

The principal components of general Government debt at the end of 2012 were borrowing by the agency on behalf of the State, referred to as gross national debt and which is accounted for in the national debt account, and promissory notes issued in 2010 by the Minister for Finance to the Irish Bank Resolution Corporation and the EBS, which were not included in the agency’s national debt accounting. The nominal value of the promissory notes at the end of 2012 was just over €25 billion. As part of the liquidation of the Irish Bank Resolution Corporation in February 2013, the related promissory notes were cancelled. These were replaced with floating rate Government bonds issued by the agency, which now form part of the gross national debt. The nominal value of the outstanding EBS promissory notes was €214 million at the end of June 2013. At that date, almost 90% of the gross national debt was in the form of medium to long-term debt. Figure 2.6 presents a maturity profile of the debt and indicates that more than €100 billion falls due for repayment by 2020. Funding received under the EU-IMF programme of financial support for Ireland accounted for almost one third of gross national debt.

Between September 2010 and July 2012, the NTMA did not actively seek funding in the bond markets because the cost of borrowing would have been too high. Since mid-2011, there has been a sharp fall in the cost of Government borrowing, as indicated in figure 2.4. This allowed the agency to re-enter the market. The Accounting Officer will be able to update the committee on the current position in that regard. Part of the NTMA’s funding strategy since the beginning of the financial crisis has been the maintenance of high levels of Exchequer cash balances. At the end of June 2013, the total of cash balances and other financial assets stood at more than €30 billion.

The National Pensions Reserve Fund was established in April 2001 with a statutory objective to meet as much as possible of the costs of social welfare and public service pensions from 2025 until at least 2055. The fund is controlled by the National Pensions Reserve Fund Commission. The Minister for Finance decided in 2009 to use part of the assets of the fund to assist in dealing with the financial crisis. As provided for in law, he directed the commission to make substantial investments in AIB and Bank of Ireland. The financial statements of the fund for the year ended 31 December 2012 indicate that at that date the fund had assets of €14.6 billion. This comprised directed investments valued at €8.6 billion and the residual discretionary portfolio valued at just over €6 billion. As set out in note 16 of the fund accounts, the planned NTMA legislation will result in changes to the fund, including establishment of the Ireland strategic investment fund and the dissolution of the commission.

In my 2011 report on the accounts of the public services, I reported on excess non-contractual charges levied on the fund by State Street Bank Europe Limited, which provided transition management services for the sale of €4.7 billion of fund assets in early 2011. Following the discovery of the overcharging, the fund received reimbursements totalling €3.2 million and the matter was investigated by the UK’s Financial Conduct Authority. As the committee is probably aware, the authority published its final notice in relation to the investigation on 30 January 2014. The authority imposed a fine on State Street Bank Europe of almost £23 million sterling for breaches of the authority’s principles for financial service businesses. The Accounting Officer will be able to update the committee in this regard.

Another key function of the National Treasury Management Agency is the management of compensation claims against certain State bodies in personal injury, property damage and clinical negligence claims. When performing these functions, the agency is known as the State Claims Agency. Chapter 29 examines the agency’s management of the clinical indemnity scheme, which accounts for the highest value claims. The scheme was established in 2002. It covers all medical malpractice and clinical negligence claims arising from the diagnosis, treatment and care of patients taken against public health care enterprises and their clinical, nursing and allied health care practitioners. The scheme is funded on a pay-as-you-go basis from a subhead in the Health Service Executive Vote. In 2012, the total payout by the agency in respect of settled claims was in excess of €60 million. An amount of €45 million was received by the Exchequer in December 2012 from a UK-based medical defence organisation, the Medical Defence Union. The amount represented a negotiated settlement reached in respect of the union’s remaining liabilities in Ireland dating from before 1 February 2004, when clinical indemnity scheme cover was extended to the union’s members.

At the end of 2012, the agency had about 2,600 clinical claims on hand with a potential liability estimated at €970 million. The estimate is based on the most likely outcome in respect of the amount of awards or settlements and all associated costs, plus a margin of comfort of up to 20%. The estimate is used to prepare annual budget forecasts and is disclosed in the annual financial statements of the agency and the HSE. The agency views the 20% comfort margin as an acknowledged, conventional provision used by prudential insurers and indemnity providers. However, as the scheme is a State-funded pay-as-you-go scheme, the examination concluded that the inclusion of the 20% margin may result in overstatement of the potential liability in respect of active claims. We recommended that the estimates of potential liability for cases on hand should be based on statistical probabilities and informed by analysis of the outcomes of previous cases.

The agency’s claims case load increased by 45% between 2008 and 2012 and the average time taken to resolve cases is also rising. Direct costs increased to an average of €190,000 per case, which is nearly double the 2009 equivalent figure. The number of cases resolved remained steady at between 400 and 450 per year, with the majority of claims settled through negotiation. The total cost of settled claims increased from €20 million in 2008 to €60 million in 2012.

The objective of risk management in regard to the scheme is to minimise the occurrence of adverse clinical events that could result in medical negligence claims. Health entities covered by the scheme are statutorily obliged to report all adverse clinical events to the agency, but less than 40% of claims received since 2008 had been previously reported to the agency as adverse clinical events. There is a danger that such under-reporting could undermine achievement of the agency’s risk management objective.

John McGuinness (Carlow-Kilkenny, Fianna Fail)
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Thank you Mr. McCarthy. I now invite Mr. Corrigan to make his opening statement.

Mr. John Corrigan:

My colleagues and I from the NTMA, together with Mr. Paul Carty, chairman of the National Pensions Reserve Fund Commission, welcome the opportunity to meet the committee members. We have given the Committee of Public Accounts a comprehensive briefing note on recent developments in our funding and debt management activities, the National Pensions Reserve Fund, NewERA and the State Claims Agency so I propose in my opening statement to refer briefly to each of these areas.

When I was before the committee in November 2012, the backdrop was quite different. Ireland was still in the EU-IMF programme but the NTMA had secured a toehold in the international debt markets following the resumption of monthly auctions of short-term treasury bills in the summer of that year. We had also begun to chip away at the funding cliff presented by a €12 billion bond then due for redemption in January 2014 by offering holders of that bond switching terms into other longer dated bonds and through limited new issuance. These were positive developments, to be sure, but a far remove from market access.

In 2013, the NTMA raised €7.5 billion from two medium and long-term syndications and eliminated the January 2014 funding cliff, which was seen by investors as a major obstacle to Ireland's smooth exit from the EU-IMF programme. At the end of 2013 we maintained Exchequer cash and deposits of €18.5 billion, leaving the Exchequer fully funded into the first quarter of 2015 and providing investors with the necessary funding visibility to enable us successfully exit the EU-IMF programme. In January 2014, Ireland was the first European country to tap the syndicated bond market in 2014, completing a €3.75 billion ten year issue at a yield of 3.54%. Crucially, while we had already demonstrated our ability to access the markets, this was the NTMA's first capital market transaction since the exit from the EU-IMF programme.

The NTMA has conducted a proactive investor relations programme since 2011 with face-to-face meetings in most cases twice a year, in the main investment centres in Europe, North America, Asia and the Middle East as well as holding regular meetings with Irish investors. As a result of the this the NTMA was able to bring the new ten year bond to the market at very short notice in the first week of January 2014. Having just exited the EU-IMF programme it was important for Ireland to display that it had full market access and being first into the markets before other sovereign borrowers had announced their issuance plans gave us an early mover advantage. The NTMA will continue its investor relations programme in 2014 as we complete the process of market normalisation.

In practice, market normalisation means moving away from the so-called opportunistic transactions that characterised our engagement with the markets last year to a scheduled and regular series of bond auctions. The NTMA's working plan for 2014 is to raise, subject to market conditions, a total of around €8 billion. Although the order book for the ten year bond sale in January amounted to €14 billion, we decided to limit the size of the new bond to €3.75 billion in order to leave capacity for bond auctions later in the year. In that context we announced yesterday that the NTMA plans to raise about €4 billion through a series of bond auctions during the course of 2014 with indicative sizes ranging from €500 million to €1 billion. It is planned to hold one or two auctions per quarter with the first auction scheduled to take place on Thursday, 13 March 2014.

Aside from the bond markets, a particular priority for the NTMA in 2014 is to complete, subject to the necessary legislative change, the conversion of the National Pensions Reserve Fund into the Ireland Strategic Investment Fund which will invest on a commercial basis to support economic activity and employment in Ireland. Work on the Ireland Strategic Investment Fund, ISIF business plan is at an advanced stage. Already, in anticipation of the transformation of the National Pensions Reserve Fund into the ISIF we have been working hard to develop a pipeline of potential investments. A number of these have been concluded and as a result the National Pensions Reserve Fund now has €1.3 billion invested or committed to areas of strategic importance to the economy, including infrastructure, venture capital and long-term financing for small and medium-sized enterprises. The most recent of these initiatives is a $100 million joint venture with China Investment Corporation, China's main sovereign investment fund, which will invest in Irish technology companies that have a substantial presence or strategic interest in China, and in Chinese technology companies that have a similar interest in Ireland.

While the ISIF's exclusive Ireland investment mandate represents a significant change of direction from the National Pensions Reserve Fund, the new Ireland Strategic Investment Fund will share one important feature with its predecessor: its investments will be undertaken on a commercial basis. One of the key advantages of the ISIF will be its ability to attract co-investment from domestic and international third parties, such as the China Investment Corporation, who will only put their money to work alongside ours, if they have confidence in the commerciality of the investment process. I should add that while all investment will have to meet the commerciality test, not every investment will have the same expected return, risk profile or timeframe.

Before leaving the subject of the National Pensions Reserve Fund, I will return to the matter of overcharging by State Street Bank Europe which we discussed in some detail when I was last before the committee. While State Street Bank Europe had by then already repaid the overcharge amount of €3.2 million and was no longer providing transition management services to the National Pensions Reserve Fund, I advised the committee that the NTMA had unfinished business in terms of the overall relationship with the State Street group of companies and we were awaiting the outcome of the UK's Financial Conduct Authority investigation before deciding our next steps.

On Friday, 31 January 2014 the Financial Conduct Authority announced its decision to fine State Street UK £22.9 million for failings in its transition management business as a result of which the National Pensions Reserve Fund and five other clients were deliberately overcharged a total of $20.2 million. In view of the nature of the failings at State Street identified by the Financial Conduct Authority the National Pensions Reserve Fund terminated its contract with State Street global advisers which managed an indexed equity mandate for the National Pensions Reserve Fund.

In September 2011 the Government announced the establishment of NewERA, initially on a non-statutory basis, within the NTMA. The core role of NewERA involves the oversight of the financial performance, corporate strategy, capital and investment plans of the commercial State entities within its remit and working with stakeholders to develop and structure proposals for investment in energy, broadband, water and forestry to support economic activity. NewERA's role also involves, where requested, advising on corporate finance type issues such as the disposal or restructuring of State assets.

I should stress that NewERA's role and function is advisory in nature, the respective boards remain responsible for the business and activities of the companies that fall within NewERA's remit and policy decisions remain a matter for the relevant Minister and Government. NewERA has, however, developed in conjunction with the relevant Department, a shareholder's expectations framework to aid the alignment of objectives between the State and the relevant commercial State entity in relation to dividends, shareholder returns, policy objectives, as defined by the Departments, and reporting requirements.

NewERA has conducted a range of activities in the areas of corporate finance and governance advice, State asset disposal and restructuring and facilitation of investment in economic infrastructure in its first two years of operation. Details of these activities are set out in the briefing note forwarded to the committee.

Stepping away from the capital markets, the NTMA also performs claims and risk management functions on behalf of the State acting as the State Claims Agency. The State Claims Agency has a significant claims portfolio of over 6,000 claims under management, with an estimated liability at 31 December 2013 of €1.2 billion. These are large numbers, as indeed are most of the figures relating to the work of the NTMA, but we are always conscious of the fact that there are individuals behind these figures. The nature of its work puts the State Claims Agency in the unenviable position of dealing with distressing cases of personal trauma and loss, sometimes within the constraints of the adversarial court system. In doing so, it seeks to fulfil its statutory duty to represent the interests of the State in a fair and respectful manner. It is in this context that the State Claims Agency resolves the majority of clinical claims by negotiating a settlement either directly or via mediation, with just 3% of clinical claims ending up in the courts. The State Claims Agency views mediation as a preferable alternative to the adversarial courts system, particularly in clinical negligence cases.

Since its establishment in 1990 as a single-function debt management agency, governments have given the NTMA a range of additional responsibilities. I have touched on three of these in my opening remarks this morning. In addition, the National Development Finance Agency and the National Asset Management Agency have their own accountable persons and are not the subject of this morning's agenda. As a result of the progressive addition of these extra functions over the years, the NTMA's current governance structure comprises a number of boards and committees overseeing its work. The legislation to establish the Ireland Strategic Investment Fund and to put NewERA on a statutory footing provides an opportune moment to streamline and update this unwieldy governance structure. The Government's proposed legislative changes, which are based on proposals made by the NTMA, will establish a single, overarching NTMA board to oversee all of the NTMA’s functions, with the exception of NAMA, which will continue to have its own separate governance structure. This board, which is to be chaired by Mr. Willie Walsh, who is the chief executive of the International Airlines Group, will greatly assist in the delivery of the NTMA's objectives in an integrated and coherent manner. I thank the members of the committee for their attention. My colleagues and I will be happy to address any questions they have.

John McGuinness (Carlow-Kilkenny, Fianna Fail)
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Thank you Mr. Corrigan. May we publish your statement?

Mr. John Corrigan:

Yes.

John McGuinness (Carlow-Kilkenny, Fianna Fail)
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I call Deputy Fleming

Seán Fleming (Laois-Offaly, Fianna Fail)
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Thank you, Chairman. I welcome all of the witnesses to today's meeting. I would like to ask the representatives of the National Pensions Reserve Fund a brief question about the 2012 accounts, which they signed off on 17 June 2013. Page 7 of those accounts refers to an expected commitment of €250 million to Irish Water as part of that body's establishment costs. Can the witnesses talk me through that arrangement? What was the first point of contact? In what way was it explained that €250 million would be required? Did the Minister issue a direction to that effect, or did the NPRF come up with the idea? I would like the witnesses to talk me through the process. Perhaps they will also make a brief comment on how much interest the NPRF charges and who pays it.

Mr. John Corrigan:

The original approach with regard to that requirement came to us through our colleagues in NewERA who were involved in the development of Irish Water with their counterparts in the Department of the Environment, Community and Local Government and other relevant Departments. The proposition that was presented to the NPRF did not represent a bankable proposition, in the view of the NPRF commission, in the absence of a regulatory and pricing regime. There was no stream of income to support it. An amendment was made to the Irish Water legislation to empower the Government to guarantee to the NPRF any loan the NPRF commission might decide to make. On foot of that guarantee, the NPRF commission felt it was in a position to make this advance. That decision was made on the basis of the credit of the State rather than that of Irish Water, which was still in its embryonic stages. The guarantee that was available under the Irish Water legislation got the project across the line.

Seán Fleming (Laois-Offaly, Fianna Fail)
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When did the NPRF get that guarantee? Who signed that guarantee?

Mr. John Corrigan:

I am told that we would have got the guarantee in July 2013.

Seán Fleming (Laois-Offaly, Fianna Fail)
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When was the legislation to which Mr. Corrigan refers passed? Is he talking about the Irish Water legislation that was passed just before Christmas?

Ms Eileen Fitzpatrick:

The Irish Water (No. 1) Bill was passed in January 2013.

Seán Fleming (Laois-Offaly, Fianna Fail)
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Who signed the commitment? Perhaps I should call it a guarantee.

Mr. John Corrigan:

It would have been signed under seal by the Minister for Finance or one of his officials. I am informed that it was signed by the Minister.

Seán Fleming (Laois-Offaly, Fianna Fail)
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What was the nature of that guarantee? Was it that he would pay this money back if Irish Water did not pay it back?

Mr. John Corrigan:

Exactly.

Seán Fleming (Laois-Offaly, Fianna Fail)
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Is it the case that in the absence of that guarantee, the NPRF was not satisfied with the proposal?

Mr. John Corrigan:

As I said in my opening remarks, the legislation governing the NPRF requires the fund to invest commercially. In the absence of a regulator and a pricing regime, there was no stream of income that could have supported the servicing of the loan.

Seán Fleming (Laois-Offaly, Fianna Fail)
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I ask the witnesses to talk me through the mechanics of this payment of €250 million in July 2013. To whom was it paid? Was it paid to Bord Gáis?

Mr. Eugene O'Callaghan:

The loan was paid in three tranches. The first two tranches were paid in September 2013 and the third tranche was paid in January 2014. At this point, the full €250 million has been drawn down by Irish Water.

Seán Fleming (Laois-Offaly, Fianna Fail)
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It was paid to Irish Water rather than to Bord Gáis. What are the terms of that loan? Is it a loan?

Mr. Eugene O'Callaghan:

It is a loan facility. It matures in September 2015. It is designed as a bridging facility to bridge the start-up phase of Irish Water. The interest works out at approximately 2.5%. It is a 200 basis point spread over a base rate.

Seán Fleming (Laois-Offaly, Fianna Fail)
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That is all right. I wanted to get the mechanics of it on the record. Many people have debated where this money came from. We knew the NPRF had a role in this regard, as it had specifically referred to this money in its annual account.

I would like to ask a few questions about the State Claims Agency. I raised this issue with the witnesses when they were here previously. We heard some fine words in the opening remarks. I want to ask about a much-publicised case that came to a conclusion in the courts last year. All of this matter is on the public record. I refer to the very sad case of a six year old boy in Waterford, Dylan Gaffney Hayes, whose parents had to take the agency to the High Court. An award of €8.5 million was made in November on foot of the catastrophic brain injuries that Dylan suffered at the time of his birth. We would like to extend all the good wishes we can to his parents, Jean and Thomas, with the difficult life they have ahead of them from here on in. According to the family, the obstetrician said to them at the time that "there would be no cover up" and "we will not be defending this". Despite this, the State Claims Agency threatened them with legal costs all along the way. They lodged their claim, but to their surprise, the State Claims Agency denied everything and took them to court. They were ultimately awarded €8.25 million. We must remember that this boy suffered catastrophic brain injuries at birth. It was clear that he would require phenomenal care during the first six years of his life. It was important that his housing needs were met to cater for his difficulties.

They did ask for a payment on account to cover some housing needs and I understand the State Claims Agency refused to make an interim payment on account. The following week a similar case concerning another hospital involving several million euro came before the courts. Ms Justice Mary Irvine made remarks about the conduct of the State Claims Agency which was defending the case. She said it was the second similar case to come before her that week where the HSE had delayed admitting liability. This caused additional stress and fear for the children and families involved. Why does the State Claims Agency do that to people when the obstetrician was quite clear from early on? What the judge said is clear, that the State Claims Agency's delayed payment probably jeopardised the family's financial position and ability to care for young Dylan during those six years. I am sure the file was sitting on some shelf. How does one justify that? I ask this because it is a case that has been completed in the courts. Has the State Claims Agency paid out that money to them?

Mr. Ciaran Breen:

I agree with the Deputy that when a couple such as the Gaffney Hayes come before the court in the way they did in November, it is an extraordinarily difficult time for them. We understand that. For us, managing the litigation poses different stresses and approaches but for them the whole case was fraught with emotion. The Deputy has raised a couple of points in the context of that case that I think I should address, which are matters of record at this stage. I cannot go into, without prejudice, settlement negotiations because we never talk about those. It is true that the obstetrician indicated that he certainly felt that the case was not defendable initially, shortly after the birth. The fact of the matter was that we did not get the personal injuries summons until 26 October 2010. Notwithstanding what the obstetrician might think about it, and clearly his view is very important and one that determines our approach to the case, we are also obliged to take expert evidence to examine the care that was given in the particular instance. In September 2011, our reports which indicated that, clearly, there had been a breach of duty of care, actually admitted the breach of duty on that date, 27 September 2011. There was an additional issue. It is quite complex when one looks at the causation issues in cerebral palsy cases but an issue was left over and we were awaiting some reports. On 7 June 2012 we admitted liability in full and on that date - 7 June 2012 - invited the solicitors for the Gaffney Hayes family to meet us for, without prejudice, settlement discussions.

Seán Fleming (Laois-Offaly, Fianna Fail)
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Was the agency admitting liability?

Mr. Ciaran Breen:

Sorry, no. When I say, "without prejudice" I mean without prejudice to their right to go to court. We admitted liability.

Seán Fleming (Laois-Offaly, Fianna Fail)
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I thank Mr. Breen.

Mr. Ciaran Breen:

Unfortunately, and nothing to do with the State Claims Agency, it was not until May 2013 that we were able to put forward our first offer. We were awaiting a schedule of special damages which we got and we put forward our first offer on that occasion. When that was not successful, on 20 May 2013 we actually issued an invitation to mediate. As Mr. John Corrigan stated in his opening remarks, it is a preference for us that we would go the route of mediation. In the particular case the family refused mediation and we decided we would go back to court because there is a facility to get the High Court judge to order mediation. We did that on 3 October 2013. The mediation failed. We made a substantial offer at the mediation and the mediation failed. The matter was then listed, as it would normally be, before the High Court in November. A very tricky issue then arose, and while the family might be aware of it, it is also a very technical legal argument, in relation to real rate of return concerning the cost of future care. In the particular case, the counsel for the plaintiff indicated to the court that he was seeking to bring economic argument before the court as to why that rate should be reduced. We decided that for good reasons, based on our own economic evidence, that we would be putting that matter at issue. The case ran for roughly 11 days until it was settled.

Seán Fleming (Laois-Offaly, Fianna Fail)
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I understand the last part of what Mr. Breen has said. I was struck by one part of this case - which is a prominent case and one with which Mr. Breen is very familiar. Dylan was born in 2007 but Mr. Breen said the State Claims Agency received the summons on 26 October 2010, three years later. When did the State Claims Agency become aware of this case and its adverse medical situation? Is Mr. Breen saying that the start of the agency's dealings with the case was when it was issued with a court summons? Can the mediation not commence when the agency becomes aware of the event and vests its liability? Does the agency sit back? Is it only those people who have the moral strength, character, the finance and the ability who take the State Claims Agency to court? Does the agency deal with cases without summonses?

Mr. Ciaran Breen:

Yes, we do where we get a very detailed letter of claim and we would go to mediation. For example, we had a case about a woman where there was a failure to diagnose her cancer going back some time. By the time the proceedings would be up and ready and issued, there was a real danger that the woman would not survive. In that particular case we went to an early mediation with the family based on a substantial letter of claim and, in fact, settled that matter well prior to when a summons might be issued.

We get about 80,000 adverse incidents notified to us every year. Once we get letters of claim in, if we can at all, we try to move to settle the cases at the earliest opportunity. What we do not want to do - I know this is probably what the Deputy thinks we are doing but we are not doing it - is engage in a game with people of dragging things out. We have no interest in doing that. For example, we support the open disclosure project which we have rolled out to 30 hospitals at this stage and about nine maternity units. That is all about making sure doctors own up to their mistakes.

The third case the Deputy mentioned, which was the case immediately after the Dylan Gaffney Hayes case, came before Ms Justice Irvine as he said. She did not actually make any criticism of the State Claims Agency per se but she did make a criticism of the HSE and I accept, by inference, of us. In that particular case, because we felt that the manner in which we handled that case was completely above board, we went back in to her in the afternoon and indicated to her that we had an issue in relation to her remarks which had been reported widely that morning and on RTE. Having chronologised the case for her and indicated the various things we did and the timescales within which we did them, Ms Justice Irvine withdrew her remarks. They were not widely reported but that actually happened.

Seán Fleming (Laois-Offaly, Fianna Fail)
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By the way, have the Gaffney Hayes family received their money?

Mr. Ciaran Breen:

Yes. They would have received their money very quickly.

Seán Fleming (Laois-Offaly, Fianna Fail)
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Obviously 90% of the cases under the State Claims Agency are clinical cases. Another prominent case would be that of Louise O'Keeffe which was decided in the European Court of Human Rights. In the course of similar cases the agency had written to people to withdraw their actions after the matters were decided in the Irish courts. Some did withdraw but some went to court.

The State Claims Agency was not successful in regard to costs in some cases. The Supreme Court refused to award State legal fees against individuals. Has the agency written back to the 135 people and withdrawn the letter stating the agency was seeking a ruling for State legal costs? Perhaps at the time the agency believed that would be the case, but now that a ruling has been made by a higher court, has the agency reverted to those 135 people and withdrawn the letters and sought mediation or the issue of new summonses?

Mr. Ciaran Breen:

Let me refer back to what we did at the time. Immediately following the Louise O'Keeffe case and because it was then the law of the land - this was well in advance of the ECHR judgment - we wrote to the lawyers for cases with similar facts and issues to the Louise O'Keeffe case, approximately 135 cases at the time. We wrote to people on the basis that we were asking them to discontinue their actions, but that we were not chasing them for costs. On the contrary, what we were saying to them at the time was they should not be building costs. There were co-defendants in those cases and we indicated that we did not believe the State or the Minister was the culpable party.

Following the ECHR judgment, the Minister for Education and Skills issued a press statement early this month indicating that he had asked us and the Office of the Attorney General to revisit the live cases, the ones that had not been discontinued. We are in the middle of that process. Then, in the longer term, we were to review all of the cases which had been discontinued. The Minister indicated he was looking for a way forward in regard to these cases.

Seán Fleming (Laois-Offaly, Fianna Fail)
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To return to the clinical cases, the Comptroller and Auditor General said he was concerned about how long it was taking to deal with cases. The lifetime of each claim was measured from the date it is recorded on the State Claims Agency's computer. Is that the date the agency was made aware of the adverse finding or what date is it?

Mr. Ciaran Breen:

There are two critical dates and this might explain in part what appears to be a very long time. The first date is the date of the claim. In other words, we know it is a claim.

Seán Fleming (Laois-Offaly, Fianna Fail)
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A legal claim?

Mr. Ciaran Breen:

Yes. It could be a letter of claim from the person, a relative or a solicitor, or it could be a summons. In the context of the examination by the Comptroller and Auditor General, the next critical date for the length of time is the date that we resolve the case. This is not the date on which we actually agree the settlement sum of moneys with the plaintiff. It is the date when we resolve costs issues in regard to the file. I will give an example of a case I handled personally over two years ago.

Seán Fleming (Laois-Offaly, Fianna Fail)
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Will Mr. Breen please repeat that? The date of resolution is which date?

Mr. Ciaran Breen:

The date when we resolve the costs of the plaint.

Seán Fleming (Laois-Offaly, Fianna Fail)
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So it is the final completion, after admitting liability or earlier?

Mr. Ciaran Breen:

Yes. To give an example of a case I handled myself, it is now two and a half years beyond the date we agreed the initial settlement, but the costs have yet to be resolved, because they have been to taxation on at least two occasions and have been adjourned. This process can lengthen the period of time considerably if one looks at it from date of claim to date of ultimate resolution.

Seán Fleming (Laois-Offaly, Fianna Fail)
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Would the agency have paid out the award in the meantime?

Mr. Ciaran Breen:

Yes.

Seán Fleming (Laois-Offaly, Fianna Fail)
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When we look at the chart on page 2 of the Comptroller and Auditor General's report, it shows the paediatric cases since 2008 have stretched from an average period of just over three years to well over five years, mental health issue cases have gone from two years to five years and gynaecological claims have gone the same way. The figures on the chart are going in the wrong direction.

Mr. Ciaran Breen:

I agree. There are significant issues for the management of clinical negligence cases before the courts in regard to the length of time it takes to get a case to court, depending on how quickly the plaintiff brings-----

Seán Fleming (Laois-Offaly, Fianna Fail)
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Mr. Breen has said that only 3% of claims go to court so that should not affect this so much. What about the 97% of cases? I would like to separate the cases that go to court versus those that do not. Only 3% go to court, so let us talk about the 97%. I am sure the chart on page 2 includes the 97% and is primarily based on them. Therefore, the issue of court dates should not apply to the same extent. These cases are outside of the courts.

Mr. Ciaran Breen:

I agree.

Seán Fleming (Laois-Offaly, Fianna Fail)
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These cases are still taking a very long time, without court appearances.

Mr. Ciaran Breen:

As I said, the cost issues in those cases we settle without ever going to court can be very lengthy. There are other delays also. When one is handling medical negligence cases, one must often await reports from doctors. For example, in paediatrics, which is one of the specialties the Deputy has mentioned, or obstetrics, there are only two or three neuroradiologists who can be called on to provide the required complex reports relating to something such as a brain scan. This takes a considerable period of time, sometimes a year or more. We cannot control the inherent delays in the system of gathering the kind of evidence which is required to ensure that when we make a final payment or admission of liability, we are doing it for the right reasons and can stand over it.

Seán Fleming (Laois-Offaly, Fianna Fail)
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I would have said that should be part of the agency's risk management process. It should have a role in shortening the length of time the system takes to deal with a case. The HSE sends X-rays abroad to be read routinely. It sends them to America, for example, from several counties.

Mr. Ciaran Breen:

We use foreign experts as well.

Seán Fleming (Laois-Offaly, Fianna Fail)
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Why then does Mr. Breen say there are only three available?

Mr. Ciaran Breen:

I am saying that in Ireland there are only two, and the third is one from abroad whom we use. There are others who act for plaintiffs. Therefore, there is a very limited pool of people at any one time who can be asked to prepare the report.

Seán Fleming (Laois-Offaly, Fianna Fail)
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I will make a few other general remarks. At 1 January 2011, the agency's outstanding liability was €999,000 million and now it is €1.2 billion. The estimated liability has gone up 36% in the past three years. Mr. Breen has said that the agency's main objective is to ensure the expenses relating to the management of cases are contained. Another objective is to work with the authorities at reducing costs. If these are the agency's two main objectives, it has failed on them. We thought the agency was set up to reduce the figure of over €1 billion down to between €800,000 and €600,000, but the figure is going in the wrong direction and Mr. Breen is presiding over that.

I know he will say he has no control over the number of claims, but the number of claims outstanding each year is rising. Therefore, the agency is not even remotely near dealing with the number of claims being made. The claims are just piling up, which extends the timescale for cases. The liability to the State is rising every year, 36% of an increase in the past three years alone. I thought the agency was to reduce that.

Mr. Ciaran Breen:

We are reducing it.

Seán Fleming (Laois-Offaly, Fianna Fail)
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It is increasing.

Mr. Ciaran Breen:

We are reducing it. The Deputy is looking at an estimated liability there.

Seán Fleming (Laois-Offaly, Fianna Fail)
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I am looking at the figures.

Mr. Ciaran Breen:

Let me explain some of the things that influence this. In 2012, for example, we had a series of hip implant cases from DePuy, whom we managed to get to take over all of those cases. Initially, reserves had to be made for those 230-odd cases. We could not be sure when we got those cases that DePuy would offer us an indemnity on them. I think the Deputy would agree that is quite a number of cases to get and handle in any one year. Not alone did we manage to get DePuy to take over those cases, we got them to pay a substantial sum towards our administration costs and our legal costs for dealing with them initially. In 2013, for example, we got in the order of between 110 and 120 symphysiotomy cases, all of which arrived together. These kinds of cases push up the estimated liability.

I will tell the Deputy where we are making savings. Every year, our actuaries indicate to us, based on statistical probability, what they believe we will pay out in a particular year. This year, we made savings of €30 million odd. The year before, we made savings of approximately €40 million. Clearly, we are making savings, based on what our actuaries believe is the amount we would pay in an individual year.

Seán Fleming (Laois-Offaly, Fianna Fail)
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Some people feel these are only notional savings, because they see the bill rising all the time. I accept that theoretically the agency paid less than it might have paid, but that was not an actual saving.

Mr. Ciaran Breen:

It is not theoretical, it is a fact. We are actually paying less than what our actuaries indicated we would be paying.

Seán Fleming (Laois-Offaly, Fianna Fail)
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Let us move on. Will Mr. Breen separate the figures for us? He gave us a figure of 3%. How many cases went to court or were resolved in the years under review, either in 2012 or 2013? How many cases were settled outside court? What was the average cost of the awards in court versus those negotiated without going to court? What are the average legal costs for going to court versus not going court? Does the agency have a breakdown? We do not have the details anywhere, we simply have total figures. The figures do not distinguish between the two.

Mr. Ciaran Breen:

I can provide statistics for-----

Seán Fleming (Laois-Offaly, Fianna Fail)
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I am looking for numbers not percentages.

Mr. Ciaran Breen:

I can provide statistics for cases resolved.

Seán Fleming (Laois-Offaly, Fianna Fail)
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I am looking for details for in court and outside of court.

Mr. Ciaran Breen:

I will provide details of the 2013 clinical cases that we resolved. We resolved 419 cases and less than 3% would have been related to court.

Seán Fleming (Laois-Offaly, Fianna Fail)
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That amounts to approximately 12.

Mr. Ciaran Breen:

It was fewer than that.

Seán Fleming (Laois-Offaly, Fianna Fail)
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What was the average award of the 12 cases which went to court versus the average settlement reached in cases that did not go to court? I am trying to establish whether there is a significant difference. Is it costing the agency more to go to court? I will come to the legal costs in a moment.

Mr. Ciaran Breen:

There is no doubt that if we take a case to court-----

Seán Fleming (Laois-Offaly, Fianna Fail)
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I am referring to the award.

Mr. Ciaran Breen:

Yes. If we take a case to court-----

Seán Fleming (Laois-Offaly, Fianna Fail)
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What was the average award last year from the 12 cases? Will Mr. Breen provide the total award, and we will divide it by 12?

Mr. Ciaran Breen:

I do not have the figures in terms of the breakdown of court awards.

Seán Fleming (Laois-Offaly, Fianna Fail)
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I am asking Mr. Breen to get those figures to help those of us in the Committee of Public Accounts. I am keen to see the average awards. We have heard of a case of €8 million and another of €4.5 million. I imagine there are smaller cases as well. In terms of the cases-----

Mr. Ciaran Breen:

I wish to explain a point-----

Seán Fleming (Laois-Offaly, Fianna Fail)
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What are the largest awards of the cases that have not gone to court?

Mr. Ciaran Breen:

I wish to explain a point on cases that go to court. Often, even when we take a case to court and we are contesting a particular issue, it does not mean we are contesting all of the issues. We may get a settlement during the course of the trial, in other words, a negotiated settlement. In fact, awards, even for cases that go to court, that is, within the 3% figure, are relatively minimal. It looks as if far more cases go to court than is actually the case because cases involving infants or wards of court must be ruled by the High Court. Therefore, they are reported on widely in the media but they have never actually gone to court in terms of a hearing before the court. It is purely going before the court for a ruling.

Seán Fleming (Laois-Offaly, Fianna Fail)
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I note that the agency made payments last year of €147,000 for an average case. That includes approximately €60,000 of costs and €87,000 of the award itself. This means for every €1,000 of an award there is €670 in legal costs on top. We are finding that 40% of all the agency's payments are for legal costs. What are the highest sums the agency paid to barristers? Some people might seek the names, but will Mr. Breen outline the highest payments to individual barristers in the year? What are the figures like?

Mr. Ciaran Breen:

I do not have the individual figures for particular barristers but I can offer an example. In a catastrophic injury case we currently pay our senior counsel in the order of €42,500 on a brief fee. These were taxing previously, before we did a procurement to reduce our barrister fees, at €65,000 for catastrophic injury cases.

Seán Fleming (Laois-Offaly, Fianna Fail)
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I have asked the question before. How much would it cost to take barristers on contract? Mr. Breen has referred to a reduced rate but the agency is paying a daily rate.

Mr. Ciaran Breen:

We cannot take barristers on contract. The position is that barristers are sole traders who practise at the bar. They specialise in various areas, including clinical negligence, and we engage them on a case-by-case basis.

Seán Fleming (Laois-Offaly, Fianna Fail)
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Is there no mechanism within the State apparatus - I am directing this to the entire deputation at this stage - whereby instead of paying barristers up to €2,000 per day, which could amount to hundreds of thousands of euro per annum, the agency could get some of them on an annual contract? That way they could develop considerable expertise at a rate dramatically less than the current rate.

Mr. Ciaran Breen:

We are not allowed to do it under competition rules. Even if we wanted to set particular contracts, we simply cannot do it.

Seán Fleming (Laois-Offaly, Fianna Fail)
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People tender for everything now.

Mr. Ciaran Breen:

We did. We had a procurement process and we chose our counsel based on that procurement. Up to 1,000 barristers at the Law Library applied for our procurement and we reduced all the fees by 25% at the time. They competed with one another and, in fact, the savings are well in advance of 25%.

Seán Fleming (Laois-Offaly, Fianna Fail)
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It is still costing the State far more than it should. I am speaking as an ordinary person. It is still the case that hundreds of thousands of euro are going on these cases.

Mr. Ciaran Breen:

Legal costs are a feature.

Seán Fleming (Laois-Offaly, Fianna Fail)
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Mr. Breen is in place to help the State reduce the costs.

Mr. Ciaran Breen:

Absolutely, and we do so. We can control our costs. By doing the type of procurement we did for barristers and solicitors, we have significantly reduced our costs.

Seán Fleming (Laois-Offaly, Fianna Fail)
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I wish to put a question to Mr. Corrigan. Representatives from the troika were here several times and I imagine Mr. Corrigan met them. Now, it appears to be illegal for the State to try to get a competitive annual rate for legal services from a barrister. This was one of the protected professions which escaped the troika for three years. It looks as if since they got out of the clutches of the troika we are stuck with them for another generation. Did Mr. Corrigan raise the matter with the representatives of the troika? Clearly one of the valuable aspects of having the troika here was to make some structural changes in our society in terms of some of the protected professions. I will quote the figure again. For every award of €1,000 to a person, some €670 must be paid on top of that in legal fees. That is out of all proportion. Did Mr. Corrigan ever raise it or was it outside his brief? I know I raised the matter with representatives from the troika when I met them.

Mr. John Corrigan:

No, I did not raise it. I was aware that the troika was focusing on the legal profession as one of the issues but, frankly-----

Seán Fleming (Laois-Offaly, Fianna Fail)
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The legal profession talked them out of it.

Mr. John Corrigan:

I could not say that. Mr. Breen made a point. We had a competition run under public procurement rules for panels for solicitors and barristers. Compared with the previous fee rates that we were paying, the results of that procurement competition yielded significant savings. Deputy Fleming is saying that the costs are still too high and that may not be an unreasonable view, but we can only manage it within the processes available to us. We have discussed the matter of solicitors previously. Deputy Fleming raised it some years ago. We have established an in-house litigation team and that has resulted in considerable savings in the solicitors area. Mr. Breen may wish to comment on that.

Mr. Ciaran Breen:

When I was before the committee last time one of the points made to me about clinical negligence litigation related to ensuring that we were managing several of these claims through in-house solicitors. We did that and we set up the unit. It is established.

I wish to make a further point to Deputy Fleming. The latest figures for 2013 in terms of costs as a percentage of damages - I am referring to our costs and the plaintiffs' costs - is 44%. The National Health Service Litigation Authority is our equivalent in the United Kingdom, where costs are always said to be lower. In clinical negligence cases the authority's combined costs as a percentage of damages is 55%. That is the comparison and the authority is doing exactly the same work that we are doing.

Seán Fleming (Laois-Offaly, Fianna Fail)
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In many cases liability is admitted. The injuries board is a separate organisation. The chairperson of the injuries board made a remark that if an organisation like the injuries board took over these cases it would save the State a good deal of money rather than the agency doing that work. She stated that one of the reasons for this was that the board deals with cases in 7.2 months whereas some of the agency's cases go on for years.

I will not ask Mr. Breen to comment on whether they should have a role because that is probably a policy issue. Has Mr. Breen examined how the injuries board deals with cases in a more timely manner and is there anything he could learn from them? I am a great believer that if one State organisation is doing something very well other State organisations should learn from that. Has Mr. Breen had a discussion with them about the comparatives?

Mr. Ciaran Breen:

Yes.

Seán Fleming (Laois-Offaly, Fianna Fail)
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Have they provided any good suggestions?

Mr. Ciaran Breen:

The Deputy might not be aware that we have only concentrated on clinical negligence cases here and I will comment on that in the context of the injuries board. However, with regard to employer's liability, public liability and property damage which is what the injuries board deals with, we settle many of our cases within very short time lines of months with plaintiffs and their lawyers, without any fuss. The reason we can do that is because of the kind of cases which present. These are cases involving things like road traffic collisions. In my view and based on my experience over 30 years of managing both clinical negligence cases and ordinary road traffic-type cases, one is not comparing like with like. For example, in clinical negligence cases one is dealing with the reputations of doctors, nurses and of other skilled practitioners in hospitals. Those cases are not amenable to that kind of easy decision-making as in a case, for example, if I collide into the back of the Deputy's car, that clearly I am liable. It is a much more complex array of factors. For that very good reason, we did an exercise in discussions with the injuries board and we indicated to it that we felt that there was probably only in the order of about 3% of our clinical negligence cases that we felt they could take over and handle in the kind of efficient way it works. We do exactly the same with that 3% of cases. We handle them as efficiently as we can, delivering compensation in the shortest period of time. It is a policy issue, as the Deputy says, about whether the injuries board has medical negligence cases. I think that if medical negligence cases go to the injuries board our work will increase, not decrease, because in every case where the injuries board comes back to us and ask us about the liability position, we are going to have to commission medical records from hospitals and this will create a resourcing issue for hospitals and indeed for us. There are many complicated issues.

Seán Fleming (Laois-Offaly, Fianna Fail)
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When does Mr. Breen's office have sight of an original medical report file, as, for example, in the Gaffney case? When does his office have sight of the original medical report as written by the hospital staff? How long does it take for the file to come to his office?

Mr. Ciaran Breen:

Almost immediately. I will explain the process. When a letter of claim comes in or, indeed, a summons, we immediately engage with the hospital, with all the practitioners. We take statements from them, we review the medical records and we start the commissioning of our medical evidence.

Seán Fleming (Laois-Offaly, Fianna Fail)
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The most disturbing aspect is that according to the Comptroller and Auditor General, 40% of all the claims received had not already been notified to the agency as being adverse incidents. Mr. Breen referred to early disclosure but that is not working if, in 40% of the cases that land on his desk, his agency has no advance knowledge of them. Is that a correct presumption? We are miles away from getting the early disclosure which in theory is supposed to happen in practice.

Mr. Ciaran Breen:

It is up to hospitals to notify their adverse events. We have a web-based system which we are currently upgrading called the NAEMS system, the national adverse event management system. We are working with hospitals to ensure that they are reporting all their adverse clinical incidents.

Seán Fleming (Laois-Offaly, Fianna Fail)
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During 2013 the State Claims Agency indicated that it had no standard management report of such consolidated data and the requested information would take a considerable amount of time to assemble. This is stated in paragraph 29.61 of the report of the Comptroller and Auditor General.

Mr. Ciaran Breen:

I think that is a slightly different issue. For every health enterprise and hospital we have information on their particular rate of reporting. In fact, in 2013 we wrote to every hospital and we informed them of what they were reporting and what their peer was reporting-----

Seán Fleming (Laois-Offaly, Fianna Fail)
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Does the agency deal with hospitals directly rather than through the HSE?

Mr. Ciaran Breen:

No, we deal with them via the HSE. We also deal with voluntary hospitals.

Seán Fleming (Laois-Offaly, Fianna Fail)
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And private hospitals.

Mr. Ciaran Breen:

We wrote to every hospital, including boards and chief executive officers of voluntary hospitals and said, "This is what your peer is reporting, this is what you are reporting. Will you please tell us why you are falling below and what efforts are you making to ensure that your adverse event reporting is better?"

Seán Fleming (Laois-Offaly, Fianna Fail)
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I ask Mr. Breen to forward it to the committee and to give a breakdown of the cases that went to court or were settled.

Mr. Ciaran Breen:

A lot of cases go to court for ruling, for example.

Seán Fleming (Laois-Offaly, Fianna Fail)
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We will take whatever definition Mr. Breen wishes to give the committee. I will not specify the definition.

Mr. Ciaran Breen:

I set out in writing our assumptions.

Seán Fleming (Laois-Offaly, Fianna Fail)
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I ask Mr. Breen to separate the cases that do not go to court and to list the total awards in both categories, court and non-court, the average award, the legal costs for the cases that go to court. The committee does not yet have a picture of the difference between the average cost of a case that goes to court as against the average cost of a case that does not go to court and whether there is a significant difference in the legal fees.

For illustrative purposes - we do not need names and perhaps we would not be entitled to names - I ask if Mr. Breen could provide us with the ten largest settlements in each category, the court cases and the non-court cases. What were the biggest settlements in the category of cases not proceeding to court that would not have been publicised? Are there any cases of a settlement of well over €1 million?

Mr. Ciaran Breen:

There are many cases of over €1 million settled.

Seán Fleming (Laois-Offaly, Fianna Fail)
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What is the biggest case?

Mr. Ciaran Breen:

The biggest case we settled last year was for €11 million.

Seán Fleming (Laois-Offaly, Fianna Fail)
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Without going to court?

Mr. Ciaran Breen:

No. This was a case where it began in the court and probably settled on day two or three.

Seán Fleming (Laois-Offaly, Fianna Fail)
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Mr. Breen will not call that a court settlement in that case. Are any cases settled without the person going up the steps of the court?

Mr. Ciaran Breen:

Lots of cases are settled without-----

Seán Fleming (Laois-Offaly, Fianna Fail)
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Mr. Breen refers to early negotiation and mediation yet everything seems to have to go to court for a day. We heard lovely flowery words earlier about mediation. How many are settled before going to court?

Mr. Ciaran Breen:

We settle hundreds of cases without-----

Seán Fleming (Laois-Offaly, Fianna Fail)
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What about the cases that did not go to court? What were the two or three biggest cases in that category? I have no concept of it and I am still trying to get that simple answer. How many cases involve the State Claims Agency saying: "Hands up, we will not put you through the stress of having a senior counsel go to the High Court." How many such cases? I am trying to find out about all this mediation. Is mediation only after court?

Mr. Ciaran Breen:

To give the Deputy some information, we have settled 26 cases on what we call a periodic payment order basis.

Seán Fleming (Laois-Offaly, Fianna Fail)
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I understand that.

Mr. Ciaran Breen:

Many of those cases are settled for lump sums of between €1.5 million and up to €3 million.

Seán Fleming (Laois-Offaly, Fianna Fail)
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Were those periodic order payments approved in court?

Mr. Ciaran Breen:

They were approved by the court.

Seán Fleming (Laois-Offaly, Fianna Fail)
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I am now back again to try to find some information about cases-----

Mr. Ciaran Breen:

They have to be approved by the court. That is the point. They have to be ruled.

Seán Fleming (Laois-Offaly, Fianna Fail)
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Is the legislation in train?

Mr. Ciaran Breen:

The point I am making is that once it involves a minor, a judge of the High Court must rule such a case, even where it is settled outside of the court. In other words, the two parties come before the court. We leave and the plaintiff and the plaintiff's family is left there and the judge hears whether they are happy with the settlement and decides whether he or she will rule it.

Seán Fleming (Laois-Offaly, Fianna Fail)
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Maybe I am slow and everyone else is slow but I am here for half an hour and I am now hearing it. Mr. Breen must understand that we are not legal people. I am not a barrister or a solicitor nor are a majority of the public. I am pleased to hear that 100% of cases involving people aged under 18 go to court.

Mr. Ciaran Breen:

They have to be ruled on-----

Seán Fleming (Laois-Offaly, Fianna Fail)
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I have been listening-----

Mr. Ciaran Breen:

I informed the Deputy of that fact earlier.

Seán Fleming (Laois-Offaly, Fianna Fail)
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It has been stated that 3% of cases go to court. It was also stated that the 3% of people involved in those cases tend to be reasonable individuals. We have now clarified the position.

Mr. Ciaran Breen:

I made the point that those were cases in contest where there was an issue between us and the parties involved. That issue might relate to the real rate of return or something of that nature. All cases in respect of minors must be ruled on by the High Court.

Seán Fleming (Laois-Offaly, Fianna Fail)
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That is good. I am glad I know that now. Are there many clinical indemnity cases which do not involve minors?

Mr. Ciaran Breen:

Most certainly, yes.

Seán Fleming (Laois-Offaly, Fianna Fail)
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Are many of those cases resolved before they reach the courts?

Mr. Ciaran Breen:

Yes, either at mediation or in ordinary Law Library settings.

Seán Fleming (Laois-Offaly, Fianna Fail)
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What would have been the nature of some of the larger settlements reached in cases which did not go before the courts by Mr. Breen's organisation? Will he provide a flavour of the two or three largest settlements that were agreed? I do not have a particular case in mind in this regard. The agencies before us are State agencies and if I were asked questions on clinical indemnity, the State Claims Agency or the NTMA by the media, it would be in everyone's interests for me to be in a position to indicate that I understand what is happening and explain what is involved. I do not yet understand the position with regard to clinical indemnity.

Mr. Ciaran Breen:

We would have settled what we call serious cases for anything up to €500,000 or, depending on the kind of injury involved - in respect of which a ruling would not be required - perhaps even in excess of that.

Seán Fleming (Laois-Offaly, Fianna Fail)
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A court ruling?

Mr. Ciaran Breen:

Yes.

Seán Fleming (Laois-Offaly, Fianna Fail)
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Would there have been many settlements amounting to over €1 million?

Mr. Ciaran Breen:

No, there would not have been. This is because the serious cases in respect of which awards would be over €1 million almost all involve children or adults who have suffered brain damage and are wards of court.

Seán Fleming (Laois-Offaly, Fianna Fail)
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Mr. Breen is aware of the type of information in respect of which I am seeking a breakdown.

Mr. Ciaran Breen:

I am.

Seán Fleming (Laois-Offaly, Fianna Fail)
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He can appreciate from where I am coming on this matter. I am not seeking to be totally prescriptive and Mr. Breen knows the information he can provide which will be of assistance to the committee. Perhaps he will also provide information on the payments made to the top five or ten barristers. I will leave it to him to decide what is a reasonable number in this regard.

Mr. Ciaran Breen:

Is this only in respect of clinical negligence or-----

Seán Fleming (Laois-Offaly, Fianna Fail)
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It is in respect of both matters we have been discussing. However, I accept that between 85% to 90% of the work involved relates to clinical negligence. I would be happy to receive the information in whatever way Mr. Breen sees fit to supply it. All I am trying to do is obtain a greater understanding of what is going on.

Mr. Ciaran Breen:

Sure.

Kieran O'Donnell (Limerick City, Fine Gael)
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I would like Mr. Corrigan to comment on a number of matters. The first of these relates to State Street Bank, in respect of which he provided quite a lengthy analysis in his submission to the committee. At the end of January, State Street was found to have committed major transgressions by the UK's financial regulator, the Financial Conduct Authority. When Mr. Corrigan was previously before the committee he stated that, effectively, the activity in which the bank was involved was fraudulent and unacceptable. State Street defrauded the State to the tune of €3.2 million, which was four and a half times the original agreed figure of just under €700,000. This matter arose in October 2011 when the our guests became aware of a particular media report and contacted State Street. That institution appeared to have been continuing to manage a fund on the NPRF's behalf until quite recently. Why was that the case? If the activity in which State Street was engaged was deemed to be fraudulent, why did the NPRF not pull its business immediately? How much money was State Street responsible for managing up until recently and when did the NPRF eventually pull its business? Why did the agency not end its association with the bank over two years ago?

Mr. John Corrigan:

In 2012, I explained to the committee that we would await the report of the Financial Conduct Authority in order to identify what was the root cause of this behaviour and what were the failings within State Street. It is clear from the Financial Conduct Authority's report that the behaviour of State Street at various levels - including from the point of view of its compliance, internal audit and legal functions - fell well below the standard that would be expected of a fiduciary entity. On sight of the report, we terminated our contract with State Street for the management of funds on an indexed or passive basis.

Kieran O'Donnell (Limerick City, Fine Gael)
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What was the amount involved?

Mr. John Corrigan:

It was approximately €700 million.

Kieran O'Donnell (Limerick City, Fine Gael)
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On what date was the contract terminated?

Mr. John Corrigan:

It was terminated on 3 February. The report was published on 31 January and the commission met incorporeally on the following Monday and terminated the contract.

Kieran O'Donnell (Limerick City, Fine Gael)
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I engaged in a quick perusal of the Financial Conduct Authority's report. I presume that the National Pensions Reserve Fund is the "Client A" identified in that report.

Mr. John Corrigan:

Yes.

Kieran O'Donnell (Limerick City, Fine Gael)
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When one reads the documentation relating to Client A - which outlines internal discussions that occurred within State Street - one comes across phrases such as: "Gotta win this one! Any ideas how to get more revenue would be appreciated."; "We need to charge fee then otherwise they get suspicious."; "makes it look like we actually thought about it and did the calculations."; "need to be very creative here"; and "Here’s what I think we should do with our new best friends". When one sees terminology of that nature, one must question - in the context of the reputation of both the State and, more particularly, the National Treasury Management Agency - what should have happened when this issue originally came to light.

In October 2012 when our guests contacted State Street Bank, it wrote back and stated that it was examining transition 14. On 14 November of that year it acknowledged that there were problems. In December 2011 it had agreed that a mark-up had been applied in respect of the original fixed fee of €698,000 - bringing it up to €2.65 million - and that this was fraudulent. In March 2012 the position was reviewed by PricewaterhouseCoopers in Boston which stated that the amount was €2.61 million, slightly less than the €2.65 million indicated by State Street. In July 2012 State Street indicated that when it had considered the position again, it discovered it had avoided taking any risk on the transaction and, therefore, owed the NTMA a further €600,000, or $727,000. On 21 August 2012 the NTMA requested an independent investigation and State Street indicated that there might be problems with transition 4 rather than transition 14. The NTMA then referred the matter to An Garda Síochána and stated at that point that it would accept all the figures but that they were still subject to independent verification. What was the final outcome in respect of this issue?

Mr. John Corrigan:

I will ask Mr. O'Callaghan to comment on that.

Mr. Eugene O'Callaghan:

The two amounts to which the Vice Chairman referred, namely, €2.6 million and the approximately €700,000-----

Kieran O'Donnell (Limerick City, Fine Gael)
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The total amount was €3.2 million.

Mr. Eugene O'Callaghan:

I was referring to the two individual amounts, which were separately validated by PwC in Boston. At that point State Street consulted its systems and validated those amounts as the amounts that were overcharged in respect of our account. We accepted those amounts. From the point of view of the calculation of the amount that was overcharged, whenever that took place during 2012, those items would have been signed off on.

Kieran O'Donnell (Limerick City, Fine Gael)
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Where stands the Garda investigation and the NTMA's own independent review?

Mr. Eugene O'Callaghan:

We reported the matter to the Garda and, as a result, the City of London Police force is also investigating it. We met representatives from both forces at the same meeting. The Garda seemed happy to allow the matter to be investigated by the City of London Police.

Kieran O'Donnell (Limerick City, Fine Gael)
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When did that referral take place? When was the City of London Police force requested to carry out an investigation?

Mr. Eugene O'Callaghan:

We reported the matter at some point in 2012. I am sorry, I do not remember the exact date. The City of London Police force is involved in an ongoing investigation not just into the incident involving the NTMA but also a number of others relating to State Street's transition management business.

We have been providing substantial assistance to the City of London Police investigation and that is still ongoing.

Kieran O'Donnell (Limerick City, Fine Gael)
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That is still ongoing.

Mr. Eugene O'Callaghan:

Yes. That is still ongoing.

Kieran O'Donnell (Limerick City, Fine Gael)
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I return to my original point. Any ordinary person following these proceedings would ask why the witnesses allowed €700 million of taxpayer's money to be put into an organisation for the past two to two and a half years where a matter was under police investigation, and in respect of which PricewaterhouseCoopers was brought in on an independent basis. What fees did that organisation earn in that period?

Mr. John Corrigan:

The fees for passive management are low. It is about five basis points, which is about 0.05%.

Kieran O'Donnell (Limerick City, Fine Gael)
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What fees did it earn and what fees would it have earned on an annual basis?

Mr. Eugene O'Callaghan:

It would be one-twentieth of €7 million - €300,000 or $400,000 per annum.

Kieran O'Donnell (Limerick City, Fine Gael)
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That is a lot of money.

Mr. John Corrigan:

It is a lot of money but given the nature of the mandate, which was passive investment, there was not a huge risk-----

Kieran O'Donnell (Limerick City, Fine Gael)
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Does Mr. Corrigan see the point I am making?

Mr. John Corrigan:

I see the point the Vice Chairman is making, but I would also make the point that we took the view, which we presented to the committee when we met it in late 2012, that we would await the findings of the Financial Conduct Authority and of the police. The findings of the Financial Conduct Authority have now come to hand. They findings are pretty serious and on foot of those the fund has terminated its relationship.

Kieran O'Donnell (Limerick City, Fine Gael)
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In the report produced by the UK's financial regulator, there were comments from the staff which clearly showed they were looking to, for want of a better phrase, take the Irish State for a bit of a mug, because they were coming up with concoctions which effectively arose where they took a discount off the sale price. When they returned the sale price, they effectively hid the fees in a reduced sale price. Instead of saying the sale price was €2, they were saying one had got a sale price was €1.98.

Mr. John Corrigan:

The Vice Chairman is absolutely right. It was willful and-----

Kieran O'Donnell (Limerick City, Fine Gael)
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I do not want to labour the point but I assume there was nothing new in the information brought up by the UK's financial regulator.

Mr. John Corrigan:

No; that is not entirely correct. The breadth of the internal failings within State Street was pretty alarming.

Kieran O'Donnell (Limerick City, Fine Gael)
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The witnesses were there.

Mr. John Corrigan:

We made the point at the committee that we were not entirely sure whether this was simply rogue behaviour, which it was, and that we were not sure of the extent of the failures of internal controls within State Street at a broad corporate level. What the Financial Conduct Authority report brings home is that those failures were at the very extreme end of a failure in its fiduciary responsibilities.

Kieran O'Donnell (Limerick City, Fine Gael)
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If a person was in business and found a person who was selling it a product was ripping off the business and that person had got refunds of money from the business and the owner of the business had reported the incident to both the Garda and to the City of London Police, would it not seem strange to Mr. Corrigan that the one would continue to do business with that person?

Mr. John Corrigan:

That is a view that could be legitimately taken. We took a view that it was a major international institution and we also took the view that we would await the findings of the regulator. I should add that the committee here seemed comfortable with that approach. It was not suggested to us at the time that we should fire State Street on the spot. The view that was represented to us at the committee, which we diligently followed up, was that we should represent the concerns of the committee to the regulator and that we should send on a transcript of the hearings here in relation to State Street, which we communicated to the chairman of the regulator, and there was correspondence there. I can see the view the Vice Chairman is expressing but we discussed this the last time and we made it clear that we were of the view that we should wait until the regulator reported. The committee did not demur in that respect.

Mr. Paul Carty:

I would like to add to Mr. Corrigan's point. On the point the Vice Chairman raised, as chairman of the commission, that point struck us. The NTMA was managing the fund. It was a matter of major concern that something so serious was happening - so much so that, in fairness to the management, the commission said to go and make sure we get the top person from State Street to come over here and explain this situation. Hindsight is a great thing, as we all know, but the facts the Vice Chairman has raised were the same issues that concerned me. Having a professional background as an accountant, it is always better to make sure one has all the facts before one jumps in and does something. We did not have all the facts at that time. The more important aspect was that, in monitoring this and in talking to the NTMA, there were other issues taking place on the sideline where the certain people who were the culprits here - the staff - were taking cases to a tribunal for unfair dismissal. One did not know exactly what was going on and whether those people had a case. The other question was how high up this went within the organisation of State Street and how could one get a balanced judgment without having all the facts on the table.

The second point is that in terms of what happens now, the commission still has to consider what detriment was suffered here and what other detriment could have been suffered by the NTMA and the pension fund in this regard. Therefore, that requires some more input from the NTMA to the commission to ascertain what detriment was suffered and if there is there any further action that has to be considered. That is still a work in progress. It still has to be dealt with, but the points that, quite correctly, have come to Vice Chairman's mind have come to the commission and we made a balanced judgment at the time to wait until we had all the facts. That was made known to State Street.

Kieran O'Donnell (Limerick City, Fine Gael)
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Where does the commission stand now? The organisation made reference to a problem with the fourth transition, which was a previous one. What is the position regarding that transition now?

Mr. Eugene O'Callaghan:

That was a discussion that was in progress some time in the third quarter-----

Kieran O'Donnell (Limerick City, Fine Gael)
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August 2012.

Mr. Eugene O'Callaghan:

We initially felt there might have been a problem with that but, having analysed the issue in detail, we concluded that we agreed with State Street's position on that, so there was no problem and that was closed out.

Kieran O'Donnell (Limerick City, Fine Gael)
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There are no other issues with State Street-----

Mr. Eugene O'Callaghan:

That is absolutely correct.

Kieran O'Donnell (Limerick City, Fine Gael)
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-----apart from the fact that the City of London Police force is currently with it.

Mr. Eugene O'Callaghan:

Absolutely, and that is ongoing.

Kieran O'Donnell (Limerick City, Fine Gael)
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In terms moving forward, for an institution such as the NTMA, to what extent have the recommendations put forward by the Comptroller and Auditor General in his report been implemented? If a similar situation were to arise again, have the witnesses any further business association with State Street at this time?

Mr. John Corrigan:

We have a relationship with a remote subsidiary of State Street, which does not trade under the State Street name. That is something we are looking at the moment.

Kieran O'Donnell (Limerick City, Fine Gael)
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What type of funds would it have? What is the name of that institution?

Mr. John Corrigan:

I would rather not give the name because I feel it may unfairly suffer damage. As I said, it is a remote subsidiary; it is not part of the core State Street family.

Kieran O'Donnell (Limerick City, Fine Gael)
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Are there significant funds with it?

Mr. John Corrigan:

It is not engaged in managing money; it provides an advisory service.

Kieran O'Donnell (Limerick City, Fine Gael)
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It is a consultancy.

Mr. John Corrigan:

Yes.

Kieran O'Donnell (Limerick City, Fine Gael)
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There is no taxpayer's money with it.

Mr. John Corrigan:

No. It is not a money management mandate that it has.

Kieran O'Donnell (Limerick City, Fine Gael)
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Mr. Carty made reference to hindsight. Does Mr. Corrigan believe that when the matter arose in October 2011 and was passed to the Garda, the NTMA should have terminated the contact with State Street bank as a matter of propriety and good governance procedures?

Mr. John Corrigan:

As Mr. Carty has said, we took the view that we would wait and see all the facts. If we had known then what we know now, we clearly would have terminated it then.

Kieran O'Donnell (Limerick City, Fine Gael)
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Where stand the four recommendations put forward by the Comptroller and Auditor General in his 2011 report?

Mr. Eugene O'Callaghan:

In addition to the recommendations, some actions were identified in the report by the NTMA which we said we would implement. We have implemented all of those recommendations on the basis that we set out in the management responses.

Kieran O'Donnell (Limerick City, Fine Gael)
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If the NPRF acts with an agency such as State Street Bank again, what procedures are in place to ensure that a similar situation cannot arise? If transactions take place would an audit be carried out on all aspects, including the sale price and margins?

Mr. Eugene O'Callaghan:

I will give an example of the first transition. These arrangements were put in place following a re-tendered transition management panel. We have just completed the review of the first transition which took place under that panel in around October or November. We have all the data and we have reviewed the analysis. The issue with State Street initially was that market trades were aggregated within State Street and presented to us. Therefore, what we have done to get the data which disaggregates the market trade into what are called child orders. There are hundreds of thousands of tiny little trades, which is the way electronic trading works. We have got all of the child order data underpinning the transaction. We have arithmetically checked that they aggregate into the full amount and then at child order level we have been able to verify against market trades reported on Bloomberg. We have done a sample selection of that and it has all been fine.

Kieran O'Donnell (Limerick City, Fine Gael)
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The point made by the Comptroller and Auditor General was that the NTMA would build into the contract that if it was subsequently discovered that State Street had been indulging in fraudulent activity it would pay a penalty. Has the matter been examined?

Mr. Eugene O'Callaghan:

We have looked at the matter and we have built in to the contract the best terms that are legally enforceable in that situation. There are question marks around the penalties because one has to have suffered damages in order to get more than the amount that was directly overcharged, for example. We have maximised the position. We have specifically reflected that in the negotiation of the contracts and we have done the best, legally, that we are able to do.

Kieran O'Donnell (Limerick City, Fine Gael)
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Was the €3.2 million refunded by State Street the profits it earned? Was anything paid by way of compensation?

Mr. Eugene O'Callaghan:

That was the amount of the overcharge. Perhaps there were profits. As Mr. Carty said, in light of the FCA report we are considering whether any further claims are warranted against State Street.

Kieran O'Donnell (Limerick City, Fine Gael)
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To cut to the chase, it is clear that what has happened with State Street Bank has had an impact on the reputation of the NTMA and Ireland Inc. Will Mr. Corrigan, as CEO and head of the NTMA, now consider taking legal action against State Street bank for damages and compensation due to the impact it has had?

Mr. John Corrigan:

Certainly that is something that Mr Carty has referred to as the last phase of this problem. The commission will look at that. The legal advice we are getting is that it could be problematic. Perhaps I should say no more lest I prejudice a case if it is decided to take one. That is something that the commission-----

Kieran O'Donnell (Limerick City, Fine Gael)
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The point I am making, in a roundabout way, relates to the fact that an institution such as State Street effectively indulged in fraudulent activity and the only penalty it suffered was having to repay the money. For instance, it would have had access to the money for a period. We paid the interest on the money in the form of interest foregone by the NTMA. There must be a penalty to ensure that such activity does not happen again. I read through the reports in great detail. What happened was blatantly fraudulent. It is clear from the transcripts that there are parallels with other institutions, with phrases used such as “Here's what I think we should do with our new best friends”, and references to ripping off. The NTMA must consider seeking recompense in terms of the damage done to the taxpayer by State Street bank in the case under consideration. Otherwise, the only sanction is that a report has been drawn up. The matter is still being considered by the police force in the UK. The NTMA must take a stand not only on monetary issues but on issues of principle as well.

Mr. John Corrigan:

I agree with you, Vice Chairman. That is our intention. You used the word “fraudulent”. You will recall that when I appeared before the committee in late 2012 I did not mince my words. I called it a fraud. It was a fraud. As Mr. Carty has said, we waited until we got the full facts and when we got them on 31 January we moved on 3 February to terminate the contract. We are now looking at the issues that you have validly raised. We will move on those as needs be and as is appropriate fairly quickly.

Kieran O'Donnell (Limerick City, Fine Gael)
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Did anyone lose their job in State Street bank over this?

Mr. John Corrigan:

As we mentioned previously, there were a number of people who left State Street, and, as Paul Carty said, they took unfair dismissal actions against State Street. I will not call it a complicating factor but they were suggesting in taking the action that the actions went up to a high level in the organisation.

Kieran O'Donnell (Limerick City, Fine Gael)
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Does Mr. Corrigan believe the NTMA now has the corporate structures in place to ensure this will never happen again?

Mr. John Corrigan:

We have. The model that we adhere to in awarding and exercising that transition management arrangement was the industry standard. What we have done, partly as a result of initiatives taken by ourselves in light of this and partly as a result of the recommendations made by the Comptroller and Auditor General, is to effectively change the model. Other institutions have moved in the same direction after us, so that there is complete openness around the transition managers' dealings with third parties. The problem here was that the standard business model in doing these types of transaction was masked and it was not obvious.

Kieran O'Donnell (Limerick City, Fine Gael)
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I will move on to one or two other items. The first item I wish to inquire about is the NTMA's success in raising money on the international markets.

Mr. Paul Carty:

To go back to the points you made, Vice Chairman, which are valid, the commission certainly has more work to do, some of it depending on legal advice. This was a deliberate strategy by State Street to conceal. The question is who the culprit is. Ultimately, it stops at the top from the point of view of the internal control. One could ask questions about what went wrong in such a big organisation. Those at the top of State Street would know what went wrong. They would know they had a major problem not only with the internal controls and the entire control system but with the actual staff they were employing deliberately concealing information. It is difficult for me to read what staff were saying. I felt embarrassed when I read about that kind of attitude in the report. Equally, if I were at State Street I would wonder what brought all that about. These people were delinquent.

Kieran O'Donnell (Limerick City, Fine Gael)
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I do not have access to all the details, but institutions have to take responsibility.

Mr. Paul Carty:

Absolutely.

Kieran O'Donnell (Limerick City, Fine Gael)
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Ultimately, the NTMA is charged with managing State funds. The question must be asked of whether there was a bonus structure within State Street bank that facilitated and encouraged those individuals to be reckless.

The issue for the Committee of Public Accounts is the public purse. They ripped off €3.2 million of taxpayers' money under the radar, so to speak. They have not paid anything of the money that was in the ownership of the Irish taxpayer. Based on the report produced by the financial regulator in the United Kingdom, which is clearly damning of what happened, and in terms of the attitude taken by these individuals and their talk of being creative and, I repeat, their comment, "Here is what I think we should do with our new best friends", which is the NTMA, there is a need for-----

Mr. Paul Carty:

I would accept that, and the commission will look at that with the NTMA.

Kieran O'Donnell (Limerick City, Fine Gael)
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I thank Mr. Carty. On a positive note, the NTMA has a cash balance of €18 billion. I have two questions on that. What does Mr. Corrigan believe would be the norm for the NTMA to hold into the future? What is the additional cost in terms of holding such cash reserves above the norm? Mr. Corrigan might deal with those two points.

Mr. Corrigan referred to entering the market in the next year. Can he give the committee a flavour of the surcharge that has been paid to hold these levels of moneys and how he sees that evolving over the next two years?

Mr. John Corrigan:

As the Chairman said, we had cash balances of €18.5 billion at the end of December 2013. In terms of time, that would have covered the State's requirements up until the first quarter of 2015, taking into account the need to fund the Exchequer on a day-to-day basis and the need to meet whatever bond redemptions fell due during that period.

In looking at the level of balances we should hold in the future, it is more appropriate to look at it in terms of time rather than an absolute monetary amount. What we would be looking to do, and the Minister for Finance has referred to this publicly, is to run down those cash balances such that they meet 12 months requirements.

Mr. John Corrigan:

It depends on what time period the Vice Chairman is talking about. If I may give him an example, it would mean we should be able to reduce the cash balances during the course of this year to approximately €10 billion at the end of 2014. However, as we move into 2015, if the Vice Chairman were to ask about 12 months visibility in terms of funding, say, in April 2015, that €10 billion would increase to €16 billion because there is a big bond issue maturing in April 2016. In terms of our liability management, we would seek to reduce that bond issue in order that we could, as a result of that, keep the cash balances fairly low. In summary, in the near term we would be looking to reduce them to 12 months requirements. We will review the need to hold 12 months at the end of this year. It may be possible to taper that further, perhaps by reducing it to nine months.

Kieran O'Donnell (Limerick City, Fine Gael)
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What does Mr. Corrigan anticipate ten year bond yields being over the next two years? What would he be happy to see?

Mr. John Corrigan:

Obviously, we would be very happy if they remained where they were or fell lower.

Kieran O'Donnell (Limerick City, Fine Gael)
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Is that a leading question?

Mr. John Corrigan:

No. Unfortunately, we do not have a crystal ball but to address the question seriously, I have made the point on a number of occasions that at 3.25%, which is the current yield on ten year Irish Government bonds, we could not have borrowed on those terms when we had a triple A rating. Currently, the bond yields are anchored to the low short-term rates, which reflect the very easy monetary policy being run by central banks. The short answer to the question is that as long as the European Central Bank continues to run an easy monetary policy at the short end, other things being equal, we are not likely to see a major change in bond yields.

Kieran O'Donnell (Limerick City, Fine Gael)
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How long does Mr. Corrigan anticipate that will continue?

Mr. John Corrigan:

I would be ticked off by my colleagues in the Central Bank system for expressing views on that.

Kieran O'Donnell (Limerick City, Fine Gael)
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Mr. Corrigan has absolute privilege.

Mr. John Corrigan:

Thank you, Vice Chairman. I will tell Patrick Honohan that when I see him. The general expectation would be that we probably have another 12 to 18 months.

Kieran O'Donnell (Limerick City, Fine Gael)
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What would Mr. Corrigan see as a-----

Mr. John Corrigan:

A more normalised ten year yield?

Kieran O'Donnell (Limerick City, Fine Gael)
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Yes.

Mr. John Corrigan:

There are two dynamics in that regard. One is the German Government bond yield, which is currently about 1.6% at the ten year level. As things normalise, we will see the German Government bond yield rise. The question is whether, in a benign scenario, we can shrink the spread at which we are trading over Germany. That would absorb some of the upward pressure which otherwise would be put on the Irish Government bond yield.

Kieran O'Donnell (Limerick City, Fine Gael)
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We are trading at about 1.65%.

Mr. John Corrigan:

Over Germany, yes.

Kieran O'Donnell (Limerick City, Fine Gael)
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Traditionally, what would we have traded at?

Mr. John Corrigan:

In better times when, it is fair to say-----

Kieran O'Donnell (Limerick City, Fine Gael)
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A normal market.

Mr. John Corrigan:

I am not sure that markets will ever go back to where they were because the lesson everybody learned from the collapse was that risk was being----

Kieran O'Donnell (Limerick City, Fine Gael)
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Indulge me for a moment.

Mr. John Corrigan:

We would have an ambitious expectation that we would trade similarly to Belgium, which might be around 100 basis points over Germany.

Kieran O'Donnell (Limerick City, Fine Gael)
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I want to touch on an issue that has come up at every meeting, namely, salaries within the NTMA. I will start with Mr. Corrigan's salary. In the NTMA's accounts, which are published, his salary is €416,500 in 2012 plus taxable benefits of just short of €30,000. The total package is approximately €446,000. He was entitled to a performance related bonus of up to 80%, which he waived in 2010, 2011 and 2012. If that performance related bonus was paid, it would bring up Mr. Corrigan's salary by another €333,000, which would make it approximately €780,000 per annum. Was Mr. Corrigan entitled to the performance related payment in 2010, 2011 and 2012, and in 2013?

Mr. John Corrigan:

I would not use the word "entitled". There is a provision in my contract that provides for a bonus of up to 80% based on performance, which would be assessed by the advisory committee of the NTMA who have a legal responsibility to recommend to the Minister for Finance whatever bonus might be payable. We did not go through that process because I took the view that I would waive consideration of the bonus, and my colleagues in the senior management team did the same. They would have similar type performance related pay but consideration of performance related pay was waived on foot of-----

Kieran O'Donnell (Limerick City, Fine Gael)
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Whether Mr. Corrigan would be entitled to the bonus was not even considered.

Mr. John Corrigan:

No, because taking the state of the nation we took the view, collectively and individually, that it was appropriate that we would waive consideration of it.

Kieran O'Donnell (Limerick City, Fine Gael)
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Does that apply in 2013 and 2014 as well?

Mr. John Corrigan:

It applies in 2013.

Kieran O'Donnell (Limerick City, Fine Gael)
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What about 2014?

Mr. John Corrigan:

The question of 2014 does not arise until 2015 in that it is in arrears.

Just to take the point, the waiver certainly ran up to the end of 2013.

Kieran O'Donnell (Limerick City, Fine Gael)
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What is the average salary in the NTMA? Are salaries in line generally with public pay policy or how do they factor out?

Mr. John Corrigan:

The model of the NTMA was to set it up outside the public service so that it could attract the right skills to bring to capital market-facing activities, such as the funding and debt management, the management of the National Pensions Reserve Fund, NewERA and the National Development Finance Agency, and, indeed, NAMA, all of whose employees are employees of the NTMA.

To illustrate the "differentness", if that is a right word, of the NTMA, taking account of both NAMA and the non-NAMA NTMA employees, there is a total of 657 people working in the NTMA. Sixty per cent of those employees are on specified purpose contracts or fixed term contracts. Only 40% have "permanent" employment. That makes the nature of the organisation quite different.

Kieran O'Donnell (Limerick City, Fine Gael)
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Typically, how long would those fixed term contracts be?

Mr. John Corrigan:

Typically, they would be from a year to two or three years. They enable us to ramp up and down activities as demand requires.

In terms of the pay overall in the NTMA, 53% or 350 people are earning less than €75,000. Just to give some further granularity to those figures, 42% of NAMA employees are earning less than €75,000 and 65% of the non-NAMA NTMA employees are earning less than €75,000.

In terms of those on over €200,000, which, I know, is a source of-----

Kieran O'Donnell (Limerick City, Fine Gael)
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Am I correct in saying that there are over 153 earning over €100,000? According to in the annual report, 153 of the 500 employed at the end of 2012 were earning over €100,000 a year.

Mr. John Corrigan:

That is correct.

Kieran O'Donnell (Limerick City, Fine Gael)
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Am I correct in saying that six staff received performance related bonuses totalling €43,000 in 2012.

Mr. John Corrigan:

Totalling €43,000.

Kieran O'Donnell (Limerick City, Fine Gael)
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Are they the only employees in the organisation who earned bonuses-----

Mr. John Corrigan:

Performance related pay.

Kieran O'Donnell (Limerick City, Fine Gael)
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-----performance related bonuses?

Mr. John Corrigan:

Yes.

Kieran O'Donnell (Limerick City, Fine Gael)
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Why would they have received them?

Mr. John Corrigan:

They were employees who had performed in an outstanding manner in an area which was extremely sensitive in terms of the functions that the NTMA has to perform.

Kieran O'Donnell (Limerick City, Fine Gael)
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What grade would they have been at?

Mr. John Corrigan:

We do not have grades. This is the difference between us and the Civil Service. Everybody in the NTMA, including NAMA, is on an individually negotiated contract.

Kieran O'Donnell (Limerick City, Fine Gael)
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Would these six employees receiving performance related bonuses of €43,000 have been high paid or low paid employees?

Mr. John Corrigan:

Suffice it to say that it did not include the members of the senior management team. Beyond that, it is - we are only talking about six individuals - fairly well spread.

Kieran O'Donnell (Limerick City, Fine Gael)
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How many of the staff Mr. Corrigan was going to make reference to are on more than €200,000?

Mr. John Corrigan:

There are 13 people in the organisation which, according to a recent parliamentary question, if I may reference it, compares with 16 people in PTSB, which is totally State owned, 100 people in AIB, which is totally State owned, and 164 people in Bank of Ireland, in which the State has a substantial ownership. To be fair to the employees of the NTMA and NAMA, we are performing very similar functions to these institutions. On whether we can pay out in the future - we accept that the State has been, so to speak, in Chapter 11 and we have made whatever cuts and suspended bonuses, etc. - in the last three years or so, we have lost 112 people in the organisation.

Kieran O'Donnell (Limerick City, Fine Gael)
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Mr. Corrigan's staff has increased, from 433 at the end of 2011 to 657 at the end of 2013, that is, 224 extra employees. Approximately 336 staff have come, including those to compensate for the lost 112. In what areas were these? That is a 52% rise in staff.

Mr. John Corrigan:

The build-up in staff has been primarily in the NAMA area but it is also fair to say that NewERA has been a new function that we have got and we have had to recruit there. There is a small team in NewERA. There are 13 people working in NewERA.

In the funding and debt management area, I should say we do not have a cast of thousands. I have made this point here before. We have 15 people working in funding and debt management. Equally, in the National Pensions Reserve Fund, which would have had over 20 people in the team, we have ramped that down to 15. Again, we will have to skill up there because the nature of the strategic investment fund moves much more towards a private equity-type model where we will be doing more direct investment rather than hiring managers to do the investment, and it is going to be challenging to get the people with the skills unless we can pay them properly.

Kieran O'Donnell (Limerick City, Fine Gael)
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Mr. Corrigan is being paid approximately €446,000. It is an enormous salary. How does he justify such a salary to the ordinary person looking in who is unemployed or struggling? Obviously, we have to ask these questions because of the sheer level of it.

Mr. John Corrigan:

I do not decide my own salary. That is the salary that was decided. The salary when I was appointed was €490,000. It is a big amount of money. It was determined at the time, as I recall, by the Minister of the day by comparison with what chief executives in the banks were earning, given the responsibilities. In monetary terms, taking the assets and liabilities which are managed - if you can add assets and liabilities - we have a total stock of about €320 billion under our stewardship and the cash flow last year through the NTMA was €1.3 trillion. I do not determine my pay. It is determined elsewhere. I think that is all I want to say about it.

Kieran O'Donnell (Limerick City, Fine Gael)
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The National Pensions Reserve Fund was set up originally to provide funds for both public and social welfare pensions. In a short time it is becoming a strategic investment fund. Where do Mr. Carty and Mr. Corrigan see its remit? There is a remit whereby 20% of investments can be non-Irish. Feeding into that as well, what advice will they be giving to Government in terms of disposal of its investments in Bank of Ireland and AIB? Would Mr. Carty and Mr. Corrigan give their perspective?

Mr. Paul Carty:

I will say a few words and then pass it on to Mr. Corrigan. In terms of the NPRF, the intention is for that to be dissolved. Therefore, on my role and the commissioner's role, it is for somebody else, in terms of the governance and the restructuring of the NTMA itself, with their own board. They are the people who are going to have to make the decisions into the future.

At the same time, going back to the NPRF, the purpose for which it was set up - mainly these liabilities for pensions etc. - has not gone away. I know there are efforts being made to limit it or whatever, but that is still an issue. It happens in other countries too, but it is still an issue in the longer term that is going to come home to roost. With that, Mr. Corrigan knows more about the future than I would.

Mr. John Corrigan:

It would be the expectation that the proposed new legislation, to which both the Comptroller and Auditor General and I referred earlier, would be enacted around mid-year.

That legislation will provide for an overarching board in the NTMA that will enable a much more integrated approach to the various businesses that reside within the agency. These have been added on in a piecemeal manner over the years and each has its own governance arrangement.

The proposed legislation will provide for an investment committee. That committee will effectively discharge the types of functions that the NPRF previously discharged with respect to the pension fund. It is the intention that 100% of the fund would be deployed in Ireland. That is the policy decision that the Government has made.

Kieran O'Donnell (Limerick City, Fine Gael)
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Currently, it is 20%.

Mr. John Corrigan:

Currently, it is 20% because, as with any pension fund, it is run on the basis of diversification of investments.

There is a big challenge here. There is €6.8 billion in discretionary funds, of which €1.3 billion has been committed, as I mentioned in my opening statement. That leaves approximately €5.5 billion to be invested. That is the challenge. The challenge is also to recruit those with the relevant skills. The skills are different from those that were required under the old regime. We must get the right people to do the job. It is a much more hands-on investment approach, which obviously has its attendant challenges.

Kieran O'Donnell (Limerick City, Fine Gael)
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Under what remit does the issue of future pensions fall?

Mr. John Corrigan:

No, the NPRF was expressly tied into partly funding the future pension liabilities of the public service and social welfare. As I understand it, the function of the new fund – I will not call it simple, because it is not simple, but it is simply expressed – will in the first instance be to invest commercially. There are two bottom lines: to generate employment and to generate economic activity in Ireland.

Kieran O'Donnell (Limerick City, Fine Gael)
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What is Mr. Corrigan's view on the discussions on the sale of State shareholdings in Bank of Ireland and Allied Irish Banks?

Mr. John Corrigan:

They are held by the Minister for Finance and I do not believe it would be appropriate for me to express my thoughts on those matters publicly. I ask the Deputy to forgive me.

Robert Dowds (Dublin Mid West, Labour)
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I thank Mr. Corrigan for attending. I recognise the vital work he does for the State and thank him for it. Let me refer him briefly to some of the questions of the Vice Chairman on pay. I urge Mr. Corrigan to continue not to take on extra benefits. If he were a Deputy, as I am, he would be aware of the considerable anger of the people over very high salaries. I say this while recognising the absolutely vital work Mr. Corrigan does for the country, for which I thank him.

I was to ask many questions about the clinical indemnity scheme but given the length of time for which Deputy Fleming elaborated on it, I will ask only two questions. First, the cost of claims more or less doubled between 2009 and 2012. Can I have an explanation for that?

Mr. Ciaran Breen:

When the clinical indemnity scheme was originally established in July 2002, it did not include consultants' liabilities. They were indemnified by medical defence organisations. With effect from 1 February 2004, consultants came in. In terms of the time lag between incidents and claims, one would begin to see claims coming in only a number of years after the incident. This is particularly the case in obstetrics, where one would see cerebral palsy cases, which are much more expensive, coming through only a number of years afterwards. For example, cerebral palsy cases are capable of being diagnosed only when the infant is two years of age. Prior to that, one cannot make what is called an absolute diagnosis. The lag time in terms of the cost of the claims suddenly began to kick in. Our actuaries, in terms of the actuarial model for the scheme, recognising that 2,500 consultants were now to be indemnified under it, noted it would follow that path exactly.

Robert Dowds (Dublin Mid West, Labour)
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Are the consultants who came in working in both private and public areas?

Mr. Ciaran Breen:

No; it covers the treatment by consultants in public hospitals of private and public patients of those hospitals but it would not cover a consultant in a whole-time private practice.

Robert Dowds (Dublin Mid West, Labour)
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Is it reasonable that the State should cover the area of private health care at all?

Mr. Ciaran Breen:

That is a policy issue, obviously. When the scheme was established, the participants and what it covered were presented to us as a given.

Robert Dowds (Dublin Mid West, Labour)
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It seems unreasonable that the State should have to carry the can in cases in which somebody decides to opt for private health care provision. I suppose it is a question for me to raise with the Minister for Health.

Let me change tack entirely and ask one or two questions on Government debt. We are obviously greatly relieved that we are out of the bailout arrangement at this stage and that our circumstances are a little more stable. Mr. Corrigan indicated this to some extent in his answers to Deputy O'Donnell. What proportion of the current national debt is attributable to bank stabilisation measures?

Mr. John Corrigan:

The national debt or the general Government debt at the end of 2013 was approximately €203 billion. I do not have to hand the precise figure for the amount put into the banks but it would have been of the order of €50 billion.

Robert Dowds (Dublin Mid West, Labour)
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That €50 billion covers-----

Mr. John Corrigan:

I beg the Deputy’s pardon. Sixty-four billion euro went into the banks. Some 20% of this came from the NPFR. Sorry; it is about €44 billion.

Robert Dowds (Dublin Mid West, Labour)
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Does Mr. Corrigan believe the banks will require further recapitalisation?

Mr. John Corrigan:

The Minister has indicated that he does not expect them to require further recapitalisation.

Robert Dowds (Dublin Mid West, Labour)
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Does the NTMA carefully monitor the banks' ability to lend? It strikes me, as a layman, that the banks seem to be slow in lending for mortgages. It seems to be very difficult for people to purchase houses, even if they have reasonable incomes. That is actually contributing very considerably to the housing crisis we are now experiencing.

Mr. John Corrigan:

The position is that we had responsibility briefly at one stage for the State's financial involvement in the banks. We set up a banking unit, staffed appropriately, to deal with that. That unit is now seconded to the Department of Finance and the responsibility for the issues that the Deputy has understandably raised reside with that Department. The Department has the assistance of the banking unit, whose staff are NTMA staff but who are on secondment to it. I do not have any direct involvement in it.

Robert Dowds (Dublin Mid West, Labour)
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When does Mr. Corrigan see our national debt coming to acceptable EU levels? What sort of timeline does he see on that, or is it impossible to predict?

Mr. John Corrigan:

It is going to take a long time, but we see the debt as a percentage of GDP, which is the way the markets look at it.

Robert Dowds (Dublin Mid West, Labour)
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It is about 124% now.

Mr. John Corrigan:

Although we do not yet have the final GDP figures, we estimate that at the end of 2013 it will be about 122%. We expect it will fall through 2014, 2015 and 2016, so one would be looking at a figure at the end of 2016 of about 115% of GDP. I should add that under the conventions for reporting debt these figures are gross. They do not take into account the cash balances we discussed earlier, which are necessarily held by the Exchequer. Nor do they allow for the assets of the National Pensions Reserve Fund. Measured on a net basis, at the end of 2013, the figure was probably less than 100%.

Robert Dowds (Dublin Mid West, Labour)
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Presumably we have to be on our toes until we get it below 100%.

Mr. John Corrigan:

We have to work it down towards 60%. That is the bad news.

Robert Dowds (Dublin Mid West, Labour)
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I appreciate that that is the case.

Mr. John Corrigan:

The way to get it down as a percentage of GDP, which is the message the Minister would be giving, is to get growth back into the economy. We are seeing modest growth and the prospects of that growth and the relative reduction in the debt burden have improved our credit ratings. For example, Moody's rating agency moved us back from sub-investment grade to investment grade. As regards the challenge facing the NTMA, the relatively good news is that we now have a positive rating - in other words, an investment grade rating - from all three major rating agencies. We have seen evidence that this has brought some new investors into the market, which has put downward pressure on the rates at which we can borrow.

Robert Dowds (Dublin Mid West, Labour)
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Obviously those rating agencies are hugely influential in how the outside world sees us, rather than how we see ourselves. How do they decide on their ratings, or is that a secret that is not available to the general public?

Mr. John Corrigan:

They publish their methodologies, which vary from agency to agency. They have a scoring mechanism for various factors which they see as being relevant. For example, the nominal rate of GDP growth is a factor. What has weighed us down in recent years has clearly been the banking problem. Moody's seems to have moved on from that now and is taking a somewhat more positive outlook. They do publish quite extensive frameworks, but at the end of the day not all investors rely on the credit rating agencies as such. Most of the bigger institutional investors have their own internal credit appraisal procedures and they would go by them. Therefore, there can be quite a divergence of views, which is what makes a two-way market.

Smaller institutional investors that do not have the resources to do their own internal credit rating assessment, and - we have made this point a number of times - investors in the Middle East and Far East are particularly reliant on the outputs of the ratings agencies. Following the restoration of our investment grade rating by Moody's, we have seen some clear evidence of new buying from those geographical areas.

Robert Dowds (Dublin Mid West, Labour)
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If the Government succeeded in getting further assistance from the ECB towards our banking debts, how valuable would that be to us as a country?

Mr. John Corrigan:

Any assistance is obviously valuable. The concessions or changes that we have got to date have been hugely influential in improving our credit rating. The effect of the extension of maturities by the European funds, for example, has resulted in the average maturity of our debt moving from 7.5 years to 12.5 years, which is a big plus. That is on the scoring sheets of the credit rating agencies, to which I referred earlier. The promissory note arrangement, under which we issued long-term paper in exchange for promissory notes, reduced the amount of capital markets funding that we would have to do in the near term. It does not affect the total quantum but it affects the timing, which is an important consideration. Those have been hugely material factors in improving our credit rating. The fact that there have been major improvements in Ireland's competitiveness is another line in their scoring system, in addition to the turnaround generally in the public finances.

John McGuinness (Carlow-Kilkenny, Fianna Fail)
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Are there any other questions? If not, I will ask the committee to agree to dispose of chapters 28 and 29 and the National Pensions Reserve Fund's annual report and accounts for 2012. Chapter 2 will remain open as we will have to deal with that with the Department of Finance. Is that agreed? Agreed.

The committee stands adjourned for this session. We have another matter to deal with, so we will wait until the witnesses withdraw before doing so.