March 28, 2012 / 3:20 PM / 8 years ago

Ireland faces lengthy legal challenge to bank bailout

* Challenge could take months to complete

* No resolution before next 3.1 bln eur payment due

DUBLIN, March 28 (Reuters) - An unexpected legal challenge to Ireland’s bank bailout could drag on months after an early court hearing on Wednesday, adding to the government’s headaches as it strives to finish talks on refinancing the rescue with European support.

Irish activist David Hall this week launched a challenge to 31 billion euro ($41 billion) worth of high interest IOUs issued by the government to bail out two collapsed banks, saying the scheme was not approved by parliament.

A Dublin court said on Wednesday it would reconvene in April ahead of a full hearing at a later date. That could take months.

A ruling against the government could then see it forced to implement new legislation, complicating any outcome of ongoing talks with the European Central Bank on a possible refinancing of the notes, which were used to bail out the now-defunct Anglo Irish Bank and Irish Nationwide Building Society.

“It’s certainly there to be fought. It’s not a spurious argument,” said Paul McDermott, a barrister and constitutional law lecturer at University College Dublin (UCD), adding that the earliest the case was likely to end was in July.

“Undoubtedly, given so much legislation was passed so quickly, it would be surprising if there were no provisions where there were weakenesses or drafting issues.”

Hall said he would resubmit court papers later on Wednesday to lodge a constitutional challenge rather than ask for a judicial review, as he had previously indicated.

The judge said the case would return to the High Court on April 17.

If the challenge is upheld, the court would make legislative recommendations but would also have the choice of giving the government some time to organise an alternate arrangement.

“Just because something is struck down, doesn’t mean the courts will leave a vacuum. There are tricks the court can use to limit the fall-out,” McDermott said.

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