Award to NAC owner overruled

THE SUPREME Court has overturned a €10.2 million arbitrator’s award to the State company that owns the €62 million National Aquatic Centre.

Campus Stadium Ireland Development Ltd (CSID) alleged €10.2 million VAT was payable by Dublin Waterworld Ltd (DWL) on its lease interest in the aquatic centre, but DWL disputed this. After losing its case in the High Court, Dublin Waterworld appealed to the Supreme Court.

Allowing the appeal yesterday, Mr Justice Adrian Hardiman found the errors by the arbitrator were so “significant and fundamental” they enabled CSID not just to succeed at the arbitration but to “register a walkover”.

The most substantial part of DWL’s evidence was excluded from consideration and, on that basis, a formula plainly adverse to their interest was used, he said.

The judge noted both sides had accepted if the capitalised value of the lease for the aquatic centre was less than the €62 million economic value of the lease, it would be exempt from VAT.

He ruled there was “no conceivable basis” on which the arbitrator could disregard a report obtained by CSID from a professional valuer which calculated the lease’s capitalised value at €35 million.

The report was by a chartered surveyor and a district valuer in the Valuation Office whose expertise was not challenged, the judge said. The arbitrator, while entitled to dissent from the report in a reasoned way, was not entitled to disregard it on the basis it was not evidence but an “estimate”.

After it obtained the “devastating” report, which meant the lease would be exempt from VAT, CSID used other formulas provided for in VAT regulations in an effort to produce a valuation which would be liable to VAT, the judge said.

The parties differed on whether this was a legitimate tactic for CSID but the arbitrator did not give any consideration to the case advanced by DWL and decided CSID was entitled to have recourse to the formulas.

The arbitrator “gravely misled” himself on the law in deciding CSID was entitled to rely on the formula. The relevant regulations allowed access to the formulas “in the absence of other evidence” of valuation, but there was no absence of other evidence, as there was the valuation report.

The arbitrator made a “serious mis-statement” of the law in indicating the VAT system could not function effectively if a supplier’s VAT charge was subject to review by a customer, the judge said. If a customer could not review a VAT charge, the whole basis of the dispute between the parties, and of the reference to arbitration, would be undermined.

The arbitrator’s award was made in July 2005 to CSID against DWL, the then operator of the centre, under a 30-year lease granted in 2003.

DWL, with registered offices at Ballyvard, Tralee, subsequently agreed in late 2006 to hand over possession of the aquatic centre to CSID in a final settlement of a lengthy court battle over breaches of the lease by DWL and Limerick businessman Pat Mulcair.

In 2006, the High Court found that, in a “tax-driven” deal done “behind the back” of CSID in April 2003, DWL breached the lease by assigning beneficial ownership of it to Mr Mulcair, who entered into a management agreement with Dublin Waterworld Management Limited for it to manage the centre on his behalf.