The acting chief executive of the Railway Procurement Agency (RPA), Mr Dónal Mangan, was offered the post of Luas project director when he failed to secure the position of permanent chief executive. After his refusal, Mr Mangan initiated a High Court action on Wednesday against the RPA, which is overseeing the light rail project. Its board has chosen a former banker with KBC, Mr Frank Allen, for the post. He is expected to join the agency next Tuesday.

A graduate of Harvard University and UCD, Mr Allen worked with the World Bank before joining KBC about 10 years ago. Regarded as having strengths in public-private partnerships, he is thought to have been considered an "outstanding candidate".

He was selected after a vote by the RPA board, chaired by the former IDA Ireland head Mr Padraic White. When contacted, Mr White said he was not aware of any legal proceedings.

"From the point of view of the authority, the whole competition was handled in a proper manner in a very rigorous process involving all board members. The result will be announced early next week," he said. "It's an absolute prerequisite for any new agency to have an open and transparent competition for chief executive unless there is some provision to the contrary in the founding legislation. It is a matter of good governance."

The process was "perfectly legitimate, normal and clear" and the "outcome cannot be guaranteed to anybody", he added.

The role refused by Mr Mangan is thought to have carried the same conditions as the acting chief executive post. His pay is thought to be €130,000, roughly the same as the salary for the post of permanent chief executive. Aged 57, he wanted to remain until the normal retirement age of 65. Any hearing of the case in court will not take place until the new legal term begins in the autumn. The RPA is expected to mount a robust defence of the process. Mr Mangan remains on the agency staff but has taken holidays and therefore will not be present when Mr Allen arrives.

The affair is seen as a headache in Government circles because the Luas project is sensitive politically. Costly and the subject of frequent controversy, the project is scheduled for completion before the end of next year.

It is thought Mr Allen and Mr Mangan were on a shortlist of three after a competition was initiated last March. The identity of the third candidate is not known but it is thought there was significant interest in the post inside and outside the State sector and abroad.

The competition followed a decision by the agency's acting board last September to advertise the post. Although considered a very strong favourite to head the agency, he is understood to have been strongly opposed to the commencement of a competition for the post of chief executive.

It is believed he opposed the process on the basis that he did not want to apply for his own job. But he later decided to enter the competition. Mr Mangan wants the competition for the post declared null and void because he should have been designated chief executive under the Act when the agency was set up.