The idea to build a Four Seasons Hotel on a site leased from the RDS in Ballsbridge was put together by businessman and estate agent Sean Dillon in the mid-1990s. It was, he believed, a sure-fire winner.

It has turned out to be anything but. Not only have the banks involved lost money and ended up in litigation with one another, but the taxpayer may end up paying compensation arising from the matter. The cost to the taxpayer, if it arises, will come on top of support already given by the Exchequer - through tax breaks being enjoyed by the people who have bought the hotel.

"It was a fantastic deal involving a magnificent location and the Four Seasons group, and in a Finance Act environment where 100 per cent of the construction costs could be written off against tax," said Mr Dillon. "It was a fabulous formula."

Mr Dillon had teamed up with two US property developers, Robert Radovan and William Criswell, of Criswell Radovan LLC, Los Angeles. An Irish company, Simmonscourt Holdings Ltd, was incorporated.

A company called Harvard Properties became involved. Harvard, whose directors are Barry Kenny, a financial adviser, and Dan McGing, the former chairman of ACCBank, committed to buy the top floor of the hotel building, which would be sold as luxury apartments. At the time, Mr McGing was no longer involved with ACCBank.

A number of investors had committed themselves to buying the hotel upon completion. The investors were arranged into a registered partnership, the Nollaig Partnership, by Mr Derek Quinlan, a former Revenue inspector. The partnershp consisted of 20 wealthy professionals and business-people.

Nollaig committed to buy the hotel upon completion for £47.5 million (€60.3 million). Under tax law at the time, the members of the partnership would be entitled to claim the hotel's construction costs against tax, spread out over seven years. By way of the scheme the Exchequer would be forgoing, at an income tax rate of 42 per cent, £19.95 million (42 per cent of £47.5 million).

Mr Quinlan entered into negotiations aimed at buying out Harvard. By December 1997, he had come to an arrangement whereby a firm he controlled, Stoneyview Ltd, agreed with Harvard that it would buy the top floor of the completed building from Harvard for £12.02 million.

Harvard had committed to purchase the top floor for £9 million, so was looking at a £3 million profit.

Stoneyview, which was owned by Mr Quinlan, is believed to have been representing members of the Nollaig Partnership.

The £3 million profit which Harvard was to make by selling the top floor was to go to a company called Marlast. Mr McGing and Mr Kenny were the directors of Marlast, which was owned by a British Virgin Islands company, Rhea Investments Ltd.

However, there was a flaw in the plan. Construction was taking place in the context of an economic boom and strong inflationary pressures in the construction sector. Costs were rising in a situation where the sale price, £60 million, had already been agreed.

For reasons which are not clear, Simmonscourt Holdings, the lead developer, was not borrowing money directly from the banks but by way of Harvard Properties. The property was to be completed by February 2000 and accounts filed by Simmonscourt in the Companies Records Office stated the target construction cost was £51 million.

The project collapsed, however, in August 2000 when the banks refused to put in any more money. Three of the banks, ACCBank, Anglo Irish Bank and Scotia Bank, agreed to put Simmonscourt and Harvard into receivership. Bank of Scotland Ireland, the fourth bank involved, was against the move.

A statement of affairs for Harvard, filed in the Companies Records Office recently by the receiver, Mr Pearse Farrell, shows that, at the time of his appointment, the company owed £51.8 million to ACCBank, the lead bank, which had loaned the money on behalf of the syndicate.

Legally, at this point, the investors represented by Mr Quinlan were in a powerful position. They had an agreement that the finished hotel would be sold to them for £60 million. If the banks did not get the hotel finished they, the banks, stood to lose the money they had committed. In a boom market, the investors were looking at getting a luxury hotel for less than cost.

The receiver, Mr Farrell, set about shaking money out of everyone involved and overseeing the hotel's completion. The investors, after meeting with him, agreed on a "substantial contribution" towards the completion. The Four Seasons group gave the £3 million they were obliged to commit in the event of an overrun, and a further unspecified mount.

The parties involved in Simmonscourt were promised a certain amount if they co-operated with the receiver on completion of the project. The receiver tried to squeeze the £3 million profit Harvard had expected - a struggle understood to be ongoing and which could yet end in litigation.

The banks involved in the syndicate each had to put money into the pot to bring the project to fruition. The final cost of the hotel was in excess of £80 million. The banks had lost their shirts.

In February this year, the hotel was completed, opened, and handed over to the Nollaig Partnership. Bookings for next year are described as very positive.

ACCBank is being sued by two of its partners in the deal, Scotia Bank and Bank of Scotland Ireland. Harvard may yet seek to secure its interests by way of the courts. Anglo Irish Bank is not suing.

This week, the sale of ACCBank to Dutch bank Rabobank was approved by the Dβil. The deal involved the State providing indemnity against any litigation arising against ACC. Despite the indemnity, the State may have taken a hit in terms of the price it got for ACC because of the Four Seasons development.

A further blow to the taxpayer will follow if the case is settled out of court, or if it goes to court and the litigants win. As much as £10 million is believed to be at issue.