The Supreme Court has overturned a €10.2 million arbitrator’s award to the State company which owns the €62 million National Aquatic Centre.
Campus Stadium Ireland Development Ltd (CSID) had alleged some €10.2 million Vat was payable by Dublin Waterworld Ltd (DWL) on its lease interest in the NAC but DWL disputed any Vat was payable. After losing its case in the High Court, DWL appealed to the Supreme Court.
Allowing the appeal today, Mr Justice Adrian Hardiman, with whom Ms Justice Susan Denham and Mr Justice Hugh Geoghegan agreed, found the errors by the arbitrator were so “significant and fundamental” they enabled CSID not just succeed at the arbitration but “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 NAC was less than the agreed €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 capitalised value of the lease 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 obtained that “devastating” report, which meant the lease would be exempt from Vat, CSID decided to use other formulae provided for in the Revenue’s VAT regulations in an effort to produce a valuation which would be liable to Vat, the judge said.
The parties differed whether this was a legitimate tactic for CSID to adopt but the arbitrator did not give any consideration to the case advanced by DWL and instead decided CSID was entitled to have recourse to the formulae and that was an end of the matter.
The arbitrator “gravely misled” himself on the law in deciding CSID, entirely at its own option, was entitled to rely on the formula. The relevant regulations allowed access to the formulae “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 misstatement” 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 NAC 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, 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 in turn entered into a management agreement with Dublin Waterworld Management Limited (DWML) for DWML to manage the centre on his behalf.
