Campus & Stadium Ireland Development Ltd (plaintiff/ respondent) v Dublin Waterworld Ltd (defendant/ appellant)

• Jurisdiction: Ireland
• Judge: Mr. Justice Hardiman
• Judgment Date: 30 April 2010
• Neutral Citation: [2010] IESC 25
• Court: Supreme Court
• Docket Number: [S.C. No. 416 of 2005]
• Date: 30 April 2010

[2010] IESC 25

THE SUPREME COURT

Denham J.

Hardiman J.

Geoghegan J.

416/2005

Campus & Stadium Ireland Development Ltd v Dublin Waterworld Ltd

Between:

CAMPUS and STADIUM IRELAND DEVELOPMENT LIMITED

Plaintiff/Respondent

and

DUBLIN WATERWORLD LIMITED

Defendant/Appellant

ARBITRATION ACT 1954 S41

VALUE-ADDED TAX ACT 1972 S4(3A)

VALUE-ADDED TAX ACT 1972 S10(9)

VALUE-ADDED TAX ACT 1972 S32(1)(T)

VALUE-ADDED TAX REGS 1979 SI 63/1979 REG 19

VALUE-ADDED TAX REGS 1979 SI 63/1979 REG 19(1)

VALUE-ADDED TAX (AMDT) (PROPERTY TRANSACTIONS) REGS 2002 SI 219/2002

FORBES v TOBIN UNREP MCCRACKEN 8.3.2001 2001/10/2676

FORBES v TOBIN UNREP SUPREME 17.7.2002 2002/11/2660

DOYLE v KILDARE CO COUNCIL & SHACKLETON 1995 2 IR 424

ARBITRATION ACT 1954 S38(1)

MCCARTHY v KEANE & ORS 2004 3 IR 617 2005 2 ILRM 241 2004/33/7696 2004 IESC 104

GALWAY CITY COUNCIL v SAMUEL KINGSTON CONSTRUCTION LTD & HAWKER UNREP SUPREME 25.3.2010 2010 IESC 18

ARBITRATION

Award

Setting aside - Error of law on face of award - Whether arbitrator entitled to disregard evidence - Whether error fundamental - Whether basis to set aside award - Galway City Council v Samuel Kingston Construction Ltd [2010] IESC 18 (Unrep, SC, 25/3/2010) followed; Doyle v Kildare County Council [1995] 2 IR 424 and McCarthy v Keane [2004] IESC 104, [2004] 3 IR 617 and Forbes v Tobin (Unrep, SC, 17/7/2002) considered - Arbitration Act 1954 (No 26), s 38 - Defendant's appeal allowed (416/2005 - SC - 30/4/2010) [2010] IESC 25

Campus & Stadium Ireland Dev Ltd v Dublin Waterworld Ltd

REVENUE

Value added tax

Lease - Capitalised value - Open market value - Unique building - Review of supplier's charge by customer - Value-Added Tax Act 1972 (No 22), ss 4(3A), 10(9)(a), 31(1)(t) - Value-Added Tax Regulations 1979 (SI 63/1979), reg 19 - Value-Added Tax (Amendment) (Property Transactions) Regulations 2002 (SI 219/2002), s 4(e) - Defendant's appeal allowed (416/2005 - SC - 30/4/2010) [2010] IESC 25

Campus & Stadium Ireland Dev Ltd v Dublin Waterworld Ltd

Facts: The plaintiff, Campus and Stadium Ireland, (CSI) developed premises know as the National Aquatic Centre at a cost exceeding €62 million euros exclusive of VAT. A lease contract was created in favour of the defendants in the premises for a period of thirty years. The issue in the proceedings was whether VAT was payable on the creation of the interest in the premises and in what amount. CSI took proceedings against the defendant claiming the sum of relating to the VAT on the leave. The High Court had ordered that the issue between the parties as to the claim for VAT to be referred to arbitration. The Arbitrator held that CSI was quite entitled to use an unencumbered rent figure to calculate the capitalized value of the lease. The Arbitrator made his award, awarding €10,254,600, as VAT charged by CSI on the capitalized value of the lease to the defendant and correctly charged. The defendant sought to appeal the decision of the High Court where the plaintiff obtained leave to enforce an arbitration award in the sum of €10,254,600 awarded by the Arbitrator in favour of the plaintiff and against the defendant. The defendant sought to set aside the award of the Arbitrator. The issue arose as to the valuation of the premises and the procedures employed in this regard for valuation. CSI had received an expert report which was adverse to their position and so they had sought to employ instead a formula as set out in Regulation 19 of the VAT Regulations of 1979 (SI No. 63 of 1979). CSI contended that they were entitled to choose the method of valuation. The issue arose as to whether the valuation report obtained could be disregarded by the Arbitrator or whether it constituted evidence before the Arbitrator.

Held by the Supreme Court per Hardiman J. (Denham, Geoghegan JJ. concurring), that the errors identified were so fundamental that the Court could not allow them to remain unchallenged. There was a serious misstatement of the law on the face of the award. The errors enabled CSI not so much as to be successfuls at the arbitration as to register a walkover. The most substantial part of their evidence was quite wrongly excluded. The Arbitrator gravely misled himself in determining that the CSI were, entirely at their own option, entitled to rely on the formula employed. The award would be set aside.

Reporter: E.F.

1 JUDGMENT of Mr. Justice Hardiman delivered the 30th day of April, 2010.

2 Judgment delivered by Hardiman J. [nem diss]

3 This is the appeal of the defendant against the judgment and order of the High Court (Gilligan J.). By order dated the 28 ^th September, 2005, it was ordered that the plaintiff do have leave pursuant to s.41 of the Arbitration Act, 1954 to enforce an arbitration award of the 1 ^st July, 2005 in the sum of €10,254,600 awarded by the Arbitrator in favour of the plaintiff and against the defendant.

4 The plaintiff herein, Campus and Stadium Ireland Development Limited (CSI) developed premises in Dublin known as the "National Aquatic Centre" at a cost which was agreed to exceed €62,000,000.00 (sixty-two million euro), exclusive of VAT. The significance of this figure will emerge below. On the 30 ^th April, 2003, it created "a lease contract" in favour of the defendants, Dublin Waterworld Limited (DWW), in the said premises for a period of thirty years.

5 The background issue in the present proceedings is whether VAT is payable on the creation of this interest in the premises, and if so in what amount. CSI took proceedings against the defendant claiming the sum of €10,254,600.00 relating to this VAT on the lease. On the 3 ^rd June, 2005, the High Court (Kelly J.) ordered that the issue between the parties in respect of the claim for VAT be referred to arbitration.

6 The Arbitrator made his award on the 5 ^th July, 2005, whereby he awarded that the sum mentioned above being VAT charged by CSI on the capitalised value of the lease to the defendant was correctly charged. The plaintiff has taken proceedings seeking leave to enforce this award. The defendant seeks to set aside the award of the Arbitrator on the grounds discussed below.

The arbitration.

7 It is important to note that, according to the Arbitrator's award:

"The arbitration was conducted by way of a review of documents furnished by the representative of both parties and by an oral hearing held at the office of the Arbitrator on the 28 ^th June, 2005."

8 The dispute is summarised as follows:

"The issue in dispute is whether Campus and Stadium Ireland Development Limited was correct to charge valued added tax in the sum of €10,254,600.00 to Dublin Waterworld Limited on the capitalised value of the thirty year lease entered into by the parties on the 30 ^th April, 2003."

9 The Arbitrator noted that certain matters had been agreed between the parties. Due to their importance and the role they play in netting down the issues of this appeal I set them out in full:

"'Agreed position'.

10 It is accepted by both parties that the lease by CSI to DWW is a lease which would be subject to VAT at 13.5% on its capitalised value, subject to the provisions of s.4(3A) of the VAT Act, 1972 as amended. These provisions are commonly referred to as the "economic value test" or "EVT".

11 CSI as landlord and as the person disposing of its interest in the property submits that it was its responsibility to establish the capitalised value of the lease for VAT purposes.

12 It is accepted by both parties that if the capitalised value of the lease was less than the economic value of the lease, the lease would be exempt from VAT. As a consequence, CSI would not be entitled to recover the VAT it incurred on the costs of developing the property.

13 The economic value of the lease is the amount of money, excluding VAT, incurred by the landlord in acquiring and developing the property. In this case the economic value is accepted by both sides as being approximately€62,000.000.00. The exact figure is not available to the Arbitrator, but that fact is not critical.

14 In order for the lease of the National Aquatic Centre to be subject to VAT, the capitalised value of the lease, determined in accordance with the provisions of the Act, would have to equal or exceed the economic value."

15 As noted above, the economic value of the property is agreed. The issue between The parties therefore related to the capitalised value of the lease.

The lease and its actual terms.

16 The actual rent, which was negotiated at arms length and specified in the lease mentioned as above, was €127,000.00 plus 10% of net profits. The maximum valuation of the net profits put forward by either side was €2.7 million, a figure which would give rise to an estimated maximum rent of €397,000.00. The lease further specified that after five years the rent was to be simply 10% of net profits i.e. an estimated maximum rent of €270,000.00. But in the two years preceding the arbitration, no profits were earned.

Statutory provisions.

17 But, by virtue of the statutes and regulations considered below, the valuation of the lease is not based on the actual rent but is to some degree an artificial process. Firstly, by s.10(9) of the Act the value of the lease, being an interest in immovable goods, "shall be the open market price of such interest."

18 The "open market price", is defined in the following in the subsection as the price which "the right to receive an unencumbered rent in respect of those goods for the period of the interest would fetch on the open market at the time that that interest is disposed of."

19 Section 32(1)(t) of the Act empowers the Revenue to make regulations to give effect to the Act in relation to "the valuation of interests in or over immovable...