Dublin Waterworld Ltd v National Sports Campus Development Authority

• Jurisdiction: Ireland
• Judge: Mr. Justice Twomey
• Judgment Date: 10 June 2017
• Neutral Citation: [2017] IEHC 293
• Court: High Court
• Docket Number: [2013 No. 4621P]
• Date: 10 June 2017

[2017] IEHC 293

THE HIGH COURT

COMMERCIAL

Twomey J.

[2013 No. 4621P]

BETWEEN:

DUBLIN WATERWORLD LIMITED

PLAINTIFF

-AND-

NATIONAL SPORTS CAMPUS DEVELOPMENT AUTHORITY

DEFENDANT

Land & Conveyancing – Payment of Value Added Tax (‘VAT’) on lease – The Value-Added-Tax Act, 1972 – The Finance Act 2002 – Liability – Reputational damage – Malicious abuse of court process – Compensation

Facts: The plaintiff had filed a claim for damages against the defendant for malicious abuse of court process arising from its decision to issue and maintain the primary claim against the plaintiff for the payment of VAT in relation to a lease held by the plaintiff. The defendant succeeded in its claim in the High Court but had lost in the Supreme Court on appeal. The issue in the present case was whether the defendant who initially won the litigation before losing on appeal was guilty of malicious abuse of court process and thus, liable to pay damages to the plaintiff for the costs incurred by the plaintiff in pursuing that primary litigation.

Mr. Justice Twomey rejected the plaintiff's claim. The Court held that it was a pre-condition to a successful claim for the tort of malicious abuse of court process that the primary litigation should have failed in its entirety. The Court found that though the defendant won the case before the Arbitrator and the High Court, it had lost the case on appeal before the Supreme Court. The Court held that the reversal of a relief on appeal would not be a ground for the winning party to commence secondary litigation on ground of malicious abuse. The Court noted that the plaintiff in real had suffered harm by erroneous judgments of the High Court and not from any wrongdoings on the part of the defendant. The Court observed that such grievances were shared by all the litigants for which any party to the litigation was not responsible.

JUDGMENT of Mr. Justice Twomey delivered on 10th day of May, 2017

Introduction

1 The hearing in this case (the “secondary litigation”), which lasted five weeks, involved a claim by the plaintiff, Dublin Waterworld Limited (“DWW”), for damages against the defendant, the National Sports Campus Development Authority, for malicious abuse of court process arising from its decision in 2005 to issue and then maintain proceedings (the “primary litigation”) against DWW for VAT of €10,254,600 in respect of a lease by DWW of the National Aquatic Centre (the “NAC”) in Abbottstown in County Dublin. It is alleged by DWW that the primary litigation amounted to the tort of maliciously abusing the process of the Court, since it is claimed that there was no reasonable or probable cause for that litigation and that it was pursued for an improper purpose. Mr. John Moriarty (“Mr. Moriarty”) is the managing director of DWW.

2 The primary litigation was issued by Campus and Stadium Ireland Development Limited (“CSID”). At that time it was a State owned company since it was 50% owned by the Minister for Sports, Arts and Tourism, 25% owned by the Minister for Finance and 25% owned by the Taoiseach. These proceedings are however against the National Sports Campus Development Authority, the legal successor and transferee of all liabilities of CSID pursuant to the National Sports Campus Development Authority Act, 2006 and references in this judgment to CSID should be taken to include the National Sports Campus Authority, unless otherwise indicated.

3 The primary litigation, about which DWW complains, was commenced by CSID in 2005 before the Commercial Court, but was referred by that Court to an Arbitrator, who decided that the lease of the NAC was vatable and VAT of €10,254,600 was due by DWW to CSID. The Arbitrator's decision that the Lease was vatable was challenged by DWW in the High Court in 2005, which upheld the Arbitrator's award. This High Court decision was then appealed to the Supreme Court and in 2010 the Supreme Court reversed the High Court decision and in doing so set aside the Arbitrator's finding that VAT was payable on the lease. DWW claims that it suffered very significant reputational damage as a result of being pursued for over €10 million in VAT on a Lease that was not vatable and also that it suffered very significant financial loss as a result of the issue and maintenance of the primary litigation in pursuit of this VAT over a five year period, including the loss of valuable contracts. This trial is however concerned only with liability issues and does not deal with the extent of the damage suffered by DWW.

4 A key issue in this trial, and one that does not appear to have been considered by the Irish courts to date, is whether a plaintiff, who wins his litigation initially before a lower court or tribunal before losing on appeal, can nonetheless be found by the courts to be someone who should never have litigated in the first place, such that he is guilty of malicious abuse of court process and therefore liable for the damage caused to the defendant, over and above the plaintiff's liability for the legal costs incurred by the defendant.

5 To consider this issue in this case, it will be necessary to set out in some detail the alleged wrongful conduct, namely the pursuit of the primary litigation. However, before considering the primary litigation, it is necessary to refer to the technical legal issues which determined whether VAT was chargeable on the lease in this case, since this is necessary to understand not only the primary litigation but also the current dispute between the parties as to whether there was any basis for that primary litigation, which alleged that VAT was due on that lease.

Legal provisions regarding VAT on leases

6 The Value-Added Tax Act, 1972 (the “VAT Act”) provides that the granting of a lease is a taxable supply of immoveable goods for VAT purposes if the lease is a long lease, i.e. for a period of 10 years or more. In this case, the lease of the NAC was signed by DWW as lessee and by CSID as lessor on the 30th April, 2003, for a period of 30 years (“the Lease”). Thus, the Lease was one which was capable of being subject to VAT.

7 Section 10(9) of the VAT Act provides that the value of the leasehold interest for the purposes of calculating the VAT thereon, is the “ open market price of such interest”. For this reason, section 10(10) of the VAT Act is also relevant, since it states:-

‘the open market price –

(a) in relation to the value of an interest in immovable goods which is not a freehold interest, means the price, excluding tax, 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 the interest is disposed of.’

8 On this basis, the open market price of the lease was the price or value attributable to the right to receive the unencumbered rent and s. 10 (1) of the VAT Act defined the ‘ unencumbered rent’ as the ‘ rent at which an interest would be let, if that interest was let on the open market free of restrictive conditions.’

9 Section 32(1)(t) of the VAT Act delegated authority to the Revenue Commissioners to make regulations in relation to the valuation of leases for the purposes of the VAT Act. Pursuant to this section, the Revenue Commissioners drafted the Value-Added Tax Regulations, 1979, which were duly passed into law. Regulation 19 of those Regulations set out further provisions regarding the valuation of leases. Insofar as relevant, Regulation 19 states:-

‘(1) Where –

(a) it is necessary to value an interest in immovable goods for the purposes of section 10 (9) of the Act […]

the value of such rent to be included in the consideration for the purposes of ascertaining the open market price of the interest disposed of shall, in the absence of other evidence of the amount of that price, be –

(i) three quarters of the annual amount of the rent multiplied by the number of complete years for which the rent has been created, or

(ii) the annual amount of the rent multiplied by the fraction of which the numerator is 100 and the denominator is the rate of interest (before deduction of income tax, if any) on the security of the Government which was issued last before the date of the creation of the rent for subscription in the State, and which is redeemable not less than five years after the date of issue (allowance having been made in calculating the interest for any profit or loss which will occur and the redemption of the security),

whichever is the lower.’

These two methods for the valuation of leases set out at (i) at (ii) above are known as the “Formula Method” and the “Multiplier Method”, respectively.

10 Regulation 19 of the 1979 Regulations was amended by the Value-Added Tax (Amendment)(Property Transactions) Regulations, 2002, and the only change to the 1979 Regulations, which is of relevance to these proceedings, was the deletion of the words ‘ whichever is the lower’ and the insertion of the following wording in its place:-

‘However, where the rent payable in respect of the interest so created is less than the unencumbered rent in respect of that interest, the value of the rent to be included in the consideration for the purpose of ascertaining the open market price of the interest disposed of shall be calculated using the unencumbered rent.’

It is this Regulation 19, as so amended, which is particularly relevant to the issue of whether the Lease was vatable in this case, in conjunction with s. 99 of the Finance Act, 2002, to which reference will now be made.

Anti-avoidance amendment of legislation regarding VAT on leases

11 Section 99 of the Finance Act, 2002 amended the VAT Act and inserted a new provision, section 4(3A), into that Act. This was enacted as an anti-avoidance provision to ensure that leases were not subject to VAT where the value of the interest in the lease did not...