A Supreme Court judgment has concluded that a €10.25 million arbitration award against Dublin Waterworld Limited over VAT on its National Aquatic Centre lease should be set aside because of fundamental legal errors in the arbitration.
Campus and Stadium Ireland Development Limited developed the Dublin complex at a cost exceeding €62 million and granted Dublin Waterworld a 30-year lease in April 2003. A dispute later arose over whether €10,254,600 in VAT was payable on the capitalised value of that lease.
The parties agreed that VAT liability depended on whether the lease's capitalised value equalled or exceeded its economic value. The difficulty was how that capitalised value should be calculated.
CSI obtained a valuation from Valuation Office surveyor Liam Cahill. He estimated an unencumbered annual rent of €3.376 million and an open-market value for VAT purposes of about €35 million. Because that was below the property's economic value, it would have meant the lease was VAT-exempt.
CSI instead relied on a formula in VAT Regulation 19 which produced a value of almost €76 million and therefore generated the disputed VAT charge. The arbitrator accepted that approach and awarded CSI €10,254,600. The High Court later gave leave to enforce the award.
Dublin Waterworld appealed. It argued that Regulation 19 allowed use of the formula only "in the absence of other evidence" of value and that Cahill's report was plainly such evidence.
Mr Justice Hardiman agreed. He said the arbitrator was wrong to dismiss Cahill's professional valuation as merely an estimate rather than evidence. He also rejected the arbitrator's proposition that the VAT system could not operate if a customer were entitled to review a supplier's VAT charge.
Those errors were not minor. They went to the core of how the arbitration was decided and, in his view, were sufficiently fundamental for the courts to intervene.
He therefore concluded that the arbitration award should be set aside, with the precise form of the resulting order left for further submissions if required.