Westmeath to benefit from Court of Appeal Eurolink tolls decision

The Court of Appeal in Dublin has ruled in favour of a determination by the Commissioner of Valuation that means the rateable value of Eurolink’s tolls from the M4 in Westmeath is €2.145m, and of its Kildare tolls, €6.635m.

The decision will affect the level of rates payable by Eurolink to the two authorities. Eurolink’s rates bill from Westmeath last year amounted to €416,130. If Eurolink had succeeded with its appeal, its rates obligations would have been reduced.

The case brought by Eurolink Motorway Operation Limited, the operator of two toll franchises on the M4 motorway east of Kinnegad, centred on whether the Revenue Share, which Eurolink pays to Transport Infrastructure Ireland (TII) as part of its concession agreement, should be deductible when calculating the ‘Net Annual Value’ (NAV) of the rateable property, which would reduce the amount of business rates Eurolink would be required to pay.

The subject ‘property’ is the tolls collectable from users of vehicles of all types which traverse the M4.

The ruling confirms that the Revenue Share is not deductible when calculating the NAV of its rateable property, which means it will be required to pay higher business rates in the future.

The judgement was released by Judge Haughton J, and was in concord with the views of his colleagues Collins J and Barniville P.

Eurolink had argued that the Revenue Share should be deducted from gross receipts when calculating the NAV. It claimed that as the Revenue Share is not within its control, it should be considered an expense, not revenue.

The court ruled that the Revenue Share was not an expense because the calculation of the NAV does not provide for the deduction of any expenses, nor does it provide for the deduction of any payments that an occupier is obliged to make.

Background

The appeal was against a High Court determination on Eurolink’s appeal against a finding of the Valuation Tribunal upholding rateable valuations by the Valuations Commissioner of €6,365,000 (Kildare) and €2,145,000 (Westmeath) ascribed to tolls pertaining to the M4.

Proposed Valuation Certificates were issued in respect of the subject properties on January 12, 2017 (Westmeath) and March 10, 2017 (Kildare).

Notwithstanding representations by Eurolink, the valuation manager did not consider it appropriate to provide for lower valuations, and Final Valuation Certificates were issued on September 7, 2017 affirming these two valuations.

A Notice of Appeal was received by the tribunal on October 12, 2017. An oral hearing was held in the offices of the Tribunal over five days in early 2019, and evidence was taken from the CEO of Eurolink and three experts on its behalf, and from two experts on behalf of the commissioner. The tribunal disallowed the appeals and confirmed the decisions of the commissioner.

Tolls

The subject property is the tolls collectable from users of vehicles of all types which traverse the M4. The motorway comprises 37.05 kilometres of motorway and includes bridges, a tunnel, and associated structures. It passes through three separate local authority areas, County Kildare, County Meath and County Westmeath. 18.993km (51.26% by distance) is in the County Kildare Local Authority area; 11.65km (31.44% by distance) in County Meath and 6.41km (17.3% by distance) in County Westmeath.

The evidence was that Eurolink had entered into a 30-year public-private partnership (PPP) contract with the NRA (now Transport Infrastructure Ireland (TII) on 24 March, 2003, under which it agreed to design, construct, operate and maintain and finance a tolled road scheme to be known as the M4/M6 Kinnegad – Kilcock Motorway.

Under the PPP Agreement, TII is entitled to receive a Revenue Share.

The tribunal found that, while there is no doubt that there is a restriction in the bye-laws as regards the maximum tolls which Eurolink can charge, Eurolink did not show the connection between that restriction and the Revenue Share payable to TII, which is based on traffic volume. Therefore, the tribunal found that the Revenue Share is not deductible when valuing the subject property.

High Court Judgment

At the outset, in the High Court hearing, Owens J said the substance of the question asked in the case was whether the Revenue Share should be disregarded in determining the ‘net annual value’.

The trial judge rejected Eurolink’s contention that the Revenue Share should be viewed as a disadvantage of the property, and that the Revenue Share should be treated as an expense “necessary to maintain the property… in its actual state”.

He also stated that the obligation to make payments of the ‘Revenue Share’ is founded on the PPP agreement.

He also concluded that the tribunal was correct in deciding that the Revenue Share was not a statutory restriction on the capacity of the tolls to generate income and profit.

The trial judge rejected the submission that the tolls should be treated differently because Eurolink had made a commitment to pay the Revenue Share as part of a contract with a public law element. If that were correct, it would mean that purely private commercial arrangements which gave a right of occupation of the rateable property in return for an income stream would result in different treatment of that property for rating purposes.

He further reasoned that there is recognition by the Oireachtas that public money and public rights and benefits are involved in toll road schemes and that it is in the public interest that commitments in such agreements tally with the character of public law rights and obligations. It was not the intention of the Oireachtas to allow road authorities to grant special rating benefits to toll concessionaires.

Eurolink grounds of appeal

In the appeal, Eurolink’s legal team argued that the Revenue Share is an intrinsic feature of the tolls, and therefore should be viewed as a share of the tolls which is never “within the grasp” of Eurolink and should not count as part of the gross profits and that the Revenue Share constitutes a limitation on Eurolink’s earning capacity.

The Appeal Court judge, Judge Haughton, stated that in his view, the PPP agreement does not create the tolls. They were first created by the Toll Scheme and bye-laws, and thereupon farmed out to Eurolink as concessionaire. The terms upon which Eurolink enjoys occupation of the rateable property – the tolls – are set out in the PPP Agreement.

The judge commented that Eurolink relies on the fact that following its successful tender, it expended capital on the construction of the motorway, and that, but for such capital expenditure, no tolls (and no Revenue Share) could exist. It suggests that this was “consideration” for the Revenue Share:

“In my view, the fact that Eurolink made this capital investment is not relevant to establishing the NAV. Under the rating construct, it is not appropriate to take into account who may have created the rateable property, or at what expense,” he said.

He also pointed out that of the €335m total construction costs, approximately €162m was received from the NRA/TII.