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Appeal No. VA07/3/063
AN BINSE LUACHÁLA UCD APPELLANT RE: Office(s), Land at Lot No. 2abc/ 0.25, 27, 29,
30; 1.06, 32, etc., Mt Merr Or Cal, B E F O R E JUDGMENT OF THE VALUATION TRIBUNAL By Notice of Appeal dated the 9th day of August, 2007 the appellant appealed against the determination of the Commissioner of Valuation in fixing a rateable valuation of €422.00 on the above described relevant property. The grounds of Appeal are set out in the Notice of Appeal, a copy of which is contained in the Appendix to this judgment. The appeal proceeded by way of an oral hearing held in the offices of the Tribunal at Ormond House, Ormond Quay Upper, Dublin 7 on the 6th December, 2007. At the hearing the appellant was represented by Mr. Owen Hickey, BL, instructed by Ms. Edel Curley, Law Department, UCD, with Mr. Martin O'Donnell, BA Econ, FIAVI, Grad Dip Planning & Development Economics, Principal of O'Donnell Property Consultants. Dr. Pat Frain, a Director of UCD Nova Limited, and Mr. Donal Doolan, Head of Financial Management in UCD and a Director of UCD Nova Limited, gave evidence on behalf of the appellant. The respondent was represented by Mr. Brendan Conway, BL, instructed by the Chief State Solicitor with Mr. John Smiley, a Valuer in the Valuation Office also present. Introduction Issue The Question of Occupier Mr. Hickey referred to Mr. O'Donnell's précis of evidence and said that although Nova Limited was listed as the occupier, the actual occupier is University College Dublin. Mr. Smiley of the Valuation Office chose Nova Limited as the occupier. Mr. Hickey did not accept this and said that UCD is the occupier and that if the Tribunal finds UCD to be the occupier and that the premises are used for educational purposes then they are exempt under the legislation. He stated further that under section 30(1) (a) or (d) of the Valuation Act an occupier or a person as an interest holder in the property has the right to make an appeal. Mr. Conway said that at first appeal stage a determination was made in the name of Nova Limited as the appellant and occupier. However, he said that if it was established that UCD/Nova UCD was the occupier, he was prepared to go ahead with the matter as they do not satisfy the requirements of the legislation anyway. He further stated that Mr. Hickey was right as regards section 30(1), that as an interest holder UCD/Nova UCD was entitled to make the appeal. With that Mr. Conway said that he was prepared to move on. The Appellant's Case 2. Mr. Hickey called Dr. Frain as a witness. Having taken the oath, Dr.
Frain stated that he is the Director of the Nova UCD programme and has
been employed by the university for the last 20 years. For all intents
and purposes Nova UCD is a department of the university. 4. Mr. Hickey asked Dr. Frain to explain the difference between UCD and Nova UCD and Nova Limited. Dr. Frain stated that Nova UCD is an office or programme established for innovation and technology transfer out of the university into the economy and society. The programme has 16 employees, 14 are UCD employees and only 2 are employed by Nova Limited, as part-time receptionists. The reason there are 2 employees with the limited company is that there has to be flexible opening hours. If they were employed by UCD this would not be possible. 5. UCD Nova Limited, a wholly owned subsidiary of UCD, was set up under the VAT scheme as the university is not eligible to reclaim VAT. A loan was given to the company to build the building. Accordingly, the VAT paid on construction could be reclaimed by the company. Over time all the space in the building could be licensed out and the VAT paid to the government could be reclaimed by the company. Which company or person occupies the incubation units is determined by Nova UCD, and the license agreement is negotiated by Nova Limited. For occupation the project must be innovative and knowledge intensive. These units are not part of the subject property. The 2 receptionists, who occupy the ground floor near the entrance of the building, occupy an area marked in white and which is not part of the subject property. In Mr. Hickey's words they are "not in the take". 6. Dr. Frain gave evidence in relation to the yellow and pink spaces
on the map of the ground and first floors of the building: Mr. Hickey submitted that insofar as there is a license agreement for space in the building between UCD and Nova Limited it applied to only one of the areas marked in pink. As far as occupation is concerned UCD and its staff is the paramount occupier. UCD Nova Limited is a device and not to be taken as the rateable occupier. Object - to Transfer Knowledge and Technology out into the Economy Nova UCD works on different levels: In order to succeed in these matters the programme has to be properly managed. It is very important for the university that it has a vision to become an internationally recognised research-intensive university, moving from an educational institution to a research-intensive university. To achieve this they must get grants from the State via agencies such as Enterprise Ireland. These grants are subject to certain conditions which are contained in a set of requirements and guidelines based on National Codes of Practice for Management of Intellectual Property Arising from Publicly Funded Research. The first such Code of Practice was launched by the Minister for Enterprise in 2004. The requirements and guidelines are included as terms and conditions in the agency contract to fund research within universities. The guidelines state that there must be consistency and transparency in managing intellectual property arising from the research. The reason the State is funding research is that it wants to build a knowledge-based economy. Enterprise Ireland commercialisation specialists work closely with the Nova UCD team. Nova UCD staff meet regularly with UCD researchers to advice them on the commercialisation aspects of the research and licensing of intellectual property. In 1993 a joint venture took place between UCD and a UK firm, Proteus
Molecular Design (now known as Protherics plc), and this led to the most
successful licensing agreement to date following the development of a
BSE (Bovine Spongiform Encephalopathy) or "mad cow disease"
test. This made some €2 million in royalties for UCD over a period
of 7 years, which is relatively very little. This diagnostic test was
licensed to an Irish firm, Enfer Scientific Ltd. in 1996. The real economic
benefit was the fact that Enfer Scientific employed between 100 -150 people
and turned over €20 to €30 million a year when BSE was a major
issue. So it was actually creating value within the economy. The reason
Nova UCD is given the research funding is to hold it on behalf of the
public or taxpayer. The main object is to transfer the technology out
into the economy, not to make a profit. Dr. Frain gave further evidence-in-chief in reply to questions put by Mr. Hickey. As to whether the occupational activities of UCD at the subject property are for educational purposes or commercial purposes, Dr. Frain replied that their objects and function are educational and not commercial. Nova UCD is not there to make a profit. Similar centres in Europe average 15% income of their total budget. As to whether the services are core educational activities, Dr. Frain stated that innovation and technology is a core activity of the university. In fact the university aspires to be a leading international university for innovation and technology. Dr. Frain also confirmed that the provision of meeting rooms and board rooms is an educational activity and said that as a university UCD could not operate without them. Cross examination of Dr. Frain Dr. Frain then gave evidence as to how the licensing works. Nova UCD first of all have the technology. Generally they would patent that technology and then the patent is licensed out to companies. In the case of the BSE test it was a "know how" agreement, not a patent. Nova UCD negotiate the deal with the company to commercialise or exploit the patent under a licence agreement. This agreement is between UCD and the company. A licence fee is paid to Nova Limited and this becomes part of Nova UCD's income. Training and development modules for Ph.D. students, short courses for researchers and lectures for undergraduates can take place in the campus or in the subject property. Meeting rooms in the subject property are used by UCD and by Nova UCD and there is some start-up company usage also. As a result of a survey on European universities it was estimated that 15% of the operating costs of entities or centres like Nova UCD might be achieved after 3 years. This was 15% of their annual budget. This income was in the form of royalties. This shows that innovation and technology transfer makes very little profit. The purpose is to develop the economy. The projected income for Nova UCD for 2007-2008 is 27% of the total budget. This figure includes 19% from license fees. UCD would provide 36% funding and there would be 29% grants from other sources. This leaves an 8% deficit. However, Nova UCD are ahead of the average in Europe. Asked if the licence fee for space in the incubation units could be increased where a company made money, Dr. Frain replied that the fee could not be increased as it was part of a contract and was only for a period of one year but could be renewed thereafter on a quarterly basis. He added that he wanted to see the companies succeed and thereby help the economy. He thought it unlikely for the licence fee to be increased where a company made a profit. The rents charged were not economic rents. Dr. Frain said that, apart from UCD, the rest of their funding comes from State agencies, mainly Enterprise Ireland and the Higher Education Authority (HEA). There are codes of practice and guidelines for the management of innovation and technology transfer. There are requirements on transparency, and these guidelines are part of the research contract awarded by the agencies such as the HEA. High standards are necessary to get overseas investment in the economy. Without these codes of practice no funding will come from the State. There is no funding from private sources, but people from outside companies do pro bono work and give talks to students. He added that the function of a university today was to try and use its knowledge to generate economic benefit. In Ireland we have been slow to take this on and it is vital for the future of our economy. The role of a university today is education, research and innovation and the three are interrelated. 9. Mr. Hickey then called Mr. Donal Doolan, Head of Financial Management in UCD and a Director of UCD Nova Limited to give evidence. Having taken the oath, Mr. Doolan said that Nova Limited is a wholly owned subsidiary of the university and is registered for VAT purposes. The university is exempt from VAT and is therefore unable to reclaim it. UCD gave a loan to the company to help finance the building and also took shares in the company to help finance the loan. UCD is the owner of the building. Appellant's Legal Submissions 2. Mr. Hickey said sections 12 and 13 of the Universities Act, 1997 were very important to the foundation of this case. He referred to section 13(2)(c), that a university "may establish by incorporation in the State or elsewhere, or participate in the establishment of, such trading, research or other corporations as it thinks fit for the purpose of promoting or assisting, or in connection with the functions of, the university." Thus the old idea of a university as purely a teaching institution no longer applies. Mr. Hickey further stated that the object of a university as contained in section 12(f) is "to support and contribute to the realisation of national economic and social development." The Universities Act, 1997 supports Dr. Frain's position that a modern university is no longer just a lecturing institution, but engages in research and cooperates with the business world with a view to national economic and social development and is not for making profit. 3. Mr. Hickey cited the Tribunal determination in VA04/1/001 - City of Dublin VEC, stating that the Nova UCD programme is inextricably linked to the functions and objects of the university. 4. Mr. Hickey also referred to Paragraph 10 of Schedule 4 of the Valuation Act and said that the inclusion of the words "by it" in "Any land, building or part of a building occupied by a school, college, university, institute of technology or any other educational institution and used exclusively by it for the provision of the educational services…" makes a change from the old law of section 38 of the Poor Law Relief (Ireland) Act, 1838. That Act referred to premises exclusively used for a particular purpose. This has changed. So, if the university is the rateable occupier and if the subject property is exclusively used "by it" for the provision of educational services, that is sufficient to pass the test. Minor use by other persons or bodies is not fatal to his case. The Respondent's Case 2. Exclusivity - The requirement is that the subject building must be used exclusively by the university for the provision of educational services. To say that any minor use by some one other than the university is not fatal to the appellant's case is fundamentally flawed. According to the evidence of Dr. Frain there is much more than minor use by persons other than the university. The start-up companies are separate legal persons, distinct from the university and they occupy the incubation units. They occupy and use the facilities of the subject premises, the meeting rooms and the canteen area and they interact with the employees of Nova UCD. The moving impulse of a start-up company is commercial and is not about teaching or educating people. The purpose is the creation of commercial momentum for the start-up companies; it is not about educating people. This is not "the provision of educational services" as envisaged in the Valuation Act. The purpose is commercial. The test is not about paramount occupancy, the test is about exclusivity of use, and UCD by language or logic does not have exclusive use of the subject premises. 3. Profits - UCD says it is not established for the purpose of making a profit and the rents charged to the start-up companies are not economic rents. Mr. Conway says that it is conceivable that a commercial rent could be charged to a company that is successful and making profit. 4. Paragraph 10 of Schedule 4 refers to expenses in providing educational services being defrayed wholly or mainly out of moneys provided by the Exchequer. That is not the case here. For 2007- 2008, via the licence fee, some 19% of the income of Nova UCD will be paid to its wholly owned subsidiary, Nova Limited. 5. Paragraph 10 of Schedule 4 refers to educational services being made available to the general public. Educational services are not provided here. Even if they were they are not available to the general public. Nova UCD interacts with people from the business world to promote commercial success. 6. The tests in Paragraph 10 of Schedule 4 are the only tests and they are not met. Conclusion and Findings The Tribunal agrees with the respondent that the requirements of Paragraph 10 of Schedule 4 must be met if UCD is to qualify for exemption from rateability under the Act. Under the provision it states: "Any land, building or part of a building occupied by a school,
college, university, institute of technology or any other educational
institution and used exclusively by it for the provision of the educational
services referred to subsequently in this paragraph and otherwise than
for private profit, being a school, college, university, institute of
technology or other educational institution as respects which the following
conditions are complied with- However, we look to Paragraph 10 in its entirety and a key word in the provision is "university". First Test - Meaning of "University" Concept of a University Generally The Law Section 12 -Objects Section 13(2) - Functions The activities of UCD through Nova UCD are research and innovation and the transfer of technology into the economy through licensing agreements, through cooperation with business and the transfer of technology into the economy which must by its very nature contribute to the realisation of national economic and social development. While teaching may be more related to undergraduate level, the advancement of knowledge through scholarly research and scientific investigation are at the core of Nova UCD's or the University's activities. Accordingly, there is no doubt in our minds that the work Nova UCD does conform with the provisions of the Universities Act and, therefore, within the meaning of "university" with the provisions of the Valuation Act, 2001. And this must involve not just teaching, but research, innovation and collaboration with business with the object of economic and social development. Therefore, the first test is passed. However, UCD is far from out of the woods for it must meet the criteria in Paragraph 10 of Schedule 4. Second Test - Exclusivity "…. and used exclusively by it
for the provision of the educational services" There are start-up companies and outside companies which use the subject premises. While the incubation units are outside the subject premises, the people from these companies, which are separate legal entities from UCD, use the subject premises - the restaurant and the meeting rooms - and they interact with the 14 staff members of Nova UCD. The Tribunal addresses the exclusivity issue by looking at the broader
picture of a university as understood within both the Universities Act
and Valuation Act. Part of the function of a university is that it may
collaborate with the business community to further the objects of the
university. We ask how these objects and functions of a university could
be fulfilled if people from the start-up companies cannot use the facilities
at the subject premises. Moreover, this collaboration also involves people
coming in to give lectures or seminars relating to the business aspects
of innovation and technology. Further, a Ph.D. research student could
discuss matters informally with a business person over a cup of coffee.
If there was no interaction between the university and the companies in
this way, the university would be frustrated in both its objects and functions
as stated in the Universities Act. Surely this is not the intention. If
the exclusivity principle was applied in such a rigid way the university
could not function. Accordingly, we see the interaction of the university
and business in this way as inextricably linked to the functioning of
the university and thus, in these circumstances, the principle of exclusivity
is not violated. Fourth Test - Profit Sixth Test - General Public And the Tribunal so determines.
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