High Court dismisses Ryanair's judicial review claim that Dublin Airport charges were unlawful or irrational.

Neutral Citation Number: [2008] IEHC 98

THE HIGH COURT

JUDICIAL REVIEW

2007 No. 1246 J.R. [2007 No. 134 COM]

BETWEEN

RYANAIR LIMITED

APPLICANT

AND

COMMISSION FOR AVIATION REGULATION

RESPONDENT

AND

DUBLIN AIRPORT AUTHORITY PUBLIC LIMITED COMPANY

NOTICE PARTY

Judgment of Mr. Justice Clarke delivered the 11th April, 2008

1. Introduction

1.1 The applicant (“Ryanair”) has, for many years, campaigned against what it says are unduly high charges levied on the users of

airports generally and, in particular, those relating to Dublin Airport. The issues of dispute include many which operate at the level of

policy and have no legal dimension. However these proceedings relate to a contention that the manner in which maximum charges

have been fixed for Dublin Airport are not in accordance with law.

1.2 The respondent (“CAR”) is now charged, under the provisions of the Aviation Regulation Act 2001, (“the 2001 Act”), as amended,

with specifying the maximum charges to be levied in relation to aircraft use at Dublin Airport. In general terms the legislation requires

that maximum charges be fixed for a period of not less than four years, but also permits, in appropriate circumstances, a review

during the currency of such a period. The CAR made an original determination in 2001 fixing charges for a four year period. That

decision was followed by a further later determination which occurred on 29th September, 2005. That substantive later determination

was itself the subject of a review which was conducted by the CAR as a result of a decision to embark upon such a review taken in

2006. In its final decision on that review process, which was dated 30th July, 2007” and is entitled “maximum levels of airport charges

at Dublin Airport, final decision on interim review of 2005 determination” (“the review decision”), the CAR determined that there should

be no change in the actual charges to be levied for the continuance of the substantive period governed by the 2005 decision.

However, as will become clear from a consideration of the terms of the review decision, the final determination appears to have been

based upon setting off two countervailing factors. In substance the core context of Ryanair’s complaints stem from an assertion that

there is contained within the review decision, determinations which will have a significant knock on effect into the future (and in

particular after the next substantive review) which are adverse to its interests.

1.3 It is in that context that Ryanair seeks to challenge the review decision.

1.4 It is also fair to say that there has been a not insignificant “evolution” in the argument as put forward in, firstly, the original

statement of grounds and supporting affidavits, secondly the written submissions filed for the hearing, and thirdly and finally the

argument as it evolved at the hearing before me. Subject to one caveat I propose dealing with the argument as it was ultimately

made rather than as it might have appeared at earlier stages in the process. I will shortly turn to the procedural history of this case.

However it is important to note that judicial review of decisions of the CAR in relation to fixing maximum prices for Dublin Airport are

governed by a statutory regime (similar to that which pertains in the planning and environmental and immigration fields) which requires

an application for leave to seek judicial review to be brought on notice to other interested parties, to be brought within a strict time

scale, and which requires substantial grounds to be established at the leave stage.

1.5 It is now well settled that, in cases to which a statutory regime of that type applies, a court is significantly constrained in relation

to permitting amendments to the reliefs sought or significant amendments to the grounds upon which leave has been given, where the

amendment is sought outside the time scale within which the application for leave should have been brought. In such circumstances it

is clear that an amendment which asserts an additional or new case should only, ordinarily, be allowed where there would be a proper

basis for extending time for the bringing of stand alone judicial review proceedings asserting the claims or grounds which are the

subject of the proposed amendment. See Ní Eilí v EPA [1997] 2 I.L.R.M. 458, Mureson v Minister for Justice, Equality and Law Reform

[2004] 2 I.L.R.M. 364 and Sweetman v An Bord Pleanála [2007] I.E.H.C. 153. For that reason it is necessary to exercise care to insure

that the argument as it evolved can be found within the statement of grounds in respect of which leave was originally sought.

1.6 Not least because of that factor it is appropriate to commence with the review of the procedural history of these proceedings to

which I now turn.

2. Procedural History

2.1 The original notice of motion seeking leave is dated the 27th September, 2007, and was originally returnable on the 15th October.

On 22nd October, 2007, Kelly J. ordered that the proceedings be entered in the commercial list for hearing. In addition to Ryanair and

the CAR, the notice party (“DAA”) was at all times a party to the proceedings in its capacity as the entity which was entitled to

receive the airport charges under challenge. In the ordinary way affidavits were filed by all parties.

2.2 It should, however, also be noted that Kelly J. directed, when listing the application for leave for hearing, that “in the event that

leave is granted that the court shall immediately thereafter proceed to consider the applicant’s substantive judicial review

application”.

2.3 Therefore, what came to be listed for hearing before me was, strictly speaking, the leave application coupled with the direction of

Kelly J. that in the event that leave was granted there should, immediately thereafter, be a substantive hearing. In the course of the

leave hearing I enquired of counsel for all three parties as to whether there would, in the event that leave was granted, be any

additional matters of fact or of argument which it would be intended to place before the court at a substantive hearing. Counsel for

all sides answered in the negative. In those circumstances I suggested to the parties that the appropriate course of action should be

that I would deliver a single judgment dealing with all issues including, if it arose, a substantive determination in respect of any issues

in relation to which I was satisfied that substantial grounds existed. Haven taken instructions all counsel agreed.

2.4 I should say that it seems to me that the course of action agreed to by counsel on all sides was extremely sensible. Nothing

would have been gained by insisting on a further hearing in the event that leave was granted, given that all sides accepted that no

new matters of fact or argument would then be put before the court.

2.5 Both I, and a number of my colleagues, have commented in the recent past on the fact that the regime for judicial review

imposed by statute in cases such as this often leads to a lengthening rather than a shortening of the process. What has actually

happened in this case lends further weight to that argument. In truth there has, by the direction of Kelly J. to which I have referred

and the sensible agreement of the parties, only been one substantive hearing. That has been sufficient to do justice to the interests

of all of the parties. There may, of course be cases where there is something to be saved by having a separate leave hearing, where,

for example, contested factual matters might not have to be gone into until such time as it was established that there was a legal

basis (even on the factual case as asserted by the applicant) for the review sought. However in many cases the experience of the

courts has been that a substantive hearing following leave given on substantial grounds does not involve any additional facts or

significant additional legal argument but rather is a repetition (perhaps with appropriate emphasis in the light of the leave judgment)

of the arguments made at the leave stage. It remains, in most cases, an unwieldy and frequently redundant process.

2.6 Be that as it may, for the reasons which I set out, this judgment is, therefore, directed in substance to a leave application but on

the basis that it is agreed that I should finally determine any issues in respect of which I am satisfied that substantial grounds

sufficient to grant leave have been made out.

2.7 Before going on to the issues which arise in the case it is also important that I note that both the CAR and the DAA raised a

number of preliminary objections which, in substance, sought to assert that Ryanair were estopped from making the case which they

sought to raise in these proceedings. However for reasons which will become apparent when analysing the argument as it actually

evolved in the hearing before me, it did not seem to me that those issues remained alive at the close of the hearing and it will not,

therefore, be necessary to deal with them in any great detail.

2.8 As the decision made by the CAR which is under challenge stems from a statutory regime it is appropriate that that regime should

be the starting point of any consideration of the issues which have arisen. I therefore turn to the statutory regime.

3. The Statutory Regime

3.1 As noted earlier the CAR is governed by the provisions of the 2001 Act, as amended. The CAR is referred to as “the Commission”

in that legislation. The relevant provisions of the legislation, in its current amended form, are as follows:-

“S.5(3) The Commission shall have all such powers as are necessary to or incidental to the performance of its functions

under this Act.

S.5(4) In carrying out its .junctions, the Commission shall ensure that all determinations, conditions attaching thereto,

amendments thereof and requests shall be objectively justified and shall be nondiscriminatory, proportionate and

transparent.

S.10(1) The Minister may give such general policy direction ... to the Commission as he or she considers appropriate to be

followed by the Commission in the exercise of its functions.

S.10(2) The Commission shall comply with any direction given under [Section 10(l)] as set out above.”

S.32(1) In this section and section 33, "determination" means a determination under subsection (2).

S.32(2) The Commission shall: -

(a) as soon as is practicable, but not later than 12 months after the Dublin appointed day, make a determination,

and

(b) upon the expiration of that determination and each subsequent determination, make a determination. specifying

the maximum levels of airport charges that may be levied by [the DAA] in respect of Dublin Airport.

S.32(5) A determination shall:

(a) be in force for such period of not less than 4 years, and

(h) come into operation on such day, as the Commission specifies.

S .32(6) A determination may.

(a) provide:

(i) for an overall limit on the level of airport charges,

(ii) for limits to apply to particular categories of such charges, or

(iii) for a combination of' any such limits,

(b) operate to restrict increases in any such charges, or to require reductions in them, whether by reference to any

formula or otherwise, or

(c) provide or different limits to apply, in relation to different, periods of time falling within the period to which the

determination relates.

S32(14)(a) The Commission may after the making of a determination:

(i) at its own initiative, or

(ii) at the request of an Airport Authority or user concerned in respect of the determination, if it

considers that there are substantial grounds for so doing, review the determination and, if it sees fit,

amend the. determination

(b) An amendment made under paragraph [14(a)] shall be in force for the remainder of the period of the

determination referred to in subsection (5)(a)

(c) Subsection (5)(b) and subsections (7) to (13) shall apply to an amendment made under paragraph (a).

S.33(1) In making a determination the objectives of the Commission are as follows: -

(a) to facilitate the efficient and economic development and operation of Dublin Airport which meet the

requirements of current and prospective users of Dublin Airport,

(b) to protect the reasonable interests of current and prospective users of Dublin Airport in relation to Dublin

Airport, and

(c) to enable Dublin Airport Authority to operate and develop Dublin Airport in a sustainable and financially viable

manner.

S.33(2) In making a determination the Commission shall have due regard to: -

(a) the restructuring including the modified .functions of Dublin Airport Authority:

(b) the level of investment in airport facilities at Dublin airport in line with safety requirements and commercial

operations in order to meet the needs of current and prospective users of Dublin Airport,

(c) the level of operational income of Dublin Airport Authority, from Dublin Airport, and the level of income of Dublin

Airport Authority from any arrangements entered into by it for the purposes of the restructuring under the [2004

Act],

(d) costs or liabilities for which Dublin Airport Authority is responsible,

(e) the level and quality of services offered at Dublin Airport by current and prospective users of these services,

(f) policy statements, published by or on behalf of the Government or a Minister of the Government and notified to

the Commission by the Minister, in relation to the economic and social development of the State,

(g) the cost competitiveness of airport services at Dublin Airport,

(h) imposing the minimum restrictions on Dublin Airport Authority consistent with the functions of the Commission,

and such national and international obligations as are relevant to the functions of the Commission and Dublin Airport

Authority.

S.40.—(1) This section applies to—

(a) an airport authority to whom a determination under section 32 (2) applies,

(b) the Irish Aviation Authority in respect of a determination under section 35 (2), and

(c) an airport user, being any person responsible for the carriage of passengers, mail or freight by air to or from an

airport, in respect of a determination under section 32 (2) or 35(2).

(2) The Minister shall, upon a request in writing from a person to whom this section applies who is aggrieved by a

determination under section 32 (2) or 35(2), establish a panel (“appeal panel”) to consider an appeal by that person

against the determination.

(5) An appeal panel shall consider the determination and, not later than 2 months from the date of its establishment, may

confirm the determination or, if it considers that in relation to the provisions of section 33 or 36, there are sufficient

grounds for doing so, refer the decision in relation to the determination back to the Commission for review.

(8) The Commission, where it has received a referral under subsection (5) from an appeal panel, shall, within one month of

receipt of the referral, either affirm or vary its original determination and notify the person who made the request under

subsection (2) of the reasons for its decision.”

3.2 As appears from the relevant provisions of the legislation which I have cited, the manner by which the CAR makes a legally binding

decision is by making a “determination” in accordance with s. 32(2). The determination is for a period of not less than four years but

can, within such period, be flexible in particular in the manner contemplated by s. 32(6), which allows for different charges in respect

of different categories, different time periods and allows for the charge to vary in accordance with a formula during the course of

such a period.

3.3 Determinations of the CAR in relation to fixing maximum prices are required, under s. 5(4), to be objectively justified, non

discrimatory, proportionate and transparent. In coming to a decision as to the maximum price to be fixed, the CAR must meet the

objectives set out in s. 33(1) which require that the DAA be permitted to operate and develop Dublin Airport in a sustainable and

financially viable manner while facilitating the development and operation of the airport and meeting and protecting the interests and

requirements of users. Likewise the CAR is required to have regard to the matters set out in s. 33(2).

3.4 The decision which is the subject of challenge in these proceedings is made under s. 32(14)(a) which allows the CAR, either at its

own initiative or at the request of the DAA or a user, to review a determination and, if it sees fit, amend the determination. Where an

amendment is made then that amendment remains in force for the balance of the period of the last substantive determination.

3.5 Against that statutory background it is appropriate to turn to the facts. In that context it is appropriate to refer, firstly, to the so

called “building blocks” approach which has been adopted by the CAR.

4. The Building Blocks Approach

4.1 In common with what is said to be international best practice the, CAR adopts a so called “building blocks” approach to

determining the appropriate charges to be made for any relevant period. In the affidavit evidence tendered on behalf of the CAR, the

Commissioner indicated that, in adopting the building blocks approach, he had followed the practice of the United Kingdom Civil

Aviation Authority and, in that regard, exhibited a diagrammatic representation from a consultation paper published by that authority

in December 2005, which, in figure 8 – 1 set out the basic process in this way:-

Capex Total Revenue

requirement

Cost of Capital Regulated

RAB Other revenue

Depreciation requirement

Revenues

Passenger Numbers

Opex

Revenue yield

per passenger

4.2 The process is not, at least at the level of principle, unduly complicated. Capital expenditure (“capex”) is, as its name implies,

capital expenditure incurred by the airport concerned in providing facilities for the use of passengers. Although not relevant to these

proceedings it is of interest to note that not all expenditure incurred by an airport authority will be regarded as being qualifying capital

expenditure for the purposes of the calculation. Capital expenditure gives rise to a so called regulatory asset base or “RAB”. This

represents the assets which are in use for the regulated function, being the function in respect of which the airport concerned has

price control imposed in respect of its charges. When, as happened under the auspices of the CAR in 2001, a process applying the

building blocks approach is commenced, then it is necessary for the regulator to assess the total current value of the regulated

assets to establish an initial RAB. This was done and is not now the subject of controversy.

4.3 Obviously it is likely that continuing capital expenditure will be incurred. Given the requirement (not least as mandated in the

provisions of the 2001 Act, which I have cited) that Dublin Airport be permitted to operate in a financially viable way, then it is

obvious that some appropriate allowance has to be made in the charging structure for expenditure on significant capital products. The

way in which the building blocks approach deals with this issue is clear from the diagram referred above. Firstly, any additional capital

expenditure incurred subsequent to the initial establishment of the RAB is added to the RAB. Secondly, a charge is permitted in two

respects in relation to all capital expenditure (that is the original capital expenditure together with any additional capital expenditure

admitted into the process). The first such charge is the so called “cost of capital”. This represents either interest required to be paid

on borrowings or a reasonable return on capital actually invested by shareholders or retained from profits as shareholder capital. The

various reports and determinations of the CAR set out the method by which the appropriate rate is calculated. That process is not in

controversy in these proceedings. It is, however, important to note that it obviously follows that the greater the RAB the greater the

cost of capital will be.

4.4 The second charge related to the RAB is a depreciation charge. Depending on the nature of the capital expenditure concerned it

is, of course, appropriate that that expenditure be depreciated over time to reflect the diminishing value of the asset concerned. An

alternative way of looking at the same issue is that a depreciating asset will need to be replaced in time and depreciation may, in that

context, be viewed as an appropriate way of spreading the cost of the regular replacement of wasting assets over an appropriate

timescale which reflects the likely lifetime of the asset concerned. Again the reports of the CAR deal with how this process is carried

out in practise. That aspect of the calculation is not in controversy. However, it again follows that the larger the RAB, then the larger

is likely to be the depreciation on that RAB during any given period.

4.5 As will be seen from the diagram referred to at 4.1 above there is added to both of those capital related charges the so called

Opex or operational expenditure. The total derived from those elements is reduced by so called “other revenues” to give what is

described as the regulated revenue requirement. It will be seen that that is the sum which is estimated, at the beginning of a

regulatory period, to be the amount needed to cover the return on capital, depreciation and operational expenditure less other

revenues. If correctly estimated it should allow the airport concerned to cover all of its actual expenditure on the regulated activity,

to make appropriate provision for the replacement of assets by the depreciation charge and, insofar as the assets under regulation

are not funded by borrowing, allow for an appropriate return to the shareholders on the capital invested.

4.6 Finally, as will be seen from the diagram, the anticipated revenue requirement is divided by the anticipated number of passengers

to give a yield or charge per passenger. If the revenue requirement and the passenger numbers are correctly estimated then it follows

that a charge based on yield per passenger will also meet the requirements set out at para. 4.5.

4.7 It should be emphasised that the legislation does not require that the building blocks approach be adopted. However, the

statutory regime does require that the CAR reach its determinations in a proportionate and transparent manner. It seems to me that,

in principle, the building blocks approach meets that obligation. It is a rational and widely used method of ensuring that the charges

levied on users are sufficient to meet the reasonable needs of the airport concerned. I should note in passing that it seems clear that

the CAR subjects both operational expenditure and capital expenditure (which, in the manner which I have described, converts into a

revenue requirement under both the costs of capital and depreciation heads) to scrutiny to determine whether such expenditure is

considered reasonable.

4.8 It, therefore, seems to me that, at the level of principle, and while not specifically mandated by the legislation, the building blocks

approach is a more than appropriate way for the CAR to carry out its functions. It should be noted that, even if the CAR were minded

to adopt a different approach, it would, in any event, have to adopt an appropriate process to pay proper regard to the necessity of

an airport operator, such as the DAA, to engage in capital expenditure.

4.9 It should be said at this stage that, in truth, the real issue between Ryanair and the DAA, both in these proceedings, and in a

variety of other proceedings which have come before the courts, and in the general public disputes which have been ongoing

between those parties for some time, concerns a contention on the part of Ryanair that the scale and specification of extensions to

Dublin Airport, as proposed by the DAA, are excessive. Leaving aside that question for the moment it will inevitably be the case that

some degree of additional expenditure of a capital variety will require to be made so as to enable Dublin Airport to develop in a

financially viable way. It is, of course, the case that the CAR is required to facilitate such development under the provisions of the

2001 Act, and in particular s. 33(1) and (2). Therefore, any method for fixing charges will have to have regard to whatever is

considered to be an appropriate level of capital expenditure.

4.10 Where the capital projects under consideration are likely to have a long life, then a clear question arises as to how it is

appropriate to treat the expenditure on such projects for the purposes of fixing the maximum charge on users. It would, of course,

theoretically, be possible to simply include all of the expenditure during a relevant regulatory period (including such capital expenditure

as the CAR considered appropriate) in the calculation and allow the entire sum to be recovered during that period. However, it might

well be thought that such a policy would be both unfair and economically inappropriate. In a number of passages contained in the

various documentation emanating from the CAR which were proved in evidence, it is clear that an entirely appropriate view was taken

to the effect that the recoupment of the cost of capital expenditure on long term projects should be spread, in an appropriate way,

over the likely length of the project. In the building blocks approach this is done by the cost of capital and depreciation methods

which I have described.

4.11 I have sought to analyse these matters in some detail because it seems to me that an understanding of the way in which the

building blocks approach operates is necessary for a true understanding of the nature of any determination reached by the CAR. It is

trite to say that expenditure once incurred cannot be unincurred. If, with the implicit approval in a determination by the CAR, the DAA

incurs capital expenditure, then the money concerned is spent. It is difficult to see how the DAA could operate in a financially viable

way (as mandated by the legislation) if it is not entitled, in some fashion, to recoup the expenditure concerned. If the expenditure is

not to be entirely recouped in the regulatory period during which it is incurred, then it inevitably follows that some of that expenditure

will, necessarily, have to be recouped in subsequent periods.

5. Building Blocks Approach - Conclusions

5.1 It does not seem to me that there is anything wrong in principle with such an approach. Indeed while a contrary view might be

inferred from the written submissions filed on behalf of Ryanair (which, seem to suggest that it is contended that there is an element

of pre-determination in the system whereby sums included in the RAB will, necessarily, have to be taken account of in succeeding

regulatory periods), I did not understand Ryanair to make their case in that way at the hearing. Indeed it was to this aspect of the

argument that the estoppel question raised by the CAR and the DAA related. It was said that Ryanair had gone along, to date, with

the building blocks approach and could not now be heard to challenge it. However, as it became clear that Ryanair’s challenge was

not directed towards the building blocks approach itself, that estoppel issue seemed to me to become irrelevant.

5.2 There are, however, obvious consequences to the adoption of the building blocks approach. It will be the case that the starting

RAB for any regulatory period (that is the asset base before any additional expenditure of a capital variety which is anticipated during

that regulatory period) will have, in practice, been decided in previous determinations but will, nonetheless, effect the appropriate

charges in the regulatory period under consideration. It does not seem to me that that fact can properly be described as a pre-

determination. Rather it seems to me to be appropriate to characterise it as a natural consequence of any decision to spread the

capital expenditure associated with major long life projects over the natural life of those projects rather than confine such

expenditure to the regulatory period in which the sums are expended. As I have indicated it seems to me that such an approach is a

more than reasonable means adopted by the CAR for implementing the statutory obligations to which I have referred. If it is

reasonable for the CAR to adopt such an approach, then it follows that one of the consequences of the adoption of that approach is

that decisions on the appropriateness or otherwise of capital expenditure in one period, will necessarily have a knock-on effect in

subsequent periods as long as the capital expenditure concerned remains part of the equation.

5.3 Obviously the capital expended is subject to depreciation and will, in time, disappear from the equation. However, for major

projects, such as buildings, an appropriate depreciation regime is likely to leave the capital concerned as a proper part of the equation

over quite a number of regulatory periods. It should also be noted that the decision to include a particular item of expenditure in the

RAB is one which occurs as part of the statutory decision making process. The CAR is required to operate in a transparent manner. It

does this, inter alia, by setting out the approach that it is going to take (i.e. the building blocks approach) and by setting out the

manner in which each of the elements contained in it are calculated. The determination, therefore, involves not only a decision as to

the charge but also decisions as to the appropriate evaluation of each of the building blocks which are built into that charge.

5.4 So far as capital expenditure is concerned a determination that it is appropriate to admit defined expenditure into the RAB does

amount to a decision which will necessarily have an effect on any future regulatory periods until such time as the relevant

expenditure has been depreciated to zero. That it not, however, in my view a pre-determination in respect of such future periods, but

rather a necessary part of the current determination which will have practical consequences into the future. It should, of course, be

noted that all relevant parties have the right to be heard in relation to each determination. Therefore, the question of whether a

particular level of capital expenditure should be permitted into the RAB is a matter which will only have been arrived at after all

relevant parties have been heard.

5.5 Finally it is important to reiterate that the legislation does not require (but for the reasons which I have sought to analyse does,

in my view, permit) the use of the building blocks approach. However, once the CAR started to use that approach, then it would also

seem to follow that any departure from that approach would, necessarily, have to have regard, in the adoption and application of any

alternative approach, to the fact that long term capital expenditure had been incurred with, in substance, the approval of the CAR (in

the sense that the CAR was prepared to have regard to that capital expenditure in calculating charges to users). Thus any

alternative method would, if the DAA were, as the 2001 Act requires, to be permitted to remain financially viable, have to provide, in

some way, for the recoupment of such monies.

5.6 Having described the building blocks approach in general terms and having indicated the reasons why I view it to be permitted

(although not mandated) by the 2001 Act, it is necessary to turn to the manner in which that approach operated in the decision

which is now under challenge.

6. The Challenged Decision

6.1 The background to the decision under challenge is the decision taken both at governmental level and by the DAA to engage in a

significant expansion of the facilities at Dublin Airport (including, in particular, the building of a second terminal). As indicated earlier in

this judgment and as I noted in Ryanair v. An Bord Pleanala [2008] I.E.H.C. 1, Ryanair maintains that the developments which are now

the subject of planning permission and are, as I understand it, in the course of construction, are far too costly both by virtue of scale

and specification. The merits or otherwise of those arguments are not for me to decide.

6.2 However, as is clear from the analysis of the building blocks approach in which I have engaged, once capital expenditure is

admitted into the RAB, it will have an affect on the charges to users until such time as the capital expenditure concerned has been

depreciated to zero. As the facilities which are the subject of controversy between Ryanair and the DAA are, in the main, long lasting

facilities, then it clear that the costs associated with those facilities will form part of the RAB for quite a considerable period of time

and are, therefore, likely to affect charges over quite a number of regulatory periods. That much is not, in itself, in dispute.

6.3 The real issue between Ryanair and the DAA centred, therefore, on a dispute as to whether the CAR should admit expenditure

associated with the second terminal (or at least all of the expenditure which was proposed in that regard by the DAA) into the RAB. It

is important to recall that the decision under challenge arose as a result of a review process.

6.4 I have already set out the provisions of s. 32(14)(a) of the 2001 Act which provides for such a review. I should, in passing, note

the interpretation which the CAR placed on subsection 14 in relation to the proposed review. Subsection 14(a) provides that the CAR

may “if it considers that there are substantial grounds for so doing” review an existing determination and “if it sees fit” amend the

determination. The CAR viewed that provision, correctly in my view, as envisaging a two stage process. Firstly, the CAR was to

consider whether there were substantial grounds for conducting a review and secondly, the CAR, having conducted the review, was

entitled to amend the determination if it saw fit. The section therefore envisages the possibility that there may be substantial grounds

for conducting a review but that when such a review is completed it may not be considered appropriate to amend the existing

determination.

6.5 It should also be recalled that, in accordance with the ordinary practice when considering a determination utilising the building

blocks approach, the CAR had, in its 2005 determination, included in its calculation what was then anticipated to be a not

inconsiderable amount of capital expenditure likely to be incurred in the period between that determination and its expiry in 2009.

However, it is clear from the 2005 determination that revised capital expenditure figures had been submitted by the DAA at too late a

stage to permit a proper evaluation of those figures for the purposes of that 2005 determination. Decisions taken at both

governmental and DAA level concerning terminal 2 made clear that what had become proposed involved a significantly greater level of

capital expenditure, during the 2005/2009 regulatory period than had been included in the calculation made at the time of the 2005

determination. It was on that basis that the CAR was persuaded that there were substantial grounds for embarking upon a review. In

accordance with its normal practice the CAR issued a paper (CP. 6/2006) concerning the possibility of conducting a review. That

paper noted that, as of the time of the 2005 determination, it had not been possible for the DAA to finalise its Capital Investment

Programme (“CIP”) in sufficient time to allow the CAR to analyse that programme in a manner sufficient to allow it to incorporate, if

thought appropriate, capital expenditure associated with that programme in the RAB for the purposes of calculating the charges for

the period from 2005 to 2009. On that basis the CAR set out its thinking in relation to whether there should be a review in the

following terms which are taken from the executive summary to the consultation paper to which I have referred:-

“6. There should be a presumption against holding reviews other than in exceptional circumstances, that are outside the

control of the DAA, and where the financial or other effects of those circumstances are liable to be large enough to

compromise the achievement of the Commission's statutory objectives unless the original decision were reviewed. Only in

such a situation might a review - after taking account both of the certain detriments and the possible benefits - have a

positive net effect on incentives.

7. The Commission has considered the circumstances in which the DAA was unable to provide a finalised CIP to the

Commission, prior to the statutory deadline for the 2005 Determination, and has concluded that the particular combination

of circumstances appears to meet the criterion of substantial grounds and thus warrant the holding of a statutory review.

It should be noted that a decision to hold a review is entirely separate from a decision about whether to revise a price

cap consequent on a review.

8. An option for a review, which is currently viewed sympathetically by the Commission, would be, as far as possible, to

consider the data and arguments before the Commission as they were in September 2005 except that the 2006 DAA

investment plan (and associated materials) would be substituted for the May 2005 DAA investment plan. It may also be

necessary to recognise other material consequences for other model inputs if they arise directly from the revised plans for

the capital programme. However, at present, the Commission does not envisage that any such consequences will be

material to the review and it will need to be furnished with good evidence to be persuaded otherwise, especially as the

second terminal is, at present, due to open in late 2009, only some months from the end of the present regulation period

(2006-2009). In particular, matters that were comprehensively rehearsed during the work for the September 2005

Determination do not appear to the Commission at this stage to meet the Commission's threshold for substantial grounds

for a review.

9. The Commission anticipates that any review would examine the 2006 CIP and the justifications provided for it by the

DAA to inform the Commission's conclusion about the extent to which it should adopt the 2006 CIP in the calculation of

any adjustment to the 2005 Determination.

10. The Commission now wishes:

(I) to advise that it has decided in accordance with section 32 (14) (a) of the 2001 Act that there appear to be

'substantial grounds' to conduct a statutory review (the "Review") of the 2005 Determination; such grounds for a

review include, but are not limited to the following:

(a) a requirement to analyse the forthcoming 2006 CIP for Dublin Airport arising from the circumstances

surrounding the unavailability of a finalised CIP at the time of the 2005 Determination;

(II) to advise that it has decided in accordance with Section 32 (14)(a) of the 2001 Act that there may be

'substantial grounds' to conduct a review of the 2005 Determination; such grounds for a review including but are

not limited to the following:

(b) the degree to which airline users of Dublin Airport have revised their anticipated requirements for

airport facilities such that the DAA has developed a substantially larger capital programme.

and

(III) to invite comments generally and in respect of the consultation questions raised in this document.”

6.6 The envisaged consultation process took place and the CAR remained of the view that it was appropriate to conduct a review.

But, as had been anticipated in its consultation paper, the scope of the review was narrowly defined. The decision to conduct a

review is contained in commission paper CP 9/2006 and the relevant passage reads as follows (from p. 18):-

“The Commission has therefore decided, after considering those responses alongside its statutory objectives, to confirm

the position that it set out in CP6/2006 regarding the scope of a (rather narrowly defined) interim review.

The interim review shall therefore consider the data and arguments before the Commission as of September 2005 except

that the 2006 DAA investment plan (and associated materials) will be substituted for the May 2005 DAA investment plan.

In addition, it may be necessary, in order to maintain the internal consistency of the review assumptions, to adopt revised

traffic forecasts for the review and to recognise the consequential impacts on operating costs and retail revenues. It may

also be necessary to recognise other material consequences for operating costs, commercial revenues or other model

inputs if they arise directly from the revised plans for the capital programme, and if evidence of the materiality of these

consequences are before the Commission.”

6.7 It is clear, therefore, that the scope of the review required that the basic position as had been set out in the 2005 determination

was to be continued except that the new DAA investment plan (which obviously involved the terminal 2 proposal) was to be included

in the assessment and it was also intimated that it might be necessary to adopt revised traffic forecasts and certain other

consequential matters. In substance, therefore, everything else apart from the changes in proposed capital expenditure, revised

traffic forecasts, and (possibly) certain other consequential matters, were not up for review.

6.8 In any event a review was conducted over the succeeding months which again involved the publication of a consultation paper

and the receipt of submissions from interested parties. It would also appear that the CAR took its own independent advice on certain

elements of the proposed capital expenditure. In March 2006 the Government had appointed Boyd Creed & Sweet (“BC&S”) to lead a

group designed to verify the costs and specifications of terminal 2. It is clear that the CAR considered that report for the purposes of

taking a view as to the extent to which the CAR might rely on it for the purpose of setting charges. However, the CAR concluded that

there were aspects of the costs contained in what was proposed by the DAA that had not been included in the BC&S review and

commissioned its own experts, Rogers Reddin & Vector Management, to consider the DAA’s costings and the appropriate capacity of a

terminal 2.

6.9 It is clear that issues concerning the scale and cost of terminal 2 were key issues for determination by the CAR. Essentially one of

the arguments strenuously put forward by Ryanair was that the DAA proposals were excessive both as to scale and cost. Obviously

to the extent that the CAR was persuaded that any particular level of expenditure on significant expansion to Dublin Airport was

justified then such expenditure was likely to be admitted to the RAB and have a consequent knock on effect on maximum charges by

reference to both the cost of capital and depreciation building blocks. Thus a key area of dispute was the extent, if any, of the

proposed additional capital expenditure which should be admitted into the RAB.

6.10 In May 2007 the CAR published a draft determination (CP5/2007) which set out its provisional conclusions arising from the interim

review. The purpose of the publication of the draft decision was to enable interested parties to make final submissions on its

contents. No significant alteration in the views of the CAR in relation to its overall approach occurred as a result of those latter

submissions, although there were some changes of detail in the final decision.

6.11 As is clear from the draft decision, the CAR came to the view that there should be no change in the maximum charges permitted

during the continuance of the current regulatory period between 2005 and 2009. It is clear that the reason why the CAR came to this

view was that there were two factors which, in effect, pulled in opposite directions and to a largely equivalent extent. The CAR

concluded that there would be a significant increase in the justified capital expenditure during the 2005/2009 period by virtue of the

terminal two decision and associated works. Thus, the CAR accepted that the Capex element of the building blocks approach ought

properly be significantly increased for that period. However, it seems that the CAR also came to the view that there was likely to be a

significant increase in passenger numbers relative to that which had been anticipated as of the 2005 determination, given that

passenger numbers already (in 2006-2007) were two million higher.

6.12 The draft decision contained preliminary conclusions as to the amount of capital expenditure that might be admitted into the

RAB. In the executive summary to the draft decision it is noted that, on the basis of its assessment of the investment plan, the CAR

proposed to exclude €61m of the proposed costs in the investment plan from inclusion in the Capex for the purposes of incorporation

into the RAB. It is, therefore, clear that what was proposed in the draft decision was much closer to the position adopted by the DAA

than that argued for by Ryanair in that, while excluding €61m out of €1,178m of the expenditure proposed by the DAA, the CAR, in its

draft decision, proposed admitting the vast preponderance of the proposed expenditure into the RAB with significant likely

consequential knock on effects on maximum charges, not only for that regulatory period, but thereafter. However, in relation to

terminal 2 the Commission proposed two further measures as follows:-

“The DAA will only begin to recover the costs of investing in TERMINAL 2 from the commencement of operations at the

terminal, currently envisaged to be the end of 2009. This not only provides the DAA with strong incentives to deliver T2

on-time, but it also means that customers will only pay for those facilities that they actually use.

The allowed costs for T2 will be recovered in two stages. The reason for this proposal is that it is the Commission’s view

based on a review of past and likely future demand trends that the DAA is proposing to build a very large Terminal 2

complex. Therefore, in the first stage, while demand in the airport as a whole remains below 30 million passengers per

annum, the Commission is proposing that the DAA will recover €430 million of T2 costs, with the remainder being

recovered in the second stage once total demand exceeds 30 million passengers per annum.

The Commission envisages that the precise details of the two-stage approach will be agreed with the DAA and airport

users as part of the consultation for the 2010 – 2014 price cap.”

6.13 In relation to the existing determination the CAR indicated that it was not proposing to make any change to the 2005 price cap

despite the fact that there had been a significant increase in the anticipated and (in the view of the CAR) justified capital expenditure

of the DAA. The reason for this is set out in the draft decision in the following terms:-

“The financial modelling carried out by the Commission indicates that the increase in allowed costs is almost exactly offset

by the increase in passenger numbers, relative to the 2005 determination. Annual passenger numbers were around 2

million higher in 2006 – 07 higher compared with forecasts at the time of the 2005 review. Therefore, while airport costs

are higher as a result of increased capital expenditure, the passenger numbers against which these costs are recovered

are also substantially higher.”

6.14 It is clear from the draft decision that the CAR was of the view that the proposed expenditure by the DAA exceeded the CAR’s

estimate of expenditure that was justified by reference to demand. For that reason the CAR proposed phasing the admission of capital

expenditure into the RAB so that a portion thereof would only be admitted when passenger demand exceeded 30 million passengers

per annum (“mppa”).

6.15 It is next necessary to comment on some other aspects of the CAR’s draft decision. It is clear that the draft decision sets out

the CAR’s current thinking on how it was likely to approach its price regulatory role in subsequent regulatory periods. I should

emphasise that it was not suggested that there was anything inappropriate, in principle, in the CAR indicating to interested parties

what its then current thinking was. As I noted in Crawford, Inspector of Taxes v. Centime Ltd [2005] I.E.H.C. 328 (at para. 10.3) it

is entirely appropriate for a body (in that case the Revenue Commissioners) which has a statutory discretion to issue guidelines which

make clear to interested parties as to the manner in which that body is likely, in general terms, to exercise any discretion which the

law confers. As I pointed out in the context of that case:-

“Such guidelines have the merit of informing tax payers as to how revenue discretion is likely to be exercised and achieve

the desirable end of making it more likely that any discretion which the revenue may enjoy will be exercised in a similar

manner in like cases. It is, however, the elevation of any such guidelines to matters which are applied as if they have the

force of law that is open to serious question.”

6.16 For like reasons it is entirely appropriate, not least because of the statutory obligation of transparency, that the CAR keep

interested parties appraised, from time to time, as to its current thinking. However, it does seem to me that the draft decision is open

to a legitimate criticism to the effect that it does not make clear, in express terms, as to what aspects of the paper are considered

to be a “determination” under its statutory power and what aspects are merely indications of its current thinking. It is, of course,

correct to state, as was noted by counsel for the CAR, that an indication of current thinking could be given in whole range of ways

from a speech by the Commissioner to the publication of consultation papers and the like. Neither is there anything, in itself,

objectionable about including references to current thinking in the same document as contains a formal determination. However, there

is a danger about that latter practice, in that it may give rise to legitimate and understandable confusion or disputes as to what

amounts to part of the determination as such on the one hand or what amounts to simple guidance or expression of current thinking

on the other hand. Where such indication of current thinking is put into the same document as a formal determination, then it seems

to me to be of the utmost importance that it is made absolutely clear as to what portions of the document are one and what portions

are the other. This is a matter to which I will have to return in due course.

6.17 In any event the Commission received responses to its draft determination from various interested parties including Ryanair and

the DAA. It is relevant to refer, at this stage, to Ryanair’s response. It was included under cover of a letter of the 21st of June, 2007

from a Jim Callaghan. At p. 10 and subsequent pages of the submission, Ryanair set out reasons why, in its view, it was appropriate

to deal with certain issues at the stage of the interim review rather than later on. Ryanair noted that the proposed expenditure on

terminal 2 and associated matters was anticipated to take place wholly or largely prior to the expiry of the current regulatory period

due to end in 2009. In those circumstances Ryanair noted, correctly in my view, that if questions concerning the appropriateness or

otherwise of that expenditure were left over until the next full review, the expenditure would, in effect, have been incurred. Ryanair

noted, again correctly in my view, that in those circumstances it would be almost impossible for the CAR not to allow the expenditure

at the next determination given its statutory obligation to secure the financial viability of the DAA.

6.18 On the 30th July, 2007, and having considered the responses to the draft decision, the final determination on the review was

issued by the CAR (paper CP6/2007). This is the review decision which is under challenge in these proceedings.

6.19 In the second paragraph to the introduction to that document the CAR noted that:-

“The Commission has decided not to change the existing determination. It is satisfied that the finalised 2006 – 2009

Capital Investment Programme (CIP 2006) of the DAA can be financed without changing the existing cap on passenger

airport charges that the airport may levy.”

6.20 In that regard it is clear that the CAR was essentially confirming the view expressed in the draft decision to the effect that

increased passenger numbers would offset the short term effect of any additional capital expenditure.

6.21 The decision also sets out what is described as the “proposed approach at future price determinations for funding the DAA’s

planned investments in the next two years”. It confirmed the two phased approach (described as the “two box approach”) whereby

only some of the relevant capital expenditure associated with the second terminal would be admitted into the RAB initially with the

remainder being postponed until such time as the passenger numbers would exceed a defined threshold (which was increased to 33

mppa in the final decision from the 30 mppa indicated in the draft decision). The amounts determined in respect of the phases or

boxes also changed.

6.22 Having described the process which led to that decision, there is one further factual matter that needs to be addressed before

turning to the basis of Ryanair’s challenge. That concerns the possibility of an appeal against a determination of the CAR to which I

now turn.

7. The Right of Appeal

7.1 As is clear from the provisions of s.40 of the 2001 Act, referred to at para. 3.2 above, an interested party has a right of appeal

from a determination of the CAR to an appeal panel constituted in accordance with the terms of that section. It is clear that the CAR

is not bound by the decision of an appeal panel, but must have regard to a view expressed by an appeal panel where the appeal panel

considers that there are sufficient grounds for referring the original decision of the CAR back for review.

7.2 In that context it is clear that Ryanair, at the same time as instituting these proceedings, sought to invoke the appeal procedure

by inviting the Minister to establish an appeal panel in accordance with the above provision. The Minister declined so to do on the

basis that it was stated that the Minister had been advised that an appeal did not arise in the circumstances as the decision was not

considered to be a “determination”. Despite a request by Ryanair, the reasons why the Minister was so advised were not forthcoming

and it is only a matter of speculation as to why the Minister may have come to the view that the decision of the CAR on the review

was not properly considered to be a determination. In that regard it is important to note that the obligation under subs. 2 on the

Minister is mandatory. Therefore, provided that there is a “determination under s.32” (s.35(2) is not relevant for these purposes) and

the Minister receives an application in writing from a person aggrieved, then the Minister is obliged to set up the appeal apparatus. A

written application was received. It is not, however, clear as to whether the Minister was of the view that a decision made as a

result of an interim review, as a matter of principle, did not amount to a determination for the purposes of s.32. Section 32(14)(b)

provides that an “amendment” resulting from a review is to remain in force for the remainder of the period of the original

determination. Without reaching any concluded view (it would be inappropriate to do so in proceedings in which the Minister was not

involved) it is difficult to see how an amendment to a determination which remains in force for the remainder of the period of that

determination would not itself be a determination for the purposes if s.32 and thus, in principle, give rise to an entitlement to an

appeal under s.40.

7.3 It may, on the other hand, be that the Minister was advised that the fact that there was no change in the maximum charges

fixed meant that there was, in effect, no amendment and, thus, while accepting that there would be an entitlement to an appeal in

the event of an alteration in the determination, did not view that an appeal lay on the facts of this case. The fact that the review

decision says, in terms, that it had been decided “not to change the determination” may have given support to such a view.

7.4 Against the background of the legislation, the general approach of the CAR and the decision process in relation to the interim

review, coupled with the refusal of the Minister to establish an appeal panel, it is appropriate now to turn to the basis for the

challenge now mounted by Ryanair to the review decision. I now turn to that challenge.

8. Ryanair’s Challenge

8.1 The application for leave which I currently have to determine is based upon a statement of grounds dated the 27th September,

2007. In that statement of grounds the relief sought includes an order of certiorari directed toward quashing the decision on the

interim review insofar as that decision “purports to permit for inclusion certain capital expenditure relating to the provision of

additional infrastructure at Dublin Airport into the regulatory asset base (“RAB”) for the purpose of future determinations”. Declaratory

relief to the same effect is also sought. Further ancillary relief in the nature of orders of prohibition, stays or injunctive relief are

sought to the same effect. The only separate relief sought is at para. 6 being an order of mandamus which sought to compel the CAR

to introduce price differentiation. That relief was not pursued.

8.2 So far as the grounds specified as the basis for those reliefs are concerned, paras. 1.1 to 1.5 simply specify matters which are

undoubtedly included in the decision under challenge. Paragraph 1.6 amounts to a contention that the next full determination has

been made redundant by reason of a predetermination by virtue of the inclusion of the relevant capital expenditure into the RAB.

Having regard to the fact that Ryanair’s own submission to the draft decision pointed out cogent reasons why it was important that a

decision on the inclusion of expenditure into the RAB be made now, rather than at the time of the 2009/10 review, it is difficult to see

how any basis could be maintained for such a proposition. Grounds 1.7 to 1.16 seems to address the basis upon which the merits of

the decision are attacked. Such a challenge, in judicial review proceedings, can, of course, only be maintained on the basis of

irrationality as identified in the jurisprudence following on from State (Keegan) v. Stardust Victims Compensation Tribunal [1986] I.R.

642, and O’Keeffe v. An Bord Pleanala [1993] 1 I.R. 39.

8.3 It is important to analyse the relief sought and the grounds put forward, for the reasons which I have set out at para. 1.4 above.

Those matters form the basis of the original challenge. Any relief sought or grounds asserted for such relief which deviate significantly

from the boundaries of the statement of grounds to the extent that they might legitimately be described as making a new case, would

necessarily require an amendment which would, in turn, require that there be sufficient grounds for extending the time in relation to

bringing the amended claim. It is, of course, the case that the time within which an original challenge could have been brought to the

decision has long since passed. Thus any such new or different claim, if it were to be a stand alone claim, could not be brought

without an extension of time. Likewise, on the basis of the authorities referred to above, an amendment which would permit the

bringing of such a new claim could not be allowed if it would not also have been appropriate to extend the time, had the new claim

been brought as a stand alone claim.

8.4 It was for that reason that I emphasised the evolution in the case as made by Ryanair between the original application, the

written submissions, and the oral hearing. It is, therefore, appropriate to turn next to the written submissions. Those submissions,

which are dated the 18th January, 2008, appear to maintain the assertion that it is inappropriate to permit capital expenditure into

the RAB for the purpose of future regulatory periods. At para. 11, Ryanair contends “that by permitting such capital expenditure into

the RAB for the period 2010-2014, the Commission is effectively guaranteeing the return on the investment regarding the future

“determination””. It is also asserted that the CAR “never had the authority to embark on the subject matter of its inquiry for the

purpose of allowing expenditure into the RAB for the purpose of future determinations”.

8.5 In that context Ryanair relies on authorities, such as the State (Costello) v. Boffin [1980] I.L.R.M. 233, which make clear that

persons or bodies charged with carrying out statutory functions only have those powers expressly conferred upon them by Statute.

That principle was not and could not be disputed. However, the issue in this case is as to whether the use of the building blocks

approach necessarily carries with it a knock on effect on future periods. For the reasons which I have set out at para. 4.12 and the

succeeding paras. it does not seem to me that the proper characterisation of the knock on effect of the inclusion of capital

expenditure in the RAB amounts to a predetermination of the maximum charge to be applied into the future. Rather it involves a

current decision as to the amount of capital expenditure which the CAR considers appropriate in circumstances where only some of

that expenditure (or perhaps none) will be permitted to be recouped (whether by way of cost of capital or depreciation) in the

current regulatory period. As pointed out earlier any such knock on effect is a necessary consequence of the building blocks

approach. It is not possible to apply the building blocks approach without such knock on effects which will arise in any case where

the likely life of assets generated by capital expenditure extend beyond the regulatory period under consideration. It was for that

reason that I characterised the written submissions, like the statement of grounds, as amounting to an attack on the building blocks

approach itself.

8.6 However, at the oral hearing, Ryanair disavowed any challenge to the principle of the building blocks approach. It is difficult to

see how that disavowal is consistent either with the statement of grounds or with the written submissions filed. It is, of course, the

case that had Ryanair persisted in a challenge to the principle behind the building block approach, with its consequent knock on

effects, Ryanair would have been faced with the estoppel argument raised by both the CAR and the DAA. It was the abandonment of

the direct challenge to the building blocks approach at the level of principle that rendered that estoppel argument itself irrelevant.

8.7 I will turn, in due course, to the irrationality argument which is squarely made in both the statement of grounds and the written

submissions and which was pursued at the hearing. However, the other aspect of Ryanair’s claim was pursued at the hearing in a

different way from the manner in which the attack on the decision, on grounds other than irrationality, was formulated in the

statement of grounds and the written submissions.

8.8 In substance it was argued on behalf of Ryanair that the way in which the decision of the CAR is set out is fundamentally flawed.

Attention is drawn, correctly so far as it goes, to the fact that the decision under challenge, in terms, notes that the CAR “has

decided not to change the existing determination”. On that basis it is argued that a decision not to change the determination cannot,

of itself, change any elements of the determination which have knock on effects.

8.9 Thus, Ryanair argues, it is not challenging the entitlement of the CAR to operate the building blocks approach in itself including,

where appropriate, necessary knock on effects in respect of capital expenditure. Rather, it is said, any decision to admit capital

expenditure in the RAB (with those consequential knock on effects) can only properly be made in the context of an actual

determination. It is said that the distinction between an actual determination and a decision which does not amount to a

determination for the purposes of s.32 is of significance in relation to the entitlement to appeal. It is clear that the right to appeal

given by s.40 of the 2001 Act, only exists in relation to something which is properly described as a determination. Thus, it is argued,

the stated decision of the CAR “not to change the existing determination” is likely to have left Ryanair without an entitlement to

appeal.

8.10 The starting point for a consideration of this argument has to be to determine whether the case as ultimately relied upon formed

part of the original challenge. As I have already sought to analyse the challenge as set out both in the statement of grounds and in

the written submissions suggested that the inclusion of capital expenditure in the RAB in one determination so that there would be a

knock on effect for future determinations was impermissible.

8.11 However, it is clear that the principal relief sought involved a challenge to the inclusion of additional capital expenditure in the

RAB. The argument as ultimately made focuses on this point even though abandoning the root and branch attack as to whether the

building blocks approach with knock on effect was permissible in principle. It seems to me that the difficulty which arises stems from a

significant lack of clarity as to what is, or is not, regarded by the CAR as being properly considered to be part of the formal

determination made under the provisions of s.32 and recorded in the decision under challenge.

8.12 The CAR is given important statutory powers. It is of the utmost importance that there be absolute clarity as to what elements

of any document recording decisions of the CAR amount to the formal exercise of those statutory powers, on the one hand, or

amount to the giving of indications or guidance concerning current thinking on how the regulatory process might be dealt with in the

future, on the other hand. After all a formal determination is legally binding, an indication is not. This is a lot more than mere

pedantry. It is highly unsatisfactory that there should be any lack of clarity as to what elements of the document amount to the

formal exercise of statutory power with binding legal effect and what elements do not. The CAR chose, in its own words, not to

“change the determination”. It is at least arguable, therefore, that, having made that decision and characterised it in that fashion in

its own document, it is not possible to seek to characterise the decision to include certain expenditure in the RAB as being part of a

determination at all. It is at least arguable that the proper parameters of any determination using the building block approach include

decisions as to the inclusion of capital expenditure in the RAB. If that were not so, then it would be difficult to see how the knock on

effect justification, which I have accepted earlier in the course of this judgment, would be correct. However, it follows from the fact,

if it be so, that decisions as to the proper inclusion of capital expenditure in the RAB form part of a “determination” that it is, to say

the least, arguable that the CAR could not at the same time decide not to change the existing determination but make a decision,

with knock on effects, as to the inclusion of capital in the RAB for any future determinations. If that, in turn, were correct it would

follow that the CAR would not be entitled to treat the opening RAB on the occasion of the next regulatory period as including any

capital expenditure dealt with in the decision under challenge. I have come to that view because it is, to say the least, arguable that

if it had been intended to reach a final determination as to the inclusion of such expenditure in the RAB, same would have involved an

alteration in the determination even though it did not involve a change in the maximum prices. The decision, of course, seems to

suggest that there was to be no change in the determination.

8.13 It seems to me that this problem stems from the failure of the CAR to properly or adequately address the question of what

elements of the document under consideration amounted to a formal determination on the one hand or mere guidance on the other. If

the CAR had addressed that question then it would necessarily have had to specify whether its decision to include capital expenditure

in the RAB was part of the determination. Either way there would have been consequences. If it was so considered, then it is hard to

see how the determination could be said to have been left unchanged as the determination would then include a change in the RAB. If

it was not so considered, then it hard to see how the necessary knock on effect justification could be maintained and the regulatory

certainty spoken of by the CAR could be fulfilled.

8.14 Given that Ryanair has mounted a challenge to the inclusion of additional capital expenditure in the RAB and given the lack of

clarity which I have identified as to whether the decision to include such capital expenditure in RAB is, in the view of the CAR,

properly to be regarded as part of the formal statutory “determination”, it seems to me that the interests of justice require that

Ryanair be permitted to seek to explore this issue at least, initially, to the extent of obtaining clarity as to what is, or is not, regarded

by the CAR as being part of the formal determination. It will then be possible to make a judgment as to the status and validity of that

part of the document. It is, of course, possible that any such clarification could have knock on effects for this litigation or, indeed, in

relation to the view of the Minister to deem the decision not to be a “determination” and not, therefore, to be the subject of an

appeal. Furthermore, it is my view that, where a court, which has been properly asked to conduct a judicial review of a legally binding

decision of a statutory body, is itself not satisfied as to what elements of a document can properly be said to form part of that legally

binding decision, then such court has an inherent jurisdiction to refer the matter back to the body concerned so that such body can

be required to provide any necessary clarification. I should emphasise that I am not suggesting that a statutory body can, in the

absence of having separately the power so to do, change its decision. A court must construe a binding statutory decision as it finds it

and if a proper construction, resolving any ambiguities in accordance with established legal principles, does not accord with the views

of the decision maker, then the courts interpretation must, nonetheless prevail. I am not here, however, seeking to resolve any

ambiguity in the decision bur rather seeking to determine, in the case of ambiguity, what element of a document amounts to the

legally binding decision itself.

8.15 I am satisfied that it is not clear as to whether the impugned aspects of the decision concerning inclusion of capital expenditure

in the RAB form part of the formal determination or not. In those circumstances it seems to me that I have a jurisdiction, which I

propose to exercise, to refer the matter back to the CAR with a direction that the CAR clarify what matters contained within its

decision are regarded by it as forming part of the formal statutory determination rather than other non binding matters. I should

emphasise that the direction given does not involve inviting, or indeed permitting, the CAR to re-open any of the matters decided. It

simply involves requiring the CAR to clarify as to what, in its view, forms part of the statutory determination.

8.16 For that reason it seems to me that it is appropriate that I should also address the irrationality argument raised on behalf of

Ryanair. That matter has been fully argued and the question of whether the CAR was entitled to come to the view which it did

(whether it be characterised as part of a determination or not) on the inclusion of the disputed capital expenditure into the RAB on

the basis of the materials before it, still needs to be determined. I, therefore, turn to the irrationality argument.

9. Irrationality

9.1 The principles by reference to which this Court exercises a jurisdiction over a statutory body, such as the CAR, under the heading

of irrationality are clear. As pointed out by Henchey J. in Keegan the test is as follows:-

“I would myself consider that the test of unreasonableness or irrationality in judicial review lies in considering whether the

impugned decision plainly and unambiguously flies in the face of fundamental reason and common sense. If it does, then

the decision maker should be held to have acted ultra vires, for the necessarily implied constitutional limitation of

jurisdiction in all decision making which affects rights or duties require, inter alia, that the decision maker must not

flagrantly reject or disregard fundamental reason or common sense in reaching his decision.”

9.2 In Ashford Castle Limited v. SIPTU [2006] I.E.H.C. 201, I had to consider the degree of deference with a court should pay to the

decisions of expert bodies and in particular those which are required to bring a degree of their own specialist expertise to their

considerations, which expertise may not be shared by the courts. The body in question in Ashford Castle was the Labour Court, but

the comments seem to me to be of general application. They were as follows:-

“5.5 To those authorities I would merely add one further observation. The tasks which administrative bodies are given

under statute vary significantly. The issues which have to be decided can be of very different types. At one end of the

spectrum are issues which involve the same sort of mixed questions of law and fact with which the courts are frequently

faced. A person may, for example, be entitled to a social welfare benefit provided that a certain set of facts, as specified

by statute, are found to exist. The issue at a hearing within the social welfare system may well, therefore, turn on

whether, as a matter of fact, the necessary qualifying requirements have been established or disqualifying requirements

have been shown to exist. In such cases the findings of fact will be very similar to the facts which will be found by a

court should a comparable issue arise in judicial proceedings.

5.6 At the other end of the spectrum, expert bodies may be required to bring to bear upon a situation a great deal of

their own expertise in relation to matters which involve the exercise of an expert judgment. Bodies charged with, for

example, roles in the planning process are required to exercise a judgment as to what might be the proper planning and

development of an area. Obviously in coming to such a view the relevant bodies are required to have regard to the

matters which the law specifies (such as, for example, a development plan). However a great deal of the expertise of the

body will be concerned with exercising a planning judgment independent of questions of disputed fact. In such cases the

underlying facts are normally not in dispute. Questions of expert opinion (such as the likely effect of a proposed

development) may well be in dispute and may be resolved in a manner similar to the way in which similar issues would be

resolved in the courts, by hearing and, if necessary, testing competing expert evidence. However above and beyond the

resolution of any such issue of expert fact, the authority concerned will also have to bring to bear its own expertise on

what is the proper planning and development of an area.

5.7 Some of the cases use terminology such as “evidence” and “finding of fact” which are borrowed from the approach of

the courts. That terminology is entirely apposite where the issue which the statutory body has to decide is towards the

end of the spectrum identified above which most closely approximates to the sort of issues which a court has to

determine.

5.8 Where applied to decisions towards the other end of the spectrum, language such as “evidence” and “findings of fact”

has, in my view, a capacity to mislead and has to be adapted to reflect the different sort of matters which statutory

bodies dealing with issues of that type have to consider. It may, in those circumstances, be more appropriate to talk of

“materials” rather than “evidence”. It may also be more appropriate to speak of “conclusions” rather than “findings of

fact”.

5.9 Subject to the overriding requirement that any party who may be potentially affected in an adverse way by the

results of the process, is entitled to a reasonable opportunity to deal with any factors (to use a neutral term) which may

influence the decision, a body may well have an entitlement to place reliance on “materials” which might not be

“evidence” in the sense in which that term is used in the courts. This would be particularly the case where the nature of

the matter to be determined by the body concerned does not resemble, to any significant extent, a finding of fact (or

even a finding of expert fact) in the sense in which the courts use such a term.

5.10 Furthermore such bodies will have to reach conclusions which involve the exercise of their expertise within the

statutory framework as a whole. A decision, for example, that a particular project is accordance with good planning and

development is, in my view, better described as “a conclusion” rather than a “finding of fact”.

5.11 In those circumstances it seems to me that the Labour Court, when exercising its role under the Act, is very much

towards the end of the spectrum where it is required to bring to bear its own expert view on the overall approach to the

issues. It, correctly in my view, identified that its decision must be one which is fair and reasonable to both sides.

Precisely what is fair and reasonable in the context of terms and conditions of employment is a matter upon which the

Labour Court has great expertise and, in my view, the Labour Court is more than entitled to bring its expertise to bear on

the sort of issues which arise in this case.

5.12 For those reasons it does seem to me that a very high degree deference indeed needs to be applied to decisions

which involve the exercise by a statutory body, such as the Labour Court, of an expertise which this Court does not

have. Similarly in assessing whether a decision could legitimately have been come to by the Labour Court, it is necessary

to consider all the materials which were properly before the court and to identify whether those materials could

reasonably have led to the conclusion reached, taking into account the legitimate exercise by the Labour Court of its own

expertise in the matter.”

Kelly J., quoted with approval a portion of the above passage in Smart Mobile Limited v. Commission for Communication Regulation

and Anor [2006] I.E.H.C. 338.

9.3 It seems to me that the role conferred by statute on the CAR is, like that of the Labour Court with which I was concerned in

Ashford Castle, very much at the end of the spectrum where the body concerned has to exercise a general judgment based on the

materials available to it, including those which may be provided by interested parties, but also bringing to bear on its conclusions its

own expertise. It is, indeed, an expertise which the courts do not share. It is clear that the overall approach of the legislation is to

attempt to fix maximum prices by reference to a regime which is fair to all. It is necessary to provide reasonable security for the

continuing operations of a vital element of national strategic infrastructure in the shape of an airport. However, it is also necessary

that those using the airport are treated fairly and reasonably. A balance has to be struck. Precisely where that balance is to be

struck and the manner in which an appropriate price regime is to be structured, are matters which require considerable expertise

which the CAR has and the courts do not.

9.4 Against that background it is necessary to look at the basis upon which Ryanair suggests that the CAR has acted irrationally in

the sense in which that term is used in judicial review proceedings. The principle focus of Ryanair’s argument is to point to the fact

that experts employed by the CAR itself took the view that terminal 2 was oversized having regard to estimated changes in the

number of passengers likely to seek to use the airport. There does not appear to be any evidence to suggest that the CAR did not

accept that view. On the contrary it is clear that the CAR attempted to devise a regime which reflected that view. It is, of course,

the case that putting in place infrastructure for expanded facilities involves many questions of balance. If, for example, a particular

level of increase in throughput is anticipated, but the precise level of increase is open to doubt, then a party seeking to put in place

appropriate infrastructure has to make important decisions as to whether it should err on the conservative or optimistic side. Likewise

decisions have to be taken as to whether it might, in the long run, be more appropriate to engage in a larger scale of development

now, some of which might not immediately be needed, but which would make provision for further expansion in the future. The

assessment of all of these matters involve detailed analysis and the exercise of complex judgment to a whole range of factors.

9.5 The solution come to by the CAR was to admit a portion only of what it considered to be the justified part of the intended

expenditure on terminal 2 into the RAB, as soon as terminal 2 became operational, with the balance only being admitted into the RAB

when (or if) passenger numbers exceeded 33 mppa. Therefore, if passenger numbers do not exceed that threshold, the so called box

two element of the expenditure on terminal 2 will never be admitted into the RAB. It follows that, in that eventuality, both cost of

capital and depreciation relating to that box two expenditure will never be recouped by the DAA. Likewise such expenditure will never

be passed on to airport users as it will not form part of the calculation of the maximum user charge.

9.6 It is, of course, the case that one can argue that less of the total expenditure should have been included in box one and more in

box two (and thus a greater proportion of the expenditure be contingent on significantly increased passenger numbers). It is also

possible to argue that the overall project (into whichever box it might be placed) is too expensive. However, all of these are matters

of significant expert judgment and it seems to me that there were more than ample materials before the CAR which would have

allowed the CAR to take the view that the regime sought to be put in place met the statutory requirement of being balanced to all

concerned.

9.7 At the level of principle I am satisfied, therefore, that the CAR was entitled to conclude that an appropriate exercise of its

statutory discretion was to admit most (but as I have pointed out not all) of the proposed expenditure into the RAB but to do so on a

phased basis. I am also satisfied that its judgment as to the phasing was well within the range of decisions which were open to it on

those materials.

9.8 I am also satisfied, again at the level principle, that there is nothing inappropriate in the making of an immediate decision as to the

inclusion (or indeed exclusion or conditional inclusion) of assets into the RAB even though the effect of such inclusion, or conditional

inclusion, may have its principle, or indeed only, practical consequence for user charges during some subsequent regulatory period.

Capital expenditure has to be incurred at some point in time. On major projects it is likely that such expenditure will only bear fruit at

a subsequent occasion. The extent to which the capital expenditure concerned may be justified may depend on future uncertain

events such as growth in passenger numbers. All of these matters, it seems to me, make it clear that the consequences of current

capital expenditure in many cases will not arise for some time. In those circumstances it would be bordering on the irrational not to

recognise that decisions taken today (and which have to be taken today if the capital expenditure is to be incurred now) will only

have their consequences at some date in the future (perhaps contingently upon whether passenger numbers grow as anticipated or

to a greater or lesser extent), and in any event wholly or substantially outside the current regulatory period. Not to make a decision

now as to whether such capital expenditure should be admitted into the RAB would have significant adverse consequences for all

concerned. The DAA would be required to make a decision as to whether to incur the relevant expenditure without knowing whether,

and to what extent, that expenditure was going to be reflected in the charges which it would be permitted to make to users. How

would such a regime meet the statutory obligation to seek to ensure the financial viability of the DAA? If decisions have to be made

against an unclear regulatory framework then that can only mitigate against financial viability.

9.9 In those circumstances I am more than satisfied that the CAR has a jurisdiction to make a current decision concerning current or

immediate capital expenditure which will necessarily affect maximum prices in subsequent regulatory periods, at least as long as the

building blocks approach is used. As I have already pointed out I am satisfied that the building blocks approach is consistent with the

statutory regime. Indeed the very point made by Ryanair in its submissions to the CAR on the draft decision in this case shows why it

is important that current decisions are made in relation to capital expenditure. As was cogently pointed out by Ryanair, money once

spent cannot be unspent. If, therefore, decisions on capital expenditure have to be made now even though their effects will be in the

future, and if it were not possible or permissible for the CAR to make a determination now as to whether that expenditure should be

admitted into the RAB, then the very adverse consequences identified by Ryanair in their submissions would occur.

9.10 If, for example, the CAR had agreed with Ryanair that the proposed expenditure on terminal 2 was grossly excessive and had,

therefore, indicated that only a very small proportion of that expenditure would be admitted into the RAB, then a very different

situation would now apply. While the DAA would not, of course, be precluded from incurring all of the expenditure which it proposed, it

would have to do so on the basis of knowing that much of that expenditure was most unlikely to be taken into account in fixing

maximum charges into the future. Whether it would be prudent to embark on much of the expenditure concerned in those

circumstances would be a commercial judgment for the DAA. At least the DAA would have to make such a decision in the light of

knowing the position of the regulator concerning the inclusion of that expenditure into the charging calculation. Likewise users would

know that much of the relevant expenditure was not going to be passed on to them through the same mechanism. There was much

sense in Ryanair’s submission and there is much sense in that position. It seems to me that it is well within the statutory entitlement

of the CAR to adopt a decision making process which makes current decisions about the inclusion of immediate capital expenditure in

the RAB, even though the effects of that expenditure may be further down the line. Such a process allows everyone to know where

they stand.

9.11 I am, therefore, satisfied that a decision of that type is entirely within the statutory framework and, for the reasons which I

have already set out, I am satisfied that there was more than ample materials to permit the CAR to come to the specific decision

which it did. I am not, therefore, satisfied that Ryanair have gone anywhere near establishing that a decision to treat the proposed

capital expenditure by the DAA in the manner set out in the decision is either inconsistent with the statutory framework or is irrational

in the sense in which that term is used in judicial review.

9.12 Subject only, therefore, to the issue already identified concerning whether those portions of the paper announcing the decision

which deal with the admission of those capital sums into the RAB amount to part of the determination under s.32, I am satisfied that

no basis has been shown for interfering with the decision.

10. Conclusions

10.1 It follows that the only order which I am prepared to make at this stage is one referring back the review decision to the CAR for

the purposes of the CAR clarifying the extent to which the statements contained within the decision paper concerning the inclusion of

capital expenditure in the RAB form, in its view, part of its determination in the exercise of its statutory function on the one hand or

are simply indications of its current thinking on the other hand. I propose directing the CAR to come to a revised decision which makes

those matters clear in exercise of what I have found to be an inherent power of the court. I will arrange for the matter to be listed

before me again when the CAR has issued such a revised decision.