PP135/06
R e p o r t o f t h e S t a n d in g C o m m it t e e o n
P u b l ic A c c o u n t s
Is l a n d F il m S t u d io s a n d ASSOCIATED MATTERS
Standing Committee on Public Accounts
Island Film Studios and associated matters
Members of the Committee
Mrs C M Christian MLC (Chairman) Mrs H Hannan MHK (Peel) (Vice Chairman) Mrs A Craine MHK (Ramsey) Capt A C Douglas MHK (Malew & Santon) Mr Q B Gill MHK (Rushen) Mr P Karran MHK (Onchan)
The powers, privileges and immunities relating to the work of a committee of Tynwald are those conferred by sections 3 and 4 of the Tynwald Proceedings Act 1876, sections 1 to 4 of the Privileges of Tynwald (Publications) Act 1973 and sections 2 to 4 of the Tynwald Proceedings Act 1984.
Copies of this Report may be obtained from the Tynwald Library, Legislative Buildings, Bucks Road, Douglas IM1 SPW (Tel 01624 685516, Fax 01624 685522) or may be consulted at www. tynwald. ore, im
All correspondence with regard to this Report should be addressed to the Clerk of Tynwald, Legislative Buildings, Bucks Road, Douglas 1M1 3PW. Remit of the Committee
(1) There shall be a Standing Committee on Public Accounts.
(2) The Committee shall have -
(a) a Chairman elected by Tynwald, (b) a Vice-Chairman elected by Tynwald, (c) four other Members elected by Tynwald,
and a quorum of three Members.
(3) Members of Tynwald shall not be eligible for membership of the Committee, if, for the time being, they hold any of the following offices: President of Tynwald, Speaker of the House of Keys, member of the Council of Ministers, member of the Treasury Department referred to in section l(2)(b) of the Government Departments Act 1987.
(4) The Committee shall -
(a) (i) consider any papers on public expenditure and estimates presented to Tynwald as may seem fit to the Committee;
(ii) examine the form of any papers on public expenditure and estimates presented to Tynwald as may seem fit to the Committee;
(iii) consider any financial matter relating to a Government Department or Statutory Body as may seem fit to the Committee;
(iv) consider such matters as the committee may think fit in order to scrutinise the efficiency and effectiveness of the implementation of Government policy; and
(v) lay an Annual Report before Tynwald at each December sitting and any other reports as the Committee may think fit.
2 (b) be authorized in terms of section 3 of the Tynwald Proceedings Act 1876 and the Standing Orders to take evidence and summon the attendance of witnesses and further to require the attendance of Ministers for the purpose of assisting the Committee in the consideration of its terms of reference.
(5) The Chairman, Vice-Chairman and any member of the Committee shall not sit when the accounts of any body of which that person is a member are being considered.
3 I¡ TABLE OF CONTENTS Page 1. IN T R O D U C T IO N ...... 8
2. E V ID E N C E ...... 8
3. B A C K G R O U N D ...... 9
4. LEGISLATION COVERING GRANT APPLICATIONS ...... 10 5. GRANT APPLICATIONS
5.1 V fg (Isle of M a n ) L im it e d ...... 10
5.2 J R C re e r L t d ...... 11
5.3 Island Studio s L im it e d ...... 14
6. APPROVAL OF GRANT FOR ISLAND STUDIOS LTD
6.1 T rea su ry C o n cu rren c e...... 16
6.2 T he O ffer L e t t e r ...... 17
6.3 D TI Stan d a rd T erm s and C o n d it io n s ...... 18
6.4 T he B usin ess Pro po sal & E rnst & Y oung A ppraisal repo rt 19
7. THE ISLAND STUDIO BUILDING
7.1 C onstruction of the b u il d in g ...... 23
7.2 P l a n n in g ...... 25
7.3 B uild in g C o n t r o l s ...... 26
7.4 L ocatio n and facilities in the surrounding a r e a ...... 27
7.5 A ppo in tm en t of L ocal Co m pan ies and L a b o u r ...... 28
7.6 C ertification and W ork P e r m it s ...... 32
7.7 Bu ild in g C o m pa n y...... 33
8. V A LU A T IO N AND SEC U R IT Y ...... 35
9. EQUIPMENT
9.1 T he C o m p a n ie s ...... 36
9.2 T he N eed fo r E q u ip m e n t ...... 38
9.3 T he P ur ch a se of E q u ip m e n t ...... 39
9.4 C onfirmation of th e E x isten ce, C o n d itio n
a n d V alue of t h e E q u ip m e n t ...... 40
9.5 O w n ersh ip of th e E q u ip m e n t ...... 44
4 9.6 R e g is t e r o f A s s e t s ...... 46
9.7 C o n c lu sio n ...... 47
10. MONITORING THE PROJECT
10.1 A ppr o v a l of In v o ices fo r P a y m e n t ...... 48
10.2 C laim fo r G rant fo r Purch ase of B u ild in g s...... 48
10.3 Pro gress V is it s ...... 50
10.3 Subm ission of A ud ited A c co u n ts...... 51
11. LOUGH HOUSE ANIMATION
11.1 Busin ess Suppo rt Se r v ic e ...... 53
11.2 C ertification ...... 53
11.3 G r a n t s ...... 54 11.4 C h e c k s by DTI...... 55
11.5 O t h e r C o u r s e s ...... 55
11.6 Opportunities to w ork in the film in d u str y...... 56
12. COMPANY MATTERS
12.1 A n n ual R e t u r n s ...... 57
12.2 Sto n eg ate pr o per ty L t d ...... 59
12.3 C o n c l u s io n ...... 59
13. OTHER MATTERS
13.1 D ish o n o u red ch eque C la im ...... 60
13.2 The In so lv en cy C l a im ...... 62
13.3 E v a lu a tio n of G ra n t A pplications...... 62
14. CONCLUSIONS...... 63
15. REPORTING PROCEDURE...... 64
16. SUMMARY OF RECOMMENDATIONS...... 65
5 APPENDICES AND EVIDENCE
The documents referred to throughout this Report have reference numbers.
The reference to appendices give the appendix number (eg A3) and a page number, where necessary (eg A3/p47). The appendices are listed below and included in this Report.
The references to documents contained in the Evidence file contain an Evidence number (eg E4) and a page number, where necessary (eg E4/p32). Those documents are listed below and are available for inspection in the Tynwald Library,
APPENDICES (attached to this Report)
1 Letter from Mr J D Q Cannan MHK dated 30th October 2002 2. Transcripts of Oral Evidence 3. Hansard Report of Keys Questions on 22nd June 1999 and 25th June 2002 4. Legislation regarding DTI grants 5. Standard Terms and Conditions relating to grants 6. Island Film Studios Limited Business Proposal and Appraisal Report by Ernst & Young. 7. Offer Letter to Island Film Studios Ltd & Treasury concurrence letter 8. Documentation re tender process for construction contract 9. Letter from Harding Lewis, Accountants 10. Invoice for editing equipment from Violet Systems Ltd and Equipment Schedule 11. Income from hire of editing equipment 12. Documentation regarding the valuation and ownership of the editing equipment 13. Grant claim in respect of purchase of buildings 14. Craft and Technician Training Scheme (Manufacturing, Construction and Service Industries) 1995 15. A chart showing the relationship between the various companies in the Lough House Group 16. Documentation re the Dishonoured Cheque Claim 17. Timeline EVIDENCE (available for inspection in the Tynwald Library)
1. Letter from Hon A F Downie MLC dated 9 May 2003 re DTI decision of Creer grant application 2. Letter from J S Christian dated 23 June 2003 re evaluation of ISL grant application 3. Letter from HM Attorney General re approval of offer letter 4. Quotes in respect of construction of steel fabric of the studio and workshop 5. Letter from ISL re work permits and certification 6. Letter from DTI re visits made by Work Permit Inspectors 7. Mortgage Debenture dated 26 June 2001 8. Company Searches on Edit Hire (New Technology) Limited and connected companies. 9. Letter from DTI re grants given for plant and machinery. 10. Letters from DTI dated 21 November 2003 and 1 July 2004 re inspection of equipment 11. Liquidator's report on Edit Hire (New Technology) Ltd 12. Letter from DTI dated 12 July 2006 regarding the register of assets 13. Examples of invoices submitted in respect of claims for grant payments 14. Letter from DTI dated 21 November 2003 re visits made to ISL re processing of grant claims 15. Letter from DTI dated 4 July 2006 re monitoring of ISL 16. Letter from DTI re Lough House Animation apprentices 17. Report dated August 2004 commissioned by DTI on the Film Industry 18. Memo from DTI re grants to Lough House Animation apprentices 19. National Open College Network Certificates 20. DTI letter dated 31 July 2006 re opportunities to work in the film industry and available training courses in media and animation 21. Company searches on Island Studios Limited and associated companies 22. Mr Speaker's Report dated July 2002 and Hansards of the debates relating to it.
7 1. INTRODUCTION
This investigation was the result of a letter received from Mr J D Q Cannan MHK dated 30th October 2002 (Al), which requested an investigation of "all the circumstances surrounding the grant of £705,600 by the Department of Trade and Industry to the composite of the above companies [Island Studios, Stonegate Property Limited, Lough House Animation Limited, Lough House Limited, Lough House Media Limited, Stonegate Property 2000 Limited]". The Committee has not restricted its investigation to the terms of the letter, but has also considered any associated matters which it considers to be relevant. The Committee has only examined Government policy to the extent needed to evaluate the efficacy of its application in this case.
A sub-committee of Mr R E Quine, Mrs H Hannan and Mr E A Crowe was set up in January 2003. However, due to Mr Crowe's ill health he was unable to take his place on the sub-committee and Captain A C Douglas was subsequently appointed in June 2003. Mr Quine retired as a Member of Tynwald in August 2004 and was not replaced on the sub-committee.
In March 2004, Mr M Fayle of KPMG LLC was appointed as specialist advisor to the sub-committee in respect of the technical aspects of company matters.
2. EVIDENCE
2.1 We have received written evidence from a number of sources and that evidence is referred to throughout this report and included in the Appendices.
2.2 We have taken oral evidence from -
a. Mr D A Westacott and Mr P Slattery, Directors, Island Studios Ltd b. Mr S Christian and Ms S Thomson, Consultants to DTI c. Miss H Dugdale, IoM Film Commission d. Mr N J Napier-Bell, business associate of Island Studios Ltd e. Mr A Bell, former employee of Lough House Animation Ltd f. Mr R Ennett, Government Valuer
8 g. Mr K B Bawden and Mr D Kelly, DTI h. Mr C Corlett and Ms M Thompson, DTI Transcripts of the oral evidence are set out in Appendix 2
2.3 In addition, the sub-committee visited the Island Film Studio. In response to an invitation, we arranged a visit with the Fim Commision but, due to a breakdown in communication, the Studio directors were not aware of the visit. However, the sub-committee members were shown around the facility by a producer who was currently filming at the studio, with whom they had informal discussions.
2.4 The Report also refers to evidence given during Mr Speaker's investigation and subsequent report dated July 2002, a copy of which is in the Evidence file (E22). This report was prepared in response to a motion approved by the House of Keys on 11th July 2002 that "Mr Speaker be requested in line with Standing Order 49(3) to seek proof of the comments made by the hon. Member for Onchan, Mr Karran, by way of supplementary questioning raised on 25th ]une 2002 under question 8 referred to the this hon. House on Thursday l l lh July 2002, and report to a special sitting of the House of Keys convened as soon as possible."
3. BACKGROUND
3.1 In the late 1990s, the film industry was developing on the Island. At the sitting of the House of Keys on 22nd June 1999 (A3) Mr P Karran MHK asked the DTI Minister:
(1) How many film studio facilities are there on the Island;
(2) for how many weeks in the past year have these film studios been booked for the production of films attracted to the Island by the Isle of Man Film Commission; and
(3) what financial support is provided to film studios on the Island?
3.2 The Minister (Hon D North MHK) replied that there were two, with planning applications submitted for a further two. He said that "the development of studio facilities may be eligible for financial assistance under the department's industrial grant scheme."
9 3.3 Hon A R Bell MHK commented that "the Island urgently needs a purpose-built modem film studio providing full sound stage facilities for future film development" and Mr North agreed with this comment.
4. LEGISLATION
The legislation under which Department of Trade and Industry grants are awarded is the Industry Board Act 1981 and the Industry Board Act (Amendment) Order 2001, which are set out in Appendix 4.
The Standard Terms and Conditions which apply to such awards are set out in Appendix 5.
5. GRANT APPLICATIONS We commenced our investigation by considering the grant applications submitted to the Department of Trade and Industry in respect of film industry facilities. At that time, Ernst and Young provided a service to the Department for the evaluation of grant applications. There were three applications which are set out below.
5.1 Vfg (Isle of M an) Limited
5.1.1 VFG (Isle of Man) Ltd, a subsidiary of VFG Pic, which is a UK company quoted on the Alternative Investment Market, submitted a grant application in 1997 to "hire equipment for film and television industries and to provide studio facilities". In July 1997 Mr Steve Christian and Ms Sheila Thomson of Ernst & Young submitted a report to DTI recommending that a grant of £244,000 (£20,000 buildings, £200,000 plant & machinery, £24,000 rent) be given, which was subsequently approved by Treasury.
5.1.2 VFG ceased to operate the studio in Laxey in May 2003. This triggered a default under the standard terms and conditions of the financial assistance they received and the company repaid £6,533.38 in November 2004.
10 5.2 J R Creer Ltd
5.2.1 J R Creer Ltd submitted an application for a grant on 4th May 2000 for the construction of a film studio at Balthane, Ballasalla, to replace the existing studio, which would become a workshop.
5.2.2 It appears from the files supplied to us by DTI that Ms Sheila Thomson of Ernst & Young evaluated this application on behalf of DTI, and she recommended to them in a letter dated 24th July 2000 that the application should be refused. There is no record in the files of Mr Christian being consulted about the application. This matter was discussed in the oral evidence, as follows:
"Chairman: Did you in any way make a recommendation as to whether or not that project should be accepted or rejected?
Ms Thomson: No. I just visited Mr Creer [Mr G Taylor]. Any decisions ... I just worked for Steve at Ernst & Young, and any reports I did or produced or was involved in would be reviewed and decisions made."
5.2.3 Mr Christian was therefore asked for the reasons for the refusal of the application:
"Chairman: What knowledge have you got of that project?
Mr Christian: The project, Mr Chairman, was not a project that I was in any real way interested in recommending to the Department. It was a project that was not in the best location. It was a project that involved a significant amount of debt being created, and it was a project that was being created by people who the Film Commission had experienced a number of difficulties working with in the past. There was not really anything that would have led me to say that the DTI should invest six figures into that application. There was really no element to it at all that would meet the criteria that we were looking for. "
11 5.2.4 Part of the evaluation process for the VFG and Island Studios applications had been the preparation of a report to the Department by Ernst and Young. However, no such report was prepared for this application.
5.2.5 A letter recommending refusal of the Creer application was sent by Ms S Thomson of Ernst & Young to the DTI on 24th July 2000, which was purportedly considered at a Department meeting on 28th July 2000. One of the reasons for refusal set out in the letter from Ms Thomson to DTI was that "Graham Taylor, the shareholder of J R Creer Ltd, is a builder and although he had employed Keith Quirk as a consultant, his background is as a sound recordist, not studio operation." The refusal letter stated: "The Department is concerned that you do not have any industry experience or specialists working with you. The construction of the studio is obviously your area of expertise but also required is extensive industry knowledge in terms of fitting the facility out to the best advantage of all concerned."
5.2.6 In addition, Mr North, who was Minister for Trade and Industry from 1996 to 2001, in a reply to a question in the House of Keys on 22nd June 1999 (A3) said: "With one particular facility at Balthane there appears to be an attitude problem with people handling it, and we have had report after report back that the people visiting that particular facility would not want to use it."
5.2.7 The refusal letter stated that "the application was considered by the Department at its meeting of July 28th 2000". We therefore requested a copy of the minutes of that DTI meeting. However, DTI confirmed that there is no record of the application being discussed or a decision being taken at a Department meeting. The only reference to the Creer application is in minutes of meetings of the Film Commission, as follows:
7 July 2000 "Ms Dugdale advised that the Department had received applications for finance in respect of two separate studio developments, one submitted by Mr Don Westacott (Lezayre) and one submitted by Mr Graham Taylor for a second studio facility on the Balthane Industrial Estate. Both applications were currently receiving attention."
12 23 August 2000 "Ms Dugdale advised that she would be meeting with Graham Taylor of Balthane Studios later in the week to inform him that his application for financial support in respect of a second film studio at Balthane had been turned down by the Department. She further advised that she had recently spoken to Don Westacott regarding his application for financial assistance in respect of Baldhromma [sic] Studios. Mr Westacott was submitting a revised application in view of the fact that VFG, one of Mr Westacott's proposed partners, had withdrawn from the equation."
However, DTI stated that "the Department would have been fully aware of the progress of this application through the Film Commissio?i which was chaired by the Minister."
5.2.8 Ms Dugdale wrote to Mr Graham Taylor, of J R Creer Ltd, on 25th August 2000 advising him that his application had been refused. As stated in paragraph 5.2.5 above, one of the reasons for refusal outlined in that letter was "The construction of the studio is obviously your area of expertise but also required is extensive industry knowledge in terms of fitting the facility out to the best advantage of all concerned
5.2.9 The Committee was surprised at this being given as a reason for refusal in the case of the Creer application, as neither of the Island Film Studios directors, Mr Westacott and Mr Slattery, had any experience of operating, constructing or working in a film studio, and this was not mentioned in the Ernst and Young report on Island Film Studio's grant application. In addition, a series of "Space Island One" had already been filmed at the Balthane studio, and Ms Dugdale confirmed in her evidence that "it seemed to be okay".
5.2.10 Also in the oral evidence, Mr K B Bawden (the DTI Chief Executive at the time) stated:
"That was a concern of mine. What was the difference between the two and why we were going for one as opposed to the other? From recollection we looked at that quite closely. 1 asked for particular information in relation to the Creer one which 1 believe, you know, had been dismissed but we had not actually seen any particular report to explain why it was being dismissed, it was more or less dismissed before it got to us."
13 5.2.11 In a letter dated 9th May 2003 (El) from Hon A F Downie MLC, who was subsequently appointed as DTI Minister in 2002, he states: "I can confirm that the ] R Creer Ltd Application was considered at a Department meeting on 28th July 2000 and the application was declined for the following reasons:
i. The Department was concerned about a lack of industry experience; ii. The Department was concerned that JR Creer Limited would be entirely reliant on the Film Commission for potential clients; Hi. The Department was of the opinion that insufficient information was supplied in relation to the application."
5.3 Islan d Stud io s L im ited
5.3.1 Island Studios Limited submitted a grant application dated 29th June 2000, and a reply from the DTI advising that a decision on the application had been deferred was sent on 7th August 2000. The letter dated 7th August 2000 from Ms J Y Williams, Development Manager, DTI, stated: "J understand that VFG have now withdrawn from the project. The Department has given the matter careful consideration and, whilst remaining supportive to the application, in line with the terms and conditions of our financial assistance scheme, the Department cannot commit to funding until all other financing relating to the scheme is clearly in place. The Department has therefore deferred a decision until all partners involved in the project have been i d e n t i f i e d A revised Business Proposal (A6) was subsequently submitted in October 2000.
5.3.2 Ernst & Young, DTI Consultants, considered the application and submitted their report dated January 2001 to DTI (A6). It was apparent from that report that Ernst & Young had given guidance to Island Studios Ltd to ensure that the application fulfilled the criteria. Their report states: "In fairness, Don Westacott has been made to jump over a number of very difficult hurdles (that we have placed in his way) to get this far. This submission is very close to what we were looking for." In a letter dated 23rd June 2003, Mr S Christian confirmed that the "hurdles" referred to related to studio financing (E2).
5.3.3 The proposals, as outlined in the Business Proposal and the Ernst and Young Report, were that -
14 a. A film studio would be constructed on land owned by Mr D Westacott at Baldromma Farm, Jurby Road, Ramsey;
b. Mr Westacott7s construction company, Stonegate Property (2000) Ltd, would build the studio;
c. Mr N J Napier-Bell would act as marketing co-ordinator;
d. The directors of Island Studios Ltd would be Mr D Westacott, Mr P Slattery and Mr N J Napier-Bell;
e. The editing equipment would be supplied by Mr N J Napier-Bell's company, (referred to as Edit-Hire in the Business Proposal and Edit Hire (New Technology) Limited in the Ernst & Young Report), in exchange for share capital;
f. Island Studios Ltd would enter into a partnership arrangement with Edit-Hire, which would base its offshore operation in the Island as a subsidiary company of Island Studios Ltd; and
g. The shareholders of Island Studios Ltd would be Lough House Ltd 64% and Edit Hire 36%.
5.3.4 The Ernst and Young Report mentioned that there had been another grant application for the construction of a film studio (the Creer application), but Ernst and Young only recommended approval of the Island Studios application.
5.3.5 In his oral evidence, Mr Bawden confirmed that the Ernst and Young Report recommendations were approved without any further checks by the Department.
"Chairman: So you rely on your appointed consultant investigating the project in its totality for you and giving you a report and you judge it on that report?
15 Mr Bowden: Yes. They would normally, when visiting a company to discuss an application, have a representative of the Department with them as well but that is the normal way that these things are done. Part of their contract is for them to do that."
5.3.6 DTI confirmed that "The initial meeting regarding this application was on 18th July 2000 at DTI's offices. This involved officers of the DTI along with Ernst & Young. A further meeting took place on 21st September 2000 at Ernst & Young's offices again with officers of the DTI present. This subsequently led to a final business plan being submitted. Further communication would then have been entered into by Ernst & Young in order to evaluate the application."
5.3.7 Having received Treasury concurrence, DTI offered a grant of £705,600 to Island Studios Ltd on 16th February 2001.
5.4 C o n clu sio n 5.4.1 PAC is concerned that the three grant applications (VFG, Creer and Island Film Studios) were not treated in a consistent manner, which prevented them having equal opportunities. The documents that the Committee have been given show that the applications were not all given equal consideration. The Creer application was refused without a Report being produced, without the opportunity to provide additional information and there is no record of the decision having been made at a Departmental meeting (see paragraph 5.2.8). In contrast Island Studios Ltd were given guidance over six months to develop their application until it met the necessary criteria. This clearly is not an acceptable practice.
5.4.2 PAC therefore recommends that DTI should introduce a more standardised procedure for evaluating grant applications, to ensure that all applicants are given the same treatment and are given equal consideration. The final decision must be taken by the Department and minuted.
6. APPROVAL OF GRANT FOR ISLAND STUDIOS LTD
6.1 Treasury Concurrence
Treasury concurrence was given to the grant of a maximum of £705,600 to Island Studios Ltd by a letter dated 14th February 2001 (A7) from Mr P M Shi mm in, Financial Controller, with one of the conditions being that "The wording of the offer letter to be agreed with the Attorney General's Chambers".
16 During our investigations it has been confirmed that the offer letter was not submitted by DTI to the Attorney General's Chambers for their agreement (E3).
6.2 T he O ffer L etter
The offer letter to Island Studios Ltd (A7) was dated 16th February 2001 and signed by Mr D Kelly, Development Executive, Department of Trade and Industry. The offer letter included six additional conditions, which had been required by Treasury when concurrence was given. These additional conditions were as follows:
6.2.1 Treasury Conditions
Condition 1 There is no obligation on the part of the Department to give exclusivity to ISL and to continue to fund film projects beyond the current financial vote.
PAC concur that this is a desirable condition to be placed on grant awards.
Condition 2 The Department to be provided with a first charge over all assets (land and buildings) to cover the assistance.
Condition met. See section 8 of this report.
Condition 3 Auditor's Certificate to be provided to ensure that equipment sold by Edit Hire is a fair value and does not include a profit element.
Condition not satisfactorily met. See section 9.4 of this report.
Condition 4 The Company not to allow onto the site, nor to employ any person on the contract, directly or indirectly, as an employee or as a subcontractor or as an employee of a subcontractor unless they have produced to the Company, prior to being allowed onto the site to work on the contract, the appropriate Certificate under the Scheme for the Certification of Craftsmen 1990 and a valid Work Permit, unless the person is an 'Isle of Man Worker' as defined in the Control of Employment legislation.
Condition not met. See section 7.6 of this report.
17 Condition 5 The Company to undertake to obtain quotations from local suppliers and/or producers for all goods and materials specified in the works and to give preference, wherever reasonable, to local Isle of Man labour, tradesmen and services and to use materials from Isle of Man-based producers and/or suppliers.
Condition not satisfactorily met. See section 7.5 of this report.
Condition 6 In the event that the owner's building company is used to provide building services, auditor's certificates of material costs (at cost only) and labour only (calculated at the basic rate per hour plus the company's NI contribution) will be allowed.
Condition not satisfactorily met. See section 7.7 of this report.
6.3 DTI Stan d a rd T erm s and C o n d ition s
The DTI standard Terms and Conditions - Government Financial Assistance (Appendix 5) also applied to the grant, and we comment on some of these as follows:
6.3.1 Condition A3(b) All companies must submit a copy of their Audited Annual Accounts, together with a written report of their progress. Representatives of the Department will make visits each half year to discuss the progress of companies which have received financial assistance.
Condition not satisfactorily met. See section 10.3 of this report.
6.3.2 Condition A4 A representative of the department is to be given the opportunity to inspect the plant, machinery, buildings etc, in respect of which assistance is to be paid, prior to the payment of such assistance.
Condition not satisfactorily met. See section 9 of this report.
6.3.3 Conditions A5, C3, D4, E4
These paragraphs detail the various circumstances under which the grant, or part of if, may be repayable. See section 9 of this Report.
18 6.3.4 Condition D3 Upon completion of the building the applicant will certify that the building has been erected and taken over in a satisfactory condition, and conforms to the specifications and Bye Laws of the relevant local authority, and the Department of Local Government and the Environment
Condition not satisfactorily met. See section 7.3 of this report.
6.3.5 Condition E3
The applicant must confirm in writing that the plant and machinery, being in this case, the subject of Government financial assistance, has been received and is in satisfactory condition.
Condition not met. See section 9.4.1.3 of this report.
6.4 T he B usin ess P r o po sa l and E rn st & Y oung A ppr a isa l R epo rt
The decision to award a DTI grant was based on the information given in the Business Proposal and the Ernst and Young Report. However, there were a number of inconsistencies between the intentions set out in those documents and what actually transpired, as stated below -
6.4.1 Shareholding Although it was not referred to in the Business Proposal, it was stated in the Ernst & Young Report that the shareholding in Island Studios Ltd would be Lough House Ltd 64% and Edit Hire (New Technology) Ltd 36%. However, the actual shareholding is 51% Mr D A Westacott and 49% Mr N J Napier- BelL This was covered in the oral evidence, as follows:
"Mr Slattery: I do not think that our business plan ever suggested it was going to be held by two companies - certainly any business plan we submitted to DTI."
The Chairman: Did you have any discussions with the DTI accountants that were assessing your business proposal?
19 Mr Slattery: Yes, we did. We went through with both the DTI and with Ernst and Young on a number of occasions.
The Chairman: Right. The point I am getting at is that this understanding by the accountants doing the assessment for the DTI; presumably the source was your good selves, so there is some confusion there."
Mr Slattery: No, it was never the intention."
6.4.2 Appointment of personnel
The Business Proposal stated that "It is intended that there will be 3 full-time staff permanently employed by the Studio who would look after the running of the facility. It is also the intention that these three staff positions will be drawn from the Isle of Man's labour pool and trained by Island Studios. The training will be in both the editing and lighting disciplines "
However, in his evidence (A2 / p20), Mr Slattery said: "We have got one local person who is actually working full-time on site. The others were supposed to be working on the editing side of things, and because we have not had a contract for doing the editing. ..But we do know people at the Manx Multimedia Centre are being trained in editing, so the chances are it would be one or two of those that we would be picking up when the opportunity arises."
6.4.3 Edit Hire to set up company on the Island
6.4.3.1 The Ernst & Young Report stated that "Island Studios will enter into a partnership with a major UK film editing company, Edit Hire. Edit Hire will also base its offshore operation from the Island as a subsidiary company of Island Studios
6.4.3.2 However, this matter was discussed in the oral evidence (A2/p7) as follows:
"The Chairman: The business proposition that was put forward also said that there would be a partnership with Edit-Hire. Which Edit-Hire are we talking about there? There appear to be two Edit-Hires from our
20 company searches. Are we talking about Edit-Hire (New Technology) or -
Mr Slattery: No. I do not know their company registration number, so I was not aware that there were two. It is Edit-Hire Limited, as far as we are concerned, which is a London-based company.
The Chairman: Are you in a position to say which... This Edit-Hire Limited, as you refer to it: who are the directors and shareholders ? Are you aware of that? This may help us to distinguish between-
Mr Slattery: We are not, actually.
Mr Westacott: Nick Napier-Bell is the man who runs it and has run it for 40 years, so I assume that he is a beneficial owner."
Mr Slattery: The partnership is with Nick Napier-Bell, rather than that company.
The Chairman: Part of the case was that this Edit-Hire would base its operations from the Island. Has that come to pass?
Mr Slattery: Not at this point, no. It is still in discussions with various people. I know he has mentioned it to the DTI on a number of occasions, but, as of this moment, no, it has not.
The Chairman: It was also said in the business proposition that it would be a subsidiary company of Island Studios. Can you explain that statement in the business case?
Mr Slattery: No, I cannot.
The Chairman: Put it another way: it is not a subsidiary company of Island Studios.
Mr Slattery: It is not, no.
21 Mr Westacott: It is just a partnership to bring their skills and their equipment onto the Island."
Later in the evidence, further questions were asked about Edit-Hire, as follows:
"The Chairman: When you were contemplating taking in Edit-Hire as a partner, so to speak, in this business, did you, in fact, do any check on the financial viability of Edit-Hire?
The reason I ask that is it would appear that, two weeks after submitting the business proposal, Edit-Hire (New Technology) Limited went into voluntary liquidation......
Mr Slattery: I think that that is a question that you will have to ask Mr Napier- Bell, because we certainly did not do a check on it.... The company is extremely well known throughout the industry. I was aware of them from being in the industry previously, and they were recommended by a number of people, so, no, we did not think about that."
6.4.3.3 PAC are concerned that neither Island Studios Limited, Ernst & Young nor DTI undertook company searches on a company which, according to the business proposal, was intended to be an integral part of the future of the Film Studio. In addition, no company searches were obtained in respect of Island Studios Limited and connected companies. This matter, and other Company matters, are dealt with in depth in section 12.
6.4.4 Editing Equipment
The Ernst & Young Report stated that:
"The equipment is being supplied by Edit Hire and although we understand the majority will be new we always have concerns where a related party is a major supplier. We would, therefore, require an auditor's certificate to be provided to confirm that equipment has been supplied at cost, or if second-hand, at an amount not exceeding net book value."
22 However, Mr C Corlett, Chief Executive, DTI, confirmed in a letter dated 1st July 2004 (A12) that the equipment was all second-hand.
The questions regarding the auditor's certificate is dealt with in depth in section 9.4.
6.4.5 C o n clusion
PAC is concerned that the approval of the grant was based on information and intentions which were included in the Business Proposal and in the Ernst and Young Report, and that there were subsequent significant changes to those proposals, which were not considered by or approved by the Department.
7. THE ISLAND STUDIO BUILDING
7.1 CONSTRUCTION OF THE BUILDING
7.1.1 The question of the construction of the studio was covered in the oral evidence, as follows:
"The Chairman: As neither Mr Westacott nor yourself [Mr Slattery] have any intimate knowledge of the film industry per se - certainly not the technical aspects of this - where did you intend to get the advice from on the construction of that film studio so that it would meet those exacting standards?
Mr Westacott: I visited Pinewood Studios. I visited Aardman Studios in Ireland. I visited one other of the major studios. Prom my perception - and I must say this is personal - I constructed the premises on what I had observed, and a lot of logic as well, in trying to ascertain what a producer needs to try and complete his package of services....The producers have been, and there have been dozens of them looking at the Island's facilities...I get endless compliments on how it has been put together. They tell me that the lighting facilities, the power facilities we have, are better than those at Pinewood, the accommodation is well thought-out and suits the purpose. So, I can only tell you that it was my construction. If it has been done wrongly, it is my fault, but, to date, nobody is complaining."
23 7.1.2 Mr Bawden, in his evidence, described Mr Westacott as:
"an enthusiast, rather than a man with a lot of experience in the particular industry".
7.1.3 From the evidence and discussions with other parties, we formed the impression that Mr Westacott had the best of intentions to construct a facility suitable for its purposes, and took the advice which he thought necessary to achieve that. However, it is apparent there were shortcomings with the facility, particularly in the soundproofing. The studio is in an exposed area, and the soundproofing was unable to cope with inclement weather, traffic noise etc. Mr Westacott confirmed that there had been problems (A 2/p ll) and that action had subsequently been taken to improve the soundproofing.
7.1.4 The producer who the sub-committee met on site, said that there were other problems with the studio, one of which was the level of heating. This was covered in the oral evidence, as follows:
"Mr Slattery: The Producer you were talking to had asked us to provide him with space heaters, because, 'The studio is too cold.' With him being in the studio two days, he was asking for chiller units, because the studio was too hot."
Mrs Hannan: Is it not a problem, if it is too hot and then too cold, that it is not insulated properly ?
Mr Slattery: It was neither too hot nor too cold. It was their perception that it was going to be too cold...."
7.1.5 We therefore queried what action DTI took to ensure that a satisfactory building was constructed:
"The Chairman: Were you aware that there was no firm of architects, either of a general or of a specialised nature, to design the buildings, the studio that was being put up?
Mr Bawden: I do not see it as specialised.. .The film studio itself is just a very big barn with lots of height to hold lighting gantries and this sort of thing, which is information that the principals had got for
24 themselves by travelling round and talking to people in the industry."
7.1.6 PAC is surprised that DTI did not take steps to satisfy themselves that the facility was going to be constructed to a satisfactory standard and safeguard the investment which the Department was putting into the project through the grant, particularly as the studio was to be an essential part of the future of the film industry on the Island.
7.1.7 PAC therefore recommends that before a grant is given in respect of a specialised facility, a condition of the grant should be that the applicant satisfies the Department that the specification of the facility ensures that it will be fit for purpose.
7.2 P lan nin g
7.2.1 The Planning History, as submitted to the Planning Committee by Island Film Studios is as follows:
PA07/1102: Change of use of two existing barns for Film Animation Studio. Approved 12th November 1997
PA972051: Demolition of existing stone bam and lean-to buildings and construction of new Sound Recording Studio. Approved 9th April 1998
PA97/2053: Approval in principle erection of replacement portal frame building for use as Film Studio. Approved 29th May 1998
PA98/1151: Construction of portal frame building for use as Film Studio and conversion of existing buildings for ancillary use (resubmission). Refused 11th November 1998
PA98/1606: Construction of portal frame building for use as Film Studio and conversion of existing buildings for ancillary use (resubmission). Refused 10th February 1999
PA00/1606: Construction of portal frame building for use as Film Studio
25 and conversion of existing buildings for ancillary use (on review). Approved 13th April 1999
PA98/1606: On appeal Approved 17th September 1999
PAOO/02206/B: Erection of Film Studio, workshops, toilet block & MEA sub station. Approved 30th April 2001
PA00/2206/B: On review Approved 1st August 2001
7.2.2 However, the building was not constructed in accordance with the planning application, as the orientation differed by 180°. A further planning application 02/02070/B was therefore submitted. It was initially approved by the Planning Committee on 13th August 2003, but Lezayre Parish Commissioners requested a review.
7.2.3 The appeal was heard at enquiry on 15th June 2004 and the decision letter was dated 29th July 2004. The Minister for Local Government and the Environment (Hon J Rimington MHK) accepted the Inspector's recommendation to dismiss the appeal and confirm the decision of the Planning Committee to grant approval.
7.3 B u il d in g C o n t r o l s
Condition D3 of the DTI standard Terms and Conditions states " Upon completion of the building the applicant will certify that the building has been erected and taken over in a satisfactory condition, and conforms to the specifications and Bye Laws of the relevant local authority, and the Department of Local Government and the Environment." The DLGE Building Regulations certificates were submitted and Mr Bawden, in his evidence, (A2/p74) appeared to believe that they sufficed. However, these certificates only satisfy the second half of the condition. In order to fully comply with this condition a certificate from the applicant is required to confirm that the "building has been erected and taken over in a satisfactory condition." There is no record of any such certificate being requested from Island Studios Ltd and therefore this condition was not fully complied with.
26 7.4 L o c a t io n a n d f a c il it ie s in t h e surrounding a r e a
7.4.1 The studio is located at Baldromma Farm, Jurby Road, Lezayre on a 47-acre plot. The producer whom the committee met stated that he had to arrange accommodation in Douglas for the cast in his productions, and the 45-minute journey between Douglas and the Studio was inconvenient, as was the even longer journey to Ronaldsway Airport. In his opinion the north of the Island would not immediately appear to be the ideal location; a more central location would have given easier access to other parts of the Island and there is limited good quality hotel accommodation in the north.
7.4.2 Hon A R Bell, MHK for Ramsey, in a letter to the planning committee dated 17th June 1999, in support of the planning application for a film studio at Baldromma Farm, said:
"The establishment of the film industry in the Ramsey area is very much in line with the present Government policy, which is to encourage a diversification of the Island's economic activity in the less developed regions of the Island."
7.4.3 This matter was covered in the oral evidence, as follows:
"The Chairman: There was a decision taken that you needed one [a film studio], but was there a decision taken that it should go in the north?
Mr Bawden: Consciously, no.... We happened to have identified a site at }urby where, as you know, there was plenty of land and such.
The Chairman: The point I am getting at is whether there was in place a firm policy decision that it should go to the north of the Island and to what extent, if at all, that influenced the decision between the two applicants.
Mr Bawden: No, it was not like that."
The Ernst & Young report which evaluated the grant application did not include an assessment of the suitability of the location and infrastructure.
7.5 E m p l o y m e n t o f L o c a l C o m p a n ie s a n d L a b o u r
Condition 5 of the Offer Letter stated: "The Company to undertake to obtain quotations from local suppliers and/or producers for all goods and materials specified
27 in the works and to give preference, wherever reasonable, to local Isle of Man labour, tradesmen and services and to use materials from Isle of Man-based producers and/or suppliers. "
7.5.1 The tender process
For the supply of the steel fabric of the building, ISL obtained three quotes, from one local and two UK companies. However, these quotes were obtained over a period of two years and were based on telephone specifications. In addition, only two companies were asked to quote for both the studio and the workshop. Those two companies were Wilson and Collins and Allied Steel Frame Structures Ltd, a UK company which submitted the lowest quote and was subsequently appointed.
7.5.2 Quotes received
The UK Company, S Robinson & Sons quoted £135,387 + £35,579 erection charge for the studio only dated 3rd February 2000, a total of £170,966 (E4).
The local company who quoted was Wilson and Collins and their quote for the studio was £149,956.00 and £64,986 for the workshop dated 1st March 2000, a total of £214,942 (E4).
The UK company, Allied Steel Frame Structures Ltd quoted £110,611 for the studio and £61,909 for the workshop dated 27th April 2001, a total of £172,520 (E4).
However, one of the exclusions was:
"We strive to avoid any costs for accommodation by scheduling your Erection Contract to be in line with the availability of contractors in your area -
However some Clients may require immediate commencement or commencement when Local Contractors are not readily available. Obviously, bare minimum bed and breakfast charges will then apply. "
28 7.5.3 Specification
7.5.3.1 When questioned about whether it was satisfactory not to have had written specifications, Mr Bawden replied: "I am not really concerned about how a private individual goes about his tendering process." He confirmed that "My main concern at the time was that we had agreed on a grant towards the building which had a maximum grant involved in it, and our main concern would be that there was bona fide evidence of paid invoices to companies relating to that project, full stop." However, PAC regard it as pointless to include condition 5 in an offer letter unless a satisfactory tendering process is adopted, to ensure that local companies are tendering on a equal basis to off-Island companies and unless there is an adequate monitoring process to ensure compliance with the conditions.
7.5.4 DTI Checks
7.5.4.1 In the oral evidence Mr D Kelly, Development Executive, DTI, stated that they first became aware that a UK company had been appointed when the invoices started to appear and DTI noted that the Company was not on the list of Approved Contractors.
Chairman: I am just going to ask you whether you can confirm that the DTI only received the tenders after Allied Steel had been appointed and commenced work, that your first knowledge of the tender situation was after they had been appointed and after they had started work.
Mr Kelly: Yes, it came to light after a payment was made to Island Studios and we realised that these were not on the approved contractors' list.
7.5A.2 The first reference on the DTI files to Allied Steel Frame Structures is a file note (A8) dated 31st October 2001, which records that Mr Slattery advised DTI that the Employers" Federation had complained to him about their appointment of an off-Island contractor. However, the records show four invoices from Allied Steel Frame Structures totalling £111,982.50 had already been authorised by DTI for grant payments on 2nd August 2001 and 23rd October 2001, apparently without question. A memo dated 6th November 2001 (A8) was sent from Mr Kelly to the Chief Executive for his approval for
29 ISL to use the UK company for the construction of the steel framework of the building.
7.5.4.3A memo was also sent by Mr Kelly to the Capital Projects Co-ordinator, Mr I Thompson, on 19th November 2001 (A8) asking "if it was reasonable for the company to claim in respect of expenditure to a UK company". Mr Thompson replied "Ref your memo, bearing in mind progress on site, the matter is entirely 'in arrears' and it is not appropriate to ask them to try a little harder to find a local company. Under the circumstances it is not unreasonable to accept the current position and allow the grant."
7.5.4.4 Mr Bawden approved the memo dated 6th November on 28th November 2001 with the comment "Agreed - assuming that the tenders were like-for-like. A certified statement from an appropriately qualified professional should confirm this." (A8)
7.5.4.5 Mr Kelly therefore contacted Mr Thompson again requesting him to confirm that the tenders were like for like, as grant monies in respect of invoices from Allied Steel Frame Structures had already been authorised and paid by DTI. (A8)
7.5.4.6 Mr Thompson replied: "1 think some clarification is required here. Whilst your comment is correct, I did state that I did not believe it to be appropriate to ask them to "try a little harder' - you will recall that the context of that statement was because the structure was already partially (if not completely) erected and that the application was 'in arrears' - as stated in my e-mail to you. I trust this important fact was in your report to your CEO.
In terms of the tenders being "like for like" (whatever that means), that can only be done by a comprehensive review of the documentation - which I do not have. I would add that it is not normally a task that I would carry out for you and again the exercise would be after the event. Please let me know how you wish to proceed." (A8)
7.5.4.7 Mr Thompson has confirmed that he received no further communication from DTI on the matter, and there is no record on file of the "certified statement" required by Mr Bawden having been obtained. (A8). It therefore appears that Mr Kelly did not comply with his Chief Executive's instruction.
30 7.5.5 Actual Cost
The actual amount paid to Allied Steel Frame Structures Limited was £218,389.50 + £9,725.25 accommodation costs, a total of £228,114.75, which is £13,000 more than the quote from the local company, Wilson & Collins. ISL maintained that the additional cost was due to the rise in steel prices. (A8), but it was also due to the additional labour and accommodation costs, which were allowable under their exclusion clause (see paragraph 7.5.2 above). However, Wilson & Collins offered a fixed price quotation subject to the acceptance of the quote within 30 days.
7.5.6 C o n clu sio n
7.5.6.1 Condition 5 of the Offer Letter states that:
"The Company to undertake to obtain quotations from local suppliers and/or producers for all goods and materials specified in the works and to give preference, wherever reasonable, to local Isle of Man labour, tradesmen and services and to use materials from Isle of Man-based producers and/or suppliers ."
7.5.6.2 The inclusion of this condition was to ensure that Government grant monies were not paid to off-Island contractors if suitable local contractors and suppliers were available. However the wording of this condition did not require prior DTI approval before a UK company could be contracted to undertake a large section of the building project. In addition, the condition did not specify an approved method of obtaining quotations, to ensure that the quotations were like for like.
7.5.6.3 PAC therefore recommends that such conditions regarding local contractors/suppliers be worded as follows:
"The Company to undertake to obtain quotations based on the same written specification from local contractors/suppliers and/or producers for all goods and materials specified in the works and to give preference to local Isle of Man labour, tradesmen and services and to use materials from Isle of Man- based producers and/or suppliers. If there are valid reasons why the Company prefers to employ an off-Island contractor; the prior approval of
31 the Department is required. If such prior approval is not obtained the Department will withhold payment of the grant/'
7.6 CERTIFICATION AND WORK PERMITS
7.6.1 Condition 4 of the Offer Letter states that:
"The Company not to allow onto the site, nor to employ any person on the contract, directly or indirectly, as an employee or as a subcontractor or as an employee of a subcontractor unless they have produced to the Company, prior to being allowed onto the site to work on the contract, the appropriate Certificate under the Scheme for the Certification of Craftsmen 1990 and a valid Work Permit, unless the person is an 'Isle of Man Worker' as defined in the Control of Employment legislation."
7.6.2 The Island Studios directors have advised us (E5) that they did not comply with this condition, and stated: "we were under the impression that the application of work permits was the responsibility of the Company contracted to do the work and we do not know whether such permits were either applied for or issued." However, the condition is quite clear that the Company to whom the grant had been awarded, ie Island Film Studios Limited, had the obligation to ensure that the appropriate permits and certification had been obtained, and Mr Westacott and Mr Slattery would have been familiar with work permit and certification legislation because of their experience in the building trade.
7.6.3 The Work Permit Office Manager confirmed that no work permits had been issued to Allied Steel Frame Structures Limited, nor to Island Film Studios Ltd or any of the other companies in the Lough House group.
7.6.4 When asked to provide details of any visits made to the site by Work Permit Inspectors, Mr Corlett, DTI, in a letter dated 1st July 2004 (E6) stated:
"Two visits were made by Work Permit Inspectors in conjunction with the DHSS to the Island Studios site. On both occasions no workers were present on the site due to adverse weather conditions."
7.6.5 The Committee feels that it is pointless making site visits on days when it is unlikely that work will be in progress due to inclement weather, especially as that was the case on the only two occasions when the Island Studios site was visited.
32 7.6.6 PAC therefore recommends that DTI reviews their procedures:
a. to ensure that grant recipients are made aware of their responsibilities for ensuring that all workers on their site have the relevant work permits and certification, and
b. for checking sites to ensure that this requirement is being adhered to.
7.7 Bu ild in g C om pan y
7.7.1 The principal contractors on the construction were the Stonegate Companies (namely Stonegate Property Limited and Stonegate Property (2000) Limited), and Mr D Westacott was the beneficial owner of both those companies. At the time of the construction of the Studio, these companies were also constructing a small development of houses in a nearby location.
7.7.2 Condition 6 of the Offer Letter stipulated that:
"In the event that the owner's building company is used to provide building services, auditor's certificates of material costs (at cost only) and labour only (calculated at the basic rate per hour plus the company's NI contribution) will be allowed. "
7.7.3 However, the certificate does not appear to have been obtained at the relevant time, as the letter from ISL's accountants, Harding Lewis, is dated 6th March 2003 (A9) and was sent in response to a request from DTI dated 12th September 2002. The Harding Lewis letter states:
"In reviewing sample invoices supporting the claim, we have sought to ascertain that the goods (including labour, plant and equipment) purchased could reasonably have been used for constructing the film studios and related buildings and the purchase of related plant and equipment. We have not sought to ascertain whether goods have been specifically used by The Company for the construction of the film studios, or for their future operation (eg in the case of sound equipment), as in our view this was not possible. "
33 7.7.4 In respect of labour costs, they stated:
"Sample timesheets verified support the claim that the wages or subcontractor labour was in respect of the construction of the film studios. It was noted, however, that the timesheets reviewed were written out by the site manager on behalf of the employee or subcontractor and were not signed by the employee or subcontractor."
They concluded by saying:
"In summary, the scope of our work cannot be conclusive in determining whether expenses for which grant monies have been claimed are bona fide expenses of Island Studios Limited. Rather, due to obvious physical limitations, it is only possible to ascertain whether the goods (including labour), equipment and plant purchased could reasonably have been used for the purpose of constructing and future operation of the film studios.
Based on work performed, no information has come to our attention, which would indicate that amounts claimed in respect of the grant were in respect of (1) building work other than in relation to the construction of the film studios and related buildings or (2) equipment and plant other than may be used for the purpose of operating film studios."
7.7A In our opinion the wording of this certificate from ISL's own accountants does not satisfy the condition laid down in the Offer Letter and we are surprised it was accepted by DTI.
7.7.5 PAC therefore recommends that in cases where a grant applicant's own building company is to be used:
a. quotes should be obtained from that company and at least two other building companies based on the same written specification and submitted to the Department,
b. a satisfactory certificate should be provided confirming that all the expenditure claimed is allowable, and
c. that a proportion of the grant monies be retained until such certificate is produced.
34 8. VALUATION AND SECURITY
8.1 A mortgage debenture for £705,600 (E7) dated 26th June 2001 gave the Department of Trade and Industry first charge over Island Studios Limited's assets for a period of 10 years. The assets included the land, buildings and plant and machinery. However the Government Valuer has confirmed that he was not asked to value the land and buildings until 30th August 2002 and he carried out his valuation in October 2002 (A2/p59). DTI therefore based their valuation for the purposes of the mortgage debenture on Island Studio's own valuation. When asked how the valuation was arrived at, Mr Westacott said: "because 1 talked to local farmers and asked them the current price of land, and 1 assumed ...I took a fair view and said, 'Well it is prime agricultural land, but it does not have planning perm issionso, we thought, taking consensus of the people around, the farmers, that it would fetch about £2,500 per acre, and that is the figure."
8.2 There are various circumstances under which the grant, or part of it, may be repayable for a period of 10 years. The commencement date of the 10 year period depends on the date of installation of the machinery (condition E4) or from completion of the building (condition D4), However, in this case the 10- year term of the mortgage debenture commenced "from the date of the payment to the company of the final installment of the secured sum".
8.3 There is therefore a risk that if a project got into difficulties part way through a grant being paid, the Department would have no charge over the assets of the company.
8.4 PAC therefore recommends that in cases where the Department is to have a charge over the assets of grant recipients -
a. the Government Valuer should prepare a valuation of the assets prior to the award of the grant, and
b. the period of the charge should commence from the date of the payment of the initial installment of grant monies and extend for a 10-year period from the date of payment of the final installment.
[We have been advised by HM Attorney General's Chambers that, in response to this recommendation, the standard Mortgage Debenture has been amended so that the effective commencement date is the date on which the debenture is signed.]
35 9. EQUIPMENT
9.1 T he C o m pan ies In order to fully understand the points made in this section, it is necessary to explain the relationship of the various companies (E8), as follows:
a. Edit Hire (New Technology) Limited (hereafter referred to as EHNTL) was a UK company which was incorporated on 17 June 1998.
The Directors were Mr Nicholas John Napier-Bell (who is also a shareholder of Island Studios Limited) and his son, Mr Duncan Bower Napier-Bell. The shares were held by The Whole Caboodle Ltd.
The company was placed into members' voluntary liquidation on 10 November 2000.
b. Violet Systems Limited (hereafter referred to as VSL), which traded as Edit Hire Post Production Services, was a UK company which was incorporated on 26 October 2000.
The director was Mr Duncan Bower Napier-Bell and the Company Secretary was Mrs Christina Napier-Bell. The shares were held by Mr Duncan Bower Napier-Bell.
A company search obtained in March 2006 confirmed that at an EGM on 20th July 2005 a resolution had been passed for the winding up of the company and the appointment of a liquidator, as "the Company cannot by reason of its liabilities continue its business".
c. The Whole Caboodle Ltd (hereafter referred to as WHL) was a UK Company which was incorporated on 2 October 1997.
The Directors were Mr Nicholas John Napier-Bell and his son, Mr Duncan Bower Napier-Bell and the Company Secretary was Mrs Christina Napier-Bell. The shares were held by Mr Nicholas John Napier-Bell, Mr Duncan Bower Napier-Bell and Mrs Christina Napier- Bell. It was a holding company which held shares in EHNTL, Pridedale Investments Ltd (see (d) below), Basic Films Ltd (see (e) below), The Sound Designers Ltd (see (f) below), and Wholedene Ltd (see (g) below).
36 On 26 September 2003 the directors applied to have the company struck off and the Registrar of Companies gave notice on 25 November 2003 that the company would be dissolved at the expiration of 3 months from that date. d. Pridedale Investments Ltd was a UK Company which was incorporated on 29 September 1997.
The Directors were Mr Nicholas John Napier-Bell and his son, Mr Duncan Bower Napier-Bell and the Company Secretary was Mrs Christina Napier-Bell and all the shares were held by The Whole Caboodle Limited. The company was dissolved on 11th January 2005. e. Basic Films Ltd was a UK Company which was incorporated on 8 August 1995.
The directors were Mr D B Napier-Bell, Mr N J Napier-Bell and Mr P Blot. The Secretary was Mr N J Napier-Bell and he was the only shareholder. The notes the accounts for the year ended 20 June 2001 stated: "Basic Films Limited requires further external finance in order to progress its productions in hand and this is no longer available from fellow subsidiaries of The Whole Caboodle Limited, The liquidator of Edit Hire (New Technology) Limited has agreed to exchange the indebtedness of Basic Films Limited for a commission of 1% of future sales income arising from Basic Films Limited production in hand at the date of the liquidation."
Notice was issued on 28 February 2006 that Basic Films Limited would be struck off at the expiration of 3 months from that date. f. The Sound Designers Ltd was a UK Company which was incorporated on 24 March 1995.
The Directors were Mr N J Napier Bell (until 2 October 2000) and Mr Peter Simpson Hodges and the Secretary was Mr Peter Delfgou. Mr Delfgou, Mr Hodges and Mr N J Napier-Bell held one share each. The Company was dissolved on 22 January 2002.
37 g. Wholedene Ltd was a UK Company which was incorporated on 9 March 1994.
The Directors were Mr N J Napier-Bell (until 3 December 2001) and the Secretary was Mr D Napier-Bell. De Lane Lea Ltd and Ploughcrest Properties Limited held one share each. The Company was dissolved on 20 August 2002.
9.2 T he N eed fo r E q u ipm en t
9.2.1 The original intention had been for Island Studios Ltd to enter into an arrangement with VFG (see paragraph 5.1) for the hire of equipment. This arrangement would have allowed Island Studios Ltd to hire equipment as and when required. However VFG withdrew from the project and ISL decided to purchase equipment instead.
9.2.2 This was justified to the Committee by the Directors of ISL on the basis that film producers would expect those facilities to be provided. However, the film producer to whom the Committee spoke during their tour of the Studio said that most producers hire their own equipment as they all have their own particular preferences and film equipment is soon outdated, because of the speed of development in this area. This was recognised in the business plan, as follows: "The editing equipment has been written off over 4 years". (However, see paragraph 9.4.4 below).
9.2.3 The usage rate of the equipment was covered in the oral evidence, as follows:
"Copt Douglas: Has the equipment been used very often?
Mr Slattery: No, unfortunately, that is one of the things that we are still trying to push."
9.2.4 In the ISL business proposal, it was expected that £580,000 over 5 years would be earned from the hire of editing and post production equipment. Mr N J Napier-Bell in his evidence stated that the company had earned £135,000 in the 2 years up to 2003, and the 2004 figures were expected to exceed that. Documentary evidence to back this assertion was provided by Mr N J Napier-Bell (A ll). However it shows that, for example, Catwoman
38 was filmed in Vancouver, edited in London and invoiced through the Isle of Man, raising questions about the relevance of the equipment held in the Isle of Man.
9.2.5 The latest figures for income generated from the hire of equipment are set out in Appendix 11. These figures do call into question whether all of the equipment is being used and rental income being received on it. It should be noted that Condition E4(iii) of the Terms and Conditions gives the Department the right to reclaim part of the grant within a 10-year period if the plant or machinery ceases to be used.
9.3 T he P urch ase of E q u ipm en t
9.3.1 The Business Proposal (A6), which was submitted on 27th October 2000, stated that the editing equipment would be supplied by Mr Nicholas John Napier- Bell's company, Edit Hire (New Technology) Limited (EHNTL), in exchange for share capital. However, our investigations revealed that EHNTL had gone into creditor's voluntary liquidation on 10th November 2000 (E8). An invoice dated 17th October 2001 (A10) in respect of the equipment was subsequently submitted from Violet Systems Ltd, trading as Edit Hire Post Production Services (A10). This is a company which was incorporated on 26* October 2000 (ie 3 weeks before Edit Hire (New Technology) Ltd went into liquidation) and the only shareholder was Mr Duncan Bower Napier- Bell, the son of Mr N J Napier-Bell.
9.3.2 Mr Westacott and Mr Slattery were advised of the liquidation of Mr N J Napier-Bell's company during the evidence, and they replied that they were unaware of the fact. There was confusion as to which Edit Hire company they had been referring to in their Business Proposal:
"The Chairman: 1 think that some confusion is caused with this term 'Edit-Hire', because there are the two different companies, but I think your position is that we are referring to Edit Hire (Post Production)?
Mr Westacott: Absolutely correct, yes. That is -
39 The Chairman: And you were referring to Edit Hire (Post Production) right from the point where you put forward your business proposals?*
Mr Westacott: Absolutely, yes. We do not use the long version, unfortunately. It is just Edit-Hire.
The Chairman: ...Mr Nick-Napier Bell does not have an interest in Edit-Hire (Post Production). He does not have a direct interest, anyway,"
Mr Westacott: Right Well, yes, I think he has passed it to his son."
[* The Business Proposal was submitted on 27th October 2000, but it should be noted that Violet Systems Ltd t/a Edit Hire (Post Productions) Limited was not incorporated until 26th October 2000.]
9.3.3 The invoice was submitted to DTI in support of the grant application and was accompanied by a signed F103 form dated 9th November 2001. Form F103 includes the statement "The claim hereby made must be supported by a receipt invoice or certified statement in respect of each item of expenditure detailed below." However this invoice was not paid in cash, but by the issue of share capital to Mr N J Napier-Bell, who is not a director or shareholder of the company which supplied the equipment.
9.3.4 However, the allocation of share premium in respect of the equipment was not shown in the annual audited accounts for the year ended September 2002, as admitted by Mr Slattery during his oral evidence (A2/p9).
9.4 C onfirmation of th e E xisten ce, Co n d itio n and V alue of th e E q u ipm en t
9.4.1 The Audit Certificate
9.4.1.1 One of the conditions attached to the grant was "Auditor's Certificate to be provided to ensure that equipment sold by Edit Hire is a fair value and does not include a profit element," The final installment of the grant monies was paid in June 2002. However, DTI did not request an audit certificate until 12th September 2002. In reply to that request, ISL's auditors, Harding Lewis, wrote to DTI on 6th March 2003 but stated that they had not been able to satisfactorily examine the equipment (A9).
40 9.4.1.2 The valuation provided by ISL's accountants was an undated letter from Mr John Harris of Root6 (A12). The valuation states: "I write to confirm that having reviewed the pricing in the proposal dated May 2001 from Mr Nick Napier- Bell of Edithire that all pricing shown is representative of the current market pricing. In fact, in many cases I would say the pricing is actually below market rate"
9.4.1.3 Condition E3 of the Terms and Conditions states that: " The applicant must confirm in writing that the plant and machinery, being in this case, the subject of Government financial assistance, has been received and is in satisfactory condition." However, there is no record in the DTI file of this confirmation having been requested or received.
9.4.2 New or Second-hand equipment
9.4.2.1 There was confusion amongst the written and oral evidence about whether the equipment was new or second-hand.
• Mr Slattery, in his oral evidence, stated: "It was new, as far as I was aware."
• The Ernst & Young Report stated: "we understand the majority will be new".
• Mr Bawden, in his oral evidence, stated: "1 knew it was not brand new, some of it"
9.4.2.2 During the oral evidence, there was the following interchange with Mr Napier-Bell:
"The Chairman: What proportion of this equipment was new and what proportion was, should we say, used equipment?
Mr Napier-Bell: I would say probably ...If I can just explain what designates 'new' with... If I can explain what most of the equipment is, and then you will see what I am trying.... Because it may sound bizarre. Most of it is computers, film-editing computers. What designates it as 'new' in those terms is what software they are carrying."
The Chairman: You say it Ithe software] could have a life of two years.
41 Mr Napier-Bell: Yes, and we have always made a policy of upgrading everything the minute it comes out, because that way you maintain the value of the investment."
9.4.2.3 It was not clear whether the original undated certificate from Root6 referred to second-hand values.
9.4.2.4 In response to a query from the Committee to DTI regarding this matter, Mr C Corlett, DTI Chief Executive, replied on 1st July 2004 (A12) stating:
"Since my oral evidence I have confirmed that Root 6 valued the equipment after physically inspecting and assessing the equipment in the full knowledge that it was second hand equipment."
9.4.2.5 A subsequent valuation obtained in response to a request from this committee from Root6, which was undated but received at DTI by fax on 29th March 2005, is set out in Appendix 12, and states "I confirm that root6 viewed, in May 2001 at 11 W'ardour Mews, London, all the equipment detailed in Edithire's proposal, of the same date. Furthermore, the systems had all received the latest software updates making them comparable with the current new shipping systems. As this is the main element of cost with Avid systems the only element of second-hand items is represented in the computer platform alone (This is a relatively inexpensive element of the system)."
9.4.2.6 The evidence therefore confirms that all of the equipment was second hand. However, a letter from DTI (E9) dated 5th April 2002 states that Capital Grants can only be given for new plant and machinery.
9.4.3 Examination of the Equipment
9.4.3.1 Mr Bawden, DTI Chief Executive at the time, stated that he did not know if a DTI representative had inspected the equipment prior to payment of the grant. 9.4.3.2 In a letter dated 1st July 2004 (E10), Mr Corlett stated:
"Condition 4 gives the DTI an option to inspect equipment should it consider it to be appropriate in the individual circumstances of a particular case. In this instance the DTI did not consider it necessary to inspect the equipment prior to payment being
42 made due as the Department was in possession of a third party valuation provided by a respected industry expert as well as invoices. DTI officers and representatives made numerous visits to Island Studios, during which the equipment was observed in use."
9.4.3.3 Harding Lewis (ISL's auditors) were unable to carry out a physical check on the equipment, stating in a letter dated 6th March 2003 (A9):
"We attempted to physically verify a sample of equipment purchased. A number of items were not available for inspection. We were informed that such items are on occasion hired out and so held at other locations. We have not verified this."
9.4.3.4 A letter from Chris Corlett, DTI, dated 21st November 2003 (E10) stated that
"we have viewed the equipment at the studio on a number of occasions. More recently ISL has confirmed in writing the equipment currently located at the studio and that being used off Island on Isle of Man productions. It should be noted that the equipment will move to and from the Island depending on the specific arrangements of each project and this was understood by the DTI at the outset."
9.4.4 Valuation
9.4.4.1 When Mr Ennett, Government Valuer, prepared a valuation of the assets of Island Studios Ltd in August 2002, a year after the equipment had been purchased, he valued the editing equipment at £100,000. He stated: "It is mainly filming and equipment of that nature, which I would not see, in my opinion, as having a great second-hand value."
9.4.4.2 However, the accounts of Island Film Studios Ltd for the year-ending 30 September 2002, contrary to the Business Proposal, do not show any depreciation of the equipment, which is still valued at the purchase price of £689,800. Mr N J Napier-Bell explained that the value of the computing equipment is maintained by regularly updating the software. However, the equipment schedule also lists amplifiers, speakers, cd players etc, which we would have expected to depreciate in value. In the accounts for the year ended 30 September 2003, depreciation of £137,960 is included, leaving a net value of the equipment as £551,840, which is still substantially in excess of the Government Valuer's valuation.
43 9.4.4.3 PAC are therefore concerned about the inadequacy of the auditor's certificate, which was required under Condition 3 of the Offer Letter. The original certificate was an undated and unsigned document from Root6 which was obtained from the vendor of the equipment (Mr N J Napier-Bell). A subsequent valuation obtained by DTI from Root6 (see paragraph 9.4.2.5 above) stated that at the time of the valuation, all the equipment was located at their own premises. We are surprised, taking into account the confirmation from ISL directors and DTI that a large proportion of the equipment is usually out on loan, that in May 2001 it was all assembled in one location, that location being Root6's own registered address. We are also surprised that Root6 examined each item of equipment to ascertain which software systems had been installed. It should also be noted that Root6 were listed as a creditor in the sum of £6,157 in the liquidator's report dated 10th November 2000 on Edit Hire (New Technology) Ltd (Ell). It is also interesting to note that in the liquidator's list of creditors, Root6 and Pridedale Investments Ltd are both listed at the same address - 11 Ward our Mews. Pridedale Investments Ltd is one of the Napier-Bell group of companies (see paragraph 9.1 above)
9.4.4.4PAC therefore recommends that auditor's certificates must be obtained from independent and appropriately qualified professionals, who must certify that they have no connection with the applicant,
9.5 O w n ersh ip of th e E qu ipm en t
9.5.1 The equipment was invoiced by Violet Systems Ltd but paid for by allocation of share capital to Mr N J Napier-Bell. DTI also supplied to the Committee a copy of a letter from Mr N J Napier-Bell's accountants, Schavierien & Co, (who were also creditors of EHNTL) dated 7th November 2002 (A12) which stated "to the best of our knowledge and belief the equipment provided to Island Studios as detailed in the attached schedules was sourced from Mr Napier-Bell and his associated businesses."
9.5.2 A letter was sent on 10th August 2004 from the Committee to Mr D B Napier- Bell, Violet Systems Ltd (which went into liquidation in July 2005) asking for details of how that company received payment for the equipment and who owned the equipment at the time of sale but, despite a reminder, no reply has been received.
44 9.5.3 In his evidence (A2/p45), when asked about ownership of the equipment, Mr N J Napier-Bell stated:
"Some of it was in my personal ownership. Some of it was in Edit-Hire Post- Productions' ownership".
9.5.4 The Committee wrote to Mr N J Napier-Bell asking if he could provide supporting documentation to confirm his ownership of the equipment which was supplied to Island Studios Ltd. His accountant telephoned the Clerk to the Committee to say that it was not possible to supply this information because of the amount of work involved.
9.5.5 Edit-Hire Post Productions Limited is the trading name of Violet Systems Ltd. When asked about the ownership of the assets held by that company, Mr N J Napier-Bell replied that he and his son were the beneficiaries of the company (A3). However Mr N J Napier-Bell was not a shareholder or director of that company.
9.5.6 The inventory of equipment which formed an annex to the mortgage debenture does not include serial numbers or other identifying information (A10). Serial numbers which tie in with purchase invoices are a method of establishing ownership of equipment.
9.5.7 The Committee also wrote to Island Studios Ltd on 4th May 2004 asking if they could supply a current register of assets. Island Studios replied to say that they had referred the query to Mr N J Napier-Bell. The only reply received therefore was from DTI, which was a copy of a list of equipment and its location, which was sent by Mr N J Napier-Bell to DTI on 11th May 2004. This list of equipment is identical to that attached to the mortgage debenture in 2001. The Committee regard it as highly unlikely that the equipment assets had remained unchanged for 3 years. The maintenance of the Register of Assets is covered in paragraph 9.6 below.
9.5.8 Edit Hire (New Technology) Ltd went into liquidation on 10th November 2000 with net liabilities of £750,000. The majority of the equipment of that company was financed by leasing agreements. However, the liquidator's Statement of Account (E ll) also shows 'unencumbered7 plant and equipment of book value £331,000 with an anticipated recovery value of £150,000.
45 9.5.9 The liquidators advised the Committee that they had appointed an agent to dispose of these assets, and those agents supplied the committee with a record of the sale (E ll) which only raised £426.48. That record of sale states that the liquidators did not enclose an inventory with the equipment which was sent to the agents. The agents have confirmed that the auction house which disposed of the goods has subsequently gone out of business, so there is no record of who purchased the equipment.
9.6 R eg ister of A ssets
9.6.1 The offer letter to VFG contained the condition: "Company to maintain a register of equipment, to be open to the Department's inspection, which identifies the extent to which the equipment is off the Island ." However, no similar condition was attached to the Island Studios grant.
9.6.2 The Committee has requested a copy from ISL of the Register of Assets on a number of occasions and has always been given a list which is identical to the original schedule of equipment purchased (A10), and the values of the individual items of equipment have remained the same as at the time of purchase. The original Business Plan stated that the value of the equipment would be written off over 4 years and, as the purchase invoice was dated October 2001, that period would expire on October 2005. The draft accounts for the year ended September 2004 show the value of the equipment as £413,880 and the draft accounts for the year ended September 2005 show the value of the equipment as £275,920.
9.6.3 PAC are concerned with the limited extent of information given on the Register of Assets. The location of some of the equipment is simply recorded as 'USA' or 'London' and the list does not include serial numbers, dates as to when the equipment was transferred between locations nor details of when the software was upgraded. The Committee believes that this level of information is totally inadequate for a register of assets, and we are surprised that DTI have accepted it as satisfactory, especially as they have a 10-year charge over the equipment.
9.6.4 As we were nearing completion of this Report we requested from DTI "a copy of the current Register of Assets, showing the location of the assets and current value and which items have had the software updated".
46 9.6.5 DTI replied on 12th July 2006 (E12) that: "Mr Westacott has asked for the equipment to be sent to the Island. The Company has not incurred any further costs relating to new equipment and so the asset register as existing still applies. In this regard, the DTI has indicated to the Company that it would like to make a further inspection of the equipment and to improve the detail of the Register by attaching where possible, serial numbers to it."
9.6.6 We noted that it was stated that all the equipment was located in London at the time of its evaluation by Root6 in May 2001. We were therefore surprised to see that relatively inexpensive equipment, such as CD players and amplifiers, had subsequently been sent to the USA. We would have expected such equipment to be fairly standard and readily available in that country, so we question whether it is good practice to transport such items to distant locations.
9.6.7 PAC therefore recommends that, in cases where a grant is given towards the purchase of plant or equipment and one of the conditions is that the grant could be repayable under certain circumstances, a further condition be attached to the grant requiring the recipient to maintain an adequate register of assets which should include serial numbers, current value, location and whether the plant/equipment is still in use by the grant recipient. The register must be kept up to date for the whole of the period under which the grant could become repayable.
9.7 C o n clu sio n
9.7.1 PAC therefore consulted with HM Attorney General who shared the committee's concerns that we had not been able to conclusively establish the original ownership of the equipment or its value, and there is therefore doubt as to whether Island Studios Limited has title to it.
9.7.2 HM Attorney General has expressed concerns regarding the cost- effectiveness of undertaking further enquiries on this matter, but would do so if requested by Tynwald.
9.7.3 PAC therefore recommends that the purchase of the editing equipment for £689,800 and subsequent grant application in respect of it be referred to HM Attorney General for further investigation.
47 10. MONITORING THE PROJECT
10.1 A p p r o v a l o f I n v o ic e s fo r P a y m e n t
We obtained copies of the claim forms and supporting documentation which were submitted to DTI from Island Film Studios in respect of the payment in installments of the grant. When examining the invoices we were concerned that:
a. Some duplicate invoices were approved (However, in the event there was no overpayment resulting from duplications, as the total amount of the invoices submitted was greater than the grant awarded, so payment was restricted to the total grant originally approved).
b. Handwritten notes of wages to employees were accepted and paid (E13)
c. A large proportion of invoices submitted for payment were not in the name of Island Studios but made out to the name of a third party (E13). This is of particular concern, as in this case the applicant's own building company was being used, and it was essential that only the costs applicable to the Studio project could be claimed.
There is no record of any of these concerns being raised by DTI with the applicants.
10.2 C la im f o r G r a n t fo r P u r c h a s e o f B u il d in g s
10.2.1 An even more serious concern is that the first application for funding included £379,000 for the building conveyance. In an accompanying letter from Island Studios dated 2nd July 2001, Mr Slattery said "The amount included on this item is buildings only as noted in our original application/' (A13).
10.2.2 A handwritten note at the foot of this letter, apparently written by Mr D Kelly, DTI, says:
"Spoke to Phil Slattery re the conveyance of the buildings for £379K. This is the sale of the existing old buildings on the site to Island Studios Ltd by Don Westacott. I
48 told Phil that this wasn't eligible for assistance, but he said that it was part of the approval I phoned Sheila [Thomson] and she was of the opinion that the £379K was for refurbishing and planning fees for the old building. She said she'll speak to Steve Christian. 25.7.01.
Sheila phoned 30.7.01 - she spoke to KB [Ken Bawden] who said they couldn't claim the £379K. They can claim refurbishment though as that was what Sheila thought it was for. KB said it may be possible to get a loan but not to mention it to them at this stage. Sheila said iflOM Bank wants second charge they'd have to write to us, for us, in turn, to write to AG's [HM Attorney General's Chambers]. But there was no mention of loaning money from 10M Bank on application. We need to know what the financial implications are. 1SL need to be told that IOM Bank need to send details of charge required and that it needs Govt approval.
Phoned Phil Slattery and explained all of the above, but he's not happy. He will contact Sheila on his return from holiday. 30.7.01."
This claim was therefore not approved.
10.2.3 It therefore follows that the construction/refurbishment costs for the Film Studio as shown in the Business Plan prepared by Island Studios Limited included £379,000 for the purchase of the buildings. Had that been appreciated at that time by DTI, the refurbishment costs on which the grant calculation was based would have been reduced by this amount, as it was not eligible for grant aid.
10.2.4 Once this misunderstanding became apparent, the grant, which is a percentage of allowable costs, should therefore have been adjusted accordingly, but this question was not raised by DTI nor Ernst and Young and the full amount of grant, which had been calculated on the basis of the original application, was subsequently paid. However, in order to justify payment of the full grant, the original estimate of building costs of £1,145,200 would have had to have risen by £379,000, ie an increase of 33%.
10.2.5 This misunderstanding also raises concerns over the assessment of the Business Plan, as the actual construction/refurbishment costs were inflated by the purchase price of £379,000 but were still considered to be acceptable by Ernst & Young.
49 10.2.6 PAC therefore recommends that the DTI reviews its procedure for
a. assessing grant applications, especially in respect of specialist projects where there may be insufficient local knowledge to adequately check the information contained in the business plans, and
b. checking all invoices which are submitted in support of grant payments to ensure that they are all allowable under the terms of the grant award.
10.3 P ro gress visits
10.3.1 Condition A3(b) states: "Representatives of the Department will make visits each half year to discuss the progress of companies which have received financial assistance."
10.3.2 In the letter dated 21st November 2003, (E14) Mr C Corlett, DTI, stated "Checking diaries, we are aware of at least 12 visits to the studio in connection with progress, in relation to the processing of claims for payment (there being around a 1000 invoices involved with this application) and regarding forthcoming productions and ongoing improvement to the studio. It was not felt necessary to record formal notes for the majority of these visits/'
10.3.3 However, we see little point in this condition, if such visits are not formally recorded. Efficient monitoring of progress can only be effected if there are adequate records of discussions which have taken place, particularly to ensure continuity if different members of the Department undertake these visits. In this case it was particularly important to ensure that the project was being satisfactorily managed, as the future expansion of the Island's film industry was partly dependent on the service provided by the Island Film Studios.
10.3.4 PAC therefore recommends that DTI reviews its follow-up procedure to ensure that:
a. regular visits are carried out by the same officer(s) wherever practicable;
50 b. there should be a clear understanding of the issues to be covered in those checks; and
c. there should be a written record of each visit which would include the date, the officer(s) who undertook the visit and the findings.
10.4 Su bm issio n of A ud ited A ccounts
10.4.1 Condition A3(b) states: "All companies must submit a copy of their Audited Annual Accounts, together with a written report of their progress."
10.4.2 In a letter dated 21st November 2003, (E14) Mr C Corlett, DTI, stated: "Island Studios Ltd (ISL) was a newly formed company so did not have audited accounts to submit with the application for financial assistance. " However Island Studios Ltd was not a new company, having been incorporated on 9th October 1987. If it was to be treated as a new company, as it had not previously been trading, the requirements under Condition A3(a) for new companies are:
"During the first year of operation the information to be provided will include cashflow statements backed up by copies of bank statements, and management accounts incorporating details of sales, purchases and wages/salaries. This information must be provided monthly for the first six months and quarterly thereafter."
10.4.3 DTI confirmed in a letter dated 4th July 2006 (E15) that " Subsequent to the completion of the studio, the Department was totally aware of the revenue being generated by Island Studios Ltd and the Department's film officers liaised closely with them regarding film bookings. The first audited accounts are to the 30th September 2002, followed by management accounts to March 2003, }une 2003 and September 2003. Thereafter, we have annual accounts."
10.4.4 The letter also states "It is relevant to note that the Department is currently working on a new Industry Bill and the types of assistance available and standard conditions attached to offers of financial assistance will be reviewed as part of this process with the Attorney General's Chambers. We recognise that this particular condition needs reconsideration as it can place an onerous administrative burden on a business at a time when the most efficient use of resources is for business development. However, a right to receive any financial information that the
51 Department believes is necessary will be retained as will the request for quarterly management accounts for start up companies." PAC is concerned about the suggestion that reporting requirements may be relaxed in future.
10.4.5 We note that, although DTI often has a charge over the assets of a company for several years following the payment of a grant, there is no requirement for such companies to provide annual accounts for the term of that charge.
10.4.6 We believe that there may be merit in this requirement being included in the terms and conditions. The Department is empowered to make progress visits (see paragraph 10.3 above), but such visits may not reveal that the company is experiencing trading difficulties. We believe that the submission of annual accounts would assist in the Department's monitoring process to protect its investment.
10.4.7 PAC were therefore going to recommend that Condition A3(b) should be amended to read:
"All companies must submit Audited Annual Accounts, together with a written report of their progress, within six months of the end of the relevant financial year for each year in which the department has a charge over the assets of the company."
10.4.8 However, subsequent to the Report being sent out to the relevant parties (including HM Attorney General), we were advised that the revised standard mortgage debenture now includes a requirement to "give to the Department such information including but not limited to annual reports and financial statements relating to the affairs business and assets of the Company as the Department may from time to time reasonably r e q u i r e PAC is satisfied that this fully addresses their concerns.
11. LOUGH HOUSE ANIMATION
Lough House Animation, which is one of the Lough House group of companies, provided an apprenticeship scheme for animators. The two-year courses were approved under the Craft and Technician Training Scheme (Manufacturing, Construction and Service Industries) 1995 (A 14), and the DTI provided financial support under that scheme.
52 11.1 B u s in e s s S u p p o r t S e r v ic e
11.1.1 The company was also in receipt of assistance under the DTI's Business Support Service, which DTI informed us was "a scheme aimed at encouraging local businesses to improve productivity and efficiency.". (E16) Salford University administered the scheme on DTI's behalf and appointed Mr John Bannister and Mr Quentin Canty (Business House Ltd) to assist Lough House Animation Ltd (LHA), as "the skills required by Lough House were very specific and at the time these were not available through any Isle of Man accredited consultants on the Business Support Service
11.1.2 That project was "satisfactorily completed and signed off by LHA in July 2000" and, despite suggestions to the contrary, we have no evidence that Mr Bannister and Mr Canty entered into any other contractual arrangements with Island Studios Ltd.
11.2 C ertification
11.2.1 The Craft and Technician Training Scheme (Manufacturing, Construction and Service Industries) 1995 (GC38/95) (A14) states in para 8 "The term of training shall be for such a period until the trainee is certified by the Division (ie the Training Division of the DTI) as a Craftsman or Technician. ... To obtain such certification the trainee must have satisfactorily completed training together with the prescribed skills test, in association with an approved course of further education, where possible."
11.2.2 DTI has confirmed that no certificates of a nationally recognised qualification were issued to apprentices on the scheme. There were no prescribed skills tests, although assignments and practical tasks were part of the course design. The apprentices on the course could have attended any other training courses that were deemed as necessary to their sector, at no cost to themselves, but no applications were received. (E18). Out of 29 apprentices, 22 successfully completed the course (c 75%). Mr Slattery stated that: "Unless you want to do a degree in animation, there is not a specific qualification." (A2/pl6). However, we have ascertained that NVQs in animation were available at that time, and Skillset had animation standards which were awarded jointly by Skillset/OUVS.
53 11.2.3 Mr Adrian Bell of Lough House Animation was the person who dealt with training under the apprenticeship scheme. In his oral evidence, when asked if the objective of the course was that the students could gain entrance into the UK media and film courses, he replied: "We wanted them to stay in-house. We were training them up to work for us. Always. We did not really want them to move." (A2/p31)
11.2.4 We believe that it is desirable for students who successfully complete a course of study to receive a nationally recognised certificate of qualification to assist them in applications for future courses of study or employment.
11.2.5 A report commissioned by DTI dated August 2004 (E l7) recommended that "SkiUset qualifications and New Entrants Schemes could be offered through an establishment such as the Isle of Man College or the Training Centre. Experience could be gained through Production Companies filming on the island. This would enable students to enter the industry relatively quickly."
11.2.6 We therefore do not agree that Government support should be given for schemes which do not offer accredited qualifications/ which are recognised by the relevant industry. In the minority of cases, where the limited number of students or the particular specialism of a course prevents accredited courses being offered in the Island, the Department must be satisfied that the course is fit for purpose and it should be subject to regular and efficient monitoring by the Department.
11.2.7 PAC therefore recommends that DTI should introduce a qualifying condition for Employers' registration under the Craft and Technician Training Scheme and similar Schemes stipulating that the Employer must, wherever possible, train towards the award of an accredited qualification, which is recognised by the relevant industry, to all apprentices who successfully complete their courses.
11.3 G rants
11.3.1 A memorandum from DTI (E18) states in the second paragraph that "the agreement was that grants 1-4 be appropriate for this type of programme." The basic payment under that scheme was £66 per week for an initial period. Thereafter the grant was based on a proportion of the salary paid to the trainee - either 55%, 25% or 15% dependent on the amount of time spent on
54 on-the-job training. DTI have confirmed that the 55% rate was paid, but only on the proportion of time spent on full-time training.
11.4 C h e c k s b y DTI
11.4.1 DTI stated that "Training Services undertook monitoring of the trainees. This included several site visits per year. During the site visit an officer of the Department would meet each trainee participating in the training programme. Each individual was measured against their progress on the in-house programme and was asked to comment about their work placement or if they were experiencing any difficulties." (E18)
11.4.2 When the Chairman asked Mr Adrian Bell "What liaison did you have with the DTI Training Division in relation to those students? Did they come along and see what was being done or did they come along and provide a s s e s s m e n t Mr Bell replied "No....When they had finished, 1 had to sign the certificate and a member of the DTI signed the certificate and then it was handed on to them." He said that DTI visited "Maybe once a year" (A2/p52)
11.4.3 Data supplied by the DTI (E18) records that majority of the students were visited 3 times throughout the duration of their course, and the others were visited between 1 and 6 times.
11.5 O t h e r C o u r s es
11.5.1 DTI confirmed that the Manx Multi Media Centre (MMMC) provided a two- year training programme which was accredited by the Mersey Open College Network and awarded National Open College Network Certificates. The NOCN is a qualification awarding body and its certificates are accepted as a means of entry to further study and recognised by a large number of employers. (E19) However, the MMMC has now been closed.
11.5.2 DTI have informed us that the current provision for training is: "Bailey Beg Ltd currently employs 3 local trainee animators and is recruiting a further 5 or 6 local trainees for their rendering department... The Isle of Man College offers a two year Diploma Course in media Studies in addition to A level courses in Film Studies and Media Studies which son lead to a range of opportunities within the industry. "(E20)
55 11.6 O pportunities t o w o r k in t h e fil m in d u s t r y
11.6.1 Animation
Mr Adrian Bell stated that the main purpose of the animation trainee scheme was to prepare students for subsequent employment by the company. However in his oral evidence, Mr Bell confirmed that a large number of the employees and himself had been made redundant in 2003 leaving about 5 employees still working for the company (Lough House Animation).
11.6.2 Films
When questioned on the opportunities for local employment on films which receive financial incentives from the Isle of Man Government, Ms Dugdale of the Film Commission stated that the Commission "because of our low unemployment levels, we would never, at this moment in time, insist on a particular level of local labour, because there is a real danger we could not provide it for them" for films (A2/p41). However, they do include in contracts a requirement that "they must take on in addition to the local labour that they employ anyway, a minimum of four individuals in recognised trainee roles."
11.6.3 Ms Dugdale did state that "My dream is always to have an indigenous skill base.", and she confirmed that the DTI has taken on a research student to investigate what the requirements of film producers were and what educational provision would be necessary to supply that demand. (See para 11.2.5) That Report (E17) included the following conclusions:
a. "For students to remain on the Island, fulltime employment would need to be provided, as the nature of film is that it is erratic, it is difficult for it to provide a regular income. Perhaps investigations into an Island-based Production Company may solve this."
b. "Whilst there are people on the Island working in the Film Industry, it is hard to gauge whether or not these people have the relevant qualifications as we do not have full and current CVs."
c. " Our Local Service Directory is sent out to whoever requests it, but it doesn't contain the information that Production Managers need, as it doesn't list any
56 details of their past workjCVs or references. One idea is that currently used by other Film Commissions where they list crew online. This would enable their details to be accessed by whoever needs to recruit staff anywhere in the world."
When asked about the action taken in response to the recommendations in that report, DTI replied that "The Department takes a long term view regarding he development of local people within the film industry. Many of the recommendations included in the report are in progress and will accordingly involve a long-term approach", (E20)
12. COMPANY MATTERS
A chart showing the relationship between the various companies in the Lough House Group is set out in Appendix 15.
12.1 Annual Returns
12.1.1 During the House of Keys debate on 29th October 2002 (E22), Mr Cannan stated that several of the companies in the Lough House Group were late in filing annual returns, as follows -
"Island Studios Limited: Last annual return filed and accepted for the year to 14th April 2001, filed one year late and no return for 2002 yet filed.
Stonegate Property Limited: Struck off March 2002 due to failure to submit annual returns, restored to the register 19th September 2002.
Lough House Animation Ltd: Last annual return filed and accepted for the year to 8th September 2000, the annual returns for this company are two years out of date.
Lough House Limited: Last annual return filed and accepted for the year to 1st September 2000, the annual returns for this company are two years out of date.
57 Lough House Media: Last annual return filed and accepted for the year to 8lh September 2000, the annual returns for this company are two years out of date."
12.1.2 The Committee obtained company searches on 7th February 2003 (E21) and at that time the latest annual returns submitted were as follows -
a. Island Studios Limited - Annual Return for the year ending 31st March 2002 submitted on 6 November 2002. Directors: D A Westacott, P Slattery Shareholders: D A Westacott 51, N J Napier-Bell 49
b. Lough House Animation Ltd - Annual return for the year ended 8th September 2002 submitted on 6 November 2002 Directors: D A Westacott, A L Q Bell Shareholder: Lough House Limited
c. Lough House Limited - Annual return for the year ended 1st September 2002 submitted on 6 November 2002 Directors: Mrs A M Westacott, D A Westacott, Ms S J Muller, A L Q Bell, P A Slattery Shareholders: Mrs A M Westacott 23500, D A Westacott 47000, Ms S J Muller 2250, A L Q Bell 2250.
d. Lough House Media Ltd - Annual return for the year ended 8th September 2002 submitted on date unknown (date stamp illegible) Directors: D A Westacott, P A Slattery Shareholder: Lough House Limited
e. Stonegate Property Ltd - Annual return for the year ending 25th January 2002 submitted on 4th September 2002 Directors: R K Halsall, R A E Jelski Shareholders: R K Halsall, R A E Jelski
f. Stonegate Property (2000) Ltd - Annual Return for the year ending 14th April 2002 submitted on 6 November 2002 Directors: D A Westacott, Mrs A M Westacott Shareholder: D A Westacott
58 12.1.3 Mr Carman also stated that the shareholder for Lough House Animation Ltd was Lough House pic and that company had been dissolved two years previously, so the company therefore had no shareholders. However, the company search shows that Lough House pic became Lough House Limited, and the annual return of Lough House Animation Ltd dated 8th September 2002 stated that Lough House Limited owned all of the 1000 shares.
12.2 Stonegate Property Ltd
12.2.1 Whilst giving evidence to Mr Speaker (E22) (see para 2.4) on 15th July 2002, Mr Slattery confirmed that Stonegate Property Ltd had been struck off "because of a misunderstanding between ourselves and our advocates...... The reason we were struck off is because it was a dormant company and it was a company we did not want. So we did not fill in the necessary forms etc for them." He confirmed that it was solvent at the time it was struck off. He went on to contradict himself by confirming that their intention was to have the company reinstated because "The reason why it is important for it to be reinstated is basically it still owns the asset of the land that we are building the buildings (ie four houses) on" although he had said earlier that "I actually transferred the assets from Stonegate Property to Stonegate Property (2000)."
12.2.2 Mr Karr an also maintained that despite being struck off, "Stonegate Property Ltd was still apparently trading." However, Mr Cannan in the debate on 29th October 2002 (E22) stated that Stonegate Property was not trading at the time of the construction of the film studio and had not traded since late 2000.
12.2.4 A copy of a letter from the Supervisor of Companies confirmed that Stonegate Property Ltd was struck off on 25th March 2002. A company search (E21) confirmed this and that the company was re-instated on 19th September 2002.
12.3 Conclusion
12.3.1 It may be that knowledge of these irregularities would not have affected the approval of the grant in this case, but we are concerned that DTI does not as a general policy obtain company searches on grant applicants and associated companies before approval of a grant.
59 12.3.2 PAC therefore recommends that company searches be obtained on all companies for which grant applications are being considered. This should extend to other companies in the same group as the applicant company and companies with which the applicant company is to enter into partnership.
However, we recognise that the introduction of the Companies Bill 2006 may affect the amount of information which is available from company searches, as clause 85(1) states: "An annual return shall be made by a company containing such particulars as may be prescribed". These particulars will subsequently be prescribed by the Registrar by regulations.
13. OTHER MATTERS
13.1 Dishonoured Cheque Claim
13.1.1 In the House of Keys on 25th June 2002, Mr P Karran MHK asked the then Chief Minister, Hon R K Corkill MHK: "Is the Chief Minister aware that the police were recently called out to the new film studio because of an altercation over a dishonoured cheque? Has the Chief Minister been advised by the Minister of Trade and Industry if the company building the film studio is insolvent?" (A3). Mr Corkill replied: "7 have not heard any of these allegations or comments before. I am quite happy to follow up on the suggestions... I think it is unfortunate that this negativity is abroad when the film studio was just about to, hopefully, grow into something the Island can be proud o f”
13.1.2 During the debate in the House of Keys on 11th July (E22), Hon A R Bell MHK stated that he had attempted to investigate the allegations about insolvency and dishonoured cheques and had written to Mr Karran requesting further information to enable him to make enquiries. Mr Karran had not replied. Mr Karran said "I have not replied to his letter. I had a beautiful reply, but I actually almost had the situation of certain cheques in order to prove what I said as far as certain things and I am still waiting for that proof to be given to me ...". He stated that it had been reported to him that "an altercation had taken place between a supplier and an official of a company involved in the project. ... The altercation, 1 was advised, concerned a dishonoured cheque. I was further advised that the police had been called to attend."
60 13.1.3 In the evidence given in Mr Speaker's report (E22), Mr K Bawden stated:
"My understanding - and this is not from the police - I have been advised that the police have visited the site, but not in a matter in relation to Island Studios but to the people who are actually a group of people involved in cladding the building...... It was not in relation to a dishonoured cheque."
13.1.4 Mr Slattery stated: "I have actually got a statement from our bank saying that no cheques have ever been dishonoured from Island S tu d ios (E22). However Mr Westacott in his evidence stated that "Island Studios is an embryo company: it is not yet trading because we are still building the fabric.".
13.1.5 Referring to the police visit, he stated: "it came to light that we had a group of riggers at the studio who were putting up the cladding on the building and who just disappeared. When I asked where they were and why they were not working, I was told that they had caused an upset in Ramsey town centre the previous evening and that the police were looking for them and basically they had left the Island." (E22). He had received this information from his building manager.
13.1.6 Isle of Man Constabulary stated: " There is no record of Police having been called to deal with a dispute concerning a dishonoured cheque or otherwise. One officer recalls visiting the Island Studio's site during the course of building construction, seeking a group of males thought to have been involved in an incident in a Public House. The site was deserted on the occasion of the visit, and the office learned that the males had left the Island."(E22).
13.1.7 The Committee therefore contacted the police to enquire if there was any record of an altercation, and they replied that there was only one record of a visit by the police to the site, but that was in connection with an incident in a public house. We also wrote to the site manager, Mr J French, who confirmed his recollection of a visit to the site by the police over a disturbance in a Ramsey public house. However he was not aware of any police visit in connection with a bounced cheque, and he stated that "During my employment with the company I have no knowledge of there ever being any problems with any dishonoured cheques." (A16).
13.1.8 Mr Westacott, in his oral evidence, stated: "I have never, ever in my whole life, including the past eight years while I have been on the Island, had a dishonoured cheque for myself or any of my companies." (A2/pl9)
61 13.1.9 C o n c l u s io n
PAC have been unable to find any evidence to substantiate the alleged police visit to Island Studios over a dishonoured cheque.
13.2 The Insolvency Claim
13.2.1 Mr P Karran MHK stated that "The company apparently responsible for building the studio's superstructure (ASW Holdings) went into receivership on 10th ]uly 2002." However, in his affidavit (E22) Mr Karran stated "When I referred to 'the company building the film studioI had in mind, based on the information given to me, Stonegate Property Ltd, and not Island Studios Ltd."
13.2.2 However, our enquiries have established that ASW Holdings were not involved in the construction of the studio; the correct name of the company is Allied Steel Frame Structures, who are still trading.
13.2.3 Mr Karran also maintained that at various times Stonegate 2000 Ltd had been in some financial difficulties and that "suppliers) to these two companies had either stopped supply, restricted credit, or imposed 'cash-on delivery' conditions." (E22)
13.2.4 Mr Speaker's Report (E22) concluded in paragraph 27 that "Stonegate Property Ltd was not insolvent when it was inadvertently struck off, and will not be insolvent when it is restored
13.3 Evaluation of Grant Applications
13.3.1 As outlined in section 5.3 above, at the time of receipt of the grant application from Island Studios, the DTI had contracted Ernst & Young to provide evaluation of grant applications. This work was mainly carried out by Steve Christian and Sheila Thomson, who were at that time employed by Ernst and Young. Subsequently the film work was carried out by Steve Christian through his company, Gasworks Media Limited. Sheila Thomson worked under contract with DTI to evaluate all other grant applications, until taking up full-time employment with DTI.
13.3.2 DTI confirmed in July 2006 that "Ernst & Young's contract with the Department expired on 31st December 2002. The current evaluation of projects under the
62 Financial Assistance Scheme is carried out in one of two ways. Either in-house through the Director of Finance who is a qualified accountant [Sheila Thomson] and officers of the Department or by Gasworks Media Ltd [Steve Christian] who are the current consultants to the Department. The majority of applications are done by the Department in-house with a number that warrant priority by way of nature or scale being evaluated by the consultants."
13.3.3 We have concerns that DTI is now very dependent on two individuals for all its grant application evaluations. Although those two individuals were already carrying out this work through Ernst & Young, the fact that they were part of a larger company meant that there was cover in the event of incapacity and also a broader spread of expertise, in order to cope with the wide range of businesses which apply for DTI grants.
13.3.4 PAC therefore recommends that DTI should examine its grant appraisal procedures:
a. to ensure succession planning and cover in cases of the incapacity or unavailability of the current service providers; and
b. to ensure that appropriate expert advice is available in respect of all grant applications.
14. CONCLUSIONS
14.1 PAC believe that our Report demonstrates that there were serious deficiencies in the DTI grant procedures in respect of ISL and Lough House Animation. The Film Studio was an important project - not only because almost three quarters of a million pounds of grant was awarded - but because such a facility was so essential for the development of the Island's film industry.
14.3 We were therefore very concerned that the Department apparently had so little input into the design and development of the studio, the specifications of the equipment which was deemed to be necessary and the facilities which were to be provided. The Department's attitude appeared to be that, because they had a charge over the assets which covered the amount of grant which was awarded, other safeguards were not necessary. However, if the Studio had been a failure, the Department may have been able to claim back the grant monies, but the damage done to the Island's burgeoning film industry could have been very serious.
63 14.4 We are also concerned about the Department's failure to ensure compliance with the various conditions attached to the grant.
14.5 All the recommendations in this Report are intended to improve the Department's grant procedures. It is essential that security is obtained for grant awards, but it is just as important that the assessment procedure is thorough and encompasses the knock-on effect which a project may have on the Island and on other businesses already in existence.
15. REPORTING PROCEDURE
15.1 PAC noted that the one of the recommendations contained in the Report Select Committee on Scrutiny and the Functions of the Standing Committee on Expenditure and Public Accounts which was approved by Tynwald in July 2006 related to a revised procedure for Reports of the Public Accounts Committee to be laid before Tynwald, as follows:
"a. Notification that a Report of the Public Accounts Committee has been submitted to Treasury will be placed on the Tynwald Order Paper.
b. Treasury will submit a response to the Clerk of the Committee within 3 months from date of receipt of the PAC Report Some or all of the recommendations in a PAC Report will often be appropriate to other Departments, but Treasury will have the responsibility to consult with those bodies and respond to the PAC.
c. The Treasury Response will indicate which of the Committee's recommendations are accepted and the action to be taken to address those recommendations, and those recommendations which are not accepted with accompanying justification.
d. When the Treasury Response has been received, the PAC Report together with the Treasury Response will be placed on the Order Paper for the next sitting of Tynwald for debate and approval. The recommendations contained in the PAC Report will be listed on the Order Paper and Treasury andfor other members will be able to move amendments to those recommendations.''
15.2 We were conscious that it has taken the committee some considerable time in finalising the report and we were averse to any further delay in bringing the
64 report to Tynwald. We also were aware that compliance with the above revised procedure would have resulted in the report being considered by Tynwald after the General Election, when the membership of the committee may have changed.
15.3 We therefore agreed that in the case of this Report, especially as it had already been submitted to the Department of Trade and Industry and other relevant bodies and individuals for comment, we would place the report on the Order Paper for the October 2006 sitting of Tynwald, as had originally been planned. The revised reporting procedure will be implemented for all future reports which contain recommendations.
16. SUMMARY OF RECOMMENDATIONS
16.1 Paragraph 5.4.2 PAC recommends that DTI should introduce a more standardised procedure for evaluating grant applications, to ensure that all applicants are given the same treatment and are given equal consideration. The final decision must be taken by the Department and minuted.
16.2 Paragraph 7.1.7 PAC recommends that before a grant is given in respect of a specialised facility, a condition of the grant should be that the applicant satisfies the Department that the specification of the facility ensures that it will be fit for purpose.
16.3 Paragraph 7.5.6.3 PAC recommends that conditions regarding local contractors/suppliers be worded as follows:
“The Company to undertake to obtain quotations based on the same written specification from local contractors/suppliers andjor producers for all goods and materials specified in the works and to give preference to local Isle of Man labour, tradesmen and services and to use materials from Isle of Man- based producers and/or suppliers. If there are valid reasons why the Company prefers to employ an off-Island contractor, the prior approval of the Department is required. If such prior approval is not obtained the Department will withhold payment of the grant/'
65 16.4 Paragraph 7.6.6 PAC recommends that DTI reviews their procedures:
a. to ensure that grant recipients are made aware of their responsibilities for ensuring that all workers on their site have the relevant work permits and certification, and
b. for checking sites to ensure that this requirement is being adhered to.
16.5 Paragraph 7.7.5 PAC recommends that in cases where a grant applicant's own building company is to be used:
a. quotes should be obtained from that company and at least two other building companies based on the same written specification and submitted to the Department,
b. a satisfactory certificate should be provided confirming that all the expenditure claimed is allowable, and
c. that a proportion of the grant monies be retained until such certificate is produced.
16.6 Paragraph 8.4 PAC recommends that in cases where the Department is to have a charge over the assets of grant recipients -
a. the Government Valuer should prepare a valuation of the assets prior to the award of the grant, and
b. the period of the charge should commence from the date of the payment of the initial installment of grant monies and extend for a 10-year period from the date of payment of the final installment.
66 16.7 Paragraph 9.4.4.4 PAC recommends that auditor's certificates must be obtained from independent and appropriately qualified professionals, who must certify that they have no connection with the applicant.
16.8 Paragraph 9.6.7 PAC recommends that, in cases where a grant is given towards the purchase of plant or equipment and one of the conditions is that the grant could be repayable under certain circumstances, a further condition be attached to the grant requiring the recipient to maintain an adequate register of assets which should include serial numbers, current value, location and whether the plant/equipment is still in use by the grant recipient. The register must be kept up to date for the whole of the period under which the grant could become repayable.
16.9 Paragraph 9.7.3 PAC recommends that the purchase of the editing equipment for £689,800 and subsequent grant application in respect of it be referred to HM Attorney General for further investigation.
16.10 Paragraph 10.2.6 PAC recommends that the DTI reviews its procedure for
a. assessing grant applications, especially in respect of specialist projects where there may be insufficient local knowledge to adequately check the information contained in the business plans, and
b. checking all invoices which are submitted in support of grant payments to ensure that they are all allowable under the terms of the grant award.
16.11 Paragraph 10.3.4 PAC recommends that DTI reviews its follow-up procedure to ensure that:
a. regular visits are carried out by the same officer(s) wherever practicable;
67 b. there should be a clear understanding of the issues to be covered in those checks; and
c. there should be a written record of each visit which would include the date, the officer(s) who undertook the visit and the findings.
16.12 Paragraph 11.2.7 PAC recommends that DTI should introduce a qualifying condition for Employers' registration under the Craft and Technician Training Scheme and similar Schemes stipulating that the Employer must, wherever possible, train towards the award of an accredited qualification, which is recognised by the relevant industry, to all apprentices who successfully complete their courses.
16.13 Paragraph 12.3.2 PAC recommends that company searches be obtained on all companies for which grant applications are being considered. This should extend to other companies in the same group as the applicant company and companies with which the applicant company is to enter into partnership.
16.14 Paragraph 13.3.4 PAC recommends that DTI should examine its grant appraisal procedures:
a. to ensure succession planning and cover in cases of the incapacity or unavailability of the current service providers; and
b. to ensure that appropriate expert advice is available in respect of all grant applications.
C M Christian (Chairman) H Hannan (Vice-Chairman) A V Craine A C Douglas Q B Gill P Karran
September 2006
68 1 APPENDIX 1
LEGISLATIVE BUILDINGS ISLE OF MAN IMI 3PW
Our Ref: DC/ejm
30 October 2002
Mr R E Quine OBE MHK Chairman Public Accounts Committee Office of the Clerk of Tynwald Legislative Buildings Douglas
Island Studios Stonegate Property Limited Lough House Animation Limited Lough House Limited Lough House Media Limited Stonegate Property 2000 Limited
May I request that the Public Accounts Committee investigate all the circumstances surrounding the grant of £705,600 by the Department of Trade & Industry to the composite of the above companies.
Yours sincerely
[Signature redacted]
David Cannan I
I APPENDIX 2
TYNWALD COURT OFFICIAL REPORT
RECORTYS OIKOIL QUAIYL TINVAAL
PROCEEDINGS DAALTYN (HANSARD)
SUB COMMITTEE OF THE STANDING COMMITTEE ON EXPENDITURE AND PUBLIC ACCOUNTS ON ISLAND STUDIOS LIMITED
BING VEAYN MYCHIONE COONTYSSYN THEAYAGH AS CEAU ARGID FO-VING MYCHIONE ISLAND STUDIOS LIMITED
Douglas, Friday, 19th March 2004
Published by the Office of the Clerk of Tynwald, Legislative Buildings, Bucks Road, Douglas, Isle of Man. © Court of Tynwald, 2004 Primed by The Copy Shop Limited, 48 Bucks Road, Douglas, Isle of Man 2TISL SUB-COMMITTEE, FRIDAY, 19th MARCH 2004
Members Present:
Mr R E Quine MHK (Chairman) Mrs H Hannan MHK Capt. A C Douglas MHK
Clerk: Mrs M Cullen, Deputy Clerk of Tynwald
In attendance: Mr M Fayle, KPMG
Business transacted
Page Procedural...... 3
Evidence of Mr D A Westacott and Mr P Slattery...... 3
The Committee sat in private Oral Evidence SUB -COMMITTEE, FRIDAY, I9th MARCH 2004 3TISL
EVIDENCE OF MR D A WESTACOTT AND Tynwald Sub-Committee of the MRP SLATTERY Standing Committee on The Chairman: The first thing that I would like to deal Expenditure and Public Accounts with is this matter of what I term the ‘Lough House group of companies’, because there are several companies with which on Island Studios Limited you are involved, and the subcommittee wishes to get a clear understanding of how these companies all relate. Perhaps the easiest way to do that would be for me to give you what is, basically, in diagrammatic form here, a schedule, which is The Committee sat in public at 9.30 a.m. our interpretation of the documentation, to see whether you in the Millennium Conference Room. agree with us that this is... And I will give you a moment, Legislative Buildings, Douglas of course, to follow through that. What we have done here is to list the companies as we see it and, of course, the shareholdings, the directors of [MR QUINE in the Chair] the companies, the secretaries et cetera. We hope that we have got a fairly clear picture of the Lough House group of companies, but I will just leave you for a moment to have a look at that. If there are any inaccuracies there, please point Procedural them out to us so that we can correct them.
The Chairman (Mr Quine): Good morning, and thank Mr Westacott: There is, actually. you for coming. A rather blowy day to make the trip from the north today, I am afraid, isn’t it? Or from anywhere on The Chairman: There is? Right. the Island. Anyway, thank you for coming. I think that one of the things I should explain, first and Mr Westacott: Lough House Limited, which actually is foremost, is that this is a sitting of a subcommittee of the the shareholder of Lough House Animation Limited, does Public Accounts Committee, and we are looking into the not appear to be on here. Oh, sorry. I have found it. matter of DTI grant aid. Our particular interest today is, of The Chairman: You have found it? course, the grant aid arrangements which appertain to the DTI and yourselves, or Island Studios, and certain related Mr Westacott: Yes. Sorry about that. (Laughter) I can matters which flow from that. see it there. So, the first thing I should do is, perhaps, identify for you the people who are here at this table. If I move along there The Chairman: It is a little bit... There are lines going - (Interjections and laughter) I am observant - there are one everywhere on this. It is there? or two - one at least - who are not identified, but the reason I do it is not for that purpose. The reason I do it is that the Mr Westacott: Yes. That looks - proceedings today are recorded, and, unless I mention them by name, of course, it will not be down on the tape. The Chairman: It is just above - So, on the left, we have Capt. Andrew Douglas, who is a Member of the House of Keys; next to Capt. Douglas, Mr Westaqott: Correct, in that case. (Laughter) without a name tag in front of him, is our adviser, Mr Fayle, who is an accountant; on my immediate left, we have Mrs The Chairman: - Lough House Animation and Lough Hazel Hannan, who is the MHK for Peel; I am, of course, House Media Limited. Lough House Limited, yes. Edgar Quine, MHK for Ayre; and, on my right, we have Mrs Marilyn Cullen, who is the Clerk to the Committee. So, I Mr Westacott: Thank you. That is correct. think that probably serves that purpose. Just going on from there, this morning’s proceedings are to The Chairman: Okay, thank you for that. Coming back take evidence from Mr Westacott and Mr Slattery, and thank now to Island Studios - and this is for the record - first of all, you both for coming along. We had hoped to take evidence your good self, Mr Westacott, what is your relationship... from Mr Napier-Bell, but, unfortunately, I understand that Well, first of all, if you would give me your full name he is ill and will not be able to attend today. and your address and your relationship with Island Studios There is one technical matter which I think I ought to Limited. mention, too, and that is really just to remind ourselves, as well as everybody else here today, that because the Mr Westacott: Right. Donald Anthony Westacott of proceedings are being recorded, we would ask that all Cherry Tree House, Jurby Road, Lezayre. Do you want a contributors try not to interrupt, because, if we have any postcode? interruptions in the proceedings, it is going to be very difficult to follow the tape for transcription purposes. It will make it The Chairman: We will sort that one out ourselves. very difficult indeed. (Laughter) Those are one or two of the preliminaries. I shall lead with the questioning, and my colleagues will come in with their Mr Westacott: Fine. I am a 51 per cent shareholder of questions as we proceed along. So, thank you for that. Island Studios. I owned the farm on which the studio was
Procedural Tynwald Sub-Committee of the Standing Committee on Expenditure and Public Accounts on Island Studios Limited - Evidence of Mr D A Westacott and Mr P Slattery 4TISL SUB-COMMITTEE, FRIDAY, 19th MARCH 2004 Oral Evidence
built and passed it to Island Studios at a point when it seemed years, yes, that is correct. logical to do so, because 1 needed the support of another investor, being Mr Napier-Bell. The Chairman: A number of those students did not complete the course. In fact, quite a significant number - 1 The Chairman: Right. I think that probably fits the think it was 9 or 10 - did not complete the course. Again, bill for the moment. Could I just ask you: what are your just to complete the picture for us, what were the reasons for professional qualifications? Do you hold professional that? Obviously, there may be some personal reasons, but qualifications relating to film production, or are you an I am just wondering if there were some reasons in relation accountant? What are your professional qualifications? to the system or anything else that caused those people to leave prior to completing their course. Mr Westacott: I would say the only... I am a Fellow of the British Institute of Management, I am a Fellow of the Mr Westacott: May I, in order to give you a better Life Insurance Association in the UK, and my skills are in response, refer this to Phil, who actually managed the sales, in insurance and pensions, and, on a personal front, operation for the last... I only take an overview. He will just property development of various types which I have know more detail than I do about specifics like that, so if indulged in since I retired. I may -
The Chairman: Yes. Right, okay. That, I think, is clear The Chairman: We have no problem with that. Mr enough. Slattery, perhaps you could pick it up from there and try If I just move to Mr Slattery now for a moment, could to - you explain your relationship to Island Studios and, again, your professional qualifications? Mr Slattery: I am not sure about the individuals you are talking about, but obviously, with any training programme, Mr Slattery: It is Philip Slattery. Address is Cass y if someone finds that they are not suitable, or if we find that Cronk, Jurby Road, Lezayre. I am a director and company they are not suitable, for the career that they think they have secretary of Island Studios. I was a member of the Institute chosen, then we would advise them that they probably are of Cost and Management Accountants until 1979 or 1980.1 not the right people in the right job, or they could decide am not a shareholder in any of the companies. themselves that they did not want to complete the course because it was not what they thought it was going to be. The Chairman: Right. Thank you. We understand that. If I just stop there in relation to... I will try to take this as The Chairman: Yes. Perhaps I could explain: my logically as I can, but I have to move about a little bit just immediate interest in asking this question is, of course, that to get these matters in proper order. One of your interests, if Government money was put up, in part to support these Mr Westacott, is, of course, the Lough House Animation students, and if they did not complete their training, then company. (Mr Westacott: Yes.) And would it be true to say there is a question about whether or not that money was that it was in that connection, or through that relationship, beneficially expended. I am just trying to come at it from that you had your first partnership with the DTI concerning that point of view, as to whether there was some particular grant aid? There was a grant aid arrangement there? problem with the system itself, or some other reason why they did not complete that - Mr Westacott: There was no grant aid, but there was training aid. Mr Slattery: I think, first of all, I am surprised at the number that you have mentioned - nine people not The Chairman; Training aid. Right. Yes. completing it. If you could give me names, I could -
Mr Westacott: I do not know if they distinguish a The Chairman: We have all the names. I do not think difference, but - we need to get down to that. (Mr Slattery: Okay.) It is just i f - The Chairman: We are not - Mr Slattery: I am surprised - Mr Westacott: We did not get it for building; we got it for - The Chairman; - on your recollection, there was something about the system which caused those people to The Chairman: Oh yes. No, we would still refer to it as leave. grant aid, but you are quite right. We are talking about the same thing. Thank you for that Mr Westacott: No. There was a review of the system In relation to that, the essence of that is that you had a on a regular basis. There was a review of the people and number of ‘students’, if you wish, or ‘trainees' there, and what they were doing. The system worked extremely well they were being supported in part through grants or financial for the people who were suitable for the type of job that (a) support from the DTI. (Mr Westacott: Yes.) We are looking we were training them for and (b) they wanted to do, but at the list of students that went through, or were trained people who left were because of a mix of unsuitability on there, in whole or in part. There were, I understand, some their part and the actual course not being what they thought 29 students in total under that scheme. it was going to be.
Mr Westacott: Over the course of the past seven or eight The Chairman: Right. Okay. While they were with
Tynwald Sub-Committee of the Standing Committee on Expenditure and Public Accounts on Island Studios Limited - Evidence of Mr D A Westacott and Mr P Slattery Oral Evidence SUB-COMMITTEE, FRIDAY, 19th MARCH 2004 5TISL
you, were they looking solely to your company and to the Mr Slattery: I do not know, because that was done before DTI support for their remuneration, or were they able to be I joined the company. employed in other commercial outlets at the same time? Were they, for example, being tasked to work with other The Chairman: That was before you joined the companies? company. Yes. Alright, we can cover that.
Mr Slattery: No. It was a full-time training course. Mr Westacott: May I just inteiject -
The Chairman: Right. Okay. The Chairman: Yes, please.
Mr Slattery: With some on-the-job training, but the Mr Westacott: - and say that the training officers were in on-the-job training was in-house. close contact with us all the way through. (The Chairman: Yes.) They came regularly and inspected and worked with The Chairman: Who provided the expertise for that Mr Bell on making sure that the standards were adequate training? Who were the professionals in the company that (The Chairman: Yes.) - or more than adequate. provided that? The Chairman: Yes, that is right. We have that in Mr Slattery: Our Creative Director, Adrian Bell, at the documentary form. I was just trying to clear up this particular time, who was an animator who lived on the Island. He point as to why this national qualification was not adopted. I actually was responsible for setting up the company with appreciate that you were, in effect, being visited and having Don originally, and it was his expertise that he shared with discussions with the DTI. I appreciate that. the other members who joined us later. Just before we move on again, Mr Slattery, you said that you were a member of the Cost and Management The Chairman: Is Mr Bell still with the company? Accountants’ Association.
Mr Slattery: No, he left last summer. Mr Slattery: That is correct
The Chairman: He has left. Okay, yes. There is just one The Chairman: Are you still a member of that? further matter relating to Lough House Animation that I need to complete, and 1 think I should explain at this stage, for the Mr Slattery: No. I have not been... I am not sure whether good people who are listening in, that we have a great deal it was 1979 or 1980. of evidence taken from documentation, so if I appear to be jumping around, it is because I am filling in blanks on the The Chairman: I see. documentary evidence. The question of ascertaining the standards reached by Mr Slattery: That is purely because I stopped paying these trainees: we are advised that that the logical test would subscriptions. (The Chairman: Yes.) I was not thrown be through an organisation called Skiilset. I think it is the out. national training organisation for broadcasting, filming and so on in the UK. (Mr Slattery: Yes.) Again, from the The Chairman: Right. Thank you for that. If we can documentation, it is my understanding that that standard was just — not applied to these trainees - or that test... They were not subjected to that standard test. Mrs Hannan: Sorry, could I just ask -
Mr Slattery: Right. My understanding of Skiilset - and The Chairman: Yes, please. it is five years since I was involved with it, so it could have changed in the past five years - is that it was a set of rules Mrs Hannan: Are you trained as an accountant? for the training, where trainees who were being trained under the Skiilset rules had to go through a series of stages in how Mr Slattery: Yes. That is what I had to do to become they were doing animation, and I do not want to... I could a member. be here all day telling you how to do animation, so I will not do that We followed all those steps as well. Mrs Hannan: Right. Okay. But you have not practised As far as I am aware, certainly five years ago, there was since then? not a final exam for Skiilset. It really was based on having an approved company doing the training and the approved Mr Slattery: Cost and management accountants are not company signing the people off, which is basically what in private practice; they actually work in industry. we were doing as well. (The Chairman: Yes.) What I can certainly say is that the people who completed our training The Chairman: Thank you. Okay. course were able, if they wanted, to go into the UK or the If we could just move on to the film studio, I think that European animation market and be employed at the level that I am right in saying - and perhaps I can address this to both they were trained up to, without a shadow of a doubt. of you, and whoever has got the information to hand, if you could respond - that from the documentation it would appear The Chairman: Yes, sorry to put you off there. Was there that the initial application for Government grant aid was discussion with the DTI about what would be the appropriate made in June 2000, and that followed a meeting with the DTI, professional benchmark to test them against? but that did not seem to progress. Indeed, it would appear
Tynwald Sub-Committee of the Standing Committee on Expenditure and Public Accounts on Island Studios Limited - Evidence of Mr D A Westacott and Mr P Slattery 6TISL SUB-COMMITTEE, FRIDAY, 19th MARCH 2004 Oral Evidence
that, in August, there was a letter sent from the DTI to Island Westacott: No.) to Island Studios, something like that - at Studios, saying that a decision on that initial application had a later date, and what we are trying to get clear is - been deferred because, amongst other things, all partners had not been identified. Could you amplify that? What was the Mr Westacott: I can clarify that. problem there with that particular situation? The Chairman: - if that was factual as of that date, Mr Slattery: The original application that we put in... then what was this subsequent conveyance, or was that in What we were trying to do with the studio was actually give anticipation of the conveyance? people a one-stop shop, so that when they came to the Island they did not have to start bringing stuff over with them and Mr Westacott: I originally bought the farm in my they would be able to just film the film at the studio without wife’s name, under advice. It was suggested that it was tax additional costs of transport et cetera. To that end, we courted beneficial. (The Chairman: Yes.) However, because of the Nick Napier-Bell on the editing side and a company called amount of work that needed to be done, within a couple VFG, which is a lighting company which was actually of weeks of the actual purchase, it was re-conveyed to me already based on the Island, to try and get them, if you like, through our solicitors, so that, from that point, shortly after to join Island Studios to provide this one-stop shop. That was the purchase, I was the sole owner of the whole property. progressing well. We based our original business plan on contributions from Edit-Hire and contributions from VFG, The Chairman: Right. So, what you cannot say - today, as well as the contributions from Don himself, and, at the anyway - is... You cannot slot that in date-wise in relation to last minute, VFG pulled out. We just could not agree terms 27th October. That could have been before or afterwards - with them, and I think that is what that is referring to. Mr Westacott: It was long before. I bought the farm The Chairman: That is what the reference is to. Okay. seven years ago.
Mr Slattery: So, we revised the business plan and Mr Slattery: That was to you, not to Island Studios. resubmitted it, without the lighting company attached to it. The Chairman: That is right I am talking about the The Chairman: Yes, and then there was a fresh proposal conveyance - made (Mr Slattery: Yes.) - and that was under your covering letter, I think, of 27th October 2000 - and that is, in fact, Mr Westacott: To me? what led to the grant aid being acquired. In the business proposal that you put forward at that time - in other words, The Chairman: - from your wife to you or to Island the business proposal appended to your letter of 27th October Studios. 2000 - there were three key elements mentioned there, and I would just like to check with you whether these ever actually M r Westacott: That was seven years ago. (The developed and became a reality or not. Chairman: Yes.) The subsequent move from me to Island The first point that I bring out of this is that there is a Studios... When was that? statement in that proposal that ‘Island Studios have acquired a 47-acre plot at Baldromma Farm’, the statement being Mr Slattery: I do not know. I have not got the date to that, at that point in time, Island Studios ‘owned’ 47 acres hand. of land at Baldromma Farm. Is that strictly correct? Was the ownership with Island Studios at that time? The Chairman: As long as we are talking about the same thing, we can obviously go back and relate it to the Mr Slattery: 1 am not sure of the actual date of that - documentation. I just want to make sure that we are talking about the same transaction. The Chairman: The date would be, of course, the date of your covering letter, which was 27 th October 2000. It Mr Westacott: There was almost an immediate transfer was - from my wife to me, because it was my investment, anyway. Mr Westacott: 1 bought the farm, which was, in all, a working area, which was redundant, and also the acreage The Chairman: Yes. Okay. I think - in fact, my colleague around it, which was used for sheep grazing. Whether or not is just pointing out - that the documentation shows that the it was a fact, the intention was that when we formed Island actual conveyance was April 2001, which, of course, was Studios, that land - the whole parcel - would go into Island after the submission, the point being that that statement is Studios, I am not sure of the date of this, but the intent was not technically clear. there, and, in fact, that is what happened. Mr Slattery: I think that, possibly, what has happened The Chairman: Perhaps I could ju st- there is that we have... The intention had always been to transfer the land. There was no point in transferring the land Mr Slattery: There was a conveyance done, but I - if the studio was not going to go ahead, so it was, ‘We will transfer the land if we go ahead with the studio. ’ So, I think, The Chairman: That was what I was just going to say: if anything, that was what the delay was. according to the documentation, there was a conveyance of land done - 1 think it was perhaps from Mrs Westacott (Mr The Chairman: Okay. Thank you for that I think that
Tynwald Sub-Committee of the Standing Committee on Expenditure and Public Accounts on Island Studios Limited - Evidence of Mr D A Westacott and Mr P Slattery Oral Evidence SUB-COMMITTEE, FRIDAY, 19th MARCH 2004 7TISL that is as far as we need to take that one. The second point that and their equipment onto the Island. I would like to bring out is: the business proposition that was put forward also said that there would be a partnership with The Chairman: Okay. Thank you. And, again, a point, Edit-Hire. Which Edit-Hire are we talking about there? There I think, that is important: the essence of the project was that appear to be two Edit-Hires from our company searches. Are you were going to produce a state-of-the-art film studio. It we talking about Edit-Hire (New Technology) or - was going to be constructed to the highest trade requirements, presumably, because that is the explanation that is here, and Mr Slattery: No, I do not know their company I am just wondering: as neither Mr Westacott nor yourself registration number, so I was not aware that there were two. have any intimate knowledge of the film industry per se It is Edit-Hire Limited, as far as we are concerned, which is - certainly not the technical aspects of this - where did you a London-based company. intend to get the advice from on the construction of that film studio so that it would meet those exacting standards? The Chairman: And are you in a position to say which... This Edit-Hire Limited, as you refer to it: who are Mr Westacott: I visited Pine wood Studios. I visited the directors and shareholders? Are you aware of that? This Aardman Studios in Ireland. I visited one other of the major may help us to distinguish between - studios. From my perception - and I must say this is personal - 1 constructed the premises on what I had observed, and a lot Mr Slattery: We are not, actually. of logic as well, in trying to ascertain what a producer needs to try and complete his package of services. That is why Mr Westacott: Nick Napier-Bell is the man who runs it we tried to induce the lighting company to join us and also and has run it for 40 years, so I assume that he is a beneficial the edit company to join us, because, with the fabric of the owner. structures as they were... And people repeatedly compliment me. The producers have been, and there have been dozens The Chairman: Yes. of them looking at the Island’s facilities... I get endless compliments on how it has been put together. They tell me Mr Slattery: But may or may not be the director, for that the lighting facilities, the power facilities we have, are all we know. better than those at Pinewood, the accommodation is well thought-out and suits the purpose. So, I can only tell you that The Chairman: No. So, you are not in a position to say, it was my construction. If it has been done wrongly, it is my today at least, whether it is Edit-Hire (New Technology) or... fault, but, to date, nobody is complaining, and everybody is What was the name of the other one? applauding the facility that now exists at Island Studios.
Interjection by the Clerk. The Chairman: Right. I just wanted to see whether there was any professional body engaged in putting the scheme Mr Slattery: Edit Hire (Post Production). together.
The Chairman: Edit Hire (Post Production). Mr Westacott: We took advice on sound-proofing, we have taken advice on the drainage, every aspect. As it came Mr Slattery: The partnership is with Nick Napier-Bell, along, we had professional people telling us which way to do rather than that company. it. I did not do it without a lot of help from a lot of people.
The Chairman: Yes. I think that we will come to that The Chairman: Yes. That is fine. I can leave that at that in a moment, because, again, there is a difference between point. If I could just backtrack for a moment: this question of a couple of the statements there, and we need to be clear on Edit-Hire. You said to us it was Edit Hire (Post Production), it. And, again, part of the case was that this Edit-Hire would but I noticed that in the DTI assessment of the project - base its operations from the Island. Has that come to pass? The Clerk: It was Ernst and Young’s report. Mr Slattery: Not at this point, no. It is still in discussions with various people. I know he has mentioned it to the DTI The Chairman: - which was Ernst and Young’s for on a number of occasions, but, as of this moment, no, it the DTI - which, I presume, was done in consultation with has not. the company - it said here, in the assessment put forward to the DTI, that it would be Edit-Hire (New Technology) The Chairman: It has not. Right. Just one further point Limited, a UK company who hire editing equipment to the on that: it was also said in the business proposition that it television and film industry. So, there is still some confusion would be a subsidiary company of Island Studios. Can you over which - explain that statement in the business case? Mr Westacott: The description is right, but the name Mr Slattery: No, I cannot. is wrong.
The Chairman: Put it another way: it is not a subsidiary The Chairman: The name is wrong. company of Island Studios. Mr Westacott: Yes. We are talking - Mr Slattery: It is not, no. Mr Slattery: It may or may not be: For all we know, Nick Mr Westacott: It is just a partnership to bring their skills could have two companies. (The Chairman: Yes.) But, in
Tynwald Sub-Committee of the Standing Committee on Expenditure and Public Accounts on Island Studios Limited - Evidence of Mr D A Westacott and Mr P Slattery 8TISL SUB-COMMITTEE, FRIDAY, 19th MARCH 2004 Oral Evidence
actual fact, it is Nick that is the partner in Island Studios, Mr Slattery: The company is extremely well known rather than his company. throughout the industry. I was aware of them from being in the industry previously, and they were recommended by a The Chairman: Right, okay. Thank you. If I can just, number of people, so, no, we did not think about that (The hopefully, move on... Oh, yes. TTiere was another statement Chairman: Okay.) As far as his companies were concerned, in the business plan that the two parties who were putting you would have to ask him those details. up the investment - in other words, Mr Westacott on the one hand and Mr Napier-Bell on the other - would jointly The Chairman: That has answered a further point I had. manage this business. If you did not know about it, you obviously did not inform Has Mr Napier-Bell, in fact, been involved in the the DTI about it. management of the business? Mr Slattery: No, because we did not know. Mr Slattery: He has not been involved in the day-to-day management of the business, and Mr Westacott has not been Mr Westacott: But the DTI had met with all three of involved in the day-to-day management of the business, us - or all the people involved - so they were - but both of them actually meet with producers, talk with producers, and certainly Nick does, because he knows most The Chairman: That is Mr Napier-Bell? of the UK producers who are producing films and television programmes, anyway... opens quite a lot of doors for us Mr Westacott: Absolutely, because he was involved in in terms of negotiating rates for people coming over. He the meetings when we were setting the company up, as were is a good door-opener because of his name, so he does get Ernst and Young, and as were the DTI. involved at a very early stage. The Chairman: Yes. The Chairman: And he is London-based? Mrs Hannan: Could I just ask: you are involved in an Mr Slattery: Yes. He gets involved at a very early stage, Edit-Hire company at the moment? but, once the films are over here, then we look after them ourselves, basically. Mr Westacott: We are, did you say...?
The Chairman: Okay, we understand that. Just one final Mrs Hannan: Are you involved? point, I think, on the business plan: who put the business plan together for you? Was that done in-house, yourselves, Mr Slattery: We are involved with Nick Napier-Bell, or was - who still owns an Edit-Hire company.
Mr Slattery: Yes, we did it. Mrs Hannan: Right, but is Island Studios involved with an Edit-Hire company? The Chairman: Did you have any local firms of accountants help you with that, or was it your own Mr Westacott: In the person of Nick Napier-Bell. He is expertise? an Edit-Hire owner.
Mr Slattery: No, we did it. Mrs Hannan: Right, but Island Film Studios does not have a direct involvement with - The Chairman: You did that yourselves. Okay. Right. Now, hopefully, I can move on a little bit here. When you Mr Westacott: Not in his business, no. were contemplating taking in Edit-Hire as a partner, so to speak, in this business, did you, in fact, do any check on the Mr Slattery: We have got a direct involvement with financial viability of Edit-Hire? him, but not with - The reason I ask that is it would appear that, two weeks after submitting the business proposal, Edit-Hire (New Mrs Hannan: Right Do you have an edit suite? Technology) Limited went into voluntary liquidation - in fact, it went into voluntary liquidation on 10th November Mr Slattery: Yes. We have got three edit suites. 2000 - and I am just wondering whether, firstly, when you were contemplating bringing Edit-Hire in, was there any Mr Westacott: Yes, supplied by Mr Bell, and it is on the credit check done on the financial viability of the Company? Island. It is in the studio. And I suppose, secondly, the point must be that, if that company did go into liquidation at that time, was there a Mrs Hannan: Right, okay. change at that time to another Edit-Hire company, which may account for this confusion about which Edit-Hire - The Chairman: Thank you for that. The business proposal in support of the grant application, if we could Mr Slattery: I think that that is a question that you will just move there for a moment: it is indicated that the share have to ask Mr Napier-Bell, because we certainly did not capita! would be by way of cash and there were 98 shares do a check on it. issued for cash. That is what the proposition holds itself out to be. Is that how it was floated, on the basis of the issue of The Chairman: You did not do a check on it. shares for cash?
Tynwald Sub-Committee of the Standing Committee on Expenditure and Public Accounts on Island Studios Limited - Evidence of Mr D A Westacott and Mr P Slattery Oral Evidence SUB-COMMITTEE, FRIDAY, 19th MARCH 2004 9TISL
Mr Slattery: Originally, when Island Studios was first going in and out at the same time. It was just to make the conceived, the shares were issued for cash - if you like, thing balance. So, if you like, the transfer of the land from Mr for Island Studios ‘New’, which is the company that built Westacott was counted as going in as cash but then coming the film studio. There were no further cash injections, but out as cash to pay for it, so it is a nil movement. It is just a there were value injections of land and buildings from Mr presentation thing. Westacott and edit equipment from Mr Napier-Bell, which went in as share premium. The Chairman: Okay. We will just leave that for the moment. Thank you for that. The Chairman: So, the initial proposition was that it And, again, I am not quite clear about the precise parties would be shares for cash, but it changed. in respect of the holdings, because there is some difference there. Looking at the assessment on your business plan that Mr Slattery: Island Studios actually already existed was done, it says here that the split would be between Lough when the application went in to the DTI, and it was an House, with 64 per cent, and Edit-Hire, with 36 per cent, and existing company with shares that had been paid for in that the percentage would relate to the capital investment cash. To increase the value of the company, there was share which both companies would put in. However, the premium paid by both Mr Westacott and Mr Napier-Bell, but shareholders are Mr Westacott, 51 shares, and Mr Nicholas that was in terms of assets rather than actual cash. Napier-Bell, 49 shares, so the initial proposition was that it would be held by two companies, but we are at a position The Chairman: The assets, on the one hand, being, of where, in fact, the shares are held by two individuals. course - Mr Slattery: I do not think that our business plan ever Mr Slattery: Land and buildings - suggested it was going to be held by two companies - certainly any business plan that we submitted to the DTI. Mr Westacott: The whole farm. The Chairman: Right, okay. Did you have any M r Slattery: - and, on the other hand, the edit discussions with the DTI accountants that were assessing equipment. your business proposal?
The Chairman: The edit equipment. I will come back to Mr Slattery: Yes, we did. We went through with both the the edit equipment if I may, (Mr Slattery: Certainly.) but I DTI and with Ernst and Young on a number of occasions. am just trying to follow through what is in the business plan with what does not seem to fit the current position. 1 am just The Chairman: Right. The point I am getting at is that trying to get clarity on that Again, coming back to the Ernst this understanding by the accountants doing the assessment and Young report on your business plan - for the DTI: presumably the source was your good selves, so there is some confusion there. Mr Slattery: Could I just interrupt? (The Chairman: Yes.) We have not actually seen the Ernst and Young report Mr Slattery: No. It was never the intention... Once we on our business plan. had decided that we were going to have to take a partner The Chairman: No, I appreciate that, but I am just on board, (The Chairman: Yes.) any shareholding in drawing on that - (Mr Slattery: Oh, right. Fine.) Yes, it was Island Studios had to come out of the Lough House group just pointed out to me that the cash flow statement shows the of companies, because, at one point, Lough House owned premium as cash. Can you just look at your - Island Studios, 100 per cent, and it was never the intention that Island Studios should become part of the Lough House Mr Slattery: I do not know if I have got mine with me, group as such, because we had to issue shares in it to other actually. people.
The Chairman: The cash flow statement shows the The Chairman: Right. Coming back to this... You premium as cash. mentioned share premium. The annual return does not reflect the share premium - or details of the share premium, let Mr Slattery: I have not actually got the cash flow with me put it that way. Can you refer again to the accounts and me. If you have got a copy of it there - explain to us where the details of the share premium and the make-up of that come into being? The Chairman: Yes, I think that we can give you a - Mr Slattery: No, that is an error. Mr Slattery: - 1 think what you may find on there is it is showing it as cash going in and cash going out at the The Chairman: That is an error? same time. Mr Slattery: Yes. There should be an indication of it The Chairman: I do not know. We have a copy of the on that. document here. The Chairman: Yes, okay. I am sorry to harp back The Clerk: Is this the con-ect document? on this. 1 am just trying to get... The original fund in this company was going to be, if you wis“h, on a cash basis, the Mr Slattery: Yes. It is actually showing the two things cash being represented through your injection of land and
Tynwald Sub-Committee of the Standing Committee on Expenditure and Public Accounts on Island Studios Limited - Evidence of Mr D A Westacott and Mr P Slattery 10TISL SUB-COMMITTEE, FRIDAY, 19th MARCH 2004 Oral Evidence
buildings and Edit-Hire’s injection through the equipment, The Chairman: Major assets: you have a register for so I now just want to focus on this question of the plant and that (Mr Slattery: Yes.) equipment which was equating to Mr Napier-Bell’s injection. I am moving on now to the construction phase. You Was that equipment bought or, in fact, is it leased? explained to us how you came up with the design - call it that - for the film studios, and Mr Westacott explained that Mr Slattery: It is not leased by us. I am assuming it he went around and looked at other studios and so on. And was bought by Mr Napier-Bell. I think that we have got Mr Westacott has said to us that the feedback he has got is a certificate - and the DTI have - from his accountants, that it has proved satisfactory. In fact, you said that you had saying that it is his equipment and with the value of it. So, had good feedback on it. Island Studios certainly did not lease it, but Island Studios now own it. Mr Westacott: Yes, indeed.
The Chairman; You are not sure about Mr Napier-BelFs The Chairman: What I was going to ask you is: in terms position in relation to his ‘ownership’ of that equipment? of the companies that you have had your studio rented out to, have you, in fact, had individual feedback from these Mr Slattery: I have no reason to doubt that he did own companies? The reason I ask that is we unfortunately missed it, but I do not know. Mr Westacott. We went down one day, as a committee, and there was some confusion - The Chairman: Right. Really we need Mr Napier- Bell to clarify that for us. I understand that. Was there any Mr Westacott: Oh, yes. I recall. Quite concerned that discussion about the direct purchase of that equipment with I was not there. Mr Napier-Bell? The Chairman: - but subsequently we spoke to the Mr Slattery: No, because that was what he was producer, I think it was, and an issue that was raised to us bringing - was one of sound-proofing. The statement was made that, ‘There is a problem with this building in relation to sound Mr Westacott: That was what he was bringing to the proofing’ - and I think that there were one or two other proposition, and he brought it. aspects mentioned - and that some alterations were being done to correct that. I was just going to ask you whether you The Chairman: He brought it, and it is your understanding could amplify on that from your point of view. that it had been purchased, but you are not sure whether or What aspects have been the cause of comment by those not he has purchased it or leased it. The point is that it is parties who have rented the building and, perhaps; coming his contribution. at it from the other point of view, post construction, what Mr Slattery: Correct. changes have been necessary to the building?
Mr Westacott: We are not sure. We had the use of it Mr Westacott: The main issue that particular producer That is all. That satisfied us. you were speaking with had was sound caused by wind rattling the large access door, and the consequence of that The Chairman: Yes, okay. Maybe you can help us with was that we have now installed a door that is sound-proofed this one. That equipment, to some nature, of some quantity, and is more stable. It does not rattle any more. So, that was is there. Is there a register of that equipment maintained by the aspect, and we went further than that and put acoustic Island Studios? (Mr Slattery: Yes.) And who controls that foam all ardund about 50 or 60 per cent of the walls of the register? Is it the company, Island Studios? studio inside, just to ensure that we met those problems. So, we have gone a long way to correct all his... Bearing Mr Slattery: Yes, the company. It is just my secretary in mind that that producer is coming back with more films, who does it She keeps the register of assets. the same man who complained is quite ready to come back and use the studio again. The Chairman: Does that register show not only the equipment and its ‘ownership’, if you wish, but also whether Mr Slattery: That was also his second film in the studio. it is out on hire or whether it is - He was there earlier on. Could I just add, at this point, that every producer who Mr Slattery: It probably does not at the moment. comes in has had comments to make, mostly contradicting the one that came before, and we are never going to please The Chairman: It is just an inventory at the moment, a everybody 100 per cent of the time. The producer you were register which represents an inventory of the equipment? talking to had asked us to provide him with space heaters, because, ‘The studio is much too cold.’ With him being in the Mr Slattery: Correct, yes. studio two days, he was asking for chiller units, because the studio was too hot. So, we are not going to please everybody The Chairman: Does the company have a register of every time, and one producer will say diametrically the assets, as a whole, which extends beyond that? opposite of the one before. So, we are trying to tread the medium line between the two of them. Mr Slattery: Yes. It is not that detailed, but we have got major assets. The Chairman: The issue of substance, if that is the
Tynwald Sub-Committee of the Standing Committee on Expenditure and Public Accounts on Island Studios Limited - Evidence of Mr D A Westacott and Mr P Slattery Oral Evidence SUB-COMMITTEE, FRIDAY, 19th MARCH 2004 11TISL way to put it, was the sound-proofing one that you have The Chairman: We can return to that a little later, mentioned, Mr Westacott. perhaps, if we can get a document for reference, but if I could... You mentioned that this invoice for the equipment Mr Westacott: Yes. That was the only real issue that was sent to the DTI just for them to sight it, but I have here has arisen. a document, ‘Application for Payment of Government Financial Assistance’, and it says, ‘Financial assistance is Mrs Hannan: Could I ask: is it not a problem, if it is too now claimed in respect of certified expenditure on and hot and then too cold, that it is not insulated properly? then it says, plant and machinery: £689,800/ You were claiming a grant on that - Mr Slattery: It was neither too hot nor too cold. It was their perception that it was going to be too cold, so they Mr Slattery: On that equipment. That equipment had needed space heaters, and then it was their perception that been provided to the studio. it was going to be too hot when all the lights were on, so they needed chillers. So, no, it was fine. (The Chairman: The Chairman: But as part of the equity, so to speak, Right.) Can I just nip out for a couple of secs? wasn’t it, part of the shareholding?
The Chairman: Yes, by all means. We will wait a Mr Slattery: No. The shareholding and the... There moment until Mr Slattery returns, if that is alright. (Some is an asset value to the company (The Chairman: Yes.) time elapses) of £689,000. (The Chairman: Right.) That is basically If I could just tidy up one point on the equipment before the equipment, and that was ‘grant applicable’, if you like. we go onto the specification side of the construction, were The fact that the opposite entry to it is share premium is any cash payments made to - I suppose the correct term negligible. If it had been cash, it would not have made any is - Violet Systems Limited in respect of the equipment difference; there would just have been a shareholder credit acquired? (Mr Slattery: No.) There were no cash payments of £689,000. We have chosen to use the directors’ loans as made. (Mr Slattery: No.) share premium, rather than show them as loans. That leads us onto another matter. If there were no cash payments made there, why was an invoice for £689,000 for The Chairman: I see. Perhaps Mr Fayle can follow that the purchase of the equipment sent to the DTI? line of thought, but...
Mr Slattery: They asked to see it, basically. Mr Fayle: I hear the words.
The Chairman: They asked to sight it. (Mr Slattery: The Chairman: Yes, okay. Yes.) Right. Mr Slattery: We have been through it with our auditors, Mrs Hannan: Could I ask: was grant paid on that? who were happy with our treatment of it.
Mr Slattery: Yes, it was. Mr Fayle: Would it be appropriate for me to ask a direct question, which I have tried to - Mrs Hannan: Grant was paid on that. The Chairman: Yes, put it through me. Of course. Mr Slattery: But that goes back to the share premium issue. If you like, the £689,000 was the amount that is in the Mr Fayle: The question that I would ask is that an books as share premium from Mr Napier-Bell. invoice is a document of sale. (The Chairman: Yes.) If it is a document of sale, it cannot be an injection of assets, and Mrs Hannan: Is there not some contradiction there, in I think the question to be answered is: why was an invoice that it is share premium? Is there not some contradiction? provided to the DTI when it clearly could not have been a document of record? Mr Slattery: No, it was a... Mr Bell would have paid for the equipment and transferred the equipment into the title Mr Slattery: I am afraid I do not know. of Island Studios Limited, so it was the equivalent of a cash injection, except, instead of putting cash in for us then to buy The Chairman: Yes, okay. If I could just follow that it, he just transferred the equipment straight there. through here - I am now referring to the DTI’s rules and regulations on claim here - it says: Mrs Hannan: Was the VAT included in the - ‘The grant will be payable on production of a certified statement or Mr Slattery: I do not know off the top of my head. paid invoice to this office, confirming that the expenditure has been incurred in meeting costs detailed in the relevant application, the applicant to certify that all invoices have been paid by completing the Mr Westacott: In what? form, application F103.’
Mrs Hannan and Mr Slattery: In the invoice. It just seems that we have an asset here which is sort of being used in two respects, which does not seem to - Mr Slattery: I really do not know off the top of my head. I could check that for you when I get back to the office, unless Mr Slattery: No, it is not being used in two respects. you have got a copy of it there. You could possibly go the long way round, and Mr Westacott
Tynwald Sub-Committee of the Standing Committee on Expenditure and Public Accounts on Island Studios Limited - Evidence of Mr D A Westacott and Mr P Slattery 12 USL SUB-COMMITTEE, FRIDAY, 19th MARCH 2004 Oral Evidence and Mr Napier-Bell could both have injected cash into the Mr Westacott: I remember a lot of detail coming out company. of Robinsons’ quotation, and that was, I think, the second quotation we took. I knew what the requirement was. You The Chairman: Which was the proposition. call it a ‘high-tech’ building, but, in reality, it is a very large warehouse with certain embellishments. That is all a studio Mr Slattery: Yes. That cash would then have been used is. (The Chairman: Yes.) It is just an open covered space. for buying the land and buildings from Mr Westacott and It has certain requirements for audio requirements, and it has for buying the equipment from Mr Napier-Bell, and what to have volume, because you cannot build big sets in small we have, basically, done is cut out one of those stages. The buildings. So, from a building point of view, it was not that final result is exactly the same. technical, other than the acoustics, and, of course, we built in a lot of extra insulation. As the building was erected, we The Chairman: We will look at that, but thank you for specified to the builder that it had to have a certain thickness the explanation. of filling between the sheets of the wall to try and help with the acoustics. Mr Slattery: That is okay. The Chairman: Let me try to come at it from another The Chairman: Coming back to the construction again, direction. If the underlying objective of the DTI is to ensure Mr Westacott - and you will probably be able to help us that we have three tenders put together on the basis of the here - there was a requirement, of course, to get quotations same specification, then it is difficult to see, with a project from different parties, wasn’t there? (Mr Westacott: Yes.) of this nature, how one could quote for that unless you had In fact, you get three tenders in respect of the construction a fairly detailed specification which they could cost to - and of the building and, in the event, you got two from local there is no specification. companies and one from a UK company. (Mr Westacott: Yes.) The issue here is to do with the dates on the tenders, Mr Slattery: I think that the quotes that were asked for because the two local tenders are dated October 1999 and were for a particular sized portal-framed building - March 2000, and the UK tender is dated April 2001. Those dates do not seem to sit together. I expected, if there was Mr Westacott: That is right. a requirement to get tenders, quotes from companies, that we would have had tenders which were dated very closely Mr Slattery: - that is steel clad, and they were all asked together and with dates that fitted in post application. Can for exactly the same thing. you explain that to us? The Chairman: Alright. Even if we take that, it was at Mr Westacott: I do not have a simple answer, other than different times over a period of two years - that I was trying to create this situation over seven years, (The Chairman: Yes.) from the time of purchase to the Mr Slattery: Yes. I was not aware of that. I am not sure point of actually completing the construction. I was taking whether or not there was a previous quote from Allied Steel information in, making enquiries over trying to get the best and this was, if you like, the last one that they made. I do deal to fit, over a long period. In all honesty, I cannot say not know that as a fact or not. that the three quotations were taken simultaneously. They were not, as you point out. Mr Westacott: We had a series of quotes, because, initially, my first planning approach was for a building The Chairman: That is right. There is a period of a twice the size. Because of my observations at other studios, couple of years there, isn’t there? Right - I wanted to build something that was competitive with the very best in the UK, so I asked for a building that was twice Mr Westacott; But I was au fait with the current prices the size, twice as long as the one we now have, but planning at all points. I was checking, out of our own self-interest, that reduced it to half the volume. we got the best deal. But Allied Steel, which was the latest, was by far and away more competitive than any previous The Chairman: I see. actual quotations and current knowledge. Mr Westacott: Fortunately, they gave me the height, The Chairman: Right, we understand that explanation. which was an absolute requisite. There is no written specification. As you explained to us earlier, we are talking about a pretty specialised, if The Chairman: Right. not high-tech, building, and I know it was being built by different parties doing different elements, including your Mrs Hannan: Could I just ask a point on that? Did the own company, Fort Construction, (Mr Westacott: Yes.) tenders that you got in 1999 and 2000 relate to the size that and it is quite an expensive project, but there is no written you wanted at that time? specification. This is coming back, in a way, to what I raised earlier, Mr Westacott: We asked everyone who had an interest in and that is whether there was any specialist advice. You it to quote on the same size. Everyone had the same spec from have explained that, no, that was your good self putting me, and that was basically volume and density of filling. together the requirements, but I am just seeking confirmation that there were no written specifications for this fairly Mrs Hannan: But did you have a written quote for all sophisticated, specialised building. of these?
Tynwald Sub-Committee of the Standing Committee on Expenditure and Public Accounts on Island Studios Limited - Evidence of Mr D A Westacott and Mr P Slattery Oral Evidence SUB-COMMITTEE, FRIDAY, 19th MARCH 2004 13TISL
Mr Westacott: We had quotations from Robinsons on the Mrs Hannan: That was pre 1999? (Mr Slattery; Yes.) Island and another company, whose name I cannot remember - So, it was all the same?
The Chairman: Wilson and somebody? Wilson and Mr Slattery: They were all the same. Collins? Mrs Hannan: The sizes built now? Mr Westacott: Yes, those are they. Mr Slattery: Yes.
Mrs Hannan: But you had no written quotes on that, so Mr Westacott: Yes, I am sorry. we do not know what the size was. Mrs Hannan: Thank you. ■Mr Slattery: No, we have got written quotes. Those were provided to the DTI when they asked for them a couple of The Chairman: Just coming back to this concern that years back. I have about the possible unfairness in asking people to quote other than against a written specification, is it not a Mrs Hannan: Could you let us have a copy? fact that one of the quotes you got, in effect, did not provide for construction even, whereas the other two did? You were The Clerk: We do have those. coming at it from an entirely different point of view.
The Chairman: 1 think we have got them. Mr Westacott: I would have taken that into account, because if you buy something, I wanted it erected, finished. Mrs Hannan: We have those? I did not want someone just to bring steel and... No, they were all based on the same premise, which was a finished The Chairman: We have those, yes. Okay. building.
Capt Douglas: Chairman, can I? The Chairman: Why did you choose Allied Steel Frame Structures? Why did you eventually opt for that one? The Chairman: Yes, please. Mr Westacott: Because they were the most competitive Capt Douglas: Just a question: are you aware that all quote. the invoices have been paid to Allied Steel? The Chairman: They were the most competitive quote. Mr Slattery: They have all been paid, apart from one, Okay. Did they, in fact, stay within their quotation? which we have not claimed for, because we are in dispute with them about it. Mr Slattery: No, they did not, because steel prices... The only increase was the price of steel, which, obviously, Mr Westacott: We are in contention over - fluctuates on a daily basis, and there was an increase in the price of steel during that time, but that would have been Mr Slattery: So, I am not paying it if we do not agree applicable to any provider of a steel building. with it The Chairman: So, that fact that they overshot their Mrs Hannan: Can I just go back to that question about quote was to do purely with market conditions. quotes? When you got these quotes, did the quotes actually have the size that you had specified? As you know, you can Mr Westacott: Market conditions. buy anything off the shelf, a big building, so did the quotes actually have the specification that you had set out? Mr Slattery: No other reason at all.
Mr Westacott: That is my understanding. As you say, it Mr Westacott: An 11 per cent increase in the price of is a number of years since we went through this process, but steel just as we were about to start construction. I would ask for a price for a certain size. It would have been the same size from each competing company, otherwise there The Chairman: Thank you. So there was an overshoot would not be any reality in what they told us. of in excess of £200,000 there, wasn’t there? That is really where we are coming from on that point of view. Mrs Hannan: What I am trying to find out is: did they relate to the planning application? The dates that we have Mr Slattery: No, there was not. got the copies of the quotes for were 1999, 2000 and 2001, for different suppliers, (Mr Westacott: Right.) and what 1 The Chairman: Wasn’t there? (Mr Westacott and am trying to find out is: did they relate to the restrictions that Mr Slattery: No.) The tender price had been £105,034. the planners put on? The lowest tender price... Well, that is how I read this. An excess of £200,000. Mr Westacott: Yes. My application in the early years was for a huge place. We then cut it by half, and then we The Clerk: They have submitted invoices in excess of went out for the prices. £200,000.
Mr Slattery: But that was pre 1999. The Chairman: Oh, I see. Yes.
Tynwald Sub-Committee of the Standing Committee on Expenditure and Public Accounts on Island Studios Limited - Evidence of Mr D A Westacott and Mr P Slattery 14TISL SUB-COMMITTEE, FRIDAY, 19th MARCH 2004 Oral Evidence
Mr Slattery: That is for two buildings, not one. forwarded to the DTI in support of your claim for that part of the grant moneys? (Mr Slattery: Correct.) There The Chairman: But that is what you submitted to the was a requirement under the DTI scheme that appropriate DTI. craftsmen’s certification and work permits were required. Was that requirement met? Mr Slattery: Yes, for the two buildings. Mr Slattery: It was met with everything apart from the The Chairman: For the film studio and the - people that came over from Allied Steel and the people that came to do the sprinkler system in the studio. The sprinkler Mr Slattery: And the office block and workshop. system was very specialised, and I do not think we could have got it done locally, anyway. The reason why it was not The Chairman: Right. Are the office block and workshop met in those particular cases is, as we have written to you covered in the same quote from Allied Steel? before, that we were under the impression - erroneously, as it appears - that the actual subcontractor was responsible for Mr Slattery: Yes, but it certainly did not go over budget getting the work permits for his men. by £200,000. The Chairman: So, those men did not have either the Mrs Hannan: No. The quote was £105,000, and the required craftsmen’s certification - grant application was in excess of £200,000. Mr Slattery: No, they have got craftsmen’s certification; Mr Slattery: The £105,000 was for one of the buildings, they did not have work permits. not for both of them. Mr Westacott: The work permits were the issue that we Mrs Hannan: So, what was the quote for the other did not get quite right. building? The Chairman: Right Were all the invoices for the Mr Slattery: I honestly do not know off the top of my construction work paid, or were there elements of that that head. were not paid?
The Chairman: Anyway, it is in the same quotation. It Mr Slattery: The final invoice from Allied Steel we was a single quotation. queried, and it remains unresolved even at this point, but I think it was only for about £1,500 or £2,000, and we cannot Mr Slattery: Yes, it was a single quotation. seem to agree on who should be paying it. And that will continue until - The Chairman: If we just move on to the construction itself now, the construction was done by one of your own The Chairman: And that is still a matter in contention? companies? (Mr Slattery: Yes.) Right.
Mr Westacott: No, the construction of the actual two Mrs Hannan: Sorry, did that form part of the grant, or portal buildings was included in the cost from Allied Steel. was that an overspend?
The Chairman: That is the steel work? Mr Slattery: No, it did not form part of the grant. This was after we had got paid the last of the grant moneys. Mr Westacott: And the fabrication, the cladding. The groundworks were done be a local company, and the concrete Mrs Hannan: But was that an invoice that you put in to slab was done by a local company. the Department of Industry?
The Chairman: Right. Could you explain to us what Mr Slattery: I do not think it was. I could check on controls existed in relation to those works, the works outside that. I do not think it was, because there were a number of the steel quotation, in terms of who was supervising it? Who invoices that did not go to the DTI, because we had actually was on site to ensure that what was ultimately being passed used all the grant money before we had actually finished to the DTI was work that was done and that materials that building the studios. were claimed for met the construction that was undertaken? What arrangements were in place for that? The Chairman: And there was a question of additional cost that came up, as you mentioned, in terms of the fire Mr Westacott: We had a site manager, John French equipment, fire requirements, fire precautions or safety by name, who was actually managing the site of building requirements. I think also there was something to do with the four houses that I have since built. We took him off the the road as well. (Mr Slattery: Correct) Were those costs building of the houses in order to supervise and run the the subject of any Government grant or was the cost of those building of the two structures. met exclusively by your company, by Island Studios?
The Chairman: Right, and so he was one that certified Mr Slattery: I cannot honestly remember the timing, but timesheets and material costs et cetera? (Mr Slattery it will be easy to look up. The fact'is the actual grant money and Mr Westacott: Yes.) And what he certified was then was a finite sum, (The Chairman: Yes.) and we got that finite
Tynwald Sub-Committee of the Standing Committee on Expenditure and Public Accounts on Island Studios Limited - Evidence of Mr D A Westacott and Mr P Slattery Oral Evidence SUB-COMMITTEE, FRIDAY, 19th MARCH 2004 15TISL sum in June 2002. We did not actually finish completing the where we have included that, drafts of the final accounts. I studio until September or October of that year, so there are think it was £168,000 we have written off. That is off the a lot of invoices that were involved with it that were never top of my head. I have not brought them with me, I do not even sent to the DTI. think.
The Chairman: Yes, so they were not the subject of a The Chairman: Could you point that out to us in the claim, in other words. report, in the financial report?
Mr Westacott: Yes, no grant. Mr Slattery: I was certainly asked for the final accounts for 2003 two weeks ago, which I sent copies of, so you Mr Slattery: The two that you have mentioned should have them. specifically: I am not sure of the actual timings of them. The Chairman: The ones I have got are the draft The Chairman: Right. You are not sure of the timings, accounts. The final ones have been received, I am told. but are you sure of whether or not they were the subject of a claim for grant money? The Clerk: No, not for 2003. They are still draft.
Mr Slattery: No, because I am not sure of the timing. The Chairman: Not for 2003?
The Chairman: I see. Mr Slattery: These still are in draft. The only reason that they are in draft is we have not signed them yet Mr Slattery: If it was before June, then we would have tried to claim a grant for them. If it was post June, we would The Chairman: I see, right. not have been able to. Mr Slattery: It is alright. I have got some here. Yes, it The Chairman: Yes, alright. The total included in the is £168,000, the charge for the year. business plan for construction of the studio was £1,074,200. Again, I am just trying to get these figures clear. Did that The Chairman: So, it is accounted for, then. Okay, amount include the purchase of land and buildings of thank you for that. £379,000 that is mentioned? Mr Slattery: We did put a note on the management Mr Westacott: It was not subject to grant. accounts that we had not put depreciation or inter-company charges in at that point. The Chairman: That was not subject to grant. Right. So, that was not included. The purchase of the land and The Chairman: The problem, I fear, is that we are buildings was - working on the first draft which was sent in. Does Lough House Animation pay rent for the accommodation to Island Mr Westacott: It was already existing. Well, the Studios? buildings were not, but the site was already existing, so we could not claim for that. Mr Slattery: There is a lease in existence. It is actually not physically cash paid over, because we have contra-ed The Chairman: But, according to the brief I have got it with the admin, charge that we have also agreed will be here, there was a submission made for a claim for grant for chargeable between Lough House and Island Studios. that particular purchase. Are we sure? The Chairman: So, there is a lease in existence, but Mr Slattery: Yes, it was returned. there is no -
Mr Westacott: It was returned back. It was not Mr Slattery: There is a lease in existence which granted. provides for Lough House paying £24,000 a year to Island Studios, and there is also an agreement for Island Studios The Chairman: It was submitted but not granted? to pay Lough House an admin, fee, because there is no administration charging put to Island Studios, but, obviously, Mr Westacott: Yes. We assumed that the existing fabric, there is administration work done for the same amount. which I had spent money on (The Chairman: Yes.) prior to the application, would have been subject to grants. In the The Chairman: Yes. And were the costs of providing event, it turned out not to be, because it was historic. You the new accommodation and associated facilities for Lough could not claim for it. House Animation included in the construction costs for the studio? The Chairman: Right. If I could turn now to the matter of depreciation, the management accounts take credit for the Mr Slattery: They were. DTI grant, but they take no account of depreciation. What effect would depreciation have been for the year ending 30th The Chairman: They were included. September 2003? Mr Slattery: Yes. I will just add at this point that it Mr Slattery: I think you have got drafts of the accounts was on the advice of Ernst and Young and the DTI that
Tynwald Sub-Committee of the Standing Committee on Expenditure and Public Accounts on Island Studios Limited - Evidence of Mr D A Westacott and Mr P Slattery 16TISL SUB-COMMITTEE, FRIDAY, 19th MARCH 2004 Oral Evidence that would be the ideal place to move Lough House to, the Mr Slattery: As far as I am aware, most of them have implication being that, if we did not, then the grant may not got jobs, not necessarily in the animation industry. Some of be applicable. them have got them doing graphics in advertising, and some of them are working in Tesco. There is not anywhere else on The Chairman: Right. And just taking that one step the Island, I do not think, at the moment, where animation further, how were the relocation costs provided for? goes on, so they would have to move over to the UK.
Mr Slattery: They were paid for by Lough House Capt Douglas: Could I take you back to the equipment itself. from Edit-Hire? Was all the equipment new or was it a mixture? It does not make it clear in the list that we have The Chairman: By Lough House Animation. (Mr got. Slattery: Yes.) Thank you. While I am looking through a few more notes here, I will see what questions my colleagues Mr Slattery: It was new, as far as I was aware. may have for you. Capt Douglas: Yes. So, if it is new, would you have Mrs Hannan: Yes. Could I just return you to Lough expected Edit-Hire, as part of their contribution, to have House Animation? Were the trainees paid by you? taken up the warranties on that equipment?
Mr Slattery: Yes, they were. Mr Slattery: I am not sure. I think they have actually got some sort of... Most of the stuff that they brought over is, Mrs Hannan: What were they paid? Can you I think, called Avid, which is an industry leader in editing, remember? and I think they are an approved Avid trainer and repairer anyway, (Capt Douglas: Yes.) so whether or not that is Mr Slattery: I cannot, off the top of my head. I can included within their agreement, I am not sure. certainly give you a... There was a year 1 scale, a year 2 scale - Capt Douglas: Has the equipment been used very often? We obviously did not go poking around when we went up Mrs Hannan: You got a grant from the DTI? there - (Laughter)
Mr Slattery: We did, yes. Mr Slattery: No, unfortunately, that is one of the things that we are still trying to push. (Capt Douglas: Yes.) The Mrs Hannan: Have you paid anything more than the whole idea of the one-stop shop is that people would not grant? have to go here, there and everywhere for everything, but until they are aware of it - and people are now becoming Mr Slattery: Oh, yes. The grant did not cover what we aware of it - we are not going to get an uptake. were actually paying them. Capt Douglas: I was a bit late going up on the day, so Mrs Hannan: Right. I did not get the full grand tour, but did you build the sound studio or the editing - (Mr Slattery: Yes.) So, that is there, Capt Douglas: Can I just comment on that, Mrs Hannan, is it? (Mr Slattery: Yes.) Inside the building? please? Did Lough House Animation actually get many contracts, and if they did, did you have to tell the DTI your Mr Westacott: The editing studio was a refurbishment, staff were working on the contracts? Did that affect your as was the sound studio. (Capt Douglas: Right.) They grants at all? were existing shells, which we have, as you appreciate, modernised, brought up to speed and put lighting, heating Mr Slattery: Yes, it did, and we reduced what we were and toilets in them so that they work. claiming for the time that people were actually working on production. Capt Douglas: It was a lot to take in.
Capt Douglas: Thanks for that. Mr Westacott: Quite, yes.
Mrs Hannan: What qualifications did they have when C apt Douglas: Another question, please: is that they had finished their courses? equipment, and the software that presumably goes with it, up to date? Is that current? Mr Slattery: Unless you want to do a degree in animation, there is not a specific qualification. What you Mr Slattery: Yes, and they constantly update that. They come out of with that course... I think there is an Isle of actually get free releases of all new Avid stock because they Man Certificate of Training that they get to start with, but are a beta test site, so that will become applicable to us, as they also have a showreel of all the work that they have well. done, which is actually the vehicle that they would use for getting jobs elsewhere. Capt Douglas: Right. Thanks very much for that.
Mrs Hannan: Do you know where they have got The Chairman: Just two or 'three further things that jobs? come to mind here, just before we, hopefully, can wind up
Tynwald Sub-Committee of the Standing Committee on Expenditure and Public Accounts on Island Studios Limited - Evidence of Mr D A Westacott and Mr P Slattery Oral Evidence SUB-COMMITTEE, FRIDAY, 19th MARCH 2004 17TISL on this. The tender from Allied Steel Frames: that was for Mr Westacott: No. Oh, yes, the Douglas company, the both buildings? commercial arm of Chrystals, came and did a valuation for it. Mr Slattery: Yes. The Chairman: Right. Just taking this as it reads, The Chairman: The tenders from the other two without explanation, if that figure is correct, then the land is companies, one going back to 1999,1 think it was: were only valued at £204,000. We are trying to reconcile - they for two buildings? Mr Westacott: It is because there is a little bit of error Mr Westacott: No. in what you first said, that there were 49 acres with planning permission. The planning permissions only apply to the The Chairman: No, they were - actual site. It is about nine acres that the actual construction embraces. The rest is agricultural land at this point and would Mr Westacott: Just for the one we call a studio. be valued at something like £2,500 an acre or something.
The Chairman: Yes. Right, that clears that point. You The Chairman: Right, so planning permission did not had tenders, of course, for the steel works, as we have been relate to the whole of the 47 acres, only nine of those 47 discussing. Were there any tenders for the other aspects of acres. the construction works? Mr Westacott: Correct. Those are the only applications Mr Westacott: I am not sure. we have made up to date.
Mr Slattery: I think the answer to that is probably ‘No’, The Chairman: Right, well, then I think - because it was extremely difficult at the time actually finding Mrs Hannan: Could I just ask: so the value of the land a local workforce that actually had the time to do it. It was was how much? at the time when the hospital was being built and the power station was being built, so we were going to the people that Mr Westacott: About £2,500 - we knew who could do the job, but they were all - Mr Slattery: In total, £221,000. Mr Westacott: The groundwork. Mr Westacott: Which was not part of the grant. Mr Slattery: - Island people, all the groundworks, and we used slabs and stuff. The Chairman: Right. Perhaps you could help us there by letting us have a copy of the valuations that were done Mr Westacott: We used known names on the Island for that. It would be - for the groundworks and for the concrete slabs. They were probably the biggest people on the Island for those kinds of Mr Westacott: For the land? works. JHK is - The Chairman: Yes, for the land. The Chairman: Yes, I was just taking it from the point of view of competitive tenders for the works. Mr Westacott: There is no -
Mr Westacott: There would not have been three to The Chairman: Well, land and buildings. Was any quote. valuation done for the buildings?
The Chairman: There would not have been. Mr Westacott: Yes, that is Chrystals’ valuation.
Mr Slattery: A company on that scale. The Chairman: That is the first part.
The Chairman: Yes, I hear that. That is that one. I do not Mr Westacott: For the land, there is no valuation - know if you can help me with this. We are trying to reconcile some figures here. This is a matter of valuation; you may be The Chairman: No valuation done for the land. able to help us on this. The deed of conveyance from your good self, Mr Westacott, to Island Studios, was for a total of Mr Westacott: - because I talked to local farmers and £583,000 for the buildings and land. (Mr Westacott: Yes.) asked them the current price of land, and I assumed... I took And, according to the business proposal, there were 47 acres a fair view and said, ‘Well, it is prime agricultural land, but it of land with planning permission, so the first question I have does not have planning permission’, so we thought, talking got is: how were the buildings valued at £379,000? How did consensus of the people around, the farmers, that it would that valuation come about? fetch about £2,500 an acre, and that is the figure.
Mr Westacott: We had a valuer. The Chairman: The valuation is limited to the buildings? (Mr Westacott: Yes.) If you could lei us have a copy of that Mr Slattery: Yes. Was it done at Chrystals? valuation, it would be helpful.
Tynwald Sub-Committee of the Standing Committee on Expenditure and Public Accounts on Island Studios Limited - Evidence of Mr D A Westacott and Mr P Slattery 18TISL SUB-COMMITTEE, FRIDAY, 19th MARCH 2004 Oral Evidence
I think we are nearly there, and I do thank you for your Mrs Hannan: You mentioned Edit-Hire. Who is Edit- time. I think that is all... One second. Yes, this was a point Hire? that came to us, was brought to our attention, when we paid the visit. The point was made to us that such is the nature Mr Westacott: Edit-Hire is Mr Napier-Bell’s of equipment and plant that is used for film-making that it company. is not very long on the market until it is out of date, and, of course, film companies want the most modem equipment. Mr Slattery: UK company. (Mr Westacott: Yes.) So, this raises the question of the reasonableness of Mr Westacott: UK company. purchasing equipment for use as part of the film studio, given what would appear to be the probability, at least, that film Mrs Hannan: So, Mr Bell’s UK company supplies the producers would not really be interested in that, because it up-to-date equipment to Island Film Studios? is changing and they want to come... In fact, it was pointed out to us that they brought a lot of their equipment with Mr Slattery: Yes, correct. them, and some of them said that, in terms of the editing equipment, they wanted to do it on the other side, because Mrs Hannan: Right. At a cost? they could get modem equipment. I just wondered if you could explain the rationale of entering into this project on Mr Slattery: Probably not, because he gets the free the basis of purchasing equipment. release, because he is a beta tester.
Mr Slattery: Yes. They are not talking about the actual Mrs Hannan: So, has he still got a UK company? hardware; they are talking about software, and software is changing every day. The software is actually... You are able Mr Slattery: Yes. to configure the software onto your existing hardware, so, yes, it does make sense to buy the hardware. As I have just Mr Westacott: Yes. He and his son have quite a big explained to Capt. Douglas, Edit-Hire are beta test sites for company in that line of business. Avid, which is the market leader for editing, and they actually get pre-releases, so the equipment we have got is actually Mrs Hannan: Who is his son? probably more up to date than the stuff that they would be able to bring over with them. Mr Westacott: His son is a young man who is highly qualified. His name is Duncan Bell. The Chairman: Is there any - using your term - ‘software equipment’ within the equipment representing the- The Chairman: I think that some confusion is caused Mr Slattery: You have got to have the base (The with this term ‘Edit-Hire’, because there are the two different Chairman: Yes.) of what you are doing. You will get a companies, but I think your position is that we are referring version of that base as being the next best thing. to Edit Hire (Post Production)?
The Chairman: I see. They build on that, or embellish Mr Westacott: Absolutely correct, yes. That is - The Chairman: And you were referring to Edit Hire Mr Westacott: Edit-Hire are there for the benefit of (Post Production) right from the point where you put forward increasing their business, and it is always in their best interest your business proposals? to have equipment and software which makes them very competitive, otherwise they will not get the business. So - Mr Westacott: Absolutely, yes. We do not use the long version, unfortunately. It is just Edit-Hire - The Chairman: But if they purchase it, it seems that they are stuck with that equipment, you see. The Chairman: No, and if there was not another Edit- Hire, that would be fine. It is just that there are, in fact, Mr Westacott: As Phil has just pointed out, the hardware two and they are both tied in with the same gentleman or does not change that rapidly - it is over a long distance family. - but the software is continually changing, and they are the distributors of such software. They teach other people how Mrs Hannan: So, is it in Edit-Hire’s UK best interests if to use it, so... Unfortunately, you visited when we were not they use the Edit-Hire that is at Isle of Man Film Studios? there. We could have made these kinds of points at that time, so you would have a better understanding of how it works, Mr Westacott: Yes, because it is a future for his son. but Edit-Hire, from my knowledge, are one of the leading He sees the Island as a base for his son to generate a lot of European edit companies, so they are not going to left-foot additional film business. themselves by not having the right hardware and software to meet the needs of these film producers. The producer you Mrs Hannan: His son is involved in Edit Hire (Post were talking to may have an understanding of the business, Production)? but he would not have the same level of technical knowledge that Mr Bell has, because he has been in it 40 years, doing Mr Westacott: Absolutely, yes,‘ and he is very technically just edit equipment. sound. He is very advanced in his knowledge.
Tynwald Sub-Committee of the Standing Committee on Expenditure and Public Accounts on Island Studios Limited - Evidence of Mr D A Westacott and Mr P Slattery Oral Evidence SUB-COMMITTEE, FRIDAY, 19th MARCH 2004 19TISL
Mrs Hannan: But there is not enough work for him to Mrs Hannan: Could I just go back to your relationship come here - with Mr Napier-Bell? How did you encourage him to invest this money here when... Mr Slattery: Well, at the moment we have not been able to pay for his producers to do post-production edit here, Mr Westacott: Right. He was a... We were aware of even though all the equipment is there waiting to be used, his interest and experience in the film business through a but that is something - personal contact. I had... One of my co-directors in Lough House Animation was almost a family friend of the Napier- Mrs Hannan: Why is that? Bell s, and she brought to my notice his past experience. When I began seeking planning permissions, she introduced Mr Westacott: Historical reasons, me to him. Because of his vast experience, he could help me .We meet - as, indeed, the Film Commission meet formulate the proposal and add weight to it with his Edit-Hire - producers at a very late stage of their planning, or dreaming, experience and his equipment, so it was a happy marriage of writing a film, and, because they are UK based, they are, in that respect. He had skills and equipment and expertise day by day, thinking about their new production and talking that I did not have, and the DTI and Ernst and Young, when to people in the UK. In terms of Edit-Hire, it may be Edit- they met him, agreed with that evaluation. Hire they talk to or it may be a competitor, another European competitor, so we do not actually... And this is a problem of Mrs Hannan: So, how does he feel now that this our newness. We are not yet in a position to have first talks equipment is not being used? with a prospective producer. We only meet them when they have already had the Commission’s money granted for the Mr Westacott: He is working on it. Obviously, you film, by which time they have hired their actors, they have see - got all their kitchen equipment, they have done everything. All they do not have is the capital from the Island and a Mrs Hannan: But is it in his best interests if - place to make it work. Mr Westacott: Yes. That does not mean he is not getting Mrs Hannan: Who actually books Island Film the business. Some of the business goes to him direct in his Studios? solo branch, so - Mr Westacott: The producer. Mr Slattery: There are more films being made in the Isle of Man at the moment than in the UK, so it makes sense for Mrs Hannan: The producer. But if they are talking to him to have a business base here, (Mr Westacott: Yes.) if the Commission late and they are not talking to you until a he can attract - late stage, how do they know that the studio is free? Mrs Hannan: But are there more films being finished Mr Westacott: They do not know, and neither do we. in the Isle of Man? It is one of our problems with newness. We are not yet in a position to meet these people as early as we need to, to get Mr Slattery: No, but that is what the plan is, that that all the services together that we intended. will be the case, and that is what we are trying to encourage. We are trying to get the whole thing done here, rather than Mr Slattery: It is something we are working on. It is people coming in, doing bits and going away again. not something that we are just sitting back and pretending is not happening. Mrs Hannan: Do the Film Commission understand Capt. Douglas: Shall 1 carry on? When we were, this? earlier on, at the stage of our reflections in ‘another place’, Mr Slattery: Yes. The Film Commission, obviously, as they would say, we came across a comment, and I have a difficult job as well, because they are trying to attract wonder... Forgive me for asking the question, but there people to the Isle of Man, and the only reason people are was a conversation about dishonoured cheques. Are you in coming at the moment is because of the funding that they are a position to confirm that there are no dishonoured cheques providing, which, as you know, just recently has been a life- on any or all of the companies in the Lough group? saver to a particular film that we have got at the moment. Mr Westacott: 1 confirm that personally, because I But I think that, because we are all fairly new to the business, in terms of the age of the studio, we have got to operate most of them, and it is usually my funding that... I get people to know us, and I think the time will come, in the have never, ever in my whole life, including the past eight not-too-distant future, when people will certainly be doing years while I have been on the Island, had a dishonoured their off-line editing here and then, perhaps, doing the final cheque for myself or any of my companies. post production in London. Capt Douglas: Thank you, but you would know about Mrs Hannan: So, what do they actually do at the this, anyway, wouldn’t you? moment? They actually shoot in the studio - Mr Westacott: Absolutely. That is misinformation, I am afraid. There has been plenty of that. Mr Slattery: Shoot in the studio, send the rashes over, view them back the following day - and we have got a Capt. Douglas: I just wanted to get that out of the viewing theatre there where they afe using some editing way. equipment to view the stuff with - and then take the whole
Tynwald Sub-Committee of the Standing Committee on Expenditure and Public Accounts on Island Studios Limited - Evidence of Mr D A Westacott and Mr P Slattery 20 TISL SUB-COMMITTEE, FRIDAY, 19th MARCH 2004 Oral Evidence
thing back to the UK, to a post-production house in the The Chairman: - and training them up - UK. Mrs Hannan: That is right. Mrs Hannan: Right. So, what percentage of the time is used in the studio, the shooting time? The Chairman: - to run this organisation, which was again tied in to the proposition that was put to the DTI. Has Mr Westacott: The current one that is in is a 12-week that transpired? time span rental: six weeks in construction - they are building a huge construction within the studio - and it will be three Mr Slattery: We have got one local person who is weeks actual filming, and then the rest of the time is breaking actually working full-time on site. The others were supposed it all down. to be working on the editing side of things, and because we have not had a contract for doing the editing... No, we Mr Slattery: And this particular film is going over to have not, at this point. But we do know people at the Manx Melbourne to do the post-production edit. So, presumably, Multimedia Centre are being trained in editing, so the they are getting some Australian finance for it. chances are it would be one or two of those that we would be picking up when the opportunity arises. The Chairman: I am sorry to keep harping back to Edit-Hire, but your position is, of course, that it is Mr Nick The Chairman: At this point in time, there is just the Napier-Bell, through his interest, if you wish, in Edit Hire one. Okay. Just to afford your good selves an opportunity (Post Production). Edit Hire (Post Production): Mr Nick to see if there is anything you would like to mention to us, Napier-Bell does not have an interest in that company, but we would not want you to leave here thinking there was a Mr Duncan Bower Napier-Bell does. Is that the son? something that you had wished to put across and did not have an opportunity to put across. If there is something arising Mr Westacott: Yes, it is his son. out of what we have said this morning, or relevant to this, now is your opportunity. The Chairman: But it is this company that has the relationship with yourselves? Mr Slattery: The only thing that I think we have both discussed is the fact that it has actually taken us this long to Mr Slattery: It is actually a personal relationship with get to this position. If you like, this has been going on since Mr Napier-Bell himself; it is not a company. December 2002. The Chairman: Yes, well, this select committee The Chairman: Yes, you have explained that, but about exercise... I am afraid select committee exercises do take a the proposition that was put forward - length of time and, from our point of view, the sooner they can be carried out the better, but it is the nature of getting Mr Slattery: Right. Well, the initial proposition should, people together for the select committee. perhaps, have been put forward in names rather than in company names, (The Chairman: Yes.) but we were using Mr Slattery: And I think, then, the only other question the company names, because - is: when are you likely to have finished and deliberated and we can see the results? The Chairman: It was put forward on the basis of Edit Hire (Post Production) - you have confirmed that - and I The Chairman: We would hope to be able to wind this up am just saying that Mr Nick Napier-Bell does not have an in a reasonably short period of time now. We are talking - interest in Edit Hire (Post Production). He does not have a direct interest, anyway Mr Slattery: It is a politician’s answer, that, Mr Quine. (Laughter) Mr Westacott: Right. Well, yes, 1 think he has passed it to his son. Nick is in his 60s now, and he is looking for The Chairman: Well, I am that first and foremost, I have retirement not too far away, I would think, but his son is now to say. No, I would hope that, as a select committee, we are managing his business interests in the UK and will manage within a matter of two, three or four months of having this any interests that develop over here. thing completed now. The Chairman: I think I understand your position, yes. Okay. If I can just check... Andrew, anything further? (Capt Mr Slattery: Right. Douglas: No.) Right. Mike, have you anything further you want to say? Hazel, anything? Mr Westacott: I would just like to say that, if you have not yet visited, please take the opportunity when you can, Mrs Hannan: There was something. and we would be delighted to show you around. I feel - and obviously this is personal - that your money has been well The Chairman: There always is when we have finished, spent, that you have an asset now which is in the books at isn’t there? Yes. There was this question of taking on three £2.8 million and is now beginning to bear fruit. The last local people - three films would not have been able to be made without the studio - nowhere else on the Island, that is - because they Mrs Hannan: Oh, that is right. do need this facility.
Tynwald Sub-Committee of the Standing Committee on Expenditure and Public Accounts on Island Studios Limited - Evidence of Mr D A Westacott and Mr P Slattery Island Studios
Schedule of Editing/Sound Equipment i Appendix 2 i i I 1 E'OOOs i Section A______j______j______Avid Symphony Suite! _ ____ 240.4: ______'
Section B______!______Avid Film Composers1 _____ 322.2j ______
Section C;______■______; Lightworks Suite j 30.8, _J______! Section 0 Sound Theatre______61.9;
Sundries : j 34.5i
689.8
27/10/00 App 2 ps/iss Island Studios
Estimated Profit and Loss Account
Yearl Year 2 Year 3 Year 4 YearS Total eooo's £000’s COOO’s COOO's £000’s EOOO's Income 1 Hire Income (based on 2 films x 6 wks each) 54 54 54 54 54 270 2 Ancillary Hire Income 24 24 24 24 24 120 3 Hire of Editing/Post production equipment 116 116 116 116 116 580 4 Off Island editing income royalty 30 30 30 30 30 150 5 Hire of Lighting equipment Royalty 12 12 12 12 12 __ 60 6 Rental Income from Lough house Animation 24 24 24 24 24 120 7 Amortisation of Grant Income 141 141 141 141 141 705
Total Income 401 401 4011 401I 401I 2005)
Costs
8 Staff Salaries 30 30 31 32 33 156 9 Editing Salaries for Island Production 50 50 50 50 50 250 10 Maintenance 15 20 25 30 35 125 11 PR 25 10 10 10 10 ____ 65 12 Depreciation 173 172 172 172 0 689 13 Interest 59 ____ 59 14 Dark Time (heating lighting/power) 3 3 3 3 3 ____ 15 is Setup Costs 25 0 0 0 0 ____ 25
c 380 285 291 297 3 m f ~ 1384 Net Profit/doss) 21 116 110 loir 270 621
Cumulative Profit/loss before Tax 21 137 2471 351 621 621 Estimated Balanace Sheet
Pre Trading Trading Trading Trading Trading Trading Year 1 Year 2 Year 3 Year4 Year 5 EOOO's EOOO's £000's EOOO’s EOOO's EOOO's Fixed Assets Land 71.00 71.00 71.00 71.00 71.00 71.00 Buildings 1074.20 1074.20 1074.20 1074.20 1074.20 1074.20 Editing Equipment 689.80 689.80 689.80 689.80 689.80 689.80 1835.00 1835.00 1835.00 4835.00 1835.00 1835.00
Cumulative Depreciation Edit Equipment 173.00 345.00 517.00 689.00 689.00 173.00 345.00 517.00 689.00 689.00
Net Fixed Assets Land 71.00 71.00 71.00 71.00 71.00 71.00 Buildings 1074.20 1074.20 1074.20 1074.20 1074.20 1074.20 Editing Equipment 689.80 516.80 344.80 172.80 0.80 0.80 1835.00 1662.00 14ë0.00 1318.00 1146.00 1146.00
Current Assets Bank -46.201 63.80 210.80 ~351.80| 486^801 615.80
-46.20 63.80 210.80 351.801 486.801 ~ 615.801 Liabilities: IOM Grant Amortisation -705.00 -564.00 -423.00 -282.00 -141.00 0.00 -705.00 -564.00 *423.00 >282.00 -141.00 0.00
1083.80 1161.80] 1277.80 1387.80 1491.1 1761.80 Represented By: Issued Share Capital 1.00 1.00 1.00 1.00 1.00 1.00 Profit/loss account -57.00 21.00 137.00 247.00 351.00 621.00 Share Premium 1139.80 1139.80 1139.80 1139.80 1139.80 1139.80 1083.80 1161.80 1277.80 1387.80 1491.80 1761.80 d-t
Island Studios
Estimated Cash Flow
Pre Trade Year 1 Year 2 Year 3 Year 4 Year 5 £000’s £000's £000's £000’s EOOO's EOOO's
Opening Balance 0.00 -46.20 63.80 210.80 351.80 486.82
Cash in 1 Share Premium D Westacott 450.00 2 Share Capital 1.00 2 Share Premium N Napier Bell 689.80 3 IOM Grant 705.00 4 Cash Generated from Sales 260.00 260.00 260.00 260.00 260.00 5 Vat on Sales 45.50 45.50 45.50 45.50 45.50 6 Vat refund on Capital Costs 1845.80 305.50 305.50 305.50 305.50 305.50
Cash out 8 Cost of Land 71.00 9 Building refurb/planning ect 379.00 10 Build costs 695.20 11 Edit Cost 689.80 12 Vat repayments 33.25 39.75 38.85 37.98 37.10 13 Running Costs 160.25 118.75 125.65 132.50 139.40 14 Interest costs 57.00 2.00 0.00 0.00 0.00 0.00 1892.00 195.50 158.50 164.50 170.48 176.50
Balance at Bank -46.20 63.80 210.80 351.80 486.82 615.82
App 5 ?7/m/nn Island Studios
Schedule of hire of Editing Equipment the revenue is based on the following assumptions:
The Editing suites will be used for both Island productions: based on 2 films per year using an average editing period of 20 weeks per film, and offshore work via an ASDL link. For clarification all Island productions will be attributable to Island Studios and there will be a charge of a 5% royalty on Offshore work. The Offshore work will be invoiced and accounted for as a seperate subsidiary Company of Island studios and is not included in this plan.
£'s a) Feature Films: Editing 40 weeks hire @ £800 per week 32000
b) Lightworks: 40 weeks hire @ £ 800 per week 32000 c) Sound Complex: Based on 8 weeks ADR requirement for feature films @£150 per hour 48000 d) Rushes Viewing and Sound Theatre: Features 80 hours @ £60 per hour 4800
116800
27/10/00 App 6 ps/is/eh Report on
Island Studios Limited
Department of Trade and Industry ISLAND STUDIOS LIMITED DEPARTMENT OF TRADE AND INDUSTRY
APPLICATION DETAILS
COMPANY: Island Studios Limited
ACTIVITY: Building and equipping of film studio
PROJECT £ EXPENDITURE: Land 71,000 Buildings 1,074,200 Plant and machinery 689,800
1,835,000
REQUESTED GOVERNMENT £ ASSISTANCE: 40% Building grant 429,680 40% Plant and machinery grant 275,920
705,600
PREVIOUS GOVERNMENT ASSISTANCE: Nil - Start-up
BANKERS: Barclays Bank
AUDITORS: Pannell Kerr Forster LAND STUDIOS LIMITED DEPARTMENT OF TRADE AND INDUSTRY
ACKGROUND
;land Studios Limited, (ISL), propose to develop a film studio complex at Baldromma Farm, .amsey. The company is being formed by Lough House and Edit Hire (New Technology) limited. Lough House are known to the Department through the operation of Lough House Animation.
Edit Hire (New Technology) Limited are a United Kingdom company who hire editing equipment to the television and film industry.
The plot at Baldromma is 47 acres and this will be developed into a full studio complex comprising:-
■ 11,200 sq. ft. sound stage m Scenery, lighting and joiners workshops m Full administration services m Wardrobe
m Make-up and hairdressing facilities
m Accommodation
Edit Hire will ensure that on-site there is the most up-to-date post production, editing and effects equipment. There will also be an ADR theatre to enable producers to complete voice pick-ups etc. in situ as well as providing the facility to view rushes.
The ownership of the company will be split between Lough House and Edit Hire in the following way:-
%
Lough House 64
Edit Hire 36
The percentage relates to the capital investment which both companies will put in.
The directors of the company will be Don Westacott, Phil Slattery and Nick Napier-Bell of Edit Hire. The studio manager may also be a director, however, this decision will not be made until the post has been filled.
Page 1 ISLAND STUDIOS LIMITED DEPARTMENT OF TRADE AND INDUSTRY
PROJECT EXPENDITURE
The cost breakdown of the project is>
£’000
Land and building 1,145,200
Editing and sound 689,800
1,835,000
It is proposed that the project will be financed in the following way:-
£
Lough House 821,000
Edit hire 414,000
Government grant 705,600
1,940,600
The difference between the capital cost and the funding is working capital of £105,600.
Lough House are making their investment by way of the land and buildings and work done to date. The rest of the building work is being financed by the Government grant.
The capital expenditure on the buildings will offer all the facilities needed to fulfil the day to day needs of a company filming on the Island,
As well as a 11,200 sq. ft. sound stage and related facilities there will also be three “back lot” positions and fully equipped offices into which a film company can move. This should assist companies coming to the Island. If they utilise this facility it will remove the need for them to locate offices and install phone lines and other office essentials. It is also hoped to develop accommodation onsite for certain crew members.
The company are going to ask the lighting companies who have established subsidiaries on the Island to tender for the business of the facility. Originally it was envisaged that a lighting company would come in as an investor, however, it has been decided to sub-contract the lighting requirements to a third party to whom a rental or royalty will be charged.
The editing equipment for the facility will be supplied by Edit Hire in exchange for their share capital.
Page 2 ISLAND STUDIOS LIMITED DEPARTMENT OF TRADE AND INDUSTRY
PROJECT EXPENDITURE (Continued)
The editing equipment shown in appendix 1 will be used within the studio complex, however, if required it can be moved to any part of the Island. This will enable it to be hired by companies who are filming locally but not using the Baldromma facility.
Equipment will be installed that will enable the editing of both feature and television film work.
The Avid Symphony and related equipment is the latest online editing machine for television. This is able to generate the majority of visual effects including titling, sub-titling, colour grading and online masters. The output is of a very high quality and can be used for the purpose of viewing rushes or for viewing with a dubbing suite. The system will be installed with all the appropriate decks and players, together with adequate film storage facilities.
To enable the editing of feature film to be carried out five Avid NT film composers will be networked complete with all the necessary sundries. Two or three films will be able to be edited simultaneously, which ensures that there is flexibility in relation to the volume of work.
The lightworks and related equipment enable non-linear editing to be carried out.
An ADR theatre will be incorporated into the facility to enable re voicing work to be done on the Island. This can generate a significant time saving for producers This facility will also double as a viewing theatre.
The above will give the studio an editing facility that is well equipped with up-to-date technology. This can be marketed to companies filming elsewhere who can send items for editing by an ADSL link.
A full break-down of the capital cost of the equipment being supplied by Edit Hire is contained in Appendix (i).
Page 3 ISLAND STUDIOS LIMITED DEPARTMENT OF TRADE AND INDUSTRY
FUTURE PROSPECTS
The company have produced the following forecast for the next five years:*
Year 1 Year 2 Year 3 Year 4 YearS £ £ £ £ £
Income Hire income (based on 2 films X 6 weeks each) 54,000 54,000 54,000 54,000 54,000 Ancillary hire income 24,000 24,000 24,000 24,000 24,000 Hire of editing/post production equipment 116,000 116,000 116,000 116,000 116,000 Off Island editing handling fee 30,000 30,000 30,000 30,000 30,000 Hire of lighting handling fee 12,000 12,000 12,000 12,000 12,000 Rental income from Lough House Animation 24,000 24,000 24,000 24,000 24,000 Amortisation of grant income 141,000 141,000 141,000 141,000 141,000
Total income 401,000 401,000 401,000 401,000 401,000
Costs Staff salaries 30,000 30,000 31,000 32,000 33,000 Editing salaries for Island production 50,000 50,000 50,000 50,000 50,000 Maintenance 15,000 20,000 25,000 30,000 35,000 PR 25,000 10,000 10,000 10,000 10,000
Depreciation 173,000 172,000 172,000 172,000 - Interest 59,000 ---- Dark time (heating, Lighting, power) 3,000 3,000 3,000 3,000 3,000
Set up costs 25,000 - - - -
380,000 285,000 291,000 297,000 131,000
Net profit/(loss) 21,000 116,000 110,000 104,000 270,000
Cumulative profit/ (loss) before tax 21,000 137,000 247,000 351,000 621,000
The hire income assumptions for the studio are that it will be in use for twelve weeks per year and the editing equipment for forty weeks.
Page 4 ISLAND STUDIOS LIMITED DEPARTMENT OF TRADE AND INDUSTRY
FUTURE PROSPECTS (Continued)
The company understand that there is no guarantee that these films will require studio facilities, however, they believe that even where the studio is not used there is a high probability that their facilities will be used for production offices and other services. The amount included in the forecast for such use is minimal.
Marketing the facility will also be undertaken by the company and this will be co-ordinated by Nick Napier-Bell a Director of Edit-Hire. He has numerous ideas to encourage use of the studio by others e.g., music videos, commercials. Nick has worked in the film business for over twenty five years and has numerous contacts in all areas.
The only full-time employee will be the studio manager, other staff will be employed on a project by project basis. The subsidiary will probably employ edit staff, although initially they may be sub-contracted from Edit Hire to ensure overheads are minimised until there is reasonable certainty as to the stream of work.
The work carried out by Island Studios will be invoiced by them and a payment made to the subsidiary for the use of staff.
The maintenance cost is forecast to rise over the five years as constant work will have to be undertaken to ensure that the facility remains of a good standard.
In the first year it is estimated that £25,000 will be spent promoting the facility in the trade press and at relevant exhibitions. The company hope to reduce the promotional spend after the initial trading period.
Interest is included in the first period as an overdraft will be used to fund the build work until the Government grant funding is received. ISLAND STUDIOS LIMITED DEPARTMENT OF TRADE AND INDUSTRY
COMPARISON WITH OTHER PROPOSED STUDIO FACILITY
There are currently two applications with the Department for the building of a film studio, this one and one from J R Creer Limited, who operate the current studio on Balthane Industrial Estate.
We do not believe that there is capacity on the Island for two facilities of a similar type at this time and, therefore, any assistance should be given to that which will service the industry to best effect.
The J R Creer option is significantly cheaper with a build cost excluding land at £490,000. This would enable a 12,000 sq. ft. purpose built facility to be developed. It would have production offices, dressing rooms and workshops.
The Balthane facility is much more basic than that proposed by Island Studios, it will be on an industrial estate and will not have back lots and a stand alone location.
Island Studios will be fully equipped with edit and lighting equipment, the Balthane Studio will require the hiring of the equipment from third party sources.
Balthane will be a very basic studio facility whilst Island Studios are proposing a studio complex that should enable the development of related services on the site. There is also room at Baldromma for future development whilst this is limited at Balthane.
Overall Island Studios offers a more complete package which should give the Island a state of the art facility. Oral Evidence SUB-COMMITTEE, FRIDAY, 19th MARCH 2004 21TISL
The Chairman: Thank you for that. Thank you both The Chairman: And I thank the media and the members for coming along and for giving us your time and giving us of the public for showing an interest in the matter. Thank you your assistance with this matter. We very much appreciate very much. We will now close our proceedings. that. Thank you.
Mr Westacott: Thank you. The Committee sat in private.
Tynwald Sub-Committee of the Standing Committee on Expenditure and Public Accounts on Island Studios Limited - Evidence of Mr D A Westacott and Mr P Slattery TYNWALD COURT OFFICIAL REPORT
RECORTYS OIKOIL QUAIYLTINVAAL
PROCEEDINGS DAALTYN (HANSARD)
SUB-COMMITTEE OF THE STANDING COMMITTEE ON EXPENDITURE AND PUBLIC ACCOUNTS ON ISLAND STUDIOS LIMITED
BING VEAYN MYCHIONE COONTYSSYN THEAYAGH AS CEAU ARGID FO-VING MYCHIONE ISLAND STUDIOS LIMITED
Douglas, Monday, 26th April 2004
Published by the Office of the Clerk of Tynwald. Legislative Buildings, Bucks Road, Douglas, isle of Man. © Court of Tynwald, 2004 Printed by The Copy Shop Limited, 48 Bucks Road, Douglas, Isle of Man
24 TISL SUB-COMMITTEE, MONDAY, 26th APRIL 2004
Members Present:
Mr R E Quine MHK (Chairman) Mrs H Hannan MHK Capt. A C Douglas MHK
Clerk: Mrs M Cullen, Deputy Clerk of Tynwald
In attendance: Mr M Fayle, KPMG
Business transacted
Page Procedural...... 25
Evidence of Mr Steve Christian and Ms Sheila Thompson...... 25
The Committee adjourned at 11.45 a.m. and resumed at 11.52 a.m.
Evidence of Ms Hilary Dugdaie...... 38
Evidence of Mr Nick Napier-Bell...... 43
Evidence of Mr Adrian Bell...... 50
The Committee sat in private.
Oral Evidence SUB-COMMITTEE, MONDAY, 26th APRIL 2004 25 TISL
Tynwald Sub-Committee of the Mr Christian: You are welcome. Standing Committee on The Chairman: Right. Again, for the record, perhaps we could start with Mr Christian. Could you give us your Expenditure and Public Accounts full name and address, Mr Christian, and your professional qualifications? on Island Studios Limited Mr Christian: Yes. I am James Steven Christian, from Corvalley House, Bollyn Road, Ballaugh, and I am a chartered accountant. The Committee sat in public at J0.05 a.m. in the Millennium Conference Room, The Chairman: Thank you. Perhaps I could ask Ms Legislative Buildings, Douglas Thompson to identify herself in the same way.
Ms Thompson: I am Sheila Thompson, from 5 Ashbourne Avenue, Douglas, and I am a chartered accountant. [MR QUINE in the Chair] The Chairman: Thank you very much. Again, reverting now to Mr Christian, what qualifications do you have and what experience do you have of the film industry? Procedural Mr Christian: My qualifications, as I stated, Mr The Chairman (Mr Quine): Good morning to you all. Chairman, are as a chartered accountant Since 1993, when I think the first thing 1 should explain is that this is a sitting the Department of Tourism commissioned a report into the of a subcommittee of the Committee on Expenditure and possibility of establishing a film industry on the Island, I Public Accounts and we are looking into the matter of the was the then lead consultant in advising the Department DTI grant aid awarded to Island Studios Limited and certain of Tourism on schemes that might be established to bring related issues. a film industry to the Island, and since 1993 - my contract Although it must be pretty transparent from the top-table was formerly with Emst & Young and I am now with my markings who the Select Committee is, I will identify them own company, GasWorks Media - we have been retained by simply for the reason that, of course, we have to record the the Department of Trade and Industry to evaluate, promote proceedings for Hansard. On my immediate left here is and assess the Department’s policy, strategy and investment Mrs Hazel Hannan, MHK for Peel, of course, and then at in relation to film. To date, that will have meant that I have the extreme left we have Capt. Douglas, MHK for Santon recommended investment in something of around the and Malew. I am Edgar Quine, and on my right we have order of 60 films coming to the Island, and I have probably Mrs Cullen, who is the Secretary to the Public Accounts looked at several hundred more that have not come to the Committee. We also have with us here Mr Fayle. Mr Fayle is Island and now spend the vast majority of my day-to-day an adviser, an accountant by profession, and an adviser to the business working within the film industry, with producers, Public Accounts Committee on this particular investigation. with studios, broadcasters, media lawyers, media bankers So, I think that is who we all are. et cetera. As I said, in that the proceedings are recorded and it gets a bit difficult at times for the Hansard people to decipher what The Chairman: Right, we follow that. Again, if I could happened after the event, we will try - we will certainly try just switch for the moment to Ms Thompson, what is your from this table, and I would ask our witnesses to endeavour position in terms of your experience of the film industry? to do the same - not to cut in on conversations unless it is unavoidable, because quite clearly it becomes difficult then Ms Thompson: My experience was that I worked with to decipher who said what from the Tynwald Hansard point Emst & Young, mainly on the DTI grants side, but also did of view. some work on the films with Steve. I still work on certain film-related projects, but they are not related to the Isle of Mrs Hannan: One to one. Man films.
The Chairman: Yes, we will try to keep it one to one, The Chairman: Right. Again, coming back to Mr and that will make it easier for the record. Christian, if I may, just to get this absolutely clear, your association with the DTI initially was in your capacity with Emst & Young?
Mr Christian: Yes. That is correct, Mr Chairman. EVIDENCE OF MR S CHRISTIAN AND MS S THOMPSON The Chairman: When did that cease? When did your association with them become one of Gas... The Chairman: So, first of all we should like to take evidence from Mr Steven Christian and Ms Thompson. That Mr Christian: GasWorks Media, Mr Chairman. is right, yes. You have already got your positions at the table. Thank you for coming; we appreciate that. The Chairman: GasWorks Media?
Procedural Tynwald Sub-Committee of the Standing Committee on Expenditure and Public Accounts on Island Studios Limited - Evidence of Mr S Christian and Ms S Thompson 26 TISL SUB-COMMITTEE, MONDAY, 26th APRIL 2004 Oral Evidence
Mr Christian: I left Emst & Young in December 2002. Thompson: Yes.) Okay. Thank you for that. I might say that, up to December 2002, from January 1990 Mr Christian, in terms of the - 1 think we understand the through to December 2002, I was responsible, either as term quite clearly - Lough House group of companies, and manager or partner throughout those years, for looking after more particularly in this investigation Island Studios, have the DTI Grant Evaluation Scheme for Ernst & Young, who you had any direct association, either in your capacity as throughout that period had a contract with the DTI. Emst & Young or in your capacity as GasWorks Media, to do work for the Lough House group of companies? The Chairman: Perhaps you can tell us: from the time that your association with the DTI was through GasWorks Mr Christian: No, never, Mr Chairman. My only Media, is that subject to a contract that was formed at that association was to evaluate any grant applications that they time? Is there a contract between yourself or your company would make to DTI. and GasWorks Media? The Chairman: Yes, that is for DTI. Mr Christian: Indeed there is, Mr Chairman, yes. There is a contract which commenced on - I believe it was - 1st Mr Christian: Correct. I have absolutely no other January 2003, (The Chairman: Right.) The contract fairly association. well replicates the situation that existed between Emst & Young and the DTI prior to GasWorks Media being The Chairman: Okay. Ms Thompson, is that the formed. position?
The Chairman: Ms Thompson, does that date also apply Ms Thompson: I have not done any work for Lough to yourself? House, either.
Ms Thompson: No. I left Emst & Young in August The Chairman: Okay, cleared that. 2002. Now, if we could move on, Mr Christian, to the question of your report to the DTI on Island Studios Limited, which is The Chairman: In 2002 you left Emst & Young? dated January 2001. If we could just move on to that now... Let me find it. Yes, that is it. Yes, okay. As I say, that is dated Ms Thompson: Yes, August 2002. January 2001. Would you have any involvement with Island Studios Limited in the preparation of that report or was that The Chairman: And did you immediately join Mr done on the documentary evidence, the business proposal? Christian? Mr Christian: The report, Mr Chairman, would be based Ms Thompson: No, I do not work for Steve. upon the application of the Company. (The Chairman: Yes.) I would have had contact with the Company prior to their The Chairman: Oh, I see. final formal application and subsequently in order to be able to evaluate their application. Ms Thompson: I do not work for Steve, no. The Chairman; Right. Did that extend to helping them The Chairman: You are working - in the preparation of their business proposal?
Ms Thompson: I work for myself. Freelance, yes. Mr Christian: Not at all, no. Certainly not, Mr Chairman. The Chairman: I see. And so who retains you to advise as you have done? You have obviously had some The Chairman: That was to obtain information to assist involvement. you to evaluate the proposition.
Ms Thompson: I still do some work for DTI, but on the Mr Christian: Yes. It certainly would not be unusual, industrial grants side, and I do work for two or three other prior to the formal application being made, forme to advise companies. the company as to what I would be looking for in that application, but as to the preparation or assistance with the The Chairman: And is there a contract between application, we would have no part in that at all. yourselves and DTI for your involvement? The Chairman: Yes, okay. In that business proposal, Ms Thompson: Yes, there is. which you have obviously seen - I am referring to the 27.10.2000 proposal - there is a reference in a letter to a The Chairman: What is the date of that contract? ‘new’ proposal. By implication, there must have been - or perhaps there was - an earlier proposal. Have you any Ms Thompson: There was a contract which was initially knowledge of whether there was one, and were you involved up to a certain sum of money, and there has been a new in that? contract in place from the... I cannot remember whether it is 1 st April or 5th April this year, for 12 months. Mr Christian: I think, from recollection, Mr Chairman, there was an earlier proposal, but such proposal was not The Chairman: A 12-month contract, right. (Ms considered to be a formal proposal in so far as... And
Tynwald Sub-Committee of the Standing Committee on Expenditure and Public Accounts on Island Studios Limited - Evidence of Mr S Christian and Ms S Thompson Oral Evidence SUB-COMMITTEE, MONDAY, 26th APRIL 2004 27 TISL again, it was certainly not unusual within the DTI for this to The Chairman: So it was your suggestion that Lough happen. A company would come forward, tell us what they House should ‘move’, as it were, to Baldromma? were suggesting, tell us their plans, ask us what might be available by way of assistance et cetera, and on taking our Mr Christian: I think it would be fair to say that I did say advice, on taking our lead as to what we would be looking to Mr Westacott that my view was that he should seriously for, I think an idea, being the prior proposal, became the consider doing that. formal application, if I remember correctly. The Chairman: Thank you. Staying with your report The Chairman: So, it did not reach a point where you to the DTI - that is, the January 2001 report - your report did a formal report to the DTI on those earlier proposals? refers to the company being formed by Lough House and Edit-Hire (Technology) Limited. At the time you submitted Mr Christian: No, Mr Chairman. I would be fairly that report, or on the run-up to the time that you submitted certain that the report that you have is the only formal that report, did you do any search of Edit-Hire (Technology) evaluation that was ever done. Limited, any company searches on it, or...
The Chairman: Right, okay. Now if I can just find one Mr Christian: I certainly would not have done any more document... Just bear with me. The one thing I am company searches, Mr Chairman. Edit-Hire were becoming not short of is paper! Yes, that is it. There is a reference in a shareholder in Island Studios, and they were providing an an accompanying letter here - in fact, it is a reference in amount of equipment by way of investment into the studio the Ernst & Young report - to Island Studios Limited - and facility. Nick Napier-Bell, who was the owner of Edit-Hire I quote: and is the owner of Edit-Hire, was known to me from my experience within the industry and known as a very ‘having had to jump over a number of very difficult hurdles’ honourable and very credible player within the industry in the post-production side. I would have no reason to do Can you throw any light on that phrase for me? Do you company searches. My main concern would be to tie down know what that amounts to or what that refers to? the conditions of the investment rather than to understand very much about Edit-Hire. Mr Christian: Yes. I think I can fairly well remember, Mr Chairman, what all that amounted to. The Chairman: The reason I ask that, Mr Christian, is: When we were faced with the prospect of Island Studios on the documentation we have here, it would appear that actually developing the studio complex, the original informal Edit-Hire (New Technology) Limited went into voluntary proposals that were presented to me would not have been liquidation on 10th November 2000, and if you look at the proposals that I would have readily accepted, nor would they dates of your report and the date of Edit-Hire (Technology) have been proposals that I would have readily been able to going into voluntary liquidation, it seems to be an unusual take with a positive recommendation to the DTI. position to be recommending a business proposal, given My major concern at the time was that the Company that backdrop. intended to create a mortgage over the property of Island Studios, at least over the land and the subsequent buildings, Mr Christian: The situation, really, would not concern and my view was that I would not want to see the studio the DTI in a material way, Mr Chairman. I agree with you funded with any debt that could rank ahead of the DTI’s that it is rather unusual, and I certainly was not aware of position, because it would have been my intention all along that situation until you mention it now. So, quite what the to take security for the DTI’s position. So, the first major circumstances of that liquidation were I do not know, but it hurdle that the Company had to jump over was to fund the would have no material effect on the DTI’s position, given studio without recourse to the bank, or at least without the the conditions that were attached to the awarding of the Company having recourse to the bank, and I think that was grant. a fairly major obstacle to put in the way of the Company in order to get to a position where we would be happy. The Chairman: But in relation to the viability of the The second hurdle that I refer to, I think, was a less project, in that context surely the position is that Edit- fundamental issue but, nonetheless, was one that I thought Hire (Technology) Limited, from the time they went into was important. The idea was to create at Island Studios not liquidation, were not in a position to ensure the production just the film studio but also more of a magnet for media-type of the equipment, which was, of course, to be their part of companies, and because, in one other financing proposition the equity of the company? that I was proposing, in terms of no bank debt, Lough House was under the control of the same directors as Island Studios, Mr Christian: Mr Chairman, there might be a hundred my view was that Lough House, which was based somewhere explanations as to why that company went into liquidation. else in the town, could be relocated into the studio facility, I am not sure if it was a voluntary liquidation, in which case which would have two effects: one, the sale of their freehold it might have simply been a housekeeping exercise - property could be used as re-investment towards the studio facility; and secondly, Lough House would be able to The Chairman: It was a voluntary liquidation. generate a rent to Island Studios and effectively kick off what was happening in terms of this ‘media village’ or ‘media Mr Christian: Okay. In that case it might have been a magnet’ that they were trying to create at Island Studios. housekeeping exercise being undertaken by the wider group. So, they were the two main hurdles, really, that I refer It might have been such that that was only an asset-holding to in the report. company, rather than an operating company.
Tynwald Sub-Committee of the Standing Committee on Expenditure and Public Accounts on Island Studios Limited - Evidence of Mr S Christian and Ms S Thompson 28 TISL SUB-COMMITTEE, MONDAY, 26th APRIL 2004 Oral Evidence
I really do not know the specific circumstances of that. I Ms Thompson: Lee Lighting? would only be concerned to understand that Edit-Hire would be able-to bring the equipment to the Isle of Man and would Mr Christian: Lee Lighting would be another one. be able to demonstrate fair value for that equipment when it was brought to the Isle of Man and at the time the grant was The Chairman: Ms Thompson, I wonder could you paid. I know that... Sorry, Mr Chairman - speak a little nearer to the microphone? (Ms Thompson: Sorry.) You have a fairly low voice, and I think we are having The Chairman: It is all right. some difficulty picking it up. I think that would help. Sorry. Could you repeat those names? Mr Christian: - just to continue, I know that Edit-Hire, or its wider group, certainly, had been in very active operation Ms Thompson: Lee Lighting. long before the time I wrote the report and, certainly, up until two or three weeks ago, when last I visited them. The Chairman: Lee Lighting?
The Chairman: No, this is specific to Edit-Hire Ms Thompson: L-e-e. (Technology) Limited, because that, of course, was the proposition that you were evaluating. It was Edit-Hire The Chairman: L-e-e. Right, okay. So, those are the (Technology). two that you had in mind, are they?
Mr Christian: Yes. I have no knowledge of that, Mr M r Christian: They spring readily to mind, Mr Chairman. Chairman, as the two. Arri and Lee at the time certainly would have been the two most established leading players The Chairman: Again, dealing with the business in terms of the lighting business. proposal, the essence of it was that the ownership of the Company, Island Studios Limited, would be split between The Chairman: Are they subsidiaries of... Well, I Lough House - 64 per cent - and the other capital investment, presume that is Island Studios? I think that is the quote we of course, in the form of Edit-Hire - taking the description in have got, unless I have got my... your report, Edit-Hire (Technology) Limited - 36 per cent. That is where the remainder of the capital investment was Mr Christian: No, absolutely not, Mr Chairman. They going to come. But again, looking at the documentation, it would be completely separate entities. would appear that the actual investment that has been put into Island Studios has come through two individuals, albeit The Chairman: I see. We will revert to that when we that they are principals in the companies that I mentioned, in have just checked the script on that, but certainly there is a that Mr Westacott and Mr Napier-Bell have put the capital reference to established subsidiaries - investment in on a personal basis. Have you any explanation as to why that change came about? Again, it is not part of the Mr Christian: Mr Chairman, that ‘established proposal that was put to you, and it is not part of the facts subsidiaries’, maybe that was my wording in the report. upon which you evaluated the proposal. That would be subsidiaries of the UK owners.
Mr Christian: Again, subsequent to my evaluation, The Chairman: Oh, subsidiaries of principal companies January 2001, at the point where I would make the that existed in the UK? recommendation, my job fairly well ends, as regards what happens beyond that point. It is my responsibility to make Mr Christian: Yes, distinguishing them from the actual a recommendation to the DTI, Mr Chairman. UK companies. Where I will get involved, subsequent to my report, is to liaise, for example in this case, I think, with the Attorney The Chairman: Right, okay. If there is any difference, General’s Chambers, when the security was being created we will come back to you on that one. over the companies. I would be involved in liaising with legal If I could now just revert again to this matter of the advisers, possibly, to understand that what were being put in capital investment, as I mentioned earlier, originally it was, place in terms of safeguards were in line with what my report in your evaluation, Lough House. Eventually, that became Mr suggested. Again, why the shareholding split was different Westacott, and his investment was coming in through the land latterly, or why they chose to go an individual investment and the buildings, and then eventually the investment from route rather than a company route, I do not know, but again Edit-Hire - that was Edit-Hire (New Technology) Limited there could be a vast number of explanations for that. - came in in a personal capacity from Mr Napier-Bell in the form, of course, of an injection, if you wish, or a contribution The Chairman: Okay. Also, in that document, there is of equipment to the value of some £689,000 or something a reference to lighting companies in the plural who have like that. Is the acceptance of equipment as ‘capital’ into the established - this is in the past tense, and they existed company... Is it realistic to accept a proposition like that? according to your report - subsidiaries on the Island The evidence has been given to us, of course, that equipment tendering for business. Can you identify those companies that is used for film editing, film purposes, is at the cutting for us? edge of technology. It is changing, it changes rapidly, and as a consequence of that film-makers, film producers, I Mr Christian: One certainly would be a company called suppose, film companies, prefer to lease this equipment, Arri Lighting. Do you remember the other one, Sheila? not only to make sure they have got the most up-to-date
Tynwald Sub-Committee of the Standing Committee on Expenditure and Public Accounts on Island Studios Limited - Evidence of Mr S Christian and Ms S Thompson Oral Evidence SUB-COMMITTEE, MONDAY, 26th APRIL 2004 29 TISL equipment, but also to ensure that they accommodate the company would transfer equipment into the Island, albeit at preferences of their cameramen and all the other experts an auditor’s valuation, and the DTI would take that to be an who are involved in this. injection of capital on which grant aid is payable. Secondly, is it realistic in the sense that it would appear that the editing is being done off-Island, being done at The Chairman: That is not really a strict parallel with the... London, for example? So, how realistic is it to the type of equipment we have got here, though, is it? accept that proposition that the capital will come through equipment which it would appear, on the evidence we have Mr Christian: I think it is, Mr Chairman. It is a transfer got to date at least, is not likely to be extensively used and of equipment from an associated party. The alternative is therefore must be of limited value and of a value that is fast that the company would go out and would purchase the decreasing? So, could you explain how you came to accept equipment. So, really there would be very little difference that proposition? in having it transferred or having it purchased. In terms of, 1 Does it bring value into the Isle of Man? Do those valuable Mr Christian: Yes. In tenns, Mr Chairman, of equipment assets arrive in the Isle of Man and are they going to be that would be brought to the Island, Mr Westacott and Mr used in the Isle of Man?’, then it is entirely the same, in Napier-Bell were putting together a studio facility that my opinion. wanted to offer as many options to a producer as possible. The extent to which the equipment would be used would be The Chairman: Then, of course, are they used? wholly dependent upon the volume of film-making that was going on in the Island. Mr Christian: To my knowledge, Mr Chairman, yes, It is not entirely correct to assume that the ‘editing’, as they are used. you phrase it, takes place entirely off-Island. There is a lot of day-to-day editing of rushes and of material that goes on The Chairman: Well, perhaps we could just deal throughout the making of a film. So, material will be coming with that aspect - that is, whether or not the sum that was back, for example, on a film that has been made right now, estimated as part of the income for this venture is realistic within the last two weeks, and the film has been here for in relation to Edit-Hire and post-production equipment. nearly three weeks. Within the last three weeks they are In the estimated profit and loss account, hire of editing/ putting assemblies together to show me, they are putting post-production equipment over the five years: £580,000 assemblies together to show their buyers, they are putting is accepted as a figure there. Is that realistic against the assemblies together to show their editors in London. The backdrop that I have mentioned to you about the extent to final post-production, the final cutting of the film, will always which editing is done off-lsland? take place, in my opinion, in London, but there is a lot that can go on between filming and the final post production, Mr Christian: I would say, Mr Chairman, totally realistic and that goes on in the Isle of Man. It goes on on virtually insofar as we are attracting films here which might have a every film that comes to the Isle of Man, and most of the budget of anything up to £12 million or £15 million. These film companies, if they are not using studio facilities or if sorts of numbers spread £116,000 a year, spread over a few they are not using Edit-Hire facilities, will be bringing that films - equipment with them to use on the Isle of Man. So, here was a proposition to equip the studio with decent The Chairman: Well, on two films according to your equipment, not equipment which is necessarily in any way out of date. There is a real cutting edge in this industry, report. Two a year. but that cutting edge is not at the sort of point where the equipment is being used in the Isle of Man. We have the Mr Christian: Yes. On as few as two films, such a figure special effects. We have all of the computer graphics that are would be entirely realistic, in my opinion. going into film now. That is done on leading-edge stuff. It does depreciate quickly. Whether or not it depreciates quickly The Chairman: So, an income of £580,000 based on in terms of what is happening at Island Studios, again, is of no two films over a five-year period: you would maintain that real interest to the DTI. The DTI were investing in an overall that is realistic? proposition, and that overall proposition is to attract the best we possibly could to the north of the Island in order to make Mr Christian: I would have no reason to doubt the it attractive to a film-maker. That will be a combination number, Mr Chairman. of equipment, buildings, location et cetera. Is it realistic to accept machinery as capital? In my opinion, perfectly The Chairman: Then there is an item here ‘Off-Island acceptable, yes, and there will be a number of precedents over editing income royalty’: another £150,000 on top of that the years of DTI investment where an equipment transfer is for editing. We are moving pretty fast towards the million agreeable to the DTI as a transfer of capital. mark, aren’t we? Well, not too far away: three quarters of a million. The Chairman: Can you give us any examples in recent times of where equipment has been accepted in lieu of capital Mr Christian: Yes, but again - investment? The Chairman: Where does that arise? Where does that Mr Christian: It would normally happen, Mr Chairman, sum come in? Obviously, it is off-lsland and there is some where there would be Isle of Man subsidiaries of UK parent sort of a royalty paid over here, but how does that arise? It companies, usually in the engineering sectors, where a parent cannot come, one assumes, from both directions.
Tynwald Sub-Committee of the Standing Committee on Expenditure and Public Accounts on Island Studios Limited - Evidence of Mr S Christian and Ms S Thompson 30 TISL SUB-COMMITTEE, MONDAY, 26th APRIL 2004 Oral Evidence
Mr Christian: No. I think the intention was that, in terms for the studio. One, I think, could say fairly safely that, with of Edit-Hire, they would be in a position to exploit the fact proper professional input, that would not have arisen. that they were a part-studio owner, that they would be able to attract a higher degree of editing work than otherwise Mr Christian: Well, I do not know, Mr Chairman, that they would have been, had they not been involved with the that is an entirely fair assumption to make, because I do not studio, and that they would be able to tender for and win think Lough House are going out and marketing the studio contracts for Isle of Man films, and in return for that they as a silent stage. I have spoken at length to producers who would pay a royalty back to Island Studios in order to reflect come here and who film in the studio. If you have a 70-mile- that position. Again, this is not an entirely unusual situation. an-hour wind blowing off the hills of the Isle of Man down You could call it a royalty, a commission, a split of profits; into Ramsey and it is accompanied by torrential rain, then whatever your description, it is not an unusual situation to there is very little soundproofing that is going to stop those see. Whether the number is realistic or not, at those sorts of sorts of situations arising. levels, yes, much depends upon what happens later in terms The producer who is here at the moment, making a veiy of the split between the companies. That number might commercial, very high budget film, explained to me within change if the capital situation had changed, but it is, I think, the last couple of weeks that he does not know of a single a fairly conservative and realistic number at the time of the stage in the world which is entirely soundproof. What you valuation, Mr Chairman. have to do is to give the industry a sound stage which is adequate for their needs. When the wind is blowing at 70 The Chairman; Just moving on now, leaving that aspect miles an hour and it is accompanied by torrential rain, you for a moment, what account did you take of whether or not might have to stop filming for a few minutes, bearing in that studio that has been built there had been or was to be mind that the silent aspect is only at the point where they - at that point in time, ‘was to be’, of course... What account are taking a final cut of an actor’s voice or a final impression ( did you take of the professional input to the design and the of the actor’s voice. method of construction and ultimately the commissioning? I went to the studio in December, when they were There has obviously been some shortfall in that respect. I filming another rather large commercial film. Their biggest would have expected, if you are putting up an evaluation concern at the start was that the studio was too cold, and it of a project to the DTI, that the ability of the company to was explained to them that there was space heating within have the project professionally designed and professionally the studio. They ended up, Mr Chairman, wanting to cut constructed - after all, it is held out to be a high-tech facility four holes in the roof, because the lights were making it too - would have been done through a company of professionals. hot. The needs of different producers vary dramatically. The What was your understanding, and what account did you take views of different producers vary dramatically. They are of whether or not there was the right degree of professional very volatile people who have very different expectations input into the design and the building of that facility? depending on whether the sun is shining or whether it is not, depending on whether their actors are behaving themselves Mr Christian; We wanted to see, Mr Chairman, what or whether they are not. They are very, very difficult people was going to be within the studio. We wanted to understand to deal with. the studio's dimensions, obviously. We wanted to understand What I would say to you is that, on the analysis post each whether or not it would meet the needs of the industry, and therefore we wanted to see how Mr Westacott had gone about film that we have gone through... And I do go through it, satisfying the requirements of the industry and their needs. because my job now is to bring films to the Isle of Man and I know he travelled extensively around the UK talking to to convince film-makers that the Isle of Man is a good place studio operators. I know he took a number of soundings, not to make a film, that the studio is a decent place to shoot the least, I think, from Pinewood Studios, who... I am not sure if film. So personally, for my own reputation, I do not want they gave him any formal written advice, but Mr Westacott to be embarrassed going out and selling something that is ( was certainly able to explain in some detail to me what the inadequate in any way, I am very, very, veiy proud to go out design aspects of the studio should be and how it should be and sell Island Studios and the Isle of Man as a place to come constructed. and make films, and I do that without any embarrassment, Again, within the DTI I am really concerned not with because the facilities are actually very, very good. the design package, not with what the studio was going to When I was looking at the studio, I wanted to know exactly look like or sound like or feel like when it is finished; I am what was going in, what the soundproofing requirements only interested to understand that you have an asset that is were going to be, how it was going to be soundproofed. working at the end of the day. Within the DTI there will be ‘Soundproofed’ must not be taken as a literal phrase. Russ controls as to who should build the studio and how it should Smith said to me he was filming at Ealing Studios on a be built, but that is not my primary concern, Mr Chairman; soundproof stage, and yet they had to keep cars 30 metres my primary concern is financial and to protect the DTI’s away, because you would hear the door slamming inside the investment. studio. So, soundproofing has to be taken not literally, but to a point where it is acceptable. ‘Sound deadening’ is probably The Chairman: But it would seem to us that if you are a much better phrase to use than ‘soundproofing’. evaluating a project in terms of its worth and whether DTI money is going to be soundly invested there, the ability of The Chairman: Yes, I follow that. I follow what you the studio to carry out its purpose, to meet its purpose, would are saying there, but in terms of a £1.5 million investment be a critical consideration in deciding whether that project is - ballpark figures - is it realistic to expect that that would really worthwhile, whether it is sustainable. For example, we be put together without professional input into the design are told that there was a serious shortfall with soundproofing of that building?
Tynwald Sub-Committee of the Standing Committee on Expenditure and Public Accounts on Island Studios Limited - Evidence of Mr S Christian and Ms S Thompson Oral Evidence SUB-COMMITTEE, MONDAY, 26th APRIL 2004 31TISL
Mr Christian: My understanding was, Mr Chairman... away from the main centre of those industries that are going From talking to Mr Westacott, I wanted to understand... The to be servicing it in terms of hotels. Fiim producers who real main criteria from my point of view are as follows: firstly, come to the Island do not think travelling 16 miles to work that the dimensions are correct. It is very, very important, across either the mountain road, the coast road or through when creating a studio facility, that the dimensions are going Ballacraine from Douglas is a particular hardship that cannot to be suitable for film-making. The most critical dimension be endured. They would love the studio to be in the centre is height, and it is height to the light grid, and that needs to of Douglas, Mr Chairman. That would suit everybody in the be, as in this case, around about 40 feet in order to be able industry absolutely perfectly. That could not be. to build 1.5 storeys of sets. So, height is critical. The clear We looked at a number of different locations as to where span is critical. The ability to provide services onto the site we might be able to site a studio. There was a proposal that is critical, and to produce, at the end of the day, what is a one should be built, I think, on the Balthane Industrial Estate sound-deadened stage is critical. They are the things that we down by the airport. It was - would be looking for in the creation of a studio. So, really, you are talking there about something which is I am not sure The Chairman: We will come to that in a moment, how many feet long or wide, but you are talking about the yes. creation of a big sound-deadened shed. That is what you are looking at. Mr Christian: - far from an ideal location. We In terms of professional design, I know that Mr Westacott investigated the possibility of creating a studio facility at took a lot of advice. I know that he had retained builders or Linden Grove in Douglas. That was a property in Government a retained building company under his control, for example. ownership, I believe, that was being decommissioned and I know that we were concerned about the soundproofing and was used on an ad hoc basis for filming during its period of wanted to see the level of soundproofing. I know that visits ‘inactivity’, for want of a better word. It worked well, but in were made to the studio to see that the insulation was going being able to develop that site there were massive problems. in; as was promised, it was going in. So, in looking at what There were massive problems related to sound, covenants he was proposing and whether that was realistic or not, one relating to the use of the site and the sound that was emitted has to take a view as to whether it is realistic that this job from the site. The Department looked very closely, Mr can be done. The only test is afterwards: has it been done? Chairman, at building a film studio on the Jurby Airfield, My view was that the approach he was taking was a realistic and in fact that was the Department’s preferred location for approach, and I see very little since to say that that was not a studio. It had plenty of room for expansion. It was away the correct impression. from any area of huge noise pollution. In fact, the DTI, in the current year we are talking about, had £2 million in its The Chairman: Have you any knowledge of film studios budget to build a studio itself on the Jurby Airfield. built in recent times elsewhere? When producers come to the Island now and they look at the studio, not one producer has ever said, ‘No, I am not Mr Christian: I think, Mr Chairman, that, in terms of a coming because the studio is in Ramsey. ’ What they do say purpose-built facility... I think I read somewhere that this is, ‘Wouldn't it be nice if you had a couple of hotels here? one on the Isle of Man was the first purpose-built facility in Wouldn’t it be nice if there were some decent restaurants the UK for something like 20 or 30 years. Another studio around here?’ But they do not say, ‘No, we are not coming has been built more recently, I think in Cornwall, certainly because it is in Ramsey.’ They do not think it is a huge somewhere in the very south-west of the UK, but as a specific obstacle to overcome. purpose-built studio I think that one was the first one in the UK for some time. The Chairman: Was there a Department decision taken that a film studio was to be built in the north? Was there a The Chairman: But there are firms of architects who commitment to produce a studio in the north as opposed to specialise in building film studios. other parts of the Island?
Mr Christian: If that is the case, Mr Chairman - Mr Christian: No, Mr Chairman, I do not think that was the case. If the studio were to be built by the Department and The Chairman: You are not aware of them? that was the Department’s only real option at the time when we needed a studio, their preferred location was at Jurby. I do Mr Christian: - 1 am not aware them. not think that was because Jurby was north; it was because Jurby was in Government ownership, it was available and The Chairman: Right, okay. Thank you for that part of it seemed sensible at the time. So, there was no real policy it. Again, this is a question of the viability and the value of decision that a studio should be in the north. the end project. One of the points that has been raised with us The Department did have, and continues to have, a very is this: that with putting the film studio where it is there, it is strong policy towards not just economic diversification, inadequately served in terms of the accommodation needs of but they do also have a very strong policy towards regional the actors and actresses and other officials, in terms of what diversification, and so when looking at this proposal for a is available in the north of the Island. 1 suppose, basically, film studio in Ramsey, it certainly helped the case that it we are talking of the Grand Island Hotel and that is about was not just economic diversification, that it was not just it. Did that aspect enter your evaluation? economic generation, but it was also regional diversification and regional economic generation. So, it certainly played, in Mr Christian: Most certainly, yes. You have a situation my mind, into the favour of Island Studios, although it was where the studio is being built, and it is being built some way not a firm policy of the Department.
Tynwald Sub-Committee of the Standing Committee on Expenditure and Public Accounts on Island Studios Limited - Evidence of Mr S Christian and Ms S Thompson 32 TISL SUB-COMMITTEE, MONDAY, 26th APRIL 2004 Oral Evidence
The Chairman: Yes, okay. In terms of your instructions The Chairman: Right, okay. Then, in terms of youi from the Department, what criteria has the Department laid involvement with films that are seeking assistance, what is down for your good self to be followed in this respect? the extent of your involvement there? Where do you start and where do you finish? Mr Christian: The criteria, Mr Chairman, are that the Department will pass to me an application for assistance and Mr Christian: Where do I start? I will start, Mi my job is to evaluate that application and to come back to Chairman, in a number of ways. I might start by going and the Department with a recommendation. The applicant must trying to establish a commercial relationship with another be operating within the terms of DTI policy and strategy, so party. So, for example, I might go to one of the American it must be engaged in an activity which the DTI is willing film studios and promote what the Isle of Man is offering in to encourage. My overriding brief - and I guess it is why terms of its Film Investment Scheme. That is starting right they chose a firm of chartered accountants to oversee the at the very beginning, where I am responsible for promoting brief - is to bring back to them projects where the risk and the Isle of Man’s ‘film incentive’, if you like. the rewards are very clearly defined and are balanced and Another way where it can start will be that the film world taken account of. knows what the Isle of Man is doing, and I might take a phone call entirely out of the blue from a producer or from The Chairman: They have not given you any written a lawyer or from a banker who thinks they have a project instruction beyond a requirement to follow the grant order, which might be able to use the Isle of Man and which might the requirements set down in the grant order? gain Isle of Man assistance. So, that would be the first point of contact. Mr Christian: There are no specific further instructions, Another contact might be that the project will actually Mr Chairman, no. Can I just say, though, that it might be come through the film office of the DTI, where usually relevant to note that I have probably evaluated for the Hilary Dugdale - Department somewhere in the region of 450 applications, probably covering an investment value of something like £40 The Chairman: This is the Film Commission you are million? Therefore, I have to work extremely closely with referring to? the Department in understanding their needs and, basically, understanding their strategy and their thinking. So, I have a Mr Christian: Yes, Mr Chairman. The enquiry will day-to-day involvement with the Department. come through the Film Commission, and the Commission will look at it, do their own very simple first-up assessment The Chairman: Yes, okay. Just before I move on to an and then determine whether or not they should pass it on to entirely different matter, I just want to be clear in my mind me, for example. about your involvement post submission of your report on a So, it can come at a number of different levels. Where project. Could you just re-cover, in case I have not got that does it end? fully and clearly set in my mind: what is your involvement after the... Let us assume you do your report on a project The Chairman: It involves an evaluation of the script. and it is accepted - in this case, it was to build a studio. In Is that part of it? this case, what was your involvement after that point? Mr Christian: From my point of view, absolutely not, Mr Christian: In this case, Mr Chairman - just, again, Mr Chairman. No. purely from recollection - I would have liaised with the Attorney General’s Chambers to be absolutely certain that The Chairman: Okay, that is clear. the security that I had recommended be put in place actually was put in place and that the security extended to the point Mr Christian: I only ever make any assessment on that I would be happy with. So, I remember having a number financial matters. I am absolutely not qualified to advise of consultations with the Attorney General’s Chambers in on any creative matters of any nature. So, I will assess the regard to those matters, and beyond that I would very rarely financial matters up to the point where the film is out and have any future involvement with a company. is selling and is generating revenue, and then I will work In this case, in May or June, sometime in the first half of very closely with the contracts side of the DTI and the 2002,1 was back at the studio to try and understand exactly Film Commission to make sure that the contract is being what was going on at the studio in so far as there had been complied with, that any revenue that should be collected is some overspend. Mr Westacott was trying to establish being collected, and I will have an ongoing dialogue with the whether or not the overspend would be an area that the producer for possibly five or six years afterwards. Department could help him with. I was there to see exactly what he had done, what had been created, but generally The Chairman: Yes, okay. Switching subjects now, you speaking, Mr Chairman, once I have reported, unless a major referred earlier to an alternative proposal at about this time issue arises on the financial side of things, then I will have - a little earlier, perhaps - concerning the establishment of very little involvement with the company thereafter. the studio at Balthane at Ballasalla. Were you involved in that proposition? The Chairman: Right. Just stay with this particular project for a moment. Was that overspend accepted for Mr Christian: Yes, I was, Mr Chairman. additional grant aid? The Chairman: Right. Were you involved in any way Mr Christian: I do not believe it was, Mr Chairman. in that?
Tynwald Sub-Committee of the Standing Committee on Expenditure and Public Accounts on Island Studios Limited - Evidence of Mr S Christian and Ms S Thompson Oral Evidence SUB-COMMITTEE, MONDAY, 26th APRIL 2004 33 TISL
Ms Thompson: Yes, I visited Mr Creer. Mr Westacott and Mr Napier-Bell - involved in the Island Studios project? The Chairman: That is right. Mr Creer, yes. Mr Christian: I think on the Creer application there Ms Thompson: Yes, Mr Creer. I visited him at was going to be some industry input coming from, I think, a Balthane. company called Electric Sun, if I remember correctly, another lighting-type establishment. That was not a relationship that The Chairman: You visited him at Balthane? was a particularly strategic relationship. What was happening was that the applicant was thinking to himself, ‘I need to get Ms Thompson: At Balthane, yes. somebody alongside me here. I need to drag somebody in to give this some sort of credibility.’ On the other hand, in The Chairman: Yes, okay. Perhaps we could start with the Westacott/Napier-Bell situation you had Westacott, who Ms Thompson there. was by now involved quite heavily in the media business through Lough House, and Napier Bell, who, in my opinion, Ms Thompson: I am afraid I have got absolutely no was a committed and very credible partner and a partner who notes on this or anything. would bring something else to the application. Can I just say, Mr Chairman, for the record, that again The Chairman: You have got no notes? with the film that is shooting here right at the moment, in order for the Island to stand any chance of that film coming Ms Thompson: Nor have I got right of access since I no here, Mr Napier-Bell had to make a real effort to sell the longer work... So, I have not - facilities of Island Studios at very short notice. I say this to demonstrate his level of involvement. I had to call Mr The Chairman: Oh, I see what you mean. Well, from Napier-Bell late on a Friday to ask him to make sure that the best of your recollection in relation to that proposition, he would be in the studio. Bearing in mind he is living in were you involved in the decision? Did you in any way make London, I was asking him to make sure that he would be at a recommendation as to whether or not that project should the studio on Sunday morning to meet these producers in be accepted or rejected? order that the veiy best presentation could be made to the producers in order that we win that film. Ms Thompson: No. I just visited Mr Creer. Any Of course, Mr Napier-Bell was on the very next plane decisions... I just worked for Steve at Ernst & Young, and and was there and was acting in a very committed way, as he any reports I did or produced or was involved in would be always has done, from the inception of the studios. reviewed and decisions made. The Chairman: Okay. Thank you for that. The Chairman: Right. What knowledge have you got of that project? Mrs Hannan: Could we just clear what film this is?
Mr Christian: The project, Mr Chairman, was not a The Chairman: Yes. Could you just - project that I was in any real way interested in recommending to the Department. It was a project that was not in the best Mr Christian: The film that is shooting now, Mr location. It was a project that involved a significant amount Chairman, is The Libertine. of debt being created, and it was a project that was being created by people who the Film Commission had experienced The Chairman: Okay. If I could just cover one final a number of difficulties working with in the past. There was aspect before my colleagues come in with their concerns, not really anything that would have led me to say that the there is a reference in the Government plan, the DTI plan, DTI should invest six figures into that application. There was to: really no element to it at all that would meet the criteria that we were looking for. ‘research the feasibility o f establishing an ¡mage-capturc/animation studio with associated state-of-the-art teaching capability1. The Chairman: And what were the grounds on which you recommended rejection of that application? Have you any knowledge of that policy objective?
Mr Christian: It would be on a lot of those, Mr Mr Christian: Yes I have, Mr Chairman. Chairman. It would be on the fact that the site was not the best site; that, in my opinion, the people were not the best The Chairman: What lies behind that, to your people; that, in my opinion, the financing was not the best understanding? structure of financing. Very often you will not reject an application just on one single item. You will reject it on a Mr Christian: Within the animation world at the moment number of grounds, and that one was rejected on a number there is a shortage of digital animators, and a great deal of of grounds. the digital animation work that is being done is going to places like China and to India. It is going there primarily The Chairman: In terms of the expertise - or lack of because of a lack of training that exists within the UK for it, for that matter - what was the difference between the digital animators. There is no shortage of work. A great deal two principals involved in the Balthane project and the of the work is being produced by British companies and is two principals - or three, if you wish, but certainly two, being exported east.
Tynwald Sub-Committee of the Standing Committee on Expenditure and Public Accounts on Island Studios Limited — Evidence of Mr S Christian and Ms S Thompson 34TISL SUB-COMMITTEE, MONDAY, 26th APRIL 2004 Oral Evidence
Image capture uses a series of sensors which are placed that they did not need and now that they did need? on an actor’s body, and live-action acting will take place. Special cameras will then pick up the light sensors, and the Mr Christian: It would depend very much on the live action will then be turned into an animated character It circumstances. If there was in any way a marginal situation is the DTI view that establishing an image-capture studio on between the value of the assets and the value of the charge, the Island, along with a training facility for digital animators, then possibly the DTI would consult me on that, but if there would bring the Island to the fore in this particular part of was some margin between what the DTI has covered by way the industry. It is prompted by ongoing discussions that the of its charge - I think in this case around about £700,000 DTI are having with myself and with a digital animation - and there being plenty of assets to cover that £700,000, studio to actually try to establish something in the Island then it is not necessarily the case that the DTI would consult that would work on a commercial level but would also me. work, for example, with the college, the college setting up specific digital animation courses for digital animation and Mrs Hannan: With regard to the business plan that for image capture. Island Film Studios put forward, they suggested that there would be employment for local people. Do you understand The Chairman: How does this sit, then, against Lough how much employment there is for local people? House? Obviously, there are differences in the work that they would carry out, but there would appear to be an element of Mr Christian: Again, my job really, on this side, stops competition or conflict of interest here. at the point where we have evaluated the application. What I can say is that I was at Island Studios last Saturday. There Mr Christian: Not really, Mr Chairman, because the were something like 300 Isle of Man people working there projects that this particular studio would bring in would be that day. I know that that number of people have been > projects which they were themselves generating. So, they working there for a number of days in the last two or three 1 would be bringing their own projects into the Island, and weeks. they would be bringing that work into the Isle of Man rather than sending that woik offshore to an India or a China, for Mrs Hannan: How many are permanently employed example. It might be possible that actually it would be a on the site? huge benefit for Lough House, because there might be some animation work that could be subcontracted to Lough House, Mr Christian: I do not know, because again, as I say, but they are not in a competing area at all. my job finishes at the point where... Sorry, it does not finish. The vast majority of what I do finishes at the point where The Chairman: It does not lend itself to an upgrading my evaluation finishes. of the work at Lough House? But could I say that, in supporting this application, the creation of employment would be very, very low on Mr Christian; To be honest, Mr Chairman, I do not know the scale? Again, I just put the grant hat on rather than the exactly what Lough House would have to do, in order to film hat. The DTI, when it is going out and is encouraging provide whatever level of service to the new entity that we business to the Isle of Man, are one of the few agencies in are speaking to. What I can say is that it is not competition for the world that is not going out there and encouraging jobs per Lough House. It would only enhance Lough House, because se. The idea of what the DTI is looking for is the creation of that work is not on the Island at the moment and would have economic growth and economic generation. We work, as you no intention of coming to the Island at the moment. all know... I do not mean to tell you something about your own economy, but the Island is working at full employment, The Chairman: Thank you very much. If I could just see so it is not an overriding consideration of the DTI to create * what questions my colleagues have... Perhaps, Mrs Hannan, more employment. i if you could start. That is not to say that employment is not an issue, but that is not the overriding factor. Within this application there will Mrs Hannan: You mentioned, Mr Christian, that you felt be a huge number of factors in relation to economic growth that the support for the Lough House group of companies and economic development that will be taken into account, with regard to Island Film Studios... They were bringing in of which employment would be a small part. the money, you could say, to finance this and looking for a grant, and they were not looking for anything from the bank, Mrs Hannan: In relation to the editing facilities on the you said. Do you understand that they have now got a second site, you did say that editing happened on the site. Is that charge from the bank? right?
Mr Christian: The situation is that the DTI has a first Mr Christian: Yes, and that will be happening today charge. I am not aware that Lough - on the site.
Mrs Hannan: So you were not consulted over a second Mrs Hannan: We were told that all of the editing was charge? done in London and that it was brought back again. So, what sort of editing is done on-site? Mr Christian: No, I was not. Mr Christian: Again, editing done in London and then Mrs Hannan: Would you have been asked, in normal brought back again... What happens is that the film will circumstances, whether your original assessment was such be shot - we will take an example of today - in the Island,
Tynwald Sub-Committee of the Standing Committee on Expenditure and Public Accounts on Island Studios Limited - Evidence of Mr S Christian and Ms S Thompson Oral Evidence SUB-COMMITTEE, MONDAY, 26th APRIL 2004 35 TISL and the exposed film will then be transported to the lab in Mr Christian: Yes. Mr Chairman, the situation that the UK, The UK laboratory will then process the film - to Capt. Douglas describes is such that that would be a matter put it very simply, just as a chemist would process a film of procedure for the DTI post my evaluation. It would be from a camera - but then the film comes back to the studio awfully difficult for me to get involved in applications once or back to the Island either two or three days later, and it is I have evaluated unless there is a difficulty that is brought important that the producers and the director can see what to me by the DTI. That is what the DTI and the DTI officers they have got, what has been brought back. Then there will are there for, basically to monitor the terms and conditions be a level of editing that will take place on the film that has that are either: (1) in place under the normal terms and been brought back to the Island. Assemblies will be put conditions; or (2) have been imposed as extra terms and together. Scenes will be slotted in. It is not the highest level conditions by myself. of post production. It is a level of post production that will take place on any film set, wherever you go; it is not peculiar Capt Douglas: Right. I have been sitting down and to the Isle of Man. All of the very technical, state-of-the-art writing a note of these questions out over the past few days, final post production will take place in London. Of that there and of course, as you have gone along, you have answered is no doubt, and that will never change, but there is a degree many of them, because I think they are DTI questions, but - and these things are by degree - of post-production editing there is a question I would like to ask: in the application it work that is taking place on the Island as the film is being refers to editing - what is the type of editing referred to in made, and that happens on every film, wherever you are. that application, particularly in respect of the income? It does seem a large sum of money. Mrs Hannan: Thank you. Could I ask you: have you had any connection with the Grand Island Hotel? (Mr Christian: Mr Christian; The type of editing that is taking place Yes.) When was that? is post-production editing using, for example, outlet editing machines, where the film has been played in and the editor Mr Christian: Now, you have really put me on the spot or subeditors or the editing team that is on the Island are able for dates, but I acted as receiver of the Grand Island Hotel, to have access to what is known as the ‘rushes’. The rushes and that would have been (Ms Thompson: 1995.) in 1995, are the return of the exposed film. So, they have access to the I am told. I sold the Grand Island Hotel, as receiver, long exposed rushes and are able to work on those rushes when before any idea of a film studio was proposed for Ramsey. they are back on the Island. But yes, I was the receiver and did sell the Grand Island The sort of numbers we are talking about: typically, a Hotel in Ramsey. post-production budget will account for somewhere over a third of the film’s total budget So, if we are dealing on Mrs Hannan: Thank you. average, say, with films that are costing £6 million, which will be about the average at this time, £2 million of that will The Chairman: Yes, Capt Douglas. be going into the editing and post-production process. So, to get the sorts of numbers that these guys were Capt Douglas: Thank you. We are all singing from the looking for here at those sorts of levels should not be a major same hymn sheet. My questions have actually been answered, hurdle to overcome. It is entirely in keeping with the sorts of but one other thing that worries me slightly is: did anybody numbers that we are talking about for the industry. But it is, from the DTI or anywhere else actually sight the Edit-Hire 1 stress... The editing is lower-level, day-to-day editing that equipment? We visited the studios, but, obviously, there was a film-maker will be required to undertake. If the machines a film being made and it was not our job to go poking around were not there, they would be bringing the machines with the place, but did somebody actually physically... I know them. They would be bringing equipment with them to enable we have an auditor’s certificate for the equipment, but did them to undertake this work. anybody actually physically sight it? Capt Douglas: Thank you. Mr Christian: Yes. Mr Chairman, the normal procedure for the DTI, when there is a significant amount of capital The Chairman: Just two residual matters, but just to equipment being purchased, would be for the DTI to inspect clarify one additional aspect of that last question: are you that equipment at some point, post the application being saying that the equipment which has been input into this made. So, officers from the DTI will have been down and project as capital investment is particular to the form of will have provided evidence or will have seen evidence of editing that you have just described to us? that equipment in place most certainly. Mr Christian: Yes, Mr Chairman. Capt Douglas: Thanks for that. Another question I have is: it does not make it entirely clear whether the tenders for The Chairman: There is no question of equipment the building were, in fact, measured on a like-for-iike basis. having been input into this, provided by way of the capital There is a comment being made that the original quote was investment, which is not particular or not required to be for one building in two instances for the quotes and then used other than in relation to this form of editing that you there were two, and of course the point has been made that have described? the increase in the price from what the quote was to the final cost was an increase in the steel prices of something of Mr Christian: Certainly not to my knowledge, Mr the order of 11 per cent. Would that be something that you Chairman, no. would... Or has that gone beyond where you have printed your report? The Chairman: Right. Just two matters for clarification,
Tynw ald Sub-Committee of the Standing Committee on Expenditure and Public Accounts on Island Studios Limited - Evidence of Mr S Christian and Ms S Thompson 36TISL SUB-COMMITTEE, MONDAY, 26th APRIL 2004 Oral Evidence then. Mr Christian, you mentioned that in your advice, in The Chairman: Have you knowledge of a mortgage your discussions with the Island Studios principals, one of having been raised? the aspects that you were advising them on was to try to get them to steer away from entering into a mortgage on the Mr Christian: I have not, Mr Chairman. I can give you property because, for obvious reasons, that would be less than the context of that correspondence. The context was that desirable. However, just looking at the correspondence, it Island Studios thought they were going to be eligible for seems that - 1 think Ms Thompson can confirm this or deny more grant aid. it, as the case may be - Mr Slattery made an application to There was an area, I think, within their expenditure claim a grant for the buildings, and, not unexpectedly, that pattern... There was an amount for some land and buildings was declined, and in substitution for that, in fact, a mortgage that would not have been eligible for support, and Island was raised. Is that not the situation, that a mortgage was Studios thought, they might be eligible for support. They taken out? took the view that if they were not eligible for support, they would have to go to the bank to fund the shortfall. Ms Thompson: Sorry, I do not know what you are Our advice certainly would have been - and it is reflected referring to. I am sorry. I have no idea. there - that if they did go to the bank, the bank would only ever be able to have a second charge, that that would need The Chairman: Well, we can get a document with the the DTI’s approval, that would need the Attorney General’s reference to it here for you in a moment. I do not know approval. But subsequent to that, I do not think... Certainly whether you have any knowledge of that? Was there a not to my knowledge, I was not aware that a second charge mortgage at any stage? had been raised.
Mr Christian: Certainly not to my knowledge, Mr The Chairman: Yes, well, we can clear that with the Chairman. DTI, but the position, of course, is that a second -
The Chairman: There is a handwritten note at the foot Mrs Hannan: It was. of a letter. It is a letter of 2nd July 2001, and it says: The Chairman: It was raised? ‘Spoken to Phi! Slattery re the conveyance of the buildings for £379k. This is the sale of the existing old buildings on the site to Mrs Hannan: It was raised. Island Studios Limited by Don WcstacotL I told Phil that this was not eligible for assistance, but he says that it was part of the approval. I phoned Sheila' The Chairman: Yes, a mortgage was raised, and it is just that it is contrary to one of the features that you mentioned - which obviously is Ms Thompson - in terms of your briefing to the Company. In fact, in this case a mortgage was raised. ‘ and she was o f the opinion that the £379k was for refurbishing and planning fees for the old building. She said that she would speak to Steve Christian.’ Mr Christian: I certainly was not aware of that, Mr Chairman. That is dated 25/7/01. Then it goes on: The Chairman: This is definitely the final one. ‘Sheila phoned 30/7/01. She spoke to K B’ Mrs Hannan: Except for me. - which must be Ken Bawden, I presume - The Chairman: Except for Mrs Hannan, yes. I have in ‘who said they could not claim the £379k. They can claim front of me a letter here. It is a letter from the Department ^ refurbishment, though, as that was what Sheila thought it was for. K B said it would be possible to get a loan but not to mention it to them at of Trade and Industry, and it is dated 25th August. It is to J this stage. Sheila said if Isle o f Man Bank wanted second charge, they R Creer Limited, and it says: would have to write to us and in turn to write to AG, but there was no mention o f loaning money to Isle o f Man Bank. We need to know what ‘Further to our meeting with Sheila Thompson this morning.’ the financial implications are. Island Studios Limited need to be told that Isle o f Man Bank need to send details o f the charge required and And further down in this letter it says: that it needs Government approval.’
‘The Department is concemcd that you do not have any industry Then it goes on: experience or specialist working with you. The construction of the studio is obviously your area ofexpertise, but also required is extensive ‘Phil Slattery phoned and explained all o f the above, but he is not happy. industry knowledge in terms o f fitting the facility out to the best He will contact Sheila on his return from holiday 30/7/01.’ advantage o f atl concerned,5
So, obviously there was discussion and there was That was a ground that was put forward by the DTI not ultimately a mortgage raised. I am just wondering - to accept the Creer application, but it is not readily apparent how that is materially different from the position vis-à-vis Ms Thompson: They were told that... I believe if that Island Studios. They did not have that expertise either. is the correspondence... As I say, I have not got any notes. I have not got anything. If that is the conversation, they would Mr Christian: The Island Studios application was normally be told they have got to inform the DTI, and the accompanied by Mr Napier-Bell. Mr Napier-Bell has I do not DTI then inform the Attorney General. know how many years’ experience in providing the sort of
Tynwald Sub-Committee of the Standing Committee on Expenditure and Public Accounts on Island Studios Limited - Evidence of Mr S Christian and Ms S Thompson Oral Evidence SUB-COMMITTEE, MONDAY, 26th APRIL 2004 37 TISL equipment that he does provide and that would be of benefit Mr Christian: Well, no ‘pound notes’, you might say. to film-makers. The relationship that Mr Napier-Bell had with Mr Westacott was, in my opinion, a real commercial Mrs Hannan: But there would be if it was put in for a partnership where both knew exactly what they wanted to grant. achieve in terms of what was happening at Island Studios. The application that we are talking about there was more, Mr Christian: Well, yes. The equipment was deemed to in my opinion, a marriage of convenience in order to obtain have a value, so Mr Napier-Bell was transferring his plant grant support rather than a real working partnership. and machinery, his equipment, into the business, equipment which he will have paid for and which he will have outlaid The Chairman: Was there not a man, along with Mr capital for, the distinction being that he was investing plant Taylor, who had some knowledge of, some long involvement and machinery and equipment rather than pound notes into with, film-making? the business.
Mr Christian: Yes. There was a company called Electric Mrs Hannan: And getting a grant for it. Sun, Mr Chairman, which again was a lighting company, which would have industry knowledge and industry Mr Christian: Yes, which is... As I say, there are experience which I would not wish to run down, but the many precedents for that happening. That is not an unusual nature of the partnership between Mr Creer and Electric Sun circumstance. was, in my opinion, not a real partnership. Mrs Hannan: If you have finished, Mr Chairman, (The Chairman: Yes.) could I ask Ms Thompson about these The Chairman: No, I was not referring to that; I was two letters, one written by Hilary Dugdale and another, referring to Mr Quirk. Ernst & Young, on virtually the same dates, 24th July and 25th July? In the letter from the Department of Trade and Mr Christian: Mr Quirk I do not know, Mr Chairman. Industry - and it is written to Mr Taylor... Sorry, that is J R That is a new name to me. Creer Limited - it states:
The Chairman: Mr Quirk, I think, has many years of ‘Further to our meeting with Sheila Thompson this morning, 1 am employment involving the BBC, or certainly he has a lot writing to formally advise you that your application for Government of experience and professional knowledge in relation to financial assistance in the request of a second film studio facility at the audio side of film-making and cameras and all the rest Balthane has been unsuccessful.’ of it. Was that not a very quick time to make a decision? Mrs Hannan: It is mentioned in that letter - Ms Thompson: Yes, if it was after ‘this morning’, but The Chairman: Yes. In fact, there is a reference to it in we probably had other information beforehand. I have not an Ernst & Young letter of 24th July 2000. It is signed by got any of my documentation at all. Sheila Thompson, and that says that Mrs Hannan: But would that be usual, to write a letter on the same day to say, ‘You have not been successful’, when ‘William Taylor, the shareholder o f J R Creer Limited, is a builder, and although he had employed Keith Quirk as a consultant, his background it had not been referred to anyone else? is as a sound recordist, not studio operation.’ Ms Thompson: Not normally, no, but sometimes if So, it sounds as if he had an adviser. On the one hand, people have asked for a decision and we have reviewed a you had Mr Napier-Bell, perhaps his expertise being in business plan, then sometimes they have had letters saying... equipment to do with the filming process. On the other side, If they have asked for... Based on that... Did we ask for you had an expert who was more to do with the sound side more information? of film-making. Mrs Hannan: No. It was explained that it had been unsuccessful. It did not say, ‘The main reasons that your Mr Christian: Yes. I think also, Mr Chairman, recalling application was unsuccessful are as follows’ and - it correctly, Mr Quirk was only a consultant rather than a commercial partner, which would make a very big distinction Ms Thompson: Was this not a subsequent meeting? between Mr Napier-Bell and Mr Westacott’s relationship, I thought there was an original... I may be totally wrong, in that Mr Napier-Bel! was bringing a lot more than advice. because I have not got dates or anything, but I thought there He was bringing expertise and capital et cetera to the was a meeting, and then the project went to the Department business. meeting, and then there was another meeting with Mr Creer. But I could be totally wrong. No idea. Mrs Hannan: How much capital did he bring to the business, then? Mr Christian: In the event, Mr Chairman, that an application is not going to meet our criteria and is going to Mr Christian: His capital was represented by the fail, then it would not be unusual to inform the company equipment that he brought to the business, Mr Chairman. very quickly that that was the case.
Mrs Hannan: So, it was no finance. Mrs Hannan: Why, when you took so long with the
Tynwald Sub-Committee of the Standing Committee on Expenditure and Public Accounts on Island Studios Limited - Evidence of Mr S Christian and Ms S Thompson Oral Evidence SUB-COMMITTEE, MONDAY, 26th APRIL 2004 37 TISL equipment that he does provide and that would be of benefit Mr Christian: Well, no ‘pound notes’, you might say. to film-makers. The relationship that Mr Napier-Bell had with Mr Westacott was, in my opinion, a real commercial Mrs Hannan: But there would be if it was put in for a partnership where both knew exactly what they wanted to grant. achieve in terms of what was happening at Island Studios. The application that we are talking about there was more, Mr Christian: Well, yes. The equipment was deemed to in my opinion, a marriage of convenience in order to obtain have a value, so Mr Napier-Bell was transferring his plant grant support rather than a real working partnership. and machinery, his equipment, into the business, equipment which he will have paid for and which he will have outlaid The Chairman: Was there not a man, along with Mr capital for, the distinction being that he was investing plant Taylor, who had some knowledge of, some long involvement and machinery and equipment rather than pound notes into with, film-making? the business.
Mr Christian: Yes. There was a company called Electric Mrs Hannan: And getting a grant for it. Sun, Mr Chairman, which again was a lighting company, which would have industry knowledge and industry Mr Christian: Yes, which is... As I say, there are experience which I would not wish to run down, but the many precedents for that happening. That is not an unusual nature of the partnership between Mr Creer and Electric Sun circumstance. was, in my opinion, not a real partnership. Mrs Hannan: If you have finished, Mr Chairman, (The Chairman: Yes.) could I ask Ms Thompson about these The Chairman: No, I was not referring to that; I was two letters, one written by Hilary Dugdale and another, referring to Mr Quirk. Ernst & Young, on virtually the same dates, 24th July and 25th July? In the letter from the Department of Trade and Mr Christian: Mr Quirk I do not know, Mr Chairman. Industry - and it is written to Mr Taylor... Sorry, that is J R That is a new name to me. Creer Limited - it states:
The Chairman: Mr Quirk, I think, has many years of ‘Further to our meeting with Sheila Thompson this morning, I am employment involving the BBC, or certainly he has a lot writing to formally advise you that your application for Government of experience and professional knowledge in relation to financial assistance in the request of a second film studio facility at the audio side of film-making and cameras and all the rest Balthane has been unsuccessful.’ of it. Was that not a very quick time to make a decision? Mrs Hannan: It is mentioned in that letter - Ms Thompson: Yes, if it was after ‘this morning’, but The Chairman: Yes. In fact, there is a reference to it in we probably had other information beforehand. I have not an Ernst & Young letter of 24th July 2000. It is signed by got any of my documentation at all. Sheila Thompson, and that says that Mrs Hannan: But would that be usual, to write a letter on the same day to say, ‘You have not been successful’, when ‘William Taylor, the shareholder o f J R Creer Limited, is a builder, and although he had employed Keith Quirk as a consultant, his background it had not been referred to anyone else? is as a sound recordist, not studio operation.’ Ms Thompson: Not normally, no, but sometimes if So, it sounds as if he had an adviser. On the one hand, people have asked for a decision and we have reviewed a you had Mr Napier-Bell, perhaps his expertise being in business plan, then sometimes they have had letters saying... equipment to do with the filming process. On the other side, If they have asked for... Based on that... Did we ask for you had an expert who was more to do with the sound side more information? of film-making. Mrs Hannan: No. It was explained that it had been unsuccessful. It did not say, ‘The main reasons that your Mr Christian: Yes. I think also, Mr Chairman, recalling application was unsuccessful are as follows’ and - it correctly, Mr Quirk was only a consultant rather than a commercial partner, which would make a very big distinction Ms Thompson: Was this not a subsequent meeting? between Mr Napier-Bell and Mr Westacott’s relationship, I thought there was an original... I may be totally wrong, in that Mr Napier-Bell was bringing a lot more than advice. because I have not got dates or anything, but I thought there He was bringing expertise and capital et cetera to the was a meeting, and then the project went to the Department business. meeting, and then there was another meeting with Mr Creer. But I could be totally wrong. No idea. Mrs Hannan: How much capital did he bring to the business, then? Mr Christian: In the event, Mr Chairman, that an application is not going to meet our criteria and is going to Mr Christian: His capital was represented by the fail, then it would not be unusual to inform the company equipment that he brought to the business, Mr Chairman. very quickly that that was the case.
Mrs Hannan: So, it was no finance. Mrs Hannan: Why, when you took so long with the
Tynwald Sub-Committee of the Standing Committee on Expenditure and Public Accounts on Island Studios Limited - Evidence of Mr S Christian and Ms S Thompson Oral Evidence SUB-COMMITTEE, MONDAY, 26th APRIL 2004 39 TISL which I can go over a little bit for you later on if you want Ms Dugdale: It varies from film to film. There are many me to, (The Chairman: No.) we only actually ever shoot income streams that we concentrate on. One is, as I have 50 per cent of any feature film on the Isle of Man. The other already mentioned, local spend. The second is things like 50 per cent... Because it is a fine line between where they profit share. If and when a film does go into profit, we will spend their production money, we only want to get 20 per always have negotiated a share. Anything in between 15 cent of what we term their ‘below-the-line* budget spent with per cent and 30 per cent of net profits will come back into Manx-resident individuals and companies. That is where Government. There are also tax benefits, which I suspect you we benefit from our local spend. To qualify for the British may be aware of, in terms of the budgeting of the film and tax breaks as well, they have to make a production spend of the Manx company that is set up to make the film, selling 70 per cent of their production budget on the mainland. So, the negative et cetera. So, the income streams are many and the two schemes are quite complementary. You have got to varied. be very careful where you spend your money, but the two The recoupment is the one that historically has been schemes do dovetail very well. weak. As we learnt our craft, as we are learning our craft What that gives us, from an Isle of Man perspective, and as we are developing bigger and better and stronger is... We will ‘lend’, for want of a better word - it is equity partnerships, we are now working with household names, investment, so it is looked upon as a loan - 25 per cent people in the industry such as Miramax, Icon, PathS, Capital, towards the film's budget, and in return for that 25 per cent because we made a conscious effort about four years ago to equity investment, they have to convince us that they can generate the right relationships with the right companies, shoot a minimum of 50 per cent of what is called their ‘days which we felt would pull the calibre and the quality of of principal photography’ - that is first-unit, big-unit filming. the productions that we were working on, i.e. commercial They have got to shoot a minimum of 50 per cent of their potential, I suppose, and the saleability of that product. We principal photography on the Isle of Man, and secondly, they made a very conscious and concerted effort to nurture - quite have to spend a minimum of 20 per cent of what is termed callous, actually, when I think about it, because a lot of these their ‘below-the-line’ budget. So, we are quite safe. If we people that we work with have now turned into quite personal achieve criterion number one, they are pretty home and dry friends... But it was quite a cold and calculated decision on the second one. So, local spend is very important. in the beginning to get commercial and to get further up What we found last year, as you might recall from reading the production ladder, which, in turn, would give us better in the papers, is that we got into a little bit of hot water, quality productions, essentially with a much higher chance because such is the momentum that we are rolling with at the of recoupment and that recoupment coming in more quickly. moment in terms of production that we have ongoing - and We are getting recoupment in on some of the early films, Capt. Douglas will vouch for it here - that we had a bit of but it took years to start trickling in, by the time they have a hotspot round the Castletown area, and we had too many paid their way and they have made their local spend, they productions taking place over too short a space of time in the have repaid the loan. one area. And it did cause me a huge amount of problems. We actually only introduced this scheme on film number I am 100 per cent involved in production when there is seven. The first seven films we did were actually on what we a film in. I am there to look after it, and to make sure that it called then the ‘20 per cent transferable tax credit scheme’, gets what it wants, and to make sure that my local people which is basically that Government had put £1 million are not compromised or their routines are not disturbed too aside to allow us, presumably almost experimentally, to see much. We try and exercise damage limitation all the time whether the scheme would work, whether it would hold and try and make sure they are as least intrusive into people’s water. We were given £1 million and told to make three daily lives as they can be, which is one of the reasons that brings me on to the studio, because the more films I can get films in two years, and that first £1 million was apportioned into the studio and off the public roads - into three separate films. So, basically we would pay them their location fees, we would pay them to come on location, The Chairman: Better, obviously. in the region of £330,000, with the option of a top-up loan, which was repayable, to make the Isle of Man investment up Ms Dugdale: Yes, it gives me one headache less. to £0.5 million. So, the only money that we ever expected to get back then, apart from profit share, was that £150,000 The Chairman: Okay. A 25 per cent loan, you said. Is loan. The rest of the money was given to pay their way, to get it a loan in the proper sense of the word or is that a qualified them on the Isle of Man, made to them in the knowledge that grant? they would spend at least two or three times what was given to them just by being here - aircraft, ferries, hotel beds. Bed Ms Dugdale: It comes in many forms. Obviously it is nights are a very crucial factor in what we do. financial and, depending on the deal, it can be made available on the first day of principal photography. We did a film last The Chairman: How many films have been made at year where our money was not activated until three years Island Studios to date? after principal photography was complete. To get the inside story on the investment side of things, you probably would Ms Dugdale: Five have actually occupied the sound have to talk to another officer from the Department. stage since November 2002, and a sixth one has used the ancillary production facilities in addition. The Chairman: Right. Is there a return to the Department? Apart from the general economic scene that The Chairman: Thank you for that. What feedback you have outlined to us, where is the specific return to have you had from the film companies as to the adequacy Government for this money? or suitability of Island Studios?
Tynwald Sub-Committee of the Standing Committee on Expenditure and Public Accounts on Island Studios Limited - Evidence of Ms H Dugdale 40TISL SUB-COMMITTEE, MONDAY, 26th APRIL 2004 Oral Evidence
Ms Dugdale: It has been mixed. You did allude earlier scaffolding round and everything else, but they have lifts. this morning to the soundproofing problems that, truthfully, They have these scissor lifts, so men stand on the platforms, have been experienced. It is a work in progress. Great get up to the roof, on the roof. They coat the exterior of the improvements have been made since the first film was in in roof with a sound-deadening foam, an acoustics industry November 2002. It is improving constantly. sound-deadening foam, and then they coat it with two As Mr Christian alluded to this morning, I was called coats of rubberised paint, which gives them extra acoustic up to the studio on Wednesday of last week, when we had protection on the exterior of the roof. They have actually 70-mile-an-hour winds battering the studio, and there was already done the interior of the roof. I think that was done nothing anybody could do. They persevered and they carried after about film two or film three. They put extra layers on on, but it was quite evident, and the producers themselves the inside as well. said to me, 'If you had these sorts of prevailing weather conditions in any studio in the UK, never mind on the Isle of The Chairman: Right, thank you for that. Just moving Man, we would experience some sort of wind disturbance.’ on, this requirement for a certain amount of spend on-Island: He did qualify that by saying, ‘On the other hand, we have how is that documented and audited? had some fantastic days here as well.’ It is a very adequate studio. There will be more work to Ms Dugdale: It is documented in all the method of be done. I do not dispute that for one moment, but I am sure operation papers that the Film Commission operates to. that is not an unreasonable situation to be in. The ‘method of operation paper’ is like our bible of how everybody must apply and must proceed, and because we The Chairman: Have you, at this stage, identified the are financial investors and major financial investors, as part work that is to be done? Has that been agreed with the of the terms of our deal we do get sight of the fully-audited studio? accounts. So, we can tell to the last penny where every pound has gone in terms of local or non-local spend. Ms Dugdale: Lots of the work has actually already been done. Every time we get a production in, I always go The Chairman: Right, okay. I follow that. This may be and ask them, ‘How was it for you? What were the good more for the Department than yourself, but what information points? What were the bad points?’ We call it a ‘crib sheet*, can you provide us with on the return on our investments to and the good points are things like, ‘You have everything date from the films? on one site.’ Particularly for this weekend and the previous weekend, we had in the region of 300 to 400 people up there, Ms Dugdale: I could not. I could if I went back to look so because it is on a 10-acre site, there is enough room to it up for you. Do you mean film by film or just in general? park cars so you can get them off the public highways, which certainly could not be envisaged. Now when I idly think The Chairman: I think film by film. If there are only about the other locations that we have looked at, had we five plus one, that covers the period of the studio. There have gone to Linden Grove or Balthane or... Jurby would have been how many films all together, did you say? been okay, I suspect, but that did not materialise. They do like the flexibility of the facilities that are there. Ms Dugdale: There have been 57. That is including The one thing that they did not like was a rattling television drama projects as well. They are not all feature overhead door, which was subsequently changed. It was films. taken off at great expense and a new door was put on. Now the overhead door is completely quiet. The Chairman: I think, for our purposes, it might be a The previous tenant before The Libertine was in, as Mr starting point if you gave us the position over the last five Christian has already alluded to, did actually cut the holes years. because they were complaining it was... They can be a little bit precious. Before they moved in, they were making great Ms Dugdale: Yes, okay. Either Mr Corlett or Mr Wilson waves about, ‘Oh, it’s going to be freezing cold. It’s going will be able to provide those figures for you, I am sure. to be really cold,’ so the management went to the trouble of getting the right heaters in from the hire shop and everything The Chairman; Okay. We will have a word with them, else, which they did not use, and then by the time you have but you may forewarn them that we would like that. got all the lights fully illuminated, the heat that gets thrown off the lights is staggering, so they ended up cutting holes in Ms Dugdale: Okay. Recoupment is notoriously slow in the fabric of the building, in the roof, which then caused a coming back. From the earlier films... Even on films aboul problem to this particular crew, so then we had to get people number 18, 19, 20 it is literally just beginning to kick in on the roof and get those fixed. now. It is beginning to start now, and the way the money There was also exterior soundproofing carried out to the is raised is through the sale of the film, either in theatrical roof the week before The Libertine moved in, just almost terms - that is, the films that make it to the big screen in the like a belt-and-braces exercise, because it gave them, I think, cinemas - or television rights and repeat rights. There is alsc from what Mr Westacott advised me, an extra 20-decibel DVD sell-through and rental, and there is video sell-through level of sound deadening should the rain fall heavily. So, and rental. So, the whole process does take years to get into they did that. I think it cost him £20,000. some sort of recognisable stream of recoupment. Having said that, some of the more recent films, which Mrs Hannan: How were they able to do that? tend to be much more commercial because of this policy that we have adopted of generating the right relationships Ms Dugdale: I envisaged that they would have all and also, now, having an improved infrastructure in terms
Tynwald Sub-Committee of the Standing Committee on Expenditure and Public Accounts on Island Studios Limited - Evidence of Ms H Dugdale Oral Evidence SUB-COMMITTEE, MONDAY, 26th APRIL 2004 41TISL of the studio, we can now - 12 and 20 local employees permanently employed for the duration of that film. In addition to that, you do get your The Chairman: We will follow that through with the extras, which can be substantial. As Mr Christian referred Department. It may be that we need to take 10 years if it is to earlier on, there have been about 300 or 400 extras on the taking a long time for it to come through. set of The Libertine most days for the past 10 days, so there is a lot of money generated there. Ms Dugdale: Yes, some are much quicker than others. There is a lot of new money coming in and being spent in the economy, and it is the most democratic spend as The Chairman: We will raise that with the Department well. It does not just go into the finance sector; it is going before we see them. What is your assessment of how well to everybody: hairdressers, property owners, props owners placed the Island is to compete with state-of-the-art film et cetera. So, once again we have been gentle with the studios in the UK and elsewhere, I suppose? How well employment question, because we realise that - a sort of placed are we? curse or a sort of gift, I do not know - because of our low unemployment levels, we would never, at this moment Ms Dugdale: I think we are very strongly positioned, in time, insist that they use a percentage of local labour, very strongly. If I could give you an example - because there is a real danger we could not provide it for them anyway. The Chairman: Excuse me for butting in, but is that Secondly, on the training aspect of... My dream is always because of the financial incentive that we are offering or is to have an indigenous skill base. We need to have as many it because of the facility we are now offering? local people properly trained in the workings of film-making in every way, whether it is hairdressing, whether it is props Ms Dugdale: The major thrust would be the financial buying, whether it is construction, whether it is clapper incentive. Having said that, now that we have an improved loading, best boy and all these funny titles that they have at infrastructure, which... I am not referring specifically to the the end of the films, and with an eye on that what we put in studio, but people have a more... Over the years the Island all our contracts is that they must take on, in addition to the itself has built up a much more film-friendly infrastructure local labour that they employ anyway, a minimum of four in terms of... Particularly within Government, we get huge individuals in recognised trainee roles. support from other Departments of Government, particularly So, that is four young Island people usually provided, as the Department of Transport with regard to road closures. their curricula permit... It either comes from the multimedia People are a lot - and I do not like the word, but it is centre, which is currently in Peel, or from the film and media the only one I can think of - ‘slicker’ now and a lot more studies course up at the Isle of Man College. professional and quicker in the level of assistance that we can Even with that we sometimes have a problem. Sometimes give that is necessary to get a film production up and running we struggle because we cannot release the students from on the Island. A lot of the local authorities have actually a their various studies on every film. They have a course to designated person within their employment workforce to complete, they have exams to sit, so it is not always possible deal with film enquiries and film assistance et cetera. So, it for me to even provide the four trainees, but both of those is beginning to - organisations do work with us, and they do make every effort to make available trainees when they can do. The Chairman: Sorry to cut you off there. The Chairman: Is the problem there a shortfall in respect Ms Dugdale: It is okay. of what we are offering by way of training here, or is this just indicative of other competing - ? The Chairman: In addition to this percentage spend, is there a requirement in terms of local employment? Is there Ms Dugdaie: I will hopefully have the answer to that a condition attached in that respect? question for you in a little while, because the Department has taken on a research student to investigate that very thing, Ms Dugdale: There are two things I would like to raise to find out whether we are doing the right thing in terms of here. One is that we do not insist on a particular level of educational training for young Manx people or, if we are local employees. What we tend to find is... I will come on not getting it right, what we need to do to get it right, and, to training in a minute. That is a separate issue. With regard secondly, she is also researching producers, in terms of ‘when to local crew, what tends to happen is that because filming you have trainees or when you have people fresh to your is such a technical and stylised business, producers and crew, do you prefer them to come with qualifications but directors will always want to bring what are called their no experience or would you prefer to work with experience ‘heads of departments’ in. So, you could never employ a and blow the qualifications?’ local cameraman; you could never employ a local lighting So, that is actually a work in progress at the moment. She boy or anything like that. They have to learn their skill from is with us from the International Business School and she is the bottom up. So, what tends to happen in terms of local with me for 12 months, so the findings of her research there crew - because it is cost-effective for the producers to use will be quite interesting. as many local people as they can do, yet at the same time we recognise that they have to use the key personnel of The Chairman: Yes. Staying with that matter of teaching their own choice with the experience and the CVs that they and training, there is a reference in the DTI Government would expect them to have - is that the employment meets plan to looking at the feasibility of establishing what was somewhere in the middle. called an imagc-capture/animation studio, a state-of-the-art So, on average most films will have anything between teaching facility. Have you been involved in any way with
Tynwald Sub-Committee of the Standing Committee on Expenditure and Public Accounts on Island Studios Limited - Evidence of Ms H Dugdale 42 TISL SUB-COMMITTEE, MONDAY, 26th APRIL 2004 Oral Evidence that? Have you any knowledge of that? we were a little bit sensitive to Mr Taylor’s reaction, it was decided that I would go down - and Sheila came with me, Ms Dugdale: Yes, I have, not as much as Mr Christian, I remember - to tell him that these were the findings, this certainly, but I do know what it is about and what it entails, was the decision and, unfortunately, we had to decline his and the problem we have had with that is one of resources, application, which is why the dates were so tight, were so because even though we have been very fortunate and we close. I think I made reference in the letter to: have been able to take two more staff on - we have got a new EO - we are still fire-fighting, so the luxury of being ‘Further to our meeting this morning, I am writing to confirm that.. able to sit down and concentrate fully on developing this image-capture business keeps eluding us. We keep having I had already told him that morning that he had been to go back to the main job. unsuccessful in his application. So, until we get the resources right... And we will continue to endeavour to do as much as we can do. I am a Mrs Hannan: Thank you. little bit disappointed with this particular scheme, because I had hoped it would be up and running by now, but it truthfully The Chairman: Capt. Douglas? is a question of lack of resources, and we just have not had the manpower nor the time to spend on it, as much as we Capt Douglas: Thank you, sir. Ms Dugdale, how do you would have liked to. view the investment? I know you, personally, spend a lot of your energy on the phone and sometimes you go - The Chairman: How do you see that facility - assuming that that is developed and resourced - sitting alongside Lough Ms Dugdale: I have not got much left. (Laughter) House Animation, for example? i Capt Douglas: We are all weakening as we get older, Ms Dugdale: I would think that, in time, one should You have been talking about the conscious decision to go complement the other, without a doubt. I would think so. I after people like Path£, I think it was, and a few other people know the particular one that we are trying to work on now is like that. Do you really feel that that is the right way to go a 26 times 30-minute BBC animation series. All the contracts about it? are in the right place, all the personnel are there, all the thinking is there. It is all in everybody’s heads. It is getting Ms Dugdale: Yes, I do. To establish a - I hate to use the chance to get together, to sit down with the other heads the word ‘permanent’, because nothing is permanent, but a of each company involved, with the DTI, with Mr Christian, - long-running film industry on this Island, I think we have to make sure it becomes a reality sooner rather than later been aware since day one, really, that we have to improve, That is the problem. improve, improve, improve in terms of product, in terms of infrastructure, in terms of resources, thus resulting in The Chairman: Yes. Mrs Hannan, have you got any improved profit for the Isle of Man pic. That is basically what questions? it all comes down to, and we made this decision to woo the bigger names, the bigger players. Mrs Hannan: Only relating to the Balthane studio. An interesting story, I think, is that that almost came to Who was it that made the decision there that it would not culmination about six or eight weeks ago, when we had the be proceeded with? Colour Me Kubrick film in. That was not using the studio, but we did have .one of the actors here, a gentleman called Ms Dugdale: What happened with that one... Mr Taylor John Malkovich, who happened to be here and turned out had been in to see a number of officers within the Department to be a very great fan of the Isle of Man, not necessarily in a about... The history of that particular application was we film terms, but he loved the beauty of it, the people, what ] made a series called Space Island One in the studio - well, he thought was the quirkiness of it, and he just enjoyed his the warehouse - down at Balthane, and it seemed to be time here. Mr Malkovich is a very influential person in film okay. There were problems because it is on the flight path production in a global sense, particularly in Los Angeles. and the acoustics there were not particularly good et cetera, Whilst he was here, there was what is now called ‘Black but they managed and they got the thing made. They were Tuesday’, which was 10th February, when the UK Inland in it for 12 months. Revenue pulled the plug on the section 48 funding. So, it left Mr Taylor then wanted to develop that. When his tenants 55 British films with huge gaps in their production funding. left, when they vacated the studio, obviously the rent had All these 55 were at various stages of production and one of gone and the contract for occupancy had ceased et cetera. them was The Libertine, which has got Johnny Depp in - a Mr Taylor then came to us with an application to convert to huge movie star of the moment, the biggest star around at the a permanent film studio, but from my recollections, because moment - and we, Steve and I, Mr Christian and I, thought, there were a lot of weaknesses in his business... Well, there ‘Well, let’s see what we can do. Let’s see if we’re as good as was not a business plan, basically. There was no management we think we are.’ So, we got Mr Malkovich in and we said, structure. There was no marketing plan. At the time of my ‘Look, you’ve got this problem with your funding. It’s due writing of that letter, there was nothing. We had some hand- to go into production on a certain date. Do you think it’s a drawn pictures of what Mr Taylor proposed. project that could come here and come into the studio?’ I do not know whether you... I think you have had all the So, we all go up and have a look at the studio. Yes, the files, haven’t you? I think you have seen probably what he studio is fine. We went to Brightlife, even, to see where we did submit. It was a very flawed, very weak business plan at could put Mr Depp and his entourage et cetera, and we did that point, which had previously been declined, but because everything we could do.
Tynwald Sub-Committee of the Standing Committee on Expenditure and Public Accounts on Island Studios Limited - Evidence of Ms H Dugdale Oral Evidence SUB-COMMITTEE, MONDAY, 26th APRIL 2004 43 TISL
But it is an indication of how seriously we are now being working on ‘Eastenders’, we have got people working on taken, and the deal, contrary to what it says in the paper... ‘Hollyoaks’, I think it is. One of the students, Miles Pettit, It was not done on a handshake; it was done through all the is now doing a masters degree down at London University, proper channels. But the amount of positive PR that the and without a shadow of a doubt he will one day be a very actions of the DTI did to secure this film for the Isle of Man, well-acclaimed director of photography, He is passionate you just cannot put a price on it. It has been a phenomenal about it, and this is another career choice for our young feather in our cap, and we are all very proud of the way children, for our young people. Even in hair and make-up, things have worked out. in the props department, there are people that are thriving. What arose from that, from The Libertine and securing They are absolutely thriving. The Libertine for the Isle of Man, is that Mr Christian and I The one thing we have not been able to do yet - and I will went to Los Angeles the week following the announcement flag this up quite voluntarily - is the continuity. It is very hard that the Isle of Man was co-funding, and for the first time we to gauge... Unless we get a long-running Isle of Man-based had immediate access into the heads of all the studios. They series, which is another goal that we have not quite managed all know now what the Isle of Man is doing. They know a to achieve yet, it is hard to regulate the arrival and departure lot more about us than they did beforehand. Our currency of each of the productions, because they are so dependent on over there is very high. things outside our control, such as cast availability, and if we I am not saying it is going to last forever, but what I want are putting up 25 per cent of the funding, we need to know to say is that everyone involved in the industry, not only where the other 75 per cent is coming from, ensuring it is within Government or its consultants or at the studio, works coming from a reputable source. And when is that funding very hard for the Isle of Man. It is something I personally available? So, there are lots of different reasons why we am very passionate about, and it is an absolute pleasure to cannot say, ‘Right. You come in then, you come in then and be able to be part of something that has been a success, that you come in then.’ Sadly, it does not work like that, so we will continue to be an even bigger success, and to be able tend to get an overlap of employment as well. to go to America and tell people about what we are doing, But, by and large, Manx employees are very well filling in the gaps in their knowledge about the Isle of Man, regarded, very well. and now working on projects with Disney, with Dreamworld, not for the immediate production but without question it Capt Douglas; Thank you. Mr Chairman. will happen. We picked up two or three leads, but the beauty is it is The Chairman: I think that is all. Thank you very much another two steps for the Isle of Man up the image ladder, indeed. Much obliged to you. Thank you. and I know image is very dear to all of us. The image of the Island is very dear to all of us, so it is a delight to be part of Ms Dugdale: Thank you very much. something that is working so well.
Capt, Douglas: Could I just ask one more, Mr Chairman? Mr Napier-Bell was called at 12.30 p.m. The Chairman: Yes, indeed. EVIDENCE OF MR N NAPIER-BELL Capt Douglas: When people take on our local workforce The Chairman: Now we have Mr Napier-Bell, please. - which you have explained, thank you - are they pleased Do take a seat. I apologise for the fact that we are running with the young people that are taken on? behind time. I do not think you were here at the start of Ms Dugdale: Usually, yes. Not always. today’s proceedings -
Capt Douglas: And if they are not, they would tell you Mr Napier-Bell: Yes, I was - in a post - The Chairman: Of course, you were coming across. Just Ms Dugdale: If they are not, they tell me, yes. to explain that our proceedings are being tape-recorded, so although it is fairly obvious who people are, perhaps, from Capt Douglas: So you are able to pass that on. local knowledge, we do need to identify people for the purpose of the recording. So, could you give us your name Ms Dugdale: Oh yes, I do. I try and be as open with and address and your qualifications? everyone as I can be - that is in terms of the production partners and the local people as well - because I think it is Mr Napier-Bell: My name is Nicholas John Napier-Bell. the only way to keep everyone happy. My address in the UK is Brookdale House, North Huish, South Devon, and I intend, as from this year, to be spending Capt Douglas: Is there any evidence that some of our a lot of time over here, which will become clear later on. young trainees have actually got jobs in the film industry elsewhere? The Chairman: Do you have a local address at the moment or is it just care of the studio? Ms Dugdale: Oh, yes. This is a problem, actually, because the ones that enjoy it and are productive and are Mr Napier-Bell: No. At the moment 1 am staying in good at their jobs within time go, and we have got people hotels while I look for somewhere to buy.
Tynwald Sub-Committee of the Standing Committee on Expenditure and Public Accounts on Island Studios Limited - Evidence of Ms H Dugdale - Evidence of Mr N Napier-Bell 44TISL SUB-COMMITTEE, MONDAY, 26th APRIL 2004 Oral Evidence
The Chairman: Right, okay. And your experience in into the section which, broadly speaking, affected me. So, the film industry? latterly I had an input, but not that great an input. I am used as an adviser in a lot of areas. Mr Napier-Bell: I will go back a bit. If I give you too much information, just tell me to stop. I started as a trainee The Chairman: We will just pick up a few matters from editor at 17.1 then became an editor. I then became a director. that business proposal, and perhaps you can help us with I produced documentaries and commercials, and I also those. There is a reference in that document to a partnership run and have run a facilities company, or various facilities agreement with a major UK film editing company, Edit- companies, over the years. I started at 17 and I am 61, so I Hire, and in the Ernst & Young assessment that company have been doing it for 40-odd years. is identified as Edit-Hire (New Technology) Limited. That does not seem to stack up in terms of that specific company, The Chairman; Thank you. Are there such things as does it? It would appear from the paperwork - professional qualifications in the film industry? Mr Napier-Bell: No. I can explain the situation very Mr Napier-Bell: There are now, yes. When I started you clearly vis-à-vis that, if you like. had... I will not say which I think is the better, but we had In 2001, we were running Edit-Hire (New Technology) to do a five-year apprenticeship, which really was stuck to. very successfully. There was in America - as most things, You could not start your apprenticeship and then suddenly I am afraid, tend to emanate from there - a huge recession. leapfrog, which was pretty good, because you got a very good The actors went on strike. The directors went on strike. In grounding in whichever department you were in. fact, everybody who could go on strike went on strike. Our Even that five years really only got you on the bottom turnover in New Technology dropped 40 per cent in three rung of what I call a pure technical... To give you the easiest months. example, in the camera department you have a clapper boy, We applied and got a 100 per cent repayment Company focus puller, operator, cameraman. So, you would probably Voluntary Arrangement (CVA). Through a bureaucratic mix- spend three or four years training as a clapper boy and up between Avid, who was our chief person we owed most loading the camera. Then you would move on to a focus money to, and their accountants, they opposed the CVA. It puller and do three or four years on that. Then you would was then agreed to reform a company with all Avid’s blessing get to an operator, and probably by the time you were almost - so much so we are still a huge client of theirs - and that is due to draw your pension you would be a cameraman, a how that came to pass. lighting cameraman. Today, of course, there are lots of universities that do pure The Chairman: I see. So that company went into media degrees, in some cases - the National Film School - in voluntary liquidation. pure technical areas. So, you would get a degree in, shall we say, scriptwriting or directing or camera work. There is more Mr Napier-Bell: And then the post-production was set of a switch now, partly because of computers. A lot of people up, as I say, with everybody’s agreement. now take... My son is a good example, who did four years as a graduate computer engineer and software designer and The Chairman: Did you inform the DTI or was the DTI who now runs most of our technical side, because most of informed of that? the facilities, be it editing, cameras, special effects, are all driven by computers in one form or another. So, if you look Mr Napier-Bell: The DTI here? (The Chairman: Yes.) at it in those terms, it is becoming far more of an academic... Do you know, I honestly do not know. I would have assumed There is an academic route, shall we say, now. so, but I could not be specific about that.
The Chairman: And your position and your interest in The Chairman: Turning to the business proposal itself Island Studios? now, in support of the grant application it was said that the share capital would be by way of cash: Lough House, 64 Mr Napier-Bell: My interest is I am an adviser and I per cent, and Edit-Hire (New Technology), 63 per cent. You own 49 per cent of the shares. I am not a director at the have explained the New Technology bit here to us already current time. I am used primarily because of my years in the but in the event the investment has come in through Mr industry. Most people worldwide I know. If I do not know Westacott, with his 51 shares, and your good self, with 49 them, I know somebody who does. shares, not through the companies. It would appear to have For instance, on The Libertine thing, I flew over the day come through on a personal basis. That also represents a it was being negotiated, because I knew most of the people. change from what was put into the business proposal. Can They - how can I put it nicely, being an ex one of them? you comment on that? - can be a bit quirky, so sometimes it does us well to have a personal... Mr Napier-Bell: No. I have to say... I say I cannot, but I can: basically, as I said, most of that side of it was dealt with The Chairman: Okay. In terms of the Island Studios by Don Westacott, and I think he spoke to my accountant business proposal which was submitted to the DTI, to what probably and agreed whatever terms were being agreed. extent were you involved in that, in the putting together of Unfortunately I cannot give you an in-depth comment on that business case? that.
Mr Napier-Bell: Very little. Towards the end, when I The Chairman: Okay. I am sure we will be able to was asked to join it, so to speak, I then had specific input follow that through from the evidence we have got, whether
Tynwald Sub-Committee of the Standing Committee on Expenditure and Public Accounts on Island Studios Limited - Evidence of Mr N Napier-Bell Oral Evidence SUB-COMMITTEE, MONDAY, 26th APRIL 2004 45 TISL it be written or oral. Your part of the investment has come your shareholding, but we notice that it was, in fact, the through equipment valued £689,000, and that appears to subject of an invoice that was sent to the DTI. There was an have come from another company. That appears to have invoice raised on it to the DTI, and we are just wondering: come from Violet Systems Limited, trading as Edit-Hire if it was, in fact, being raised in that sense, how did it sit Post-Productions. in relation to VAT? There does not seem to be any VAT attached to that. Mr Napier-Bell: That is absolutely correct. Mr Napier-Bell: As I understood it, as I say, the whole The Chairman: Can you explain to us how this of the original contract with the DTI was dealt with by Don equipment has been... Where was it, how was it purchased Westacott. (The Chairman: Yes.) I was just asked to supply and how was it transferred? the inventory. So, again, I would have to...
Mr Napier-Bell: I can be very specific. Violet Systems, The Chairman: You have not got the specifics (Mr trading as Edit-Hire, was in fact formed out of Edit-Hire Post- Napier-Bell: No.) of that? I understand. What proportion Production Services with the agreement of all the banks and of this equipment was new and what proportion was, should everybody. I also put - again, hazarding a guess - something we say, used equipment? like £500,000 of my own money into the new company. I also put a lot of equipment that I personally owned into it, Mr Napier-Bell: I would say probably... If I can just and that is essentially the basis of where the equipment came explain what designates ‘new’ with... If I can explain what from and how it was funded. most of the equipment is, and then you will see what I am trying... Because it may sound bizarre. Most of it is The Chairman: I see. Alright. I suppose there are two computers, film-editing computers. (The Chairman: Right.) fundamental questions there. What evidence could you What designates it as ‘new’ in those terms is what software offer the Select Committee in terms of your ownership of they are carrying because, basically, if you buy... Shall that equipment? we say take one piece, which is the market leader in Avid? They constantly come out with new versions. About every Mr Napier-Bell: Oh, I can give documents. We had it two years they come out with a totally new version which valued by the biggest reseller of the equipment in the country actually does not relate to anything. You have to buy it. It - probably in Europe - who itemised everything, checked is very nearly as expensive as the original purchase. What everything and gave a written valuation, which I submitted I have always done - and I did it with this equipment - is originally. That company was ROOT6. put everything onto the latest version, which is what I paid for, which at the time was, in fact, a system called Meridian, The Chairman: Yes. I have got a note of that. Perhaps and that is... I know it sounds a silly thing, but, of a £40,000 we can revert to that a little later. What 1 am just trying to editing system, the actual computer may be a G4 Mac, which get clear is: this equipment was somewhere. Was it sitting would cost £1,500, but the software that goes into it is, in in your personal ownership or was it - fact, the rest of the money. (The Chairman: Yes.) I know it sounds - Mr Napier-Bell: Some of it was in my personal ownership. Some of it was in Edit-Hire Post-Productions’ The Chairman: You say it could have a life of two ownership. years,
The Chairman: Yes. So, it came from either your Mr Napier-Bell: Yes, and we have always made a policy personal holding or from the Post-Productions company? of upgrading everything the minute it comes out, because (Mr Napier-Bell: Absolutely.) And in terms of legal that way you maintain the value of the investment. ownership of that equipment, obviously with that which was vested in your good self, the legal ownership rested with you. The Chairman: Yes, okay. Just going on from there, In terms of that which was with Post-Productions, where did evidence has been given to us that film companies prefer the legal ownership rest there? Who were the beneficiaries to lease editing equipment because of, indeed, a factor you of that company? put your finger on: because it moves fast in terms of state- of-the-art... It changes quickly, so they prefer to lease it Mr Napier-Bell: Myself and my son. and have the most up-to-date type of equipment, and also because some of their operatives have a preference for The Chairman: I see. one type of equipment or another. So, for that reason they prefer to lease it, and secondly because a very large part of Mr Napier-Bell: Totally. We own - the editing has to be done off-Island. So, just bearing those two considerations in mind, the fact that a large amount of The Chairman: Yes, okay. this editing has to be done off-Island and this element of the preference to lease the equipment so they can get the up- Mr Napier-Bell: And there were no bank loans or to-date equipment, they can get their operatives’ favourite anything because, as I said, f put a lot of my own personal equipment, how realistic was it to put up equipment as share money into... After the - capital in a venture like this? You pointed out yourself that you get a computerised editing set-up there, equipment, The Chairman: Yes, okay. We notice that that equipment software. You have got a relatively small part of that; there was subsequently.., It was your shareholding, equated to may be the hardware, which has got a more extended life,
Tynwald Sub-Committee of the Standing Committee on Expenditure and Public Accounts on Island Studios Limited - Evidence of Mr N Napier-Bell 46TISL SUB-COMMITTEE, MONDAY, 26th APRIL 2004 Oral Evidence
but the expensive part of it is something which has only got Avids. a very limited life. So, one of the factors that is taxing our So, the inventory is all-compassing; it takes in virtually minds is: how realistic was it to put share capital in in this everything that you would need from a standard VHS way, having regard to the limited lifespan and consequently digital recorder. So, it is very complex to explain, but that the susceptibility of that equipment to depreciate in value is really why it was done that way: so you could cover any over a very short period of time? eventuality.
Mr Napier-Bell: It will probably be boring, but I will The Chairman: Would you agree or disagree with a try to explain as best I can. general statement that has been put that film producers prefer to lease most of their equipment to take full account The Chairman: That is fine. See if you can explain it to of technological advances and personal preferences? As a us. It would be helpful. general statement, do you agree with that?
Mr Napier-Bell: To cover your first question, we have Mr Napier-Bell: No, frankly, because if they did, I a complete broad spectrum of the inventory. So, in fact, we would not have been in business for 20 years. When they cover, in that inventory, every conceivable type of equipment mean ‘lease’, they probably mean ‘rent’ from companies that you would need. So, it takes in the vagaries of one editor like ourselves. I would think probably with the exception of saying he wants a Lightworks, one saying he wants an Avid, - 1 will give you a very good example - the BBC, Granada, one saying he wants whatever he wants, so there is the full... which we do a lot of work with, they do own their own We can, in fact, supply anything that anybody wants within equipment, but they actually rent in from other companies that inventory. probably 30 per cent of their total usage. Secondly, when you talk about an editing system - and I will take Avid as the main one, because frankly that The Chairman: But your companies offer for rent - or is 90 per cent of the machines that are used worldwide ‘lease' (Mr Napier-Bell: Yes.) is the other term here... You - people blandly say ‘an Avid’, but it is not just an Avid; it offer that in terms of equipment that you have got, and quite is everything that goes with it. So, for instance, you would obviously you would have to keep that up to date - have the Avid, which is the main computer and the software. You would then have Sony decks, digital decks, analogue Mr Napier-Bell: Oh, yes. decks for putting the tapes... Basically - if you want me to go back, it may be helpful - you shoot your film, and you The Chairman: - keep it very up to the new technology then transfer the film through what is called a telecine onto limits. a tape. The tape then goes to the cutting room. The tape goes from the cutting room onto a computer hard drive, and then Mr Napier-Bell: And as importantly we supply the it is operated on and worked on on the computer. And when technicians - you have finished the film, the reverse is true: all the EDLs - which are edit decision lists - go back and get matched The Chairman: That is right, but coming back to Island back to the original negative. That is the path. Within that path you have the Avid computer; you would Studios, the proposition seems to be slightly different. The have, for instance, a DigiBeta deck, which is as expensive as proposition here is that equipment was put in at the outset the computer itself; you would have an SP analogue deck, as capital investment- again some other type; you would have DVDs; you would have VHSs. You would have different monitors, viewing Mr Napier-Bell: In the studio. screens - like televisions, but they are not televisions. They are very high quality. They can be used, depending on... The Chairman: - in the studio. That is right. Not on a I Different films are shot in what are called different ‘aspect leased basis; it was put in, and that was in lieu of cash. And ratios’: some are widescreen and some are for television. the question that we are trying to get at is that because of Some of these monitors, which are really quite expensive, this frequent change in the technology - have adjustable aspect ratios so people can see. You have DAT machines for putting the sound in, because Mr Napier-Bell: But we are upgrading that equipment the sound comes separately. So, when I say ‘an Avid’ would as we go. cost £50,000, for argument’s sake, everything that goes with it would make the package probably £125,000. So, although The Chairman: Ah, well, that is something that - it is called an Avid system, it is only a part of it. To give you an example, the current trend is not to Mr Napier-Bell: Sorry. I thought I made clear - have just one machine; it is to have two or three machines linked together, so the editor can work at the same time The Chairman: If you could explain - as the assistant, as the effects editor, and it is rather like a networking system in normal computers. So, because of Mr Napier-Bell: I upgrade all equipment that is under the nature, the amount of drives that you would need... my control regardless. For instance, we are doing a film through the studios at the moment for which we have 2.5 terabytes of storage, just The Chairman: Right. Let us move on, then. You put this on that one project. But the system that is used to link the equipment in at the outset. Since then, what has happened in Avids does stay fairly constant. They do not upgrade those terms of the turnover of equipment or your substitution of very often and they are infinitely more expensive than the more modem equipment for existing equipment?
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Mr Napier-Bell: As and when new software comes royalty - £150,000’. Could you explain to us what that out, we upgrade the equipment. For instance, we are doing figure is? one through Isle of Man Studios at the moment, big Warner Brother pictures, with the latest state-of-the-art equipment Mr Napier-Bell: Yes. In essence, most of the films that has only been out three months. that are... To give Libertine as a very good example, they booked the studio for three months. Of those three months, The Chairman; What recourse have you had to replace three weeks is the actual shoot date. Now, obviously it all - if that is the right word - substitute equipment since Island changes. With some, actually, it is the reverse: they build in Studios opened? three weeks and shoot in three months. But in many cases the build and de-rig is by far the longest period. What often Mr Napier-Bell: We have upgraded, as I have said, the happens... In fact, I have got a list of films here - about software. (The Chairman: Yes.) At the moment we are just seven or eight - that actually started on the Island and we about thinking now, now that we are going to operate more did preliminary editing here, where they were here for two or from the Island, about buying in some of the very latest... three weeks or a month, and then when they went back to the Again, it is very boring but technical, but it does drive the UK the equipment went with them to complete the project. whole of, I think, where you are wanting to go. There is a That is what is referred to as ‘off-Island’ editing. new technical format that is about to spring on all of this called ‘high definition’. The thing with high definition is The Chairman: I see. that it is not a film-based format; it is a tape-based format. So, theoretically, in the not-too-distant future, most ‘film’ Mr Napier-Bell: What I have now moved into, which is - as in film that you and I understand as film - will be gone, something that is also in the business plan somewhere - or with lots of advantages for film-makers: it is cheaper, and should be, because I made a big point of that - is that, in my it cuts out all sorts of processes. That process is just about personal opinion, the biggest revenue growth will be off- to come in. We are doing cost analysis on it now, and it will Island editing everywhere, because editing is now... Films be worked into our next business programme for replacing are made in such different places, so you might well have one and upgrading to meet that. film that does a month in the Isle of Man, does two weeks in the Czech Republic, does six months in the UK. They tend The Chairman: Who pays for these upgrades for Island to take the editing with them wherever they go. Studios' equipment? Is that a charge made to Island Studios So, from my point of view, it is just as easy to have the or is it a charge which you meet? focal point that is the Isle of Man, because it is all computer- linked and we are shortly about to set up our support Mr Napier-Bell: It is a charge we have been meeting. company here because, with the new innovation of your very good telecommunications, it is as easy and, frankly, cheaper The Chairman: It is a charge which you meet and not to do our support from here than it is from anywhere else. Island Studios? The Chairman: Again, I am sorry if I am just going Mr Napier-Bell: Yes. Sorry to interrupt - back a little bit, but you mentioned your investment in the re-formed company, Post-Productions, and I think the figure The Chairman: No, that is... you mentioned was £0.5 million. Of course, your input into Island Studios, that equipment, is £689,000 and you have Mr Napier-Bell: So far, the only costs I have put against got just short of half the shares, but you said you are not a the Studios - in fact, I have lent the Studios money - are any director. How does that come about? costs that I incur from airfares and that sort of thing, (The Chairman: Yes.) but all the capital costs and the upgrade Mr Napier-Bell: A very good question. It is something costs, the engineering costs, are assimilated by us. that is about to be addressed, and you can...
The Chairman: Right. In the business proposal that The Chairman: Yes. Thank you. I do not know whether was put forward and evaluated by Ernst & Young, there is you can help us on this or not, because I appreciate you being an estimate put in there in the profit and loss account that off-Island, but in terms of the design of this film studio and its income from hire of editing/post-production equipment construction and commissioning, to what extent where you would equate to £580,000 - estimate - over five years. Is involved with professional input into that? It appears there that figure realistic? was no professional company in putting this together.
Mr Napier-Bell: Yes, actually. In the first six months of Mr Napier-Bell: In answer to your question, not a lot, this year - and I can tell you what it was for up to 03, because because I came in once the programme was up and started. that is the lot I have just done - in the Studio accounts we did I have had more since. In fact, with the re-soundproofing, I cost of sales of £135,000 on editing equipment. As of this arranged for the man to come and do it, a very professional tax year, for the first five months, we have done £140,000, company called Munro Acoustics, and I do have, from time so I would fully expect that by the end of this year, as we to time, input when asked on purely technical things like are now based or I personally will be based here so I shall that. be putting through, we will far exceed those, yes. The Chairman: Yes. You see, there does not seem to The Chairman: Those figures? (Mr Napier-Bell: Yes.) have been a... Obviously, this film studio building, with all And there is another item there: ‘off-Island editing income the ancillary parts, is a very technical building, and it seems
Tynwald Sub-Committee of the Standing Committee on Expenditure and Public Accounts on Island Studios Limited - Evidence of Mr N Napier-Bell 48 TISL SUB -COMMITTEE, MONDAY, 26th APRIL 2004 Oral Evidence
somewhat extraordinary that there was not a firm of special like to take the easy option, (The Chairman: Yes.) so if they architects or engineers involved in it - and there does not can do a deal with one group to do everything, they will. We seem to have been. also, within that, do sound laying: we would actually make the effects and lay the effects to build up the track. Mr Napier-Bell: Again, I cannot really make much comment other than to say that one thing that I think has been The Chairman: Is there a tie-in between companies that alluded to is that film producers and film productions tend come here to make a film and the work that is done here, to be a bit... As you have heard, one said it was too cold, whether it be filming or filming and editing? Does that tie (The Chairman: Yes.) and I was involved in that discussion in with your companies and the provision of services at the and did actually say, ‘Look, I have to tell you it will not London end? be cold. Once you get 20 lights, heat will be your biggest problem,’ So then, of course, they insisted - which they Mr Napier-Bell: Yes, I would say it does. In fact, there paid for, actually, surprisingly - on having the ventilation undoubtedly is, and it is... It is very difficult to say, because cut in. Then, when we had the gale last week, the one thing sometimes it is fairly tenuous, insofar as I will know the that made the noise... So, there is a certain capricious sort producer and I will go and see the producer and he will say, of behaviour that one has to bear with, but I know the point ‘We are shooting in the Isle of Man.’ So, I will say, ‘Jolly which you are making. good’, and they will say, ‘By the way, what other packages I think probably, with hindsight, maybe... But again, a can you offer?’ So, I will say, ‘We can do the studio here, the lot of it depends on the circumstance and position a studio editing here. In my case, I can put you in touch with one of is built in. If 1 am being totally honest with you, I do not the lighting companies that are based on the Island.’ think anybody quite understood the force of some of the So, you try and build up an overall package which, winds that come, because in most areas you just would frankly, is something that they can look at and say, ‘Right, not get that, in which case that building would have been well, that is going to cost me x' Again, it is not particularly ' absolutely fine. You have two things: you have - and this I relevant to you, but it gives you an understanding: they like do know from the original specification that I saw - the roof to have what they call a ‘bottom-line’ cost, which is almost, that was treated for rain, and it was treated to the required really, a lopped*off cost. So, they would say, for instance, sound regulations; what I do not think anybody actually ‘The Post-Production package would be £284,000, and it understood was the sideways force that, on occasions... It would... That is it. That is even if something goes astray.’ is probably two days in an entire film, but films being films, (The Chairman: Yes.) So, that is where the tie-up comes the 30 days they have which are idyllic are forgotten and and how it is put together. the two days that are irritating become a major thing. That is why, in this instance, it is an ongoing thing, and I think, The Chairman: But is there, therefore, an element of if I was to be asked bluntly, I would say that, yes, you could competition between what Island Studios are offering here have done, but the cost originally to make a building that in terms of the editing side of it, principally, and what you would coverall eventualities would have been astronomical, are offering in London? and I think in this case, in many respects, it will probably end up to be cost-effective finding what the particular things Mr Napier-Bell: No, because... Internal competition? are and dealing with them, which I think, from my personal (The Chairman: Yes.) No, no. This is why, in fact, as from opinion, are nearly there now. I know they have one other 6th April or whatever the tax year is in the UK, I am now thing they need to do, which is increase, as I say, natural based here, officially, and everything that I do from the soundproofing, but other than that I think everything is fairly editing will go.,. The only exceptions from that will be well catered for now. that there are certain pictures where, because the UK sell and lease back, part of the funding has to be a UK-based ( The Chairman: Okay. Thank you for that. That is a bit company, but for instance The Libertine is not one of those, ? clearer In terms of your activities in London, your editing and a lot of other ones are not, so virtually the only stuff that companies, could you just identify for us which companies would be handled in the UK from here on in would be the you are involved in in London at the moment that are projects that were solely UK sale and lease-back, which is concerned with film editing? finishing, anyway, in, I think, March next year. So, if that gives you an indication of... Mr Napier-Bell: We have Edit-Hire Post-Production Services. We have a company called Hypnosis, of which The Chairman: Right, okay. Now, Hazel, have you we own, 1 think, 51 per cent - and you will know why it is some questions? 51 per cent - which is a visual effects company, which is basically, to everybody else, special effects. It is the sort of Mrs Hannan: Yes. Could I ask Mr Napier-Bell: of the thing that Hilary was talking about. five films that have been in the Island Film Studios, were We also have a partnership agreement with dubbing they all edited at Island Film Studios or where they edited theatres, which is really voice recording, the finished elsewhere? dubbing, where all the... Films are built up in single tracks, so to end up with the single track you have on the film you Mr Napier-Bell: Bits and pieces. It is very hard to may have 500 tracks per reel. They all have to be mixed extract... It is rather hard to explain, because it is... By the down in a very complex technical way. We have interests very nature of their shooting at the studios, some editing will in theatres that do that. take place there for the following reasons: that a lot of films So, what we are trying to do is to offer an overall package, have what they call ‘matching’. So, if they shoot something because producers - none in here, I do not think - tend to on Wednesday, they then may not shoot the other half of this
Tynwald Sub-Committee of the Standing Committee on Expenditure and Public Accounts on Island Studios Limited - Evidence of Mr N Napier-Bell Oral Evidence SUB-COMMITTEE, MONDAY, 26th APRIL 2004 49 TISL conversation until three weeks later. So, what they like to be 300-and-something thousand pounds. do is have the ability to assemble everything that they are shooting in the studio and then look at it before they shoot Mrs Hannan: Is it possible for you to let us have a note the tail end of it. Does that make sense? (Mr Napier-Bell: Absolutely.) of where the income is from and how much it is? Mrs Hannan: And that would be in the studio itself? (Mr Napier-Bell: Yes.) Right. There is an editing area Mr Napier-Bell: Yes, absolutely. I can get... If somebody within the studio? tells me where, I will send you anything you want. (The Chairman: Excellent.) In fact, I will tell you what I can Mr Napier-Bell: Yes, there is. say: I can tell you the amounts, the production it relates to and the dates. Is that...? Mrs Hannan: Is that used on a regular basis? Mrs Hannan; That is fine, yes. Mr Napier-Bell: When films are there, it is used, yes, and also the viewing theatre is used a lot as well for that. The Chairman: That would be very helpful. Thank They tend to move around, whereas - you.
Mrs Hannan: But the final editing would be done Mr Napier-Bell: Yes, I can give you that, chapter and somewhere else? verse.
Mr Napier-Bell: Oh, yes, because it probably... You Mrs Hannan: Will your company continue in London see, according to your own sort of agreement, 50 per cent once you are here? has to be done on the Island. Basically, I will give you a pro rata thing: if a film shoots for, shall we say, six weeks, it Mr Napier-Bell: My son will run the London side, probably takes another 20 weeks to finish. So, if that gives because he also is partly involved in film financing. So, he you a sort of rationale - will deal with that, and I will deal with...
The Chairman: There is a ratio there. Mrs Hannan: Your company, or at least your supply of the editing equipment: would it have been registered for Mr Napier-Bell: Yes. And the weirdest things dictate VAT? where it is finally put together, like, in fact, where the director may be doing his next play or where his next film will be Mr Napier-Bell: Some of it would, some of it would done. So, for quite illogical reasons, you may find that some not, because some of it was my own personal thing, but I of the editing takes place in Glasgow because the director’s will look - (Interjection by the Chairman) The company new film is going to be done in Glasgow. So, he wants to would have been, yes. do his research... It is very... There is no hard and fast rule, really. That is what I am saying. Mrs Hannan: Yes. Would you have assumed that it would have been on the actual bill of sale? Mrs Hannan: Could I ask you: in the management accounts for September 2003 it shows £150,000 sales in Mr Napier-Bell: No. I was asked, as I said earlier, to total. Is that correct? supply an inventory for a total amount, which I then gave to Island Studios. So, I will check with my accountant to Mr Napier-Bell: I have not got their management see. Off the top of my head... I know it sounds terrible, but accounts. For 2003 I have got, from the editing side, I cannot be very specific about that. £139,000. Mrs Hannan: 1 think that is fine for the moment. Mrs Hannan: Right. The Chairman: Capt. Douglas? The Chairman: That is just editing? Capt Douglas; Thank you, Mr Chairman. Mr Napier-Bell: That is just editing. That is my editing. When you come to the Isle of Man - and welcome - will As I say, I am waiting to see their final accounts now I have the business that you will be doing through the Isle of Man given them this to - actually be put through Island Studios or through your own company? Mrs Hannan: We were just told that most of that income was for the sound stage. Mr Napier-Bell: There is, obviously, as you have gathered, a meeting pending between myself and Mr Mr Napier-Bell: Yes, it may well be. As I say, I am not Westacott fairly shortly. Obviously, all the stuff that is a director. At the moment I have very little input into the on the inventory will go through the Isle of Man Studios accounts. What I have done to try and regularise this is that because it should; it is the Company’s property. It may well I have now done my accounts for the editing side, which be that other allied businesses I might run through a separate have now been submitted to them, and presumably when company, but I have not really... I am still formulating the they put... They are going to make the final submission, 1 best way of doing it. think, next week. So, it means that the overall income should As I said, the most likely thing that will happen is... We
Tynwald Sub-Committee of the Standing Committee on Expenditure and Public Accounts on Island Studios Limited - Evidence of Mr N Napier-Bell 50 TISL SUB-COMMITTEE, MONDAY, 26th APRIL 2004 Oral Evidence
are doing an enormous amount of business with America Mrs Hannan: No, I do not think so. now. We have an office opening in LA, and I think there will be quite a trading relationship between that because of The Chairman: Marilyn, anything? the new ability to move data so quickly and so cheaply. If I can just very briefly give you an insight into things, we can The Clerk: No. That is fine, thank you. now set up one machine in LA and one there, with cameras on each. So, if you were in LA and I am here and you have The Chairman: Thank you very much. It is very good a problem, I can look at you and look at your machine and of you to come across - tell you exactly what is wrong with it, and probably 99 per cent of the time I can fix it from that distance. Mr Napier-Bell: A pleasure. So, this is only in the last six months that this technology has really become cost effective. The price of moving data The Chairman: - and give evidence to the Select has come down, and also the other thing, again, that just Committee. makes it practical... Films have a tendency to move about and, again for very strange reasons, directors have within Mr Napier-Bell: And I will send to your office the their contracts what they call a ‘director’s cut’, which is paperwork - normally 10 to 12 weeks. Why 10 to 12 weeks, I do not know, but that is what it tends to be. Quite often a director The Chairman: If you would, please. We would be will stipulate that he wants to do his cut... We had one in most grateful. the south of France this year because the director had a villa there. So, we had to move systems there. From here Mr Napier-Bell: - and feel free to ask for anything else on in, instead of moving all the infrastructure, we move one you need on it. computer and we can use data lines just to fill up drives which are on site, because moving drives is always dangerous. The Chairman: Thank you very much indeed. If they get banged, you lose data. So, the whole thing has Mrs Hannan: Thank you. suddenly changed, and this is what, I feel, I am going to concentrate on with the Isle of Man, because it is just... Lots Capt Douglas: Thank you. of reasons, which I am sure you know as well as me, make it an ideal situation. Mr Napier-Bell: Thank you. Capt Douglas: So, your future in this direction sounds very exciting. With your expertise, obviously with you being on the site on the Isle of Man and able through your contacts Mr Bell was called at 1.32 p.m. worldwide, would you expect to see more films coming to the Island, perhaps, because of the fact that you are here? EVIDENCE OF MR A BELL Mr Napier-Bell: For instance, to go back to the visual The Chairman: Perhaps Mr Bell will come up and take effects side, with all this new technology and the price a seat. We are just going to hang fire for two minutes. We of machines coming down, I think there is an enormous have another tape change (Mr Bell: Sure.) to take place. opportunity for doing a lot of special effects work in the This does not smack of the technology (Laughter) which Mr Isle of Man, some of which currently is done in the Czech Napier-Bell was speaking of a moment ago, does it? Republic and places like that for cost benefit. The same things would apply here because of the taxation. Though There is a pause in proceedings while the tape is changed. your salaries would be higher, your lower taxes would compensate. So, I have, in fact, told the Film Commission The Chairman: We are back in action. Thank you 1 have done a schematic of what I think will happen, and I very much, Mr Bell, and again, apologies for keeping you personally think there is an enormous growth area for that, waiting. You have sat through, I think, the whole morning, video games, things like that, which actually are... As much almost. Thank you very much indeed. As you have heard work goes into one video game as goes into a major feature me explain, we do need to take particulars on tape for the film, just to put it in perspective. recording purposes. So, perhaps you could give us your name and address first and foremost. Capt Douglas: There is opportunity training-wise, then, isn’t there? Mr Bell: Okay. It is Adrian Lawrence Quayle Bell of the Iceman’s Cottage, Main Road, Ballaugh. Mr Napier-Bell: Yes, enormous. Absolutely enormous. Probably, quite honestly, the biggest growth area, because it The Chairman: And what are your qualifications, Mr is a continuous employment thing. It is not something that Bell? is designated to start and finish with a film. Mr Bell: I have a BA Honours degree in Fine Art. Capt Douglas: Thank you. Thank you, Mr Chairman. The Chairman: In Fine Art? (Mr Bell: Yes.) Right, The Chairman: Right. Are there any notes we have okay. I gather you were - perhaps still are, for all I know forgotten? - associated with Lough House Animation?
Tynwald Sub-Committee of the Standing Committee on Expenditure and Public Accounts on Island Studios Limited - Evidence of Mr N Napier-Bell - Evidence of Mr A Bell Oral Evidence SUB-COMMITTEE, MONDAY, 26th APRIL 2004 51TISL
Mr Bell: Yes. I am still a shareholder of that particular trained me up in-house - company, although I no longer work for the company. The Chairman: And that was off-Island, was it? The Chairman: Yes. So, when did your association start with them? Mr Bell: That was off-Island. That was at Cosgrove Hall Productions in Manchester. (The Chairman: Yes.) Mr Bell: That would be April 1997. And you start off as what is called a ‘clean-up artist’, an ‘in-betweener’, where the rough major drawings that are The Chairman: April 1997? done by the key animator are then passed on to you and you have to redraw that character, pulling it back into character Mr Bell: That was when I was first approached (The using what we call model sheets. And you might be given Chairman: Yes.) and then became an employee/director drawings 1 and 5 and then you have to ‘in-between* those roughly -1 think it was - August of 1997. drawings, as in do the drawings that are in between that, the positions that are in between that. The Chairman: And you still have an association, as Once you have mastered that as an in-betweener, you you have said, in the sense that you are a shareholder? (Mr then become an assistant, where you might get to do some Bell: Yes.) But you no longer work for the company? (Mr subsidiary animation, where it could just be a leaf blowing Bell: No.) So, when did you leave the company in terms of through the shot or a small subsidiary character, and then you your employment? become an animator, and then you become a key animator I achieved that goal within three years, which I would say Mr Bell: That would have been a year ago. was pretty good going, myself, but that was purely on the drawing side, as well. The Chairman: A year ago. Right, okay. Certainly - 1 At Lough House we taught, as I said, how to use the think this was during the time that you were there, I am computers as well to handle those drawings, because one certain it was - there were a number of pupils who were of the criteria... We knew that the staff that we had taken receiving grant support to do courses there. on were to be allocated into different departments, as in to what side of the business they would be doing, whether it Mr Bell: Yes, that is correct. be on the drawing side or on the computer side.
The Chairman: Can you explain to us: what was the The Chairman: These pupils you had and who were nature of the courses that they were doing and what was grant-aided by Government: what objectives were set for the element of tuition that was being applied to that? What their training? Were you training them towards certain was the nature of the course, first of all? What were they professional exams or were you training them for entry into doing? the business somewhere else without formal qualification? What were the established objectives? Mr Bell: It was a basic awareness of animation, although during that summer of 1997 1 had to write a course of how Mr Bell: It was a two-year apprenticeship that the DTI to teach animation, based on my experiences of working in offered them, for the first year of which they were just paid, the industry. The staff joined us at the end of September, they got the grant - well, rather, I think, the Company, Lough but I was given three months to train them up, ready to start House, actually received the moneys from the DTI, and that production in January of 1998. At the time it was traditional was paid to them through their wages - but I believe it was 2-D drawn animation that the company was majorly involved topped up to some figure as well, and then in the second with, but it also involved 2-D computer processing, where year, I believe, the Company only got 50 per cent of that the drawings of the animation that was done were then but, again, the company had topped it up and actually gave scanned into the computer and the process finished off that them more money. I was not responsible for doing that deal way. So, I had to quickly, as 1 have said, write a course of or anything at all on that; that was the other directors of the how animation was done. company. As far as -
The Chairman: You were given this three-month period The Chairman: You were concerned with the training to get this set up? side, were you?
Mr Bell: That is correct. Mr Bell: As far as the training was concerned, it was my course that I wrote, as I said, based on what the industry The Chairman: Was that realistic? required, and I would say it was quite a comprehensive training course. Mr Bell: Well, it was achieved. The Chairman: And was one of the objectives that they The Chairman: To some extent it was achievable? could gain entrance into the UK media and film courses?
Mr Bell: Yes, it took me... I would say probably Mr Bell: Well, no. We wanted them to stay in-house. We not, because even when I was working for a professional were training them up to work for us. Always. We did not animating company where 1 did my training, where I was really want them to move. taken on purely on the fact that I could draw and had a degree in fine art, not that I had done animation before, and they The Chairman: You were not training them towards a
Tynwald Sub-Committee of the Standing Committee on Expenditure and Public Accounts on Island Studios Limited - Evidence of Mr A Bell 52 TISL SUB-COMMITTEE, MONDAY, 26th APRIL 2004 Oral Evidence professional qualification per se? (Mr Bell: No.) You trained Chairman: Yes.) which shows the skills that you can do, / them up to perform a task of - but Lough House expanded to such a degree that we got into three-dimensional computer-generated image animation a Mr Bell: It was purely in-house training to, hopefully, lot earlier than I think anyone anticipated. It also expanded work for Lough House. into doing story-boarding, character design, background design, script writing, obviously the editing side, and in the The Chairman: Yes, as you say, an apprenticeship. 3-D side it is more like a traditional film, in that they have to learn... Mr Bell: Yes, and the best qualification you get in this industry is to have a showreel, really, and a CV of the The Chairman; These apprenticeships were not productions that you have worked on. continued, then?
The Chairman: A significant number of them did not Mr Bell: There was always an apprenticeship scheme finish that course. Thinking back now, can you recollect if there in one form or another. there was any particular - The Chairman: Are there still apprenticeship Mr Bell: I would say most of them did finish the course, schemes? and with those who did not it was probably down to money, the fact that they did not realise that on their apprenticeship Mr Bell; I have no idea. scheme the wages would be so low. The Chairman: No. Up to last year, when you left, were The Chairman: Yes, I think... Was it nine? I have got a there apprenticeship schemes running then? ^ figure in my mind that nine did not finish the course, Mr Bell: No, it finished a lot earlier than that because of Mrs Hannan: I think it was 29. the uncertainty of the future of Lough House. So, we were not taking on any more staff because of the uncertainty of Mr Bell: Twenty nine did not finish? the business.
Mrs Hannan: No, 29 in total. The Chairman; I see. Right. In terms of the equipment and facilities that were provided by Lough House Animation The Chairman: There were 29 in total. That is right. for the training of these students, was that equipment, in your I think nine did not finish. I have not got it in front of me, view, current and relevant and up to scratch? Was it...? but... Have you got that figure anywhere? No? It is alright. Not to worry. Leave it. Mr Bell: At the start it was, but it certainly depreciated. Mrs Hannan: I think it was 29. The figure we have got is nine or ten - The Chairman: Because of the speed of the technology change, was it? The Chairman: I think it is fair enough to leave it at the general statement I made. I think a significant number Mr Bell: Well, yes. There have been phenomenal did not finish the course, and what I was trying to get at was advances, haven’t there, in the computer side? So, yes, whether there was a problem with the course, whether there we were always striving... We could have done... The was a problem with the students. Was it because there was equipment should have been upgraded a lot more than it no end qualification, for example, that they could achieve was, in my opinion, but again that was down to a financial I at the end of their two-year apprenticeship? I am just trying matter. It is quite costly to do so. to find out why, if there is any reason for this. The Chairman: Yes. What liaison did you have with Mr Bell: The DTI do actually issue them with a certificate the DTI Training Division in relation to these students? Did saying that they gained a qualification, an apprenticeship in they come along and see what was being done or did they animation. Otherwise I would be... I can certainly try and come along and provide assessments? find... If you mention names, I can tell you whether they achieved it or not. Mr Bell: Not at all.
The Chairman: I do not think it is that critical. It was The Chairman: Not at all? You did not... just whether there were any general... Mr Bell: No, it was just... When they had finished, I had Mr Bell: I do not think... I am very surprised at the to sign the certificate and a member of the DTI signed the number being nine. certificate and then it was handed on to them.
The Chairman: Would it have led to the students being The Chairman: But they were not coming along able to obtain a position in the film industry? periodically to see what they were doing or anything like that? Mr Bell: Definitely. As I said, the most valuable asset that you can have as a qualification is your showreel, (The Mr Bell: Maybe once a year.
Tynwald Sub-Committee of the Standing Committee on Expenditure and Public Accounts on Island Studios Limited - Evidence of Mr A Bell Oral Evidence SUB-COMMITTEE, MONDAY, 26th APRIL 2004 53TISL
The Chairman: Once a year was the sort of - Mr Bell: I believe there might be five (The Chairman: Five.) at the moment. Mr Bell: From what I remember, yes. It was not like a continuous - The Chairman: Yes. Mrs Hannan?
The Chairman: You were not filing reports to them in Mrs Hannan: No, for the moment I have not got any way? anything.
Mr Bell: No, only myself. I am the only one that kept the The Chairman: Capt. Douglas? reports. I could tell you to a half day what each individual did in the five years that I was at the Company, because that Capt Douglas: Obviously, apart from the disappointment was part of what I did. I allocated the work they were doing that things finished for you, after all your great efforts of five and what production they were on. years, where would you see the future of Lough House? Does it have a future? You mentioned games. The Chairman: So, there was very little, if any, DTI Training Division input into their tuition? Mr Bell: I am still involved. I am now a consultant at the Manx Multimedia Centre in Peel, as well as being a Mr Bell: It was down to me to teach them. Nobody freelance graphic designer. The Manx Multimedia Centre is else knew how to teach animation on the Island. It was just more concerned with live-action training, although we have purely me. been doing animation as well because of my skills involved in that and because of the fact that it is such a backbone of The Chairman: I am just reverting to that figure. It does the industry, where you learn right the way from scriptwriting not change what we have discussed, but if there were 29 through stoiy-boarding and editing and shooting right the apprenticeships - or 29 apprentices, to put it another way, way through to the final product. I still hope that there will who signed a training agreement - and 22 completed the be a future, yes. course, that is 75 per cent. I do not know whether that is par Capt Douglas: And yourself? Do you see a future for for the course or not. I do not know, with your experience, yourself with anything you may have heard today? whether you could say whether... Obviously a quarter fell by the wayside for one reason or another. Mr Bell: Again, there are a few issues which have been very interesting, yes. And, as you are aware, the Manx Mr Bell: As I said, part of the... The few members of Multimedia Centre is part of the DTI in itself, and I have been staff that I can remember who did not actually stay for the there as a consultant since September. So, I think the only two years would have left us maybe because it was not what thing I can be is positive that the industry will be successful, they thought they wanted (The Chairman: Yes.) or what we because I am still there, training people up to try and get could offer them or it was down to a monetary factor, where them jobs on the Island in this business. they were not sure about that. Mrs Hannan: Is that animation or is that using the The Chairman: Yes, okay. Thank you for that. Now I equipment that is available, cameras, sound - will see if my colleagues have any questions on that. Mr Bell: Both, sides. I still hope that the animation Mrs Hannan: Could I just ask: are most of the people business will still succeed, whether it is in the games industry that you trained still with Lough House Animation? or, as you heard Mr Christian say, it is actually still in a TV or film production, but I am also now responsible for training Mr Bell: No. As I have mentioned, including myself, a in live action more as well. lot were made redundant a year ago (Mrs Hannan: Right.) because of a... The main crux of that was the uncertainty Mrs Hannan: Could I just ask: where do the people that the Company... There was a deal done with another involved in the Manx Media Centre go on to? Do they leave company which promised us the earth, and it never came the Manx Media Centre with a qualification and go on to to fruition, unfortunately. And Lough House had changed maybe university or to do something else? so much from animation; they got heavily into games. The projects that we had... We were looking into the games Mr Bell: At present there are four trainees about to leave, market, and so the few staff that are there at the moment are and the idea is for them to, hopefully, get jobs on the Island involved in that aspect. in the industry. At present, there are five first years, so they are finishing their first year and they will start their second Mrs Hannan: And are they people who you trained or year in September. are they other people that have come in to do it? Mrs Hannan: And it is usually a two-year course, is Mr Bell: They are people I trained. it?
Mrs Hannan: Right. Mr Bell: It is, yes. I know those are all post-grads. They have already been away, and they have now come back to The Chairman: Right. And how many of those people the Island and they are furthering their education at the are there at the moment? Multimedia Centre. So, they will be hoping to get into the
Tynwald Sub-Committee of the Standing Committee on Expenditure and Public Accounts on Island Studios Limited - Evidence of Mr A Bell 54TISL SUB-COMMITTEE, MONDAY, 26th APRIL 2004 Oral Evidence industry in a year’s time, again, hopefully, on the Island. letters - this is purely my individual... Not just letters after your name; it is what you can do, and your showreel is the Mrs Hannan: And is that the future? A degree first and best thing. then... The Chairman: Right. Nothing else? No? Thank you Mr Bell: No, that is just the way it worked in this very much indeed. particular case. As I said, I have only been there since September. I have never been involved in the selection Mr Bell: A pleasure. process, but I do feel that there should be more training on the Island, whether it is at the... Because most people who go The Chairman: It was very kind of you to come forward to the college, for example, go there because,.. Myself, I did and give evidence to us. Thank you for that. a foundation course, which was a prerequisite qualification I think that brings our public hearing to an end for today, to getting into doing my honours degree in Manchester. So, and those members of the public who were good enough to most of them, as I see it, would be really leaving the Island, come forward and listen in to the proceedings, thank you for but the Multimedia Centre really want to... They are here your time and patience. Thank you. I appreciate that it is a to train people up to get them jobs on the Island, and I think bit difficult at times because, of course, we are just putting that is why the DTI are involved. It is just like if you train questions in relation to documentation we already have, and to be a joiner or an electrician down at Hills Meadow; at the so we are putting questions to complete a picture, whereas Multimedia Centre they are training to be a camera person you do not have that documentation and it may sound a little or an editor or lighting - or we even get to scriptwriting. It bit disjointed for you, but perhaps I could explain that that is is a full aspect of the business. why we have a lot of documentation and the oral evidence is just filling in those blanks, so inevitably it may sound a The Chairman: Falling short of a degree qualification, little bit disjointed. there has been a reference made to, I think, Skillset as being a qualification that can be obtained by people in this area. Mrs Hannan: And we will be reporting. Does that register with you in any way? The Chairman: And we will be reporting with all the Mr Bell: No, I did not really hear about it or know about facts, of course, in due course. Thank you very much, indeed. it until four weeks ago, when I was at the first meeting. Nice to see you. As I said, as far as I am concerned, your best qualification is your showreel. (Mr Quine: Yes.) That is what a lot of people want to see: the sort of work you produce, not just The Committee sat in private.
Tynwald Sub-Committee of the Standing Committee on Expenditure and Public Accounts on Island Studios Limited - Evidence of Mr A Bell TYNWALD COURT OFFICIAL REPORT
RECORTYS OIKOIL QUAIYL TINVAAL PROCEEDINGS DAALTYN (HANSARD)
SUB-COMMITTEE OF THE STANDING COMMITTEE ON EXPENDITURE AND PUBLIC ACCOUNTS ON ISLAND STUDIOS LIMITED
BING VEAYN MYCHIONE COONTYSSYN THEAYAGH AS CEAU ARGID FO-VING MYCHIONE ISLAND STUDIOS LIMITED
Douglas, Wednesday, 12th May 2004
Published by the Office of the Clerk of Tynwald, Legislative Buildings, Bucks Road, Douglas, Isle of Man. © Court of Tynwald. 2004 Printed by The Copy Shop Limited, 48 Bucks Road. Douglas, Isle of Man L 56TISL SUB-COMMITTEE, WEDNESDAY, 12th MAY 2004
Members Present:
Mr R E Quine MHK (Chairman) Mrs H Hannan MHK Capt. A C Douglas MHK
Clerk; Mrs M Cullen, Deputy Clerk of Tynwald
In attendance: Mr M Fayle, KPMG
Business transacted
Page Procedural...... 57
Evidence of M rR Ennett, Government Valuer...... 57
Procedural...... 60
Evidence of Mr K B Bawden and Mr D Kelly...... 60
Procedural...... 76
Evidence of Mr C Corlett and Ms M Thomson...... 76
The Committee sat in private at 1.36p.m. I__ Oral Evidence SUB-COMMITTEE, WEDNESDAY, 12th MAY 2004 57 TISL
that the situation? Were you asked to do this valuation in Tynwald Sub-Committee of the relation to a DTI... Standing Committee on Mr Ennett: I was asked basically to give them a valuation Expenditure and Public Accounts of the premises for, I think, security purposes. on Island Studios Limited The Chairman: Yes, I see. Did you know that to be in relation to a Government grant? (Mr Ennett: Yes.) Yes, yes. Are you ordinarily, or have you previously been, required to give valuations in support of Government grants? The Committee sat in public at 10.00 a.m. in the Millennium Conference Room, Mr Ennett: Yes, sir. Legislative Buildings, Douglas The Chairman: Yes, okay. There is a letter from your good self to Mr Neil Wilson of the DTI, and it is dated 24th [MR QUINE in the Chair] October 2002.1 do not know whether you have got that to hand, but - (Mr Ennett: Yes.) Yes. What I was going to ask Procedural you there is: there is a reference in that letter to an instruction and a telephone conversation. We assume that it is to do The Chairman (M r Quine): Good morning and with a verbal or an oral instruction which you received and, welcome. clearly, perhaps, an instruction that you received by way of The proceedings today are being tape recorded, of course. that telephone conversation. Could you tell us: what was the They are being taped for record purposes and Just in relation substance of the instruction that you received? to that, the one small commercial I would make is to remind ourselves, as well, here on the top table, but also those giving Mr Ennett: The actual instruction... I think you have evidence that, because they are being recorded, we would a copy of the letter. It is from the Department of Trade and ask that contributors try not to interrupt or speak at the same Industry on 30th August 2002. (The Chairman: Yes.) I think time, because it makes it difficult afterwards to decipher who normal practice is that I would ring up Mr Wilson and ask said what when they are transcribing. It makes it difficult. him what the basis was and what was involved in it. I recall It can be done, but it does make it difficult, so co-operation in the conversation that I think he let me know what amounts in that respect would be very helpful. were involved in it and would the valuation cover this? I said, The purpose of today’s sitting: we are a subcommittee ‘Obviously I will have to go and inspect the premises,’ and of the Public Accounts Committee, and we are looking into I would forward him a formal valuation. I was aware of the grant involved in the property at the time, yes. matters of the DTI grant scheme, in particular in relation to the award that was made to Island Studios and, of course, The Chairman: Yes, right. So, that is the substance issues related to that. Again, I am fairly certain you know of the instruction that you were given. (Mr Ennett: Yes.) who is sitting here at this table, but, for record purposes, Okay. You come up with a figure of £1.750 million. (Mr on my extreme left there we have Capt. Andrew Douglas, Ennett: Yes.) If we could just turn now to the breakdown who is, of course, the Member for Malew and San ton, and of that, and I am referring to a letter which is - you may not next to Capt. Douglas we have Mr Fayle, who is an adviser have this, but it is your letter - from yourself, dated 24th to the Select Committee. Immediately on my left we have October 2002, and it is to Mr Wilson. It is headed ‘Island Mrs Hannan, of course, who is the Member for Peel. On my Studios Limited: Film Studio and Associated Facilities at right we have Mrs Cullen, who is the Clerk to the PAC and Baldromma, Lezayre’, and you give the ballpark figure of to this Sub-Committee, and of course I am Edgar Quine. So, £1.75 million there. Attached to that - 1 am not 100 per cent that is the record. sure in whose writing - there is a breakdown, and it reads First and foremost this morning we would like to take as follows: evidence from Mr Ray Ennett, and so perhaps if I could ask you first, Mr Ennett, if you could give us your full name and ‘Phoned Ray and received a breakdown o f figures as follows:’ address and your qualifications - professional qualifications I am referring to, of course. and then there is a breakdown of figures. I just want to run through those figures with you, first of all, in terms of as Mr Ennett: Certainly. William Raymond Ennett, Crossag they read, and see whether that registers with your record, Cottage, Crossag Road, Ballasalla, IM9 3EE. Employed by because it does come out to the £1.75 million. the Isle of Man Government as Government Valuer. I am a The first item here is: Fellow of the Royal Institution of Chartered Surveyors. ‘Office block/workshop: £523,435’.
The Chairman: Thank you very much. Is that a figure you have got in your breakdown?
Mr Ennett: Have you a copy of this breakdown here, s ir ? EVIDENCE OF MR R ENNETT The Chairman: I believe we do, but I am just trying to The Chairman: In this instance, you were asked to do see whether these figures can be reconciled with your formal a valuation in relation to what is a Government grant. Is breakdown. Yes. I read these figures as figures which have
Procedural Tynwald Sub-Committee of the Standing Committee on Expenditure and Public Accounts on Island Studios Limited - Evidence of Mr R Ennett 58TISL SUB-COMMITTEE, WEDNESDAY, 12th MAY 2004 Oral Evidence been taken down from yourself either in a conversation or a would be related to its... Basically, it is the relationship to the telephone conversation with somebody in DTI. buildings within the ring-fence of the site, rather than as an individual bungalow for sale on, say, the main road. Mr Ennett: That is not the final valuation. Those, I think, were initial thoughts, sir. The Chairman: Yes. It is as an element of that complex. The Chairman: Were they? (Mr Ennett: Yes.) Okay. I will just run through them for the record. It says: Mr Ennett: An element of the complex, yes.
‘Office block/workshop: £523,435. Bungalow: £140,000’. The Chairman: Okay, I understand that. ‘Old farmhouse and editing suite’: they are coupled together. Is that because Mr Ennett: I have actually split the figures, sir, so yes, they are, in fact, essentially the one building? that would add up to the figure you have mentioned. That is right, yes. Mr Ennett: Yes, they are the one building.
The Chairman: Then: The Chairman: Yes, okay, we understand that. Moving on now to land, £371,352 for land, how many acres are we ‘Old farmhouse/editing suite: £30,000’. referring to there?
(Mr Ennett: Yes.) Mr Ennett: The actual site area is nine acres, and that is inclusive in the upper part of the valuation set-up. The ‘ Studio back-up area with dressing rooms, canteen, toilets, hairdressing, residue is 38 acres, which surrounds the - edit sound area: £245,850'.
(Interjection by Mr Ennett) The Chairman: So, it is nine plus 38? (Mr Ennett: Yes.) Right. And the nine acres is in which figures do you say? ‘New studio: £336,000. Portaloos: £10,000. Land: £371,352. Plant and machinery: £100,000’ Mr Ennett: That will be in the ring-fence of the site. and then there is a figure here: The Chairman: And this is land outside of that?
‘Less allowance for access road: £6,637’, Mr Ennett: No, the nine acres is with the complex, if you like, and the parking areas. which is... I have not tallied them, but it purports to arrive at a total of £1.750 million. Those are not exactly the figures The Chairman: So, that valuation is part and parcel of you have got in your... The breakdown is not quite the same what you have given for the buildings and so on here, is it? as in your formal valuation. (Mr Ennett: Yes.) And this land figure here of £371,352 relates to the 38 acres, then? Mr Ennett: No, that was the valuation. Mr Ennett: Yes, sir. The Clerk: It is correct. (Mr Ennett: Yes.) Those two added together. The Chairman: How was that land zoned at the time you valued it? The Chairman: Oh, I see. Those two go together, the workshops and offices. Okay. Then we are at one, I think, so Mr Ennett: Zoned agricultural, I would think. that is fine. That accounts for these figures. If we can just look at one or two of these items here, there is a reference to, first The Chairman: Agricultural? (Mr Ennett: Yes.) Okay. of all, the office block and workshop. I am just wondering Again, would you ordinarily put what I would call ‘movables’ if you could confirm for us that it is the same as on this plan into a valuation? It may be a small sum, but like portaloos that you sent us. I have got my copy here somewhere, if Mr and that sort of thing: would you normally put them into a Ennett could have a look at it. Is that the plan that we are valuation for something in relation to grant aid? referring to? (Mr Ennett: Yes.) Okay. Mr Ennett: Well, it is part of the site. Mr Ennett: Yes, that is the one. The Chairman: It is part of the site, it is there, (Mr The Chairman: Okay. Thank you. Ennett: Yes.) and so you would - Sticking with the breakdown for a moment, the bungalow first of all: we have got the office block and the workshops Mr Ennett: It is physically connected to the drainage clearly set out, then, and there is a bungalow identified on system of the site. They were not portaloos on wheels; they that. Now, £140,000 for a bungalow: was that taken as a were actually physically annexed to the land. bungalow in the state, at that point in time...? How - ? The Chairman: Plumbed into the drainage system? (Mr Mr Ennett: It would actually be... If you look at the Ennett: Yes.) I am with you. Okay. breakdown, I have put the floor area down and I have put And then ‘Plant and machinery: £100,000’. Of course, on ‘spot’. That is my expression for a spot figure basically, which the documentation that we have got, we have figures relating
Tynwald Sub-Committee of the Standing Committee on Expenditure and Public Accounts on Island Studios Limited - Evidence of Mr R Ennett Oral Evidence SUB-COMMITTEE, WEDNESDAY, 12th MAY 2004 59 TISL to plant and machinery, but they are substantially greater agricultural rate would be. What would be the agricultural than £100,000. Perhaps you could just explain to us how you rate comparative to that? arrived at £100,000 for the plant and machinery. Mr Ennett: Depending on the quality of the land - it is Mr Ennett: That would be my opinion. I am not an quite good land - 1 would think absolute top dollar would expert on plant and machinery, I do have to say. Most of it be about £3,000 an acre (Mr Quine: Okay.), without was, I think, electronic stuff, and it is in this book here what buildings. actually it was. It is mainly filming and equipment of that nature, which I would not see, in my opinion, as having a The Chairman: Yes. Right. Now, just bear with me a great second-hand value. moment. Did you have sight of the business proposal, the business plan, from DTI to aid you with your exercise or The Chairman: No, but somehow you arrived at a was this simply - figure of £100,000. Was that a figure that was given to you by somebody that understood this equipment or is it a figure Mr Ennett: No, I - that you just took, a spot figure? The Chairman: - on the strength of the visit and the Mr Ennett: No, it is just my opinion. brief you referred to?
The Chairman: What you saw, you took an estimate Mr Ennett: I valued it as what existed on the site, which of that being £100,000? (Mr Ennett: Yes.) Right, okay. I was offices and sort of commercial activity. In the event understand where that is coming from, then. of this activity ceasing on site, obviously, it would have to If I can just backtrack very quickly, this question of the be sold for another activity, and that was the basis of the 38 acres of agricultural land: if we take that as representing valuation. the £371,352, that comes up with about £9,772 or something per acre. Is that realistic for agricultural land? The Chairman: Yes, okay. Now, I will see if my colleagues have any questions for you. We will see what Mr Ennett: No, sir, it is not. That is taken as ‘hope value’ Mrs Hannan has for you, if this took off, shall we say, and it had to extend into the surrounding area, for want of another word. I think there is Mrs Hannan: No, I do not think I have got anything. a site plan showing you the actual extent of the holding. No, I think you have covered everything.
The Chairman: Yes, that is the small plan you gave us. The Chairman: Okay. That is this one here? That is this one, I presume, is it? Capt Douglas; Just one, please: were you aware of, Mr Ennett: You should know by the - or did you sight, an independent valuation for Island Film Studios? The Chairman: Well, mine is a photostat, so it is not lined, but it is - Mr Ennett: I have not seen one.
Mr Ennett: Yes, that is correct. Capt Douglas: No. That is all, Mr Chairman, thanks.
The Chairman: That is the one? The Chairman: Mrs Cullen, have you anything? (Interjection by the Clerk) Oh, I will have a look at that. Mr Ennett: That is it. What was the date that you visited the site?
The Chairman: That is the one. Right. So, what you are Mr Ennett: This is the site... On 2nd October 2002,1 saying is that it was agricultural land but you did not cost it was shown round the site by Mr Westacott. strictly as agricultural land because you took into account that if the film studio expanded, it would have a different The Chairman: Are you aware whether that was before designation and a different value? or after Island Studios had taken out a mortgage in relation to - Mr Ennett: It would have hope value (Mr Quine: Yes.) or enhanced agricultural value, whichever way you would Mr Ennett: No, I would have no knowledge of that. like to look at it. The figure is not plucked out of the air; that figure is what has been paid, hope value. I think that The Chairman: You would have had no knowledge of relates to... There is land by Ballaugh there that was refused that, no, okay. on appeal planning, and £10,000 an acre was paid for that within a year or so before. I think he did have a valuation Mr Ennett: I made a further visit - from a well-known northern firm at the same time of the same land. The Chairman: Did you, oh?
The Chairman: I see. We understand the position Mr Ennett: - with the Assistant Government Valuer - anyway. It is on that basis, and that explains why it is, I think it would be true to say, substantially above what the strict The Chairman: Yes, what date was that on?
Tynwald Sub-Committee of the Standing Committee on Expenditure and Public Accounts on Island Studios Limited - Evidence of Mr R Ennett 60TISL SUB-COMMITTEE, WEDNESDAY, 12th MAY 2004 Oral Evidence
Mr Ennett: That would be within... I think the letter of The Chairman: Right. Just before I come on to Mr valuation... I have not actually got a note of the date of it. Kelly, you retired on 31st March. What was the date when responsibility for the Department was transferred from The Chairman; Well, approximately, yourself to Mr Corlett?
Mr Ennett: It would be about a week or two weeks later. Mr Bawden: That would be 1st April 2003, after I The valuation was sent on the 24th, I think, wasn’t it? Yes, retired. In fact, I was - the letter is the 24th. It would be the week before that. It was basically for... We do not often get film studios or The Chairman: Thank you for that. Yes, thank you. Mr that type of thing to value, and I thought, ‘Well, I will have Kelly, perhaps you could do a similar exercise for us. another opinion, because he is a very highly qualified young man’, so we both went and had another look round and then Mr Kelly: My name is Edwin David Kelly, I live at went through the figures together. (The Chairman: Yes.) Skerryvore, Tynwald Road, Peel, and I am a Development I actually did the final touches on them. That is nothing Executive within the Department of Trade and Industry. to do with him; I am not putting anything on him for them. The Chairman: Do either of you gentlemen have The Chairman: And I assume, from what you say, that accountancy qualifications? (Mr Bawden and Mr Kelly: he came out with a comparable figure to what you have No.) No. It may seem a little bit odd, but if I could ask got- you: have you any experience of the film industry? (Mr Bawden and Mr Kelly: No.) Presumably from what you Mr Ennett: We discussed the matter fully, yes. Two have picked up - heads are better than one in a situation like this. Mr Bawden: Picked up since, yes. The Chairman: Just to be absolutely clear, was that before you had submitted that valuation or was that second The Chairman: Your respective positions, okay. visit after?
Mr Ennett: The valuation was prepared after the second EVIDENCE OF MR K B BAWDEN visit AND MR D KELLY The Chairman: I see, alright. So, you had the strength The Chairman: The first thing 1 would like to touch upon of two visits with two minds - is Lough House Animation. Our interest in this is, of course: that it relates to an antecedent relationship that existed Mr Ennett: With the strength of two opinions, between the DTI and Lough House Animation in particular basically. - but that embraces the Lough House group of companies - and it is in relation to Lough House Animation and the The Chairman: Yes, I understand that Craft and Technical Training Scheme of 1995. If I could Right, I think that is all we have for you, Mr Ennett. just clear up a few points on that first of all, can you tell me Thank you very much indeed, much obliged. Thank you whether Lough House Animation were extended grant aid very much. or whatever you. call the aid under this particular Scheme? Were they granted assistance in relation to students at their Mr Ennett: Thank you. Goodbye. facility? I think it was in Ramsey at that time.
Mr Bawden: I believe they were, that they did receive some assistance on training. That is all they received Mr Bawden and Mr Kelly were called at 10.22 a.m. from -
Procedural The Chairman: Yes. Have you any knowledge of that? Is it something that you were involved in? The Chairman: Now, we have Mr Bawden and Mr Kelly. I think that is right, isn’t it? (Mrs Hannan: Yes.) Yes, Mr Bawden: Not directly, except I believe we did have that is right, Mr Bawden and Mr Kelly. Thank you. Come a Tynwald Question in relation to it, which I recall I had to forward and take a seat, gentlemen. Good morning to you. prepare an answer for. We will need to go through a somewhat similar procedure to what we did with Mr Ennett, so perhaps I could ask Mr The Chairman: Yes, okay. I do not know whether Mr Bawden first of all to, for the record, give his name and Kelly has any greater knowledge if it. address. You can state any professional qualifications, but I am more interested in the position that you held. Mr Kelly: No, it was before I joined the Department.
Mr Bawden: I am Kenneth Bradley Bawden, and my The Chairman: Before you joined the Department, right. address is Greenacres, Highfield Drive, Baldrine. I was If I could just stay with the Scheme per se, for the moment, formerly the Chief Executive of the Department of Trade does that Scheme, the scheme of assistance, apprenticeship and Industry and retired on 31st March 2003. assistance or funding to assist students with apprenticeships
Tynwald Sub-Committee of the Standing Committee on Expenditure and Public Accounts on Island Studios Limited - Evidence of Mr R Ennett Procedural : Evidence of Mr K B Bawden and Mr D Kelly Oral Evidence SUB-COMMITTEE, WEDNESDAY, 12th MAY 2004 61TISL relating to the animation et cetera, lead to a recognised Mr Bawden: Could I just have a look at this paragraph vocational qualification? Can you tell me that? 8 and what context it is in?
Mr Bawden: The Scheme, where it is possible, should The Chairman: It is the 1995 Order, I think it is, do, yes. In this case, I am afraid I could not give you a paragraph 8. definitive answer as to whether it did on this occasion. You would have to speak, really, I think, if you wanted details The Clerk: I do not think you are going to find it with on that, to the Training Manager, who dealt with it at the this amount of documentation. time. She would have to look into that aspect of whether it qualified under the Scheme, but it was - Mr Bawden: I do not want to be talking at cross purposes. The Chairman: Ordinarily, if you were expending Government funding in support of apprenticeship schemes, The Chairman: No, you are absolutely right. I have just training schemes, would you expect them to lead to a taken my own notes on it and I have not looked it up. Or I qualification? may - hang on.
Mr Bawden: Not in every case. There is on-the-job The Clerk: I think I have it now. training which we would assist with, which would not necessarily lead to a qualification at all. For young people, The Chairman: Have you got it? Yes, you have got it. you would hope that it would, of course, which it would be Is it paragraph 8? That is the one. It is at the top of page 3: in this case. ‘until the trainee is certified’.
The Chairman: Yes. According to the documentary Mr Bawden: That just says: evidence we have got, it says that the in-house scheme of training was agreed with the DTI - and I am referring to a ‘The term of training should be such a period until the trainee is letter from the DTI sent to us on 21st November 2003, and certified by the division as a craftsman or a technician, which will be a minimum o f three years, and except in circumstances approved by it may be that this was after you had passed over the reins. the Training Services Manager.* I have forgotten the date already. No, probably not, but the point I was going to ask you is this: have you any knowledge As I say, the Training Services Manager would be of an agreement that was struck in relation to - responsible for putting together this agreement.
Mr Bawden: We would have officers who would go The Chairman: What I am trying to find out is whether, down in response to an application and agree a programme of in fact, these students were certified. We have established that training and steps to be taken and everything that is required they did not obtain a vocational qualification. Were they, in for each trainee, and that is almost certainly what that would fact, certified as having completed this course and received be referring to. (The Chairman; Okay.) There would be a a diploma of some sort? proper programme of training that these people would have to go through as part of the agreement. Mr Bawden: You would have to discuss that with the Training Services Manager of the time. I am not aware of The Chairman: Again, we will just see if you can help it, but I would have thought it very unusual if they did not me here. There is a reference in paragraph 8 of the Scheme get some sort of recognition at the end, although it does say to a requirement for certification by the DTI in relation to ‘except in circumstances approved by the Training Services craftsmen or technicians. Again, in relation to the facility that Manager’. It is in his hands as to what he feels is appropriate, was extended to Lough House Animation, are you aware of what they do with their three years. any sort of arrangement that was made for certified - The Chairman: Okay, thank you. Again, we will just Mr Bawden: It sounds like a standard condition we have to try and see whether you do not have any knowledge would put in in many of our schemes in relation to the use of this, but in paragraph 9: of certificated craftsmen and such, where appropriate. I cannot really see that that is actually particularly relevant ‘A training agreement shall be entered into by the employer and the in this particular case. trainee, endorsed by the Department This agreement shall be in a form approved by the Department.’ The Chairman: I presume that these students would ultimately be heading to become either craftsmen or Again, do you - ? technicians. Mr Bawden: There would have to be an agreement Mr Bawden; They would, yes. between the two.
The Chairman: And if they were receiving financial The Chairman: Yes. So, in your view, there should have assistance to become a craftsman or technician, then, been an agreement signed? according to your regulation, according to paragraph 8, there would be an arrangement made for certification. I am just Mr Bawden: Yes, and you update that... Indentures and trying to draw out what those arrangements would be. such of the employer.
Tynwald Sub-Committee of the Standing Committee on Expenditure and Public Accounts on Island Studios Limited - Evidence of Mr K B Bawden and Mr D Kelly 62TISL SUB-COMMITTEE, WEDNESDAY, 12th MAY 2004 Oral Evidence
The Chairman: Thank you. Just to be dear now in the and provide a facility ourselves if that was the only way it way that this grant aid,.. I am calling it ‘grant aid’ and that could be done. I think you will recall that the original idea is probably not quite the right term for it, but these payments was we identified a site at Jurby for this. So, that is the which were made to the animation company: are they made context of it. direct to the company, the employer, or are they, in fact, From my recollection, we had various individuals who made separately by way of payment? had expressed interest in the possibility of providing a studio. There was one that was being used for a TV series which was Mr Bawden: They are made to the employer but with a being produced down at Balthane. There was an individual condition as to the relation to... The trainee has to be paid a who owned that building and who was interested in providing certain amount We would know what that was. a studio. The one that eventually became Island Film Studios had land and expressed an interest, as well. The Chairman: That is part of this agreement, then, that Really, it is a facility, a studio. The experts are in the film we referred to? (Mr Bawden: Yes.) Thank you. I think that industry; they come along and use a facility. is what I need at the moment on Lough House Animation. If I could just move on now, turning to the Island Studios The Chairman: Yes, but you were signing up to give a project, a fairly general point, first of all: how did you evaluate large sum of money to Island Studios, albeit set off against the project? How did you evaluate the application? a certain collateral. What I am trying to get at is: to enter into that sort of agreement, I would have anticipated that Mr Bawden: The application for the grant for Island you would have been looking for some assurance that your Studios? partner in this, the company that was going to discharge this, had the expertise on board to carry this out properly The Chairman: For grant aid for Island Studios, yes. and make a success of it.
Mr Bawden: That is a function of our consultants, Ernst Mr Bawden: Originally, of course, he was in partnership, & Young, to carry out evaluations of this nature for the co-operation, with people who were already operating a Department, and it has been for a number of years. I would film studio in Laxey and who were very experienced in the discuss it with the consultant as he did it and particularly industry - VFG, they have very good track record - and after he did it, and then he normally would let me have a my recollection would be that, initially, we were under look at a draft report, which we would discuss. the impression that they were going to be involved in the operation of the studio with him. The Chairman: So, you rely on your appointed consultant investigating the project in its totality for you and The Chairman: But they were not. giving you a report and you judge it on that report? Mr Bawden: And then I think more or less when we Mr Bawden: Yes. They would normally, when visiting a were dealing with the application, they backed out, for one company to discuss an application, have a representative of reason or another and he, eventually, came into contact and the Department with them as well. That is the normal way came to us with a different individual, again with experience that these things are done. Part of their contract is for them in the film industry in the London area, who I think is still to do that. They are required to do that under the contract. involved, to the best of my knowledge.
The Chairman: Yes. Okay. In terms of the principals of The Chairman: Yes, but you still seemed to arrive at the this Company, were you satisfied that they had the expertise position that, beyond Mr Westacott, there was no expertise to execute this venture successfully? that you were relying on to carry through this project
Mr Bawden: I had met the principal of the Company on Mr Bawden: I thought I had just explained that there an occasion on a visit to Lough House. It was clear that the was VFG and then they pulled out and - principal was an enthusiast rather than a man with a lot of experience in the particular industry. He was an experienced The Chairman: But they did not turn out to be part of businessman with a determination to go ahead with this the- project and get involved further with the film industry. I think that is how I would put it. Mr Bawden: The head of the Company is Mr Napier- Bell, and others that are now involved with him are The Chairman: Presumably, entering into an arrangement experienced in the film industry. whereby you are giving such a substantial grant, who were you relying upon in terms of providing the expertise to The Chairman: So, you are saying it was Mr Napier-Bell execute that project? you were - (Mr Bawden: Eventually.) Eventually.
Mr Bawden: The position was, of course, that the Mr Bawden: I did not rely on Mr Napier-Bell. It is for Government was committed to development of the film Mr Westacott to rely on Mr Napier-Bell, isn’t it? industry. That had been going on for quite a time. The need for a film studio had been identified as extremely important The Chairman: You had to rely upon... I am assuming if the Island was to develop this industry further, and, of that you would be satisfying yourself that to put this money course, this comes along in the context of us having identified up there, you were going to put it up, and put it into a venture that need and having identified funding to actually go ahead which had the expertise and the leadership to successfully
Tynwald Sub-Committee of the Standing Committee on Expenditure and Public Accounts on Island Studios Limited - Evidence of Mr K B Bawden and Mr D Kelly Oral Evidence SUB-COMMITTEE, WEDNESDAY, 12th MAY 2004 63 TISL execute it. I am just trying to find out what you were relying Mr Bawden: Yes. Extra soundproofing was the main upon, in terms of where that expertise was coming from. problem.
Mr Bawden: I think I have answered that, and I think also The Chairman: Yes, okay. What steps were built into the I would point out that what we were looking at was primarily, documentation that went along with the project to ensure that to me, anyway, a facility which the Island needed. You had as much of the construction work as possible was undertaken some of the funding allied to other people with the expertise by local companies? to actually run it, and he is the funder. It is not unusual in projects to find somebody who has got the funding that Mr Bawden; Primarily, as I understood it, a lot of the goes in and then brings in other people to actually provide work was actually done by companies of Mr Westacott, the expertise. who was involved in the building industry. That was where his background recently had been. The only query I recall The Chairman: The construction of a film studio, particularly was in relation to the steelwork, where I was obviously, is, as you intimated earlier, not something that involved. I was asked to look at that situation, because he happens every day of the week or every year - in the Isle of wanted to use a steel company from across and we had to Man it is very much a rarity - but do you consider this to be look at that. a project of a specialised nature? The Chairman: But was there a requirement that he Mr Bawden: To a degree, it is specialised. Obviously, would use Manx labour? the buildings and such have other uses. If they are, at some time in the future, not used as a film studio, they will have Mr Bawden: Yes. The standard conditions require the other uses. It is not specialised to that extent use of local builders wherever feasible, and we have to... Without our approval - The Chairman: Were you aware that there was no firm of architects, either of a general or of a specialised nature, to The Chairman: Are you satisfied that that condition design the buildings, the studio that was being put up? was complied with?
Mr Bawden: I do not see it as all that specialised. I think Mr Bawden: Yes, I have no reason to believe that is the studio itself.. „ The other buildings had been adapted for not so, except the steelwork, which I know did cause some editing and all this sort of thing. It has been described in the questions, and that was done from across. valuation. Those were existing buildings, primarily, which had been adapted and changed to make them of use in the The Chairman: That was done from across? Are you film studio area. The film studio itself is just a very big bam aware that the specifications for that steelwork, which was with lots of height to hold lighting gantries and this sort of a matter presumably of interest to the Department - three thing, which is information that the principals had got for specifications, I think there were - were taken at different themselves by travelling round and talking to people in the times? They were dated over a period; I think it was two industry and looking at what was elsewhere. It is a fine studio. years. (Interjection by Mr Bawden) You were not aware of It operates as a fine studio. that?
The Chairman: Was this a matter that was consciously Mr Bawden: No, all I was aware of was that... I knew considered by the Department, that there was no sort of there were three, and I knew that there was a considerable architect retained to design this building? difference between the lowest one, the one that was accepted, and the local one, which was the only other one Mr Bawden: I do not recall, particularly, because, as I that concerned me. There was a very considerable difference say, we knew from having looked at the possibility of doing and, from recollection, we also enquired of an officer in the it ourselves that - and this is what the people in the industry Treasury with experience of this and came to the conclusion said - you basically need a very big, large building for cover that it was not unreasonable to agree that the lower cost which will... Obviously, it has got to have the proper strength should be taken in this case because of the difference in the for holding lighting gantries and soundproofing and all this two figures. That was my involvement sort of thing, but it is not a specialised building in the way you are suggesting, that you would need a specialist film-studio The Chairman: Yes, well, this is what we have been architect, because they do not build that many. trying to take a view on. The fact is that there are three specifications for that work, but it is spread out over a period The Chairman: But in the event, it was not even put of two years, and we do not see how that could be considered in the right position, was it? There was a planning problem to be a like-for-like tendering process. You cannot - with it. Mr Bawden: I cannot shed any light on that, Chairman. Mr Bawden: Well, I do not... That would not... That is I am sony, I cannot down to the builder, isn’t it? An architect writes on a piece of paper; it does not mean the builder puts it in the right The Chairman: Okay. There was another aspect on the place. tendering I wanted to clear. The second aspect to do with the tendering I wanted to clear was, of course, that... Are you The Chairman: You are aware they have had to carry aware that the specifications for the firms to tender were not out some changes to the building subsequently? written specifications? They were simply instructions put
Tynwald Sub-Committee of the Standing Committee on Expenditure and Public Accounts on Island Studios Limited — Evidence of Mr K B Bawden and Mr D Kelly 64TISL SUB-COMMITTEE, WEDNESDAY, 12th MAY 2004 Oral Evidence over the phone to interested companies by Island Studios. The Chairman: Yes, thank you for that. You mentioned invoices and being satisfied about the invoices being properly Mr Bawden: There were no written specifications at tendered and justified. Did you query why - either of you ail? may be able to answer this for me - die invoices submitted in respect of Allied Steel Frame Structures exceeded the The Chairman: No written specifications. quotation?
Mr Bawden: How do you know they were different, Mr Kelly: I think it came to light later on. The invoices may I ask? were coming in bit by bit and it had not exceeded it at the time, but it was looked into after it had done. I think it was The Chairman: We had the Company’s response, but to do with the time involved and the slightly different spec. my concern is not that. My concern is whether or not there I think they did a bit more than they intended to do to start was a fair basis for the companies to tender, and it seems to with on the steel works. They waited a whole winter, I think, me that if the tenders were taken at different times, which is before they got started again in the spring, and there were a matter of record, and if, in fact, the specifications were not delays and the price of steel went up as well in the meantime. laid down in writing so each were quoting and knew exactly I think they were all contributory factors. what they were quoting against, we do not see how there was a fair tendering procedure brought into play, in accordance The Chairman: But, if somebody quotes, without a with your requirements. clause expressly saying that it is subject to movement in material prices, would you not normally expect that price Mr Bawden: If I was involved in building the property to be adhered to? myself - in fact, if we had gone ahead and done it - then I would consider that... I would not have done it that way. Mr Kelly: I guess in the circumstances... Well, you My main concern at the time was that we had agreed on would, I suppose, but under the circumstances there was a a grant towards the cost of a building which had a maximum limit to what they could go up to, anyway. grant involved in it, and our main concern would be that The Chairman: Yes, okay. Hindsight is a wonderful there was bona fide evidence of paid invoices to companies thing, but I am just wondering whether you would agree relating to that project, full stop. it would have been prudent to have made provision in the offer letter from the DTI that approval should be obtained The Chairman: I can understand that - in respect of any recourse to off-Island contracts rather than just say, ‘Here is a general requirement. You have got to try Mr Bawden: I am not really concerned about how a to achieve this’ and then leave it to them. private individual goes about his tendering process. I have They then, by whatever means, end up putting that no concern. contract off-Island and you are notified of it as a fait accompli. Would it not have been better to have had an The Chairman: The point here is that there was express provision put in the letter of offer? an obligation for Manx companies to have a fair crack of the whip, and the point I am getting at is if, in fact, Mr Bawden: Yes, I think you are... Rules and the way Manx companies were excluded and an English company we do things were changing all the time. You do pick up on was successful and that part of the backdrop is that the particular aspects, and I guess even since I have gone, in specifications were not in writing and that the tenders related that short time, probably they will have found things and to a different period in time, then, obviously, it is an issue for changed them. Tliey may have changed this, I do not know . us as to whether your requirement for Manx companies to I would not know that, but yes, clearly, as you get experience ' have a fair crack of the whip existed in this situation. ... We have Internal Audit come through and they look at these things as well, as you know - you get their reports Mr Bawden: All I can say, Chairman, is that I presume - and very commonly there are aspects that are picked up you will have a copy of the memo in which I made my which change the way we do things. So, I would not disagree judgment on this particular issue. That would be my with you on that. But there again, of course, we do have to involvement with it. realise - and I think it probably has happened in this in the past - that we do try to make sure that companies do adhere The Chairman: I can put the next question, I think, to Mr to the conditions of the offer that they are given and they run Kelly - it is part of the same question, Mr Kelly - because the risk of us saying, ‘Well, sony. We are not satisfied in this I think the documentation shows that you have knowledge case’ and that part of their grant will not be paid. of this particular point. I am just going to ask you whether So, they run that risk if they do not get our approval you can confirm that the DTI only received the tenders after before. In this case, they did not, but when it came to light Allied Steel had been appointed and commenced work, that it was looked at and, luckily for them, a decision was made your first knowledge of the tender situation was after they that it was reasonable in this case to pay them. But there had been appointed and after they had started work. was the possibility that I could have made a decision the other way. Mr Kelly: Yes, it came to light after a payment was made to Island Studios and we realised that these were not The Chairman: Yes. Thank you for that. on the approved contractors’ list. That is when we contacted If I could now just clear this question about the siting of Island Studios to - the film studios in the north, at approximately the same time
Tynwald Sub-Committee of the Standing Committee on Expenditure and Public Accounts on Island Studios Limited - Evidence of Mr K B Bawden and Mr D Kelly Oral Evidence SUB-COMMITTEE, WEDNESDAY, 12th MAY 2004 65 TISL there was an interest shown by another company to put a the proposition. That is what was evaluated. But what has film studio at Balthane, I think it was, and then there was this transpired is something quite different. What has transpired proposition here for Lezayre. Was there a decision taken that is that, in fact, the investment is held by two individuals, not the film studio.,. You have explained, of course, the need for by these Companies. one. There was a decision there that you required one, but was there a decision taken that it should go in the north? Mr Bawden: Yes. My understanding was that it was going to be Mr Westacott and Mr Napier-Bell. Mr Bawden: Consciously, no. We had already, as I said, had this television series made in a property at Balthane, The Chairman: But that is not the basis of the assessment so it was not said, ‘Oh, we must have a film studio in the provided by Emst & Young, and that is not the basis of the north. ’ We happened to have identified a site at Jurby where, business proposal. They quite clearly stated it would be held as you know, there was plenty of land and such. That is one by these two Companies. (Mr Bawden: Yes.) The point I thing that is needed. When it came that we had these two, I am getting at is: were you advised of this change from the think they were looked at on their own merits, particularly holding being between the two Companies, switching to, in involving, I think, the principals involved and that sort of effect, the two principals of those Companies on a personal thing. In the back of my mind, I would not mind admitting basis? Was that sanctioned by your Department? that it was probably attractive to... If the one in the north of the Island made sense, then that would be the one I would Mr Bawden: As I say, my understanding was that it was have thought made more sense for the Island in economic Mr Westacott and Mr Napier-Bell who were the principals terms, because it is no secret that the north of the Island behind it. I have to say that our people’s concerns are needs economic development and more investment. I am normally the other way round, when people are hiding behind not afraid to say that. company names. If they are there as individuals, I do not see that as a disadvantage in any way. The Chairman: The point I am getting at is whether there was in place a firm policy decision that it should go The Chairman: It may or may not have provided the to the north of the Island and to what extent, if at ail, that DTI with greater security or assurance. influenced the decision between the two applicants. Mr Bawden: Our security was - Mr Bawden: No. There was no... We did not say, ‘Our policy is that a film studio that is built goes in the north of the The Chairman: But the fact remains that that is not what Island, so we will back this one.’ No, it was not like that. the proposition was. The proposition was that it would be held by these two Companies. The Chairman: Yes, okay. You have explained to us, of course, that you relied, virtually exclusively, upon the Mr Bawden: Yes. I think various things like that evaluation done by your consultant, Ernst & Young, in terms probably did change as the thing went through, but I do not of the decision on this matter, so if I could just switch now think they made any material difference to the project. I do and pick up some of the points on that Emst & Young report not see that it is - to see if you can help us there. The report by Emst & Young refers to a partnership between Lough House and Edit-Hire (Technology) Limited; The Chairman: There is also reference there to lighting that is the proposition, (Mr Bawden: Yes.) and that is what companies who have established subsidiaries on the Island they evaluated it against? Firstly, were you aware that Edit- tendering for business. Have you any knowledge of what - Hire (Technology) Limited went into voluntary liquidation on 10th November 2000? (Mr Bawden: No.) Would you Mr Bawden: VFG would be the lighting company, I expect Emst & Young to have checked the standing of presume. the Company as part of their evaluation? (Mr Bawden: Yes.) You would have certainly ... Certainly it was your The Chairman: Who dropped out of the equation in understanding that that would be part and parcel of their terms of investment earlier on, that is the Company you are responsibilities? referring to? (Mr Bawden: Yes.) Are they subsidiaries? (Mr Bawden: Of?) Is VFG a subsidiary? Mr Bawden: Yes. The background of all the people involved, yes, certainly. I have no recollection of that. Mr Bawden: Oh, of these people? No. They are separate altogether. The Chairman: Okay. Ernst & Young have advised us - or the witnesses that have come forward, that we have had The Chairman: Right, okay. Again, setting aside this come forward - that they did not carry out any company question of whether the investment is in the name of the searches at all. Do you consider that to be a thorough Companies or the name of the individuals, the position was discharge of their obligations to you? that Lough House or the Westacott investment was going to come in through the land and buildings and the Edit- Mr Bawden: Unusual, I would have thought, yes. Hire/Napier-Bell investment was going to come in through the provision of equipment. Was that your understanding The Chairman: Again, the proposition was that of it? (Mr Bawden: Yes.) Do you consider acceptance ownership of the Company would be split between Lough of equipment as capital in the context of this particular House 64 per cent and Edit-Hire 36 per cent. That was Company to be a safe proposition?
Tynwald Sub-Committee of the Standing Committee on Expenditure and Public Accounts on Island Studios Limited - Evidence of Mr K B Bawden and Mr D Kelly 66 TISL SUB-COMMITTEE, WEDNESDAY, 12th MAY 2004 Oral Evidence
Mr Bawden: Following getting opinion on the value The Chairman: That is part of what we are concerned of that equipment I would not have just assumed it myself, about. because I would not have had any knowledge of the value of this type of equipment. But again, my recollection would Mr Bawden; - real estate. be that I would expect that I would have asked for a further opinion on the value of that equipment that was being put The Chairman: Put it this way: did your valuation take in as capital. As long as that valuation was okay, then there into account the extent to which this equipment would be is no basic difference between people putting money in and quickly outdated? then buying the equipment or buying the equipment and putting that it in instead of investment, is there? Mr Bawden: The report I had valued the equipment for the purposes that you are talking about, an investment in the The Chairman: Could I just put two points to you in Company. Mr Westacott had accepted that that, in effect, relation to that? The first one is, of course, that the evidence was worth 35 percent, roughly, of what he had put in of the that has been given to us would indicate that, in point of Company. Until they had a company set up, that was the fact, the large part of the editing process is being done capital of it. I do not see where the link is. You are trying off-Island, and, therefore, one has to question the worth of to make a link between that and our assistance. There is no equipment being put into this venture and certainly being link between that and our assistance at all. put in as capital. TTiat has to be questioned. Were you aware of the extent to which editing would be done not here but The Chairman: There is a fairly obvious link, because off-Island? they were paid grant money on the equipment.
Mr Bawden: In film work, yes, certainly. If you put Mr Bawden: Right, yes. equipment in, I would say, you have got to think this is a facility. They do not make the films here. (The Chairman: The Chairman: So the link, I would have thought, is transparently clear. No.) It is other people who come in and use that facility. Mr Bawden: Are you are suggesting that, for any The Chairman: So, what is the worth of putting that modem equipment which many companies buy, whose equipment in if it is not going to be extensively used? second-hand value obviously goes, ‘like that’, and which can become obsolete in two or three years’ time, we cannot Mr Bawden: I think if you think of any business, Mr give a grant on it? Chairman, if you put equipment in and you want people to use it, if they use it, they use it, and if they do not, they do The Chairman: Well, that is the question which we will not. You cannot make people... They come here to make a be asking you - film. They are using other facilities up there. Mr Bawden: It is the proper price of the equipment when The Chairman: I have no problem with that. The the grant is paid, and that is the whole basis of the investment problem I have is that there was an acceptance on your part, that is being made. on your Department’s part, that this equipment could be considered as capital for the investment. The Chairman: I hear your explanation on it, but just answer that last-question: did you, as part of the brief in Mr Bawden: And we got a valuation on that equipment. obtaining the valuation of the equipment, draw the valuer’s (The Chairman: Yes.) That equipment is worth - attention to the extent to which editing would be done (Interjection by the Chairman) You are saying it is not being off-Island and the extent to which equipment would be' used. I do not know whether it is being used or not, but - outdated?
The Chairman: That comes to the second point. The Mr Bawden: No. As I say, when we give a grant to a evidence we have is that a significant part of this equipment,.. company, yes, we assume that the equipment is going to be Such is the movement in the state of the art that, in fact, it used and it is going to be successful. You have to appreciate is virtually out of date, I think, (Interjection by Mr Bawden) that we are trying to make things happen in the DTI - we before it is brought in, and, therefore, to accept that type of were, and I am sure they still are. We are there to try to equipment as value, as capital for the Company, seems to encourage people to invest and to make things happen. It is be a very questionable proposition. not always a success, Chairman. (The Chairman: No.) We cannot guarantee that. Mr Bawden: I disagree. The Chairman: No. Thank you for that. You said you The Chairman: You are happy with - were not aware that Edit-Hire had gone into voluntary liquidation, so there is no point in me asking you that Mr Bawden: I am happy. We had the valuation at the question. Are grants available to contributions to share time, and the main concern is for Mr Westacott, I would capital? have thought, that Mr Napier-Bell got 30-odd per cent of the Company for that. Our security was not on that equipment; Mr Bawden: Not directly. Are you trying to say that our security for the £700,000 which you are concerned about that is what happened because we gave a grant on this is on the - equipment? I would have looked at it more logically and
Tynwald Sub-Committee of the Standing Committee on Expenditure and Public Accounts on Island Studios Limited - Evidence of Mr K B Bawden and Mr D Kelly Oral Evidence SUB-COMMITTEE, WEDNESDAY, 12th MAY 2004 67 TISL said, ‘If somebody puts in £100,000 which is then used under the terms and conditions of Government financial to buy equipment, we would give the 40 per cent grant, assistance there is provision made that a representative of wouldn’t we?’ the Department is to be given the opportunity to inspect the plant/machinery/buildings in respect of which assistance is The Chairman: This is not quite the same situation, is paid prior to payment of such assistance. I am just trying to it? All I need to clarify with you - establish whether that was done.
Mr Bawden: The result is the same, isn’t it? Mr Bawden: I do not know. I would not know, in this particular instance, whether that was followed up until they The Chairman: Do your orders, your directives, actually went down to check. accommodate - The Chairman: It is not in the documentation that you Mr Bawden: Our grants are available for plant and have copied to us, but I am just wondering whether there machinery, equipment - I am sure you have looked at is - the Scheme - buildings, plant and machinery, equipment, first-year expenses - Mr Bawden: I do not know.
The Chairman: And you draw no distinction - Mr Kelly: I do not know, either.
Mr Bawden: We do not, actually. The Chairman: Okay. A number of conditions were attached to the grant aid. What steps were made to monitor The Chairman: - between that and where the plant the compliance with those conditions? Is there a mechanism and machinery is put in as a capital asset in setting up the in place to ensure compliance with those conditions? company? Mr Bawden: There is a system whereby they would Mr Bawden: No, I do not think so, because we were have monitoring visits to the Company. I do not know if aware that that was what was being proposed, and then the you are thinking of any condition in particular, Chairman, approval was given, as you say, on a plant and machinery but, obviously, there were a lot of them on this. For some of grant as well. them, we would have to be provided with evidence before we would actually pay so that it would show that the condition The Chairman: Yes. We will come back to that. Just had been adhered to. That is a general answer; I do not know staying with the equipment for a moment, what information if there is any specific - did you have about the amount of this equipment which was new and the amount of this equipment which was used, The Chairman: To take an example, in this instance, already used equipment? of course, the building work was being done by Stonegate Property. (Mr Bawden: Yes.) Stonegate Property 2000 Mr Bawden: The information I have on that would be on perhaps is a more particular description. There is a question the report that I had in relation to the value of that equipment. about the extent to which there is evidence to establish I would not have it detailed, but I knew that it was not brand new equipment. Actually I have spoken to Mr Napier-Bell whether there was any profit element taken account of within at the studio and looked at it, you know. the Stonegate Property claims. What mechanisms did you have place and what checks were done in relation to that? The Chairman: So, you were aware (Interjection by Mr Bawden) that a large part of it was already dated Mr Bawden: I have appeared before Mr Speaker on equipment? similar things relating to this. My recollection, having looked through it, is that the grants were actually paid on invoices Mr Bawden: I knew it was not brand new, some of it, yes, from suppliers and this type of thing, generally speaking. and that was why we had to be careful about the valuation That is where we were being criticised before, that some of it, the value of it. of these invoices were not from Stonegate Properties but were direct from the suppliers of the materials and this sort The Chairman: And was there a physical check carried of thing, so there is no profit element certainly there. I think out on the equipment which was supplied before there was the other was the labour. There were queries there. Dave an actual authorisation made for the grant to be paid? perhaps could answer better on this, but I think, as far as I am concerned, there was not any evidence of a particular Mr Bawden: You are taxing my memory now, Chairman. profit element. I would not be involved in that if it did happen, but 1 do recall some query on this one and the VFG one that the The Chairman: I am coming to the letter here, the letter equipment would not necessarily always stay in the Isle of of offer
Man. Certainly on VFG that was quite a factor, as they were ‘In the event that the owner's building company is used to provide involved, as you said yourself, in the hiring out of equipment. building services, auditors’ certificates of material costs at cost only These people might have had to do the same, shall we say. and labour only, calculated at the basic rate per hour o f the company, will be allowed.“ The Chairman: Yes, okay. I will just finish this one off here first. The point I am getting at is, of course, that How did you provide... What evidence did you - ?
Tynwald Sub-Committee of the Standing Committee on Expenditure and Public Accounts on Island Studios Limited - Evidence of Mr K B Bawden and Mr D Kelly 68 TISL SUB-COMMITTEE, WEDNESDAY, 12th MAY 2004 Oral Evidence
Mr Kelly: Because they got the auditor’s certificate - so often. I think that because the first film did not come to the Island until 2002, there were not management Mr Bawden: The invoices were there, and an auditor’s accounts initially after the offer was made, but once the certificate to back it up at the end as well. company started its business proper so to speak, there were management accounts submitted. The Chairman: The audit certificate that was provided by their... Which audit are you referring to? Their or - The Chairman: Right, so there was a comparison done at that stage? Mr Bawden: I assume it was Island Studios, yes. Mr Kelly: A comparison to? The Chairman: It is their own audit certificate? The Chairman: Of these documents that I refer to here. Mr Bawden: Oh, yes. (The Chairman: Right.) I cannot You are saying there was a comparison done, but it was at think who else’s auditors - a later stage. The audited accounts and the management accounts with the grant application and business plan. The Chairman: No. I am just wondering whether you had - Mr Bawden: Clearly, when the grant was being paid, during a construction phase of the thing, they were not Mr Bawden: No. We would not - operating as a film studio at that stage, were they? You would not be when you are building it The Chairman: The point is whether or not - The Chairman: It is a question of what the proposition Mr Bawden: Clearly you have got a member of the was and what eventually transpired. profession here. We would not doubt the word of any competent or reputable auditor. (The Chairman: No.) It is Mr Bawden: Yes, I think the building... One of the major their own company - problems was - and of course there were cost overruns, which we did not become involved in - that there were The Chairman: I am just wondering if there was any major overruns on the building project caused by various mechanism set up by yourselves, having regard to the fact factors: planning was one of them you have mentioned, and that this was an in-house company that was going to build it, particularly bad weather, if you remember that winter, which to monitor and ensure that there was not de facto an element I know caused a lot of delays and extra costs to them. So, of costs built into this. (Interjection by Mr Bawden) And you yes, we were aware that the whole thing was dragging out, were relying on that? but, as I said, there were not any management accounts as such, as an operating business, because they were not in a Mr Bawden: That condition and the auditor’s certificate. position to operate. (The Chairman: Right.) That is quite a common - The Chairman: They were not functioning? (Mr The Chairman: As a general - (Interjection by Mr Bawden: No.) The business plan stated there would be three Bawden) Yes, okay. The auditors have said here that they full-time staff permanently employed by the studio, who have qualified this, of course. They said, would look after the running of the facility, and that these positions would be drawn from the Isle of Man labour pool. ‘The scope o f our work cannot be conclusive in determining whether Has that taken place? expenses for which grant moneys have been claimed are bona fide expenses o f Island Studios Limited. Rather, due to the obvious physical limitations, it is only possible to ascertain whether (he goods, including Mr Bawden: I would not be aware of that at this stage. ^ labour and equipment and plant, could have been used for the purposes o f constructing, and the future operation of, the Island Studios.’ The Chairman: Did the Department check to see if it has taken place, whether that has transpired? So, they are not providing that assurance. Mr Bawden: It was not a condition. That was part of the Mr Bawden: Yes. I think that is quite normal. No auditor report. Yes, I am sure there are local people employed down is going to go through every single invoice and say, ‘Oh, here there. There is quite a little complex there now, but it was not is one here. This was actually relating to one of the residential a condition that we put on that said, ‘You must - properties you are buying. ’ You would expect that The Chairman: It was their proposal. The Chairman: Thank you. Did you compare the audited accounts and the management accounts with the Mr Bawden: Yes, it was part of their plan. grant application and business plan? Was that done as part of this mechanism? The Chairman: And it is on the basis of that, amongst other things, it was all evaluated? (Mr Bawden: Yes.) You Mr Bawden: This is following the award and is during are saying that if it did not transpire, it is of no importance payment of the grant that you are talking about, aren’t to you, it is of no consequence? you? Mr Bawden: One would expect that it happened. Mr Kelly: We got the management accounts every Probably there would be at least three people working there,
Tynwald Sub-Committee of the Standing Committee on Expenditure and Public Accounts on Island Studios Limited - Evidence of Mr K B Bawden and Mr D Kelly Oral Evidence SUB-COMMITTEE, WEDNESDAY, 12th MAY 2004 69 TISL
I would have thought, and there is no reason to think that be just marked on inspectors’ sites as a site that they should they would not be local people, but - check up on, but it was not up to me, particularly, to tell them to go and check any one or other particular site. We The Chairman: But you do not - only had, at the time, probably one, if not two, inspectors of our own, so with the hospital to check - Mr Bawden: It is not a - The Chairman: You are not aware of whether there were The Chairman: The Department are not aware of the any sorts of checks made? situation? Mr Bawden; I am not aware there were any particular Mr Bawden: - major factor. problems in relation to this site, no.
The Chairman: Okay. The Chairman; Are you aware of whether any checks were done on this site? Mr Bawden: More of an information thing, I think, in the report to give an indication that it was only going to be Mr Bawden: I am not aware. a low level of employment that was going to be created, not a major creator of jobs per se. The Chairman: You are not aware of that. (Mr Bawden: No.) Okay. Right. Just bear with me one moment, please. I The Chairman: Just backtracking again to Stonegate am backtracking a little bit, but I want to make the position Property 2000, we have spoken about your reliance upon the absolutely clear about this. Such expertise as was available audit certificate. The issue of whether or not any profit was to carry forward this project, film company expertise, you made by Stonegate Property 2000: what satisfaction do you intimated that you would have expected that to come through have, as a Department, that no profit was, in fact, made out Mr Napier-Bell? (Mr Bawden; Yes.) Principally? In the - of the building of the studio by Stonegate Property 2000? Mr Bawden: The whole basis of this was that, in effect, Mr Bawden: I think, certainly with all the evidence we they were relying for their business on companies that were have seen in relation to not only the auditor’s certificate but being brought to the Island by the Film Commission to actually the invoices and such on which it was paid, there is make films. As I say, their expertise was not required in the no evidence to suggest to me that there was any great element film industry per se but in the provision of a facility, which of profit. The other point, of course, is that if they had gone was - through the normal process and had a company to build it, there would have been an element of profit anyway. The Chairman: That is what I am referring to.
The Chairman: Yes, but it is your condition I am Mr Bawden: Do you see what I mean? (The Chairman: referring to. Yes.) And they were relying on us to bring them their business. Mr Bawden: Yes, but we indicated what would satisfy us that that was in relation to that condition, and they have The Chairman: But 1 am assuming that if you are going satisfied us. to build a film studio, somebody within that project needs a significant amount of knowledge about the film industry The Chairman: And that brings us back to the auditor’s and what they need in terms of their studios and so on. certificate. Certainly, if I am putting money into it as well, I would be very interested in it, and that is the angle - Mr Bawden: They would say to us, ‘How are we going to prove it to you?' and we would say, ‘By production of an Mr Bawden: As long as the film studio was right, that auditor’s certificate. ’ That would satisfy us - and they have was our main concern, (The Chairman: Yes.) that it was provided it. suitable for its use.
The Chairman: It has transpired that, of course, persons The Chairman: Yes, that is the point. were working on the site who did... I will put this question first: what action did the Department take, if any at all, to Mr Bawden: And there were a lot of people who were ensure that persons on the site had the appropriate certificate coming over making films and who were prepared to give under the Certification of Craftsmen Scheme 1990? advice on that. (The Chairman: Yes.) Of course, you know - Mr Bawden; This would be treated just as any other project. In fact, my guess would be that the situation The Chairman: Just carrying on with that, in the with Government projects at the time would take priority, business proposal it stated that Mr Napier-Bell, whom we Government’s own capital projects, where it is a specific are largely hanging our hat on, would be a director of Island condition, of course, as well. I think you are aware too, Studios Limited, where, of course, he had a shareholding, Chairman - 1 will be honest here - that there has never been a but he states specifically in the proposition, and it was great deal of resources available to police all of the sites. We evaluated on the basis, that he would be a director of the all know the stories of the site at the hospital and elsewhere Company. Are you aware that he is not a director and still in relation to this particular problem. My guess is it would is not a director?
Tynwald Sub-Committee of the Standing Committee on Expenditure and Public Accounts on Island Studios Limited - Evidence of Mr K B Bawden and Mr D Kelly 70TISL SUB-COMMITTEE, WEDNESDAY, 12th MAY 2004 Oral Evidence
Mr Bawden; Not specifically that... I am not aware that and clearly there is a lot of difference between the desirability he still is not, that he is not now, no. of the two sites. All of these sorts of factors came into it. It was not just the principals, but neither of them were people The Chairman: He never has been. Up until very recent who had a long history in the film industry - both developers, times, apparently, he is still not a director, though he is... In I think. The other one is J R Creer, so... the context of the management and the ability to influence, he has not assumed that position. The Chairman: Okay. Now I will see if my colleagues have some questions for you. Mrs Hannan, do you have Mr Bawden: Yes. I was not aware, as I say. I will not some questions for us? pretend that I was. As far as I can understand it, part of the problem that we have had in this is that the whole operation Mrs Hannan: Could I ask about which came first, the is done on a slightly ‘loose’ basis, I suppose. That is where valuation or the payment of grant? Do you have dates of the we got the queries on Stonegate Properties or Stonegate payment of grants? Properties 2000. The way Mr Westacott operates the business, you know, is... (The Chairman: Yes.) It is all his, Mr Bawden: I do somewhere. as he sees it, most of the money is his, and so he is making decisions and whether he is making them in one name or Mr Kelly: July 2001 was the first claim for payment. another is not a problem. He says, ‘Yes, Nick will be a director’, and I am sure he is involved in making decisions Mrs Hannan: July 2001? about it, but never getting round to making him a director does surprise me. Mr Kelly: Yes. i The Chairman: Yes, I can understand that concern. Mr Bawden: So, the valuation came first. The other reason why I am focusing on this question of the expertise, the film expertise, available to Island Studios Mrs Hannan: The valuation came first. The valuation is because one of the reasons for rejecting the Creer was dated? proposal was that they would have to be reliant on the Film Commission because they did not have the expertise to Mr Bawden: I say it was first because I k n o w it says carry it through, and it is difficult, in some respects, to see here that on 26th June the signed debenture for a charge a great difference between what was on offer - and there was created and returned to the Attorney General: ‘Grant may be other considerations - from the Creer application under charge with the Government Valuer’s valuation of in terms of the expertise to steer that project and what was £1.75 million.’ That was on 26th June that the debenture available here. was all finalised, so we obviously had the valuation by then. According to these notes - Mr Bawden: I think again, Chairman, that... I keep saying ‘from my recollection’, but that is all it is. That was Mr Kelly: It does not actually say, but I think you have a concern of mine: what was the difference between the two probably got a copy of them. and why were we going for one as opposed to the other? From recollection, we looked at that quite closely. I asked for particular information in relation to the Creer one, which Mrs Hannan: I think the valuation was later than that. I believe had been dismissed, but we had not actually seen any particular report to explain why it was being dismissed. Mr Bawden: It says here 24th October, but that cannot be right. It was more or less dismissed before it got to us. i I looked at that report, and I have to say, probably as \ much as anything from our own security point of view, there Mrs Hannan: A short time before that, Mr Ennett said were aspects of this, the one which was backed, that made that he had been asked to go and do a valuation, and - it a lot more attractive. We were able to put conditions on - quite strong conditions, frankly - in respect of the security Mr Bawden: On 24th October, the Government Valuer and such. As Ray Ennett said, we were securing ourselves confirms his valuation of land and buildings at £1.75 million, against 47 acres of land and property in this case. but we clearly had it We had that valuation. Clearly, to me, in the film industry, there was a great deal of risk going into this, which was why we were quite Mrs Hannan: He was asked to value in the August of surprised two people were prepared to go along. I think 2002. we made it quite clear, to certainly Mr Westacott, that we could not guarantee that Government would be providing Mr Bawden: He must have provided it before that, funding in the next two or three years’ time towards the film with due respect. I can only go on the notes, as you know. industry and there was a lot of risk involved in this and he 1 have just - had to accept that. He was asking, 'If I go ahead and do this, can 1 guarantee that if I want to develop further, you will Mr Kelly: That could have been - be backing me further?’ and we said, ‘No. We will not give you any sort of guarantees like that.’ So, there were various Mr Bawden: In June 2001, the Government valuation factors like that. (The Chairman: Yes.) As I say, a much is £1.75 million according to these notes, and these will be better site, I think, to... We visited Balthane, but you have to right. You have been provided with that. imagine developing what we think a film industry could be, Mr Kelly and Mr Corlett?
Tynwald Sub-Committee of the Standing Committee on Expenditure and Public Accounts on Island Studios Limited - Evidence of Mr K B Bawden and Mr D Kelly Oral Evidence SUB-COMMITTEE, WEDNESDAY, 12th MAY 2004 71TISL
Mr Corlett (from the public area): I believe so. Mrs Hannan: Yes. Did it - ?
Mr Kelly; That could have been the telephone Mr Bawden: Yes, we do say that they have to have conversation I had with Mr Ennett. When we asked for a planning permission and such first. first charge from the Attorney General, the Attorney General asked us to get something from Mr Ennett, the Government Mrs Hannan: Was a signed certificate submitted to the Valuer, and I think that is when 1 wrote down the note on Department? (Mr Bawden: No.) Why would it not be? the file. Mr Bawden: Because we say that the condition is that Mrs Hannan: Mr Ennett said that he went to look at the they have to have their proper planning permissions, and I land on two occasions, and he said it was round about this think we all know that in this day and age... I presume you particular time, this October time. are referring to the problems they had with planning. When we were aware of this, obviously we spoke to the planning Mr Bawden: I can only go on what I have just been people ourselves. I spoke to the planning people myself handed, but certainly my recollection was for an earlier stage personally over this and was told that there was nothing to than just the end of October 2002 that we knew there was a worry about, they were minor things. Apparently, it is not valuation of £1.75 million, because we actually thought that unusual for people to have to go to retrospective planning was quite low, frankly. permission for slight variations in the project.
Mrs Hannan: The valuation was, you say, 26th June? Mrs Hannan: But they did not have planning and they did not - Mr Kelly: That is when the debenture was signed. Mr Bawden: Oh, they had planning. Yes, they had Mr Bawden: That is when the Debenture was signed, planning. and the notes say that the Government’s valuation is £1.75 million. That is dated 26th June 2001. That is when the Mrs Hannan: But it did not conform to their planning debenture was created, the £705,000. approval, so they did not have planning for what they had done. Mrs Hannan: Obviously, it was brought to your attention. Was it a concern to you that there was a second Mr Bawden: They did have planning. When this came charge on Island Film Studios? to light, I spoke to the Planning Officer and he said that he had been down and looked at it and did not consider it major Mr Bawden: There was a concern. That came after our at all. They were very minor points which would be dealt debenture had been created, not before. The bank wrote to with via a retrospective planning application. us after our debenture, saying if they could take a second charge. Mrs Hannan: Right. So, although it is a condition and it is signed by the applicant, there is actually no enforcement Mrs Hannan: But you were content with that? (Mr there, there is no certificate which somebody - Bawden: Yes.) In relation to the offer letter that was sent to Island Film Studios and, I think, signed by them, there Mr Bawden: Enforcement of planning is up to the was a mention of grants being paid on F103. Were all grants Planning Department. paid on form FI03? Mrs Hannan: No, but it actually appears on your grant Mr Bawden: Form F103, along with their invoices application form that it must conform. and- Mr Bawden: No. It says they must have valid planning Mr Kelly: That is the application for payment form, just permission, doesn’t it? to be signed. Mrs Hannan: But there is - Mrs Hannan: Right. And all of the grants would have been submitted on an FI03? Mr Bawden: They had planning permission.
Mr Bawden: Yes. For each claim they put in, they have Mrs Hannan; Before a grant is paid - to put an F103 with it. Mr Bawden: They had planning permission. Mr Kelly: Yes, every grant - Mrs Hannan: So, the developers do not have to sign Mrs Hannan: Right. The grant application form actually anything to say that they conform? It actually says ‘that they states that all byelaws and planning, various issues such as conform to’ byelaws, planning and issues such as that. that, should conform before grants are paid. Was that the case? Mr Bawden: We are a Government Department, so we do require people to comply with the law of the land, and Mr Bawden: It is the case that that is what the form says, that is was they are basically saying. They had planning yes. Was that the question? permission. The difficulties came, as I understand it, in
Tynwald Sub-Committee of the Standing Committee on Expenditure and Public Accounts on Island Studios Limited - Evidence of Mr K B Bawden and Mr D Kelly 72 TISL SUB-COMMITTEE, WEDNESDAY, 12th MAY 2004 Oral Evidence respect of whether the building had actually been put exactly Mrs Hannan: Okay. You said about the service that the in the right place and this sort of thing, small issues like that, training there was like in-service training. In this day and which we would require them to address with the planning age, we develop NVQs and things like that, (Mr Bawden: authorities, and that is part of the whole process. Yes.) where there are supervisors and people like that. Would that not have been involved in something there? Mrs Hannan: But it actually appears in your grant application that you... So, it does not really relate to the Mr Bawden: Yes, that should be. I would agree. I would grant. You are - be surprised if they did not end up with an NVQ, certainly, yes. Mr Bawden: It is pointing out to them that you have to have valid planning permission before you can get anything Mrs Hannan; We are not aware of anybody that actually and there are various other things that they have to comply got anything. with in respect of Government rules and regulations. As I say, they did have their planning permission. The difficulties Mr Bawden: Right. As I say, I do not know whether they have had are queries as to whether it is exactly in the anybody was successful or not. Certainly the Training right angle, I think, and things like that. Services Manager will tell you and have details of what the training programme was to be and whether the training Mrs Hannan: They still have not got planning approval, was completed or not or whether the grant was paid all the have they, for what they have got? Is that right? way through or stopped. They will be able to give you that information without any problems. Sorry, I just do not know. Mr Bawden: I am a year out of date, I am sorry. Certainly It is no use me trying to surmise. at the time I was involved, as I say, I was informed by Planning that these were not major issues, and I confirmed Mrs Hannan: Would that have been something that that with the Director of Planning, who visited the site the Department of Trade and Industry would have been himself to check up on.There are probably memos on our concerned about, that people would do two or three years file in relation to that. I would have thought so. without a qualification?
The Chairman: Just on that one, I do not think that the Mr Bawden: Yes, because you expect something to be valuation could have been before that date because of this recognised at the end, and I am sure that is what the Training letter, the letter of 24th October 2002, which is the Treasury Services Manager, hopefully, will confirm. letter to Ray Ennett, on which, of course, there is that hand written note: Mrs Hannan: Could I ask the cost, if you have got it, of the contract that the Department of Trade and Industry ‘I have informed Ray and got the breakdown for the figures.’ has with Ernst & Young in relation to advice on the film industry? I do not know whether that is Mr Kelly’s or... Mr Bawden: It is a normal contract. I do not have the Mr Kelly: I would think so. details off the top of my head, but I am sure that there is no problem in having a copy of that. The Chairman: Yes. That is dated 25th October 2002. That presumably is the earliest date for that valuation. The Chairman: We can get that.
Mr Bawden: My only recollection is when I was told Mr Bawden: Yes. of a valuation of £1.75 million I thought it was quite a low one when you considered what was there. I thought it was Mr Corlett (from the public area): I am sorry, Mr realistic, anyway; I did not think it was over the top, should Chairman, but possibly when I am - (The Chairman: I say. Yes.) I may be able to provide some additional information I am sorry, I was not trying to mislead anyone about the to help. dates, Chairman. I was reading what... The Chairman: Thank you. The Chairman: That’s fine. Mrs Hannan: Thank you. Mrs Hannan: In talking about Lough House and the training there, you mentioned the Training Manager. Who Mr Corlett (from the public area): I am conscious I is the Training Manager in the Department of Trade and am trying to stay silent. I am sorry, but... Industry? Mrs Hannan: Is there a general review of grants under Mr Bawden: It is currently a Mr Chatwood. I think the Department of Trade and Industry, in your recollection? possibly it may have been Mr Woodward... It would either Was there a general review of how grants were awarded be Mr Woodward, who has now stepped from that, or Mr and... Chatwood, who is the... he is still there! Mr Bawden: Oh, yes. That is ongoing, but certainly Mr Corlett (from the public area): Oh, both still there! we would look and see whether they are still relevant or (Laughter) not from time to time and whether they are... As I say, if
Tynwald Sub-Committee of the Standing Committee on Expenditure and Public Accounts on Island Studios Limited - Evidence of Mr K B Bawden and Mr D Kelly Oral Evidence SUB-COMMITTEE, WEDNESDAY, 12th MAY 2004 73 TISL we are talking about the general principle of giving grants wishes to make it clear that it is not committed to any funding other or the terms and conditions and the way it is operated, than the £705,600 offer on 16th February.' certainly they both are looked at quite often. Certainly the terms and conditions and the operation, the administration, So, that was quite straightforward, was it, before the - of it is changed, as I mentioned to the Chairman, quite often. As you get comments from people like the internal Mr Bawden: Yes. I think that is what I was referring to auditors and external auditors and our own experience, we again when I was speaking to the Chairman earlier. We had will operate and change the way things are administered as to make it clear to these people that the funding for the film we go along. commission and the investment in films was done a little bit ahead but we could not guarantee that into the longer-term Mrs Hannan: As the Chief Finance Officer in the future, and certainly to any question in relation to whether Department of Trade and Industry, were you happy with he could come back for more money, we said, ‘You could the grant system? ask, but we are not going to give you any guarantee that you will get any further funding beyond this.’ Mr Bawden: Yes. Over a large number of years, as I think you know, it has been very successful, good for the Mrs Hannan: Right. The offer letter to Mr Westacott is Island. I have no reason to think that is not the case. If I can dated the same date, I think, 16th February 2001, and it is just say, in general terms, the whole principle is that we are actually signed by Mr Kelly: trying to encourage people to make investment, to do things, ‘In addition, the following conditions apply:’ to make things happen. It is not the Government that is making this happen; it is these entrepreneurs, these private - they are pretty straightforward: individuals. And in each case, the 60 per cent that they are putting in, as opposed to our 40 per cent, is always a bigger 'there is no obligation on the part o f the Department to continue to percentage of their wealth than the 40 per cent is of ours. It fund film projects beyond the current financial vote; the Department is a lot of money to these people, and they are putting it in be provided with the first charge' and they are risking it all. I have seen quite a few lose out, of course; they do from time to time. Yes, I have nothing - well, we know that happened; but admiration for the people that put their money on the line and try to make things happen as opposed to, shall we ‘auditor certificates to be provided to ensure that equipment sold by say, Government systems, which seem designed often to Edit-Hire is at value and does not include a profit element.' militate against that You are satisfied that that was the case? Mrs Hannan: Can I ask about work permits? Would you have been concerned that work permits were not applied Mr Bawden: Again, from recollection, the paper I got for by workers that worked on this site when it says clearly actually said that, if anything, some of the equipment, they in the - thought, was undervalued rather than the other way round. I am pretty sure that was the inference of the... Mr Bawden: Yes, I was concerned about that being the case. Yes, I was concerned. Mrs Hannan: And then we go on about certificates of craftsmanship and valid work permits. If that is a condition Mrs Hannan: Would anybody check up on that, that of the payment of grant, why is that not followed up by the people working on the site conformed to...? Department?
Mr Bawden: As I have already said to the Chairman, Mr Bawden: I think it is part of our standard this site was no different to any other building site or work conditions. site. They are subject to the law of the land and they are subject to inspections if they are picked out for an inspection Mr Kelly: Yes, it is part of the standard conditions. by the inspectors, whether they are DHSS inspectors in relation to national insurance, planning inspectors or work Mr Bawden: It is a standard condition that you have permit inspectors. Unfortunately, we only had one or two to... It is pointing out to people... Often, of course, you work permit inspectors, and they are... I would certainly appreciate that when these offers are made, they are made not interfere with the work of the work permit inspectors, to people who are new to the Island, they are starting up in although they are in my Department. They would pick their business, and it is another opportunity to point out to them own sites to go to, and I think they were probably inundated that there are rules and regulations here relating to work with complaints and problems in relation to the hospital permits and supporting our own industry and that you have project at this particular time - that would be my guess, to take account of these as a recipient of any offer. because it was during that building phase - so I have no idea whether they were inspected or not. Mrs Hannan: What are conditions if it is just drawing to somebody’s attention the - Mrs Hannan: There is a letter on file which relates to the offer of financial assistance, which is dated 8th March Mr Bawden: We expect them to adhere to them, of 2001, where it says: course. I am not saying we do not. But we have not got the resources to chase up every single recipient of grant ‘To clarify the condition further, I should point out that the Department in relation to this sort of issue. If they are brought to our
Tynwald Sub-Committee of the Standing Committee on Expenditure and Public Accounts on Island Studios Limited - Evidence of Mr K B Bawden and Mr D Kelly 74TISL SUB-COMMITTEE, WEDNESDAY, 12th MAY 2004 Oral Evidence attention, we follow them up. actually meet him?
Mrs Hannan: This is over £700,000 worth of grant; it Mr Bawden: Yes, I have met him. is not... (Mr Bawden: Yes.) In the acceptance of the grant as well, Mr Westacott actually accepts the conditions laid Capt Douglas: You have met him, yes? down, does he not? (Mr Bawden: Yes.) 1 have got just one more, I think. This has been signed Mr Bawden: Yes, as I say, I did go down and have a look by Mr Westacott. This is the terms and conditions of at this equipment. I also met him when they had an opening Government for financial assistance, and it actually says: of the thing. He was at that, too.
‘On completion of the building, the applicant will certify that the Capt Douglas; I was going ask about the equipment. We building has been erected and taken over in a satisfactory condition seemed to have difficulty in finding somebody who actually and conforms to the specifications and byelaws of the relevant saw it and said, ‘Yes, it is physically here.’ Is it possible that local authority and the Department of Local Government and the Environment.’ there would be actually somebody in your Department who would physically have seen it and perhaps - So, do you have a certificate for that? Mr Bawden: I have seen it I went down there and saw Mr Kelly: We did receive a completion certificate from it. DoLGE on 6th February 2003. Capt Douglas: Yes, but you would not be able to say Mrs Hannan: But this is for the applicant to certify. from -
Mr Bawden: He provides the certificate. Mr Bawden: I cannot tell you, no. It had all these slide things on and whatever, lights flashed - Mr Kelly: Yes. DoLGE would give the applicant a completion certificate. Capt Douglas: None of us are experts on that. You could show us something - Mr Bawden: We get it. We get a copy. Mr Bawden: I am not trying to say that I was there Mrs Hannan: So, no applicant has to sign anything to specifically to say, ‘Right, I am here to see that equipment’, say that they conform to these terms and conditions? but he was quite open and said, ‘Would you like to come and have a look at it?’, which we did. A lot of people have Mr Bawden: He signs to say that he will, and the seen it on the opening day. condition, as I understood it there, required him to provide a certificate at the end of the building, which he did. The Capt Douglas: Yes. We have been down. We did not certificate is provided by DoLGE. see it, actually.
Mrs Hannan: It just says that on completion the Mr Bawden: Was that in the studio? applicant will certify. It is not ‘provide a certificate’; it is ‘will certify that the building - Capt Douglas: No. We knew exactly where it was supposed to be, but we did not actually see it, and that has Mr Bawden: It would obviously satisfy that probably caused, certainly me, some concern, because when you are better than him saying, ‘Yes, it is finished’ if DoLGE inspectors paying for something, you want to see that it is there. But have been down and said, ‘Yes, this is completed.’ would there be a document anywhere within the Department( where somebody said, ‘Yes, on such and such a date I went Mrs Hannan: It ‘has been erected and taken over in a down to do the job of checking it’? I know we have got the satisfactory condition and conforms to the specifications’. auditors’ valuation certificate. Surely, if someone is having something built, they know what the specifications are. Are they - Mr Kelly: I think the Director of Finance behind me has got a schedule of where all the equipment is at this Mr Kelly: Well, he was happy enough. He probably present time. asked, ‘Well, how do I comply?’ Capt. Douglas: Right, okay. I think some of the Mr Bawden: DoLGE can send along an inspector and other questions that I have got left over are probably best have a look if they want. addressed, perhaps, to the DTI training people.
Mrs Hannan: Thank you, Chairman. Mr Bawden: As I say, I was not really aware of the link back that far, because - The Chairman: Okay. Capt. Douglas? Capt Douglas: You cannot be aware of everything, I Capt. Douglas: It is nice to have almost all your am sure. Thank you, Mr Chairman. questions asked before you get your chance! Thank you, Mr Chairman. It might seem a strange question, but Mr Nick The Chairman: Thank you. Could I just finish off Napier-Bell was quite a major player in all this; did anybody with one or two things, please? Perhaps Mr Kelly can help
Tynwald Sub-Committee of the Standing Committee on Expenditure and Public Accounts on Island Studios Limited - Evidence of Mr K B Bawden and Mr D Kelly Oral Evidence SUB-COMMITTEE, WEDNESDAY, 12th MAY 2004 75 TISL
me with this one. I am talking about the invoices now, to you. It has got ROOT6 up in the top right-hand comer. grant money being paid out on the invoices. Grant money Yes, that is the document. If I could just give you a moment should only be paid out on the invoices. Was the equipment to read that, you will see it is an undated document and it invoice submitted and was grant money paid out on the refers, of course, to: equipment? ‘Reviewed the pricing in the proposal. All pricing shown is Mr Kelly: It will have been, yes. representative o f the current market price’.
The Chairman: Right, so that clears that point. I am This appears to me to be relating to new equipment, coming back to Mr Bawden now. We have spoken about and I raised with Mr Napier-Bell the question of the word this equipment at some length, but there are still aspects of ‘reseller’, because I thought that might have indicated that it this that leave me a little bit concerned. I have explained, related to used equipment, but he assured me it does not and of course, that Edit-Hire (New Technology) went into that that word ‘reseller’ is simply a substitute for ‘retailer’. liquidation and was in liquidation at the time that this valuation of the project was taking place. Perhaps I should Mr Bawden: It is strange, isn’t it, how different people have mentioned earlier that the information I have is that read things differently? I have just taken ‘current market Edit-Hire (New Technology), which went into liquidation pricing’ to mean the current value of it, not the new price. - albeit voluntary liquidation - had liabilities of £700,000, a very sizeable sum. Later on, of course, it was a different The Chairman: Taken at face value, it appears to relate Edit-Hire that came into the picture; it was Project... But to new equipment, but the end of it is, of course, that some what I wanted to focus on here was: what evidence has the of the equipment is not new. Department received as to ownership of this equipment? Is some of it leased? Are you satisfied that there was proper Mr Bawden: Yes. As I say, my understanding was that it ownership of this equipment and therefore it could be was not all new, so I took ‘current market pricing’ as being accepted for, in this case, asset value for the - the current market value of it. (The Chairman: Yes.) It is not dated, but it is clearly current in the respect that we reviewed Mr Bawden: I take the evidence in the report that the pricing in the proposal dated 1st May from Mr Napier- was presented, that this company or this individual owned Bell and he is talking about that particular one. this equipment and was putting that in as his share of the company. The Chairman: Absolutely, but it is ‘current’ against an undated document. The Chairman: And you are relying - ? (Mr Bawden: Yes.) That does not help us in this respect, (Mr Bawden: Mr Bawden: Yes, it is. That is the one I was referring No.) because the report is referring to a company which, in to that I recalled saying that he said he thought it was below fact, was in liquidation, with £700,000 liabilities at the time the market rate. That is market rate; that is not current price. of the proposal. He said current value.
Mr Bawden: Yes. Certainly I was interested to know The Chairman: This is related, of course, to the pricing more about that - in the proposal. It is not indicative of the equipment which was, in fact, provided. It is the pricing in the proposal. The Chairman: Yes. I am just interested in whether you Anyway, that document stands as it is, but I was just had any evidence of ownership. If somebody is going to put wondering whether you could shed any light on to that. a large sum of money into it by way of investment, if it is not hard cash, where possession is ownership essentially, I Mr Bawden: The proposal, I would presume, is the am just wondering: what satisfaction did you have that there appendix that is provided in the... was the proper ownership with this company, having regard to this backdrop? The Chairman: In the report, which makes no reference to used equipment. Mr Bawden: I was not aware of that backdrop, so I did not think there was any particular reason to query it. As I say, Mr Bawden: No, it just gives what the equipment was, to me, the main aspect of this was an agreement between, from memory, and the value of it. in effect, Mr Westacott and him accepting that equipment at a particular value as an investment into his company at The Chairman: Right. I think we have probably covered the proper value. My concern was that the equipment was all the ground, and 1 thank you for your forbearance and for properly valued, and I took steps to that, but the ownership coming forward out of your retirement to help us. It is very of it - much appreciated.
The Chairman: Shall we just finish on that question of Mr Bawden: I hope my memory has served me the valuation of the equipment? If you look at this ROOT6 reasonably. valuation, you will see that it is an undated valuation. Have you got that document, the ROOT6 valuation? It The Chairman: Thank you both very much, indeed. is an undated valuation. It is attached to your report, the consultant’s report. It is only a half page. We can show it Mr Bawden and Mr Kelly: Thank you.
Tynwald Sub-Committee of the Standing Committee on Expenditure and Public Accounts on Island Studios Limited - Evidence of Mr K B Bawden and Mr D Kelly 76 TISL SUB-COMMITTEE, WEDNESDAY, 12th MAY 2004 Oral Evidence
Mr C Corlett and Ms M Thomson were called The Chairman: Yes, okay. Thank you. at 12.15 p.m. Mr Corlett: I am conscious we have provided quite a Procedural bit, and I am pretty confident that is part of what we have provided. The Chairman: Thank you very much indeed for In terms of building conditions, because of the fact that coming, and, again, I am afraid I am going to have to go a number of issues'have arisen over compliance with the through a couple of preliminaries by asking you if you would various building conditions, with effect from May 2004 we state your name and address and your positions, just for the highlight the conditions in the offer letter as well as some record, because of the recording that has to be made. of them being embodied in the text of the standard terms and conditions. The benefits of that are if we find out, of Mr Corlett: Yes, I am Christopher Lee Corlett course, that subsequently they have not adhered to those of 19 Ennerdale Avenue, Onchan. My current post is conditions, which are legally part of the offer, we then have Chief Executive Officer of the Department of Trade and the capacity to legally request our money back. Then a series Industry. of minor procedural matters: we are always trying to tighten procedures, some of which are identified internally, some of Ms Thomson: I am Ms Marijke Thomson from 2 Fistard which are identified by internal audit. Grove, Port St Mary. I am currently Director of Finance and Development of the DTI, and I hold the professional The Chairman: Thank you for that. What is your policy, qualification letters FCCA, Fellow of the Association of and what action is taken along with that policy, to encourage Chartered Certified Accountants. the recipients of grant aid to use local companies?
The Chairman: Thank you very much. Mr Corlett: Certainly we write it into the conditions. We do request that they use local companies. Most do comply with that. Doing a retrospective analysis, from a sample that we took to investigate specifically this, more EVIDENCE OF MR C CORLETT than three-quarters of funds paid out related directly to AND MS M THOMSON local contractors. Much of the rest we found were specialist matters that required purchase off-Island. The Chairman: Perhaps, Mr Corlett, we can lead off with your good self. The Chairman: Yes. In terms of the competitive First of all, I think you have had an opportunity, since tendering that is involved in this, do. you sight those you have been Chief Executive of the Department of Trade competitive tenders prior to the grant or the approval of and Industry, to look at the functioning of the scheme and the aid? certainly you have had a chance to read up on the paperwork relevant to this particular inquiry. I was going to ask you Mr Corlett: I must confess I am not entirely sure of first and foremost to see whether any changes have been that myself. made or are about to be made in relation to this grant award scheme. Ms Thomson: No, we do not really sight the tenders beforehand. That is due to the company running their Mr Corlett: Certainly the grant award scheme is business in a proper way. We may request it, but it is not always under review, both internally - ‘Can we make general policy to sight it in every single instance. improvements?’ - and from internal audit, who make assessments and make recommendations for changes. As to Mr Corlett: Certainly, at the time of an application, we 1 updates directly resulting from this specific case, I cannot are requesting cost estimates to help us make an informed think of any, but there are a number of changes we have opinion as to likely costs and therefore grant assistance made in the period since this was paid - roughly the last 12 required. We do not request tenders or documentation from to 18 months. tenders at that stage, simply because there is material cost In terms of preparation of claims for payment, we now incurred for both the company and for potential suppliers do try to have more detailed inspection of compliance with providing such tenders, at which stage we do not even know conditions, something that we have given more training to if we are going to be giving them a grant. Subsequent to that, some of our officers on. as Marijke said, we do expect them to comply with good In terms of financial assistance guidelines, we have issued business practice. a comprehensive new booklet to better explain to customers and staff the details of the scheme, the criteria, terms and The Chairman: You see, if you take the situation in this conditions and the factors that affect an application in order particular case, yes, three tenders were obtained - to, obviously, promote the scheme, but also ensure people understand eligibility and the responsibilities upon them. Mr Corlett: This is in relation to Allied Steel?
The Chairman: Have we got a copy of that booklet or The Chairman: In relation to Allied Steel. Three could you send us a copy? tenders were obtained, but they were not against a written specification, which makes it almost impossible to have a Mr Corlett: I am pretty sure, among the details that we like-for-like tendering process, and, of course, they were sent, we sent one. It had a partially red cover. obtained spaced out over a period of a couple of years. It
Tynwald Sub-Committee of the Standing Committee on Expenditure and Public Accounts on Island Studios Limited Procedural: Evidence of M rC Corlett and Ms M Thomson Oral Evidence SUB-COMMITTEE, WEDNESDAY, 12th MAY 2004 77 TISL
seems to me that if a procedure allows that sort of practice anticipated at that point in time. to happen, then there is something that needs to be tightened in the procedure. Mrs Hannan: But we do not know that it was the same. Mr Corlett: Certainly, it was my understanding that the initial quotes were all given at the same time. Yes, they Mr Corlett: Given that it was a verbal quote, absolutely. were in response to a verbal request, but the initial quotes I do not have a recording of those verbal quotes. I do not were all given within a very short space of one another. have a recording of what specifications were given. As I say, Three tenders were requested. It was quite specialist steel- that is unfortunate. structuring work. One Manx firm said they were unable to do such work; another said they could, but their tender Mrs Hannan: And we do not know how much work was was significantly higher than the other - roughly £150,000 involved with any of the quotes, do we? versus Allied Steel of £105,000. When applying discretion and saying, ‘Wherever possible use Manx businesses’, we Mr Corlett: In what regard? would typically say something... With a difference of less than 10 per cent, we would try and encourage businesses Mrs Hannan: In groundwork, those sorts of issues. to use a Manx business. Where the difference is more than 10 per cent, i.e. it is a material difference, clearly there are Mr Corlett: I am afraid I do not understand the question, commercial considerations, and, in this instance, it is nearly sorry. a 50 per cent difference. The Chairman: In the absence of die written specification Mrs Hannan: But we do not know, surely - excuse me, base for the tendering, it is not clear. (Mr Corlett: Yes.) Chairman - if that was the same specification that was given Would it still be DTI policy to accept and put money into to each of the companies. a project where you have got a capital build of call it £1.5 million and you do not even have professional architects Mr Corlett: Absolutely. I do not deny that at all. It is designing the building or engineers? unfortunate that the principal, Mr Westacott, chose not to go for a formal written quotation price, yes. Part of our Mr Corlett: This was an unusual circumstance, in that discussions with him... the principal was an expert in construction, and so we had Part of the application process is, obviously, that we look assurances from him that his companies would manage the at the principals and try to find out about them, and he has construction in good order. We, therefore, did not feel it was certainly got a prudent track record as a successful individual necessary to insist upon a project co-ordinator. in the construction sector. We, therefore, anticipated that he In other instances, where grant applications are doing would, given that background, adhere to good construction new buildings, we have insisted upon a project co-ordinator. practice. It is unfortunate, in this instance, that that is not To think of an example off the top of my head, when the case. Robinsons were building their new facility, that was one of the terms and conditions that we applied to ensure that the Mrs Hannan: Could I also ask about the final price for building was erected in good order. Allied Steel? Wasn’t that a great deal more than...? In retrospect, would it have been better to have a clear single individual as project co-ordinator? Yes, it probably Mr Corlett: Yes, ultimately, and that was... My would. At the time, based on the information we had understanding is that that happened for a couple of reasons. available, we made the judgement call, given that Mr One was due to the planning delays, so work had to stop Westacott was an expert in construction, that we did not need over the winter and then restart afterwards, and that required to specify that as a condition. He had a vested interest in the rework, so marginal expense was incurred over the initial construction, building a studio to the desired spec. quote. And steel prices had increased due to those delays, so again marginal expense was incurred. The Chairman: Mr Westacott’s evidence is, of course, Also, there were changes to the design as a result of that he is not an expert in construction; he is an expert in some requests from Planning. I understand there were insurance who, having retired from insurance, now has further requests about fire safety, all of which were marginal investments in construction. But I think the evidence we have costs which could not have been anticipated in their initial from Mr Westacott is that he is not an expert in construction; quote. he has financial interests in it.
Mrs Hannan: So, really it could not be compared Mr Corlett: If I can put my answer slightly differently, like-for-like with other builders that had quoted for this he personally may or may not be an expert in construction; particular - he owns construction companies who employ experts in construction, and one would, therefore, expect them to do Mr Corlett: At the time, when they had the initial quotes, a proper job. my understanding is that those were like-for-like quotes - The Chairman: Yes, okay. The valuation of projects for Mrs Hannan: But we do not know that. grant aid was done by Ernst & Young, and it is now done by Steven Christian under Gaslight - Mr Corlett: What happened over the subsequent 18 months to two years was materially different from what was Mr Corlett: GasWorks Media.
Tynwald Sub-Committee of the Standing Committee on Expenditure and Public Accounts on Island Studios Limited - Evidence of Mr C Corlett and Ms M Thomson 78 TISL SUB-COMMITTEE, WEDNESDAY, 12th MAY 2004 Oral Evidence
The Chairman: GasWorks Media, When did that change invest in. He will therefore produce a report on such films take place? that comes to the Department. I approve those reports and ultimately the Department approves those reports, whether it Mr Corlett: That was before I arrived. is the Minister or for some monthly departmental meetings. Treasury would then provide concurrence to that - ultimately Ms Thomson: I think that was before you arrived. It the Treasury Minister gives concurrence - that that is a was about November or December 2002. It was just after I film project that we would wish to invest in, based on the arrived. I arrived in February 2002, and it was a few months nature of the film, the principals behind it, the funding et after I arrived, towards the end of 2002. cetera. Then it goes to Isle of Man Film Limited, which is the vehicle that it is convenient for Government to invest in Mr Corlett: Steve Christian and Ernst & Young had been the films in. It provides a ring-fenced legal vehicle separate working closely with us over a number of years, and Steve from Government for which we can then invest in films, and had built up expertise in evaluating such grant applications. the directors are the individuals who are closely involved When he left Ernst & Young, we then formed a separate with with the film work: the Minister for Trade and Industry; his new organisation, GasWorks Media, to provide advice myself; Colin Kniveton, as Financial Controller in Treasury; and guidance on financial applications. Andrew Fingret, as the lawyer; and Steven Christian, as our adviser. The Chairman: What is the contractual arrangement that you have with GasWorks Media and how does that operate? The Chairman: Is there not a conflict of interest here to What is the basis of his relationship with you? some degree? You have got his statutory responsibilities in relation to Isle of Man Film Limited and the objects of that Mr Corlett: We have a basic retainer with him for company - it matters not, in terms of those obligations, that providing advice. In addition to that, he will work on it is owned by Government, because they are still statutory principally film projects these days. The vast majority of and they are imposed upon him - and his commitment and his what he does is film work and so, as part of helping to set functioning, under GasWorks Media, to provide independent up a film project, GasWorks Media will receive a fee, as advice. One seems to feed the other. will Cains, our legal advisers, for helping set up a film. Those costs are deducted from the budget of the film, i.e. Mr Corlett: Yes, one could contend that. they are not a direct cost to Government; they are a cost to the producer of the film. Separate from that, Steve, in his Ms Thomson: May I make one comment? (The role at GasWorks Media, provides advice on some financial Chairman: Yes.) What you have to bear in mind with Isle assistance applications, mainly the very large ones relating of Man Film Limited, if you look at the pure number of the to existing businesses that he knows well, simply because directors, is that the majority of directors - three - are either he had the track record of working with those businesses, MHKs and/or Government officials, so Mr Christian and such as Strix, for example. Mr Fingret are in the minority, so they cannot overrule any decision, and that is quite important to note. The majority Ms Thomson: Or some complex ones or some new of the directors - technology ones, tricky ones. The Chairman: Yes, I understand that in voting terms. Mr Corlett: For the smaller applications, Sheila Thompson, who is a qualified accountant who also used to Mr Corlett: And nothing gets to Isle of Man Film work for Emst & Young and who worked with Steve and had unless it has been approved by both the Department and again several years'experience of doing financial applications the Treasury. assessments, works on the smaller grant applications, and we have a separate financial arrangement with her. The Chairman: Yes, but I suppose you could say that they are the informed minority. The others (Mr Corlett: The Chairman; And the object of this exercise in Yes.) know nothing of the business. relation to the film sector is to provide you with independent financial input, obviously against a backdrop of knowledge Mr Corlett: A little of the business. of the film industry? (Mr Corlett: Yes.) Is Mr Christian not a director of Isle of Man Film Limited, which is a wholly- The Chairman: Yes, okay. I understand that relationship. owned Government company? In the DTI plan, part of the Government plan, it said there that you have got a performance target of generating a local Mr Corlett: He is indeed, yes. spend of at least £ 10 million per annum and 8,000 bed nights from film production. Just taking that statement, does that The Chairman: How do these two things sit? It seems figure of £10 million include the bed nights’ value? that he is essentially an employee of the Isle of Man Government in the sense that he is a director of Isle of Man Mr Corlett: Yes. My understanding is that it does, yes. Film Limited, and yet he purports to act as an independent consultant to you on that side of the fence. I do not see how The Chairman: Okay, I understand that. And then you this stacks up. have got projected figures for 2003-04, which is... Well, we have got actual figures for 2003 and projected figures for Mr Corlett: He is an independent adviser in determining 2004. What I am trying to get fixed in my mind is: there is a credible projects that may work for Isle of Man Film to fund of £25 million voted, and that £25 million essentially
Tynwald Sub-Committee of the Standing Committee on Expenditure and Public Accounts on Island Studios Limited - Evidence of Mr C Corlett and Ms M Thomson Oral Evidence SUB-COMMITTEE, WEDNESDAY, 12th MAY 2004 79 TISL represents general revenue - it is money that has come from the position that, over a five-year period, the whole fund through the tax system, so if it was not being expended here, is invested and there is no return, then in general terms you you would have to recoup it from another direction. I am would require profits of £140 million to replace the fund at just wondering, therefore: how does this investment of £25 18 per cent. That may be too high, so then if you take it at million stack up in relation to the film industry? The sort of 10 per cent, of course, you are still talking £700 million over figures I have been given here would tend to indicate that five years or£140 million per annum. I am just wondering, if the two ends do not meet, and I am just wondering how you have that, whether you have looked at it in that context. you justify the expenditure of the £25. million, because it I understand the value of it to the Island. I understand the is taxation and you would have to cover, I am told, to £140 importance of it in terms of broadening the economic base, million to recoup that, by way of taxation. So, how does but I am just looking at it now in the narrower financial your Department justify the outlay of £25 million and how situation and I am trying to see whether the Department has do the figures stack up to make it worthwhile? looked at it in that context and how it stacks up.
Mr Corlett: Right The £25 million was a one-off vote Mr Corlett: Yes, we have, and when we take the whole into the fund, so that is not what is invested in any one balance into consideration, exchequer benefits as well as year. local spend, as well as the image et cetera, we are confident that Isle of Man Film is delivering a significant return to The Chairman: No. I appreciate that. the taxpayer.
Mr Corlett: It is invested over the course of the years. The Chairman: Can you provide a statement to us on The intent is, if possible, to try to make that fund self- your rationale for that? Is there a written evaluation of this financing and self-sustaining through the revenues generated or is it, should we say, a 'guesstimate’ situation that you from film by investing 25 per cent in films - sorry, 25 per cent have arrived at? of the production value of the film. That is quite unusual for a film commission to do that; typically they are providing tax Mr Corlett: There is a written evaluation of it. I do not credits (The Chairman: Yes.) to the companies. have it with me. We have - What we get, in return for that, is a share of the proceeds. Historically, we were not a well-known film producer and The Chairman: If you could forward that to us, it would supporter of films, so the revenues that we were generating be helpful, so that we could get an understanding of it. Thank were not material. Of all of the films that we produced, you for that. historically, only two made it into significant profit, but Has consideration been given to setting up a film- processing unit on the Island? It seems to us that a lot of talking to industry experts, one film in ten making a profit is business is going off-Island. quite typical. Given our recent successes, we are now better able to negotiate improved revenue positions, and so, for Mr Corlett: Certainly we have talked to businesses example, on The Libertine we were able to negotiate for a and tried to attract business on-Island to lock in permanent stake of US revenues, which should mean that recoupment employment on-Island, although frankly one of the benefits in the fullness of time will be materially improved on what of the film sector has been that it has not required permanent it has been historically. employment, and for the past 18 months to two years we So, in terms of economic benefits, yes, the on-Island have had unemployment at or around the 300 to 400 level, spend is significant; last year, 2003-04, was about £14 with job vacancies at or around the 500 to 700 level. So, the million on-Island spend and 22,000 bed nights, a marked Island has had an excess of demand over supply, and what improvement on the previous year, which was £5.5 million the film industry has done has generated significant marginal on-Island spend and I think it was 15,000 or 16,000 bed economic benefit without having to create lots of permanent nights. So, that is bringing in significant value to the Island. employment and lots of permanent housing and lots of Applying any economic multiplier, that is wealth brought permanent schooling, and, therefore, it has brought in a into the economy that simply would not have been here marginal economic benefit way in excess of the infrastructure otherwise and that has a significant multiplier effect. And costs associated with it. Simply put, they come, they spend, not only does it have an economic value, but it has an image they go, and we gain the benefit from that. value to the Island. We are trying to build up a permanent media base and The Island is increasingly competing in a very image we are consciously trying to target businesses to give us conscious world, where you are competing for awareness more permanence to the film industry. Hopefully, the film and image, and having businesses like film companies, studio will continue to grow and will be successful and that which attract much more attention, helps the image of the will expand and more employment will be possible there. Island. The number of column inches we have had off Isle We are trying to encourage that, so, for example, there is a of Man Film exceeds everything else put together in the past digital animation company that we are in discussions with few years, in terms of UK media, which is all to our good. as to how we might provide some financial assistance and In addition, of course, there are material exchequer benefits training support to help them set up on-Island, providing from Isle of Man Film. permanent employment opportunities.
The Chairman: Yes, but I am still not sure whether you Mrs Hannan: Is that at the Island Film Studios at - ? have a balance sheet, whether you have an equation drawn up, which can establish whether you are getting a full return Mr Corlett: No, that is a wholly separate business in on your £25 million. That is not clear. no way connected with Island Studios or Lough House Just taking two statements on my brief here, if you start Animation.
Tynwald Sub-Committee of the Standing Committee on Expenditure and Public Accounts on Island Studios Limited - Evidence of Mr C Corlett and Ms M Thomson 80 TISL SUB-COMMITTEE, WEDNESDAY, 12th MAY 2004 Oral Evidence
The Chairman: Is that related to the other references application before it is deemed valid. That is obviously in the DTI plan: ‘research the feasibility of establishing an produced by our independent advisers for significant grant image-capture animation studio with associated state-of-the- applications. That is then checked inside the Department art teaching capacity’? Is that tied in with that? (Mr Corlett: and it is taken to departmental meetings, when it is approved Yes.) Or is this just an extension over and beyond the £25 by the Minister and sometimes by the full Department as million project for films per se? required. So, there are significant checks in advance of an application are being successful. Mr Corlett: The fund was created to help not just one- But once it is successful, we then do monitor that the off productions but also to, hopefully, attract permanent funds disbursed are in line with what the approval was for. employment, so yes, that was part of the intent of the fund. As Marijke said, each payment is checked by an officer reasonably familiar with the case to verify that the terms and The Chairman: Yes, okay. Perhaps it would be better if conditions are being complied with, that the invoices relate I asked Mr Bawden this one (Laughter), but you may be able to what the grant was originally given for, and, on top of to help me here. Why was it decided that Government would that, the finance team verify the payments and monitor the not establish a film studio? I can see some of the reasons are progression of payments. fairly obvious, but I am sure there was an internal debate in On top of that, internal audit regularly visits the grant area the Department or within Government (Mr Corlett: Yes.) to do a full audit of the procedures and make suggestions for to come to the decision to go along with support to a private tightening those up as and when appropriate. company. There are always things coming along. A good example of a recent change is that in the past few years we have had Mr Corlett: My understanding was it was Government’s a lot more applications for IT support. IT systems are getting intent to set up a studio because it had been unable to attract ever more sophisticated, and so we have tightened up our a private investor willing to do so. We then had a couple of procedures in terms of what actual spec for hardware and applications come along at roughly the same time. The Island software is required in advance of any grant being given and Studios’ application was deemed to be the better application. then, after the fact, once it has been purchased, verifying Once it became clear that they had the principals, the capital that that was what was given - was it that sort of PC with and the desire to establish a film studio, it was then deemed that sort of software? So, that is an example of a relatively not necessary to use public funds to build one, as Isle of Man recent change. Film could work effectively with the film studio, which we have done pretty successfully so far to date. Ms Thomson: If I may add to that, we also now require our IT Manager to actually go and inspect the equipment The Chairman: Perhaps Ms Thomson can help me and- here. What are the procedures that are in place for approving invoices for payment related to grant aid? What procedures Mr Corlett: If it is IT, yes. are in place? Ms Thomson: Yes, with IT equipment, because he is Ms Thomson: The company that we provide the grant more knowledgeable than, maybe, any of us in inspecting to would submit the original invoices with a summary, and IT equipment, where you could easily be misled. So, we are these would be checked by the person in our Economic tightening up on procedures all the time. As new types of Development Group (EDG) that is fully aware of the grant companies come to the Island, as new types of technology conditions, and then that would be forwarded to the Finance advance, we try. to make our procedures keep up with the Department, who would actually make the payment. So, times. there are the original invoices with the summary, checked by the EDG person who is aware in conjunction with the grant The Chairman: Yes, right. Regarding the requirement ^ conditions, and forwarded to Finance, and then we retain - a fairly standard requirement, anyway - that grants require copy invoices and a copy of the summary for our records, payment within 10 years in the case of specific events - so, in the event of any queries at a later date. if certain things happen within that 10-year period, they have got to be repaid - there are occasions when the 10-year The Chairman: 1 see, okay. You made some reference period does not commence until some time after the payment to the ongoing scrutiny of the grant system and some of of the grant, i.e. on completion of a building et cetera or the changes. What I was going to ask you, just to complete installation of plant. We are wondering: how do you ensure that circle for me, is: what are the mechanisms that are in that one does not outpace the other? How do you ensure place, standing mechanisms, to ensure that the grant system that you have got coverage for the full 10-year period in functions efficiently and that we do not get some of the respect of that plant or that building? The two dates do not hiccups that perhaps some of the documentary evidence necessarily coincide. would indicate? Mr Corlett: So, to ensure that I understand the question, Mr Corlett: I suppose, as a first point, there will always this is: how do we ensure that we can get our money back be minor procedural errors in maintaining and administering if something were to go wrong? any system. The key is materiality of risk and how well that has been governed. That is managed throughout the process, The Chairman: Yes, that is right. It is coming up to 10 in the initial stages, in the application, to ensure that we are years, your grant is there and it is for 10 years, but you have gathering the right information, and there is a pre-defined got to comply with these conditions, and the life exceeds the template for the sorts of information that we expect for any period of the grant.
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Mr Corlett: We do a risk assessment of any application. productions and could certainly lay claim to be as great an In this regard we are quite similar to a bank; we are looking expert as most people in the UK. There would be relatively at benefit to the Island, potential return to the Island, versus few who would know more about how one goes about the risk that we are incurring. Based on that assessment of producing, commissioning and making a film - risk, we try and take up a call on assets as is appropriate. So, in the case of Island Studios, we had first charge on The Chairman: There are degrees and things now, the 40-something acres to secure... Because it was a risky aren’t there, and professional qualifications in relation to undertaking setting up a film studio. There was no track cinematography or those sorts of things? record of a successful film studio on the Island. Mr Corlett: For the more specific technical skills like, The Chairman: To satisfy us after 10 years. I am worried say, cinematography, that would be for participants within about if those two dates do not coincide - making the film. For the film team, we are concerned with evaluating the strength of a project, reviewing: the script - is Mr Corlett: It should always be longer, because our 10 that the sort of thing we would wish to do?’; the strength years should always be after. We should always have not of the financing - ‘Does it have credible financiers behind just from when we paid it 10 years, but from the point it has it?’; and the principals - ‘Are the producer, director and lead come into practical service, which is typically thereafter. actors secured into the project?’ (The Chairman: Yes.) So, we should always be longer than 10 years from point of And the individuals have had training, some training on payment, if you see my point that, in the UK. They have had extensive experience on the job of doing that over 50 to 60 films, and therefore Steve The Chairman: Is that provided for? Do you achieve Christian and Hilary Dugdale in particular have a great track that? record. What we have tried to do is build up training inside the team. We have had several new members, and so we have Mr Corlett: To be honest, there are not many businesses asked them to give in-house training and to evaluate whether where we have cause for concern to call that in. We have there are training events or conferences where the individuals relatively few businesses that, for whatever reason, have can build up their skills and build up their network. to cease trading and where repayment is required. We did So, we are trying to develop that, but in terms of an analysis of those, and we found several instances where recognised qualifications for helping to commission, produce moneys needed to be repaid. Those were largely repaid in and execute a film, there is not really anything that would full. be worth our while. Going back over the last six or seven years, we did a review, and in that period we had been giving out £2.5 The Chairman: Right. Coming out from the other side million to £3 million-worth of assistance a year. We found now, in terms of developing the Island’s potential to have that we had been unable to recover about £16,000 in that Island people employed in the film industry here, making the whole period. Any commercial bank would say that was a films here, have you any plans to push forward that area? very impressive track record for bad debt. So, we are quite good at picking, hopefully, good candidates in the first place Mr Corlett: Sorry, to... - many may say that we may be too risk averse and we may not be supporting some marginal enterprises - and then at The Chairman: To get people the experience here to monitoring that they comply and getting funds back. work on the Island and get them an opportunity to work in film-making? The Chairman: Your vanguard in this, in pushing forward the film industry here, was your Film Commission, Mr Corlett: We have attempted to. We have established and it would appear that your Film Commission is staffed the Manx Multimedia Centre, which is our training unit down up with people who have got experience in that area but no in Peel, to give people on-the-job experience of making films. particular professional qualification. I am just wondering: is They have qualifications, formal qualifications recognised that something which can be addressed in some way or is it across the UK, as part of their training and they have the something which you are prepared to put your reliance upon, opportunity to make films, so several of the individuals from the experience that they gain? Have you got arrangements that have had the opportunity to work on films produced on- to give them further or better training? What is your view lsland - second director positions, assistant cameraman and on strengthening that? others. They have had the direct opportunity, as a result of the training they have had and being on-Island, to then go and Mr Corlett: Certainly, this is something we have thought work at the studio on specific films. We would love to see about in terms of how we beef up skills. It is an industry more of that and we are trying to get more of that, and when where there are few formally recognised qualifications we are working with producers et cetera, we are encouraging and, talking to people within the industry, the vast majority them to use more of local talent where possible. of people within the industry have little regard for what qualifications there are available. They are far more The Chairman: But to follow a career in film-making, concerned about practical experience: what films you have presumably they have to follow the films. They would have worked upon, which principals you have worked with, be that to go on-Island and off-Island. directors, producers or actors, and therefore what practical experience you have gained in the sector. Mr Corlett: It is a very transitory existence, yes. Hilary Dugdale, for example, leading our team now, has worked inside the industry for more than 10 years on 60 The Chairman: Yes. Right. That is right. I am almost
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there. Andrew, we will give you an opportunity to come in Capt Douglas; Almost certainly that first. Mr Corlett: It was convenient. Capt Douglas: Thank you, Chairman. Have the DTI been surprised at the extra work being done to the main Capt Douglas: The skills you have all developed must building of the studios? We have heard witnesses say, ‘You have helped in that matter, yes. just need basically a rather grand shed’, but we know from experience that soundproofing et cetera... Has that caused Mr Corlett: And having now got The Libertine - as I say, you a surprise? it is a very fickle industry - a film of that profile with Johnny Depp, who seems to be iconic more than a mere movie star Mr Corlett: No. If there have been refinements... With - he is huge at the moment - has given us a huge amount of any business investment, before you are getting material profile in Hollywood and elsewhere. We recently went out returns, you want to minimise your investment, and so at to the American Film Festival, and we requested meetings Island Studios they invested in a basic studio facility and, with the seven major studios there, to see if we could foster as the films and revenues warrant, have improved it, so the relations. We were met by every one of them at executive calibre of production we have worked on has improved. vice-president level or higher, all of whom said they would The producers, lead soundmen et cetera have got ever more be more than happy to work with us in the future. demanding - it is quite a demanding industry - and they So, it has been excellent for raising our profile and have made suggestions for improvement, so the door, for building relations, and of course that film could not have example, was improved to reduce noise and further external been filmed on the Island if the film studio had not been soundproofing was put in. It is a very fickle industry, and there, because it required them to build a very specific set: one film can come in and say, ‘Sound is not a problem at it was a three-storey, eighteenth-century theatre, which was all’, and the next film comes in and says, ‘Sound is a big dazzling when it was in there, and everybody kept saying problem.’ It can be what mood you catch the individuals it was shame they had to tear it down. But without the film in and, of course, external factors. Wind is not unknown in studio, that film simply could not have come to the Island the Isle of Man. and we would not have raised our profile.
Capt Douglas: No. That point has been well made. Capt Douglas: Thank you for that. Sort of changing It came as a bit of surprise to see that one of the films had tack slightly for me, you just a few moments ago spoke actually cut holes in the roof because of the heat. That has about IT, and it is clear, I think, that your procedures have now been put right, but it seemed - to me, anyway, and at certainly been tightened up, because you mentioned your IT least, I am sure, some of my colleagues - that if you were expert, who would go in and check if everything was there. going to build a ship, you would get an expert shipbuilder in. I think, if nothing else, I have learnt sitting for the many If you are going to build a film studio, we know of a company hours we have within this project that that is an encouraging in Glasgow, for instance, that I would have thought would sign, because I still cannot get my head quite round the fact have been involved, hence my question, really. that there was a pile of equipment donated as part of the shareholding, if you like, and somebody has got to convince Mr Corlett: Certainly, Nick Napier-Bell was the lead me that someone actually went in and did the head count, expert for Island Studios, with a long track record in the and I would have thought that, because of the speciality film industry, understanding the making of films and their of it, you would have needed really quite a special person, requirements, and he fed in what he felt were appropriate wouldn’t you, for that? requirements into the design to ensure there was a successful functioning film studio. I am sure they will make many Mr Corlett: Certainly my understanding was that more refinements and, hopefully, if successful and business ROOT6 had done an inventory of all equipment and had 1 warrants, expand the film studio in time. given it an assessed value at fair market value and had said that, if anything, the value that was being used in the Capt Douglas; Following that on, really - thank you film studio deal was undervatuing the assets that we, as for that - would you say it is a fair comment to make that general laypeople, had inspected. Yes, that equipment had the recent UK tax changes have been of benefit to the Isle of been bought to studio and the auditors had verified, based Man in general and perhaps Island Studios in particular? on the original inventory from ROOT6, that all equipment was either being held on-Island or it was understood where Mr Corlett: Certainly in the short term it was helpful to that equipment was being used and would be returned. us. (Capt Douglas: Yes.) We secured The Libertine off the Effectively, we knew up front, when we gave the grant, back of that. (Capt Douglas: Yes.) It was a film that was just that the assets would not always be used on-Island. We about to be made in the UK and which had funding dependent knew that without those assets we would be unable to make upon section 48. When section 48 was withdrawn, they lost films and that during periods when there were no on-Island a chunk of funding. We were able to step in. Again, entirely productions, those assets would be taken elsewhere - they coincidentally, the producer for that film, John Malkovich, have been used in South Africa and the US, for example-and was on-Island filming and was talking with Steve Christian that the revenues associated with that would, of course, come and was complaining about the loss of this funding. We then back to an on-Island business, bringing economic benefit to said, ‘Let us see if we can put two and two together and see the Isle of Man by having those assets used elsewhere. We if we can help you finance that gap in your film, subject to have had six-monthly updates from the auditors, confirming you then filming a chunk of it on-Island.’ And so, yes, it is the whereabouts of the assets, so we felt that all in all we a bit of an ill wind there. were reasonably assured that the assets were understood and
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were being properly used. because it was no longer -
Capt Douglas: I think there is one other comment. I do The Chairman: I do not quite follow that. If you have not really think it is anything, perhaps, to do with your grants, got equipment which is in some way related to a company but it is funny how, with valuable pieces of equipment, we that has gone into liquidation with £700,000 liabilities and have never seen any evidence anywhere that somebody has the principal is injecting equipment into a new company over actually filled in the guarantee card when they bought a new here as a capital asset, I would have thought that would have piece of equipment, and that kind of worries me a little bit been a matter of considerable interest to Steven Christian’s Everything seems to have been done in a rush, for all the outfit. right reasons, although I am quite sure people, it would be fair to say, have learnt some lessons out of it all. Mr Corlett: Certainly, for myself, my understanding is that once a commercial transaction is complete and that asset Mr Corlett: Certainly, but we felt that we had been has been transferred to Island Studios, it is the property of reasonably rigorous in having an independent expert evaluate Island Studios. What may or may not happen to Edit-Hire the equipment and having the auditor independently assess is a separate matter. It is irrelevant, but my understanding its whereabouts, and felt that that was adequate in the was... I do not know at what time Nick discussed that with situation. Steve, but my understanding was that had been discussed at a point, and I believe that Nick has a number of companies, Capt Douglas: Would it be too much to ask - again some of which have gone into voluntary liquidation at through you, Mr Chairman - for us to be allowed to sight different times. a copy of the contract that you have with your independent experts? In other words, are both sides quite clear about what Mrs Hannan: Could I ask when Steve Christian each other’s responsibilities are? informed you of this?
Mr Corlett: This is with GasWorks Media? Mr Corlett: It was when I was talking to him last week. I may have got the wrong end of the stick. Capt. Douglas: Yes. I might be asking you the Mrs Hannan: He gave us the impression that he did not impossible. know until we raised it. Mr Corlett: There are two parts to it: one is the film Mr Corlett: Okay. Certainly we talked about it It may production part, where they are giving advice on specific have been after it was raised in this forum. productions, and the other is the general industrial assistance advice. Are you interested in both or is it - Mr Corlett’s mobile phone rings.
Capt Douglas: Probably, yes. How far do they go? Mr Corlett: Excuse me for a minute. I have a horrible Where does their job stop? You know we have had some feeling that is mine. answers which have probably raised one or two more It may have been that it was raised at this forum. questions. Who picks up from where, really? That is where Subsequent to that, Steve then spoke to Nick. Nick then I am coming from. explained the situation to Steve, and Steve then updated me on that. That may be the chronological order of events. Mr Corlett: It is certainly their responsibility before I am speculating. the fact, when we employ them, to help us to do a thorough evaluation and to determine appropriate terms and conditions, Ms Thomson: May I just make one comment to follow ' because, as with this case, we often come up with specific on? One has to bear in mind it was a voluntary liquidation, terms and conditions for that specific proposal. After the fact, so that means - the ongoing validation is down to departmental officers. The Chairman: Yes, we understand that. Capt Douglas: If I can give you an example, it shocked us that we were dealing with a company that had gone into Ms Thomson: - it was done in a very orderly way. It voluntary liquidation, and I would have thought that would was not a creditors’ or involuntary liquidation, so that has have been flagged up at quite an early - (Interjection by Mr to be borne - Corlett) I would not have expected you to have flagged it up, actually, but - The Chairman: We know it was a voluntary liquidation, but there were £700,000 liabilities attached to the process. Mr Corlett: My understanding of that, talking to Steve, is that that had been discussed with Nick Napier-Bell, that the Mrs Hannan: It was creditors’ voluntary liquidation, assets had been transferred from Edit-Hire to Island Studios, which is different, isn’t it? that once they were the assets of Island Studios Edit-Hire had no call upon them, and that the fact was that they went Ms Thomson: I understood it was just a voluntary into voluntary liquidation subsequent to that. That was my. liquidation. understanding. I may be wrong because, of course, I was not around at the time, but my understanding was that once the Mr Corlett: I am not aware of the details of the case, assets were at Island Studios whatever may have happened as I say, but my understanding was the assets had been to Edit-Hire or otherwise had little bearing on Island Studios transferred.
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The Chairman: It is down in the documentary knowledge of film. evidence. Mrs Hannan: His expertise is down to actually Mrs Hannan: In relation to GasWorks Media, was their considering whether a film is viable or profitable or - appointment to you as a consultant... Were they appointed under a tendering process? Mr Corlett: Certainly partially that, yes, and understanding the principals behind it, who the producers Ms Thomson: I can answer that, because that happened et cetera are, what the source of funding is, who the other after I arrived. No, it was not a tendering process, but we got principals involved are, and whether we feel that this is a a proper FD8 waiver from Treasury. film that is likely to get made and, therefore, whether our money is safe within that. And so we turn away many, many Mrs Hannan: And the same with Sheila Thompson? (Ms more films than we make, and it is quite a subjective process, Thomson: Yes.) Why was that? Why ask for a waiver? based on your knowledge of principals within the industry, which ones are good people to do with business with and Ms Thomson: The waiver was - which ones are not. Over the course of helping to make 40, 50, 60 films, Steve and Hilary have a much better view of Mr Corlett: The waiver is a standard process for saying that inside the UK. where there is no need - Mrs Hannan: If we look at Ms Thompson now, her Mrs Hannan: We understand that. We are the Public special expertise above anyone else’s expertise here, what Accounts Committee. (Laughter) was her special expertise?
Mr Corlett: Where there is no need for - Mr Corlett: That she had been working on financial ^ assistance applications for I do not know how many years. Mrs Hannan: We did a report on contracts and yes, it is, Three or four years? but I would like to ask why a waiver was sought. Ms Thomson: She had been assisting Steve Christian Mr Corlett: It was deemed that the technical expertise when Ernst & Young were the consultant firm, and so she had that they held could not be sourced elsewhere at a comparable been advising and working on the applications for a number price on the Island. We sought Treasury concurrence to that of years. I think it was three, four, five years. and - Mr Corlett: Treasury had requested that the DTT attempt Ms Thomson: The Treasury concurred. The Treasury to tiy to do more evaluations in-house. We have done so. has put in a condition that we seek other firms to do some The Finance Director was trying to do more personally. We evaluations in the future, so that when it comes up for found that, simply given the workload involved, the time renewal again in a few years’ time, we can do the proper that each application required, that was impossible. We built tendering process. up something of a backlog, unfortunately, of outstanding applications, and we needed a rapid solution to that. We Mrs Hannan: Do we have quotes for someone doing suggested to Treasury that Sheila Thompson represented it more reasonably than someone else? How do we both excellent expertise, given her track record, and a very - ? (Interjection by Mr Corlett) You said, ‘doing it for a reasonable fee as an independent and that, therefore, as a reasonable price’; you do not know that until somebody has short-term measure, we could sign up with Sheila. Treasury actually tendered, do you? granted a concurrence to the FD8 waiver on that basis,. subject to us, within a couple of years, going through a* Mr Corlett: We have an awareness of the Island full tendering process to get broader support for financial marketplace. Film is a very specialist marketplace. We have applications. an awareness of individuals with skills in film. No-one has a comparable - Mrs Hannan: And what is the cost of these two contracts? Mrs Hannan: With respect, skills are different to actually having that expertise and the actual cost versus the expertise, Mr Corlett: I could not tell you off the top of my head. the films versus the cost. But you - I do not have that information to hand.
Mr Corlett: And both factors are taken into consideration Mrs Hannan: You talked before, I think, about grants. when requesting FD8 waivers, both skill and cost. You talked about the amount of money that the Department of Trade and Industry expended and how, I think, £16,000 Mrs Hannan: So why was - ? had gone sort of ‘astray’ within that. Can I ask about the rents for Hamilton House? There were companies that were Mr Corlett: And so we are saying that the expertise supported by the Department of Trade and Industry. (Mr that we felt that the individuals held in this case and Steve Corlett: Yes.) Were those rents recouped? Christian held was unique on-Island and that therefore an FD8 waiver was appropriate in this instance. That was Mr Corlett: InvisiMail was, certainly, one occupant taken to Treasury, and Treasury gave concurrence to that, there. We received assets to the value of the large part of it, based again on their detailed involvement in film and their so a chunk of that £16,000 related to InvisiMail, but all of
Tynwald Sub-Committee of the Standing Committee on Expenditure and Public Accounts on Island Studios Limited - Evidence of Mr C Corlett and Ms M Thomson Oral Evidence SUB-COMMITTEE, WEDNESDAY, 12th MAY 2004 85 TISL the interiors of the buildings were valued and we took those Ms Thomson: Well, with a claim form and the invoice as part payment for what they owed us, and so we did not coming in at the same time, the claim form from the recoup the full amount, but we recouped a large proportion Company and the invoice being presented to the DTI. of it by doing that. Mrs Hannan: And it was a paid invoice? Mrs Hannan: So the - Ms Thomson: The invoice was paid by the DTI - or are Mr Corlett: Office assets. you questioning whether the invoice was stamped ‘paid*?
Mrs Hannan: And Habitant? The Chairman: Whether it was paid is what we want to know. Mr Corlett: E-habitant. I believe e-habitant and InvisiMail were one and the same. Mrs Hannan: Not paid by DTI - we know DTI paid a grant on it - but was it marked ‘paid’? It is alright looking Mrs Hannan: Inter-related? at a list and a sum of money next to it, but you are not expert and I am not an expert on edit equipment. Obviously, all the Mr Corlett: That is my understanding. figures that were submitted to you added up, but what I am asking is: was the invoice a paid invoice, properly headed Mrs Hannan: They were inter-related, but - ‘paid invoice’?
Mr Corlett: And so they were out of the same building, Mr Corlett: It was taken in lieu of equity, so I do not as I understood it, hence it was the same rent. know what the financial transactions were between precisely - Mrs Hannan: The £25 million that went into Isle of Man Film Limited: when that money is expended, do the profits Mrs Hannan: We were told before by Mr Bawden that from the films go back into that fund eventually? it was accepted to pay grant on equity.
Mr Corlett: They do indeed, yes. So, as and when we Mr Corlett: So this was taken... I presume your question recoup, that goes back into the film fund, and it is our hope - this is my interpretation - is: did Mr Westacott write a that as we improve the quality of films that we produce and cheque to Mr Nick Napier-Bell in receipt of those goods? the revenues increase, that will help make the fund self- financing over time. Mrs Hannan: No, because Mr Napier-Bell was putting it into the Company. Mrs Hannan: And this company will be reporting to Tynwald in due course? Audited accounts? Mr Corlett: Exactly, so I am struggling to follow the question. Mr Corlett: Yes. Mrs Hannan: They came from another company. We Ms Thomson: But the £25 million has not gone directly know this equipment came from another company, but was into Isle of Man Film Limited; it is in the media development it paid for? That is what we want to know. fund and it will be channelled chunk by chunk into Isle of Man Film Limited. Mr Corlett: Right. It was provided by... The precise details... We would need to go away and investigate that. I Mr Corlett: Yes, so it is drawn down as needed. simply could not tell you. I do not know. As to quite how the transactions were, I am not aware of that detail. Mrs Hannan: Thank you. In relation to the equipment, if I could return to the equipment, did the Department of Ms Thomson: None of us worked there at that point Trade and Industry pay grants on equipment on invoices in time. from Violet Systems? Mr Corlett: All I can say is we can take that away and Mr Corlett: I am sorry, who? verify that. I do not know that here and now.
Mrs Hannan: Violet Systems. Mrs Hannan: So, could I ask: do Ernst & Young do any business for you at the moment at all? Mr Corlett: It is not a name I am familiar with. Mr Corlett: Not that I am aware of. The Chairman: Trading as Edit-Hire - The Chairman: Okay. Might I just tidy up one or two Ms Thomson: I reviewed all of the invoices and all the bits and pieces? Does the Department advise your own grants that were paid subsequently because I was not there inspectors of building contracts for which grants are payable at the time and, as far as I can recall, everything that was and ask them to do spot checks on those buildings? paid was paid on production of invoices. Mr Corlett: Not specifically that I am aware of. Mrs Hannan: Under F103? Certainly not at this time. Their role is to inspect all
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construction premises and verify work permits et cetera. items are off-Island? Does it reflect equipment that has been My understanding is that, in this case, in the case of the film changed over to more modem equipment, with a change of studio, there was at least one visit by work permit inspectors, value? Are those records available to you? at which they found no workers without a valid work permit. There is certainly one on record. They may have been other Ms Thomson: We have had some records sent to us informal spot checks. that actually detail the equipment, where it is, whether it is in the Isle of Man, the US or South Africa, and the value of Ms Thomson: Yes, I think it would appear as if it was that equipment. more informal notification rather than formal notification, and we can, maybe, update our procedures to make it Capt Douglas: Could I ask: has that been the case all more - along or is it fairly recent?
Mr Corlett: We do not do anything special for those Mr Corlett: That has been in place for at least a year. versus other construction sites. That is my understanding.
The Chairman: It is left to the discretion of the inspectors The Chairman: Yes, okay. whether they visit or not? Would they k n o w whether it is a grant-aided scheme or not? Mr Corlett: I do not know if it was there from the outset. I simply do not know that, but certainly, based on - Mr Corlett: They may not. It is certainly possible that they would not, no. The Chairman: Mrs Hannan has got one more.
Ms Thomson: But they certainly make at least one Mrs Hannan: Yes. We have the auditors’ comments of visit - 6th March 2003, where, in relation to the equipment, they say on page two: Mr Corlett: Yes. Like 1 say, at that visit they found no individuals without work permits. ‘ We attempted to physically verify a sample o f equipment purchased. A number o f items o f equipment were not available for inspection. We were informed that such items were, on occasion, hired out and so held The Chairman: You said that there is a six-month update at other locations. We have not verified this.’ on the whereabouts of the equipment. Who produces that to you? Presumably Island Studios, is it? So, it would seem that they do not keep an audited update invoice of equipment and where it is and who has hired it Mr Corlett: That is their auditors. out, because the actual auditors could not verify.
Ms Thomson: The auditors, yes. Mr Corlett: If the equipment was not there -
The Chairman: Their auditors? And that is a standing Ms Thomson: Remember the auditors would be referring arrangement which continues for the validity of the 10-year to physical verification; they would not be referring to paper period, is it? records. So, if the equipment was not there, the auditor could not physically inspect it and say, ‘This is a table. I can see Mr Corlett: I am presuming so. I do not know that it.’ The table may be in another office - detail, I must confess. I know they have done several, and presumably they will do that for the remainder of the 10 Mrs Hannan: Could I just pass on, taking that into ( years. account, to the next paragraph on this? It is page 2 or 3 of the audited accounts: The Chairman: How is account taken, then, of the replacement of equipment? The evidence that we were given ‘Sample timesheets verified the claim that the wages or sub-contractor by Mr Napier-Bell was that the equipment - some equipment, labour was in respect of the construction of the film studios.’ at least - is being regularly replaced with more updated equipment, presumably of different values and different So, that is the difference. One could be verified because types et cetera. How is that taken into consideration? How do they could see timesheets. They were not seeing the people you keep track of that, apart from, say, with great difficulty? working on the site; they were looking at the timesheets. (Laughter) What is the - ? What they were saying about the equipment was, ‘We have not verified this’, so presumably there is nobody signing in Mr Corlett: Replacement of equipment is at their and out equipment. If there is an audited list of equipment, discretion. As they see the commercial need to replace it is certainly not available to the auditors. equipment, they will do so. As and when they do so, we will expect them to update the inventory of equipment to notify us Mr Corlett: Our interpretation of that is that there is a that that original equipment presumably is no longer required list available; it is just that what equipment may be out of and has been disposed of, sold or whatever. the Isle of Man is not verifiable by the auditor at that time. That was our understanding of that. The Chairman: Are you aware of whether or not they have a register of assets? Do they have a register showing Mrs Hannan: It does not say it is signed out. ‘We have what assets are on-Island at any point in time and what not’... An auditor actually states -
Tynwald Sub-Committee of the Standing Committee on Expenditure and Public Accounts on Island Studios Limited - Evidence of Mr C Corlett and Ms M Thomson Oral Evidence SUB-COMMITTEE, WEDNESDAY, 12th MAY 2004 87 TISL
Mr Fayle: If you would like me just to respond, I take Mr Corlett: They have. There is nothing issued from your point, but of course if they are seeking to do a sample DTI, as I say, here in that sense, a formal certificate. There verification, they could always write to who is purported to is verification from the employer that, yes, you have passed hold the asset to confirm that they do so, and I would have the apprenticeship or there is confirmation that you have thought, in that context, if they had gone through that process, failed to attain the level required. Of the 29 who started, 22 they would then have said so. ultimately passed. Several fell out along the way. I have to say I read that as a qualification, that they were unable to cany out their test satisfactorily. The Chairman: Fell by the wayside. Yes, we have got those figures from him, yes. Ms Thomson: They have not actually specifically stated, ‘We were unable’; they said, ‘We did not’, and there is a Mr Corlett: That is certainly my understanding of slight linguistic difference between saying, ‘We were unable that. to verify’ as opposed to ‘We did not’. Mrs Hannan: How many students are there at the Mrs Hannan: But the next line they do verify: moment?
'Sample timesheets verified support the claim that the wages or Mr C orlett: I do not know, at Lough House sub-contracted labour was in respect of the construction of the film Animation. studios,’ Mrs Hannan: Do you support students there? They looked at - Mr Corlett: Again, I am not aware of what assistance we Ms Thomson: That is a slightly different type of audit are giving at that specific time. (Interjection by Mrs Hannan) test You would not expect to verify the people; you would I do not know at this current time. expect - The Chairman: Was there another point, you said? Mrs Hannan: Maybe you would like to take that up with the auditors on our behalf and write to us. Mr Corlett: Yes, there were one or two others. In terms of ensuring on-Island spend and the spend proportion in Mr Corlett: I have certainly taken a note. relation to Island Studios, excluding the Allied Steel issue, where they presented evidence to us to show there was a The Chairman: Thank you, Hazel. Thank you very material saving by using an off-Island expert in that area, much. I think that is all we have. Thank you very much 99 per cent of spend in all other areas was with on-Island indeed for your time, much appreciated. contractors - virtually all. In terms of the use of the assets, the edit equipment et Mr Corlett: If I may, Mr Chairman, there were a couple cetera off-Island, yes, we were aware of that - as I understand of points that I noted (The Chairman: Yes.) where I thought it, it is part of the application process - on the understanding I might have some information that may be helpful. that those assets would gain value off-Island for the on-Island business, so there is an economic gain to the Island. As to The Chairman: Sure, please do. what the value of the equipment was, it was simple, really, that if it were not there, we would not have a functioning Mr Corlett: In terms of Lough House Animation studio. apprentices, at that time there was no formal qualification recognised for the skills concerned - 2-dimensional graphic The Chairman: That does not quite follow from the animation, 3-dimentional graphic animation and related evidence we have got, because the evidence is, of course, skills. There was no formal qualification recognised so, as we that, apart from perhaps the most basic of equipment, they have done in other similar instances, we had individuals from prefer to have their own equipment which is modem arid Training Services go to Lough House Animation, analyse up to date but, equally importantly, is the equipment which the course structure that was proposed and the skills of the particular experts - photographers and people - wish to use, people delivering that training, and make an assessment as and therefore they do not wish to take on board equipment to whether it was suitable, under our crafts technicians and that is alien to them. apprentices scheme, to support. We assessed their two-year scheme. It was approved and Mr Corlett: So, there is certain basic equipment that they it was then regularly monitored, with regular inspections do use and, absolutely, some of the more marginal equipment from Training Services down to Lough House Animation to they may not. They may choose to use their own. verify that the apprentices were receiving the training. In terms of the Stonegate -
The Chairman; And were there certificates at the end The Chairman: But my real concern here - and, I think, of the training? the concern of the Committee - is that we have a situation where, with this particular type of equipment, there are Mr Corlett: Certificates are really only issued for question marks over its value, there are question marks construction. This is an industry where there are proven - over where it is, I suppose there are question marks over the ownership, and there are question marks over its value at the The Chairman: So, they have no real evidence... time it was provided in relation to second-hand equipment,
Tynwald Sub-Committee of the Standing Committee on Expenditure and Public Accounts on Island Studios Limited - Evidence of Mr C Corlett and Ms M Thomson 88 TISL SUB-COMMITTEE, WEDNESDAY, 12th MAY 2004 Oral Evidence and against that sort of unclear background it was accepted securing a number of the films that we have had here. There as an asset, an asset which was only partially usable and, of have been instances when a producer wished to inspect the course, clearly had such a fluctuation in value that it made facility and be guided around by somebody whom he could the whole thing questionable. It is that side of it that causes speak to in his language, who knew the film industry, and me concern. Nick would leap on a plane and fly back to the Island and do precisely that. He has done that on a number of occasions. Mr Corlett: In terms of Stonegate and whether there The film team - be that Hilary, be that Steve - talk to Nick was any profit element, their auditors confirmed to us that regularly, and he provides significant support, helping us there was not a profit element in the cost estimates and, of convince producers and others that our studio is viable and course, ultimately they believe they incurred a loss due to can support their needs. So, he is certainly not... There was the overrun and, of course, our assistance was capped. So, the concern about whether there was sufficient film expertise as to whether they made any profit out of that and therefore supporting the studio. He has certainly not simply walked out of the assistance that we provided, certainly the evidence away from it; he is actively involved with it. Hopefully, I would show precisely the reverse. can reassure you of that. We mentioned that there were three full-time jobs in the Those were the points I noted. I just wanted... I was business plan. My understanding is that currently there are conscious Mr Bawden may not have recalled those. two employees there, the manager and the caretaker, and, of course, many part-time, depending on what production The Chairman; Thank you both very much indeed. Much there is there at any one time. obliged. So, we can now draw our recorded proceedings to In terms of Nick Napier-Bell, there were some concerns a close. Thank you. expressed about how involved he was, given that he was not a director He has certainly been intimately involved in The Committee sat in private at 1.36 p.m.
Tynwald Sub-Committee of the Standing Committee on Expenditure and Public Accounts on Island Studios Limited - Evidence of Mr C Corlett and Ms M Thomson APPENDIX 3
HOUSE OF KEYS, TUESDAY, 22nd June 1999
Mr North: Mr Speaker, I understood that that is what this legislation was all about. Mrs Cannell: Mr Speaker, is the minister aware of a conversation that I had with the Chief Trading Standards Officer, who said to me during the beginning of race week that never before has the Island had such a proliferation of mobile traders and that indeed the provisions laid down under this new Bill must be implemented with al! due haste in time for next year? The Speaker: I am quite sure the minister is not aware of the conversation you had - Mr North: Mr Speaker, that is hearsay! But I accept what the hon. member says. Mr Henderson: Given the aforesaid information, Mr Speaker, would the minister not give an undertaking to liaise with the Chairman of the Office of Fair Trading because she seems to be at odds with the information, which seems to be the contrary as presented this morning, sir? Mrs Crowe: I only have the statistics. Mr North: I am sure this needs to be followed up, Mr Speaker. Mr Brown: Mr Speaker, could I ask the minister, is he aware of the standard of the traders that were dealing with this in Douglas during the TT period? I was. I walked through Douglas right to the other end of the promenade, and the standards that I saw were very high, which are of course covered by environmental health. And also, can he confirm that it is a matter totally for a local authority as this House has done its job in passing the legislation and, if the local authority does not wish to implement it, there is no reason why they should? Mr North: Mr Speaker, standards I do not think are anything to do with it. The point is that the local authority to my knowledge, Douglas Corporation in this particular case, requested this legislation - Mr Grown: After being browbeaten. Mr North: - and it is up to them to implement the bye-laws. Mr Brown: If they want to. Mr Karran: Vainstyr Loayreyder, would the minister not agree that if the local authority does not want to have the powers to remove these huts that are left after the TT event, would his department be prepared to take those powers in order to remove them off the promenade as they are causing some distress to hoteliers trying to run a business? A Member: Hear, hear. Mr North: Mr Speaker, that is a whole new scenario. Isle of Man Film Commission - Commercial Expertise and Experience - Question by Mr Karran The Speaker: Item 6, hon. members, I call again on the hon. member for Onchan, Mr Karran. Mr Karran: Vainstyr Loayreyder, I beg to ask the Minister for Trade and Industry; What commercial expertise and experience of the film industry have those persons working for the Isle of Man Film Commission? The Speaker: I call upon the Minister for Trade and Industry, the hon. member Mr North, to reply. Mr North: Mr Speaker, the Isle of Man Film Commission is staffed by two full-time civil servants: a film officer at executive officer level and an administrative officer. Specialist support and advice is provided as required by the department’s economic development group manager and the director of finance. The department’s consultants provide continuous expertise, support and advice to the film office. In conjunction with the department’s consultants the film officer has developed valuable and extensive contacts at the highest level with all sections of the film industry, including financial and legal, corporations, production companies, sales companies and distributors. The experience, skills and contacts that serving officers have developed and implemented over the past four years are a major factor in the continued success of the Island’s film industry. Members: Hear, hear. Mr Karran: Vainstyr Loayreyder, I was not going to ask a supplementary, but could the hon. minister just inform us, what other experience have these individuals got as far as this industry is concerned? Have they got anything outside the Isle of Man or have they learnt it all in the last four years? Mr North: Mr Speaker, the staff of my department, to my knowledge, have no outside interests other than those that I have already mentioned. Mr Bell: Mr Speaker, could the hon. minister confirm that the financial consultants used by the Film Commission, extensively from day one of the operation of the Film Commission, have now developed a worldwide reputation for expertise in the financing and packaging and promotion of the film industry particularly in London but more so now in Hollywood and in the American film industry? Mr North: Mr Speaker, that is absolutely correct and that is an ongoing situation. The aim of the department and its consultants is to build up the contacts and the network within the film industry to enable the Island to obtain better and better pictures to make here. Film Industry - Studios, Bookings and Financial Support - Question by Mr Karran The Speaker: Item 7, hon. members, I call upon the hon. member for Onchan, Mr Karran. Mr Karran: Vainstyr Loayreyder, I beg to ask the Minister for Trade and Industry: (1) How many film studio facilities are there on the Island; (2) for how many weeks in the past year have these film studios been booked for the production of films attracted to the Island by the Isle of Man Film Commission; and (3) what financial support is provided to the film studios on the Island? The Speaker: Again, the Minister for Trade and Industry to reply. Mr North: Mr Speaker, there are currently two studio facilities on the Island with planning applications submitted to the planning officer for two further ones. All four facilities are, or are proposed to be, operated by private sector companies. My department is not aware of how many weeks each of the existing studio facilities have been occupied with film production. This information is commercially confidential and is not available to us. The availability of all studio facilities is brought to the attention of all potential production companies requiring such services. The development of studio facilities may be eligible for financial assistance under the department’s industrial grant scheme. The scheme is discretionary in its operation and each case would be considered on its own merits. Mr Karran: Would the minister make it his business to go and ask these different studios how much time they have actually had? I am sure they would be more than happy to inform him about the lack of activity in these studios. Mr North: Mr Speaker, that is an interesting supplementary, because the lack of activity in one particular studio on the Island appears to be a problem of that facility. We have sent a lot of production people visiting the Island, reccying the Island, to have a look at where they might use down to, as I have said, all the facilities. With one particular facility at Balthane there appears to be an attitude problem with people handling it, and we have had report after report back that the people visiting that particular facility would not want to use it. Now, that might appear a little strange and it shows in my opinion, if it is true - and I have no reason to doubt the information coming back - a lack of professionalism which we need on the Isle of Man in this industry, and if we are going to have studio facilities the people who are handling those facilities need to be professional, not people who have an attitude problem who, I am informed, within minutes of meeting some of these production people, start to run down the Isle of Man Film Commission, which I find most peculiar. Mr Canned: Run them out of the Island! Mr Bell: Mr Speaker, would the hon. minister not agree with me that one of the main reasons for any shortage of uptake of studio time on existing facilities in the Isle of Man is that the facilities themselves are not up to the standard required by modem film production and that the real answer to the problem is that the Island urgently needs a purpose-built modern film studio providing full sound stage facilities for future film development? Mr North: Mr Speaker, I would agree with those comments. Mr Karran: Vainstyr Loayreyder, would the minister please investigate the other film studios and whether they have had much activity, and does he not think that it is too simplistic to put it down to just that? Mr North: No, I do not, Mr Speaker. Poultry Production - Subsidisation - Question by Mrs Cannell The Speaker: Item 8, hon. members, and I call upon the hon. member for Douglas East, Mrs Cannell. Mrs Cannell: Mr Speaker, I beg leave to ask the Minister for Agriculture, Fisheries and Forestry: Does your department intend to continue to subsidise poultry production and, in particular, the battery hen system of production? The Speaker: I call upon the Minister for Fisheries, Agriculture and Forestry, the hon. member Mr Downie, to reply. HOUSE OF KEYS, TUESDAY, 25th JUNE 2002
Companies Receiving Government Grants with the written consent of the owner. The application - Monitoring - must be accompanied by at least three quotations or tenders from approved contractors and, where Question by Mr Karran applicable, approved sub-contractors; copy of the planning and building consents for rhe project together Question 8. The hon. member for Onchan with three sets of approved plans; detailed (Mr Karran) to ask the Chief Minister: specification of the proposed works independent from the quotations; the total cost of the project exceeds (1) Can you say what procedures arc in placc to £200,000, a bill of quantities; audited accounts of the monitor companies that are receiving grant business concerned for the last three years or the support from government departments; and period of trading, whichever is the lesser; also, a detailed business plan for the current year and the next (2) in the case of such recipient companies, w hat three years, incorporating a cash flow forecast; the specific requirements arc imposed regarding sources and application of funding, a marketing plan the notification to Government of the and inspection fee. Any grant approved under the company experiencing serious financial Tourism and Development Fund Scheme 2000 requires difficulties? the Attorney-General’s Office to be satisfied as regards security. The Speakers I call upon the hon. member for Where a property is sold, the grant is either repaid Onehan, Mr Karran. or transferred to the new owner if the property is to remain as tourist premises. In the case of a transfer, M r Kurran: Vainsfyr Loayreyder, I beg to ask the such application would be treated as a new application question standing in my name. and would be required to meet the terms and conditions of the scheme as prescribed. The Speaker; Hon. member for Onchan, In terms of monitoring after financial assistance is Mr Coikill, Chief Minister, to reply. awarded, Treasury monitors grants paid under past schemes. In such circumstances Treasury obtains an M r Corkilli Mr Speaker, the government annual list of registered tourism properties and checks department providing grant assistance to companies is this with the previous list to establish those properties primarily the Department of Trade and Industry. In no longer trading in tourism business. Treasury then addition, grant assistance is provided by the make contact with the relevant parties with a vie«' to Departments of Tourism and Leisure, and Agriculture, seeking repayment of all outstanding suras. In Fisheries and Forestry. In the case of the DTI standard addition, the Department of Tourism and Leisure also terms and conditions are applied to an award of checks the weekly planning lists for change of use. financial assistance for a specified period. In addition, Where a tourism property is making such an the department, or Treasury, may impose further application, the department checks the position with conditions as appropriate. The standard terms and Treasury to ascertain whether or not there are any conditions include requirements for the submission of outstanding grants secured against the property. If progress reports on the company and audited annual there are, the department will write to the owner accounts. The companies arc also required to discuss seeking clarification of the proposals. It will continue their progress with representatives of the department to monitor the position and liaise with Treasury to on a regular basis. A further check on compliance with protect government’s interests and take whatever the terms and conditions is made when claims for action is needed, depending on the circumstances. In payment of a grant assistance are received, the case of the current scheme, the Department of I apologise for the length of this answer but it is Tourism and Leisure is responsible for monitoring necessary, based on the question before us. grants paid out. This monitoring will take the same Where companies make regular applications for form as Treasury cuxrendy undertakes. grant assistance, the process of considering an In respect of the Department of Agriculture, application also affords the opportunity for a Fisheries and Forestry, the department does not comprehensive review of the progress of the business. provide any grants to encourage the relocation of Furthermore, the department has a good relationship companies to the Island. Any grants it issues are with businesses and they will often report issues of subject to residential qualifications. However, through concern to the department at an early stage to seek its Farm and Agricultural Improvement Scheme it advice and support. In the case of the Department of deals with some small companies whose shareholding Tourism and Leisure, it awards grants under the is restricted to the participating farmers. Broadly Tourism Development Fund Scheme 2000 as amended speaking, the scheme provides grant assistance for by the Tourism Development Fund (Amendment) structural improvements and, with respect to the Scheme 2001. It requires that applications for financial horticultural industry, some ongoing costs relating to assistance are made in a form provided to the packaging and purchase of peat. The scheme is more in department by the owner of the property or the tenant the way of a subsidy to maintain and improve the
KQ 204 HOUSE OF KEYS, TUESDAY, 25th JUNE 2002 infrastructure of the Island's farms. The department Government Departments - does require the submission of accounts where Operational Arms - applications are made for works exceeding £15,000; Question by Mr Karran also, where the details of the enterprise are unknown to it or where it believes the enterprise is marginal, it will Question 9. The hon. member for Onchan also asTc for accounts. (Mr Karr an) to ask the Chief Minister: In respect of the second part of the question, the terms and conditions attached to offers of financial (1) Do you accept that the Manx Media Centre is assistance made by the DTI include provisions for an operational arm of the Department of notification in the event of certain circumstances such Trade and Industry; and as the premises and/or equipment ceasing to be used for the purposes intended in the application or if the (2) what criteria define an organisation as an equipment is removed from the place of business. In operational arm of a department? the case of the Department of Tourism and Leisure, if a company were experiencing such serious financial The Speakers I call upon the hon. member for difficulties that the property would require to be sold it Onchan, Mr Karran. iB hoped that the value of the sale would cover the charge on the property. It is understood from recent case history that any suim outstanding to Isle of Man Mr Karran: Vainstyr Loayreydcr, I beg to ask the question standing in my name. Government in respect of tourism grants repaid because of financial difficulties have all beeD The Speaker: Chief Minister to reply. recouped. Mr Corkill: Mr Speaker, the question says; In The Speaker: Hon. member for Onchan, response to the first part of the hon. member's Mr Karran. question, I am informed that the term 'operational arm' was chosen by the Department of Trade and Industry Mr Karraa: Vainstyr Loayreyder, a to describe its relationship with the Manx Multi Media supplementary. Is the Chief Minister aware that the Centre in order to highlight the fact that, with effect police were recently called out to the new film studio from 1st April 1999, the centre had become an integral because of an altercation over a dishonoured cheque? part of that department and that its former status as a Has the Chief Minister been advised by the Minister of joint initiative between the DTI and the Department of Trade and Industry if the company building the film Education has ended. studio is insolvent? If he has, when was he told that With regard to the second part of the question, I that was the case? am not aware of any formal criteria B et down which define an organisation as an operational arm of a The Speaker: Chief Minister to reply. department. As I have already indicated, the centre is, in fact, an integral part of the DTI. Mr Corkilli Mr Speaker, I have not heard any of these allegations or comments before. I am quite happy The Speaker! Hon. member for Onchan, to follow up on the suggestions that the hon. member Mr Karran. has made to see what the issues are. I think it is unfortunate that this negativity is abroad when the film Mr Karram Vainstyr Loayreyder, if the criteria studio was just about to, hopefully, grow into that he has described for the Manx Media Centre something that the Island can be proud of, but would fit the International Business School as well, nonetheless the hon. member has made these does the Chief Minister now accept that the comments and I will investigate what he has raised International Business School Limited was, at the time with me this morning. The hon. member could have of it3 incorporation at the time of the purchase of the raised it with me, of course, any time if he had so Nunnery estate, a wholly owned operational arm of the wished. Department of Education? Will the Chief Minister now accept, as everybody outside his administration, that The Speakert I would remind hon. members that government bought the Nunnery estate and used public standing order 49.3 requires members and makes it money to do so and we are paying for it now, with the clear that members are personally responsible for repayments on the £5.5 million loan, £416 per annum for as long as the loan exists? Would he agree that that statements they make in this House and, if necessary, is the case at the present time? proof could be required. The Speaker: Chief Minister to reply.
KQ 205
APPENDIX 4 ! INDUSTRY BOARD ACT 1981
(Chapter 7) Arrangement of Sections
1 to 3. 4. Grants and loans. 5. Expenses. 6. Interpretation. 7 and 8. 9. Short title and commencement, Schedule 1 Functions of the Department. Powers of the Department. Schedules 2 and 3 .....
Received Royal Assent: 13 May 1981 Passed: 16 June 1981 AN ACT to provide for the establishment of an Industry Board; for the conferring of functions on that Board; and for connected purposes. [See GC119/66.] 1 to 3 ..... [Ss 1 to 3 repealed by GC119/66.] 4 Grants and loans (1) The Department may give financial assistance to any industrial undertaking 's ,) by way of grant to an amount not exceeding £100,000 during any period of 12 months; or
[Para (a) amended by GC466/92.] (b) by way of loan to an amount not exceeding £100,000 during any period of 12 months; or
[Para (b) amended by GC486/92.] (c) by way of a grant and a loan to an amount not exceeding in the aggregate £100,000 during any period of 12 months.
[Subs (1) amended by GC119/86. Para (c) amended by GC486/92.] (2) Without prejudice to subsection (1), the Department may, with the prior approval of the Treasury, give financial assistance to any industrial undertaking, by way of grant or loan, or both, of any amount. [Subs (2) amended by Treasury Act 1985 Sch 2 and by GC119/86.] (3) Without prejudice to subsections (1) and (2), the Department may guarantee obligations arising out of loans or otherwise incurred by other persons to an amount not exceeding £100,000 during any period of 12 months or, with the prior approval of the Treasury, of any amount.
[Subs (3) amended by Treasury Act 1985 Sch 2, by GC119/86 and by GC466/92.] (4) The Treasury may by order provide that subsections (1) and (3) shall have effect as if for the sum of £30,000 specified in each of paragraphs (a), (b) and (c) of subsection (1) and in subsection (3), there were substituted such larger sum as is specified in the order; but no such order shall have effect until it has been approved by Tynwald.
[Subs (4) amended by Treasury Act 1985 Sch 2, and see GC486/92.] (5) When the Department under subsections (1) and (3), or with the prior approval of the Treasury under subsections (2) and (3) provides financial assistance, or, as the case may be guarantees obligations, the Department shall be charged with the duty of making any necessary payments or as the case may be, collecting and accounting for, and otherwise managing the expenditure and revenue of the Department in connection therewith.
[Subs (5) amended by Treasury Act 1985 Sch 2, by GC119/86 and by SD346/99.] 5 Expenses Any expenses incurred by the Department shall be defrayed out of money provided by Tynwald.
[S (5) amended by GC119/86.] 6 Interpretation (1) In this Act- 'the Board'.....
[Definition of 'the Board1 repealed by GC119/86.] 'the Department' means the Department of Trade and Industry;
[Definition of 'the Department1 inserted by GC119/86 and amended by SD321/96-1 'Industrial undertaking' means a person who carries on any activity related to- (a) the design, development, production, assembly or manufacture of any product (whether organic or inorganic) or the treatment of any such product by any process, and for this purpose 'product' includes any media and computer programs and data;
(b) the export from the Island, or the removal to the United Kingdom, of any such product;
(c) the supply, in or from within the Island, of any service to persons who- (i) are outside the Island; (ii) carry on business outside the Island; or (¡jj) are usually resident outside the Island; (d) the supply of any training service to persons who are in the Island; (e) the provision or use of electronic communication (within the meaning of the Electronic Transactions Act 2000) or communication by wireless telegraphy (within the meaning of the Radio Equipment Act 1986 (of Parliament)) for the purposes of, or in support of, any of the activities specified in paragraphs (a) to (d).
[Definition of ’industrial undertaking1 substituted by SD398/01.] 'securities' has the meaning assigned to it by section 6(1) of the Prevention of Fraud (Investments) Act 1968. (2) The Department may by order amend the definition of 'industrial undertaking' in subsection (1) but no such order shall have effect until it has been approved by Tynwald.
[Subs (2) amended by GC119/86.]
7 and 8 .. [Ss 7 and 8 repealed by GC119/86.] 9 Short title and commencement This Act may be cited as the Industry Board Act 1981 and shall come into operation on such day as the Governor in Council may by order appoint. [ADO (whole Act) 15/12/1981 (GC246/81).] Schedule 1
PARTI FUNCTIONS OF THE DEPARTMENT 1. To further industrial economic development. 2. To provide, maintain and safeguard employment in industry. 3. To promote industrial efficiency and competitiveness. 4. To assist in the provision of finance to persons carrying on or intending to carry on industrial undertakings.
5. To provide or assist in the provisions of advisory or other services or facilities for any person or undertaking. 6. To promote or assist in the promotion of publicity relating to the functions of the Department.
[Para 6 amended by GC119/86.] PART II POWERS OF THE DEPARTMENT 7. To carry on, or establish and carry on whether by itself or jointly with any other person, industrial undertakings. 8. To promote or assist the establishment, growth, reorganisation, modernisation or development of industry or any undertaking in an industry. 9. To make grants and loans to, and to guarantee the obligations of, industrial undertakings in accordance with section 4. 10. With the prior approval of the Treasury- (a) to acquire, hold and dispose of securities; (b) to form bodies corporate; (c) to form partnerships with other persons. [Para 10 amended by Treasury Act 1965 Sch 2.] 11. To act as agent for other persons. 12. To appoint consultants to advise on the exercise of the functions of the Department.
[Para 12 amended by GC119/66.] 13. To carry out or commission the carrying out of such enquiries, investigations or researches as the Department may deem necessary or expedient for the purposes of their functions.
[Para 13 amended by GC119/86.] 14. To take such other steps, or do such other things, as the Department may consider necessary for the proper discharge of the functions specified herein.
[Para 14 amended by GC119/86.] Schedules 2 and 3
[Schs 2 and 3 repealed by GC119/86.]
POLICE ACT 1993 (Chapter 11 ) Arrangement of Sections The police force etc. 1. Duties of Department of Home Affairs. 2. Appointment etc. of Chief Constable. 3. Functions of Chief Constable. 4. Reports to and directions by Department. 4A. Annual Report by Chief Constable. Statutory Document No. 398/01
INDUSTRY BOARD ACT 1981
INDUSTRY BOARD ACT (AMENDMENT) ORDER 2001
Approved by Tynwald: 12th July 2001
Coming into operation : 1st August 2001
In exercise of the powers conferred on the Department of Trade and Industry by section 6(2) of the Industry Board Act 1981 (a) and of all other enabling powers, the following Order is hereby made
Citation and commencement
1. This Order may be cited as the Industry Board Act (Amendment) Order 2001 and, subject to section 6(2) of the Industry Board Act 1981, shall come into operation on the 1st August 2001.
Amendment of the Act
2. For the definition of “industrial undertaking’* in section 6(1) of the Industry Board Act 1981 substitute -
“industrial undertaking” means a person who carries on any activity related to - (a) the design, development, production, assembly or manufacture of any product (whether organic or inorganic) or the treatment of any such product by any process, and for this purpose “product” includes any media and computer programs and data;
(b) the export from the Island, or the removal to the United Kingdom, of any such product;
(a) 1981c. 7
Price : 30 p. Price Code : A
1 (c) the supply, in or from within the Island, of any service to persons who -
(i) are outside the Island;
(ii) carry on business outside the Island; or
(iii) are usually resident outside the Island;
(d) the supply of any training service to persons who are in the Island;
(e) the provision or use of electronic communication (within the meaning of the Electronic Transactions Act 2000 ^ or communication by wireless telegraphy (within the meaning of the Radio Equipment Act 1986 Revocation 3. The Industry Board Act (Amendment) Order 1985 (d) is revoked. Made 20th June 2001 D. North Minister for Trade and Industry (b) 2000 c. 8 (c) 2000 c. 41 (d) Government Circular 305/85 EXPLANATORY NOTE (This note is not part o f the Order) This Order inserts a new definition of “industrial undertaking” in section 6 of the Industry Board Act 1981. 2 1981. CHAPTER No. 7. c. 7. INDUSTRY BOARD ACT 1981 Arrangement of Sections Section 1. Industry Board. 2. Constitution of Board. 3. Supplementary provisions relating to the Board. 4. Grants and loans. 5. Expenses. 6. Interpretation. 7. Amendments. 8. Repeals. 9. Short title and commencement. SCHEDULES — Schedule I — Functions of the Board. Powers of the Board. Schedule 2 — Amendment of certain enactments. Schedule 3 — Enactments repealed. Price :—70p. 3Slt Of Signed in Tynwald : 14th April 1981. to £23 it Received Royal Assent: 13th May 1981. Announced to Tynwald : 16th June 1981. Passed: 16th June 1981. AN ACT to provide for the establishment of an Industry Board; for the conferring of functions on that Board; and for connected purposes. W E, your Majesty’s most dutiful and loyal subjects, the Lieutenant Governor, Council and Keys of the said Isle, do humbly beseech your Majesty that it may be enacted, and be it enacted, by the Queen's Most Excellent Majesty, by and with the advice and consent of the Lieutenant Governor, Council and Keys in Tynwald assembled, and by the authority of the same, as follows (that is to say):— SZ.cJbCcr^s~*J I — 3 “Uj Or - C. 1- (1) As from the commencement of this Act, there industry shall be established a Statutory Board to be called th eBoar<*. Industry Board (in this Act referred to as “the Board”). (2) The Board shall ebcercise the functions and powers specified in Schedule 1 and such other functions or powers as may be conf ¿rred on it by any other statutory provision. 2. The Board shall consist of — Constitution of Board. (a) a Chairman, who shall be a member of Tynwald, to be ele bted by Tynwald; (b) two persons, who shall be members of Tynwald, to be ejected by Tynwald; u u ifiûUùtry ij'oara Act jy (c) one person, not bein g a member of Tynwald, capable of represent ng the interest of industry in relation to the functions of the Board, to be elected by Tynv aid; and (d) one person, not being a member of Tynwald, capable of represen ing employees in relation to the functions of the Board, to be elected by Tynwald. Supplementary 3. Sections 6 to 8, 11 and 12 of, and Schedule 1 to, provisions relating to the Boards of Tynwald Act 19 >2 (election and re-election Uie Board. of members, removal from office, casual vacancies, ;XVIII p. 147] authority to delegate powen and supplementary pro visions) shall, subject to an) necessary modifications, apply to the Board as they apply to a Board of Tynwald. ¡>U>i Grants 4. (1) The/Beafé may give financial assistance to any md oans. industrial unaertaking — 4 a - (a) by way of grant to an amount not exceeding / £30,000 during any period of 12 months; or * * dt-iCf-**'0 ^ \U&jOO¥~ (b) by way of loan to an amount not exceeding / £30,006 during any period of 12 months; or (c) by way of a grant and a loan to an amount not exceeding in the aggregate^£30,000 during any period of 12 months. (2) Without prejudice to subsection (1), the [Board- may, with the prior approval of the/Finaifce^Board, give i. yï'j financial assistance to any industrial undertaking, by way of grant or loan, or both, of any amount. y;hout prejudice to subsections (1) and (2), r e a ? may guarantee obligations arising out of loans or otherwise ii&urred Jay other persons to an x. _f.c. J^^^mount not exceedin^o6,00u aurmg any period of 12 ^m onths or, with the prior approval of th e/F inance Board, of any amount. I & u/wta (4) The/Finance Board may by order provide that subsections (1) and (3) shall have effect as if for the sum of £30,000 specified in each of paragraphs (a), (b) and (c) of subsection (1) and in subsection (3), there were substituted such larger sum as is specified in the order; but no such order shall have effect until it has been approved by Tynwald. -Uj é -c.. <1*1 [%<* (5) When thejïkktfé under subsections (1) and (3), or with the prior approval of the/Finance^Soar4 under subsections (2) and (3) provides financial assistance, or.^as the case may be guarantees obligations, the ¿G-m^rnmffnt Treasurer, on behalf of the Ltttfr&ï^snall be charged with the duty of making any necessary payments or as the -case may be, collecting and accounting for, and ot^envisejjianaging the expenditure and revenue of the[ikr£r€t in connection therewith- 5. Any expenses incurred by the/Boaré shall b e ExPen5es* u defrayed out of money provided by Tynwald. 6. (1) In this A ct—• , k . . r -F T'J.t'ÏÏZ uthc Board-’-has the-méaning- ass*gned-4o-rt-by ^ ■ section- 1(1)-;» . - r " " " , flku 7 “industrial undertakingr means a person who carries on any activity related to the design, development, production or manufacture of any product/and “industry” shall be 2^ its construed accordingly; “securities” has the meaning assigned to it by section 6^1) of the Prevention of Fraud (Investments) Act 1968, p- 3871 (2) The/Board-may by order amend the definition of “industrial undertaking” in subsection (1) but no such order shall have effect until it has been approved by Tynwald. 7. The enactments mention2d in Schedule 2 shall be Amejld™ents- amended in accordance with t iat Schedule. ^ c un fst. 8. The enactments mentionîd in Schedule 3 shall be repealed to the extent specified in the third column of that Schedule. 9. This Act may be cited as the Industry Board Act Short title and 1981 and shall come into operation on such day as the conunenceinent- Governor in Council may by order appoint SCHEDULES 1(2) SCHEDULE 1 PART I b e . —C FUNCTIONS OF THE^BQARD- 1. To further industrial economic development. 2. To provide, maintain and safeguard employment in industry. 3. To promote industrial efficiency and competitiveness. 4. To assist in the provision of finance to persons carrying on or intending to carry on industrial undertakings. 5. To provide or assist in the provisions of advisory or other * services or facilities for any person or undertaking. 6. To promote or assist in the promotion of publicity relating to the functions of the/Board. , PART II POWERS OF THE/BOARB- 7. To carry on, or establish and carry on whether by itself or jointly with any other person, industrial undertakings. 8. To promote or assist the establishment, growth, re organisation, modernisation or development of industry or any undertaking in an industry. 9. To make grants and loans to, and to guarantee the obligations of, industrial undertakings in accordance with section 4. 10. With the prior approval of the/Finance Board — (a) to acquire, hold and dispose of securities; (b) to form bodies corporate; (c) to form partnerships with other persons. 11. To-act as agent for other persons. 12. To appoint consultants to advise on the exercise of the functions of the , 13. To carry out or commission the carryijig out fof, such enquiries, investigations or researches as the/ÏKtffi£lmay deem necessary or expedient for the purposes of their functions. hJJ> Jo . tgke such other steps, or do such other things, as the may consider necessary for the proper discharge of the functions specified herein. industry Board Act 1981 69 SCHEDI LE 2 Section 7 AMENDMENT OF CER 'AIN ENACTMENTS The Payment of Members’ Expenses Act 1975 (c.. 15) r. (r-c. 6. In Schedule 1, omit entry ft«t / s c . In Schedule 4, after entry A insert — “3B. The Industry Boa d". "he Housing (Miscellaneous Provisions) Act 1976 (c. 1) In Schedule 3, in paragraph (a), for “Industrial Advisory icil" substitute “Industry Be ard”. 70 Industry Board Act 1981 c. 7. SCHED JLE 3 ENACTMENT i REPEALED Volume/Chapter Short Ti :Ie Extent of Repeal XVII, p. 423. The Developmc nt of The whole Act. Industry Act 1949. 1975, c. 15. The Payment c f In Schedule 1, Members’ Ex penses entry 16. Act 1975. 1980, c. 1. The Governor’s General In Schedule ], Functions (T *ansfer) entry 158 and the Act 1980. cross-heading appearing above that entry. 500—35177/7/81. ______Printed (by Authority) by Norris Modern Press Ltd.. Victoria St., Douglas /? y ^ T INDUSTRY BOARD ACT 1981 / INDUSTRY BOARD ACT (AMENDMENT) ORDER 1985 In exercise of the powers conferred on it by section 6(2) of the Industry Board Act 1981(a), and of all other powers enabling It in that behalf, the following Order is hereby aade:- Cltatlon and commencement 1. This Order may be cited as the Industry Board Act (Amendment) Order 1985 and, subject to section 6(2) of the Industry Board Act 1981, shall come into operation on the first day of November, 1985. Amendment of the Act 2. The definition of''industrial undertaking" in section 6(1) of the Industry Board Act 1981 shall be amended by inserting after the word "product" the words ” , whether organic or inorganic, the export from the Island or the removal to the United Kingdom of any such product, or the supply of any service to persons outside the Island,'1. Made this I S * day o± 1985 [Signature redacted] [Signature redacted] Explanatory Note (This note is not part of the Order) This order extends the definition of "industrial undertaking" in the Industry Board Act 1981. It will enable the Industry Board to provide financial support (a) c. 7. by öc-(üt>4«r ftVX for industrial projects embracing bio-technology and businesses exporting good or providing services outside the Island. It is not strictly correct to refer to a movement of goods from the Island to the United Kingdom as an export. The Order therefore refers to the remova of products to the United Kingdom in addition to export from the Island. APPENDIX 5 I AjejLEL£LILL& Ref: APP; ISLE OF MAN GOVERNMENT Department of Trade & Industry TERMS AND CONDITIONS - GOVERNMENT FINANCIAL ASSISTANCE A. Applicable to ALL in vest me at grants and loans 1. An administration charge of 2% of the total value of all Government financial assistance grant will be levied and deducted at sourcc. 2. When assistance is granted towards the cost of construction work, the applicant will underta] wherever practical, to seek tenders from the List of Approved Contractors (details of which m be obtained from the Secretary, Isle of Man Employers’ Federation, '‘Herondene”, Crossag Ro; Ballasalla, IM9 3DX - telephone: (01624-) 824454) for the work involved. If requested, t applicant will furnish copies of such tenders to the Department of Trade & Industry (hereinafl referred to as “the Department1’) for inspection. 3. All recipients of Government financial assistance will undertake to furnish the Department wi information as to how the development proposals, which formed the basis of theii application f assistance, are progressing. (a) New companies During the first year of operation the information to be provided will include cashflo- statements backed up by copies of bank statements, and management accounts incorporate details of sales, purchases and wages/salaries. This information must be provided monthl for the first six months and quarterly thereafter. (b) Existing comsamfis All companies must submit a copy of their Audited Annual Accounts, together with a writte: report on their progress. Representatives of the Department will make visits each half yea to discuss the progress of companies which have received financial assistance. 4. A representative of the Department is to be given the opportunity to inspect the plant, machinery buildings, etc., in respect of which assistance is to be paid, prior to the payment of sud assistance. 5. If the applicant shall cease to carry on the manufacture of the goods referred to in the application form within a period of ten years the applicant shall immediately, and in any event not later than one calendar month after the happening of such event, notify the Treasury thereupon the Treasury shall have the right to reclaim all or such part of the grant as the Treasury may determine and the applicant shall pay to the Treasury on demand the amount so reclaimed. 6. Approved financial assistance must be taken up by the applicant within a period of two years from the date of the approval of the award of such assistance, but without prejudice to a re- appiication being submitted by the applicant. B. Applicable to loans The applicant will execute and record an Instrument of Charge or Debenture in favour of the Treasury by way of security for the financial assistance given and such instrument of Charge or ..../continued over Debenture shall be prepared by H.M. Attorney General and shall contain such terms, powers, conditions as H.M. Attorney General shaJl consider requisite for better securing such fman assistance. C. Applicable to ALL investment grants 1. The grant will be payable on production of a certified statement or paid invoice to this ofl confirming that expenditure has been incurred in meeting costs detailed in the relev application. The applicant to certify that all invoices have been paid by completing form application F103. A false Declaration will lead to a reclaim of all or part of the grant paid. 2. The Department reserves the right to withhold payment of part of all of any grant claimed order to offset such amount against a debt owed to any Government Board or Department. 3. If the premises of the applicant, in ten years from the award of any Government financi assistance, cease to be used for industrial purposes the applicant shall immediately, and in ai event not later than one calendar month after the happening of such event, notify the Treasia thereupon the Treasury shall have the right to reclaim all or such part of the grant as the Treasui may determine and the applicant shall pay to the Treasury on demand the amount so reclaimed. 4. At the discretion of Government, applicants may be required to execute and record an Instrumer of Charge or Debenture in favour of the Treasury by way of security for the financial assistanc given and such Instrument of Charge or Debenture shall be prepared by H.M. Attorney Genera and shall contain such terms, powers, and conditions as H.M. Attorney General shall conside requisite for better securing such financial assistance. D. Applicable to investment grants in respect of buildings 1. The grant will be payable on production of paid invoices/certificates to this office, together with a completed form of application F103. 2. The Department reserves the right to withhold payment of pan or all of any grant claimed in order to offset such amount against a debt owed to any Government Board or Department. 3. Upon completion of the building the applicant will certify that the building has been erected and taken over in a satisfactory condition, and conforms to the specifications and Bye Laws of the relevant local authority, and the Department of Local Government and the Environment. 4. On the happening of any one or more of the events set out below within ten years from the date of completion of the building the applicants shall immediately, and in any event not later than one calendar month after the happening of such event, notify the Treasury thereupon the Treasury shall have the right to reclaim all or such part of the grant as the Treasury may determine and the applicant shall pay to the Treasury on demand the amount so reclaimed. (i) the building or any part thereof is disposed of by the applicant, by sale, lease, assignment, or other transfer; (ii) the building, works or any part thereof, or any item of works are destroyed; (iii) the building ceases to be used wholly or mainly for the purpose specified in the company’s application for Government financial assistance; ..../continued over £0-d nbiüi (iv) all or part of the buildings is occupied by a person or persons other than the applicant. E. Applicable to investment grants in respect of plant and machinery 1. The grant will be payable on production of paid invoices to this office together with tf completed form of application FI 03. 2. The Department reserves the right to withhold payment of part or all of any grant claimed i order to offset such amount against a debt owed to any Government Board or Department. 3. The applicant must confirm in writing that the plant and machinery, being in this case the subjec of Government financial assistance, has been received and is in satisfactory condition. 4. On the happening of any one or more of the events set out below within ten years from the dat of installation the applicants shall immediately, and in any event no later than one calenda month after the happening of such event, notify the Treasury thereupon the Treasury shall hav the right to reclaim all or such part of the grant as the Treasury may determine and the apphcan shall pay to the Treasury on demand the amount so reclaimed. t (i) the plant or machinery is charged or disposed of, or attempted to be charged or disposed of by the applicant; (ii) the plant or machinery is removed from the place of business of the applicant; (iii) the plant or machinery otherwise ceases to be used at the place of business of the applicant; Machinery or plant shall be taken to cease to be used if either the use thereof is terminated, or suspended fo r a period exceeding six months within the periods exceeding one year in aggregate, during the period o f TEN YEARS from the date o f installation, or ij the pla n t o r m achinery ceases fo r such p e rio d to he in w o rkin g order: (iv) the plant or machinery is not brought into use within six months from the estimated installation date shown on Form FI 03. On behalf of ...... I accept the terms and conditions herein stipulated inconnection with the offer of Government financial assistance notified to the company o n ..... ¿ .o ...... [Signature redacted] Signed: Name in BLOCK CAPITALS: ... Position in Company: ...... Date: .... K..B. Bawden, Chief Executive, Department of Trade & Industry, Illiam Dhonc House, 2 Circular Road, Douglas, Isle of Man, IM1 1PJ. Tel: (01624) 685675; Fax: (01624) 685683. June. 1999. i APPENDIX 6 I Business Proposal for a Film Studio in the Isle of Man Background The Isle of Man Government, through the DTI's Film Commission, has agreed to invest in Feature Films and Television series for the next 5 years. They have budgeted for a production slate of 6 feature films and 1 long running television series per year at an annual investment cost of £ 4.5million. The investment is based on both a critical review of the project in terms of content and commerdality together with a set of minimum %'s of principal photography and local "below the line" spend. The higher the proportion of these, the more favourably the production is considered. Two potential major drawbacks to the Film Commission’s plans are the lack of a state of the art purpose built Sound Stage and ancillary services, in the Island. Currently the majority of the films that are produced on the Island do not have an on Island facility for post production editing and on-line. With such facilities the Commission would be able to attract the calibre of production they want to fulfil their plans. The Lough House group, via its Subsidiary Company Island Studios, has acquired a 47-acre plot of land at Baldromma Farm with planning permission and with the intention of building an extensive film studio complex. Island Studios will enter into a partnership arrangement with a major UK film Editing Company, Edit Hire. Edit Hire will also base its offshore operation from the Island as a subsidiary company of Island Studios. The film studio complex, which will also boast the availability of 3 possible "back lot" positions, will offer all the facilities needed to fulfil the day to day operation of the Isle of Man’s burgeoning film industry. It will comprise an 11,200 sq. ft sound stage, scenery, complete editing and post production facilities, lighting and joiners workshops, full administration services, wardrobe, make-up and hairdressing facilities as well as accommodation for visiting film crews. There is also multiple on-site parking. The investment by Edit Hire will ensure that the Film-makers will have the most up-to-date pre and post production editing and effects equipment available, on site, to facilitate the ergonomic completion of their films, together with an ADR theatre which will enable Producers to complete voice pick-ups etc in-situ as well as providing the facility to view rushes etc. In essence we will be offering a "one stop shop" for any filmmaker who wishes to take advantage of the Film Commission's initiative. Management of the Studio The facility will be jointly managed by the two parties. It is intended that there will be 3 full-time staff permanently employed by the Studio who would look after the running of the facility. It is also the intention that these three staff positions will be drawn from the Isle of Man's labour pool and trained by Island Studios. The training will be in both the editing and lighting disciplines. It is intended that we will work closely with both the Isle of Man Multi Media Centre and the local schools and colleges to both enhance and develop the skills being taught there and to establish a skills base that will form the infrastructure for the Film industry. The Market We expect that virtually all Sales will be achieved as a direct result of the Film Commission's Investment Programme. If they are successful in meeting their targets then Island Studios should have the market/requirement for their services. For the purposes of this plan we have based our forecast on only attracting 2 feature films per year, which would have an average shoot time of 6 weeks per film, the editing of these films is estimated at 20 weeks. The Competition There is no like for like competition currently on the Island. There are two other Studios that have been used recently, VFG's Laxey Studio and the Space Island 1 studio at Balthane. Both these sites have inherent drawbacks for the professional Filmmaker ranging from size of stage, lack of facilities to quality of sound proofing and poor access. Our proposed studio will overcome all of these problem areas. Planning permission has also been granted for another studio to be built at Balthane. However it is not envisaged that any of the above will be offering the "total" service that will be available at Island Studios, if the Film-makers are serious about the IOM content of their films then we feel that they would have to use our facility. There is also the possibility of attracting the editing/post-production business from films produced on the Island but not using our Studio. Financial Rationale The attached profit and loss, balance sheet, and cash flow are based on the first full year of trading i.e. once all the building and fitting work is completed. The investment by the two companies has been treated as an equity premium. We have assumed that we will be eligible for the IOM government's Capital Grant of 40% of eligible costs. Land and Buildings have not been depreciated, the editing equipment has been written off over 4 years. Depreciation has been calculated on a straight line no residual value basis. We have assumed a rental rate of £4500 per week for the Studio, which is competitive with other similar facilities In the UK and Ireland. The rental for the editing equipment is slightly different as the equipment will continue to be used after the actual shoot is completed (a separate breakdown is attached for the editing equipment hire). Island studios ------ Schedule of Building works ____ ------item EOOO’s : I j! ! Services ------Excavate and fill for telephone, electric and water supplies • MEA supply and install 1000kw supply and services i 48.00 i (-lousing for above (brick built) j 5.001 2 Distribution Panels inside large studio ! 12.00j Telephone system to link site ; 10.00; Boundry Fence (north end) ; 3.501 Professional Fees 20,00’ 102.50 Large Studio/Sound Stage Strip soil, level .move and form bank 13.00 Substructure for Studio 30.00 Ground Floor slab i 38-OOf Scaffolding/pumps/anci hire 25.00, Steel clad studio 140’ x 80' x 35' (allied Steel) 106.0? ndproof roof 50.00 ------dL iVv studio to workshops and offices 2.0 0 studio Heating 12.00 Lighting and electrical 10.00 Toilet block 20.00 Septic tank and drainage 10.001 Screen Planting 11.00! 327.00 Refurbish wooden frame Studio j New roof for existing Offices 6.00 Block gable ends/new door/face up gables/plaster , 10.00 New roof for new office block inside Studio ! 6.00 Blockwork/flooring/lighting/heating 5 new offices 25.00 Repairs /ref urb existing offices (10 offices) 3.00 Build soundproof recording/editing suite inside long bam 20.00 IT cabling throughout 5.00 Office equipment (for hire) 1Ò.001 85.00 Workshops (currently triple barn) Demolition of existing buildings 15.00 ind works 10.00 v^^lacement Building 30.501 internal walls 9.001 Heat and Light 6.00 70.50 Groungworks to Driveway/hardstanding/carparks Reduce concrete in yard 3.00 Hardcore for carpark (600c/m) 10,00 Tarmac for road and hardstanding (2000c/m) 34.00 47.00 * Buildings/refurbs/planning 379.00Ì Land 71.00 450.00 Sub Total 1082.00 Contigency 63.20 Total 1145.20 27/10/00 App 1 ISLAND STUDIOS LIMITED DEPARTMENT OF TRADE AND INDUSTRY STAFF LEVELS/ADDED VALUE It is intended that the facility will be jointly managed by two parties, although it is hoped to recruit an experienced manager to oversee the day to day running. The editing staff will be brought in as required. All the staff except for the manager will be freelance thus the added value figure is relatively meaningless. ASSESSMENT Island Studios are proposing to establish a fully equipped facility on site with sufficient room for expansion. The link with Edit Hire gives credibility to the project, we were impressed with Nick Napier-Bell at our meeting. He appears to have the drive and determination to make the facility work. He emphasised that they would undertake marketing and would not be solely dependant on the Film Commission as a source of work. However, it remains to be seen whether this enthusiasm can be converted into studio bookings. The editing equipment is being supplied by Edit Hire and although we understand the majority will be new we always have concerns where a related party is a major supplier. We would, therefore, require an auditor’s certificate to be provided to confirm that equipment has been supplied at cost, or if second-hand, at an amount not exceeding net book value. We have put the private sector development of studios somewhat down the line when considering the future development of the industry. Essentially, we have a “chicken and egg” situation. If we support this application does it fit with long term industry development. But, if we wait to determine the exact shape of that future development, will the project still be there. In fairness, Don Westacott has been made to jump over a number of very difficult hurdles (that we have placed in his way) to get this far. This submission is very close to what we were looking for. The financial structure is such that if we get a first charge on the facility and its assets, reducing over ten years, then we will have recourse to a valuable asset to off-set the risk. Whatever happens, the asset will be there for others and our infra-structure is improved enormously. In essence, with Westacott funding there is little immediate prospect of the Department losing out. It is true that Westacott is not getting any younger, however, the protection of the asset is very significant. We believe that, on a stand along basis, this application meets our criteria, with a film bias added then it most certainly does. Page 8 ISLAND STUDIOS LIMITED DEPARTMENT OF TRADE AND INDUSTRY RECOMMENDATION Our recommendation is:- f £ Buildings 1,074,200 40% Grant 429,680 Plant and machinery 689,800 40% Grant 275,920 ■ Standard terms and conditions to be extended to ten years. a First charge to be taken over all assets to cover Government assistance. ■ Auditor’s certificate that equipment sold by Edit Hire is at fair value and does not include a profit element. Ernst & Young Jubilee Buildings Victoria Street DOUGLAS Isle of Man January 2001 Page 9 APPENDIX 7 I I J Department of Trade & Industry Rheynn Dellal as Jeadys Iliiim Dhone House Chief Executive 2 Circular Road, Qbuglu K B Bawdcn Iile of Man, British Utei IM1 1PJ Isle of Man Telephone (01624)685679 Government Fax (01624)685683 Our Ref: C388/EDK February 2001 Your Ref: Private & Confidential Mr D. Westacott Lough House Animation Ltd Approach Road Ramsey ) Isle of Man IM8 1EB Dear Mr Westacott Re: Government Financial Assistance I have pleasure in enclosing an official notification of the offer of financial assistance to your Company, which will be subject to the Department’s standard terms and conditions, applicable for ten years, set out in the attached appendix, a copy of which you should sign and return to me. In addition the following conditions apply: 1) There is no obligation on the part of the Department to give exclusivity to ISL and to continue to fund film projects beyond the current financial vote. 2) The Department to be provided with a first charge over all assets (land & buildings) to cover the assistance. 3) Auditor’s certificate to be provided to ensure that equipment sold by Edit Hire is at fair value and does not include a profit element. 4) The Company not to allow onto the site, nor to employ any person on the contract, directly or indirectly, as an employee or as a subcontractor or as an employee of a subcontractor unless they have produced to the Company, prior to being allowed onto the site to work on the contract, the appropriate Certificate under the Scheme for the Certification of Craftsmen 1990 and a valid Work Permit, unless the person is an ‘Isle of Man Worker’ as defined in the Control Of Employment legislation. 5) The Company to undertake to obtain quotations from local suppliers and/or producers for all goods and materials specified in the works and to give preference, wherever reasonable, to local Isle of Man labour, tradesmen and services and to use materials from Isle of Man-based producers and/or suppliers. 6) In the event that the owner’s building company is used to provide building services, auditor’s certificates of material costs (at cost only) and labour only (calculated at the basic rate per hour plus the company’s NI contribution) will be allowed. Once you have accepted the offer and returned a signed copy of the terms and conditions you will be able to claim on paid expenditure relating to the approved investment. Claim forms and invoice summary sheets are available from this office and must be completed before any claim, is submitted. The budget reference (as attached) must also be quoted on the invoice summary sheet. If you have any queries regarding this matter, please do not hesitate to contact me. Yours sincerely, Dave Kelly Development Executive Enc. Offer of Financial Assistance COMPANY: ISLAND STUDIOS LIMITED INVESTMENT GRANTS £ Approved in respect of expenditure on: Building costs of £1,074,200 40% investment grant to a maximum of 429,680 Plant & Machinery costs of £689,800 40% investment grant to a maximum of 275,920 Total grant 705,600 APPROVED INVESTMENT £ BUDGET REF. Building A Building costs 1,074,200 Plant & Machinery 689,800 B Plant & Machinery costs Total Approved Expenditure 1.764.000 Please Note: This offer in principle remains conditional until arrangements have been concluded to the satisfaction of the Department of Trade & Industry with regard to acceptance of all terms and conditions attached thereto and completion of all necessary legal documentation. for Chief Executive Finance Division The Treasury Government Office, Douglas Yn Tashtey Isle of Man, British Isles IM1 3PU Financial Controller P M Shimmin Telephone (01624) 685666 sleofMan Fax (01624) 685662 Government E-mail [email protected] Rttityt {¡Jan Vannn Ms E Wood Contact: K D Mathieson Development Manager Department of Trade & Industry Your Ref: 388/438 Illiam Dhone House Circular Road Our Ref: DTI/Film/Island Studios/PMS DOUGLAS Date: 14th February 2001 Dear Ms Wood Re: Island Film Studios Limited At its meeting on 14lh February 2001, the Treasury concurred to the following financial assistance and associated conditions :- £ 40% grant on Building costs of £1,074,200 to a maximum of 429,680 40% grant on Plant & Machinery costs of £689,800 to a maximum of 275,920 705,600 This offer is subject to the following:- 1) 10 years standard terms and conditions to apply. 2) It to be made clear in the offer letter to the company that there will be no obligation on the part of the Department to:- • give exclusivity to ISL; and • continue funding film projects beyond the current financial vote. The wording of the offer letter to be agreed with the Attorney General’s Chambers. 3) First charge to be taken over all assets to cover Government assistance. 4) Auditor’s certificate that equipment sold by Edit Hire is at fair value and does not include a profit element. 5) Usual building conditions to apply regarding :- • use of approved contractors; and • compliance with the scheme for the Certification of Craftsmen. 6) In the event that the owner’s building company is used to provide building services, auditor’s certificates of material costs (at cost only) and labour costs (calculated at the basic rate per hour plus the company’sNI contribution) to be submitted. Yours sincerely / [Signature redacted] P M Shimmin Financial Controller APPENDIX 8 i ISLAND STUDIOS LTD On 23 Kl October 2001, Phil Slattery rang me to say that an officer from the Isle of Man Employers Federation, Jocelyn Errington had contacted him in respect of using a UK company to build .part of the new studio and said that she would see to it that he wouldn’t be paid out on the grant. I told Phil that he should use Manx contractors wherever possible but told him I would talk to Neil Wilson before getting back to him Neil said that Jocelyn had already been in touch with him regarding the situation and he would contact her again. He further added that Island Studios Ltd should have contacted us to check that the reason given was satisfactory in order for the company to utilise the services of a UK contractor. Although the conditions in the offer letter does not include a sentence stating that permission should be sought from the Department before using a UK contractor, it does state that companies should obtain quotes from local suppliers for goods/materials and give preference, wherever reasonable to Isle of Man based labour/trade etc. Neil told me on 31st October that the situation with Jocelyn Errington had been resolved and asked me to contact Phil Slattery and ask why he had used a UK contractor. Phil told me that all the groundwork had been done by local workers but the company had used Allied Steel Frame Structures Ltd for the steel work of the operation. The reason behind this was because they were £60,000 cheaper than local quotes. I asked Phil why he hadn’t contacted the Department tin order for it to agree to ISL using a UK contractor but he said he didn’t realise he had to. I asked him to forward to me a letter explaining the situation regarding the steel works and to include the quotes etc and requesting that they be given permission to use a UK contractor. He said he had already submitted claims for payment as a result of some of the invoices received from Allied Steel but he will work out how much is still to be claimed in this regard. EDK 31/10/01 vV'i Cç \o)nj0) to) s j 0 \ Ut-1, io iSr 6/ MD-qo k/Woi n,o6i - ill, *1X2-So *Vo >c " t ISLAND STUDIOS Dave Kelly Department of Trade and Industry Hamilton House Peel Road Douglas 1M1 5EP 5 November 2001 Dear Dave, , I refer to our recent conversation about using Allied Steel to supply and erect the portal frame buildings at the Island Studios site. We offered the work for tender to 2 Isle of Man Companies and 3 UK Companies. Only one of the Isle of Man companies actually quoted, Wilson and Collins Limited, the other one said the job was too big for them. The decision to use Allied Steel was based purely on price. I have attached copies of quotes which show when comparing like with like the Wilson Collins costs were £ 149,956,00 compared to the Allied Steel quote of £ 105034.00 as this is a commercial venture we chose the latter. I should add at this stage we were also aware that we would be applying for grants for the studio and thought that the Department would not only appreciate but insist on using the most economical supplier. If you require any further information please give me a call. [Signature redacted] Island Studios Lvd )ixectors Tel: 01624 817151 Baldromma Farm Fax: 01624 81,150 |urbv Road >on A W esracort Registered in rhc Isle o f Man ' Ramscv Companv Number 3G0Q3C r i hil Slattery ' Islc ot Man I.M7 2E B Department of Trade & Industry Rheynn Dettai as Jeadys MEMORANDUM To : ICB. Bawden Esq., Chief Executive, DTI From : Dave Kelly, Development Executive cc : Elaine Wood, Development Manager Date : 06 November 2001 Subject : Island Studios Limited Introduction An offer letter dated 16th February 2001 was issued to Island Studios Ltd in respect of an application for a film studio complex. The actual expenditure approved was £1,074,200 with a 40 % grant offered in the sum of £429,680. As part of the conditions, the company had to obtain quotes from local suppliers for all goods and materials and to give preference, wherever reasonable, to local labour and also use materials from Isle of Man based suppliers. With regard to the steel works, the company asked for tenders from two Isle of Man companies and three from the U.K. However, only one of the Island based companies responded, (Wilson and Collins Ltd) the other local company stating that the job was too large. Island Studios Ltd wrote to the Department on 5th November 2001 advising the action it had taken and enclosing copies of the tenders. The quote for the erection of the portal frame buildings at the site, received from Wilson and Collins amounted to £149,956, while the cheapest tender was received from Allied Steel Frame Structures Ltd with a quote of £105,034. Assessment Island Studios Limited has acted in accordance with the conditions of the offer in that it has requested tenders from Isle of Man based companies as well as U.K. companies. The only local tender submitted in respect of the steel works was received from Wilson and Collins Ltd and is nearly £45,000 (42.7%) more expensive than the tender from Allied Steel Frame Structures Ltd and as this is a commercial venture, the company feel it is right to chose the less expensive option. It should be noted that Island Studios Ltd is using local contractors for all other parts of the project, but felt that the local quote for the steel works was too much in excess of their UK counterpart. Ian Thompson, Capital Projects Coordinator of the Treasury was requested to advise the Department whether, under the circumstances, it was reasonable for Island Studios Ltd to claim payment of financial assistance in respect of expenditure to a UK company. Mr Thompson replied that in view of the progress on site and the matter being in arrears he did not consider it unreasonable to accept the current position and allow the claim for payment in respect of invoices received from Allied Steel Frame Structures Ltd to proceed. Recommendation It is recommended that due to the considerably cheaper tender and the advice received from the Capital Projects Coordinator, the Department sanction Island Studios Ltd to accept the tender received by Allied Steel Frame Structures Ltd in the sum of £105,034. Chief Executive’s Comments...... [Signature redacted] u ep a riment oi i raae öc industry Rheynn Déliai as Jeadys MEMORANDUM To : Ian Thompson, Capital Projects Coordinator, Treasury From : Dave Kelly, Development Executive, DTI cc : Date : 19 November 2001 Subject : Island Studios Ltd I refer to our telephone conversation of 19th November 2001 and write to confirm my request on behalf of Island Studios Ltd. The above named company has been offered financial assistance with the construction of a film studio in Baldromma Farm, Lezayre. Part of the terms and conditions of the approval state that ‘the company to undertake to obtain quotations from local suppliers and/or producers for all goods and materials specified in the works and to give preference, wherever reasonable, to local Isle of Man labour, tradesmen and services and to use materials from Isle of Man based producers and/or suppliers.’ However, the steel works of the studio have been carried out by Allied Steel Frame Structures Ltd from the UK and the company has now applied for payment of the grant. Island Studios Ltd wrote to the Department explaining that they had asked for two local quotes but only Wilson and Collins Ltd replied. Their quote of nearly £150,000 was £45,000 (42.7%) more expensive than the quote submitted by Allied Steel Frame Structures Ltd. In view of the conditions related to this grant, please advise me if it is reasonable for the company to claim in respect of expenditure to a UK company. Please find a enclosed a copy of the letter from Island Studios Ltd, and the quotations from Wilson and Collins Ltd and Allied Steel Frame Structures Ltd. Kelly, Dave (DTI) From: Thompson, Ian Sent: 21 November 2001 08:04 To: Kelly, Dave (DTI) Subject: Island Studios Ltd Dave Ref your memo, bearing in mind progress on site, the matter is entirely 'in arrears' & it is not appropriate to ask them to try a little harder to find a local company. Under the circumstances it is not unreasonable to accept the current position & allow the grant. Regards Ian Thompson Capital Projects Co-ordinator for Government Tel: 01624 685981 Fax: 01624 685712 Email: [email protected] ( VARNING If you are not the intended addressee of this e-mail, you must not copy or deliver it to anyone else or use it ,n any unauthorised manner. l Kelly, Dave (DTI) From: Thompson, Ian Sent: 05 December 2001 07:12 To: Kelly, Dave (DTI) Subject: RE: Island Studios Ltd Dave, I think some clarification is required here. Whilst your comment is correct, I did state that I did not believe it to be appropriate to ask them to 'try a little harder1 - you will recall that the context of that statement was because the structure was already partially (if not completely) erected & that the application was 'in arrears' - as stated in my e-mail to you. I trust that this important fact was in your report to your CEO. In terms of the tenders being ’like for like' (whatever that means), that can only be done by a comprehensive review of the documentation - which I do not have. I would add that it is not normally a task that I would carry out for you & again the exercise would be after the event. Please let me know how you wish to proceed. Regards Ian Thompson Capital Projects Co-ordinator for Government Tel: 01624 685981 Fax: 01624 685712 Email: [email protected] WARNING If you are not the intended addressee of this e-mail, you must not copy or deliver it to anyone else or use it in any unauthorised manner. ■Original Message- From: Kelly, Dave (DTI) Sent: 03 December 2001 10:35 To: Thompson, Ian Subject: Island Studios Ltd Ian, You may remember a few weeks ago I asked you if it would be in order to accept the lower tender in respect of the steel works for the new studio at Balldromma Farm .The lower tender was from a UK company, Allied Steel Frame Structures Ltd, which was £45,000 cheaper than that of Wilson & Collins who quoted nearly £150,000. You informed me from a Treasury point of view that it would not be appropriate to ask them to try harder to find another local company. Since your reply, I have written a paper for Ken Bawden Chief Executive of DTI outlining the situation and including your recommendation. Mr Bawden has agreed to the recommendation assuming the tenders were 'like for like'. He further stated that a certified statement from a appropriately qualified professional should confirm this. I was therefore wondering, if in your role as a Quantity Surveyor, you could confirm that the tenders were like for like Thanks Dave Kelly As a ve*Jd < ^ ^ a: -t* ^1 l-i (J roji -i IaJi!. I1 ^ VO ■kA 1 ■£') p- J p1 tJ ISLAND STUDIOS Dave Kelly Department of Trade and Industry Hamilton House Peel Road Douglas IM1 5EP 21 January 2002 Dear Dave, I refer to our recent conversation about using Allied Steel to supply and erect the portal frame buildings at the Island Studios site. I can confirm that we did not send a written specification to any of the potential suppliers, we ask for a quote based on a telephoned spec. You will see from the attached that all suppliers quoted on the same size buildings and that the Allied Steel quote was the lowest, as previously described. The exceptional quote to the other two was Robinson's, also not an I.O.M. company whose quote does appear to be lower but does not include erection, (of the building). If you have any other questions please give me a call, I will resubmit the grant claim for Allied Steel invoices later this week. [Signature redacted] iihm d Studios Ltd Dirccro.fi' Tel: 01624 81 .’151 Bnldrommn Fncm Fax: 01624 817150 jurbv Ronci D o n A W’estacort Registered inrhe Isle of Man * Rnmsev Company Number 36003C , , - . Phil Shurcrv ' isle <>i Man i\r:EB APPENDIX 9 n HARDINGLEWIS Chartered Accountants • Business Advisors * Registered Auditors 4 Athol Street Douglas Isle of Man IM 11LD Tel: {0)1624 679524 Fax: (0)1624 621070 E-mail: [email protected] Website: www.fiafdinglewis.com Reference: AMG/7059 6* March 2003 For the attention of Mr. D. Kelly Department of Trade and Industry Hamilton House Peel Road Douglas IM1 SEP Dear Sir Island Studios Limited (‘the Company’) We are the auditors of the above named company. We have been requested to provide an audit certificate to you in respect of the grant monies received from your department with regard to the construction of the film studios and related buildings and purchase of related plant and equipment, in accordance with your letter dated 12th September 2002 (Appendix A). Background Island Studios Limited is an Isle of Man registered company, registered number 036003C. Its stated activity is that of film production services. The company's registered office is situated at Lough House, Approach Road, Ramsey. The directors are Mr. D. Westacott and Mr. P. Slattery who are both residents of the Isle of Man. The shareholders of the company as stated on the Annual Return dated 31st March 2002 are Mr. D. Westacott and Mr. N. Napier-Bell. The company has constructed film studios and related buildings at the site known as ‘Island Studios' situated off Jurby Road near Ramsey in the Isle of Man. Total expenditure by the Company, as recorded in the draft financial statements of the company up to 30th November 2002, was as follows: Studio buildings £1,401,906 Studio equipment £689,800 Plant (e.g. generators) £71,859 Vehicles £39,894 A grant from the Department of Trade and Industry {'The Department') of the Isle of Man Government has been received in the sum of £705,600 less a 2% administration charge. The grant is the subject of a Mortgage Debenture and a Deed of Limitation dated 6th September 2001. ^an".firs: A.IA Gèrrard, A.H. Sharce Page 1 of 3 In submitting the grant application, the company forwarded supporting copies of invoices to The Department Supporting invoices included invoices addressed to entities other than The Company, such as Stonegate Property (2000) Limited. The Department have requested that the company’s Auditors provide a certificate ’confirming that expenditure in the name of Stonegate Property (2000) Limited, Baldromma, Mr. Westacott, Lough House etc. is bona fide expenditure of The Company1. We understand that The Company used the Stonegate companies (namely Stonegate Property Limited and Stonegate Property (2000) Limited) as the building contractor for the construction of the film studios and that no profit was made by these companies in this respect. We also understand that Mr. D. Westacott beneficially owns the Stonegate companies, although we have not verified this. Reference to wages and subcontractor payments relate to employees and subcontractors of Stonegate Property (2000) Limited. Reference to the film studios and related buildings relates to building work at the site known as ‘Island Studios' off the Jurby Road near Ramsey. Scope of our work We have designed our work to verify the grant claim as follows: 1. To ensure that amounts claimed are supported by invoices (in the case of purchases) or timesheets (in the case of wages or subcontractors). 2. To ensure that invoices addressed to Stonegate Property Limited and Stonegate Property (2000) Limited for which grant assistance has been received, have not been accounted for as costs by these companies in their books of Account, or if they have, that they have been recharged to The Company 'at cost’. In carrying out our work we have examined the books of account of The Company, Stonegate Property Limited and Stonegate Property (2000) Limited. In reviewing sample invoices supporting the claim, we have sought to ascertain that the goods (including labour, plant and equipment) purchased could reasonably have been used for constructing the film studios and related buildings and the purchase of related plant and equipment. We have not sought to ascertain whether goods have been specifically used by The Company for the construction of the film studios, or for their future operation (e.g. in the case of sound equipment), as in our view this was not possible. Results 1. Sample invoices vouched in respect of the grant claim indicate that goods and services purchased were ‘at cost' and could reasonably be in respect of the construction of the film studios and related buildings. Although many invoices were addressed to names other than island Studios Limited (to names such as the Stonegate companies), there was no evidence to indicate that the goods or services were used other than for the construction of the film studios and related buildings. 2. We attempted to physically verify a sample of equipment purchased. A number of items of equipment were not available for inspection. We were informed that such items are on occasion hired out and so held at other locations. We have not verified this. 3. Sample timesheets verified support the claim that the wages or subcontractor labour was in respect of the construction of the film studios. It was noted, however, that the timesheets reviewed were written out by the site manager on behalf of the employee or subcontractor and were not signed by the employee or subcontractor. Page 2 of 3 4. Some minor discrepancies were found in the grant claim calculation. For example it was discovered that employers’ national insurance had not been claimed for grant assistance. However, given that the grant claim was restricted to a maximum amount, the errors found had no effect on the amount of the grant received. Conclusion In summary, the scope of our work cannot be conclusive in determining whether expenses for which grant monies have been claimed are bona fide expenses of Island Studios Limited. Rather, due to obvious physical limitations, it is only possible to ascertain whether the goods (including labour), equipment and plant purchased could reasonably have been used for the purpose of constructing and future operation of the film studios. Based on work performed, no information has come to our attention, which would indicate that amounts claimed in respect of the grant were in respect of (1) building work other than in relation to the construction of the film studios and related buildings or (2) equipment and plant other than may be used for the purpose of operating film studios. Yours faithfully [Signature redacted] Cc: Mr. P. Slattery, Island Studios Limited Page 3 of 3 ¡ ! i i APPENDIX 10 I ! EDIT-HIRE POST PRODUCTION SERVICES 11 WASDOUB MEW, IONDON W1F 8AU Tel 0207 529 9900 Fax 0207 434 2028 ( r Island Studios Invoice No. . 2181 Lough House Approach Road Invoice/Tax Date 17/10/01 R a m se y Isle of Man Order No. IM 8 1E M isi on l Account Nö. v ______-______) ------y For equipment supplied to Lough House for studio complex T o ta l C o st (See attached sheets for complete breakdown of equipment) Bank Details: Barclays Bank pic 27 Soho Square Lon don WIA4WA Sort Code: 20-78-98 Account No: 00489654 Account Name: Violet Systems Ltd t/a Edit-Hire Post Productions ISLE OF MAN STUDIO TECHNICAL LIST These costs are appropriate as of the time of this schedule but may vary up or down depending on negotiations at the time of purchase. SECTION A.: 1 x Avid Symphony £ 87,000.00 1 x Avid Film Composer XL £ 48,000.00 l x Avid Unity Media Net £ 16,400.00 Avid Unity MEDIArray (containing 10 x 50 gb drives) £ 26,000,00 2 x Grade \ Sony 20” Monitors £ 10,000.00 J x Digi-Beta £ 27,500.00 1 xBeta SP 1800 £ 5,100.00 t x Sony 7040 DAT Player £ 4,500.00 1 x DLT Back-up System £ 7,000.00 2 x Universal VHS Machines £ 1,700.00 I x Vectorscope £ 3,500.00 1 xPPM £ 500.00 1 x CD Player £ 250.00 2 x Amplifier £ 500.00 4 x Speakers £ 500.00 2 x Mixers £ 1,700.00 1 xUPS £ 250.00 TOTAL £240,400.00 SECTION B: 5 x Avid NT Für* Composers £240,000.00 2 x Beta SP 1800 £ 10,200.00 2 x Sony 7040 DAT Player £ 9,000.00 2 x DLT Back-up System £ 7,000.00 3 x Universal VHS Machines £ 2,550.00 4 Way Unity £ 20,000.00 2 x Drive Chassis + 20 Drives ( 18gb) £ 22,400,00 3 x Mixers £ 2,550.00 3 x 20” Sony Grade 2 Monitors £ 6,000.00 6 x Speakers i 750.00 3 x Amplifiers £ 750,00 3 x CD Players £ 750.00 UPS £ 250,00 TOTAL £322,200.00 ISLE OF MAN STUDIO SECTION C: Lightworks £ 10,000.00 1 xBeta SP 1800 £ 5,100,00 1 X Sony 7040 DAT Player £ 4,500.00 1 X DLT Back-up System £ 3,500.00 1 X Universal VHS Machines £ 850.00 1 X Mixers £ 850.00 1 X 20” Sony Grade 2 Monitors £ 2,000.00 2 X Speakers £ 250.00 I X Amplifiers £ 250.00 1 X CD Players £ 250.00 IxU PS £ 250.00 6 X I8gb Drives £ 3,000.00 TOTAL £ 30,800.00 SUNDRIES: I x 42" Plasma £ 6,000.00 1 xNTSC 1800 Beta £ 6,000.00 I x 6 Plate Steenbeek £ 15,000.00 1 x Cutting Room Bench £ 150.00 2 x Joiners £ 700.00 1 x Numbering Machine £ 3,000.00 1 xCompeditor £ 3,000.00 1 x Amplifier £ 250.00 4 x Spools £ 400.00 TOTAL £ 34,500.00 ISLE OF MAN STUDIO SOUND THEATRE: PTAV Sound Station £ 25,000.00 4 x 9 gb Drives £ 2,000.00 1 xBctaSP 1800 £ 5,100.00 1 x Sony 7040 DAT Player £ 4,500.00 1 X 8 Track Tascam. £ 6,000.00 1 x Microphone £ 1,700.00 2 x Genelex Speakers £ 3 50.00 1 x Yamaha 02R (all board configurations) £ 5,500.00 Other electronic sundries £ 2,000.00 Effects Library Lexacon Reverb Unit £ 2,500.00 1 x CD Player £ 250.00 50” Plasma £ 7,000.00 TOTAL £ 61,500.00 OVERALL TOTAL £689.800.00 TQTPL P.04 APPENDIX 11 ISLAND STUDIOS LIM ITED DEPARTMENT OF TRADE AND INDUSTRY FUTURE PROSPECTS The company have produced the following forecast for the next five years Y ear 1 Year 2 Year 3 Year 4 Y ear 5 £ £ £ £ £ Income Hire income (based on 2 films X 6 weeks each) 54,000 54,000 54,000 54,000 54,000 Ancillary hire income 24,000 24,000 24,000 24,000 24,000 Hire of editing/post production equipment 116,000 116,000 116,000 116,000 116,000 Off Island editing handling fee 30,000 30,000 30,000 30,000 30,000 Hire of lighting handling fee 12,000 12,000 12,000 12,000 12,000 Rental income from Lough House Animation 24,000 24,000 24,000 24,000 24,000 Amortisation of grant income 141,000 141,000 141,000 141,000 141,000 Total income 401,000 401,000 401,000 401,000 401,000 Costs Staff salaries 30,000 30,000 31,000 32,000 33,000 Editing salaries for Island production 50,000 50,000 50,000 50,000 50,000 Maintenance 15,000 20,000 25,000 30,000 35,000 PR 25,000 10,000 10,000 10,000 10,000 Depreciation 173,000 172,000 172,000 172,000 - Interest 59,000 -- - - Dark time (heating, Lighting, power) 3,000 3,000 3,000 3,000 3,000 Set up costs 25,000 --- - 380,000 285,000 291,000 297,000 131,000 Net profit/(loss) 21.000 116,000 110,000 104,000 270,000 Cumulative profit/ (loss) before tax 21,000 137,000 247,000 351,000 621,000 ^_ —------— ______ The hire income assumptions tor the studio are that it will be in use for twelve weeks per year and the editing equipment for forty weeks. Page 4 Island Studios Schedule of hire of Editing Equipment the revenue is based on the following assumptions: The Editing suites will be used for both Island productions: based on 2 films per year using an average editing period of 20 weeks per film, and offshore work via an ASDL link. For clarification ail Island productions will be attributable to Island Studios and there will be a charge of a 5% royalty on Offshore work. The Offshore work will be invoiced and accounted for as a seperate subsidiär/ Company of Island studios and is not included in this plan. £'s a) Feature Films: Editing 40 weeks hire @ £800 per week 32000 b) Lightworks: 40 weeks hire @ £ 800 per week 32000 c) Sound Complex: Based on 8 weeks ADR requirement for feature films @£150 per hour 48000 d) Rushes Viewing and Sound Theatre: Features 80 hours @ £60 per hour 4800 116800 27/10/00 App 6 ps/is/eh EDIT-lllRE INTERNATIONAL ISI,E OF MAN WORK INVOICED THROUGH ISLAND STUDIOS PROJECT UP TO 8 MONTHS FILMED IN EDITED IN 10% COMMISSION TO 30/09/03 01/05/04 ISLAND STUDIOS £ £ £ Blackball 58,600 0 IOM LONDON Trauma 24,318 20,800 ISLAND LONODN 4,512 STUDIOS Sale Dose 38,950 0 IOM LONDON Catwoman 4,680 125,313 VANCOUVER LÀ Kigali 0 28,250 SOUTH LONDON AFRICA Ripley s Game 13,040 0 ISLAND LONODN 1,304 STUDIOS Tam worth Two 0 10,500 10M LONDON TOTAL SALES 139,596 COMMISSION AT 3,736 10% COST OF SALES 135,860 TOTAL: £184,863 APPENDIX 12 To Whom It May Concern: Root6 is Avid’s premier reseller for London. We have been a Avid reseller for 3 years and have grown into the premier position through a strong product and market knowledge along with continued revenue success for Avid products. This resulted in us winning No.1 status in Europe last year. I write to confirm that having reviewed the pricing in the proposal dated May 2001 from Mr Nick Napier-Bell of Edithire that all pricing shown is representative of the current market pricing. In fact in many cases I would say the pricing shown is actually below market rate. Yours sincerely [Signature redacted] John Harris Sales and Marketing Director Root6 Limited S C H A V E R I E N & CO (irajics Ho 79A High St ______Chartered Certified Accountants Kslicr, Siiri K I IO <»o| VI 14/AJS/pas T.rl: 01 » 72 1/1 l':ix: 01372 1 7 November 2002 firt^schuvcriv.n.l Intern«:!: liltp://ivww.s«hav«rri| Department of Trade & Industry Uliam Dhoon House 2 Circular Road Douglas Isle of Man Dear Sirs, Re: R J Napier-Bell Esq and Island Studios Ltd We confirm that we act as accountants for Mr Napier-Bell and act for him as auditors to his various business interests. We further confirm that to the best of our knowledge and belief the equipment provided to Island Studios Limited as detailed in the attached schedules was sourced from Mr Napier-Bell and his associated businesses. Yours faithfully, [Signature redacted] Kt'fa*h‘H'it tix tmiiilitn 111//* lilt’ A)Al>ri(lti i iirgitternl (is n •hrttt riMilmll . m u t e r th e Si-lui'crjfn t-CCA Mirfuri:! M. Piilmn .41.1 A f CCA Ciiii-'.ilumt Man.a”-! Arnljc« I. linlsort A FA \TT VJ.m.i^r S:tmlr.i J. He <■ ■ i Il 2002 17:08 FAX 020 7454 2029 EDITHIRE @3 004 l'f'Q\ô hKUn LUUbH MUUifc HJ ISLE OF MAN STUDIO TECHNICAL LIST These costs are appropriate as of the time of this schedule but may vary up or down depending on negotiations at the time of purchase. SECTION A.: 1 x Avid Symphony £ 87,000.00 I x Avid Film Composer XL £ 48,000.00 I x Avid Unity Media Net £ 16,400.00 Avid Unity MEDIArray (containing 10 x 50 gb drives) £ 26,000,00 2 x Grade I Sony 20’7 Monitors £ 10,000.00 1 x Digi-Beta £ 27,500.00 1 xBeta SP 1800 £ 5,100.00 1 x Sony 7040 DAT Player £ 4,500.00 1 x DLT Back-up System £ 7,000.00 2 x Universal VHS Machines £ 1,700.00 1 x Vectorscope £ 3,500.00 1 xPPM £ 500.00 1 x CD Player £ 250.00 2 x Amplifier £ 500.00 4 x Speakers £ 500.00 2 x Mixers £ 1,700.00 1 xUPS £ 250.00 TOTAL £240,400.00 SECTION B: 5 x Avid NT Fibn Composers £240,000.00 2 x Beta SP 1*00 £ L0,200,00 2 x Sony 7040 DAT Player £ 9.000.00 2 x DLT Back-up System £ 7,000.00 3 x Universal VHS Machines £ 2,550.00 4 Way Unity £ 20,000.00 2 x Drive Chassis + 20 Drives ( 18gb) £ 22,400.00 3 x Mixers £ 2,550.00 3 x 20” Sony Grade 2 Monitors £ 6,000.00 6 x Speakers £ 750.00 3 x Amplifiers £ 750.00 3 x CD Players £ 750.00 UPS £ 250.00 TOTAL £322,200.00 o s 'l l 2002 17:OS FAX 020 74J4 2028 EDITHIRE 0003 iï-w hKun LUUUH Muubb iu 02074342029 P.03/04 1SLEOF MAN STUDIO SECTION C: Lightworks £ 10,000.00 I xBeta SP 1800 £ 5,JOO.OO 1 X Sony 7040 DAT Player £ 4,500.00 1 xDLT Back-up System £ 3,500.00 1 x Universal VHS Machines £ 850.00 I x Mixers £ 850.00 1 x 20” Sony Grade 2 Monitors £ 2,000.00 2 x Speakers £ 250.00 1 x Amplifiers £ 250.00 1 x CD Players £ 250.00 IxUPS £ 250.00 6 x 18gb Drives £ 3,000,00 TOTAL £ 30,800.00 SUNDRIES: 1 x 42" Plasma £ 6,000.00 1 x NTSC 1800 Beta £ 6,000.00 1 x 6 Plate Steenbeck £ 15,000.00 1 x Cutting Room Bench £ 150.00 2 x Joiners £ 700.00 1 x Numbering Machine £ 3,000.00 1 xCompeditor £ 3,000.00 1 x Amplifier £ 250.00 4 x Spools £ 400.00 TOTAL £ 34,500.00 OZ .‘l i 2002 17:03 FAX 020 7434 2028 EDITHIRE 0002 u>^-ni 1V:<3H IN I HUGH wni IÇJP T il ISLE OF MAN STUDIO SOUND THEATRE: PTAV Sound Station £ 25,000.00 4 x 9 gb Drives £ 2,000.00 I xBeta SP 1800 £ 5,100.00 1 x Sony 7040 DAT Player £ 4,500.00 1 x 8 Track Tascam £ 6,000.00 I x Microphone £ 1,700.00 2 x Genelex Speakers £ 350.00 \ x Yamaha 02R (all board configurations) £ 5,500,00 Other electronic sundries £ 2,000.00 Effects Library Lexacon Reverb Unit £ 2,500.00 1 x CD Player £ 250.00 50” Plasma £ 7,000.00 TOTAL £ 61,900.00 OVERALL TOTAL £¿89*800.00 TOTRL P.QA Department of Trade & Industry Rheynn Dellal as Jeadys Hamilton House Peel Road, Douglas sie of Man Chief Executive Isle of Man, British Isles Government Chris Corlett IM 1 5 E P ; / t u . < £ I I a tt V 1 July 2004 Our Ref: Your Ref: C/PaSC3/mcl and C/PaSC3/tl Mrs Marilyn Cullen Office of the Clerk of Tynwald Legislative Buildings Douglas Isle of Man IMI 3PW Dear Mrs Cullen Sub-Committee of the Standing Committee on Expenditure and Public Accounts on Island Studios Ltd I refer to your letters dated 13 May 2004 addressed to Ms Dugdale as well as your letter dated 3 June 2004 addressed to myself and apologise for the delay in replying due to assembling information as well as staff holidays. 1. Ms Dugdale’s oral evidence I shall deal with the recoupment issue raised in the letter to Ms Dugdale in the first instance. In her oral evidence Ms Dugdale referred to recoupment in its broadest sense including: ♦ direct return on investment including ownership of film rights of £6.1M to date ♦ Local spend (cumulative to date of £44.75M) and number of bed nights created (cumulative to date 140,000) ♦ Direct Exchequer benefits of £11M cumulative to date arising from this local spend ♦ Indirect Exchequer benefits ♦ Intangible benefits, e.g. the positive exposure that the film industry generates for the Isle of Man worldwide. The detailed analysis of recoupment on a film by film basis is commercially sensitive and I am unable to disclose them in a public forum. I would be pleased to discuss them privately. Page 1 of 4 2. Mr Corlett’s oral evidence I shall now deal with the issues relating to my oral evidence in the same order as raised in your letter dated 3 June 2004. a. I enclose a copy of the Guidelines in force at the time of the grant application for your information, (Attachment 1) These Guidelines have since been reviewed and expanded and additionally I enclose a copy of the current Guidelines for your records. (Attachment 2) b. I trust that my explanation in section 1 deals with this point to your satisfaction. c. I enclose the consultancy agreement with Ernst & Young which was in operation at the time of Island Studios Ltd grant application. (Attachment 3) d. The person who now has primary responsibility for evaluating grant applications under the Industrial Financial Assistance Scheme (IFAS) is Ms Sheila Thomson through her company SNT Consulting Limited. Ms Thomson is reluctant for the commercially sensitive information contained in the contract to be disclosed in public. I understand that she is willing for the contract to be disclosed in private. Additionally the DTI has a contract in place with Gasworks Media Limited for the services of Mr Steve Christian. His role includes facilitating film investment, advising the Department on economic strategy matters and evaluating a small number of the larger grant applications. Mr Christian is also reluctant for the commercially sensitive information contained in this contract to be disclosed in public but I understand that he is willing for this contract to be disclosed in private. e. I attach a schedule detailing information supplied to us by Island Studios Limited regarding the equipment and its current location. (Attachment 4) I attach a schedule detailing the income earned from equipment hire. (Attachment 5) Condition A4 gives the DTI an option to inspect equipment should it consider it to be appropriate in the individual circumstances of a particular case. In this instance the DTI did not consider it necessary to inspect the equipment prior to payment being made due as the Department was in possession of a third party valuation provided by a respected industry expert as well as invoices. DTI officers and representatives made numerous visits to Island Studios, during which the equipment was observed in use. The security arrangements (i.e. the first charge over the land and premises) provided additional comfort to the Department. Two visits were made by Work Permit Inspectors in conjunction with the DHSS to the Island Studios site. On both occasions no workers were present on the site due to adverse weather conditions. 3. Additional information I would like to expand on my oral evidence by providing the following additional information which I believe may be helpful to the Committee. Page 2 of 4 3.1 Lough House Animation Limited The training programme for digital animators at Lough House Animation Ltd was formally approved by the Department’s Training Services staff. Each trainee had a formal training agreement to which the trainee, Lough House Animation Ltd and the Department were signatories. Progress against this programme was supervised by Training Services, who made regular visits to Lough House Animation Ltd. Upon successful completion of the programme, each trainee received a signed, bound document confirming that they had completed this programme. Where possible, Training Services require trainees to undertake programmes that lead to externally accredited qualifications that are recognised by the industry sector. However, in a number of sectors, such qualifications are not available or recognised, for example plastering and carpet fitting. This is particularly the case for emerging sectors and/or skills. This applies to media-related sectors such as digital animation. As a further example, Training Services assisted the Manx Multimedia Centre in the same way as Lough House Animation Ltd prior to the Manx Multimedia Centre gaining recognition for their training programme during 2003. 3.2 Equipment Since my oral evidence I have confirmed that Root 6 valued the equipment after physically inspecting and assessing the equipment in the full knowledge that it was second hand equipment. It has always been the understanding of the DTI that the equipment would be leaving the Island on certain occasions in order to derive the full economic benefit from the assets resulting in income to Island Studios Limited. I attach a schedule detailing income derived for Island Studios Limited from editing work performed in London. The Department uses the duration attached to terms and conditions to protect the taxpayer’s investment in case of improper activity and to help to retain the economic activity on the Island by acting as a deterrent in the form of a significant exit cost. The Department consciously flexes this duration in relation to the assessed risk and scale of investment. This was done in the case of Island Studios, where the normal period of 3 to 5 years for terms and conditions was extended to 10 years. This means that in some instances the duration is longer than the expected life of some or all of the equipment which has been grant aided. Our experience shows that businesses have a vested interest in maintaining equipment in order to support trading activities and to avoid defaulting on other conditions and thus being liable to re-pay the grant. In the case of Island Studios Ltd, the Department has been assured by the company that the equipment still has several years of economic life remaining as it is in fact the software that is regularly changing rather than the hardware. We understand that Island Studios Ltd have already made several software upgrades since the company started. The equipment was listed and incorporated in the Mortgage Debenture Agreement as an additional control. Page 3 of 4 Since the inception of the project the DTI has received two updates as to the whereabouts of the equipment. The DTI will be receiving six monthly updates in this respect in future. The most recent update is attached for your information. 3.3 Industry Expertise I am conscious that some concern was raised as to the level of involvement of Mr Nick Napier-Bell with Island Studios Ltd, whose film industry experience and expertise were an important factor in approving the grant application. Mr Napier-Bell has been actively involved in the acquisition, production and sale of the five productions that have used the studio to date. Mr Napier-Bell is in weekly contact with Isle of Man Film Commission officers and is often involved with the studio on a daily basis during productions. 3.4 Strategy By 1996/97 the DTI had identified the need for a film studio in order to develop the Film Industry on the Island and as such obtained planning approval for a film studio to be built at Jurby. The capital estimates of the Department included a figure of up to £2M in respect of this project. Additionally building and operating the studio as a Government concern would have involved significant annual recurring costs for the Department. By supporting the private sector in this venture the DTI has managed to secure a film studio for the Island at reduced cost and risk to the taxpayer. Cost was reduced from £2M one-off capital costs and tens of thousands of pounds in recurring revenue costs to £704,600 one-off costs and nil recurring costs. Risk was reduced from the total value of the planned investment (£2M) to a negligible level thanks to the first charge of £704,600 over a site which has been valued at £1.75M by the Government Valuer more than two years ago. The film studio has been critical in securing more film productions than could be achieved without a studio, and also more valuable and prestigious productions such as Piccadilly Jim and the Libertine. As a result the Department is satisfied that the studio has made a vital contribution to our successful and expanding film industry, which is a key element of the Government policy of economic growth and diversification. In closing I trust that the information enclosed is helpful. Please do not hesitate to contact me should you require any further information. I look forward to seeing the Committee’s findings shortly. Yours sincerely [Signature redacted] Chris Corlett Chief Executive Page 4 of 4 APPENDIX 13 ISLAND STUDIOS Dave Kelly Department of Trade and Industry Illium Dhone House Circular Road Douglas <2ï ❖ 02 July 2001 Dear Dave, IVe attached the first application for Government Financial Assistance, against the approval on 30/01/01. The costs spent to date have all been on the approved planning and not the more recent application that is under review. Because we have such a short build time, 3-4 months, it is our intention that we apply for the funding on a monthly basis. Could you let me know if this causes any problems. I've attached all the relevant invoices for the claim with the exception of the building conveyance, which you already have a copy of. The amount included on this item is buildings only as noted in our original application. If there are any problems please give me a call at the Lough House nos. 817151 and until we have moved over to the Studio please address all correspondence to the Lough House address: Lough House, Approach Road, Ramsey. IM8 1EB Yours sincerely, ^ Vo sa$Lsi ^ [Signature redacted] p-ojk Vx - X ^ ia*A ^ SVeve. oi j * iftlq, is CUa**. AVr^W.. Pfiil Slatter/ ^ wWpWU ^wa/) ^ , Utf / C&A \^_ UJk to^r \-o «juuyn \Jr vtajyL, \JcUXt 04 •sKjV SX<^cO> C ^yja. fvjuj d VvAVt. fa Wyiit’f® t | ^»Jr tv? tiiAA, 'K3 Wv>tc~ ---- fe A 6 r, l-ax/i vvo />A-*ixr<\ ^ -UTiL^-iA^ '^CvJUj 5 £L*i< ca jxfydbstttXpn . (mi c u ^ V*W tjf£i lXa^ ,r4-.C.^i t ^ bxjJ^Kv) -EB W UrsSlX V m 1M?| a* . ¿C. Application for Payment of Government Financial Assistance This form must be completed when a claim is made for Financial Assistance previously agreed to in principle by the Government. The claim hereby made must be supported by a receipt invoice or certified statement in respect of each item of expenditure detailed below 1. Name of Company Island Studios Limited Address Approach Road Ramsey IM81EB 2. Government Financial Assistance approved in principle on 30/01/2001 Buildings £ 1074200 X 40% £ 429680 Plant & Machinery £ 689800 X 40% £ 275920 Special first year Expenses £ X 40% £ Other £ X 40% £ 3. Financial Assistance now claimed in respect of certified expenditure on: Buildings £ 402338 X 40% £ 160935.40 Plant & Machinery £ X 40% £ Special first year Expenses £ X 40% £ Other £ X 40% £ 4. Date of installation: To June 2001 5. Declaration 1st Appplication I hereby apply to the Isle of Man Government for financial assistance as detailed above. I certify that the expenditure detailed, in respect of which Government Financial Assistance is now being claimed, is in accordance with the scheme of assistance approved in item 2. I certify that he terms and conditions under which Government Financial Assistance was accepted by the Company are being complied with. I further certify that all invoices have been paid. [Signature redacted] NOTE The above declaration must be signed, in the case of a Company, by a director or Company Secretary; I nthe case of a firm, by a proprietor or partner. A false declaration will lead to a reclaim of all or part of the grant paid. Date Net Amoun ______Conveyance of Buildings______27/04/01______X ,/^7900Q V tank & Co Legal Fees 17/05/01 J 2 6 3 5 ^ nment Plannig costs 27/02/01 J, 26QoAo Authority Connection 06/02/01 S 851.06 ^ Deposit on portal Frame 15/06/01 / 11061.6Q^ Deposit on portal Frame 15/06/01 / 6190.90s/ 06/01 ¿3338-M) 402338.6 160935.4 APPENDIX 14 CRAFT AND TECHNICIAN TRAINING SCHEME (MANUFACTURING, CONSTRUCTION AND SERVICE INDUSTRIES) 1995 1. INTERPRETATION This Scheme may be cited as the “Craft and Technician Training Scheme (Manufacturing, Construction and Service Industries) 1995” and with the approval of the Department of Industry, (hereinafter referred to as the “Department”) shall come into operation on the 1st day of February 1996 and remain in operation until such date as may be determined by the Department. 2. OBJECT OF THE SCHEME The Scheme is designed to ensure the provision of systematic craft training and further education of an acceptable standard for both the present and future needs of the Island and to alleviate the financial burden placed upon employers engaged in the training of craftsmen and technicians. 3. SCOPE OF THE SCHEME The Scheme shall be open to all employers engaged in Manufacturing, Construction or Service Industry in either the private or public sector in the Isle of Man provided that they are able to offer suitable training for craft or technician trainees to the satisfaction of the Department. 4. ADMINISTRATION OF THE SCHEME The Scheme shall be administered and supervised through the Training Division of the Department, (hereinafter referred to as the “Division”) who shall: 4.1 assess the eligibility of the employer for new entrant training within the Scheme; 4.2 assess the eligibility of candidates to the Scheme and provide advice to employers in their assessment of the suitability of such candidates for training; 4.3 supervise trainees undertaking the programme of systemic training and ensure the completion of prescribed skill tests where appropriate; 4.4 determine payment of grant aid; 4.5 deal with the social and welfare matters affecting the training, and 4.6 act as arbitrator to settle training disputes arising between employers and trainees. 5. TRAINING K:\JS0900IMnfomuiion\05_Schemcs £ )nfo\06_Cits.doc Page 1 of 6 Government Circular 38/95 8Op The training shall normally consist of two main elements; 5.1 Systematic skills training Including instruction in broad based skills, induction, safety and elements of work experience. 5.2 Further Educational Studies Paid release for further education shall be granted by the employer, during the training, where a suitable course exists. Normally, all training and further educational studies will be undertaken in the Isle of Man. However, in exceptional circumstances, and with the approval of the Training Services Manager, trainees may attend courses outside the Island. 5.3 Should a trainee not meet the necessary standards of competence at any stage of the training the Training Services Manager shall have the right to withhold certification and any further registration. 6. EMPLOYERS’ ELIGIBILITY 6.1 For Registration Any employer within the Scope of the Scheme as referred to in section 3. Note: If the employer is engaged in the private sector of the Construction Industry he will additionally be required to satisfy the criteria for registration on the Employers Federation List of Approved Contractors. 6.2 For Financial Assistance Employers will be eligible to recover financial assistance through the Scheme, subject to their: 6.2.1 being registered under the Scheme. 6.2.2 paying a wage to the trainee of an amount which is not less than the minimum weekly wage acceptable to the Training Services Manager, which, where appropriate will be in accordance with national agreements, 6.2.3 employing a ratio of trainees to craftsmen of the same trade which is acceptable to the Training Services Manager. 7. PERSONS ELIGIBLE FOR TRAINING Applicants for registration as trainees shall be: 7.1 employed in the capacity of a trainee Craftsman or Craft Technician or Professional Technician or other such occupation approved by the Training Services Manager; 7.2 aged between 16 and 20 years at the time of entering the Scheme. The Training Services Manager may, at his discretion, allow for more mature entrants; 7.3 an “Isle of Man Worker” as defined by the Control of Employment Act, 1975, (as amended) or have been granted a work permit under that Act; 7.4 ordinarily resident in the Island except in circumstances approved by the Training Services M anager. 8. PERIOD OF TRAINING K.\IS09!X) I\lnlbrmatkHi\Oj_ Schcmcs 9. THE TRAINING AGREEMENT A training agreement shall be entered into by the employer and the trainee and endorsed by the Department. This agreement shall be in a form approved by the Department. 10. TRAINING RECORDS AND FURTHER EDUCATION Records and reports shall be required on the two aspects of the training; one dealing with the training carried out on-the-job and the other dealing with off-the-job training which may include both industrial training and further education. 10.1 Records (on-the-job) The trainee shall be responsible for keeping records of appropriate training in a form acceptable to the Division. Employers shall undertake to check that the record is maintained by the trainee and to verify that the entries are correct. 10.2 Records and Reports (off-the-job) The Division, the training employer and the trainee shall each receive records of attendance and progress from each educational or training establishment attended by the trainee. 11. TRAINING GRANTS FOR EMPLOYERS Grants shall be payable to eligible employers in accordance with the scale of grants specified in A ppendix I. These grants provide employers with a contribution towards the cost of training under the Scheme. The scale of grants may be varied from time to time by the Department with the approval of the Treasury. The grants specified in Appendix I to this Scheme shall apply only to training carried out after 1st February 1996. 12. TERMINATION OF AGREEMENT Any circumstance which leads to the termination of the contract of employment which exists between the training employer and the trainee shall automatically conclude the training agreement. In such cases, grant may be paid on a pro-rata basis, according to the amount of training completed, subject to the following provisions: 12.1 if the termination is at the request of the trainee, minimum notice period required shall be five working days, and the Division shall be notified of the trainee’s intention by the employer within two working days of notice being given. 12.2 in the event of a dismissal, the employer shall operate the procedure contained in Appendix H. k : US09001 \In formal ion'iO.S_Sc heroes <£ info\06_Ctts doc Page 3 of 6 Government Circular 38/95 80p 13. TRANSFER OF THE AGREEMENT TO ANOTHER EMPLOYER Should an employer suspend business he shall report the fact forthwith to the Division who, provided they are satisfied that the employer did discharge all his duties with regard to his trainee until the decision to suspend business, may authorise payment of that portion of the grant commensurate with the proportion of training completed. The Training Services Manager may in such circumstances transfer the benefit of the portion of the grant outstanding to a new employer once a further training agreement. 14. INTERPRETATION OF DISPUTES If requested in writing, the employer shall give such information and answer such questions as the Division or its authorised officers, who shall have a right of inspection of the trainee’s activities at his place of work at all reasonable times, may require to satisfy themselves that the trainee is being properly trained. 15. TERMINATION The Craft and Technician Training Scheme (Manufacturing, Construction & Service Industries) 1988 is hereby terminated. K:\ISO900lUnfoi7n3lion\0i_Schemes & lnfo\06_Cits.doc Page 4 of 6 Government Circular 38/95 80p APPENDIX I SCALE OF GRANTS Grants will be paid to the employer for each completed week of training whilst in paid employment, in accordance with the following schedule, which commences at week one of the training programme. GRANT PERIOD RATE PAID FOR EACH WEEK OF TRAINING 1st Grant (a) Each week of full time off-the-job (5 -Full YTP rate Paid upon completion of weeks 1 days) to 26 of training (b) Each week including day release for -50% YTP rate less than 5 days 2nd Grant -25% YTP rate Paid upon completion of weeks (c) Each week with no release (on-the-job 27 to 52 of training training only) 3 rd Grant Paid upon completion of weeks (a) Each week of full time off-the-job (5 -55% of basic salary 53 to 78 of training days) 4th Grant (b) Each week including day release for -25% of basic salary Paid upon completion of weeks less than 5 days 79 to 104 of training (c) Each week with no release (on-the-job training only) -15% of basic salary 5 th Grant Paid upon completion of weeks (a) Each week of full time off-the-job (5 -35% of basic salary 105-130 of training days) 6th Grant (b) Each week including day release for -20% of basic salary Paid upon completion of weeks less than 5 days 131 to 156 of training (c) Each week with no release (on-the-job training only) -10%) of basic salary Discretionary Grants Paid upon completion of weeks (a) Each week of full time off-the-job (5 -35% of basic salary 157 to 182 of training days) (b) Each week including day release for -20% of basic salary less than 5 days -NO GRANT (c) Each week with no release (on-the-job Paid upon completion of weeks AVAILABLE 183 to 208 of training training only) NOTES 1. Where a trainee is employed and attending full time off-the-job training for periods in excess of four consecutive weeks, the grant may be claimed four weekly, subject to satisfactory evidence of the training being available for inspection. 2. Discretionary grants are subject to approval by the Training Services Manager. APPENDIX II <:\)S0900l\Jnforrnation\05_Schemes & I nlb'Oû _Cui.doc Page 5 of 6 Government Circular 38/95 80p DISMISSAL OF TRAINEES The trainee may at any time during the period of training be dismissed for any of the following reasons: 1. Gross misconduct; 2. Continual misconduct of a minor nature; 3. Inability to perform the job either by virtue of physical or mental incapacity; 4. Redundancy; 5. Where it would be in breach of statute to employ him; 6. Any other substantial reason. PROCEDURE 1. In the event of a trainee committing gross misconduct that person shall be immediately suspended from work with or without pay at the employer’s discretion for a period not exceeding seven days and the Training Division notified within two working days of commencement of the suspension. 2. Following a minor misdemeanour, the trainee should, in the first instance, be cautioned by the employer or his/her agent. If such action is not effective, the trainee should be given a first and if necessary a second written warning containing measures required to improve his/her conduct, a copy of which should be sent to the Training Division on each occasion. Following two such written warnings further misconduct of any nature will render the trainee subject to dismissal. 3. - Where the termination is due to redundancy, the Training Division should be notified in writing one month prior to the dismissal in order that alternative arrangements can be investigated to allow the continuation of training. S09001 Mnfomalinn\Q5_Schema & lnfo\06_Clts.doc Page 6 of 6 Government Circular 38/95 80p APPENDIX 15 Page 1 APPENDIX 16 I MEOIRYN SHEE-ELLAN VANNIN ISLE OF MAN CONSTABULARY Professional Standards Department Police Headquarters Douglas ISLE OF MAN IM2 4RG Our Ref: WRE/ja 18 November 2003 Mrs M Cullen Clerk to the Committee Office of the Clerk of Tynwald Legislative Buildings Douglas ISLE OF MAN IM1 3PW Dear Mrs Cullen RE: Sub-Committee of the Standing Committee on Expenditure and Public Accounts on Island Studios Further to my letter of 17th November 2003. Police records have been checked and enquiries made with Divisional Officers on the basis of the information contained in your letter of 16th October, 2003. There is no record of Police having been called to deal with a dispute concerning a dishonoured cheque or otherwise. One officer recalls visiting the island Studio’s site during the course of building construction, seeking a group of males thought to have been involved in an incident in a Public House. The site was deserted on the occasion of the visit, and the officer learned that the males had left the island. I have no further information at this time. Yours sincerely [Signature redacted] W R Evans Acting Deputy Chief Constable Telephone: +44(0)1624 631380 Fax: +44(0)1624 631226 Email: Rodney. [email protected] d I y < r 3 ■ f 1 . ? 0 «í -) C rr \ Q - L ^ f r b * f ì r O s yj ÎÏ u Í C-*- 3 J 4 0 t) ' j , [Signature redacted] *> * s *•5* J t < J J i "J '? cu o f / " 3 i> c c) (O' o 0 C V iO J i U •Lii° «y /^ ) I •t »9 3^ S J Ì 0 Standing Committee of Expenditure and Public Accounts Island Film Studios and associated matters Timeline Date Island Studios Ltd incorporated 9 October 1987 Wholedene Ltd incorporated 9 March 1994 Sound Designers Ltd incorporated 24 March 1995 Loy Limited Incorporated (name changed to Stonegate 25 January 1996 Property Ltd on 28 May 1998) Avongarde Design Services Ltd incorporated (name changed 14 April 1997 to Stonegate Property (2000) Ltd on 8 December 1999) Application for grant by VFG Pic July 1997 Lough House PLC incorporated (name changed to Lough 1 September 1997 House Limited on 10 September 1999) Lough House Animation Ltd incorporated 8 September 1997 Lough House Media Ltd incorporated 8 September 1997 Prided ale Investments Ltd incorporated 29 September 1997 The Whole Caboodle Limited incorporated 2 October 1997 Edit Hire (New Technology) Limited incorporated 17 June 1988 Question in the House of Keys re film studios 22 June 1999 Quote for construction of steel fabric of the studio from S 3 February 2000 Robinson & Sons Quote for construction of steel fabric of the studio and 1 March 2000 workshop from Wilson & Collins Application for grant by J R Creer Ltd (Mr G Taylor) 4 May 2000 Application for grant by Island Studios Ltd 29 June 2000 Ms Thompson recommended to DTI rejection of Creer (Taylor) 24 July 2000 application Letter from DTI to Island Studios Ltd advising that their 7 August 2000 application had been deferred. Ms Dugdale advised the Film Commission that Mr Taylor was 23 August 2000 to be informed that his grant application had been turned down by the Department (there is no minuted record of this Departmental decision). Ms Dugdale advised Mr Taylor that his grant application had 25 August 2000 been refused. Revised Business Proposal submitted to DTI from Island Film October 2000 Studios Ltd Violet Systems Ltd (Edit Hire Post Production Services) 26 October 2000 incorporated Edit Hire (New Technology) Limited placed into Members' 10 November 2000 voluntary liquidation Ernst and Young Report on the ISL Business Proposal January 2001 submitted to DTI Treasury Concurrence given to ISL grant 14 February 2001 Grant of £705,600 offered to ISL 16 February 2001 Quote for construction of steel fabric of the studio and 27 April 2001 workshop from Allied Steel Frame Structures Ltd According to the valuation of the equipment by Root6, all the May 2001 equipment is located at their premises Mortgage debenture signed giving DTI first charge over ISL's 26 June 2001 assets for a period of 10 years Query from Mr Slattery about whether grant monies in respect 2 July 2001 of the purchase of the building was allowable Mr Slattery was advised that grant monies are not allowable in 30 July 2001 respect of the purchase of the building First instalment of grant payment of £9,148.73 authorised by 2 August 2001 DTI to ISL for construction costs etc Invoice in respect of equipment issued by Violet Systems Ltd 17 October 2001 to ISL Instalment of grant payment of £68,938.81 authorised by DTI to 23 October 2001 ISL for plant & machinery Mr Slattery advised DTI that the Employers' Federation had 31 October 2001 complained about the appointment of an off-Island contractor Mr Kelly, DTI, requested his CEO, retrospectively, to approve 6 November 2001 the appointment of the off-Island Contractor Invoice in respect of equipment submitted to DTI by ISL for 9 November 2001 payment of grant monies Instalment of grant payment of £270,401.60 for plant and 28 November 2001 machinery (ie editing equipment) and £39,809.68 for building authorised by DTI to ISL Approval of the appointment of the off-Island Contractor 28 November 2001 given by DTI CEO "assuming the tenders were like-for-like". Sound Designers Ltd dissolved 22 January 2002 Instalment of grant payment of £97,355.79 authorised by DTI to 14 February 2002 ISL for plant & machinery Instalment of grant payment of £60,769.49 authorised by DTI to 21 March 2002 ISL for building costs Stonegate Property Limited dissolved 25 March 2002 Instalment of grant payment of £70,030.10 authorised by DTI to 23 April 2002 ISL for building costs Instalment of grant payment of £58,294.31 authorised by DTI to 2 May 2002 ISL for building costs Final instalment of grant payment of £16,739.54 authorised by 20 June 2002 DTI to ISL for building cost Wholedene Ltd dissolved 20 August 2002 Government Valuer asked to value ISL's assets 30 August 2002 DTI requested an auditor's certificate 12 September 2002 Stonegate Property Limited restored to the register 19 September 2002 Government Valuer advised DTI of his valuation of ISL's 24 October 2002 assets Letter from Mr J D Q Cannan referring this matter to the 30 October 2002 Committee DLGE Building Regulation Certificates 6 November 2002 Mr N J Napier-Bell's accountants' letter regarding the 7 November 2002 ownership of the equipment PAC sub-committee set up to undertake the investigation January 2003 Accountant's Certificate regarding allowable costs on the 6 March 2003 construction of the buildings. Pridedale Investments Ltd dissolved 11 January 2005 Violet Systems Limited - resolution passed for the winding up 20 July 2005 of the company