A British bank yesterday appealed a court judgment which resulted in a €50 million tax bill for Bord Gáis. Barclay's Mercantile is understood to have initiated an action in the British Court of Appeal after a High Court ruling found in favour of the British Inland Revenue.

The case centres on a €121 million lease that Barclay's took in 1993 on the Bord Gáis gas interconnector linking Scotland and the Republic. While the capital allowances disallowed by the Inland Revenue six years ago were claimed by the Barclay's subsidiary, the tax liability falls on Bord Gáis.

Thus it is Barclay's which took the action while Bord Gáis is notice party.

The effect of the package was to reduce Bord Gáis's funding costs in respect of the interconnector, which was built as supplies from the Kinsale field started to diminish. The pipeline was part-funded by the EU.

The appeal lodged yesterday evening comes as Bord Gáis prepares to apply to the energy regulator, Mr Tom Reeves, for a price rise early next year.

It follows stable credit ratings by two major agencies which drew attention to the company's strained financial profile as its €1.37 billion capital programme continues.

Mr Reeves has said that the capital plan was the "main driver" of an increase this week in gas transmission tariffs. Standard & Poor's said in its rating note there were significant risks associated with the programme, which includes the construction of a new interconnector parallel to the exising pipeline.

The appeal is the third attempt by Bord Gáis and Barclay's to reverse the Inland Revenue's decision on the allowances. The High Court challenge this summer followed an earlier appeal to a Revenue review body known as the Special Commissioners, which was dismissed.

The matter is thought to have been discussed by the Bord Gáis board before the company indicated to Barclay's that it wanted to proceed with the appeal.

The company has described the loss of the High Court case as surprising. The deadline for any appeal was yesterday.

It is thought that the case will focus on aspects of the Inland Revenue's tax treatment of the allowances. Bord Gáis had legal and taxation advice suggesting that the allowances should be allowed.

The alternative strategy open to Bord Gáis was to seek a settle on a reduced liabilty with the Revenue.

The deal was highly complex, involving seven companies based in Ireland, Britain, Jersey and the Isle of Man, one of which was owned by a charitable trust.

In a judgment issued in July, Mr Justice Park said the scheme was not "standard commercial leasing" and said it could not be taken for granted that the allowances would be forthcoming.

While stating the scheme was not a convoluted tax-avoidance vehicle, he added: "In a detailed way, the structure of this scheme is meticulously and imaginatively thought out. I am full of admiration for the drafting of the numerous documents which were required to implement it."