Judges reject state aid challenge to £14.4m council loan to stadium operator

The Court of Appeal has dismissed a judicial review challenge to Coventry City Council’s decision to lend £14.4m to ACL, a company which operates the Ricoh Arena.

The local authority owned half of ACL when in January 2013 it resolved to make the loan.

The claimants/appellants are members of the SISU group of companies which, between them, own Coventry City Football Club.

They sought to challenge in the High Court the legality of the council’s decision to lend the money on the grounds that:

1. Contrary to EU law, the loan amounted to state aid which was not notified to the European Commission; and

2. Contrary to domestic law, the city council failed to take into account several material considerations and, in any event, was irrational in the sense that no authority could reasonably have to come to it.

The claimants/appellants were seeking an order quashing the council’s decision and that the council should recover the loan and commercial interest from ACL.

However, Mr Justice Hickinbottom rejected the claim in the High Court and his ruling has now been upheld by the Court of Appeal in Sky Blue Sports & Leisure Ltd & Anor, R (on the application of) v Arena Coventry Ltd & Anor [2016] EWCA Civ 453.

Giving the judgment of the court, Lord Justice Tomlinson said: “The Appellants have not in my view come close to demonstrating that the judge reached an impermissible conclusion. I would dismiss the appeal.

“In doing so I would pay tribute to the judge's impressive judgment. My reasons are simply those which the judge developed in much greater detail with a sure eye to the principles by which his decision-making should be informed.”

James Goudie QC and Ronnie Dennis of 11KBW appeared for the council, instructed by Helen Lynch.

11KBW highlighted how the ruling was the first judgment of the Court of Appeal on the ‘private investor principle’ in State aid.

The set also noted that Lord Justice Tomlinson had:

• approved of the summary by Mr Justice Hickinbottom of the relevant legal principles governing the private investor test (at [16]);
• restated the principle that a public authority considering whether or not to make any investment has a “wide margin of judgment” (at [25]);
• on the facts, upheld the judge’s findings that there was “significant value” in ACL (at [38]), that the loan charged a commercial interest rate (at [40] and [50]), and that, “it was reasonable to believe that ACL could both increase revenue, particularly from its non-football related sources, and decrease costs” (at [49]).

According to a report in The Coventry Observer, SISU are to press ahead with a second judicial review challenge, this time over the council’s decision in October 2014 to grant rugby club Wasps a 250-year lease. Wasps paid £5.5m to the council and the Alan Edwards Higgs charity for their shares in ACL and agreed to pay back all bar £1m of the £14.4m loan.

The Coventry Observer published a response from SISU’s lawyer, Alex Carter-Silk of Brown Rudnick, to the Court of Appeal ruling in which he claimed that the judgment conflicted with guidance from both the UK Government and the EU Commission.

Carter-Silk added: “Government bodies should not use access to  public funds to further political and policy objectives in a way that adversely impacts competition between local businesses.

“There are significant public policy reasons why this matter should be reviewed by the Supreme Court. A reference of certain aspects of the matter to the European Commission is also under consideration. In the meantime, the owners remain fully committed to the success of the club and this judgment does not affect that resolve in any way.”

Carter-Silk also said the ruling did not affect the legal position on the second judicial review.

Responding to the ruling, Coventry’s Leader, Cllr Ann Lucas, and its Leader elect, Cllr George Duggins, said: “We are delighted that the appeal judges have fully supported Judge Hickinbottom’s original ruling.

“We have always been confident we could robustly defend our unanimous and cross party decision by all councillors at Full Council in January 2013 to support the new loan arrangement to ACL. The decision was taken to protect the interests of Coventry taxpayers and secure the future of an important sporting, cultural and economic asset for the city.”

Cllrs Lucas and Duggins added: “We have taken no pleasure in finding ourselves in court defending our decision and in having to spend council taxpayers’ money defending a series of legal challenges from SISU, although we are pleased that SISU has been ordered to pay the council’s costs.

“We urge SISU to abandon further costly, lengthy and pointless legal proceedings and focus on working with key partners to develop a sustainable business plan for the future which puts the football club and its success at its heart.”