Council defeats claim that £14.4m loan was unlawful state aid

A council’s decision to lend £14.4m to a stadium management company it co-owns did not amount to unlawful state aid, a High Court judge has ruled.

In Sky Blue Sports & Leisure Ltd & Ors, R (On the Application Of) v Coventry City Council [2014] EWHC 2089 Mr Justice Hickinbottom rejected a judicial review challenge brought by SISU, the owners of Coventry City Football Club, over Coventry City Council’s loan to Arena Coventry Limited (ACL).

The football club played its home matches at the Ricoh Arena between 2005 and 2013 under a sublease and licence from ACL, the ground’s leaseholder. The authority owns the freehold of the arena and is the ultimate owner of 50% of ACL.

On 15 January 2013, the council resolved to make the loan. The claimants sought to challenge the legality of that decision on the grounds that:

  1. A private investor in the shoes of the council would not have entered into the transaction on the terms agreed by the council (or, indeed, on any terms); and, consequently, the transaction was State aid within the meaning of article 107(1) of the Treaty on the Functioning of the EU ("TFEU"), not notified to the European Commission in advance as required by article 108(3). It was thus unlawful as contrary to EU law.
  2. In coming to its decision to make the loan, the council failed to take into account several identified material considerations because senior officers failed to draw them to the attention of council members.
  3. The decision to make the loan was irrational in the Wednesbury sense.

Mr Justice Hickinbottom refused the application on grounds 1 and 3 and refused permission to proceed on ground 2.

On the State aid issue, the judge said: “Whilst I accept that the council were put to some hard decision-making over this commercial enterprise in 2012, in all of the circumstances and given the wide margin properly allowed in such matters, I simply cannot say that the loan extended by the council to ACL would not have been entered into, on the terms in fact agreed, by any rational private market operator in the circumstances of the case.

“In my judgment, the transaction fell within the wide ambit extended to public authorities in this area; and clearly so. It was not State aid.”

He also said that he did “not consider there was any arguable force in any of the seven discrete elements of ground 2” and that the third ground could not survive any of his findings in relation to the other grounds, “particularly those in respect of State aid”.

Coventry City Council welcomed the ruling. Its Leader, Cllr Ann Lucas, said: “We were always 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 in order to protect an important asset – the Ricoh Arena – which belongs to the people of Coventry. We had no choice about defending this decision in the courts.”

She added: “We have taken no pleasure in finding ourselves in court defending our decision and in having to spend council taxpayers’ money defending a legal challenge from SISU. We have always wanted to see the Sky Blues playing back at the Ricoh, the club’s rightful home.”

Cllr Lucas said that if Joy Seppala, the owner of the club, did not want to return the club to the Ricoh, then the Football League should use its powers “to ensure a rapid return to Coventry for the sake of thousands of Sky Blues fans”. (The club played home matches last season in Northampton)

She also called on SISU to “abandon further costly, lengthy and pointless appeals and focus on realistic ways of bringing the club home”.

In a statement the football club and its owners described the ruling as “unfortunate” and said they would apply for leave to appeal.

They said: “The football club and its owners believe that the loan, which exceeded the value of the stadium by almost 200%, was neither lawful nor in the interests of the supporters, taxpayers, stadium operators or the Club.

“ACL will now remain burdened with debt for the next 43 years, removing any prospect of a long-term return to the stadium by the Club. With this level of debt there is no realistic prospect of any sports franchise or ACL being able to generate sufficient revenue to be commercially viable.”

The club and owners added: “Now, more than ever, the new stadium is the only viable commercial option. The owner's primary objective remains building a long-term sound financial platform for the future growth of the Club.”

Mr Justice Hickinbottom is expected to make a decision on costs on 4 July.


See also...

LGLtv 120x90

NamePrice (ex-VAT) Description
Procurement and State Aid £25.00 This presentation explores recent developments on how an unlawful selective advantage might arise in a given context, with particular reference to developments in respect of transport, infrastructure and land transactions.