September 27th, 2016

Coventry City’s owners to sue over council’s Wasps deal as Ricoh bailout appeal lost

Coventry City’s owners to sue over council’s Wasps deal as Ricoh bailout appeal lost Coventry City’s owners to sue over council’s Wasps deal as Ricoh bailout appeal lost
Royal Courts of Justice
Updated: 11:44 am, May 13, 2016

APPEAL judges have today upheld a previous ruling that a £14.4million taxpayer bailout of the Ricoh Arena in 2013 was not an unlawful use of taxpayers’ money by Coventry City Council.

But Coventry City Football Club’s ‘owners’, the Sisu group of companies, will press ahead with a second judicial review, of the council’s later decision in October 2014 to sell the Sky Blues’ home ground to London rugby club Wasps on a massively extended 250-year lease not offered to the football club.

An application for a judicial review into the Wasps deal was lodged last year and was placed on hold pending today’s judgement.

It will contend that the Ricoh Arena stadium company was unlawfully sold on the cheap – at ‘undervalue’, given the huge extension on the lease – without the council conducting all relevant prior valuations.

Wasps bought the Ricoh company Arena Coventry Limited’s shares for around £5.5million from the council and Alan Edwards Higgs Charity, while agreeing to also pay back nearly all the £14.4million loan, minus £1million.

Yet an independent valuation by Strutt & Parker had valued the Ricoh under the terms of the deal at £48million.

Multi-million pound compensation could still be sought, which could affect the council and Wasps.

Coventry City’s owners, in a statement below, are also considering appealing today’s judgement in the Supreme Court, and other actions including a referral to the European Commission.

The appeal rejected today was brought by ‘Sky Blues Sports & Leisure and others’. A two-day hearing in February this year at the Royal Courts of Justice in London was heard by three of the country’s most senior judges – Lord justices Colman Treacy, Christopher Lloyd and Stephen Tomlinson.

It was claimed January 2013’s £14.4million council loan to part-council-owned Ricoh firm Arena Coventry Limited (ACL) was an unlawful ‘state aid’ which ‘severely prejudiced’ the club in a long-running dispute, which had resulted in the loss of 20 League points.

A ‘state aid’ is a contravention of European and domestic laws design to prevent public sector advantage in market competition.

The club’s owners claimed the loan was not at a commercial rate and would not have been made by a rational private investor, not least as £14.4million was well above value for the struggling company.

The Sky Blues companies also claimed it was part of a council attempt to wrest control of the football club after the club’s non-payment of what was considered to be extremely high £1.3million annual rent payments. Attempts to force a takeover of the club through the administration process and Football League rules later in 2013 failed.

Rhodri Thompson QC, for ‘Sky Blues Sports & Leisure and others’ had claimed at appeal that a Judicial Review in 2014 by Justice Hickinbottom had made errors in its application of the law in finding in the council’s favour.

The loan was made to ACL – under a taxpayer deal approved by councillors in private – after the council had bought out ACL’s mortgage from Yorkshire Bank for £14.4million.

The appeal court heard the bank was concerned about ACL’s ongoing ability to pay back the loan amid the club’s non-payment of high rent bills. It was at a time of talks in 2012 between the council, ACL’s joint owner the Alan Edward Higgs Charity, and the club over future Ricoh rent, revenues and ownership.

A provisional deal would have seen the club owning half the stadium it still rents today, and owners Sisu buying out the bank debt and writing it off. Instead, the council secretly purchased the bank loan and effectively passed it on to ACL, and the provisional Ricoh deal fell away amid bitter legal hostility.

Mr Thompson had presented evidence showing that valuations on all sides, even from council officers – had estimated the deal to be worth £6million at best. Further, he said the council’s own valuation carried out by estates firm CBRE had concluded the Ricoh business itself was only worth £6.4million with zero rent, and £10.8million with £400,000 rent – so the stadium asset itself would not even have provided security for the loan.

He challenged Justice Hickinbottom’s previous use of ACL’s term ‘rent strike’, saying the non-payment was a ‘rent holiday’ to enable negotiations, which had also suited the council as rent non-payment lowered the value of the bank debt it wanted to purchase. One private document by council officer Chris West had stated it was best to present to the bank a distressed ACL.

Mr Thompson had claimed the council had overpaid for the loan as part of a “Sisu Out” strategy, accompanied by a “media assault”, for political and policy reasons “driven by council dislike for Sisu”, not sound commercial or legal reasons. The evidence showed Wasps as a potential alternative had been mentioned as early as March 2012, the court heard.

He had argued the council’s security over the Ricoh as freehold owner made the loan even more perverse (rather than simply allowing insolvency) – both points which appeal court judge Lord Ryder last year stated may have merit last July in allowing February’s full appeal.

The council had throughout argued it had acted to protect its position as a 50 per cent shareholder in ACL, with the other shares then owned by the Alan Edward Higgs Charity.

The council had claimed in court it needed to act because of Sisu’s ‘rent strike’ to protect its investment in the Ricoh project as part of an economic regeneration of north Coventry.

The club has said the legal actions have been pursued by its owners, and do not affect its budget for the team.

CCFC FANS’ OPINION AND NEED FOR STADIUM REVENUES

CCFC fans are divided in opinion, but many are incensed by the loss of the stadium to Wasps. Last year, more than 20 high-profile and professional fans signed an Open Letter to government, published in the Coventry Observer, which called for a full inquiry into the secretive Wasps deal and all events surrounding it. JR2 would secure a full inquiry. They also called on the council or Wasps to play their part if necessary in securing a better deal for the Sky Blues.

They agree with the club that revenues from stadium activities are needed for the club to be healthy and sustainable, and to support Tony Mowbray’s team.

The club insists in cannot afford to rent at the Ricoh without revenues which go to Wasps, and continues to explore building any new stadium options. The Butts Park Arena, home to Coventry rugby club, has been considered, where confidential negotiations have taken please over lease arrangements, and the council is freeholder.

Other fans’ including those leading the Sky Blue Trust have taken a more sceptical view of legal action, and today’s judgement will lead to some renewed ‘Sisu out’ calls. Yet there is no sign the owners are willing to sell and any potential bidder is yet to declare an interest following the failure of takeover attempts three years ago.

SISU RESPONSE

We are obviously disappointed by the Court of Appeal’s decision.  This is the first time that this legal principle has been considered by the superior courts and, whilst we respect the views of their Lordships, this judgment conflicts with guidance given by both the UK Government and the EU Commission.

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.

SISU’S LAWYER, ALEX CARTER-SILK: “The judgement on JR1 does not affect the legal position on JR2.”

COUNCIL’S RESPONSE

Coventry City Council Leader, Cllr Ann Lucas and Council Leader elect, Cllr George Duggins said:

“We are delighted that the appeal judges have fully supported Judge Hickinbottom’s original ruling and have dismissed the appeal outright.

“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.

“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.”

CCFC RESPONSE

“We’re aware of the judgement passed down at the High Court today.

“We’d like to assure supporters that this outcome today does not affect the day-to-day operations of the club. CCFC remains focused on supporting manager Tony Mowbray and his management staff so that we can build a strong squad which will challenge for promotion for the upcoming 2016/17 season.”

Click HERE for copy of the Judges’ full judgement today.