APPEAL judges are today continuing to examine Coventry City Football Club’s claims that a council £14.4million taxpayer bailout of the Ricoh Arena was an unlawful use of taxpayers’ money.
If the club and its owners Sisu win, it could pave the way for multi-million pound compensation claims.
Three of the country’s most senior judges – Lord justices Colman Treacy, Christopher Lloyd and Stephen Tomlinson – yesterday (Wednesday, February 3) heard the club’s case at the Royal Courts of Justice in London that January 2013’s £14.4million Coventry City Council loan was an unlawful “state aid” which “severely prejudiced” the club in a long-running dispute. It had resulted in the loss of 20 League points and the sale of the then part-council owned stadium to London Wasps last year on favourable 250-year terms not offered to the Sky Blues.
The council will put its defence later today when the hearing is expected to conclude. It is not yet known when the judgement will be delivered.
Rhodri Thompson QC, for ‘Sky Blues Sports & Leisure and others’, spent yesterday outlining evidence previously heard at a Judicial Review in 2014, and how Justice Hickinbottom had at that time made errors in his application of the law in finding in the council’s favour.
The three judges at times all intervened to challenge whether some of the great detail of complex evidence was relevant to their legal consideration – namely, whether or not the council’s loan to Ricoh stadium firm Arena Coventry Limited (ACL) was a state aid in contravention of laws design to prevent public sector advantage in market competition.
The ‘mortgage’ 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.
The club’s case is that the transaction was a state aid which no rational private investor would have made, not least as £14.4million was well above value for the struggling company.
Mr Thompson 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 said: “It wasn’t an unprincipled ‘rent strike’.. I’m sure £1.3million (rent) suited ACL… But the club had been relegated.. and weren’t getting revenues. The business of the club was becoming totally unworkable.”
Mr Thompson said in the year of non-payment, the stadium company still effectively received £780,000 of the rent bill through a deposit account and matchday costs payments.
He 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.
Lord Justice Tomlinson, in urging focus on the legal issues at stake, said: “The football club had a legal obligation to pay the rent. They didn’t pay it and that caused great problems for ACL. So what? They chose not to pay… The reality is the club couldn’t pay the rent unless they had funds from Sisu.
“..It seems to have generated an enormous amount of heat at the time but that seems to be a distraction.”
Earlier, the judge dismissed arguments about the claimants’ conduct as irrelevant to the judges’ consideration of whether the council’s transaction was unlawful or not.
Of the fall-out in negotiations, he added: “It’s a business proposition. It’s not of great interest to me whether people enjoy dealing with them (the claimants) or not.”
Mr Thompson said the council had acted irrationally without adequate independent advice. He also emphasised how 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 stated may have merit last July in allowing this week’s full appeal.
Mr Thompson added no rational private investor would have entered into a new loan amid such a dispute with the club as anchor tenant, or made a new loan in ACL without additional security.
Lord Justice Tomlinson intervened to say that point lead to a “debate about whether a shareholder would have done something different in the hope of getting some value later down the line.”
The council denies any wrongdoing, claiming it was acting to protect its interest as ACL shareholder and the regeneration potential of the Ricoh project.