4th Dec, 2016

D-Day as top judges rule if Coventry council unlawfully 'severely prejudiced' Sky Blues

Les Reid 2nd Feb, 2016 Updated: 28th Oct, 2016
COVENTRY council faces a potential multi-million pound compensation claim from Sky Blues’ companies if it loses a crucial court appeal this week.

Coventry City Football Club and its owners Sisu – under the name of the ‘Sky Blue Sports & Leisure company and others’ – are back at the Court of Appeal.

Three senior judges will rule at the Royal Courts of Justice in London on whether a key council action in the long-running Ricoh Arena dispute was an unlawful use of taxpayers’ money.

It comes after appeal judges last July criticised a lower judge’s initial ruling in 2014’s judicial review – which had found in the council’s favour – and pointed to potential errors.

Lord Ryder in July said the case raises the prospect of potential compensation for the “severe predjudice” the claimants say they suffered, including for “the loss of points in the league that the Football Club itself sustained.”

Now three of the country’s most senior judges – Lord justices Colman Treacy, Christopher Lloyd and Stephen Tomlinson – will from tomorrow examine Coventry City Council’s secret £14.4million bailout in January 2013 of the Ricoh Arena operating company, Arena Coventry Limited (ACL), it jointly owned with the Alan Edward Higgs Charity.

The deal was followed by unsuccessful attempts to oust the club’s owners and an administration process which cost the club 20 League points; and the ultimate sale of the Ricoh to London Wasps last year on a massively extended 250-year lease – at a price of £5.5million for the shares, plus around £13.5million of the bailout loan.

The judges are expected to hear more evidence on Thursday (February 4). The hearing could could run beyond two days.

It is not known if they will deliver their verdict this week or some time after.

The appeal follows Justice Hickinbottom’s verdict in June 2014 that the council had not acted unlawfully, and had done so in response to Coventry City’s unlawful non-payment of £1.3million rent at the Ricoh, which parties on all sides accepted was too high.

The dispute included a breakdown of talks between the club, the council and the Higgs charity in 2012 over the Sky Blues buying half a stake in the Ricoh Arena company, under a deal which would have included Sisu buying out the Ricoh firm ACL’s £14million ‘mortgage’ loan with Yorkshire Bank.

Instead, the council secretly bought out the loan, which it then effectively passed on to ACL.

In July last year, Lord Justices Ryder and Briggs granted permission for this week’s full appeal hearing.

In doing so, they challenged the merit of Lord Hickinbottom’s original judgement that the bailout was not a ‘state aid’ under European laws designed to protect market competition from unfair public sector advantage.

The Sky Blues’ companies allege the bailout was on non-commercial terms which a private investor would not have entered into – and that £14.4million was higher than the value of ACL, so the asset provided insufficient security against the loan.

The Sky Blues’ companies also allege the council acted irrationally without adequate material information at its disposal, claiming council officers’ supposedly independent advice in a report to councillors was “fashioned to support the decision” – and the council had not obtained “proper independent advice”.

Lord Ryder’s summary states: “I am troubled by the judge’s overview of the financial situation.

“The judgement does not, it seems to me, give adequate recognition to the role of the bank as an economic operator in its own right, nor does it evaluate the role of the council as the ultimate freeholder of the stadium.

“If one looks at the ultimate position of the council in the circumstance that it did nothing and ACL defaulted, there is an arguable case that the end result would have been no worse and potentially better, but without the financial risk that the loan entailed.

“Likewise, the financial basis for the decision is clouded in valuations and financial projections that were produced for different purposes and may not be a sufficient basis for the assumptions that were relied upon by the judge.

“In particular, the anchor rent of £400,000 and the bracket of valuation (for ACL’s worth) of between £10.8million and £14,4million do not appear to be well grounded.

“I am also troubled by the approporateness of the advice upon which the council purported to rely..  At the end of the day, in colloquial terms, there is a real argument that this looks like a feels like a state aid.”

The council denies any wrongdoing and maintains the original judge’s verdict was based on facts in the context of an effectively agreed legal position. Lord Justice Ryder ruled those arguments “will be good points on the appeal.”

Further legal challenges, including to the terms of councillors’ Ricoh sale to Wasps in October last year, could follow.