Today’s blog post has been sent to UKSALA by James Goudie QC and Ronnie Dennis of 11KBW, who acted for Coventry City Council in both Sky Blue cases.
On 12 October 2018 the Court of Appeal handed down judgment in the latest State aid challenge brought by the owners of Coventry City Football Club against Coventry City Council: R (Sky Blue Sports & Leisure Ltd) v Coventry City Council  EWCA Civ 2252 (Sky Blue No. 2).
In earlier judicial review proceedings (Sky Blue No. 1), the same Claimants had sought to challenge a loan made by the Council to its then half-owned subsidiary, Arena Coventry Ltd (“ACL”). The High Court and Court of Appeal judgments in that case were the subject of earlier blogs on this site.
ACL operates the Ricoh Arena in Coventry, where CCFC play their home games, under a lease from the Council. In Sky Blue No. 1 the Claimants argued that the Council’s loan to ACL was a State aid. The High Court and Court of Appeal dismissed this challenge. In doing so, the Court of Appeal approved the helpful summary of relevant legal principles set out by Hickinbottom J at first instance: see the CoA judgment at . Applying those principles, both Courts found that the loan was not a State aid, because a private market operator in the Council’s position might also have made the loan on the same terms.
Meanwhile, before the Court of Appeal hearing in that case, the Claimants had issued their application for judicial review in Sky Blue No. 2. In those proceedings, the Claimants sought to challenge the Council’s decision to extend ACL’s lease of the Arena to 250 years. That decision was taken as part of a wider transaction, in which both 50% shareholders in ACL – the Council and the Alan Edward Higgs Charity – sold their respective 50% shares to Wasps RFC, for the same price.
Permission to seek judicial review was refused at an oral hearing before Singh J in July 2017. Singh J ruled that it was unarguable that the lease extension involved any State aid, because the Council had achieved a price consistent with an independent market valuation from KPMG: see the CoA judgment at . KPMG had valued the lease extension at £0.6 to £1m, and the Council had achieved a price at the top of this range, of £1m.
The Claimants’ appeal was heard in June 2018. On 12 October 2018 McCombe LJ (with whom Sir Brian Leveson and Irwin LJ agreed) dismissed the appeal and upheld Singh J’s decision refusing permission to seek judicial review.
McCombe LJ first recognised the general legal principle that a public authority does not have to use a tender or open marketing process in every case in order to avoid granting State aid. An authority can also avoid doing so if it achieves a price that is consistent with an independent market valuation: see the judgment at -.
His Lordship ruled that, when applying this test, the Court must focus on the assets actually sold by the authority, and the market value of those assets. In this case, the only assets sold by the Council were its 50% share in ACL, and the lease extension.
The Claimants had expressly disavowed any intention to challenge the share sale. McCombe LJ noted that this concession was “inevitable”, because the Council had achieved the same price for its 50% share in ACL as the other 50% shareholder, the Charity, which was a direct private market comparator (). In doing so, His Lordship affirmed a third basis on which an authority can avoid granting any State aid: if it achieves a price consistent with that of a private market operator in materially the same circumstances.
The Claimants were therefore limited to challenging the lease extension. However, His Lordship noted that they had not adduced any competing valuation of that asset (). Instead, they relied on valuations of ACL’s 250-year lease of the Arena in Wasps’ hands after the overall transaction had been completed (). This was not the correct approach. The State aid rules required the Court to focus on the assets actually sold by the Council, and whether it achieved a market price for those assets.
The Claimants’ approach would require the Court to include in its assessment other assets not even sold by the Council: namely ACL’s prior lease of the Arena and the Charity’s 50% share in ACL (). The Claimants could not rely on valuations of those different assets to challenge the only valuation of the lease extension, which had been provided by KPMG. The Council achieved a price consistent with that valuation, and it was therefore unarguable that it had granted any State aid.