The Queen (1. Sky Blue Sports & Leisure Ltd; 2. Arvo Master Fund Ltd; 3. Otium Entertainment Group Ltd) v Coventry City Council

JurisdictionEngland & Wales
CourtCourt of Appeal (Civil Division)
JudgeLord Justice Irwin,Lord Justice McCombe,Sir Brian Leveson P
Judgment Date12 October 2018
Neutral Citation[2018] EWCA Civ 2252
Docket NumberCase No: C1/2017/2014

[2018] EWCA Civ 2252

IN THE COURT OF APPEAL (CIVIL DIVISION)

ON APPEAL FROM THE HIGH COURT OF JUSTICE,

QUEEN'S BENCH DIVISION,

(ADMINISTRATIVE COURT IN BIRMINGHAM)

Mr Justice Singh

CO/5964/2014

Royal Courts of Justice

Strand, London, WC2A 2LL

Before:

Sir Brian Leveson

(PRESIDENT OF THE QUEEN'S BENCH DIVISION)

Lord Justice McCombe

and

Lord Justice Irwin

Case No: C1/2017/2014

Between:
The Queen (1. Sky Blue Sports & Leisure Limited; 2. Arvo Master Fund Limited; 3. Otium Entertainment Group Limited)
Appellants
and
Coventry City Council
Defendant/Respondent

and

(1) Arena Coventry Limited
(2) Wasps Holdings Limited
(3) Trustees of the Alan Edward Higgs Charity
Interested Parties/Respondents

Rhodri Thompson QC and Nicholas Gibson (instructed by Fieldfisher LLP) for the Appellants

James Goudie QC and Ronnie Dennis (instructed by Legal Department, Coventry City Council) for the Defendant/Respondent

Fenella Morris QC and Kelly Stricklin-Coutinho (instructed by Kennedys Law LLP) for the First and Second Interested Parties/Respondents

The Third Interested Parties did not appear and were not represented.

Hearing dates: 26 and 27 June 2018

Lord Justice McCombe

(A) Procedural Introduction

1

This is an appeal by the appellants named above (whom together I will call “Sky Blue”) from the order of Singh J (as he then was) of 17 July 2017 refusing Sky Blue's application for permission to apply for judicial review of a decision of the defendant Council (“the Council”) of 7 October 2014. As quoted in the amended Judicial Review Claim Form the challenged decision was,

“1. To approve the sale of 100% of the shares in Arena Coventry Limited (“ACL”) currently held by Coventry City Council via North Coventry Holdings Limited (50% of the total shares in ACL) for 2.77m to London Wasps Holdings Limited.

2. To approve the sale of a lease extension to ACL of 211 years for £1m giving a total lease duration of 250 years subject to the acquisition by London Wasps Holdings Limited of the other 50% shareholding in ACL.”

2

The judicial review application challenged the decision on the basis that the transactions resulting therefrom constituted unlawful “state aid” contrary to Article 107 of the Treaty on the Functioning of the European Union and a breach of s.123 of the Local Government Act 1972.

3

By his order the judge had refused Sky Blue's application to amend its pleadings and to rely upon expert evidence. He also refused their application for permission to appeal to this court. Permission to appeal was, however, granted by my Lord, Irwin LJ, by his order of 12 September 2017. By further order of 28 November 2017, my Lord and Flaux LJ allowed Sky Blue's appeal from those parts of the judge's order which had refused permission to amend the pleadings and to rely on expert evidence. It was directed that the remainder of the appeal (for which permission had been granted on 12 September 2017) be adjourned to the rolled-up hearing then already listed for a date in May this year. As the court indicated in paragraph 9 of its summary reasons following that hearing, the further hearing in this court was to be the hearing of the appeal against Singh J's refusal of permission to bring the judicial review claim and, if that appeal succeeded, the judicial review itself. Directions were further given for the amendment of Sky Blue's pleadings and consequential amendment of the pleadings of the Respondents. There were also directions given as to the filing of expert evidence and other ancillary matters. The additional material has served to flesh out the underlying facts surrounding the disputed decision, but the basic structure of the transactions involved is not different from what was known about it at the time of Singh J's decision.

4

Following failure of a mediation, also ordered on 28 November 2017, the rolled-up hearing of Sky Blue's remaining grounds of appeal and, if successful, the judicial review itself, was conducted before us on 26 and 27 June 2018.

(B) Background Facts

5

I set out here a very short summary of the factual background to the case in order to isolate the narrower issues arising in the appeal before us. A fuller summary of the early history of the disputes, from which my own is gratefully adopted, appears in the judgment of 30 June 2014 of Hickinbottom J (as he then was) in earlier litigation between these parties: see R (Sky Blue Sports and Leisure Ltd. & ors. v Coventry City Council, (& ors. as Interested Parties) [2014] EWHC 2089 (Admin), affirmed by this court in its judgment of 13 May 2016, [2016] EWCA Civ 453 (“Claim 1”).

6

The “sky blue” playing strip of Coventry City Football Club (“CCFC”) and formerly the black shirts (now black and gold) (with their wasp logo) of Wasps RFC (“Wasps RFC”) have been well-known in sporting circles for many years. The on-field performances of the two teams, playing football under their respective codes, have brought pleasure to the many who have followed them. None of that, however, is material to the issue arising on this appeal.

7

The present case concerns the new sports stadium at Coventry known as the “Ricoh Arena” (“the Stadium”). From the start of the 2005/6 football season, following the development of the Stadium in the immediately preceding years on a derelict gasworks site, CCFC started to play its home matches there. Unfortunately, from 2001 its playing results declined, leading to financial difficulties. Nonetheless, they continued to play at the Stadium from August 2005 until May 2013, when there was a temporary re-location and “ground share” for one football season at the home ground of Northampton Town FC. In August 2014, shortly before the making of the decision in issue, CCFC returned to the Stadium for its home fixtures under a “sub-licence” agreement on a short term basis.

8

As a result of the transactions, following the challenged decision in October 2014, the Stadium also became the home ground of Wasps RFC, who played one of their matches there for the first time in December 2014. Since then, the Stadium has been shared for home games by CCFC and Wasps.

9

The freehold interest in the Stadium has been held at all material times by the Council which had acquired it in 2002 as part of a regeneration plan for the area; it still owns the freehold estate today. The Second Interested Party, Arena Coventry Limited (“ACL”), was originally formed as a 50/50 joint venture between CCFC and the Council for the purpose of operating the Stadium. At the beginning of the decline in its football fortunes, previously mentioned, the CCFC interests sold their 50% shareholding in ACL to the Third Interested Party, Alan Edward Higgs Charity (“AEHC”), a local Coventry charity. The agreement included an option for CCFC to reacquire its interest as and when it might be able to do so. The option had its short part to play in the precise timing of events of 2014/5 effected in part following the decision now challenged.

10

In December 2003, ACL acquired a 50 year leasehold interest in the Stadium (the “2003 Lease”) for a term expiring on 16 December 2053, with the rent being payable, at its option, of £1.9 million per annum or by way of a premium of £21 million. Additional rent (“Super Rent”) might have become payable, based upon ACL's profits, but profits at the relevant level were never made and the details of this Super Rent do not matter now. In February 2006, ACL obtained £22 million loan finance from Yorkshire Bank (“the Bank”), secured by fixed and floating charges over ACL's assets, principally the leasehold interest in the Arena. The loan was used to pay the £21 million premium payable under the 2003 Lease which was assigned to a wholly owned subsidiary of ACL, Arena Coventry (2006) Limited (“ACL 2006”). Sublease and licence arrangements were made with CCFC, from which rents in the order of £1.3 million per annum were payable to ACL.

11

The history of the matter between that stage and the events which became the subject of challenge in the two sets of litigation is a lengthy one and it is not necessary now to descend into the detail of it. I consider that the following will suffice.

12

The financial position of CCFC continued to decline. In these circumstances, the SISU group of companies (“SISU”) entered the scene in 2007 as investors in CCFC, which was facing insolvency. SISU is now the controller of Sky Blue, the appellants. CCFC fell into rent arrears and from April 2012 stopped paying rent entirely. (Hickinbottom J described this as a “rent strike”.) Inevitably, this placed ACL in difficulty in servicing the loan from the Bank. There were negotiations between the various interested parties during which the commercial pressures available to each appear to have been exercised sufficiently fully as to end in mutual recrimination and mistrust between ACL (the Council and AEHC) on the one hand and SISU on the other.

13

On 15 January 2013, the Council reached a formal decision to make a loan of £14.4 million to ACL which was then to be used to repay a negotiated sum to the Bank for the full and final discharge of ACL's obligations to the Bank. It was this decision which was challenged as unlawful state aid in Claim 1. In paragraphs 78 and 79 of his judgment in Claim 1, Hickinbottom J set out a summary of his findings as to the facts and commercial situation of the parties at the time of the decision by the Council to make the loan.

14

Hickinbottom J's conclusion in dismissing the claim was that a rational private market operator in the Council's position at the time might well have considered that refinancing ACL on the terms agreed was commercially preferable to allowing ACL to become insolvent. He found that the loan agreement fell within the wide ambit of decision making extended to public authorities and that the loan was not, therefore, unlawful state aid. He also dismissed a...

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