Sky Blue Sports & Leisure Ltd & Ors, R (on the application of) v Coventry City Council & Ors

In a state-aid challenge to a public authority’s land transaction, the relevant comparison is between the price received and the market value of the asset the authority owned and transferred. The ultimate value of a package assembled from assets held by the recipient or third parties does not establish an undervalue by the state. Where an existing lease is extended, the relevant asset is the extension, not the whole extended lease. An open tender is not essential where independent valuation establishes market price. A different approach may apply where the public asset is indispensable to the value of other assets, as with a ransom strip.

Sky Blue appealed from Singh J’s order of 17 July 2017 refusing permission to apply for judicial review of Coventry City Council’s approval of transactions involving the Ricoh Arena. The challenge alleged unlawful state aid contrary to Article 107 of the Treaty on the Functioning of the European Union and breach of section 123 of the Local Government Act 1972. The Council had sold its 50 per cent shareholding in Arena Coventry Limited and approved a lease extension giving a total term of 250 years. The central issue was whether the lease transaction involved a transfer of public land at an undervalue, assessed by reference to the whole transaction or only to the asset which the Council could itself transfer.

The Court of Appeal unanimously dismissed the appeal and upheld Singh J’s order refusing permission to apply for judicial review.

1. Applicable principles. Article 107 of the Treaty on the Functioning of the European Union prohibits state aid which distorts or threatens competition. Article 108 gives the Commission responsibility for deciding compatibility, while a national court may determine whether a measure is aid requiring notification. The market-operator principle asks whether the state did more than a rational private party, motivated by commercial considerations, would have done in the same position. Public authorities have a wide margin of commercial judgment.
2. Relevant asset. In an undervalue case, the court must identify the asset owned and transferred by the public authority, the price received, and the proper market value of that asset. The recipient’s overall benefit from combining that asset with assets already owned or acquired from third parties is not, by itself, state aid. The Council owned a non-controlling 50 per cent shareholding in Arena Coventry Limited and the freehold reversion subject to the existing lease. It could not itself grant Wasps an immediate 250-year lease in possession.
3. Valuation. The relevant asset was the lease extension, economically equivalent to the freehold reversion, not the whole 250-year lease. The KPMG valuation placed the freehold value at £0.6 million to £1 million, with the £1 million consideration at the top of that range. The later Strutt & Parker valuation concerned a different amalgam of assets, including a trading business and synergies available to Wasps, and did not establish the value of the Council’s transfer.
4. Marketing and additional guidance. The absence of an open tender did not automatically establish non-compliance with market conditions where independent valuation could establish market price. Lord Justice Irwin added that a different valuation may be required where a public asset is a ransom strip or otherwise unlocks substantial value in assets which would otherwise have little or no value. That qualification did not apply here.

• Court of Appeal (Civil Division): dismissed the appeal and upheld the refusal of permission to apply for judicial review.
• High Court, Administrative Court in Birmingham: Singh J refused permission to apply for judicial review by order dated 17 July 2017. The Court of Appeal subsequently allowed amendments and expert evidence to be introduced, but the substantive appeal was dismissed after the rolled-up hearing.