As a Munsterman, my eyes will firmly be fixed on the Ricoh Arena in Coventry this Saturday where Munster take on Saracens in the European Champions Cup semi-final. Presumably unknown to rugby fans, this stadium has been the subject of litigation over the past few years which has just now come to an end. As highlighted by a press release from 39 Essex Chambers, the Supreme Court has today refused permission to appeal in R (Sky Blues) v Coventry City Council & Ors. By way of background, Coventry City Council owns the stadium. In 2003, a Company (“ACL”) was set up which acquired a long lease to use the stadium. Shares in ACL were initially owned 50/50 by the Council and Coventry City Football Club, before the Football Club sold its interest to a local charity.

Coventry Football, which played its games at the Stadium, stopped paying rent to ACL, meaning that ACL entered financial difficulties. Given these difficulties faced by ACL, the Council (with remember a 50/50 interest in ACL) provided a loan to ACL. The Claimants – the now owners of the Football Club – contended that the loan was at an undervalue and hence amounted to State aid (Claim 1).

Later, the Council entered into negotiations with Wasps Rugby club. The result was that Wasps would acquire 100% of the shares in ACL: 50% from the Council, 50% from the local charity. Part of the deal was that the Council would renegotiate the lease with ACL, extending the lease from under 40 years to 250 years. The Claimants argued that this deal amounted to State aid because the Council’s interest in ACL was sold at an undervalue and the lease extension also took place at an undervalue (Claim 2).

The Supreme Court’s decision to refuse permission confirms that neither claim successfully made out that State aid had been provided.

The case itself highlights the interesting relationship between public law and State aid. Hickinbottom J in the High Court (Claim 1) noted that an important principle in determining whether State aid had arisen in such a context was that the public authority enjoyed a wide margin of discretion. Whether the transactions occurred at an undervalue is not a binary question. Rather there can be a range of appropriate figures and the court’s job is not to isolate the best outcome:

“Although the test is an objective one, the law recognises that there is a wide spectrum of reasonable reaction to commercial circumstances in the private market. Consequently, a public authority has a wide margin of judgment (see, e.g. the 1993 Communication at [27] and [29] (“… a wide margin of judgment must come into entrepreneurial investment decisions…”)); or, to put that another way, the transaction will not fall within the scope of State aid unless the recipient “would manifestly have been unable to obtain comparable facilities from a private creditor in the same situation…” (Déménagements-Manutention Transport at [30]: see also Westdeutsche Landesbank Girozentrale v Commission [2003] ECR II-435 at [260]-[261]). Therefore, in practice, State aid will only be found where it is clear that the relevant transaction would not have been entered into, on such terms as the State in fact entered into it, by any rational private market operator in the circumstances of the case.”

The point was affirmed by two differently constituted Courts of Appeal in subsequent proceedings in the case (para 26 of the Appeal and para 40 of the parallel appeal of refusal to give permission in relation to Claim 2).

Applying it to the case at hand, Hickinbottom J found that the loan agreement fell within the wide ambit of decision-making discretion extended to public authorities and that the loan was not, therefore, unlawful state aid. A rational private market operator in the Council’s position at the time might well have considered that refinancing ACL on the terms agreed. ACL might otherwise have gone insolvent, in turn meaning further loss for the Council.

There is a clear parallel here in State aid law with the standards of judicial review, where similarly the focus of the court is on the process of decision-making. Though the Court may intrude on the merits of a decision, it will do so only in circumstances where the decision arrived at has not been reasonable (or not proportionate depending on the case, but we’ll leave that to the side for now). The parallel between the circumstances where State aid will arise as a result of a public authority engaging in transactions at an undervalue and the standard of reasonableness in judicial review is expressly affirmed by Hickinbottom J later in the judgment. The judge found that the argument of the Claimants that the public authority had acted unlawfully as a matter of public law because of irrationality could be dismissed on the basis of the same reasoning as in respect of the State aid claim:

“I can deal with that ground very shortly: it clearly cannot survive my findings in relation to the other grounds, particularly those in respect of State aid”

It seems appropriate to use the existing and well-known frameworks that exist in public law to determine the level of discretion afforded to public authorities when it comes to determining whether or not State aid arises. Public authorities, tasked with carrying out functions by Parliament, will be already familiar with such frameworks and additionally there are sound conceptual reasons for entrusting those better placed to make administrative decisions with some leeway in relation to those resulting decisions. One wonders however whether this logic might be extended also to the rulings’ cases currently ongoing between the European Commission and several Member States. At issue is whether the tax authorities of Ireland, the Netherlands and Luxembourg granted State aid by affirming tax positions which were in fact incorrect as a matter of domestic law. Whether tax authorities grant rulings will generally be a matter of discretion (though in some States, there may be a mandatory obligation on the tax authority to provide a private ruling). As a matter of domestic law, the tax authority will be held to have acted lawfully provided that it followed appropriate decision-making processes and did not reach a decision which was unreasonable. It follows that a tax authority will not have acted unlawfully simply because it provided a ruling which as a matter of substantive law later turned out to be incorrect. In this discrete sense, tax authorities have a power to get it wrong.

If the parallel between public law and State aid could be maintained in relation to the rulings’ cases, then it would appear that State aid will only be said to have arisen if the tax authorities in Ireland, the Netherlands and Luxembourg acted unlawfully, rather than simply if they granted rulings which turned out to be incorrect as a matter of domestic law.