Contractor’s £25m ‘unlawful state aid’ claim against Scottish Government dismissed

A contractor which claimed the Scottish Government acted unlawfully in giving taxpayers’ money to a competitor in the purchase of a Highland industrial yard has had a £25 million damages action dismissed.

LC Management Services (Scotland) Ltd claimed that the financial awards to Global Energy Holdings towards the purchase of the Nigg Yard breached EU competition law and amounted to “unlawful state aid”.

But a judge in the Court of Session ruled that the sums awarded were below the European Commission’s threshold for lawful pre-approved state aid.

‘The Nigg Yard’

Lord Ericht heard that the Nigg Energy Park on the Cromarty Firth, which consists of land reclaimed from Nigg Bay, has been used for for a variety of oil and gas-related services such as repair of drilling rigs.

In 2011 part of the yard was purchased for an undisclosed sum for commercial redevelopment by a company within the Global Energy group.

LC Management Services had also attempted to purchase the site, but its bid was unsuccessful.

Various public had involvement with the redevelopment and various financial awards were made, but the pursuers claimed that these awards included unlawful state aid.

The Invergordon-based pursuers sued the Scottish Ministers and Highlands and Islands Enterprise (HIE), claiming that they were a competitor to the company which was the beneficiary of unlawful state aid.

The business objected to HIE’s use of public cash in supporting Global Energy group’s purchase and redevelopment of the Nigg Yard.

‘Unlawful state aid’

The pursuers sought declarator that the awards by the defenders of financial aid to undertakings within the group companies owned by Inverness-based Global Energy Holdings Limited between October 2011 and May 2014 were “unlawful state aid” in that they were awarded in breach of Articles 107 and 108(3) of the Treaty on the Functioning of the European Union, of provisions of European Commission Regulation (EU) No 651/2014 and of the European Commission’s Guidelines on National Regional Aid for 2007-20013.

Counsel for the pursuers argued that the public money spent on the yards exceeded the European Commission’s threshold for lawful pre-approved state aid, which for the Nigg Energy Park was €15 million.

It was submitted that the notification threshold for regional investment aid for large investment projects was 75% of the normal threshold, which was €11.25m.

The pursuers pointed to a number of awards made to Global Energy Nigg Limited.

The company also averred that the designation of Nigg as an “assisted area” for the purposes of the Capital Allowances Act 2001 attracted financial incentives including advantageous business rates, rates relief and capital allowances, which should be treated as state aid.

It was argued that they had suffered loss and damage as a result of the defenders’ breach of EU law, meaning the defenders were liable to the pursuers for £25m in damages.

But the Scottish Ministers submitted that the designation of Nigg Energy Park did not constitute an award of state aid.

HIE argued that even if the all of the items identified by the pursuers were cumulated, the total amounted to less than €13m, which would not require notification with the European Commission, and that the pursuers averments about capital allowances were “irrelevant” as they did not give specification of the value of such allowances.

‘No state aid’

The judge dismissed that action after ruling that sums given to Global Energy did not exceed the state aid threshold.

In a written opinion, Lord Ericht said: “The cumulative total of the awards averred by the pursuers is £10,308,224. That is well below the threshold of €15 million.

“So the pursuers have plead a relevant case only if…. the designation of Nigg Energy Park as an assisted area for the purposed os section 45k of the Capital Allowances Act 2001 takes the total to over the €15 million threshold.

“The UK Government designated Nigg, as an assisted area, for the purposes of section 45k by the Capital Allowances (Designated Assisted Areas) Order 2014. The Order came into force on December 23 2014 and the designations under it are to be treated as having been designated on April 1 2012.

“The pursuers’ position was that the designation gave rise to capital allowances and rates relief which were state aid and so required to be cumulated towards the threshold.

“In my opinion neither capital allowances nor rates relief are to be cumulated towards the threshold.”

He concluded: “I have found that there was no state aid in relation to rates relief and capital allowances. It follows that there was no state aid in relation to rates relief and capital allowances.

“The pursuers did not aver any other specific example of state aid granted by the first defenders. In these circumstances the pursuers have not pled a relevant case.

“I shall uphold the first plea for the first defenders and the fourth plea in law for the second defenders and dismiss the action.”

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