Page last updated at 12:28 GMT, Tuesday, 11 March 2008

Before Wembley, City's legal test

Ciaran Rhys Jenkins
BBC Wales political unit

Cardiff City won through to the FA Cup semi-finals with a win at Middlesbrough

Days after winning a place in the FA Cup semi-final, Cardiff City are set for a High Court battle which leaves the future of the club in the balance.

Wednesday's hearing is over 24m in loan notes the club borrowed from Langston Corporation in 2004.

Cardiff say a variation to the agreement means it is not repayable until 2016 but Langston want full repayment immediately.

The High Court will consider Langston's application for summary judgment.

That means a judge will decide whether to rule in Langston's favour without the need for a full trial.

Professor Robert Lee from Cardiff University Law School says it would be a "disaster for the football club" if Langston were to win the case outright.

"If judgment is given for Langston it puts [them] in a position to call for millions of pounds to be accelerated back to them," said Prof Lee.

"So clearly, one has to think that the club is then facing administration and points deduction and everything else that will follow."

Prof Lee was speaking after seeing the court case papers, obtained by BBC Wales' Dragon's Eye programme.

Peter Ridsdale and Cardiff City stadium building site
Peter Ridsdale insists Cardiff City's case is "robust"

The papers shed light on the precise differences between Cardiff City and Langston, and focus in particular on the club's relationship with PMG Estates, a company run by former Cardiff City directors Paul Guy and Mike Hall.

Little is known about Langston, a company registered in Panama but trading from Switzerland, except that Cardiff City borrowed 24m from them in 2004 when Sam Hammam was the club chairman.

The loan notes were renegotiated in 2006 to allow Cardiff to pay them back on better terms. The disagreement between the parties is over which of these deals now applies.

Cardiff City are set to argue the loan should be repaid according to the 2006 agreement.

That would have seen the debt reduced to 15m in exchange for handing over 9m raised through naming rights for the club's new stadium and a further 5m on promotion to the Premier League.

They also secured an option to postpone outstanding payments until the end of December 2016.

Ninian Park and Cardiff City stadium building site
A 46m new stadium and a retail park are being built opposite Ninian Park

Cardiff chairman Peter Ridsdale has said that "the club does not have any cause to believe that this signed document is invalid, and consequently it does not consider that it has any debts repayable to Langston prior to 2016."

According to Langston the 2006 deal would only come into effect if the "satisfaction date" - the date the stadium project was signed off as unconditional with Cardiff County Council - was reached by 31 May 2007.

The club insist the "satisfaction date" was attained on 4 May 2007, well before Langston's deadline.

Waiver clause

However, Langston allege that because Cardiff City didn't inform them the stadium project had been signed off as unconditional, they breached a clause in the deal which pledged to keep them notified of any progress.

Langston say this breach means the 2006 deal is no longer of any effect and the original agreement between the parties still applies.

The original deal included a clause stating that Langston should be the club's preferred creditor - in other words, they would be at the front of the queue if it came to any claims on the club's assets unless agreed otherwise.

But in January 2007 Cardiff City were in financial difficulty and borrowed 11m from the development company PMG.

The terms of the loan made PMG the club's preferred creditor. Langston argue this is a clear breach of the original agreement and so they are asking for immediate repayment of the loan notes plus interest, a total of 31m.

Ninian Park
Cardiff City borrowed 11m in 2007 when it was in financial difficulty

Cardiff City's defence appears to rest on a waiver clause in the 2006 agreement. The clause released the club from any prior liabilities relating to the agreement including, according to the club, any breach of the original deal arising from the club's loan from PMG.

Ridsdale has always insisted the club have a "robust case" and would be "very confident of winning" at court. But Professor Lee believes both sides have an arguable case.

"You can clearly see that the argument on the part of Langston is: there was a clear breach of our agreement at the moment that security was given to someone else," said Prof Lee.

"The argument from Cardiff will be: 'No we felt free to do that because of the variation of the agreement.' And it then becomes a matter of the court's judgment which path was right."

But there may be no clear winner this week.

Prof Lee says much will depend on the "particular language" of the loan agreements between Langston and the club and that could be enough to prompt a trial at a later date.

Cardiff's march to Wembley to face Barnsley, and the chance of a first FA Cup final appearence for 81 years, may yet be forced to continue under a cloud of financial insecurity and the threat of administration.

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