Firm 'lost millions after council concealed plans for city arena'

Entrepreneur Jan Fletcher's Montpellier Estates (MEL) is suing the council for damages over its shock decision to develop Leeds arena on land not previously on a shortlist – a decision which cost the firm "many millions of pounds of losses".

Harrogate-based Montpellier is also on the brink of issuing deceit proceedings against the council, on top of its original claim the local authority breached European Union procurement rules.

The row over the 75m arena erupted in November 2008 when the council selected a site in Claypit Lane, Leeds, despite never having said the location was under consideration.

The council opted to buy land from Leeds Metropolitan University and develop the site itself, rejecting Montpellier's Sweet Street site to the south and another at Elland Road submitted by private developer GMI.

Montpellier claimed the council had, unknown to it, been pursuing its own development plans for more than a year before rejecting the private company bids.

"MEL considers that the council has behaved appallingly during the procurement and caused MEL many millions of pounds of losses," said Montpellier in papers lodged with the High Court in London.

The company also alleged Leeds Council created an "audit trail" to protect it if, as eventually happened, it decided not to pursue the private development route. It told the court the council subtly introduced its own plans to develop the arena late in the bidding process with mentions of a "public sector comparator" (PSC) when communicating with the company.

Montpellier said it was reassured repeatedly by the council, however, that the PSC was simply a "hypothetical" test to ensure bidders were giving value for money.

Montpellier said the council's behaviour was "shabby and misleading" and created a "seriously flawed procurement process". It believes the council used the company as a "stalking horse", allowing it to secretly further its own plans.

The arena is understood not to be included in a hit list of Yorkshire Forward schemes to be axed in order to meet government savings because funds are already committed and the scheme would be too complicated to unravel. Up to 20m of public money has been earmarked for the project.

Leeds Council told the court it decided to abandon the tendering process because it found the bidders' plans "were not affordable" and "value for money would not be achieved" by continuing the process.

The authority said it "vigorously denies" the allegations, but added it was not challenging them, claiming Montpellier has become confused on EU contract rules. It said there was a "less onerous duty" when a tendering process was aborted before a contract was awarded.

"There is no obligation on the contracting authority to complete the procedure and it may simply decide to abort the process," said the council.

In a statement Jan Fletcher OBE said: "European law sets out clear rules for large scale procurement to ensure it is fair and transparent for every business taking part. The business community needs absolute confidence in the procurement process so they can weigh up the genuine risks."

Mr Justice Eady reserved judgment in the case.