R (on the application of Hemming (t/a Simply Pleasure Ltd) and others) v Westminster City Council

Premises licensing – Sex establishments – Licensing fees – Local Government (Miscellaneous Provisions) Act 1982 – Appellant council charging fees for licensing applications – Part of fee relating to costs of administration – Further refundable part relating to costs of running and enforcement of licensing scheme – Whether latter part of fee lawful under para 19 of Schedule 3 to 1982 Act – Whether such fee contrary to article 13(2) of Directive 2006/123/EC and regulation 18 of Provision of Services Regulations 2009 – Appeal allowed in part The appellant council were the licensing authority for sex establishments in Westminster under Schedule 3 to the Local Government (Miscellaneous Provisions) Act 1982. The respondents were licensees of sex shops in that area. The appellants required applicants for the grant or renewal of a sex establishment licence for any year to pay a fee made up of two parts. The first, non-returnable part related to the administration of the application; the second, considerably larger, part related to the management of the licensing regime and was refundable if the application was refused. For the year 2011 to 2012, the total fee was £29,102, of which the refundable and non-refundable parts were respectively £2,667 and £26,435. The appellants took the view that the fees were permitted under para 19 of Schedule 3 to the 1982 Act, so far as it provided for an applicant to pay “a reasonable fee determined by the appropriate authority”. The respondents brought judicial review proceedings to challenge the appellants’ fees, in particular the larger, refundable part. They contended that it was not legitimate under domestic and/or European law to charge applicants for the costs of enforcing the licensing scheme which were unrelated to the costs of processing applications, and that those costs should instead be borne out of the appellants’ general funds. They submitted that the refundable fee was contrary to the requirements of regulation 18 of the Provision of Services Regulations 2009, implementing article 13(2) of Directive 2006/123/EC on services in the internal market, including the requirement that the costs incurred by applicants under authorisation procedures should be reasonable and proportionate and not exceed the cost of those procedures. The claim was allowed in the courts below on the ground that article 13(2) covered charges made to successful as well as unsuccessful applicants and prevented a licensing authority from charging them with the cost of investigating and prosecuting persons operating sex establishments without a licence: see [2012] EWHC 1260 (Admin) and [2013] EWCA Civ 591. The appellants appealed. Held: The appeal was allowed in part. As a matter of domestic law, a licensing authority could require an application for the grant or renewal of a licence to pay a fee, under para 19 of Schedule 3 to the 1982 Act, to cover the running and enforcement costs of a licensing scheme and to make that fee payable either outright, as and when the licence was actually granted, or on a refundable basis, at the time when the application was lodged: R v Westminster City Council, ex parte Hutton (1985) 83 LGR 516 applied. The effect of article 13(2) of the directive on that position was as follows: The concept of “authorisation procedures” under article 13(2) of Directive 2006/123/EC was only concerned with procedures and formalities at the stage when a person was seeking permission to access or exercise a service activity. It was not concerned with fees which might be payable for the possession, retention or renewal of a licence once the authorisation stage was successfully passed. Article 13(2), and thus regulation 18 of the 2009 Regulations, was therefore concerned only with charges made in respect of authorisation procedures and their cost, and did not preclude a licensing authority from charging a fee for the possession or retention of a licence and making that licence conditional on payment of such a fee. The fee would still have to comply with the requirements, including that of proportionality, identified in section 2 of Chapter II and section 1 of Chapter IV of the directive, but there was no reason why it should not be set at a level that enabled the authority to recover from licensed operators the full cost of running and enforcing the licensing scheme, including the costs of enforcement and proceedings against those who operated sex establishments without licences. It was therefore permissible for a licensing authority to operate a scheme under which an applicant was required: (i) on making the application, to pay the costs of the authorisation procedures and formalities; and then (ii) on the application being successful, to pay a further fee covering the costs of the running and enforcement of the licensing scheme (type A). It was more problematic whether article 13(2) permitted a scheme of the kind used by the appellants, under which both types of fee were payable on making the application, but on the basis that the charge for the running and enforcement of the scheme was refundable in the application proved unsuccessful (type B). Under a type B scheme, every applicant was required to pay up front, even though on a refundable basis, a sum which was referable not to the costs of handling the application but to costs which would be incurred for the benefit only of successful applicants. The requirement attached to the application, not to its success, and there was an argument that it thereby amounted to an “authorisation procedure” or “formality” which had to comply with article 13(2). The appropriate course was therefore to refer questions to the Court of Justice of the European Union to determine: (1) whether the requirement to pay a fee including the second, refundable part meant, as a matter of law and without more, that the respondents incurred a “charge” from their applications which was contrary to article 13(2) in so far as it exceeded any cost to the appellants of processing the application; or (2) whether a conclusion that such a requirement involved a “charge”, or a charge exceeding the cost to the appellants of processing the application, depended on the effect of further circumstances, and if so, which circumstances (for example, evidence establishing that the payment of the second, refundable part up front would involve an applicant in some cost or loss or would result in any saving to the appellants in the cost of processing applications, and so in the first, non-refundable part of the fee). It followed that the appeal succeeded to the extent of granting a declaration that a type A scheme was consistent with article 13(2) of the directive and regulation 18 of the 2009 Regulations. The question of whether, and when, a type B scheme was consistent with article 13(2) as a matter of law should be referred to the CJEU. Nathalie Lieven QC, Daniel Matthias QC and Jacqueline Lean (instructed by the legal department of Westminster City Council) appeared for the appellants; Philip Kolvin QC and Victoria Wakefield (instructed by Gosschalks) appeared for the respondents; Timothy Dutton QC and Robert O’Donoghue (instructed by Russell-Cooke LLP) appeared for the first to fourth interveners; Michael Fordham QC and Hugh Mercer QC (instructed by Bevan Brittan LLP) appeared for the fifth and sixth interveners; George Peretz QC (instructed by the treasury Solicitor) appeared for HM Treasury, as intervener; the Local Government Association made written submissions as intervener. Sally Dobson, barrister Click here to read transcript: Hemming v Westminster