Licensing

R (on the application of Hemming (trading as Simply Pleasure Ltd) and others) v Westminster City Council

Respondent licensees of sex shops challenging appellant licensing authority’s decision to charge fee for management of licensing regime refundable if application for licence unsuccessful

The appellant was the licensing authority for sex establishments, including sex shops, under schedule 3 to the Local Government (Miscellaneous Provisions) Act 1982 (the 1982 act). The respondents were licensees in respect of some sex shops in the authority’s area.

The total fee for the grant or renewal of a sex establishment licence imposed on the respondents for the year 2011/12 was £29,102, of which £2,667 related to the administration of the licence and was non-returnable, while £26,435 related to the management of the licensing regime and was refundable if the application was refused.

The respondents issued proceedings, alleging that it was not legitimate, under domestic and/or European Union law, for the authority to charge the refundable sums. The courts below regarded article 13(2) of Directive (EC) 2006/123 of the European Parliament and of the Council (on services in the internal market) (the Directive) as covering charges made to successful as well as unsuccessful applicants and as preventing a licensing authority from charging those granted licences as well as unsuccessful applicants with the cost of investigating and prosecuting persons operating sex establishments without a licence.

Article 13(2) provided that any charges from an application had to be reasonable and proportionate, and should not exceed the cost of the authorisation procedures and formalities. The authority appealed.

With respect to the first issue arising, in domestic law, the authority relied on paragraph 19 of schedule 3 to the 1982 act as authorising such fees. Second, with respect to EU law, the authority contended that the concept of ‘authorisation procedures and formalities’ in article 13(2) of the Directive could be interpreted widely enough to cover all aspects of the licensing scheme, including the costs of its enforcement against unlicensed operators. It alternatively contended that article 13(2) of the Directive, and so regulation 18 of the Provision of Services Regulations 2009, SI 2009/2999 (the Regulations), was concerned, and only concerned, with charges made in respect of authorisation procedures and their costs to which the refundable charges did not relate.

Third, the logic of the respondents’ contrary case was that article 13(2) of the Directive precluded a licensing authority from operating a scheme where applicants had to pay: (i) on the application having been successful, a further fee to cover the costs of the running and enforcement of the licensing scheme (type A); and (ii) on making the application, but on the basis that it was refundable if the application was unsuccessful, a further fee to cover the costs of the running and enforcement of the licensing scheme (type B).

With respect to type B, the respondents submitted that: (i) a requirement to make, even a refundable payment, could have a ‘potentially dissuasive’ effect on applicants; and (ii) even a refundable payment constituted a charge and that such a charge infringed article 13(2) of the Directive because it exceeded the cost, understood as to cost to the authority of the procedures.

The court ruled:

(1) There was no doubt that it was, as a matter of domestic law, open to a licensing authority, under paragraph 19 of schedule 3 to the 1982 act to require an applicant for the grant or renewal of a licence to pay a fee to cover the running and enforcement costs of a licensing scheme, and to make that fee payable either: (i) outright, as and when the licence was actually granted, pursuant to the application; or (ii) on a refundable basis, at the time when the application was lodged (see [7] of the judgment).

R v Birmingham City Council, ex p Quietlynn Ltd (1985) 83 LGR 461 applied.

(2) There was no hesitation in rejecting the first way in which the authority had put its case. Article 13(2) of the Directive was only concerned with authorisation 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 required to be paid for the possession, retention or renewal of a licence, once the authorisation stage was satisfactorily past.

The ‘charges which the applicants may incur from their application’, to which article 13(2) of the Directive referred, could not sensibly embrace fees of such nature payable by successful applicants for the licence, its retention or renewal after the authorisation stage. Article 13(2) of the Directive, and so regulation 18 of the Regulations, was concerned, and only concerned, with charges made in respect of authorisation procedures and their costs. Nothing in article 13(2) of the Directive precluded a licensing authority from charging a fee for the possession or retention of a licence and making that licence conditional upon payment of such fee (see [15], [17] of the judgment).

(3) In the case of type A, there was no doubt that it was not an aspect of the authorisation scheme within the meaning of the Directive. It was a mere provision that, if and when authorisation was successfully obtained, the actual grant or renewal of a licence would be subject to payment of a fee to cover enforcement costs.

Once it was accepted that article 13(2) of the Directive permitted a licensing authority to levy on a successful applicant, in respect of the possession or retention of a licence, charges enabling the authority to recover the full cost of running and enforcing the scheme, it would be incongruous if an application could not refer to or include a requirement to pay such charges on the application having been successful.

Whether article 13(2) of the Directive permitted a scheme of type B was more problematic. There was, on the material, no factual or evidential basis for a conclusion that a requirement to accompany an application with a payment refundable if the application failed could or would be likely to dissuade applicants from making any application for a sex establishment licence.

The reference in article 13(2) of the Directive to ‘the costs of the…procedures’ meant their cost to the authority and the question was, therefore, whether the requirement to make the payment refundable on failure of an application was a ‘charge’. No authority addressing the arising questions had been cited and the answers to them were unclear. Accordingly, it was necessary to make a reference to the Court of Justice of the European Union (the CJEU) on that point.

The questions were: (i) whether the requirement to pay a fee including the second refundable part meant, as a matter of law and without more, that the respondents had incurred a charge from their applications which had been contrary to article 13(2) of the Directive, insofar as it exceeded any cost to the authority of processing the application; or (ii) whether a conclusion that such a requirement should be regarded as having involved a charge – or, if it was so to be regarded, a charge exceeding the cost to the authority of processing the application – depended on the effect of further (and if so what) circumstances (see [19], [20], [22]-[24] of the judgment).

The authority’s appeal would succeed to an extent, entitling it to a declaration that a scheme of type A was and would be consistent with regulation 18 of the Regulations and article 13(2) of the Directive. The question of whether and when a scheme of type B was, as a matter of law, consistent with art 13(2) of the Directive would be referred to the CJEU (see [26] of the judgment).

Decision of Court of Appeal, Civil Division, [2013] All ER (D) 319 (May) reversed in part.

Nathalie Lieven QC, David Matthias QC and Jacqueline Lean (instructed by Westminster City Legal Services) for the authority; Philip Kolvin QC and Victoria Wakefield (instructed by Gosschalks) for the respondents.