Case Comment: R (Hemming (t/a Simply Pleasure Ltd) and Ors) v Westminster City Council  UKSC 25
23 Thursday Jul 2015
The respondents are the purveyors of sex shops in Westminster. In order to run said sex shops, they require a sex establishment licence from the appellants, Westminster City Council. Westminster CC requires that applications for a sex establishment licence be accompanied by payment of a two-part fee. The first part of this fee relates to the administration of the licence; whilst the second part relates to the management of the licensing regime (in particular to enforcement costs). The second part, which is substantially larger than the first (the former being £2,667 in the year 2011/2012, whilst the latter was £29,102 for the same year), is refundable to parties whose applications for a licence are unsuccessful.
In 2011 the respondents brought a judicial review asserting that the second part of the fee is not permissible under (a) domestic law and / or (b) EU law. In making this assertion, they relied on the Provision of Services Regulations 2009 (SI 2009/2999) which implements the Services Directive (Directive 2006/123/EC on Services in the Internal Market). In particular reference is made to Regulation 18 of the Regulations and Article 13(2) of the Directive: the former reproducing very closely the wording and provision of the latter.
The decisions and findings of the courts below are set out in more detail in the Case Preview on this blog. Nonetheless the background is briefly as follows:
The courts focussed on Regulation 18 of the Provision of Services Regulations which provides that:
“(2) Authorisation procedures and formalities provided for by a competent authority under an authorisation scheme must not –
(a) be dissuasive, or
(b) unduly complicate or delay the provision of the service.”
“(4) Any charges provided for by a competent authority which applicants may incur under an authorisation scheme must be reasonable and proportionate to the cost of the procedures and formalities under the scheme and must not exceed the cost of those procedures and formalities.”
It was held both at first instance and in the Court of Appeal that the second part of the fee could not properly be identified as relating to the “cost of the procedures and formalities under the scheme” and that accordingly, this part of the fee should be charged to neither successful nor unsuccessful applicants for a sex establishment licence. It was held that upon application, applicants could only be charged fees relating to the processing of the application, and that costs associated with enforcement activities could at no point be charged to unsuccessful applicants (whether refundable or otherwise) and could only be charged to successful applicants on an arrears basis.
Supreme Court Decision
The Supreme Court was quick to assert that Westminster CC had authority under domestic law to require payment of both parts of the fee. Relying on paragraph 19, Schedule 3 of the Local Government (Miscellaneous Provisions) Act and case law, Lord Mance, providing sole judgment on behalf of all of the (unanimously agreeing) justices, proclaimed that he had “no doubt that…as a matter of domestic law” it is open to a licensing authority 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 this fee payable either (a) outright, as and when the licence is actually granted pursuant to the application or (b) on a refundable basis, at the time when the application is lodged.”
Paragraph 19 reads: “an application for the grant, renewal or transfer of a licence under this Schedule shall pay a reasonable fee determined by the appropriate authority”. This provision has since been specifically clarified in the case of R v Westminster City Council, Ex p Hutton (1985) 83 LGR 516, in which it was found that fees under paragraph 19 may reflect the costs of “vigilant policing” and are not limited to the costs of processing applications.
On the question of the application of EU law, however, the Supreme Court displayed less certainty. Article 13(2) of the Directive reads as follows:
“Authorisation procedures and formalities shall not be dissuasive and shall not unduly complicate or delay the provision of the service. They shall be easily accessible and any charges which the applicants may incur from their application shall be reasonable and proportionate to the cost of the authorisation procedures in question and shall not exceed the costs of the procedures”.
It was clear to the justices that article 13(2) only concerns itself with charges made in respect of authorisation procedures and their costs, and could not, therefore, be applied to the charging of fees more generally, nor could it be used to prevent the collection of fees in relation to enforcement costs (i.e. the second part of the fee). However, there were questions left outstanding regarding whether the Directive could be read as restricting the time at which such fees may be levied.
The court found confidently that Westminster CC would be permitted to charge both parts of the fee in any context where the fee levied at the time of application was limited to a fee which reflects the costs associated with authorising the licence (i.e. the first part of the fee), regardless of whether additional fees (such as the second, refundable part) were to follow. However, it did not rule on the position where fees in excess of the costs of authorising a licence were required at the point of application (for example where the first and second part of the fee were charged all at once, up front).
In their arguments on this point, the respondents suggested that requiring payments amounting to more than the costs of the application process, at the point of application, would breach the Directive as (a) it would be dissuasive, and (b) the payments would constitute a charge and the Directive prohibits charges which are in excess of the costs of processing the application. The court dismissed the argument that the levying of the second, refundable, part of the fee at the point of application would be “dissuasive”: with Lord Mance asserting that:
“the refundable part of the fee payable…is quite substantial, but sex shops are not doubt profitable…and the refundable part is a sum which anyone applying for a licence must be willing and able to pay…” and accordingly “there is…no factual or evidential basis for a conclusion that [the obligation to pay the refundable second part of the fee] would be likely to dissuade these or any other applicants”.
Nonetheless, the court found it difficult to hold conclusively that if the second part of the fee were levied at the time of application, it would not constitute a charge, and would not, thereby, fall subject to the rule that “charges…shall not exceed the costs of the procedures” (emphasis added).
On this matter, the court therefore elected to defer to the European Court of Justice in Luxembourg, referring the following two questions:
- Whether the requirement to pay a fee including the second refundable part means, 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 Westminster City Council of processing the application; or
- Whether a conclusion that such a requirement should be regarded as involving a charge – or, if it is to be regarded, a charge exceeding the cost to Westminster City Council of processing the application – depends on the effect of further (and if so what) circumstances, for example: (a) any evidence establishing that the payment of the second refundable part involved or would be likely to involve an applicant in some cost or loss, (b) any saving in the cost to Westminster City Council of processing applications (and so in their non-refundable cost) that would result from requiring an up-front fee consisting of both parts to be paid by all applicants.
The decision in this case may have far reaching effects given that, as Lord Mance specifically acknowledged, a large number of regulatory and professional bodies will be accustomed to recovering enforcement costs by way of fees associated with regulatory schemes, in much the same way as Westminster CC sought to recover costs in this case. Accordingly, any decision made in this case may have both a procedural and financial impact on a number of comparable bodies (for example the Solicitors Regulation Authority and Her Majesty’s Treasury, both of which, among others, were interveners in the case before the UKSC).
It will be frustrating for bodies that the issues in this case have not been entirely resolved in this judgment, and that instead they face a wait before they receive clarification on the questions referred to the CJEU. Many bodies may – and possibly should – therefore use the intervening period to consider the possible impact that the results of the EU reference may have on their processes. In particular considering if and how, if applicable, their enforcement fees may be separated from their application fees.
Nonetheless, bodies should find reassurance in the Supreme Court’s finding that the Regulation and / or the Directive cannot act so as to prevent the charging of fees to cover enforcement costs altogether. Rather, they may just affect the time and manner in which such fees may be levied.