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Katharine_Alexander_phThe respondents run sex shop establishments in Soho, for which a licence is required. Westminster City Council (the appellant) is responsible for setting the fee of such licenses when they are granted or renewed. Following High Court and Court of Appeal findings that the licence scheme operated by the appellant falls outside the Services Directive (Directive 2006/123/EC, Services in the Internal Market), the appellant brought an appeal to the Supreme Court which was heard on 13 January 2015.

Factual Background

In 2003, the respondents’ licence fee was set at £28,531 by the appellant’s Major Licensing Applications Committee, and in 2004 at £29,102 by the appellant’s Licensing Sub-Committee. Following this, neither Committee had detailed consideration of the fee, although it was reviewed annually by one the appellant’s officers. As a result, the fee remained at the 2004 level until 31 January 2012.

The licence fee was to cover the cost of:

  1. enforcing the licensing regime against unlicensed operators and monitoring compliance by licensed operators (as to 90% of the fee); and
  2. administering the application (as to 10% of the fee).

In 2011, the respondents brought a judicial review on the grounds that the appellant’s setting of the fee was unlawful. They claimed that under the Provision of Services Regulations 2009 (which implemented the Services Directive) the appellant was not permitted to include the cost of enforcing the licensing system in the fee. The relevant Regulation 18(4) states that charges must be “reasonable and proportionate to the cost of the procedures and formalities…and must not exceed the cost of those procedures and formalities”. As a result, the respondents claim that enforcement of the scheme is not covered under this definition, and so only the second limb above should constitute the licence fee.

The respondents sought restitution of the difference between what they had been paying, and the lawful sum they should have been paying for the previous five years (since the fee was last properly set).

First Instance

At first instance, Keith J upheld the respondents’ claim and ordered that the appellant pay the difference between the payments made and the lawful fee.

He firstly declared that, since the appellant had not reset nor considered the licence fee at committee level since 2004/2005 (as required by Schedule 3 to the Local Government (Miscellaneous Provisions) Act 1982), this setting procedure was inconsistent with the requirements.

Secondly, it was held that Regulation 18(4) “strongly suggests” that fees should be only for administrative, and not enforcement, costs. Further, the Services Directive was “quite specific” in that the fees must be proportionate and not exceed the cost of authorisation procedures. Therefore, since December 2009, the appellant had not been permitted to include enforcement costs in the licence fee.

Court of Appeal

The appellant appealed on the basis of Keith J’s decision that enforcement costs were not captured within “authorisation procedures and formalities“, the basis of the award of restitution, and against the decision that it should pay indemnity costs with an enhanced rate of interest under CPR 36.14(3) (since the Appellant had rejected a Part 36 offer which was more advantageous than materialised in the judgment).

Keith J’s decision was upheld in part. The Court of Appeal agreed that the licence fee must not include enforcement costs against unlicensed operators and to think otherwise would be a “strained interpretation” of the legislation. The Court of Appeal distinguished between enforcement costs against unlicensed operators (unable to be included in the licence fee), and costs in analysing compliance of licensed operators for consideration of their renewal (able to be included).

The Court of Appeal also disagreed with the High Court in relation to whether any limitation period for restitution should apply, holding that this was a private law right and therefore no such limitation would apply.

The Supreme Court appeal

On 13 January 2015, the appeal was heard before Lord Neuberger, Lord Mance, Lord Clarke, Lord Reed and Lord Toulson. The question for the Supreme Court is whether the appellant’s scheme of charging fees for licensing sex shops in Soho is permitted by the Services Directive. We will post a full case comment once the judgment has been handed down.