Hemming (/a Simply Pleasure Ltd) & Ors, R (on the application of) v Westminster City Council (Rev 1)

Under the Services Directive and the Provision of Services Regulations 2009, charges imposed under an authorisation scheme must be reasonable, proportionate and no more than the cost of the authorisation procedures and formalities. The costs of prosecuting unlicensed operators are outside that concept and cannot be included in licence fees. Costs of assessing applicants and monitoring licensed operators may be included. Where a public authority failed to make valid fee determinations, restitution is generally limited to the excess over the lawful reasonable fee. A public authority’s status and the novelty of the legal regime do not, without more, displace the usual consequences of failing to beat a Part 36 offer.

The respondents operated licensed sex establishments in Westminster and challenged the annual licence fee demanded by the Council. The Administrative Court held that the Council had not validly determined fees after the year ending 31 January 2006 and that, following implementation of the Services Directive, enforcement costs against unlicensed operators could not be included in the fee. It ordered retrospective fee determinations, restitution and enhanced costs consequences under Part 36: [2012] EWHC 1260 (Admin); [2012] EWHC 1582 (Admin).

The Council appealed on the construction of the Directive and Regulations, the method of calculating restitution, and costs and interest. The central questions were whether enforcement against unlicensed operators formed part of the authorisation procedures and whether the Council could retrospectively calculate fees on a rolling basis.

1. Authorisation charges. The appeal on the construction of the Services Directive and the Provision of Services Regulations 2009 was dismissed. Regulation 18(4), read with Regulation 4, concerns charges incurred under an authorisation scheme. The prosecution of operators who had never applied for authorisation could not, even on a strained construction, be treated as an authorisation procedure or formality.
2. The statutory limits also applied to fees payable by successful applicants. The Council could include the administrative costs of investigating suitability and, on renewal, the costs of monitoring the applicant’s previous compliance with licence conditions. It was lawful to distinguish those costs from enforcement against unlicensed operators. The wider consequences asserted for other regulatory schemes were insufficiently established to justify departing from the clear language of the legislation.
3. Reference. The court declined to refer the issue to the CJEU. A court should hesitate before making a reference of its own motion where a party opposes it, and the delay and circumstances of the litigation supported deciding the appeal without a reference.
4. Restitution. Restitution was limited to the excess over the lawful reasonable fee, reflecting the colore officii principle and the approach in Waikato Regional Airport. For the years ending 31 January 2007 to 31 January 2010, the Council could retrospectively calculate fees on a rolling basis, carrying forward surpluses and deficits. After the Regulations came into force, the enforcement-against-unlicensed-operators element could not lawfully be charged and was repayable forthwith. The administrative and licensed-compliance elements could continue to be rolled forward until proceedings were issued in April 2011.
5. Costs. The Council’s appeal on costs was dismissed. The fact that the defendant was a public authority and that the legislation was new and untested did not make the normal consequences of Part 36 unjust.

1. Court of Appeal (Civil Division): The Council’s appeal was dismissed on the interpretation of the 2009 Regulations and on costs, but allowed in part concerning the basis of restitution.
2. Administrative Court: Keith J held that no valid fee had been determined after the year ending 31 January 2006 and excluded enforcement costs against unlicensed operators: [2012] EWHC 1260 (Admin) . His subsequent order addressed retrospective determinations, restitution, interest and costs: [2012] EWHC 1582 (Admin) .