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

A licensing authority may recover the reasonable costs of administering and enforcing a licensing scheme from licensed operators. Under article 13(2) of Directive 2006/123/EC, however, charges arising from an application must be reasonable, proportionate to and no greater than the cost of the authorisation procedures.

A fee payable only after an application succeeds is a licence fee rather than an application charge. It may include enforcement costs, subject to the Directive’s wider requirements. Whether article 13(2) permits an authority to demand that fee with the application, subject to refund if unsuccessful, required a reference to the Court of Justice. A refundable advance is not dissuasive without an adequate factual basis for that conclusion.

Westminster City Council required applicants for sex-establishment licences to pay a two-part fee. The first part covered processing the application and was non-refundable. The substantially larger second part funded the management and enforcement of the licensing regime and was refundable if the application failed.

Keith J, [2012] PTSR 1676, and the Court of Appeal, [2013] EWCA Civ 591; [2013] PTSR 1377, treated article 13(2) of Directive 2006/123/EC as preventing recovery from applicants of the costs of enforcement against unlicensed operators. The Council appealed.

The central questions were whether paragraph 19 of Schedule 3 to the Local Government (Miscellaneous Provisions) Act 1982 authorised the charge and whether article 13(2), implemented by regulation 18 of the Provision of Services Regulations 2009, prohibited either a post-authorisation licence fee or an equivalent fee paid with the application but refundable upon refusal.

1. The appeal was allowed in part unanimously. Lord Mance gave the judgment, with which Lord Neuberger, Lord Clarke, Lord Reed and Lord Toulson agreed. The Council was entitled to a declaration that a fee payable only upon the successful grant or renewal of a licence could comply with regulation 18 of the Provision of Services Regulations 2009 and article 13(2) of Directive 2006/123/EC. Whether an equivalent refundable sum could be demanded when the application was lodged was to be referred to the Court of Justice.

2. Paragraph 19 of Schedule 3 to the Local Government (Miscellaneous Provisions) Act 1982 permits a licensing authority to charge a reasonable fee covering both the processing of applications and the running and enforcement of the licensing scheme. The enforcement element may be demanded upon grant or renewal. Domestic law also permits its collection with the application on terms that it will be refunded if the application fails.

3. Article 13(2) concerns only authorisation procedures and formalities at the stage when a person seeks permission to access or exercise a service activity. It does not govern a fee charged for possessing or retaining a licence after successful authorisation. Such a licence fee may recover the full reasonable cost of operating and enforcing the scheme, including action against unlicensed operators, although it remains subject to the Directive’s wider requirements of non-discrimination, necessity and proportionality.

4. A scheme under which the enforcement fee becomes payable only when authorisation succeeds does not convert that fee into an application charge merely because the application identifies the liability. It remains consideration for possession or retention of the licence.

5. The position was less clear where every applicant had to advance the enforcement fee, subject to refund after an unsuccessful application. There was no evidential basis for finding that this requirement was dissuasive. Nor was there evidence that advancing the money imposed borrowing costs, lost interest or another cost on applicants. Nevertheless, European Union law did not clearly establish whether the refundable advance was itself a charge arising from the application or whether its character depended upon such financial consequences and any resulting administrative savings. A reference was therefore necessary.

6. New objections based on wider proportionality principles, articles 9 and 16 of the Directive and articles 49 and 56 TFEU could and should have been raised below. The respondents could not introduce those fact-sensitive issues in the Supreme Court.

1. United Kingdom Supreme Court: The Council’s appeal was allowed in part by [2015] UKSC 25. The court declared that a fee payable upon successful authorisation could comply with article 13(2), while referring the legality of an upfront refundable fee to the Court of Justice.

2. Court of Appeal: In [2013] EWCA Civ 591; [2013] PTSR 1377, the court treated article 13(2) as preventing the authority from charging applicants for the costs of investigating and prosecuting unlicensed operators.

3. High Court: Keith J’s judgment dated 16 May 2012, reported at [2012] PTSR 1676, accepted that the enforcement component of the fee was refundable if the application failed and reached the position subsequently upheld by the Court of Appeal.