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

A licensing authority may charge successful applicants a reasonable fee covering both application-processing costs and the costs of administering and enforcing the licensing scheme. EU law prevented the enforcement element from being demanded with the application, even subject to refund if the application failed. It did not prevent that element becoming unconditionally due when a licence was granted.

The invalidity of such a charging scheme is limited to its inconsistent element. Applying substantial severability, any remaining element capable of standing independently remains effective. A court may restore the parties to the position they would have occupied had the correct legal analysis originally been applied.

Westminster City Council charged applicants for sex shop licences fees comprising processing costs and the costs of enforcing the licensing scheme against unlicensed operators. The respondents obtained licences for the three years ending January 2011, 2012 and 2013.

The Court of Appeal, in [2013] EWCA Civ 591, held that the enforcement costs could not be charged and ordered the council to determine fees excluding them. The council consequently repaid the licence holders more than £1.18m. In an earlier judgment, [2015] UKSC 25, the Supreme Court held that enforcement costs could be charged upon the grant of a licence and referred to the Court of Justice whether they could instead be demanded on application, subject to refund following an unsuccessful application.

After the Court of Justice answered that question negatively, the central issue was whether the licence holders could retain the repayments or whether the council could recover reasonable enforcement costs that became due when their licences were granted.

1. The appeal was allowed and the outstanding accounting issues were remitted to the Administrative Court. Lord Mance delivered the judgment, with which Lord Neuberger, Lord Clarke and Lord Reed agreed. Lord Toulson had also indicated agreement with its essential reasoning and conclusions.

2. The council’s scheme was invalid only to the extent that it required the enforcement element of the fee to be paid when an application was made. EU law, as implemented by the Provision of Services Regulations 2009, permitted that element to become due once a licence was granted. There was no requirement to invalidate the scheme in its entirety. The applicable domestic principle was substantial rather than rigid textual severability, consistently with Director of Public Prosecutions v Hutchinson [1990] 2 AC 783. Any remaining element capable of standing independently remained effective.

3. The council was entitled to set and require a reasonable fee comprising processing and enforcement costs from applicants who obtained licences and benefited from enforcement activity. Although it had been unlawful to demand the enforcement element conditionally at the application stage, that element became unconditionally due upon the grant of each licence.

4. In any event, paragraph 19 of Schedule 3 to the Local Government (Miscellaneous Provisions) Act 1982 remained effective and preserved the council’s power to determine a reasonable fee. A later determination was not precluded. Although delay and intervening circumstances might make a determination oppressive in an exceptional case, this was not such a case.

5. For the year ending January 2013, the council could recover the enforcement costs included in the fee it had determined, subject to any reduction required because those costs were unreasonable. For the two earlier years, the court could restore the parties to the position they would have occupied had the Court of Appeal applied the correct law. The licence holders therefore had to repay the enforcement element to the extent that it satisfied the statutory criterion of reasonableness.

6. The reasonableness of the enforcement costs, the treatment of alleged surpluses and omitted income, and related accounting matters were remitted to the Administrative Court. Any liability of an individual licence holder was limited to its pro rata share of the repayment it had actually received. The mistaken payment of £227,779.15 was also remitted for determination.

1. United Kingdom Supreme Court: In [2017] UKSC 50, following the Court of Justice’s answer to the reference, the court held that reasonable enforcement costs became due upon the grant of the licences. It ordered repayment subject to reasonableness and remitted the outstanding issues to the Administrative Court.

2. United Kingdom Supreme Court: In [2015] UKSC 25, the court held that the council could require successful applicants to pay enforcement costs upon the grant of a licence. It referred to the Court of Justice whether such costs could be demanded with the application on terms that they would be refunded if the application failed.

3. Court of Justice of the European Union: In Case C-316/15, reported at [2017] PTSR 325, the court answered that demanding the enforcement element with the application, despite its refundability following refusal, constituted an illegitimate charge in respect of the authorisation procedure.

4. Court of Appeal: In [2013] EWCA Civ 591, the court held that only processing costs could be charged. It ordered the council to determine fees excluding enforcement costs, leading to the repayments in issue.

5. Administrative Court: In [2012] EWHC 1260 (Admin), Keith J held that the council had failed to determine annual fees during the relevant intervening years and made orders concerning their determination.