Fees for Licence

April 29th, 2015

The Supreme Court, in R (Hemming) v Westminster City Council [2015] UKSC 25, has allowed in part an appeal by Westminster City Council (“Westminster”) from [2013] EWCA Civ 591, but on a critical question has made a reference to the CJEU.

The Supreme Court had the benefit of interventions by HM Treasury and a considerable number of regulatory or professional bodies, concerned about their ability to recover fees for enforcing other regulatory schemes, which might be regarded as similar to that presently under consideration

In order to trade, sex shops in Westminster’s area need a licence from Westminster under Schedule 3 to the Local Government (Miscellaneous Provisions) Act 1982, paragraph 19 of which provides that an applicant for the “grant, renewal or transfer of a licence … shall pay a reasonable fee determined by the appropriate authority”.
EU law has placed limits upon the licence fees which can be charged.  Article 13(2) of Directive 2006/123/EC,  given domestic effect by Regulation 18(4) of the Provision of Services Regulation 2009 SI No 2999, provides that the “authorisation procedures and formalities” for applicants “shall not be dissuasive … 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 cost of the procedures”.

Mr Hemming runs sex shops in the Westminster area under the name Simply Pleasure Ltd. Westminster has over past years required applicants for sex shop licences to pay with their applications a substantial sum (£29,435 in 2011/12), broken down into a smaller amount (£2,667 in 2011/12) relating to the processing of the application and a larger amount (£26,435 in 2011/2012) relating to the cost of administering and enforcing the licensing regime as a whole. The larger amount was refundable whenever an application failed.

Mr Hemming claims that this system is illegitimate under both domestic and EU law. His primary case is that there is no basis for requiring successful or unsuccessful applicants to meet the costs of administering and enforcing the regime. He has also developed a secondary case, that there is no basis for requiring such costs to be paid with the applications, even on a refundable basis. The Courts below agreed with Mr Hemming’s primary case, holding that such costs had to be funded by an authority such as Westminster out of its general funds.

The Supreme Court has now concluded that:-

(1) Paragraph 19 of schedule 3 to the 1982 Act enables a licencing authority to impose on an applicant a fee for the grant or renewal of a licence which covers the running and enforcement costs of the licensing scheme, to be payable either (a) at the time when the licence is granting; or (b) on a refundable basis, at the time when the application is lodged;

(2) Article 13(2) of the Directive deals only with authorisation procedures and fees relating to applications for permission to access or exercise a service activity, such as operating a sex shop:  it does not prevent the imposition on those who receive licences of proportionate charges to fund the cost of administering and enforcing the licensing regime;

(3) As to the legitimacy of Westminster’s system, it is helpful to distinguish between two types of scheme: under Type A, applications for licences are made on terms that the applicant must, upon their application being granted, pay a fee to cover the cost of administering and enforcing the licensing regime; under Type B, which represents the scheme actually adopted by Westminster, applications for licences are made on terms that the applicant must, at the time of making the application, pay a fee, refundable in the event that the application fails, to cover the cost of administering and enforcing the licensing regime;
(4) Type A schemes are permissible under Regulation 18(4) of the Regulations and  Article 13(2) of the Directive, because they permit a licensing authority to charge a successful applicant with a proportionate part of the cost of administering and enforcing the licensing regime as a whole;

(5) Whether Article 13(2) also permits Type B schemes is more problematic, because payment is required to be made by every applicant, albeit on a potentially refundable basis, at the time when the application is made: there was no evidence that a Type B scheme could or would have a potentially dissuasive effect upon applicants, but it remains unclear whether it involves in law a “charge” incurred from the application, contrary to Article 13(2);  and

(6) A reference to the OJEU is therefore required on whether and when a Type B scheme is consistent with Article 13(2).

As the Supreme Court observed, at paragraph 20:-

“Under a scheme of Type B, every applicant is required to pay up front – even though on a refundable basis – a sum which is referable not to the costs of handling the application, but to costs which will be incurred for the benefit only of successful applicants. This is a requirement which attaches to the application, not to its success. The question is whether it infringes Article 13(2).”

The Supreme Court further observed, at paragraph 23:-

“The question is … whether the requirement to make a payment refundable on failure of an application is a “charge”. When the application succeeds, the payment becomes due unconditionally. When the application fails, the payment is refundable and refunded. But is it a charge to have to advance the payment, in order to await one or other of these occurrences?”

The questions arising were whether:-

(1)  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 of processing the application; or

(2)  A conclusion that such a requirement should be regarded as involving a charge – or, if it is so to be regarded, a charge exceeding the cost to Westminster 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 costs to Westminster 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.

No authority addressing these questions was cited to the Supreme Court.  The answers to them are unclear. Accordingly, it was necessary for the Supreme Court to make a reference to the CJEU.

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