R (Hemming et al) (Respondents) v Westminster City Council (Appellant), [2015] UKSC 25The Supreme Court recently delivered its judgment on Westminster City Council's ("the Council") appeal of a 2013
R (Hemming et al) (Respondents) v Westminster City Council (Appellant), [2015] UKSC 25
The Supreme Court recently delivered its judgment on Westminster City Council's ("the Council") appeal of a 2013 Court of Appeal judgment[1] which purportedly restricted the Council's ability to utilise fees from licensing applications for the wider maintenance and enforcement of its licensing regime. The case was of wider interest to other local authorities and non-healthcare regulatory bodies operating under the Provision of Service Regulations 2009, many of whom use the proceeds of licence fees to fund their wider regulatory and licensing schemes. It is noteworthy that a number of professional regulators were given permission to intervene in the proceedings. The Supreme Court's decision confirms that EU Law does not, as the lower Courts' decisions indicated, compel a licensing body to use licensing fee receipts for the application process alone, and that it is permissible for a licensing body to fund its licensing and enforcement schemes from these. The decision will come as a relief to those regulators whose members are governed by the Provisions of Services Directive and whose funding is substantially derived from registration and renewal fees.
Background and lower Courts' decisions
The facts of the case concerned the Council's role as the licensing authority for "sex establishments". The respondents were licensees of sex shops in Westminster. The Council charged a (prospective) licensee a fee comprising two "up front" portions for the grant or renewal of a licence: (i) a non-refundable fee related to the administration of the application only ("the application fee")[2]; and (ii) a considerably larger fee[3] purportedly for the management of the Council's licensing regime, including enforcement against unlicensed operators, which was refundable if the application were refused ("the licence fee").
The central issue before the Supreme Court was whether the Council was permitted under domestic and/ or European Union law to charge licensees the larger annual licence fee.
The respondents had argued, and the High Court and the Court of Appeal had agreed, that Article 13(2) of EC Directive 2006/123/EC ("the Services Directive") should be interpreted as restricting charges for "authorisation schemes" to the costs of the application process only, and not the wider regulatory and enforcement functions of a licensing regime. If that was correct, applicants could only be charged the much smaller application fee, leaving a significant shortfall in the Council's enforcement fund.
Article 13(2), Regulation 4 defines an "authorisation scheme" as an "arrangement" under which a service provider (such as the respondent) is required to "obtain the authorisation of…a competent authority in order to have access to, or to exercise, a service activity". Article 13(2) also prohibits a competent authority, such as the Council, from instigating "authorisation procedures or formalities" which are "dissuasive" to prospective licensees. Any "charges" levied by an authority under an "authorisation scheme" are to be "reasonable and proportionate to the cost of the procedures and formalities under the scheme and must not exceed the cost of those procedures and formalities"[4].
The Court of Appeal had considered that the Council's handling of licence applications was the full extent of the authorisation scheme for the purposes of Article 13(2), and that the fees it charged successful and unsuccessful applicants could not exceed its costs of administering the application only. This implied that the maintenance of the Council's licensing regime could not be funded from its licensing fees[5] and would have to be funded by alternative means. The Council could, the Court of Appeal decision suggested, only recover the application fee from applicants, and not the licence fee (but this was regardless of whether or not the application was successful).
The Supreme Court's decision
The Supreme Court had no doubt that under domestic law[6] the Council was permitted to charge applicants both an application fee and a separate licence fee on application. It was correct that the Council could rely on an earlier authority in which the Court deemed that the Council could charge a licence fee[7].
After examining the statutory construction of the Directive and its recitals in some detail, the Supreme Court agreed in part with the Council's appeal. It accepted that the Directive only related to and restricted the Council's ability to recover the application fee – that is, the grant or renewal of a licence alone – and the cost of this process, but it did not relate to or restrict the levy of licence fees for the purposes of maintaining a licensing regime.
An "authorisation scheme" was not, by definition or construction, concerned only with "fees which may be paid (e.g. annually) for the possession, retention or renewal of a licence, once the authorisation stage is satisfactorily past". It considered that, "nothing in Article 13(2) precludes a licensing authority from charging a fee for the possession or retention of a licence and making this licence conditional upon payment of such fee", provided that the licence fee was, in accordance with Article 13(2) proportionate.
Commenting on the question of proportionality, the Supreme Court stated that there was no reason why the licence fee should not be "set at a level enabling the authority to recover from licensed operators the full cost of running and enforcing the licensing scheme, including the costs of enforcement and proceedings against those operating sex establishments without licences"[8].
The Supreme Court noted that, had the Court of Appeal's judgment not been reversed, although the Council might have foreseeably accessed alternative funds from council tax receipts or central government to maintain its licensing and enforcement scheme – "what the remedy would be in the case of other regulatory or professional bodies, which might have no general funds and no ability to raise funds in any such way is not clear"[9]. The case is notable for the interventions of the Solicitors Regulation Authority and the Bar Standards Board amongst others.
The Supreme Court considered that the question of whether the Council could include payment of the maintenance fee as a requisite of the application (even if this was refundable) "more problematic". There was no evidence that the maintenance fee had a dissuasive effect on applicants but it was "unclear" whether it constituted a "charge" which was contrary to Article 13(2). This question has been referred to the European Court of Justice in Luxembourg.
[1] ([2013] EWCA Civ 591). Earlier High Court judgment given on 16 May 2012 ([2012] EWHC 1260 (Admin)).
[2] £2,667 in 2011/12
[3] £26,435 in 2011/12
[4] Regulation 18 pf the 2009 Regulations
[5] The High Court judgment perhaps considered the rationale for this in the most detail. From paragraph 41 of that judgment, "There is simply no room for the costs of the “authorisation procedures” to include costs which are significantly in excess of those costs. The rationale for that has to have been that if it was otherwise, and if in consequence the fee was a sizeable sum, it might have the effect of dissuading people who might be thinking of setting up business from going into the market at all: the anticipated profit margin might just be too tight. Indeed, if the purpose of the Directive was to remove barriers to entry to the internal market, that purpose might be undermined if the Directive was regarded as permitting member states to allow the fee payable for entry into the market to be many times the cost of considering and processing applications for the relevant licence".
[6] Specifically Schedule 3 of the Local Government (Miscellaneous Provisions) Act 1982.
[7] R v Westminster City Council, Ex p Hutton (1985) 83 LGR 516
[8] Judgment, paragraph 17
[9] Judgment, paragraph 12
The Supreme Court recently delivered its judgment on Westminster City Council's ("the Council") appeal of a 2013 Court of Appeal judgment[1] which purportedly restricted the Council's ability to utilise fees from licensing applications for the wider maintenance and enforcement of its licensing regime. The case was of wider interest to other local authorities and non-healthcare regulatory bodies operating under the Provision of Service Regulations 2009, many of whom use the proceeds of licence fees to fund their wider regulatory and licensing schemes. It is noteworthy that a number of professional regulators were given permission to intervene in the proceedings. The Supreme Court's decision confirms that EU Law does not, as the lower Courts' decisions indicated, compel a licensing body to use licensing fee receipts for the application process alone, and that it is permissible for a licensing body to fund its licensing and enforcement schemes from these. The decision will come as a relief to those regulators whose members are governed by the Provisions of Services Directive and whose funding is substantially derived from registration and renewal fees.
Background and lower Courts' decisions
The facts of the case concerned the Council's role as the licensing authority for "sex establishments". The respondents were licensees of sex shops in Westminster. The Council charged a (prospective) licensee a fee comprising two "up front" portions for the grant or renewal of a licence: (i) a non-refundable fee related to the administration of the application only ("the application fee")[2]; and (ii) a considerably larger fee[3] purportedly for the management of the Council's licensing regime, including enforcement against unlicensed operators, which was refundable if the application were refused ("the licence fee").
The central issue before the Supreme Court was whether the Council was permitted under domestic and/ or European Union law to charge licensees the larger annual licence fee.
The respondents had argued, and the High Court and the Court of Appeal had agreed, that Article 13(2) of EC Directive 2006/123/EC ("the Services Directive") should be interpreted as restricting charges for "authorisation schemes" to the costs of the application process only, and not the wider regulatory and enforcement functions of a licensing regime. If that was correct, applicants could only be charged the much smaller application fee, leaving a significant shortfall in the Council's enforcement fund.
Article 13(2), Regulation 4 defines an "authorisation scheme" as an "arrangement" under which a service provider (such as the respondent) is required to "obtain the authorisation of…a competent authority in order to have access to, or to exercise, a service activity". Article 13(2) also prohibits a competent authority, such as the Council, from instigating "authorisation procedures or formalities" which are "dissuasive" to prospective licensees. Any "charges" levied by an authority under an "authorisation scheme" are to be "reasonable and proportionate to the cost of the procedures and formalities under the scheme and must not exceed the cost of those procedures and formalities"[4].
The Court of Appeal had considered that the Council's handling of licence applications was the full extent of the authorisation scheme for the purposes of Article 13(2), and that the fees it charged successful and unsuccessful applicants could not exceed its costs of administering the application only. This implied that the maintenance of the Council's licensing regime could not be funded from its licensing fees[5] and would have to be funded by alternative means. The Council could, the Court of Appeal decision suggested, only recover the application fee from applicants, and not the licence fee (but this was regardless of whether or not the application was successful).
The Supreme Court's decision
The Supreme Court had no doubt that under domestic law[6] the Council was permitted to charge applicants both an application fee and a separate licence fee on application. It was correct that the Council could rely on an earlier authority in which the Court deemed that the Council could charge a licence fee[7].
After examining the statutory construction of the Directive and its recitals in some detail, the Supreme Court agreed in part with the Council's appeal. It accepted that the Directive only related to and restricted the Council's ability to recover the application fee – that is, the grant or renewal of a licence alone – and the cost of this process, but it did not relate to or restrict the levy of licence fees for the purposes of maintaining a licensing regime.
An "authorisation scheme" was not, by definition or construction, concerned only with "fees which may be paid (e.g. annually) for the possession, retention or renewal of a licence, once the authorisation stage is satisfactorily past". It considered that, "nothing in Article 13(2) precludes a licensing authority from charging a fee for the possession or retention of a licence and making this licence conditional upon payment of such fee", provided that the licence fee was, in accordance with Article 13(2) proportionate.
Commenting on the question of proportionality, the Supreme Court stated that there was no reason why the licence fee should not be "set at a level enabling the authority to recover from licensed operators the full cost of running and enforcing the licensing scheme, including the costs of enforcement and proceedings against those operating sex establishments without licences"[8].
The Supreme Court noted that, had the Court of Appeal's judgment not been reversed, although the Council might have foreseeably accessed alternative funds from council tax receipts or central government to maintain its licensing and enforcement scheme – "what the remedy would be in the case of other regulatory or professional bodies, which might have no general funds and no ability to raise funds in any such way is not clear"[9]. The case is notable for the interventions of the Solicitors Regulation Authority and the Bar Standards Board amongst others.
The Supreme Court considered that the question of whether the Council could include payment of the maintenance fee as a requisite of the application (even if this was refundable) "more problematic". There was no evidence that the maintenance fee had a dissuasive effect on applicants but it was "unclear" whether it constituted a "charge" which was contrary to Article 13(2). This question has been referred to the European Court of Justice in Luxembourg.
[1] ([2013] EWCA Civ 591). Earlier High Court judgment given on 16 May 2012 ([2012] EWHC 1260 (Admin)).
[2] £2,667 in 2011/12
[3] £26,435 in 2011/12
[4] Regulation 18 pf the 2009 Regulations
[5] The High Court judgment perhaps considered the rationale for this in the most detail. From paragraph 41 of that judgment, "There is simply no room for the costs of the “authorisation procedures” to include costs which are significantly in excess of those costs. The rationale for that has to have been that if it was otherwise, and if in consequence the fee was a sizeable sum, it might have the effect of dissuading people who might be thinking of setting up business from going into the market at all: the anticipated profit margin might just be too tight. Indeed, if the purpose of the Directive was to remove barriers to entry to the internal market, that purpose might be undermined if the Directive was regarded as permitting member states to allow the fee payable for entry into the market to be many times the cost of considering and processing applications for the relevant licence".
[6] Specifically Schedule 3 of the Local Government (Miscellaneous Provisions) Act 1982.
[7] R v Westminster City Council, Ex p Hutton (1985) 83 LGR 516
[8] Judgment, paragraph 17
[9] Judgment, paragraph 12