The Supreme Court has granted permission to appeal in the case of R (Hemming t/a Simply Pleasure Ltd) v Westminster City Council. This opens up the possibility of local authorities facing claims for large refunds of licensing fees dating back several years. Authorities should consider taking early advice on this issue and on whether they should intervene in the appeal.

The Court of Appeal's decision

This case concerned a claim by sex shop owners that licence fees charged by Westminster City Council for running those establishments were unlawful. The Council lost in the Court of Appeal (Hemming v Westminster City Council [2013] EWCA Civ 591).

The Court of Appeal held that, whilst the Local Government Act 1982 permits a "reasonable fee" for granting operators of sex shops a licence, this was at odds with the Services Directive 2006/123 and the Provision of Services Regulations 2009 (SI 2009/2999) which brought the Directive into force in the UK. Article 13(2) of the Directive and Reg.18(4) of the Regulations provide that charges provided for by a "competent body" which applicants under an authorisation scheme may incur must 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.

The court ruled that the cost of enforcing the licensing regime against unlicensed operators did not fall within the relevant provisions of the Directive and the Regulations and was therefore unlawful. On that basis, an element of the annual £26,435 licence fee levied since the enforcement date of the relevant provisions (December 2009) had to be refunded to the claimants for each year it had been charged, exposing Westminster to potential refunds of £2m.

Why is the appeal to the Supreme Court important?

Despite the fact that there are some exceptions, the Directive and Regulations still apply to a wide variety of authorisation regimes beyond the licensing of sex shops. This includes, for example, much bigger licensing regimes such as alcohol and entertainment licences under the Licensing Act 2003. Counsel for the sex shop owners estimated that 600,000 different licences in England and Wales are affected by the decision in the Westminster case, many of which are of course operated by local authorities.

Other types of organisation are also concerned about the wide-reaching implications of the Court of Appeal judgment on their own regimes, and various regulators intervened in support of the appeal.

Action to take now

If they have not already done so authorities should review their existing licensing schemes to identify whether any of these schemes fall within the remit of the Directive and the Regulations, and whether any of the fees levied may exceed the permitted levels. If any of the current fee structures exceed the permitted levels, authorities could be subject to claims for refunds dating back several years of the magnitude faced by Westminster and future revenue may be at risk, unless the decision is overturned by the Supreme Court.

Authorities should consider taking early advice on this issue and on whether, like other organisations, they should intervene in the appeal. The purpose of any intervention would be to ensure that their interests are properly protected and that all arguments relevant to the schemes they operate are put before the Supreme Court before it makes a decision. 

Given that the decision is likely to affect a large number of authorities across England and Wales, authorities may wish to consider forming a collective to intervene with appropriate costs/information sharing arrangements to limit the time and cost to individual authorities of taking this step. This could be managed in conjunction with other intervening parties (for whom we act). We would be happy to facilitate any such arrangements should authorities wish to co-ordinate in this way.

As with any application to intervene, the court is likely to consider it more favourably if it is made at an early stage and prior to any directions being delivered. We would therefore encourage authorities to consider the potential impact of this on them promptly.

If a licensee contacts your authority requesting a refund for previously paid licence fees or if you are unsure about whether a particular licensing scheme is subject to the Directive and 2009 Regulations, we would be happy to provide you with specific advice.

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