Licensing fees - Advocate General delivers an ominous opinion for local authorities

Background

• The Advocate General of the Court of Justice of the European Union ("the CJEU") delivered his opinion on 28 July 2016 on the lawfulness of fees levied by "competent authorities" on applications for authorisation, concluding that authorities may not take the costs of managing and enforcing an authorisation scheme into account when calculating a reasonable fee, even where the fee is refundable if the application is unsuccessful.

• The matter before the CJEU is the interpretation of Article 13(2) of the Services Directive ("the Services Directive") (brought into force in the UK by the Provision of Services Regulations 2009), which requires charges levied under an authorisation scheme to be reasonable and proportionate to the cost of the procedures and formalities under the scheme, and not exceed the costs of those procedures and formalities.

• In the Westminster Sex Shop case (Hemming & others v Westminster City Council (Case C-316/15)) the Supreme Court identified two elements to the Council's fee structure. The first fee relates to the administration of the application and is non-returnable if the application is refused. The second fee however relates to the costs of managing and enforcing the licensing regime and is refundable if an application is refused. In respect of the second fee, the Supreme Court further distinguished between two types of fee: Type A fees are paid only on the application for authorisation being successful; and Type B fees are paid at the time the application is made but refunded if the application is refused.

• The Supreme Court held that the first fee and Type A of the second fee are compatible with the Services Directive. The question of whether or not Type B fees are lawful was referred to the CJEU for a definitive interpretation of the Services Directive.

AG's Opinion

• The view expressed by the Advocate General is that the costs of managing and enforcing the scheme, such as investigating and prosecuting third parties operating without authorisation, could not form part of the costs of the authorisation scheme as those activities do not form part of the authorisation process. The Advocate General opined that it was irrelevant whether or not the authorising body goes on to irreversibly become owner of the fee, for example on successful grant of a licence, as the effect of the fee was that an application for authorisation would not be considered unless the fee was paid at the time

• Further, the management and enforcement of an authorisation scheme, even as against authorisation holders, are activities which follow authorisation, not which lead to authorisation. On this interpretation, the costs for any activities which postdate authorisation (such as management and enforcement) cannot be levied at the time of application. The Advocate General expressed this as a general principle of law that was not conditional on the circumstances of the case, such as whether an application has actually suffered any loss suffered as a result of the unlawful fee.  

Next Steps

Opinions of Advocates General are advisory only and do not bind the CJEU. However, the CJEU rarely depart from the view of Advocates General and so the recent opinion in the Westminster Sex Shop case of Hemming is a significant development for authorities.  

The matter will now be deliberated by the Judges of the CJEU, who will give the definitive verdict on the interpretation of Article 13(2) of the Services Directive. The case will then be remitted to the Supreme Court to apply the ruling on the point of law to the facts in the Westminster Sex Shop case. If the Advocate General's view is adopted by the CJEU there will be little scope for the Supreme Court to make any finding other than that the Type B fee scheme levied by Westminster Council is unlawful.

Implications for local authorities

It is clear that the opinion of the Advocate General, if adopted by the CJEU, will have a significant impact on local authorities:

• A wide range of licence fees may be called into question, including for example bigger licensing regimes such as alcohol and entertainment licences. Counsel for the sex shop owners has estimated that 600,000 licences in England and Wales could be affected;

• Because of the long limitation period for restitution claims, any licence fee regime operated in the last 12 years could be vulnerable to a claim if it has included up-front costs for management and enforcement of the scheme (a Type B scheme) at the time of the application for authorisation; and

• Where an authority has operated a Type B authorisation scheme, refunds may be payable for the full amount of the unlawful element of the fee, as well as interest on that sum.

If they have not already done so, authorities should consider reviewing their existing and historical licensing schemes to identify whether any of their schemes fall within the remit of the Services Directive and whether any fees levied may fall into the Type B category disapproved of by the Advocate General.

If a licensee contacts your authority in respect of previously paid licence fees or if you are unsure about whether a particular licensing scheme is subject to the Services Directive and POS Regulations or the possible implications of a CJEU ruling, we would be happy to provide you with specific advice.

For more information about the Advocate General's opinion in the Westminster Sex Shop case, please contact Virginia Cooper or Iain Miller.