• On 17 November the Court of Justice of the European Union ("the CJEU") delivered its long awaited judgment on the Westminster Sex Shop Case (Hemming v Westminster City Council (Case C-316/15)).  In July, the Advocate General of the CJEU delivered his opinion 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.  Our previous note on that Opinion is here.
  • The matter before the CJEU was 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,  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.  The Supreme Court decision is here.

The CJEU Judgment

  • The Court has concluded that the Services Directive's wording did not support a payment in advance for wider purposes even if it was refundable and in any event the aims of the Services Directive would not be served by "a requirement to prefinance the costs of management and enforcement of the authorisation scheme concerned, including inter alia the costs of detecting and prosecuting unauthorised activities."
  • In the light of its views the CJEU ruled that the Services Directive should be interpreted as precluding charging in advance for costs other than those directly related to the authorisation process.  This applies even if the payment is refundable.

Implications for local authorities

The judgment means that the position is clear for local authorities in that they cannot charge up front for anything other than the costs of granting a licence.  This, at the very least, will add an administrative burden to the application process in that once a licence is granted the local authority will then need to obtain an additional fee for enforcement activities.  There will be practical difficulties in relation to what happens if the subsequent fee is not paid and indeed whether the licence is effective until it is.

A further issue is whether local authorities will face restitution claims in respect of historical application of licensing schemes.  The Westminster Sex Shop claim itself started as a restitution claim.  The final outcome of the case is essentially about the timing of payments rather than whether they should be paid at all but claims cannot be ruled out.

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 CJEU.  The good news is that the Services Directive does not cover all licensing schemes operated by local authorities – in particular, taxi licensing schemes are excluded.

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 the 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

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