Local authorities, licensing fees and the Hemming case

Sex shop iStock 000001196715XSmall 146x219Paddy Whur looks at the implications of the recent judgment in the Hemming case and what this may mean for local authorities when considering the setting of their licensing fees.

Back in 2012 the operators of a number of trading sex shops in Westminster were successful in their High Court action against Westminster City Council, in challenging the level of fees set by them.

The basis of the case was that the authority had not taken into account a European directive and to that effect, the fees were well in excess of what they should have been. It was argued that prosecuting persons, businesses and companies who operate sex establishments illegally could not be included in the fee structure of the council.

Perhaps, not surprisingly, Westminster Council appealed the decision of the High Court to the Court of Appeal, which dismissed the appeal, supporting the High Court. Lady Justice Black (of Thwaites fame) heard the case with the Master of the Rolls and Lord Justice Beatson. 

In summary, the Court of Appeal decided that the fees charged by Westminster Council were incorrectly calculated after the European directive became effective in the beginning of 2010.

To summarise, the directive states that “charges which a council imposes on applicants/licensees under an authorisation scheme must be proportionate and reasonable in the circumstances to the fees or costs payable under the provisions of the scheme”.

The fees must not exceed the costs of administering the process.

In the High Court decision, Keith J held that the council had not validly determined a licence fee for any years after the year ending 31 January 2006 and ordered it to do so and to make restitution of the difference between the payments that it had received and the lawful fee set. He also ordered the council to pay indemnity costs and the enhanced rate of interest, because it had rejected an offer by the respondents that was more advantageous to it.

In assessing the High Court decision the Court of Appeal noted that the council were submitting that Keith J’s construction of the services directed under 2009 Regulations would have very wide and serious implications for other regulatory authorisation regimes in this country.

They argued that the implications are said to be contrary to the purposes of the directive because they critically undermine those regimes. The critical fact in the case was that over 90% of the fee gathered from licensed sex establishments in Westminster is spent on enforcing the licensing regime, against operators who are unlicensed and monitoring compliance by those with licences.

In financial terms the licence fee set in 2003 was £29,102.00. Out of this figure £26,435.00 was refunded, if the application was unsuccessful. The court analysed the fact that part of the latter figure was levied for enforcing the unlicensed operators. The court determined that this amount was set unlawfully and there had been a continuing failure to account for changes as a result of the directive of December 2009.

In a very detailed and analytical judgement, the Court of Appeal had determined that Westminster were wrong in determining their fee structure and that the fees needed to be recalculated with reference to the correct process.

It is clear that the Court of Appeal have determined that where there is an administrative licensing process, there is a need to be particularly careful with how the fee structure is established. This of course is critical if the fees are not set centrally as standard fees.

Paddy Whur is a partner at Woods Whur. He can be contacted by email.