The Local Government Association has recommended that all councils review the costs covered by locally set licence fees in light of the recent Court of Appeal judgment in the Hemming case.
In a briefing to members, the LGA said authorities needed to ensure that these fees no longer reflected the costs of addressing unlicensed business activity.
In May this year the Court of Appeal held in R (Hemming & Others) v Westminster City Council that – as a result of Article 13.2 of the Services Directive (2006/123) coming into force in 2009 – licensing authorities could not charge licensees more than the costs of the authorisation procedures themselves.
It upheld a High Court judge’s ruling that while the costs of the authorisation, including monitoring compliance of operators, were fairly part of the fee, the costs of enforcement against unlicensed third party operators were not.
Westminster had argued that there should be no distinction between the enforcement of licensed and unlicensed operators.
However, Lord Justice Beatson said: “It is difficult to see how even a strained interpretation enables the ‘cost of authorisation procedures and formalities’ to include the cost of prosecuting unlicensed operatives who have not applied for authorisation.”
The case, brought by a group of sex shop owners in the West End, is understood to have left the council facing a payout of up to £2m.
The LGA briefing, published this week, said: “It is clear that not being able to recover costs associated with addressing unlicensed sex establishments will have significant long term financial repercussions for Westminster City Council, however, we do recognise that the financial impact for councils more widely will vary depending on the local economy, the licensed activity and the approach taken to local fee setting in the past.”
The briefing recommended that councils, as well as ensuring compliance with the position in Hemming, “take the opportunity to ensure that all locally set licence fees are based on an up to date cost recovery approach, which is established and regularly reviewed in a transparent manner that can be understood by both businesses and residents”.
However, the LGA stressed that the Court of Appeal judgment:
- made it clear that the costs of compliance monitoring and enforcement against an applicant who has been given a licence can fall within the costs of the council’s authorisation procedures;
- meant costs associated with monitoring the continued suitability of operators during licence renewals (and, potentially, reviews) “may also be included as part of the compliance process given that they relate to the terms of their licenses previously granted”.
The Association noted that it was not yet clear whether the position would be tested in further litigation, possibly with a reference to Europe for a definitive ruling on the meaning of the Services Directive.
The LGA is to publish guidance on what can be included in locally set licence fees during the summer of 2013.
Last month leading licensing barrister Philip Kolvin QC argued that fees regulations governing premises licences, personal licences and club premises certificates were unlawful as a result of the Court of Appeal’s finding that licensing authorities cannot charge licensees more than the costs of the authorisation procedures themselves.
Kolvin, who acted for the shop owners in Hemming, said the Licensing Act 2003 (Fees) Regulations 2005 were lawful when they were published in 2005 but became unlawful when the Services Directive came into force.
Pointing out that the 2005 regulations fell foul of the rule even though the fees in the regulations were set by central government rather than local licensing authorities, the QC claimed the issue potentially affected the fees for more than 600,000 licences in England and Wales.