The issue of costs - 'Hemming' - the next chapter

Cornerstone Barristers is reporting the latest development in the long running ‘Hemmings’ saga – which deals with the recoverability of enforcement costs by licensing authorities. [R(Hemming & ors) Westminster City Council]

On 16 November 2016 the Court of Justice of the European Union delivered judgment in favour of the licensees. The United Kingdom Supreme Court had referred the case to the Court of Justice to consider the legality of charging up-front licence fees including third party enforcement costs at the point of application for a licence. See 'Costs recovery - 'Hemmings' may find relief in Europe'.

The Court of Justice has rejected Westminster Council’s argument that it was entitled to charge such up-front fees to applicants, even if these fees were refundable to unsuccessful applicants. The full judgment can be read here.  The critical paragraph states (with our emphasis):

Article 13(2) of Directive 2006/123/EC of the European Parliament and of the Council of 12 December 2006 on services in the internal market must be interpreted as precluding, in circumstances such as those at issue in the main proceedings, the requirement for the payment of a fee, at the time of submitting an application for the grant or renewal of authorisation, part of which corresponds to the costs relating to the management and enforcement of the authorisation scheme concerned, even if that part is refundable if that application is refused.

Westminster had charged sex shops applying for an annual renewal of their licence a total fee of about £29,000. Of this only £2,000 represented the costs of administering the application process, while more than £26,000 represented the costs of managing and enforcing the licensing regime, in particular investigating and prosecuting unlicensed traders.

The Court of Justice held that the second part of the fee was unlawful as contrary to the Services Directive 2006. Article 13(2) of the Directive only permitted applicants to be charged for the costs of administering the application process. This was regardless of whether the second part of the fee was refundable to unsuccessful applicants.

At the time the case was originally brought in the High Court, Westminster City Council charged an annual fee for the renewal of sex shop licences of £29,102. It has since reduced the fee to £3,288, including enforcement costs.

The Court did not comment on the wider issues raised by the case. However, in his opinion dated 28 July 2016 (see link above), the Advocate General questioned the compatibility of the domestic licensing regime with the Services Directive. He cast doubt on whether it was permissible under the Directive to limit the duration of sex shop licences to one year or to charge successful applicants for the cost of investigating and prosecuting unlicensed traders.

Source (for which thanks) to Philip Kolvin QC Cornerstone Barristers