Sex shop licensing fees back in the spotlight

AG opinion could see councils face 'substantial' bills for unlawful license fees

Local authorities face a potential multi-million pound bill following the delivery of an opinion by the advocate general of the European Court of Justice (CJEU) on the licensing of sex shops.

Hemming & others v Westminster City Council centered on whether or not it was lawful for Westminster City Council to include the cost of enforcement action against both licensed and unlicensed operators within the fee charged at the time of an application for authorisation by sex shop owners.

In 2011, the council required applicants for sex shop licenses to pay £26,435 of a £29,435 application towards the cost of administering and enforcing the licensing regime as a whole.

The remaining sum, £2,667, was allocated to the processing of the application. The larger amount was refundable whenever an application failed.

In April 2015, the Supreme Court referred this question to the CJEU. The advocate general has now suggested that this part of a license application fee is not compatible with EU law.

Article 13(2) of Directive 2006/123/EC, given domestic effect by regulation 18(4) of the Provision of Services Regulation 2009 SI No 2999, provides that the 'authorisation procedures and formalities' for applicants 'shall not be dissuasive…and any charges which the applicants may incur from their application shall be reasonable and proportionate to the cost of the authorisation procedures in question and shall not exceed the cost of the procedures'.

With upwards of 600,000 licenses being issued to pubs, clubs, and other places of entertainment across England and Wales, Virginia Cooper, a partner at Bevan Brittan, believes there are significant implications for all local authorities and not just Westminster.

'If it follows the opinion of the advocate general, the final decision reached by the ECJ will have wide reaching implications for the local authority sector,' said Cooper.

'The advocate general has concluded that it is unlawful for authorities to include in the charge the costs of managing and enforcing premises licenses - such as investigating and prosecuting third parties operating without authorisation - if the license fee is payable at the same time as the application for authorisation.'

Cooper explained that, if the opinion is confirmed, authorities will only be permitted to include in the license fee a contribution towards regulatory and enforcement costs, where successful applicants are not required to pay the fee until their authorisation is accepted.

'Councils and other authorities that have levied these potentially unlawful fees within the last 12 years could now be subject to restitution claims from a range of claimants and at a substantial cost,' she continued.

The EU Services Directive and regulations apply to a wide variety of authorisation regimes beyond the licensing of sex shops, including for example bigger licensing regimes such as alcohol and entertainment licenses.

'If they have not already done so, authorities should consider reviewing their existing licensing schemes to identify whether or not any of their schemes fall within the remit of the directive and whether or not any fees levied may fall into the category disapproved of by the advocate general,' added Cooper.

John van der Luit-Drummond is deputy editor for Solicitors Journal
john.vanderluit@solicitorsjournal.co.uk | @JvdLD