Supreme Court holds Soho sex shop licensing fee to be lawful

The Supreme Court has ruled it is lawful for local authorities to use part of a licensing fee, which is imposed on sex shops, to fund regime enforcement.

Unanimously allowing the appeal in part, the court said questions remain over how fees should be structured and collected, and referred the case to the European Court of Justice (ECJ).

The issue in the long-running case of R (on the application of Hemming (t/a Simply Pleasure Ltd) and others) v Westminster City Council [2015] UKSC 25 was whether the appellants' scheme of charging fees for licensing sex shops in Soho was permitted under EU law.

In 2011, Westminster City Council required applicants for sex shop licences 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.

EU law, however, places limits on licence fees which can be charged. 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'.

The respondents brought a judicial review in 2011 claiming that the appellant's setting of the fee was unlawful. Simply Pleasure Ltd argued that since the 2009 regulations had come into effect the appellant was disentitled from including the cost of enforcing the licensing system against unlicensed operators in the fee.

In the High Court, Mr Justice Keith upheld the respondents' claim and ordered the appellant to make restitution of the difference between the payments it had received and the lawful fee. The Court of Appeal dismissed the appellant's appeal, except as to the amount that had to be repaid.

Lord Mance, sitting with Lord Neuberger, Lord Reed, Lord Hughes, and Lord Toulson, allowed the appeal in part. On the question of whether it was lawful to require payment of the larger refundable amounts with the applications, the court has referred the issue to the ECJ in Luxembourg.

Establishing principle

Iain Miller, partner at Bevan Brittan and who represented the Law Society and the Bar Council as interveners in the case, said that the decision was an important victory for Westminster Council.

'Today's verdict is good news for Westminster and by extension all local authorities. The Supreme Court's decision moves the debate on so that it is not about the principle of whether you can charge for enforcement - but how you charge for it. To that extent, today's ruling will come as a big relief to local authorities,' he explained.

With the case now continuing to the European Court of Justice, Miller said: 'While authorities will be happy that the Supreme Court did not find against the principle of funding enforcement through the licensing fee, the way in which the charge is structured and collected is key. Authorities therefore need to review their licensing charge arrangements in the light of this decision and consider whether they need to make changes at this stage.

He continued that there was an important principle at stake which could apply to various licensing arrangements, including those involving solicitors.

'This case has potentially far-reaching implications because it applies not only to sex shops. By extension, the principle could stretch to other licenses including pubs and clubs and even professional contexts such as solicitor licensing or other professional services. While today's ruling does not close the case, it is an important step forward for local authorities and establishes a clear principle.'

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