R (Hemming (t/a Simply Pleasure Ltd and Others) v Westminster City Council

JurisdictionEngland & Wales
CourtCourt of Appeal (Civil Division)
JudgeLord Justice Beatson,Lady Justice Black,The Master of the Rolls
Judgment Date24 May 2013
Neutral Citation[2013] EWCA Civ 591
Docket NumberCase No: C1/2012/1666
Date24 May 2013

[2013] EWCA Civ 591


ON APPEAL FROM the Queen's Bench Division, Administrative Court

The Hon. Mr Justice Keith

[2012] EWHC 1260 (Admin); [2012] EWHC 1582 (Admin)

Royal Courts of Justice

Strand, London, WC2A 2LL


The Master of the Rolls

Lady Justice Black


Lord Justice Beatson

Case No: C1/2012/1666

The Queen on the application of (1) Timothy Martin Hemming (t/a Simply Pleasure Ltd)
(2) James Alan Poulton
(3) Harmony Ltd
(4) Gatisle Ltd t/a Janus
(5) Winart Publications Ltd
(6) Darker Enterprises Ltd
(7) Swish Publications Ltd
The Lord Mayor and Citizens of Westminster

Philip Kolvin QC (instructed by Gosschalks) for the Respondents

Nathalie Lieven QC and Jacqueline Lean (instructed by Westminster City Council) for the Appellant

Lord Justice Beatson


I. Overview


II. The legal framework

(1) The Local Government (Miscellaneous Provisions) Act 1982


(2) The Services Directive


(3) The 2009 Regulations


III. The factual background


IV. The judgments


V. The grounds of appeal


VI. Reference to the CJEC?


VII. Analysis

(1) The effect of the Services Directive and the 2009 Regulations


(a) Are the costs of enforcement the costs of authorisation procedures and formalities?


(i) The need for a purposive construction of Article 13(2) and Regulation 18(4)


(ii) Guidance from the ECJ and CJEU jurisprudence on fees and charges


(iii) The "consequentialist" arguments


(iv) Is the construction adopted by the judge inimical to the purposes of the Services Directive


(v) The distinction between monitoring and enforcement against licensed operators and unlicensed operators


(b) Does the fee charged to successful applicants fall outside Article 13(2) and Regulation 18(4)?


(2) The basis upon which restitution is to be made


(3) CPR Part 36.14(3)


I. Overview:


The appellants are the Lord Mayor and Citizens of Westminster, in reality Westminster City Council (hereafter "the Council"). The Respondents are the licensees of eleven sex shops in Soho and two in Covent Garden and the West End. The principal issue in this appeal is whether regulations implementing a European Directive mean that it is no longer lawful for the licence fees to reflect the Council's costs of enforcing the licensing system against unlicensed operators.


Section 2 of the Local Government (Miscellaneous Provisions) Act 1982 ("the 1982 Act") provides that the operators of sex establishments (a term including sex shops) in the areas of local authorities which have resolved that Schedule 3 of the Act is to apply to their area must have a licence. Paragraph 19 of Schedule 3 empowers local authorities to determine and charge a reasonable fee for the licence. Hitherto it has been possible for the licence fee to reflect the cost to a local authority of managing the licensing regime by enforcing it and prosecuting unlicensed operators as well as the cost of investigating and processing the individual application and monitoring compliance by licence-holders with the requirements of the licence. Indeed, it was the intention of the government at the time the 1982 Act was enacted that the fee for licences for sex establishments should cover the cost of the licensing operation and its enforcement. 1 The Council's fees reflected those costs.


The question is whether this is still possible after the implementation in the United Kingdom of Directive 2006/123/EC, Services in the Internal Market ("the Services Directive") with effect from 28 December 2009 by the Provision of Services Regulations 2009 SI 2009 No. 2999 ("the 2009 Regulations"). Article 13(2) of the Services Directive and Regulation 18(4) of the 2009 Regulations provide that charges for schemes requiring a person to obtain the authorisation of a competent body to have access to or to exercise a service activity must not exceed the cost of authorisation procedures and formalities. It is not in issue that the Respondents' activities are service activities or that the Council is a competent authority within the Directive and the Regulations.


In a judgment given on 16 May 2012 ("the first judgment"), Keith J held that the costs of enforcing the licensing system against unlicensed operators do not qualify as the costs of "authorisation procedures and formalities" and can no longer be reflected in the licence fee. He upheld a challenge by the Respondents to the £29,102 annual licence fee they had been charged since 1 February 2005. £26,435 of this reflected the costs of enforcing the licensing system. It included the costs of both quarterly compliance visits to licensed sex establishments and of operations to deal with and prosecute unlicensed operators. The declaration he granted in the light of his interpretation of the Services Directive and the 2009 Regulations stated that, when determining what is a reasonable fee for the grant or renewal of a licence to operate a sex establishment, the Council "has not, since 28 December 2009, been permitted to take into account the cost of investigating and prosecuting persons, firms or companies who operate sex establishments within [the Council's] area without a licence".


In that judgment and in a second judgment on 12 June 2012 Keith J also held that the Council had not validly determined a licence fee for any year after the year ending on 31 January 2006. He ordered it to do so and to make restitution of the difference between the payments it had received and the lawful fee set. In his

second judgment Keith J also ordered the Council to pay indemnity costs and the enhanced rate of interest pursuant to CPR Part 36.14(3) because it had rejected an offer by the Respondents that was more advantageous to it than were the judgments

The Council has not appealed against the finding that it had not validly determined a licence fee for the years in question. But it appeals against the judge's orders made on 12 and 26 June 2012 and the Consolidated Order dated 17 July 2012: (a) as to the interpretation of the Services Directive and the 2009 Regulations; (b) as to the basis on which restitution is to be made; and (c) in relation to costs and interest reflecting those judgments. The appeal on (c) concerns the operation of CPR Part 36.14(3) in cases where the party which has rejected a settlement offer is a public authority and the dispute is about a new and as yet untested legal regime.


On behalf of the Council, it was submitted that the judge's construction of the Services Directive and the 2009 Regulations would have very wide and serious implications for other regulatory authorisation regimes in this country. Those implications are said to be contrary to the purposes of the Directive because they critically undermine those regimes. Hitherto regulators and licensing authorities have been able to rely on the fees paid by those authorised in a given area to administer and enforce the regulated activity, and have done so. In the case of the sex establishments licensed by Westminster Council, over 90% of the fee is spent on enforcing the licensing regime against operators who are unlicensed and monitoring compliance by those with licences. This is a far higher proportion than in the case of other licensing regimes.


The adverse consequences would, it is said, be particularly felt by regulatory bodies with no independent source of income apart from the fees levied. There was, however, no material before us setting out and analysing the position in relation to the regulation of, for example, professional and business activities such as legal services to which the Council pointed. It appeared that there was also no material about them before the judge. In view of the way the argument about the adverse consequences developed, at the end of the hearing the court invited the parties to make written submissions on these matters. It received submissions on the scope of the Directive, and in particular the areas excluded from its scope by Article 2 (see [17] below), such as financial services and taxation, and on the regulatory and enforcement powers of the Bar Standards Board and the Solicitors' Regulatory Authority.


After the hearing the court invited submissions on two other matters. The first was whether, since it appeared that there was no European jurisprudence on Article 13(2) of the Services Directive before it, the court should refer the scope of the term "authorisation procedures" to the Court of Justice of the European Communities ("the CJEU"). For the reasons I give at [66], I do not consider it appropriate to do so. The second matter on which submissions were invited was whether there remained a difference between the parties on restitution, and, if so, to identify it.


As before the judge, the Council was represented by Miss Nathalie Lieven QC, leading Miss Jacqueline Lean, and the Respondents by Mr Philip Kolvin QC. I am grateful to counsel for their clear oral submissions, and for their written submissions, both before the hearing and in response to the court's requests.


I summarise my conclusions as follows:-

(1) Notwithstanding the undoubted force of Miss Lieven's submissions, for the reasons I give at [70] – [109] the judge's conclusion as to the impact of the Services Directive and the 2009 Regulations was correct.

(2) For the reasons I give at [110] – [137], the Council's appeal on the restitution question should be allowed in part. The Council is entitled to calculate the sum due by way of...

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