Trinity
Term
[2017] UKSC 50
On appeal from: [2015] UKSC 25
JUDGMENT
R (on the application of Hemming (t/a Simply Pleasure
Ltd) and others) (Respondents) v Westminster City Council (Appellant)
before
Lord Neuberger, President
Lord Mance
Lord Clarke
Lord Reed
Lord Toulson
JUDGMENT GIVEN ON
19 July 2017
Heard on 11 May 2017
|
Appellant
David Matthias QC
Charles Streeten
(Instructed by
Westminster City Council Legal Services)
|
|
Respondents
Philip Kolvin QC
Victoria Wakefield
Tim Johnston
(Instructed by
Gosschalks)
|
LORD MANCE: (with whom
Lord Neuberger, Lord Reed and Lord Hughes agree)
1.
This is a sequel to the Supreme Court’s previous judgment dated 29 April
[2015] UKSC 25; [2015] AC 1600. It is written with the benefit of the Court of
Justice’s answer dated 16 November 2016 ((Case C-316/15) [2017] PTSR 325) to
the question which that judgment referred to the Court of Justice. The appeal
concerns fees which were charged to the respondents on applying to Westminster
City Council for sex shop licences for the three years ended 31 January
2011, 2012 and 2013 and which included the council’s costs of enforcing the
licensing scheme against unlicensed third parties running sex shops
(“enforcement costs”). The respondents’ applications all in the event
succeeded, and I can call them “the licence holders”.
2.
Under domestic law the basis for charging such fees was and is found in
paragraph 19 of Schedule 3 to the Local Government (Miscellaneous Provisions)
Act 1982 as amended by the Policing and Crime Act 2009, section 27(7), reading:
“An applicant for the grant,
renewal, variation or transfer of a licence under this Schedule shall pay a
reasonable fee determined by the appropriate authority.”
In respect of all years ending on 31 January up to 2010,
Westminster City Council was entitled to determine a reasonable fee which
included enforcement costs, and to require this to be paid on application for a
sex shop licence, subject to refunding of the part relating to enforcement
costs, if the application was not granted: see paras 6-7 of our previous
judgment.
3.
The position however changed with the coming into force in the United
Kingdom with effect from 28 December 2009 of the Provision of Services
Regulations 2009 (SI 2009/2999), giving effect domestically to EU Directive
2006/123/EC. The courts below held that, after this change, the only legitimate
charges which Westminster City Council could levy related to the administrative
costs of processing the relevant applications and monitoring compliance with
the terms of the licence by licence holders (which I can call “processing
costs”): see Court of Appeal judgment dated 24 May 2013 [2013] EWCA Civ 591;
[2013] PTSR 1377, para 130. The council was not entitled to levy the
(considerably larger) parts of the actual charges which related to the costs of
enforcing the scheme against non-licence holders.
4.
On that basis, the Court of Appeal ordered Westminster City Council to
determine a reasonable fee excluding enforcement costs for each of the years
ended 31 January 2011 and 2012, and to “determine afresh” a reasonable fee
excluding enforcement costs for the year ended 31 January 2013. The distinction
between “determining”, in the first two years, and “determining afresh”, in the
third year, arose because the issues before Keith J [2012] EWHC 1260 (Admin);
[2012] PTSR 1676 covered all years ending 31 January 2007 onwards, and he held
by his judgment dated 16 May 2012 that the council’s Licensing Sub-Committee
had failed to determine any yearly fee after 7 September 2004 (when it
determined the fee for the year ended 31 January 2005 and no more) until 5
January 2012 (when it determined the fee for the year ended 31 January 2013).
All that had happened in the intervening years was that the council’s officers
had simply assumed that the same fee as set on 7 September 2004 continued to
apply and had charged licence applicants accordingly.
5.
Pursuant to the Court of Appeal’s order, Westminster City Council made
corresponding repayments totalling £1,189,466 to the licence holders on 28 June
2013, together, it appears, with a further £227,779.15 paid by mistake (since
it related to licence holders not party to the present proceedings).
6.
In our previous judgment, we took a different view from the courts below
about the effect of the change worked by the 2009 Regulations giving effect to
the EU Directive. We drew a distinction between two types of licensing scheme, at
para 18 as follows:
“Type A: Applications for licences
are made on terms that the applicant must pay:
(i) on making the
application, the costs of the authorisation procedures and formalities, and
(ii) on the application
being successful, a further fee to cover the costs of the running and
enforcement of the licensing scheme.
Type B: Applications for licences
are made on terms that the applicant must pay:
(i) on making the
application, the costs of the authorisation procedures and formalities,
(ii) at the same time, but
on the basis that it is refundable if the application is unsuccessful, a
further fee to cover the costs of the running and enforcement of the licensing
scheme.”
7.
We held that, both under domestic law (paragraph 19 of Schedule 3 to the
Local Government (Miscellaneous Provisions) Act 1982) and by reference to EU
law (Directive 2006/123/EC, implemented domestically by the Provision of
Services Regulations 2009), Westminster City Council was entitled to operate a
scheme of type A in relation to the licensing of sex shops. We referred to the
Court of Justice the question whether it was entitled to operate a scheme of
type B. The Court of Justice has answered that question in the negative, on the
basis that a requirement to pay a fee to cover the costs of running the
licensing scheme and enforcing it against unlicensed operators, refundable if
the application for a licence fails, constitutes an illegitimate charge in
respect of the procedure for authorisation.
8.
In the above circumstances, and despite the Court of Justice’s answer in
respect of type B, Westminster City Council submits that it is entitled to be
paid or repaid the sums which it repaid to sex shop licence holders on 28 June
2013, following the Court of Appeal’s order. The licence holders, on the other
hand, submit that they are entitled to retain the repayment made to them in
full, because it was charged in a way for which there was no warrant. The
submissions on each side were complicated by reference to principles of unjust
enrichment under both domestic and European law, in the latter case including
the Court of Justice judgment in Lady & Kid A/S v Skatteministeriet (Case
C-398/09) [2012] All ER (EC) 410, [2011] EUECJ C-398/09, although I note in parenthesis that it may be
significant that this related to tax, rather than a fee for a service.
9.
In my view, the correct analysis is simpler than some of the submissions
made would suggest. The scheme which the council operated was only defective in
so far as it required payment up front at the time of the application. Its
invalidity was limited. Contrary to the respondents’ case, European law permits
a fee to cover the costs of running and enforcing the licensing scheme becoming
due upon the grant of a licence. There is no imperative under European law, as
incorporated domestically by the 2009 Regulations, to treat the whole scheme as
invalid, rather than to invalidate it to the extent of the inconsistency: see Edward
and Lane on European Union Law (2013), para 6.16. Even under purely
domestic law principles, a test of substantial severability is appropriate,
rather than a rigid insistence on textual severability: see eg Director of Public
Prosecutions v Hutchinson [1990] 2 AC 783, 811D-G and 813E-G. Any remaining
element of the scheme which can stand by itself is able to do so.
10.
Here, the council was entitled to set and to require payment of a fee
including enforcement costs as well as processing costs applicable to all those
who, like the licence holders, actually received licences and benefitted by the
council’s enforcement action. Although it was wrong to charge the element of
this fee relating to enforcement costs conditionally at the time of any licence
application, this element was under the scheme due unconditionally once a
licence was granted. As we said in our previous judgment (para 23): “When the
application succeeds, the payment made becomes due unconditionally”.
11.
Even if this were not the right analysis, nothing in the course of
events to date can have affected paragraph 19 of Schedule 3 to the 1982 Act, or
the council’s right to determine a proper fee under it. Even if there might
hypothetically be an exceptional case in which lapse of time and intervening
circumstances might make it oppressive to set such a fee, there is no ground to
put this case into that category.
12.
It follows that, in so far as the council has determined a reasonable
fee, including enforcement costs, there is no answer to the council’s claim to
be paid or repaid it now. Before Keith J, it was the licence holders’ case
that, if the court concluded that a fee determined by the council (whether or
not it could legitimately include enforcement costs) was unreasonable, the fee
would have to be remitted to the council for re-determination of a reasonable
fee. Before the Supreme Court, however, the parties have agreed that any such
re-determination should be undertaken by a judge of the Administrative Court.
13.
The parties are however at odds as to whether there have been any
relevant determinations in respect of the three years ending 31 January 2011,
2012 and 2013, which are now before the Supreme Court. As to this, the position
is clear in respect of the third year, ended 31 January 2013. The parties are
bound by Keith J’s finding that the council did on 5 January 2012 determine
fees of £19,973.00 for a new sex shop licence and of £18,737.00 for renewal of
a sex shop licence for the year from 1 February 2012 to 31 January 2013. Both
these sums covered enforcement costs. Hence, when the Court of Appeal came to
make its order in the light of its conclusion that the council could not on any
basis recover enforcement costs from licence holders, it ordered the council to
“determine afresh” the appropriate fees for the year ended 31 January 2013.
This the council did by eliminating and repaying the enforcement costs. The position
is now reversed, and the council is entitled to recover these enforcement
costs, subject to corresponding reduction if and to the extent that the
Administrative Court determines the enforcement costs determined to have been
unreasonable.
14.
The position in respect of the two earlier years, ending 31 January 2011
and 2012 is slightly more complex. The council failed from 5 September 2004
until 5 January 2012 to determine annual fees for any of the years ended 31
January 2006 to 31 January 2012; and, when it was ordered to do so by Keith J
and the Court of Appeal retrospectively in relation to the two years ended 31
January 2011 and 2012, it was ordered, and so did so, on the basis that
enforcement costs should be excluded. In the light of the Supreme Court’s
judgment, that order was incorrect, and the council could and should have been
ordered to determine a fee in relation to those two years which included
enforcement costs, just as it was in relation to the prior years before the EU
law change on 28 December 2009.
15.
The council in response would, I understand, say that it did in effect
determine a fee including enforcement costs, when, pursuant to the Court of
Appeal’s order, it analysed the amounts which it had in fact charged for the
years ended 31 January 2011 and 2012, determined the amount referable to
enforcement costs included therein and approved a fee excluding that amount. It
may also be able to suggest that fees for these years have been determined at some
other point or points in time. Any such submission can be left for the
Administrative Court to consider if it has any significance. For my part, it is
sufficient to say that, even if any such submission be rejected, the council
must now clearly be put in the same position as it would have been, if the
Court of Appeal had reached the same conclusion as the Supreme Court. In that
event, the Court of Appeal would have ordered a determination of a fee for each
year which included enforcement costs and it would not have ordered repayment
of the element of enforcement costs as it did. As a matter of obvious justice,
the Supreme Court must be able to restore the parties to the position they
should have been in, by now ordering repayment by the licence holders of the
enforcement costs, to the extent that they meet the criterion of
reasonableness. The issue potentially remaining on this basis is the
reasonableness of the sum identified as enforcement costs, and now to be repaid
to the council. This issue should be remitted, as agreed, to the Administrative
Court.
16.
Mr Kolvin QC for the licence holders submits that there are other
matters which should also go back to the Administrative Court. The first two
appear to go to the account prepared by the council in 2013 following the Court
of Appeal’s judgment, which account was not the subject of any challenge before
the Supreme Court, other than by reference to the issue indicated in para 8 of
this judgment. Whether that account has been properly prepared in these two respects
can nevertheless be appropriately remitted to the Administrative Court.
17.
The first matter relates to a surplus of £116,520 shown, according to
figures said to have been produced to Keith J, as arising from a difference
between the total income from licences and the total cost of the licensing
regime in the year ended 31 January 2005. The licence holders submit that it
was a breach of the Court of Appeal’s order not to bring any such surplus into
account, since para 2 of that order refers to “the need to bring into account
any previous surpluses or deficits” when determining a reasonable fee for the
year ended 31 January 2011. It is not clear to me that this contemplates going
back as far as a year ended 31 January 2005, since Keith J’s order dated 17 July
2012 only refers to “the need to carry forward from year to year any previous
surpluses or deficits from each of the said years” ending 31 January 2007
onwards, those being the only years which it appears were in issue before him.
Any issues about the licence holders’ right to raise this point as well as
about its merits should be remitted to the Administrative Court.
18.
A second matter raised is that the council failed fully to account for
some £80,611 of income received when calculating fees, and so accounting for
profits, in respect of the years ended 31 January 2010 and 2011. Again, the
admissibility and merits of this issue should be remitted to the Administrative
Court.
19.
A third point was raised in oral submissions by Mr Kolvin. It related to
interest which should, he submitted, be allowed on council surpluses in
relation to sex shop licensing totalling £207,869 in respect of the years ended
31 January 2006 to 31 January 2010. The order made by Keith J contained a
specific paragraph, number (7), dealing with interest on any excess repayable
in respect of the years ending 31 January 2007 to 31 January 2010. The
Administrative Court can no doubt consider what interest is due under that
paragraph and whether it has been paid or accounted for. I do not at present
see any basis for any further claim for interest on any earlier year or years,
and the appeal to this court certainly did not involve any such claim. But it
will be open to the Administrative Court to consider whether any such further
claim falls within the scope of any of the issues which are open or orders
which have been made in the present proceedings.
20.
Finally, Mr Kolvin emphasised that some of the licence holders party to
these proceedings are no longer in existence or in business, and that any payment
or repayment which has to be made by licence holders under this judgment must
be according to the pro rata sums actually received by each licence holder.
That is, I understand, common ground.
21.
Lord Toulson, who sadly died before this judgment was handed down, had
indicated agreement both with its essential reasoning and with the conclusions
reached in it.
22.
The parties should liaise with the Registrar with regard to an
appropriate form of order to give effect to this and the court’s previous
judgments, the detailed working out of which, together with the claim to
recover the £227,779.15 allegedly paid by mistake as mentioned in para 5 above
and the matters identified in paras 14 to 18 above, will be remitted to the
Administrative Court. The parties will be at liberty to make submissions in
writing on costs.
