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CJEU: 'management and enforcement' costs cannot be included in licensing fees


Westminster City Council's practice of charging a £26,000 "management" fee as part of the licensing application process is in breach of EU law, the Court of Justice of the European Union (CJEU) has ruled.

A number of operators of licensed sex shops in the Soho area of London had challenged the practice on the grounds that it breached the EU's Services Directive. Under that directive, any charges payable by applicants for a licence or other authorisation procedure must be "reasonable and proportionate" to the costs of that procedure and not exceed them.

Timothy Hemming, who owns the Simply Pleasure shop, was required to pay a fee of £29,102 to the council in 2012. Of this fee, £2,667 related to the administration of the application, while the remaining £26,435 went towards the costs of management and enforcement of the regime. It was this second part of the fee, which was refundable if the application was refused, which Hemming sought to challenge.

The CJEU's judgment follows a referral from the UK's Supreme Court in April 2015, in a case which had been closely watched by other licensing authorities and regulatory bodies, according to licensing law expert Christopher Rees-Gay of Pinsent Masons, the law firm behind Out-Law.com.

"This is a significant decision in licensing terms, as it will affect all licensing authorities and regulatory bodies and the manner in which applicants are required to pay their fees," he said.

"The CJEU found that the element of the fee relating to the management of the licensing regime was a 'charge', and that 'the amount of such charges may in no case exceed the cost of the authorisation procedure in question'. The judgment also states that 'the aim would not be served by a requirement to prefinance the costs of the management and enforcement of the authorisation scheme concerned'," he said.

The judgment meant that licensing authorities and regulatory bodies could only require "successful" applicants to make a contribution towards regulatory and enforcement costs, and could not "ask for these fees upfront and return them if the applicant is unsuccessful", he said.

A number of professional bodies including the Law Society of England and Wales, the Care Quality Commission and the Architects' Registration Board intervened in the case.

The Services Directive was intended to create a single market for services within the EU. Its rules on authorisation schemes and other administrative procedures were designed to remove "overly burdensome" authorisation schemes that "hinder the freedom of establishment and the creation of new service undertakings therefrom", particularly for SMEs.

In the UK, the 1982 Local Government (Miscellaneous Provisions) Act requires that applicants for the grant or renewal of a licence must pay a "reasonable fee" determined by the appropriate authority. In this case, Westminster City Council as the body with responsibility for issuing licences for sex establishments, including sex shops, in the relevant area was that authority.

The fees charged by the council were split into the smaller, non-refundable fee which covered the costs of the applications process; and the larger fee, which was refundable in the event of an unsuccessful application. This fee was described as a "management" fee, and covered costs including inspection, "vigilant policing" and detecting and prosecuting those who operated unlicensed premises. Hemming and the others argued that these costs should either have been covered by the council's general funds, or required only from operators whose applications had been successful.

In its judgment, the CJEU said that regardless of whether the fee was refundable, the fact that it was required to be paid in the first place meant that it was "a financial obligation, and therefore a charge, which the applicant must pay in order for his application to be considered".

"That is true all the more so given that the objective of [the Services Directive] is to preclude certain aspects of the authorisation procedures and formalities from discouraging access to services activities," the CJEU said.

"In order to comply with [the directive] the charges referred to must, in the words of that provision, be reasonable and proportionate to the cost of the authorisation procedures and not exceed the cost of those procedures ... That aim would not be served by a requirement to prefinance the costs of the management and enforcement of the authorisation scheme concerned including, inter alia, the costs of detecting and prosecuting unauthorised activities," it said.

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