Westminster Council has received permission from the UK Supreme Court to challenge the Court of Appeal decision requiring the council to pay large sums in compensation for overcharging sex shops for licences.
European law requires that council licence fees should reflect the costs of administration rather than be used as a tax to raise revenue.
Westminster City Council had charged enormous licence fees way beyond the cost of admin saying that it wanted to use revenues raised to take enforcement action against unlicensed businesses.
The council lost the case and were ordered to pay costs and pay back the overcharge. The council accepted it was wrong to charge the amount it did but refused to accept the costs and restitution charged to it, and took the case to the Court of
Appeal the following year. However in May 2013 Master of the Rolls Lord Dyson, Lady Justice Black and Lord Justice Beatson upheld the High Court judgment.
And it is this decision that Westminster Council will challenge in the Supreme Court. Westminster Council will argue its case against: Tim Hemming (t/a Simply Pleasure Ltd), James Poulton, Harmony Ltd, Gatisle Ltd t/a Janus, Winart Publications
Ltd, Darker Enterprises Ltd, and Swish Publications Ltd.
Licensing authorities will be able to continue charging for the cost of enforcement but may have to change how they do it, following a ruling by the Supreme Court.
The case, involving Westminster City Council and sex shop owner Timothy Hemming, had threatened to prevent councils charging anything more than the cost of processing a licensing application. This prevented the council from charging legal shops
to pay for the cost of closing unlicensed premises that are nothing to do with the fee paying shops.
In May 2013 the Court of Appeal ruled in favour of Hemming who had successfully argued that charging for the cost of enforcement was inconsistent with European law.
However, Westminster appealed and a Supreme Court ruling handed down this morning overturned this decision. The judgment said:
There is no reason why [a licensing fee] should not be set at a level enabling the authority to recover from licensed operators the full cost of running and enforcing the licensing scheme, including the costs of enforcement and proceedings
against those operating sex establishments without licences.
The court said its decision followed interventions from interested parties including the Treasury, the Local Government Association and the Law Society.
Hemming had also argued that it was not legitimate for Westminster to charge the full cost of licence on application, which was £29,435 in 2011-12, even though the bulk of this fee, £26,435, was refundable if the application was unsuccessful. The
Supreme Court did not rule on this point but has referred the matter to the European Court of Justice in Luxembourg. It is not likely to rule for at least a year.
The European Court of Justice has ruled that Westminster Council was overcharging sex shops for licences, infringing on EU rules designed to promote service activities.
The long-running case was brought by Simply Pleasure and others against Westminster city council, which charged nearly £30,000 for a one-year licence. This sum was made up of £2,700 for administration whilst the rest was used to fund the
detection and prosecution of unauthorised sex shops or activities.
The sex shops had earlier won a victory in a UK judicial review, but Westminster decided to fight the decision, principally over the issue of whether it could charge the full fee at the time of application.
British judges then asked the EU court whether this was consistent with the EU services directive.
The EU court said the cost of making an application should not exceed the cost of the administration process, saying the aim of the services directive was to facilitate access to service activities.
Some while ago, the European Court of Justice ruled that council fees should be limited to the cost of administration associated with licence. This put at end to massive morality charges but left open the debate about what costs are reasonable to
include. Westminster Council has just won a case at the Supreme Court as part of this debate.
The latest case considered repayments to overcharged licence fee payers. The Court ruled that the correct approach to settling the repayment question is one that restores the parties to the position they should have been in.
The Court also stated that enforcement costs could be passed on to licence fee payers, but not before a a licensing application has been successful. ie the full costs cannot be loaded onto an applicant who has been refused a licence.
A number of operators of licensed sex shops in Soho, led by Simply Pleasure owner Timothy Hemming, had challenged Westminster City Council's previous practice of charging a £26,000 management fee over and above a £2,600 administration fee as part
of the licensing application process. The fee went towards the costs of management and enforcement of the regime, and was refundable if the application was refused.
The case will now return to the High Court, which will settle a number of questions as to the reasonableness of the fees raised by the licence holders.