Introduction

The case of Hemming (t/a Simply Pleasure) & Ors, R (on the application of) v. Westminster City Council ([2017] PTSR 1020) serves as a pivotal decision by the United Kingdom Supreme Court concerning the legality of fees imposed by Westminster City Council on sex shop license applications. The appellants, operating under the trade name Simply Pleasure, contested the fees required for acquiring and maintaining sex shop licenses over three consecutive years: 2011, 2012, and 2013.

The core issue centered on whether the council's fees could legitimately include enforcement costs associated with regulating unlicensed third parties operating sex shops. This case is particularly significant as it intersects domestic legislation with European Union directives, specifically the Provision of Services Regulations 2009, which implemented EU Directive 2006/123/EC into UK law.

Summary of the Judgment

The Supreme Court upheld the responsibility of Westminster City Council to include enforcement costs within the licensing fees charged to sex shop operators. The court clarified that while the initial determination of fees excluding enforcement costs was incorrect, the council was entitled to recover these costs once licenses were granted, provided the fees were reasonable.

Despite previous judgments by lower courts that mandated the exclusion of enforcement costs from the fees, the Supreme Court emphasized that enforcement costs are permissible under both domestic law and EU directives, as long as they are not conditioned upon the success of the license application. Furthermore, the Court of Justice of the European Union had previously ruled that fees refundable upon unsuccessful applications were not legitimate charges.

Ultimately, the Supreme Court directed that the council be allowed to recover enforcement costs, subject to their reasonableness, thereby reinstating the legality of the council's original fee structure in this aspect.

Analysis

Precedents Cited

The judgment extensively referenced both domestic and European precedents to substantiate its reasoning:

• Provision of Services Regulations 2009 (SI 2009/2999): This regulation implements EU Directive 2006/123/EC into UK law, setting the framework for service provider charges associated with licensing schemes.
• Court of Justice Case C-316/15 ([2017] PTSR 325): Provided critical interpretation aligning with EU directives, influencing the Supreme Court's stance on fee structures.
• Director of Public Prosecutions v Hutchinson [1990] 2 AC 783: Highlighted the principle of substantial severability, allowing parts of a statute to remain valid even if other parts are invalidated.
• Lady & Kid A/S v Skatteministeriet (Case C-398/09) [2012] All ER (EC) 410: Although primarily concerning tax, this case informed the discussion on unjust enrichment under EU law.

These precedents collectively supported the argument that enforcing costs can be included in licensing fees, provided their application aligns with legal frameworks both domestically and within the EU.

Legal Reasoning

The Supreme Court's legal reasoning was multifaceted:

• Distinction Between Fee Types: Building on previous judgments, the court distinguished between Type A and Type B licensing schemes. Type A entails non-refundable fees upon successful application, covering both processing and enforcement costs. Type B involves refundable fees that, upon failed application, are returned to the applicant, thereby excluding enforcement costs.
• Application of EU Law: The Court emphasized that EU directives permit the inclusion of enforcement costs in non-refundable fees, as long as these costs are not conditionally based on the success of the application.
• Substantial Severability: Adhering to the principle from Director of Public Prosecutions v Hutchinson, the court maintained that invalidating one aspect of the fee structure (refundability based on application success) does not render the entire scheme void. Instead, only the problematic component is invalidated, allowing the legitimate parts to stand.
• Unjust Enrichment Considerations: While the appellants argued about unjust enrichment, the court found the council’s retention of enforcement costs to be justified under the legal frameworks provided.

This comprehensive approach ensured that the council's fee structure was legally sound, while addressing specific concerns raised by the appellants.

Impact

The Supreme Court's decision has far-reaching implications:

• Licensing Schemes: Local authorities can confidently include enforcement costs in licensing fees, provided they adhere to the guidelines established by both domestic and EU law.
• Fee Determination and Enforcement: Councils must ensure that fees are reasonable and that enforcement costs are unconditionally applied upon the grant of licenses, avoiding refundable structures that could be contested under EU directives.
• Future Litigation: This judgment sets a precedent, likely reducing the number of challenges against similar fee structures, while also providing clarity on the application of EU directives in licensing scenarios.

Overall, the decision reinforces the authority of local councils in managing licensing schemes, as long as they remain compliant with overarching legal standards.

Complex Concepts Simplified

Type A and Type B Licensing Schemes

The judgment differentiates between two types of licensing fee structures:

• Type A: Applicants pay fees covering administrative and enforcement costs upon a successful license grant. These fees are non-refundable regardless of the application's outcome.
• Type B: Applicants pay administrative fees upfront, with an additional refundable fee meant to cover enforcement costs only if the application is successful.

Understanding this distinction is crucial, as the legitimacy of including enforcement costs hinges on the fee structure aligning with these definitions.

Unjust Enrichment

Unjust enrichment refers to a situation where one party benefits at another's expense in circumstances considered unjust by law. In this case, the license holders argued that retaining enforcement costs without proper justification led to unjust enrichment of the council.

The Supreme Court, however, dismissed this argument by affirming that the enforcement costs were legitimate expenses incurred by the council in regulating unlicensed operations, thereby not constituting unjust enrichment.

Substantial Severability

This legal principle allows courts to invalidate only specific parts of a statute that are unconstitutional or otherwise flawed, while upholding the remainder. Applied here, it meant that even though certain aspects of the fee structure were problematic, the valid components could continue to operate.

Conclusion

The Supreme Court's judgment in Hemming v Westminster City Council serves as a significant affirmation of local authorities' rights to incorporate enforcement costs within licensing fees, provided such fees are reasonable and structured in compliance with both domestic and EU laws. By upholding the inclusion of enforcement costs when licenses are granted, the court has delineated clear boundaries for licensing schemes, ensuring that councils can effectively regulate industries while maintaining legal integrity.

Moreover, the decision underscores the importance of aligning local regulations with broader legal frameworks, particularly in the context of evolving EU directives. As a result, councils across the UK can now approach licensing fee structures with greater confidence, fostering a balanced relationship between regulatory compliance and operational transparency.

Ultimately, this judgment exemplifies the judiciary's role in navigating complex intersections of law, ensuring that administrative practices uphold both legal standards and principles of fairness.