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Hemming (t/a Simply Pleasure) & Ors, R (on the application of) v Westminster City Council
Factual and Procedural Background
The Appellant, a local authority (“Company A”), charged the Appellees (“the licence holders”) fees for sex-shop licences covering the three years ending 31 January 2011, 2012 and 2013. The fees included:
• processing costs (administration and monitoring of licence conditions); and
• enforcement costs (costs of action taken against unlicensed operators).
From 28 December 2009, the Provision of Services Regulations 2009 implemented an EU Directive that restricted what could be charged at the application stage.
Lower courts held that, after the Regulations came into force, enforcement costs could not be recovered at all. They ordered Company A to re-determine fees excluding those costs and to refund amounts already collected. Refunds totaling £1,189,466 (plus £227,779.15 paid in error) were made on 28 June 2013.
On a first appeal the Supreme Court distinguished two fee models (“Type A” and “Type B”) and referred a question on the lawfulness of Type B to the Court of Justice of the European Union (CJEU). The CJEU ruled that Type B—charging the full fee up-front but refunding it if the application fails—was unlawful. The present judgment, delivered by Judge Mance (with Judges Neuberger, Reed, Hughes and the late Judge Toulson concurring), applies the CJEU’s answer and resolves the financial consequences of the earlier refunds.
Legal Issues Presented
- Whether Company A is entitled to recover enforcement costs from licence holders once a licence has been granted (Type A scheme) notwithstanding the CJEU ruling on Type B.
- Whether the refunds made on 28 June 2013 must now be repaid to Company A, and if so, subject to what adjustments.
- Whether any outstanding questions—such as the reasonableness of quantified enforcement costs, treatment of surpluses or omitted income, and interest—should be remitted to the Administrative Court.
Arguments of the Parties
Appellant’s Arguments
- The only defect in its scheme was the timing of payment; enforcement costs are lawfully recoverable once a licence is granted.
- Under both domestic and EU law, any illegality is severable; the valid portion of the fee should stand.
- Therefore the sums refunded in 2013 should be repaid to Company A, subject only to an assessment of reasonableness.
Appellees’ Arguments
- The entire fee structure was invalid because it included enforcement costs at all.
- European unjust-enrichment principles (relying on Lady & Kid) bar recovery by Company A.
- Additional questions—surpluses from earlier years, unaccounted income and interest—must also be examined before any repayment is ordered.
Table of Precedents Cited
| Precedent | Rule or Principle Cited For | Application by the Court |
|---|---|---|
| Lady & Kid A/S v Skatteministeriet (Case C-398/09) | Unjust-enrichment and restitution principles under EU law (in the context of tax). | Considered but distinguished; the Court noted that the case concerned tax, not service-licensing fees, and found its principles inapplicable to bar recovery. |
| Director of Public Prosecutions v Hutchinson [1990] 2 AC 783 | Doctrine of substantial severability in domestic law. | Used to support the view that only the unlawful element (timing of payment) should be severed, leaving the remainder of the fee scheme intact. |
Court's Reasoning and Analysis
1. The CJEU decision invalidated only the requirement to pay enforcement costs up-front (Type B). It did not prevent recovery of those costs after a licence is granted (Type A). European law therefore allows enforcement costs to become due unconditionally on grant.
2. Applying domestic principles of severability (confirmed in Hutchinson), the Court held that the unlawful timing provision could be severed; the remaining right to levy enforcement costs on successful applicants survives.
3. Because Company A always had statutory power (paragraph 19 of Schedule 3 to the 1982 Act) to set a “reasonable fee” that included enforcement costs, the refunds made pursuant to the Court of Appeal’s incorrect order must be returned, subject to reasonableness assessment.
4. For the licence year ending 31 January 2013, a fee including enforcement costs was expressly determined on 5 January 2012. Those costs are reclaimable, with any dispute over reasonableness to be resolved by the Administrative Court.
5. For the two earlier years (2011, 2012) fees were retrospectively determined under an erroneous assumption that enforcement costs were inadmissible. Justice requires putting the parties in the position they would have been in had the Court of Appeal applied the correct law; therefore enforcement costs for those years are likewise repayable, again subject to the reasonableness inquiry.
6. Additional matters—alleged historical surpluses, unaccounted income, and interest—were outside the scope of the Supreme Court appeal but may be aired in the Administrative Court, which is best placed to perform detailed accounting oversight.
Holding and Implications
HELD: Company A is entitled to recover the enforcement-cost element of licence fees for the years ending 31 January 2011, 2012 and 2013. The sums previously refunded must be repaid by the Appellees, subject to any reductions the Administrative Court may find appropriate when assessing the reasonableness of the quantified enforcement costs and other outstanding accounting issues.
Implications: The judgment clarifies that local licensing authorities may lawfully recoup enforcement costs from successful applicants (Type A) but may not require those costs to be paid on application subject to refund (Type B). Although no new precedent is created on unjust enrichment, the decision provides practical guidance on severability and on structuring fee regimes to comply with EU service-directive constraints. All detailed financial adjustments, including interest and potential set-off for historical surpluses, are remitted to the Administrative Court for determination.
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