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05 JUL 2013

R (on the application of Hemming) v The Lord Mayor and Citizens of Westminster [2013] EWCA Civ 591; (2013) PLLR 088

Local government - licensing - sex shop - licence fees - Local Government (Miscellaneous Provisions) Act 1982 - enforcement costs - cost of enforcement against non-licence holders - Article 13(2) Directive 2006/123 - Regulation 18(4) Provision of Services Regulations 2009 - authorisation procedures and formalities - unlawfully charged fees - basis for restitution - costs - CPR r36.14.3 - reference to the Court of Justice of the European Union

The costs of enforcing against individuals who had failed to obtain licences under a licensing regime could not be funded by licensing fees paid by legitimate licence holders, as enforcement costs were not ‘authorisation procedures and formalities' within the meaning of Directive 2006/123 and the Provision of Services Regulations 2009.

24 May 2013

Court of Appeal

Master of the Rolls, Lady Justice Black, Lord Justice Beatson

(1)        The appellant local authority (W) licensed sex shops under the Local Government (Miscellaneous Provisions) Act 1982 (the 1982 Act) within its area, including that operated by the respondent (H). A significant proportion of the licence fees it levied were used to fund enforcement against both licence holders and those who did not hold licences.

(2)        W appealed the decision of Keith J that to use licence fees to pay for enforcement against unlicensed operators was unlawful under Directive 2006/123 (the Directive), as transposed by Regulation 18(4) of the Provision of Services Regulations 2009 (the 2009 Regulations), which permitted fees to be charged only for the purposes of authorisation procedures and formalities. The appeal was on the grounds that (a) Keith J's interpretation was contrary to the intention of the Directive as it would undermine other regulatory regimes funded in similar ways; (b) the judge had erred in deciding how restitution should be made; and (c) an order under CPR Part 36.14 was not appropriate in a case involving a local authority and an area of law which had before been subject to judicial consideration. W also sought a reference to the Court of Justice of the European Union.

(3)        Beatson LJ (with whom the Master of the Rolls and Black LJ agreed) held: That the question of a reference to the Court of Justice of the European Union had only arisen after the hearing and at the invitation of the Court, leaving the practical reasons put forward by H for not making such an application - including that neither party had requested a reference, that the court had already heard extensive argument and the damage further delay would cause - it would not be appropriate to make a reference. A court should hesitate before making a reference of its own motion where a party opposes this (Cambridge Petroleum v IRC [1982] STC 325 considered) [66].

(4)        The judge had been correct to find that the language of the 2009 Regulations suggested that only administration costs were to be recovered via the licensing fee. It was not possible to consider prosecutions of unlicensed operators as authorisation procedures. The language of Article 13 suggested that the authorisation process ended once a licence was granted. Although the court was under a duty to construe legislation implementing EU law purposively, it was clear that the Court of Justice of the European Union sought to prevent Member States from imposing costs that went beyond the authorisation (European Commission v Spain [2011] 2 CMLR 50 and Germany GmbH Arcor KG and Co v Germany [2007] 1 CMLR 10 considered). This had been reflected in the decision at first instance. Arguments relating to the consequences of upholding the decision on other licensing regimes did not contain sufficient detail on how the Directive and the 2009 Regulations might apply and what the impact on monitoring and enforcement would be. They did not justify a departure from what was the clear meaning of the Directive and the 2009 Regulations. Although the Directive did not purport to harmonise the collection of fees across the European Union, to allow Member States to draw a distinction based on their past practice of seeking fees in order to fund enforcement against unlicensed operators seemed inimical to the purpose of the Directive, that of removing barriers to trade. The judge was correct to draw a distinction between enforcement against licence holders and unlicensed operators; monitoring the continued suitability of an individual necessarily involved monitoring their previous compliance. The Directive and 2009 Regulations applied to schemes requiring individuals to have authorisation to exercise a particular activity, as well as to have access to it. The argument that the fee was one required in order to hold a licence, rather than simply to apply for one, failed. Furthermore, the Council had previously described the fees, payable upon application, as licence application fees. It was not sufficient that the Council may have the authority to charge an additional fee under paragraph 19 of Schedule 3 of the 1982 Act [67], [70] - [74], [87] - [88], [97] - [104], [106] - [109].

(5)        The question before the court was whether a public body which had the power to lawfully determine and levy a fee could be said to have been unjustly enriched where it received payment of a fee which it had not lawfully determined, and whether calculations of the lawful fee and repayment could be made on a rolling basis or had to be done on a year by year basis. The element of the fee which reflected the cost of enforcing against unlicensed operators could be lawfully charged prior to the coming into force of the 2009 Regulations (year ending January 2010), but not from this point onwards. W could roll deficits and surpluses forwards until the point at which the action had been brought, April 2011. At this point any unjustified enrichment should be calculated Waikato Regional Airport Ltd v Attorney General (on behalf of the Director General of Agriculture and Forestry) [2003] UKPC 50 and Woolwich Equitable Building Society v IRC [1993] AC 70 considered [111], [126], [131] - [138].

(6)        It made no difference to the application of the Civil Procedure Rules that the claim was a public law one. Although the position on costs differed where the legal regime was not subject to binding Court of Appeal authority, it did not do so in a fundamental way. It may have been difficult for W to accept H's offer without jeopardising future cases or the exercise of its own discretion. However, a judge is not bound to disapply CPR Part 36.14 in this case. The judge had not misdirected himself (M v Croydon LBC [2012] 1 WLR 2607 considered) [142] - [144].

Appeal dismissed

Key paragraphs

[1] - [11] - Overview

[12] - [27] - The legal framework

[28] - [41] - The factual background

[42] - [55] - The judgments

[56] - [61] - The grounds of appeal

[62] - [66] - Reference to the CJEC?

[67] - [109] - The effect of the Services Directive and the 2009 Regulations

[110] - [138] - The basis upon which restitution is to be made

[139] - [144] - CPR Part 36.14

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