Supreme Court refers sex-shop case to the European Court of Justice, but gives guidance on meaning of the Provision of Services Regulations

01 May 2015

In its judgment in R(Hemming) v Westminster CC [2015] UKSC 25, released on 29 April, the Supreme Court had to grapple with the question of how to apply a provision of Directive 2006/123/EC on services in the internal market that restricted charges that could be made to an applicant for an authorisation to provide services.  The provision at issue (Article 13(2)) stated that “charges which the applicants may incur from their application shall be reasonable and proportionate to the cost of the authorisation procedures in question and shall not exceed the cost of the procedures“.

The facts of the case concerned a sex shop that applied for a licence to operate as such from Westminster City Council.  Westminster charged an up front fee that was calculate to cover both its costs of determining whether a licence should be granted and its costs of enforcing the licensing scheme (e.g. by prosecuting unlicensed sex shops).  But if an application was unsuccessful, the part of the fee that covered enforcement costs was refunded.

The Court of Appeal held that that arrangement infringed Article 13(2).  Its judgment caused great concern to a wide range of regulators who receive their income from licensing regimes, including the Solicitors Regulation Authority and the Bar Standards Board, who intervened in the appeal along with the Treasury.

Lord Mance gave the single judgment of the Supreme Court.  He agreed with the sex shop that costs of enforcement could not be regarded as part of the “costs of the procedures”: in particular, he accepted a point made by the Treasury that Westminster’s argument on that issue was inconsistent with the French and German language texts of the Directive.  However, he agreed with Westminster and the regulators that it was clear (“acte clair“) that Article 13(2) did not apply to situations (called “type A”) where an applicant paid a fee for authorisation that was based on the costs of processing the authorisation decision, but in order to practise had to pay a further fee covering other costs such as enforcement.  But he then went on to record disagreement between the Supreme Court judges as to what the position was where – as in the case of the sex shop –  the applicant had to pay an up front fee including both authorisation costs and enforcement costs but received a refund of the part of the fee covering the latter element if it was unsuccessful (“type B”).  So that question was referred to the Court of Justice of the EU for a preliminary ruling.

The first part of the judgment clarifies the position in relation to a number of professional and other licensing regimes. The question that has been referred is a fairly narrow one that may have limited application outside the world of sex shops.  However, it has been known for the Court of Justice not to agree with the assumptions behind the questions referred to it: so it cannot be entirely certain that even the clear view of the Supreme Court on “type A” regimes will necessarily survive the reference process.

George Peretz QC appeared for HM Treasury in the Supreme Court.