QUEEN'S BENCH DIVISION
Strand, London, WC2A 2LL
B e f o r e :
| (1) Timothy Martin Hemming (trading as Simply Pleasure Ltd)
(2) James Alan Poulton (trading as Soho Original Book)
(3) Harmony Limited
(4) Gatisle Limited (trading as Janus)
(5) Winart Publications Limited
(6) Darker Enterprises Limited
(7) Swish Publications Limited
|Westminster City Council
Miss Nathalie Lieven QC and Miss Jacqueline Lean (instructed by Head of Legal and Democratic Services, Westminster City Council) for the Defendant
Hearing dates: 9 and 12 March 2012
Further written representations: 13, 14 and 15 March 2012
Crown Copyright ©
Mr Justice Keith:
The nature of the claim
"An applicant for the grant, variation, renewal or transfer of a licence under this Schedule shall pay a reasonable fee determined by the appropriate authority."
The annual licence fee for sex establishments in Westminster did not change for a number of years. It was determined at £29,102.00 in September 2004 for the year from 1 February 2005 to 31 January 2006, and that was the fee which the Council demanded of the claimants for every year thereafter up to and including the year from 1 February 2011 to 31 January 2012 ("2011/12"). This claim for judicial review challenges the fee demanded for 2011/12. The basis of the claim is that the fee was never determined for that year, even though an annual fee of £29,102.00 was demanded of, and paid by, the claimants for each of the sex establishments they operated. The claimants' case is that a reasonable fee should now be determined for 2011/12, and one of the orders they seek is a mandatory order requiring the Council to determine that fee.
Delay and limitation
The determination of the fee over the years
(i) The title of the report is "Licensing – Annual Review of Premises Fees & Charges 2004/05" (emphasis supplied). The report referred to the estimated additional income which the fees would generate "in a full year", and said that in determining the fees, the Council's estimates for 2004/05 were "included", i.e. taken into account. Indeed, the part of the minutes of the meeting of 7 September 2004 in which the Licensing Sub-Committee's approval of the fees is recorded is given the same heading as the report. On the face of it, therefore, the fees being approved by the Licensing Sub-Committee were the fees to be charged for licences for the forthcoming licensing year only. When the report came to deal with licences for sex establishments in particular, it noted that the annual renewal date for such licences was 1 February in each year, and continued "next annual review 1 February 2005" (emphasis supplied). It added that "the costs of licensing" had increased during the previous year and would continue to do so "in the year ahead". All of this suggests that the licence fee of £29,102.00 for sex establishments was to be the fee for the year from 1 February 2005 to 31 January 2006 only.
(ii) The reasons for recommending a 2% increase in the fee for sex establishments was expressed in the report as follows:
"The City Council's expenditure was under-recovered by fee income in 2003/04; however, this is a result of the granting of licence refunds relating to income received in previous financial years. In 2004/05, costs are projected to be slightly more than licence fee income. Given this situation, it is proposed to increase fees for sex establishments by 2% … "
This passage shows that the Council thought it appropriate to consider each year whether the income received from licence fees for sex establishments exceeded the costs of administering and enforcing the system. If it did, the surplus would be passed on to licence holders. If it did not, it would be necessary for the fee to be increased.
(iii) The report also said:
"The fee for a sex establishment licence is designed to recover all of the City Council's costs relating to the licensing of sex shops including enforcement action against unlicensed sex shops."
This passage speaks for itself. It shows that the licence fee for sex establishments reflected the costs of taking enforcement action against sex establishments which were not licensed.
(i) The report said that the licence fees for sex establishments had "last" been "reviewed" in 2004. At first blush, that suggests that the level of the fees had not been reviewed even by the Council's officers in the intervening years, but it may be that what the report meant was that the level of the fees had not been considered by either of the committees since 2004.
(ii) The report concluded as follows:
"If the proposed fee structure results in a surplus or loss for the financial year there will be an appropriate reduction or increase in fees as the case may be for the following financial year."
This is another example of the Council recognising that it was not entitled to make a profit out of the fees it charged. The Council was acknowledging that the fees would be further reduced for the year from 1 February 2013 in the event of a surplus as a result of income from licence fees exceeding the expenditure incurred in administering and enforcing the system. Significantly, though, no surplus or deficit for the previous year (or years) had been carried forward when the fee for the year from 1 February 2012 was calculated.
The claim relating to the demand for the licence fee for 2011/12
"The fees charged … must be related to the street trading scheme operated by the district council and the costs of operating that scheme. The district council may charge such fees as they reasonably consider will cover the total cost of operating the street trading scheme or such lesser part of the cost of operating the street trading scheme as they consider reasonable. One consequence of the wording used is that, if the fees levied in the event exceed the cost of operating the scheme, the original position will remain valid provided that it can be said that the district council reasonably considered such fees would be required to meet the total cost of operating the scheme."
"I accept entirely that to carry forward a deficit from one year to another may result in anomalies when considering the effect of that process on applicants for grants or renewal of what are annual licences. The persons who, in the year in which the deficit is brought in, seek the grant or renewal of licences may well not be the same people who sought the grant or renewal in the previous year. Those in the previous year may have been fortunate to be undercharged. There is no certainty that, by bringing the deficit into the next year's accounts and therefore recouping from the next year's applicants, the authority will be exacting the money from those who morally ought to pay. But to my mind such a comparison is itself irrelevant in the context of local authority finance. The statutory accounts of local authorities are structured on the basis that shortfalls in one year must be carried into the next year's accounts. The identity of the ratepayers who contribute to the General Rate Fund is changing all the time. If an authority, as a matter of policy, which is itself not challenged on the ground of immateriality, decides that the cost of a service from year to year shall not fall on the ratepayers, that decision would benefit ratepayers of different identities and may disadvantage or advantage from year to year different persons who benefit from the service. I accept [Westminster's counsel's] contention that when a charge is based on an annual budget, which must be concerned with situations which themselves will not be verifiable until after the end of the year in question, the only sensible way to fix the level of the charge is to take one year with another."
It does not necessarily follow that just because a local authority acts lawfully in carrying forward a deficit from one year to the next, it acts unlawfully when it declines to carry forward a surplus. But if the justification for carrying forward a deficit from one year to the next is because it is not known in the current year what the expenditure on administering and enforcing the system will be, that reasoning should apply to a surplus just as much. If a local authority were to be treated as acting lawfully if it failed to carry forward a surplus from one year to the next, the making of profits would become legitimized.
"[Local authorities] may take into account the costs which they will incur in operating the street trading scheme, including the prosecution of those who trade in the streets without licences." (Emphasis supplied)
Similarly, in Hutton, Forbes J noted at p. 517 that it was not disputed that the Council could calculate the licence fee for sex establishments, "not only [by reference to the cost of] processing licensing applications, but also [by reference to the cost of] inspecting premises after the grant of licences and … [the] vigilant policing of establishments within the city in order to detect and prosecute those who operated sex establishments without licences." In other words, it was not disputed that the Council's Licensing Inspectorate could be self-financing.
"Any charges provided for by a competent authority which applicants may incur under an authorisation scheme must be reasonable and proportionate to the cost of the procedures and formalities under the scheme and must not exceed the cost of those procedures and formalities."
The expression "authorisation scheme" is defined in reg. 4 as meaning
"… any arrangement which in effect requires the provider or recipient of a service to obtain the authorisation of, or to notify, a competent authority in order to have access to, or to exercise, a service activity".
The expression "service activity" is not defined in the 2009 Regulations, but reg. 2(1) defines "service" as meaning "any self-employed economic activity normally provided for remuneration". And the expression "competent authority" is defined in reg. 3(1) as meaning "a body or authority having supervisory or regulatory functions in the United Kingdom in relation to service activities (and includes in particular a professional body, professional association or other professional organisation, that regulates access to, or the exercise of, a service activity)."
"Under regulation 18, fees charged in relation to authorisations must be proportionate to the effective cost of the process, i.e. must cover no more than the actual cost of the authorisation process. Fees should not be used as an economic deterrent to certain activities or to raise funds. If a service provider believes the fee to be disproportionate, they can contest it with the authority concerned. Enforcement costs should not be assimilated with the application fee." (Italicised emphasis supplied)
And in case there was any doubt about the guidance being given, it added in a separate box that the fee had to cover "no more than the actual cost of the authorisation process".
"This is to forestall the possibility of an unsuccessful applicant seeking legal remedy due to part of its fees having been used to subsidise successful competitors."
If that was the only rationale for not reflecting enforcement costs in the licence fee, the Council can justifiably say that it took that into account: after all, unsuccessful applicants have the element which represents "the management of the licensing regime" returned to them. But that presupposes that what the guidance says is the rationale for not reflecting enforcement costs in the licence fee is the only rationale for it. For the reasons given in para. 41 below, it is not.
"It is therefore necessary to remove barriers to the freedom of establishment for providers in Member States and barriers to the free movement of services as between Member States and to guarantee recipients and providers the legal certainty necessary for the exercise in practice of these two fundamental freedoms of the Treaty."
Nor does the Directive prohibit member states from operating licensing systems which place restrictions on entry into the market. Indeed, the phrase "authorisation scheme" in the 2009 Regulations comes from the Directive itself, and relates to those schemes which require those who wish to enter the market in a particular area of activity to obtain approval before doing so. What the Directive said about such schemes is contained in a variety of recitals, but recital (39) requires them to cover, amongst other things, "the administrative procedures for granting authorisations, licences, approvals or concessions", and a number of other recitals state what those "administrative procedures" should involve. Thus, recital (43) talks of eliminating "the delays, costs and dissuasive effects which arise, for example, from unnecessary or excessively complex or burdensome procedures, the duplication of procedures, the 'red tape' involved in submitting documents, the arbitrary use of powers by the competent authorities, indeterminate or excessively long periods before a response is given, the limited duration of validity of authorisations granted and disproportionate fees and penalties".
"… any 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."
So what are the "authorisation procedures" whose cost the fee may not exceed? The answer is to be found in Art. 4(6), which defines an authorisation scheme as meaning
"… any procedure under which a provider or recipient is in effect required to take steps in order to obtain from a competent authority a formal decision, or an implied decision, concerning access to a service activity or the exercise thereof".
The claim relating to the demand for the licence fees for the previous five years
(i) declare that, when determining under para. 19 of Schedule 3 to the 1982 Act, what is a reasonable fee for the grant or renewal of a licence to operate a sex establishment, the Council has not, since 28 December 2009, been permitted to take into account the cost of investigating and prosecuting persons, firms or companies who operate sex establishments within the Council's area without a licence,
(ii) to order the Council to determine, within three months of the handing down of the final judgment in this case, a reasonable fee for the years ending 31 January 2007, 31 January 2008, 31 January 2009, 31 January 2010, 31 January 2011 and 31 January 2012 for the grant or renewal of a licence to operate a sex establishment, having regard to (a) the declaration in (i), and (b) the need to carry forward from year to year any previous surpluses or deficits from the year ending 31 January 2007,
(iii) to order the Council to determine afresh, within three months from the handing down of the final judgment in this case, a reasonable fee for the year ending 31 January 2013 for the grant or renewal of a licence to operate a sex establishment, having regard to (a) the declaration in (i), and (b) the need to carry forward any previous surplus or deficit from the year ending 31 January 2012, and
(iv) to order the Council to pay to the claimants for each of the years to which (ii) and (iii) relate the difference between (a) the sums demanded by way of licence fees and paid by the claimants and (b) the sums which the Council determines to be the fee for a licence to operate a sex establishment, within six weeks from the date of such determination.
Save for an award of interest on the sums to be paid to the claimants, my present thinking is that the claimants are not entitled to any other relief, though of course if the fee determined for any of these years or any future year is determined otherwise than in accordance with this judgment, it would be open to the claimants (or any other licensed operator of sex establishments in the relevant year) to challenge those determinations.