Westminster could charge successful licensees for enforcing its licensing scheme. Could the licensees keep the money the council had refunded because it collected that fee too early? The Supreme Court separated the unlawful demand for money on application from the lawful fee due once a licence was granted.
This judgment follows the Supreme Court’s decision of 29 April 2015 and the Court of Justice’s answer of 16 November 2016 to the question referred in that decision. The respondents, whose applications all succeeded, had paid Westminster City Council fees for sex shop licences for the years ending 31 January 2011, 2012 and 2013. Those fees included the council’s costs of enforcing the licensing scheme against unlicensed operators.
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The fees and the earlier proceedings
Under the Local Government (Miscellaneous Provisions) Act 1982 the council could determine a reasonable fee. New regulations implementing the EU Services Directive took effect in December 2009. The courts below concluded that these excluded the costs of enforcing the scheme against unlicensed operators. After the Court of Appeal’s order the council refunded £1,189,466. It later claimed that it had also paid a further £227,779.15 by mistake. Whether it could recover that additional payment remained disputed.
There was a further difficulty. For several years the council’s officers had continued to charge an earlier fee without its licensing committee formally determining a new annual fee.
Permitted and impermissible charging
In its earlier judgment, the Supreme Court distinguished two arrangements. Under Type A, an applicant paid the costs of the authorisation procedures when applying and, only if successful, a further fee covering the running and enforcement of the scheme. Under Type B, both elements were paid on application, but the enforcement element was refundable if the application failed. The Court held that Type A was permitted under paragraph 19 and under the Directive as implemented by the 2009 Regulations. The Court of Justice held that Type B was not: requiring payment of a fee covering enforcement against unlicensed operators, even on a refundable basis, was an illegitimate charge in respect of the authorisation procedure.
Why repayment did not end the council’s entitlement
The council sought to recover what it had repaid. The licence holders argued that they could retain it because there had been no warrant for the way in which it was charged. Both sides relied on principles of unjust enrichment, including European authority concerning tax, but Lord Mance considered the correct analysis simpler.
Lord Mance, with whom Lord Neuberger, Lord Clarke and Lord Reed agreed, held that the scheme was defective only because it required the enforcement element to be paid at the time of application. European law permitted a fee covering the costs of running and enforcing the scheme to become due when a licence was granted. There was no requirement to invalidate the whole scheme rather than the inconsistent part. A test of substantial severability applied, and any remaining element capable of standing by itself could do so.
The council could therefore set and require a fee covering both processing and enforcement costs from those who actually received licences and benefited from enforcement. Charging the enforcement element conditionally on application had been wrong, but under the scheme that element became unconditionally due once a licence was granted. Even if that were not the right analysis, paragraph 19 and the council’s right to determine a proper fee remained unaffected. This was not an exceptional case in which delay and intervening events made it oppressive to set such a fee.
The three licensing years
Where the council had determined a reasonable fee including enforcement costs, there was no answer to its claim to be paid or repaid that fee. The parties agreed that any re-determination required on grounds of unreasonableness should be undertaken by a judge of the Administrative Court rather than remitted to the council.
For the year ending 31 January 2013, the parties were bound by Keith J’s finding that fees of £19,973 for a new licence and £18,737 for a renewal had been determined on 5 January 2012. Both included enforcement costs. After the legal position was reversed, the council could recover those costs, subject to reduction if the Administrative Court found them unreasonable.
For the years ending in 2011 and 2012, the council had not originally determined annual fees. When it later set them retrospectively, a court order wrongly required it to leave out enforcement costs. The parties had to be put in the position they should have occupied. Successful licence holders therefore had to repay the refunded enforcement costs to the extent those costs were reasonable.
Accounting and interest issues
The licence holders disputed the treatment of an earlier surplus and claimed that some licensing income had been omitted. The Supreme Court left the Administrative Court to consider whether those issues could be raised and, if so, whether the figures justified an adjustment.
Interest also remained in dispute. An existing order covered certain years. The Administrative Court could consider what had been paid or accounted for under that order and whether any claim for an earlier period remained open.
It was common ground that sums payable by licence holders must reflect the pro rata amounts actually received by each holder, since some parties were no longer in existence or in business. Lord Toulson had indicated agreement with the essential reasoning and conclusions, but died before judgment was handed down.
Verdict: Westminster was entitled to recover reasonable enforcement costs from the successful licence holders. The Supreme Court remitted the detailed calculation, disputed accounting items and claim for a mistaken payment to the Administrative Court. It did not award the council a fixed net sum.
