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R (Hemming & Others) v Westminster City Council, Court of Appeal, 24th May 2013

A group of sex shop owners has won a major victory in the Court of Appeal after a three year campaign to reduce its licence fees. The judgment of the Court of Appeal is set to cost the licensing authority, Westminster City Council, up to £2 million. The judgment also has a potentially far-reaching effect on other fields of regulation.

Since 2005, Westminster City Council charged sex shop owners in the West End of London £29,102 for their annual licence. In 2009, new European laws came into force in the United Kingdom, which prevented licensing authorities from charging fees going beyond the actual costs of the authorisation process.

The Provision of Services Regulations 2009 transposed into UK law the European Services Directive 206/123/EC and became law on 28th December 2009. Regulation 18(4) states that 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.

A group of seven shop owners, represented by licensing barrister Philip Kolvin QC, claimed that at most 10% of the fee was justified – the remainder being spent by the Council on prosecuting unlicensed operators, which, it was argued, could not be charged back to the licensees. In May 2012 their claim was upheld in the High Court, but Westminster City Council appealed to the Court of Appeal, arguing that their charges were not affected by the new laws.

On 24th May 2013 three judges of the Court of Appeal, led by Master of the Rolls Lord Dyson, dismissed the Council's appeal. The effect of the judgment is that Westminster City Council will have to repay the great majority of fees charged since the beginning of 2010. Also, the Council has been ordered to pay interest at 10% above the Bank of England Base Rate and "indemnity costs" because it rejected an offer to compromise the claim on much better terms at the start of the proceedings.

Westminster City Council was also ordered to recalculate fees going back to 2004 because of deficiencies in its procedures for determining fees. The cost to the Council of the award, the interest and costs is likely to approach £2 million.

The judgment has important consequences for the funding of regulation in the United Kingdom because the new laws apply to all forms of authorisation to provide service activities. These include all forms of licensing (except for gambling and taxis which are excluded), street trading, subscriptions payable by professions including the legal professions in order to be able to practice and even the fees for planning applications.

Most importantly, the judgment will limit the scope of fees which licensing authorities will be able to charge under the Licensing Act 2003, following the right to determine fees introduced by the Police Reform and Social Responsibility Act 2011. The Home Office has delayed introducing Regulations implementing the legislation, it is thought in order to enable it to consider the Hemming judgment.

To read full judgement click here.