Case C-316/15, Hemming – challenging the cost of a sex shop licence [judgment 2016, ECLI:EU:C:2016:879]
Soho is an area of London. It is full of sex shops. Each sex shop is licensed by the local authority. A licence costs many thousands of pounds. The amount is comprised of two parts. Part one defrays the cost of administering the licence application. Part two covers the cost of managing the local authority’s licensing regime in general, including the costs of the local authority’s ‘enforcement’ activities. Does this charging-system comply with the EU’s ‘services’ Directive 2006/123? If not, then the pricing-mechanisms of many of the UK’s regulatory bodies, including those that govern lawyers, could become illegal too.
Background
Sex shops in Westminster are licensed by the local authority, Westminster City Council. The annual licence fee costs thousands of pounds. There are two parts to the local authority’s bill. Part one defrays the cost of administering the licence application. Part two covers the cost of managing the local authority’s licensing regime. If a company’s application is refused, then they get their money back in respect of Part two of the bill.
Public law governs the amount of the charge in so far as statute requires applicants to pay ‘a reasonable fee’. English case law from thirty years ago also means that the ‘reasonable fee’ covers not only the cost of processing an application but also the costs of inspecting premises after companies have been given a licence, plus the costs of so-called ‘vigilant’ policing – in other words, the costs of detecting and prosecuting unlicensed sex establishments.
Hemming trades as ‘Simply Pleasure’ and is licensed to run a sex shop. Hemming, and other sex shop licensees, query whether Westminster City Council’s charging-system complies with EU law. They maintain that the English licensing framework, which was devised more than thirty years ago, should have changed in line with more-recent EU services law.
The relevant legislation is the EU’s ‘services’ Directive 2006/123/EC on services in the internal market. Article 13(2) provides:
Authorisation procedures and formalities shall not be dissuasive and shall not unduly complicate or delay the provision of the service. They shall be easily accessible and 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.
Hence, Article 13(2) covers the charges levied on successful and unsuccessful applicants.
The legal problem is the tail of the clause, which would appear to stop a licensing authority from charging for the cost of investigating and prosecuting people who operate an unlicensed sex establishment.
That would be the correct reading of EU law, according to Hemming and the other sex shop licensees. They say the costs of detection and enforcement could and should be paid for either from the council’s general funds (which come from local taxes) or from the monies which it receives from central government (the State).
The legal dispute between the council and the sex shop licensees has escalated all the way up to the Supreme Court of the United Kingdom.
The Supreme Court has not been able to resolve the issue. There is no CJEU case law on the subject. Furthermore, the answer to the question appears complicated by the fact that there are a number of regulatory bodies in the UK which charge for licenses and who engage in enforcement activities but who do not receive money from taxation or from the state. Those bodies license the liberal professions such as architects, barristers, and solicitors. A similar licensing scheme is also used by the Farriers Registration Council, a body that is devoted to ensuring that only qualified people shoe horses.
Lord Mance thought two questions should be asked of the CJEU. The first was whether the requirement to pay a fee (including the second refundable part) meant that the sex shop licencees incurred a charge contrary to Article 13(2) of the Directive in so far as it exceeded any cost to Westminster City Council for processing the application.
The second question arose in the alternative, namely, whether the word ‘charge’ depended on for example: (a) the applicant showing that he had incurred cost or loss in respect of paying for the second refundable part; (b) the council saved money by requiring all applicants to pay an upfront fee consisting of the non-refundable and the refundable fee.
Despite his readiness to make a reference to the CJEU, Lord Mance also used national procedural law to stop the sex shop licensees from running a broader legal argument. That is to say, the licensees had apparently wanted to claim that the licensing system was contrary to EU laws governing the freedom to provide services, discrimination, and Articles 49 and 56 TFEU. Lord Mance, and four other law lords who decided to make the present reference to the CJEU, thought that those would be new and wider allegations involving fact and further argument – matters which should have been raised in the lower courts.
Questions Referred
The Curia website has yet to publish the questions actually asked by the Supreme Court of the United Kingdom.
Outcome. By judgment of 16 November 2016 (ECLI:EU:C:2016:879) the Court ruled, in the words of the operative part: “Article 13(2) of Directive 2006/123/EC of the European Parliament and of the Council of 12 December 2006 on services in the internal market must be interpreted as precluding, in circumstances such as those at issue in the main proceedings, the requirement for the payment of a fee, at the time of submitting an application for the grant or renewal of authorisation, part of which corresponds to the costs relating to the management and enforcement of the …” The full text is available on EUR-Lex and CURIA.
Comment
It does seem a little odd that Lord Mance would criticise the lawyers for not raising arguments of EU law earlier, and thereby deprive the sex shop owners from running a broader legal argument about the correct interpretation of the Treaties. Was it not also open to the judges in the lower courts to have asked counsel to address them on points of EU law if they would have considered those points to have been relevant?
In any event, the issue of red light districts and EU law has recently been troubling the Dutch courts. Amsterdam’s city council has been desperately trying to persuade the Dutch courts not to apply EU Treaty law to pieces of administrative law that re-regulate Amsterdam’s red-light-district. Indeed, Amsterdam’s Mayor and City Council believe that their legislation is not subject to the EU’s ‘services’ Directive 2006/123, or for that matter Articles 49 and 56 TFEU. In their view, regulating aspects of the red light district is purely an internal matter to which EU law does not apply. See further, Case C-341/14, Harmsen – red light services and the language of EU law. The Opinion of Advocate General Szpunar is expected to be handed to the Third Chamber today.
Parallel to this, readers may be interested to note that there is another reference currently pending before the CJEU and it concerns the prices which are charged by a local authority for access to environmental information. The issue is whether those prices are reasonable, and how that amount is set; see further, Case C-71/14, East Sussex County Council – the price of environmental information.