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Mr Hemming, trading as ‘Simply Pleasure Ltd’, Mr Poulton, Harmony Ltd, Gatisle Ltd, trading as ‘Janus’, Winart Publications Ltd, Darker Enterprises Ltd and Swish Publications Ltd, by P. Kolvin, QC, T. Johnston, M. Hutchings, V. Wakefield, Barristers, A. Milner and S. Dillon, Solicitors,

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Westminster City Council, by H. Davies, acting as Agent, and D. Matthias, QC, N. Lieven, QC, J. Lean and C. Streeten, Barristers,

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the Netherlands Government, by M. Bulterman, B. Koopman and M. Gijzen, acting as Agents,

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the European Commission, by H. Tserepa-Lacombe and T. Scharf, acting as Agents,

1

This request for a preliminary ruling concerns the interpretation of 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 (OJ 2006 L 376 p. 36, ‘the Services Directive’).

2

The request has been made in proceedings between Mr Timothy Martin Hemming, trading as ‘Simply Pleasure Ltd’, Mr James Alan Poulton, Harmony Ltd, Gatisle Ltd, trading as ‘Janus’, Winart Publications Ltd, Darker Enterprises Ltd and Swish Publications Ltd (‘Mr Hemming and others’) and Westminster City Council concerning the fee to be paid at the time of submitting an application for the grant or renewal of a sex establishment licence.

3

Recitals 39, 42, 43 and 49 of the Services Directive are worded as follows:

…

…

4

Article 1(1) of that directive provides:

‘This Directive establishes general provisions facilitating the exercise of the freedom of establishment for service providers and the free movement of services, while maintaining a high quality of services.’

5

Article 4(6) of the Services Directive defines the ‘authorisation scheme’ as ‘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’.

6

Article 9 of that directive, entitled ‘Authorisation schemes’, provides in paragraph 1:

‘Member States shall not make access to a service activity or the exercise thereof subject to an authorisation scheme unless the following conditions are satisfied:

7

Article 10 of the Services Directive, entitled ‘Conditions for the granting of authorisation’, provides:

‘1.   Authorisation schemes shall be based on criteria which preclude the competent authorities from exercising their power of assessment in an arbitrary manner.

2.   The criteria referred to in paragraph 1 shall be:

...’.

8

Article 11 of that directive, entitled ‘Duration of authorisation’, provides:

‘1.   An authorisation granted to a provider shall not be for a limited period, except where:

or

...

4.   This Article shall be without prejudice to the Member States’ ability to revoke authorisations, when the conditions for authorisation are no longer met.’

9

Article 13 of the Services Directive, entitled ‘Authorisation procedures’, provides in paragraph 2:

‘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.’

10

Article 14 of that directive, entitled ‘Prohibited requirements’, provides:

‘Member States shall not make access to, or the exercise of, a service activity in their territory subject to compliance with any of the following:

...

...’.

11

Regulation 4 of the Provision of Services Regulations 2009 implementing the Services Directive provides:

‘“authorisation scheme” means 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 …’.

12

Regulation 18(2) to (4) of those regulations provides:

13

Paragraph 19 of Schedule 3 to the Local Government (Miscellaneous Provisions) Act 1982 provides that an applicant for the grant or renewal of a licence must pay a reasonable fee determined by the appropriate authority.

14

Westminster City Council is the authority with responsibility for issuing licences for sex establishments, including sex shops, in Westminster. Mr Hemming and others were, for the whole of the period at issue in the main proceedings, holders of sex shop licences in Westminster.

15

It is apparent from the order for reference that during that period a fee could be charged under Paragraph 19 of Schedule 3 to the Local Government (Miscellaneous Provisions) Act 1982 to cover the cost not only of the processing of applications for the grant or renewal of a sex establishment licence, but also of inspecting premises after the grant of licences for the purposes of ‘vigilant policing’ in order to detect and prosecute those who operate sex establishments without licences.

16

Consequently, an applicant for the grant or renewal of a sex establishment licence for any year had to pay a fee made up of two parts, one related to the administration of the application and non-refundable, and the other (considerably larger) for the management of the licensing regime and refundable if the application was refused. By way of example, for the year 2011-12, the total fee was GBP 29102 (approximately EUR 37700) for each applicant, of which GBP 2667 (approximately EUR 3455) related to the administration of the licence and was non-refundable, while the remaining GBP 26435 (approximately EUR 34245) related to the management of the licensing regime and was refundable if the application was refused.

17

Mr Hemming and others submit that Westminster City Council was not entitled to charge the second part of the fee. The corresponding sums, although refundable in the case of unsuccessful applicants, were payable on account of the costs of enforcing the licensing regime, which were unrelated to the costs of processing applications, and should have been borne out of Westminster City Council’s general funds or required only from operators whose applications had been successful.

18

Mr Hemming and others succeeded in their actions before the United Kingdom courts. Those courts regarded Article 13(2) of the Services Directive as encompassing charges made to both successful and unsuccessful applicants, and as preventing a licensing authority from charging those granted licences as well as unsuccessful applicants, without distinction, the cost of investigating and prosecuting those operating sex establishments in Westminster without a licence.

19

Consequently, unsuccessful applicants could only be charged with the costs of dealing with their application, including investigating their suitability to operate a sex establishment, while successful applicants could only be charged with similar costs, and, on any renewal, with the costs of monitoring and enforcing their compliance with the obligations related to their licence in the past.

20

Seised of an appeal against the judgment of the Court of Appeal (England & Wales) (Civil Division) (United Kingdom), the referring court found that the approach challenged before it would result in the licensing authority having to bear the costs of operating the scheme in question for the benefit of the operators obtaining licences, since the authority could not require an applicant to contribute to the costs of enforcing that scheme against the operators of unlicensed sex establishments, even though such enforcement was for the benefit of the licensed establishments. To that end, the authority would have to have recourse to its general funds.

21

The referring court is uncertain as to what the remedy would be for other regulatory or professional bodies having recourse to similar regimes, which might have no general funds and no ability to raise funds in any such way.

22

Although the referring court is convinced that a regime under which an applicant must pay a further fee to cover the costs of the running and enforcement of the licensing regime when the application is successful is consistent with Article 13(2) of the Services Directive, it is uncertain whether the regime applied by Westminster City Council is compatible with that article.

23

That said, the referring court notes that it has no evidence before it to conclude that the requirement to accompany an application with a payment which is refundable if the application fails would be likely to dissuade operators from making any application for a sex establishment licence.

24

Lastly, the referring court asks whether having to advance a sum, in order to await a decision to grant or refuse a licence, is in fact a charge for a licence applicant.

25

In those circumstances the Supreme Court of the United Kingdom decided to stay the proceedings and to refer the following questions to the Court of Justice for a preliminary ruling:

‘Where an applicant for the grant or renewal of a sex establishment licence has to pay a fee made up of two parts, one related to the administration of the application and non-returnable, the other for the management of the licensing regime and refundable if the application is refused:

26

By its questions, which must be examined together, the referring court asks, in essence, whether Article 13(2) of the Services Directive 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 authorisation scheme concerned, even if that part is refundable if the application is refused.

27

According to the Court’s settled case-law, for the purpose of interpreting a provision of EU law, it is necessary to consider not only its wording but also the context in which it occurs and the objectives pursued by the rules of which it is part (see, in particular, judgment of 14 July 2016, Verband Sozialer Wettbewerb, C‑19/15, EU:C:2016:563, paragraph 23).

28

In that regard, it must be noted at the outset that whether the fee payable by an applicant is refundable when his licence application is rejected has no bearing on ascertaining whether there is a charge within the meaning of Article 13(2) of the Services Directive. The fact that a fee must be paid constitutes a financial obligation, and therefore a charge, which the applicant must pay in order for his application to be considered, notwithstanding the fact that the amount may subsequently be refunded if that application is rejected. That is true all the more so given that the objective of Article 13(2), read in the light of recitals 39, 42 and 43 of that directive, is to preclude certain aspects of the authorisation procedures and formalities from discouraging access to services activities.

29

In order to comply with Article 13(2) of the Services Directive, the charges referred to must, in the words of that provision, be reasonable and proportionate to the cost of the authorisation procedures and not exceed the cost of those procedures.

30

Since the amount of such charges may, in the light of those requirements, in no case exceed the cost of the authorisation procedure in question, it must be examined whether the costs relating to the management and enforcement of the authorisation scheme as a whole may be covered by the concept of the ‘cost of the procedures’.

31

While the Court has not yet had occasion to interpret that concept in the context of the Services Directive, it has clarified, in another context, that in calculating the amount of duties paid by way of fees or dues, the Member States are entitled to take account, not only of the material and salary costs which are directly related to the effecting of the transactions in respect of which they are incurred, but also of the proportion of the overheads of the competent authority which can be attributed to those transactions (judgment of 2 December 1997, Fantask and Others, C‑188/95, EU:C:1997:580, paragraph 30).

32

In addition, the Court has clarified — indeed, in relation to a provision of EU law expressly allowing the costs relating to the implementation, management and monitoring of a regime for issuing individual licences to be taken into account in calculating administrative costs — that the costs taken into account may not include the expenditure linked to the authority in question’s general supervisory activities (see, to that effect, judgment of 19 September 2006, i-21 Germany and Arcor, C‑392/04 and C‑422/04, EU:C:2006:586, paragraphs 34 and 35).

33

That consideration applies a fortiori as regards Article 13(2) of the Services Directive which, first, is directed only at the ‘cost of the procedures’ and, secondly, pursues the aim of facilitating access to service activities. That aim would not be served by a requirement to prefinance the costs of the management and enforcement of the authorisation scheme concerned, including, inter alia, the costs of detecting and prosecuting unauthorised activities.

34

Consequently, the answer to the questions referred is that Article 13(2) of the Services Directive 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 authorisation scheme concerned, even if that part is refundable if that application is refused.

35

Since these proceedings are, for the parties to the main proceedings, a step in the action pending before the national court, the decision on costs is a matter for that court. Costs incurred in submitting observations to the Court, other than the costs of those parties, are not recoverable.

On those grounds, the Court (Third Chamber) hereby rules:

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 authorisation scheme concerned, even if that part is refundable if that application is refused.