The operator of the Karen’s Diner branch at Brighton Marina said that he was handing back the venue’s drinks licence at a panel hearing today.

But the panel – made up of three councillors – may formally revoke the licence so that any new business planning to open at the site has to apply for a licence from scratch.

The hearing took place at the request of Sussex Police after significant traces of drugs were found at the restaurant where the rudeness of the staff is the chain’s unique selling point.

The existing licence holder, Lee Carter, had hoped to transfer the premises licence to a new licensee, Callum Velour, but he withdrew his application at the Brighton and Hove City Council licensing panel hearing.

The force formally asked Brighton and Hove City Council to review the licence with a view to revoking it after The Argus exclusively revealed that a customer complained about a joke made about a child.

The restaurant was slammed for giving a nine-year-old child a hat saying that she “should have been a bl*w j*b”.

Licensing officers visited the Brighton franchise and – as well as drugs traces – found several breaches of the licensing rules and conditions.

Among them, the hard drive had been removed from the restaurant’s closed-circuit television (CCTV) system.

The panel – councillors Emma Daniel, Julie Cattell and Tobias Sheard – quizzed the former operator Lee Carter’s licensing consultant Paul Roberts about the CCTV system.

They also had questions for Mr Carter’s colleague Tom Rooney, who acted as the business’s designated premises supervisor with day-to-day responsibility for alcohol sales.

Mr Roberts said that the system had been working in December. But when police investigating a serious crime asked for footage, the hard drive was missing.

Mr Roberts also said that Mr Carter had no intention of reopening the business and was liquidating the company, Karen’s Diner (Brighton) Limited.

Karen’s Diner withdrew the franchise rights for the branch last month after the police found high readings for cocaine as well as traces of heroin, ketamine and MDMA (ecstasy).

Regardless of the licensing panel’s decision, a council official said that the surrender of the licence meant that there was now effectively no licence for the premises and any future operator would have to make a fresh application.