C/2000/2635
Neutral Citation Number: [2001] EWCA Civ 128
IN THE SUPREME COURT OF JUDICATURE
IN THE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE QUEEN'S BENCH DIVISION
(Mrs Justice Smith)
Royal Courts of Justice
								Strand
								London WC2

								Friday 26 January 2001
B e f o r e:

LORD JUSTICE THORPE
LORD JUSTICE BUXTON
LORD JUSTICE LAWS
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THE QUEEN

on the application of

DR LOWE AND OTHERS

Applicants/Respondents
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THE FAMILY HEALTH SERVICES APPEAL AUTHORITY
Respondent/Appellant

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(Computer Aided Transcript of the Stenograph Notes of
Smith Bernal Reporting Limited, 180 Fleet Street,
London EC4A 2HD
Tel: 020 7421 4040
Official Shorthand Writers to the Court)
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MISS M CARRS-FRISK (Instructed by Chief Executive & Solicitor, FHS Appeal Authority, 30 Victoria Avenue, Harrogate) appeared on behalf of the Appellant

MR T DUTTON QC (Instructed by 73 Henrietta Street Covent Garden, London WC2E) appeared on behalf of the Respondent
MISS J OLDHAM (instructed by Charles Russell, 8 & 10 New Fetter Lane, London EC4A) appeared on behalf of Snowden James Group Limited, an Interested Party
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J U D G M E N T
Friday 26 January 2001
1.	LORD JUSTICE LAWS:  The context of this appeal is the provision of pharmaceutical services pursuant to the licensing regime established in the National Health Service (Pharmaceutical Services) Regulations 1992. In particular, the court is required to consider what has become known as the “necessary or desirable” test contained in regulation 4(4) which provides so far as relevant: 
“An application . . . shall be granted by the FHSA [the Family Health Services Authority] only if it is satisfied that it is necessary or desirable to grant the application in order to secure, in the neighbourhood in which the premises from which the applicant intends to provide the services are located, the adequate provision, by persons included in the list [that is, what is called the Pharmaceutical List], of the services, or some of the services, specified in the application.”
2.	Regulation 4(4), and the “necessary or desirable” test have been much litigated. Giving permission to appeal in the present case the learned judge at first instance, Janet Smith J, said this:
“I have granted leave as there have been many applications for [judicial review] arising from this Reg 4(4) and there appears to be confusion in the mind of the Appeal Authority as to the guidance given at first instance. I thought authoritative guidance from [the Court of Appeal] is due.”  
3.	The appeal is brought by the respondent Family Health Services Appeal Authority against the judgment of Janet Smith J given on 20 June 2000 in judicial review proceedings, when she quashed a decision taken by the appellants on 30 September 1999. On that day the appellants had allowed an appeal by Snowden James Group Ltd (“SJG”) against the decision of the Nottinghamshire FHSA to refuse SJG preliminary permission to open a pharmacy in Cropwell Bishop, a village in a rural area of Nottinghamshire.
4.	The appellants’ role is by way of delegation from the Secretary of State, who is the designated appeal body under regulation 8 of the Regulations. The applicants for judicial review, respondents to this appeal, are general practitioners who have a surgery in Cropwell Bishop. For 26 years they have dispensed medicines from facilities at their surgery. SJG applied for a licence to open a pharmacy in the village. If it were granted, the statutory consequence would be the removal or discontinuation of the respondents’ dispensing facility. The distinct position of doctors providing pharmaceutical services has itself been litigated, but we are not concerned with the details of that. 
5.	SJG’s application was made on 17 June 1996. Some seven months earlier, on 23 November 1995, the appellants had dismissed an appeal brought against the Nottinghamshire FHSA’s refusal of a like application which had been made by a Mr Mohammad. The FHSA refused SJG’s application on 20 May 1997. In our papers, that decision was in fact recorded in a letter to the respondent doctors of that date. There the FHSA state that they do not consider it: 
“. . . either necessary or desirable to grant the application in order to secure the adequate provision of pharmaceutical services in the locality. 
The neighbourhood has been determined by using the Cropwell Bishop Parish Boundary and it is considered that within this neighbourhood there is adequate provision of pharmaceutical services.”  
6.	SJG gave notice of appeal to the appellants by letter dated 15 June 1997. The appellants considered SJG’s appeal at a meeting on 21 August 1997 and decided to appoint a panel to hold an oral hearing and investigate certain matters before the appeal should be determined. At length the panel produced a detailed report. Janet Smith J was to cite extensively from it. It suffices if I set out certain passages from paragraphs 15, 18 and 19 of the judge’s judgment:  
“15. The panel visited the village and heard evidence and submissions for four and a half hours. In their report they recommended that the area for consideration should be defined as the parish boundaries of Cropwell Bishop itself. They considered the availability and accessibility of pharmacies in adjacent villages. They considered the public and private transport facilities and the times taken to reach the pharmacies in adjacent villages and towns. At paragraph 9.10 they said this: 
‘The Panel considered some of [the] demographic statistics relating to Cropwell Bishop Parish. The population is 1930. Unemployment is just 4%. 88.5% of men and 70% of women between age of 16 and pensionable age are economically active. 80% of the households have a car. Residents of pensionable age represent some 17.5% of the population, the Jarman Index is
-15.57, all of which indicates that this is not an area of deprivation. The economic activity is however substantially not within the neighbourhood. There is a primary school only in the village so children over 11 years old have to go out of the village for their developing education. The residents are not confined to the village. They have to leave it to access their employment and to obtain the majority of their essential needs and services. This in the normal course of events is likely to give them ready access to pharmaceutical services. Some 70% of prescriptions are said to be for repeat medication and cannot be regarded as time sensitive. We heard evidence from the [local pharmaceutical committee] that if there was a problem a collection and/or delivery service would be available.’
. . .
18. The panel’s conclusion, in summary, was this at paragraph 9.16: 
‘The Panel therefore considers that an adequate pharmaceutical service is accessible to the population of the neighbourhood both in the neighbourhood as required and within a reasonable distance of the neighbourhood and it is not necessary to grant the application to secure such adequate service. This is a unanimous recommendation.’ 
19. [The panel] then went on at 9.17: 
‘The Panel did not infer from the evidence that this was a borderline case. They heard no evidence to suggest that the pharmaceutical services available in the neighbourhood and accessible to the population of the neighbourhood were inadequate notwithstanding those services were being provided from outside the neighbourhood to those in the neighbourhood. Accordingly the panel consider that it is not desirable to grant the application. This is a unanimous recommendation.’”
7.	However, the appellants did not accept this recommendation. On 24 November 1997 they allowed SJG’s appeal and gave permission to open a pharmacy. 
8.	That decision was successfully challenged by way of judicial review before Latham J (as he then was), who quashed it on 4 May 1999. It is with respect unnecessary to go into the reasons for Latham J’s decision. His order meant, of course, that the appellants were obliged to consider SJG’s appeal afresh. In doing so, they did not commission any further oral hearing, but proceeded on the basis of the earlier report which was still before them. The appellants’ fresh decision, the subject of the challenge in these judicial review proceedings, was taken as I have said on 30 September 1999. In the light of the basis of Janet Smith J’s judgment, the terms of the respondents’ notice and the parties’ arguments, it is helpful to set out a good deal of this decision, as indeed the judge did below. Effectively, it starts at paragraph 2.1 with the statement that each member of the committee had read the oral hearing report in full. Paragraph 2.2 recites the terms of regulation 4(4). Then the decision continues at 2.4 as follows:
“2.4  The Committee noted that an application by Mr M K Mohammed for inclusion in the pharmaceutical list at Cropwell Bishop had previously been refused on appeal, the decision letter being dated 23 November 1995. Mr Mohammed had provided little evidence in support of his application and in particular had not identified difficulties with regard to accessing pharmacies located in neighbouring villages. Nor was any definition of neighbourhood put forward. No Oral Hearing was held on behalf of the Committee prior to a decision being made on Mr Mohammed’s application.
2.5  Since November 1995 the Committee has had the benefit of various judicial judgments from which it had established common factors to consider when determining applications under regulation 4(4). The Committee was not convinced that the decision on Mr Mohammed’s application would have been the same in light of these judgements and particular note was taken of the comments of Sir Louis Blom Cooper (R v Yorkshire Regional Health Authority ex parte Baker, March 1996) who stated that when considering the necessary or desirable test the primary question is whether or not there is a wholly adequate provision of pharmaceutical services provided to the neighbourhood. If the answer to that question is borderline then the test of desirability may lead to the application being approved to fill a possible although not certain gap in service provision. Although the Committee which made the decision in 1995 had mentioned accessibility as an issue, they did not appear to have had the information necessary to determine whether or not there was adequate access to pharmaceutical services. No Oral Hearing was held to gain that information about accessibility, confirmation of distances to the nearest pharmacies, the context and the definition of neighbourhood all of which were lacking in Mr Mohammed’s representations.
2.6  Although the facts now available may be virtually the same as those that could have been established in the Mohammed case, the Committee, in light of the above judgment, had preferred to hold an Oral Hearing in order to establish key facts such as the definition of neighbourhood and the distances and journeys to and from the nearest pharmacies.
2.7  Bearing in mind that the Panel had the opportunity of visiting the area, the Committee endorsed the view that the neighbourhood for the purposes of this application should be Cropwell Bishop and should not include any of the neighbouring villages.
2.8  The question to be determined before reaching a decision on the appeal is whether there is an adequate pharmaceutical service for those visiting, working or residing in the neighbourhood. Whether there is an adequate pharmaceutical service for people in adjoining neighbourhoods is not an issue to be determined in the context of this appeal. There is no pharmacy within the defined neighbourhood. The Committee did take into account the extent to which pharmacies outside the neighbourhood provide pharmaceutical services to it. The Committee did not, however, agree with the Panel’s view that the existing pharmaceutical service, from pharmacies outside the neighbourhood, is adequate.
2.9  The Committee noted the high levels of car ownership in Cropwell Bishop but was concerned that it could not be concluded from that, that a car would be available for a patient at a time when a prescription needed to be dispensed eg a mother with young children may be left without a car during the day. The Committee also noted the reference to bus services, but again was concerned by the overall time that could be involved in making a round trip to one of the existing pharmacies in Cotgrave, Radcliffe or Bingham.
2.10  Despite the clearly expressed contrary view of the Oral Hearing Panel, the Committee felt that the present provision of pharmaceutical services could not be considered wholly adequate to meet the needs of the neighbourhood, even having taken account collection and delivery services provided by the existing pharmacies. The absence of evidence of lack of demand for pharmaceutical services provided is, in the Committee’s view, more to do with the provision [which cannot be taken into account in applying the test laid down in Regulation 4(4)] by the doctors than any provision of pharmaceutical services provided by those on the pharmaceutical list.
2.11  The facts established by the Oral hearing led the Committee to conclude that the margin of appreciation, which it is permitted to exercise, leads to a conclusion that this application is at least desirable in order to secure the gap in provision of pharmaceutical services provided by those on the pharmaceutical list. The Committee saw nothing in Mr Justice Latham’s judgement which would prevent it from reaching such a conclusion nor was the Committee of the view that the Court was imposing its view on those facts.” 
9.	Janet Smith J identified three issues which she had to decide: 
“22. There are three issues before the Court:
1. Whether the Appeal Committee has made an error of law by applying the wrong test under regulation 4(4). It is submitted that the committee has posed the wrong question namely whether the existing provisions were wholly adequate; they should have asked whether the existing provision was adequate, not wholly adequate. 
2. The second issue is whether the decision was irrational or Wednesbury unreasonable. In particular it is said that the committee has not given a rational explanation for reaching a different conclusion from the committee in the Mohammed case or for rejecting the recommendation of the panel. 
3. The third issue is whether the committee has complied with its statutory duty to give reasons for its decision and to state the facts on which their decision is based.”  
10.	The  judge found against the appellant on the first of these issues and so quashed the decision. She absolved them on issues 2 and 3. 
11.	The appeal, supported by submissions made today with great elegance by Miss Carrs-Frisk for the appellants, goes to the judge’s conclusion on the first issue. The error in the appellants’ reasoning, as the learned judge saw it, was a very simple one. She held that in paragraph 2.5 of the decision the appellants had misstated the first question to be asked under the “necessary or desirable” test arising under regulation 4(4). They had asked themselves “whether or not there is a wholly adequate provision of pharmaceutical services to the neighbourhood”, whereas the proper question was whether or not there was an adequate provision. 
12.	Miss Carrs-Frisk has a number of points to make as to how paragraph 2.5 of the decision letter ought reasonably to be read, given its context in the surrounding paragraphs. It is convenient, first, to go to the decision of Sir Louis Blom-Cooper QC in ex parte Baker (1996) 35 BMLR 118, a decision to which the appellants specifically referred in paragraph 2.5. It is unnecessary to travel into the facts. The material passage in Sir Louis’s judgment appears at pages 128-129: 
“Value judgments can never be precise, and they are susceptible to individual variation. They lack any arithmetical calculation; they are not commensurate with any fixed standards. They are the product of intellectual intuition. Hence, the decision-maker, applying the phrase in reg 4(4), may properly entertain doubts about the adequacy of any service provision. And if the decision-maker is a committee, the members comprising the committee’s decision [sic] can reach only a consensus of value-judgments ranging from the adequate to the inadequate, within a range of epithets along the continuum, from barely to seriously inadequate, or barely to entirely adequate. The lack of precision in the noumenon ‘adequate’ permits of a construction that imports a margin of appreciation in the application of the judgment about adequate provision. It is in this respect that the legislature intended to bring to bear the ‘necessity’ or ‘desirability’ concepts into relationship with ‘adequate provision’. Thus the decision-maker asks himself/herself/itself, whether there is or is not adequate provision of the resources specified in the application. If the answer is ‘wholly inadequate’, the conclusion will be the need to secure an adequate provision in the form of granting the application to supply them. If the answer is borderline - ie, falls just one side or another of the line - then resort to ‘desirability’ will be preferred to fill a possible, although not certain, gap in the service provision. Does this give sufficient distinction in reg 4(4) to the two words ‘necessary’ or ‘desirable’? I think it does . . . 
My conclusion is that sense and meaning can be adequately accorded reg 4(4) in its entirety, by the decision-maker applying a loose value-judgment as to the adequacy of the service provision, as it exists, and employing, secondarily, the concepts of necessity and desirability in a fashion sufficient to supply the satisfaction to the decision-maker that the service specified in the applicant should be granted his, her or its application [sic] . . . 
If there is a doubt in the mind of the decision-maker whether the current service provision is ‘adequate’, he may properly invoke the ‘desirability’ test, whereas ‘necessity’ would not be apt to supplement a service provision that might marginally qualify for being ‘adequate’.”
13.	Regulation 4(4) has, I think, caused difficulty, and in consequence given rise to much litigation, because its terms invite the decision-maker to make not one but (potentially at least) a series of value judgments; and because of the antithesis between “necessary” and “desirable”, it is by no means entirely clear what is the relationship between the various possible judgments which may (depending upon the facts) fall to be made. 
14.	For my part, I agree with the general direction of Sir Louis Blom-Cooper’s reasoning in Baker. With great respect, however, the language deployed is perhaps unnecessarily complex, and it is to be noted that the text of the report is here and there corrupt. I believe that the regulation’s true construction may be expressed somewhat more simply through these following five steps. 
1.A licence to provide pharmaceutical services is only to be granted under regulation 4(4) for the purpose of securing in the relevant neighbourhood the adequate provision by listed pharmacists of the services in question. So much is plain and elementary. 
2.What is “adequate” is a question of degree. There is, as it has been described, a spectrum or “continuum” of adequacy. 
3.That is, I think, ordinarily a feature of the term “adequate” as a matter of language. But it is in any case a necessary feature of the term as it is used in regulation 4(4) since if it were otherwise - if “adequate” were to denote a single sharp edge, such that any given set of facts would fall plainly upon one or other side of it - then it would be impossible to arrive at any construction of the earlier phrase, “necessary or desirable”, other than one in which the word “desirable” were otiose. If the provision were inadequate, it would simply be necessary to make it up by granting the application. If it were adequate, the application would have to be refused. 
4.It follows that, while on the surface the first question for the decision-maker is simply whether existing provision is adequate, the real question is where on the sliding scale or spectrum of adequacy does the case on its facts belong. 
	5.To this, the logically available answers are: 
(a) Wholly adequate. There is no magic in the word “wholly”; it simply refers to a state of affairs in which there is no question but that the existing provision suffices. 
(b) Wholly inadequate. Again, there is no magic in the adverb. This looks at a state of affairs where further provision must necessarily be made. 
(c) Marginal, or somewhere between (a) and (b). There the decision-maker may conclude that it is desirable to grant the application in order to secure adequate provision. But 
(d) There may be some slippage between what is marginal and the extremes, wholly adequate or wholly inadequate. To that extent there may be slippage also between what is necessary and desirable. The judgment to be made is emphatically pragmatic. 
15.	By way of footnote, it is useful to notice what was said by Sullivan J in R v FHSAA ex parte East Anglian Wholesale Supplies Ltd (unreported, 7 December 1998). The learned judge observed (page 9 of the transcript):  
“. . . it is clear that the committee are using the expression ‘wholly adequate provision’ as the antithesis of Sir Louis’s wholly inadequate provision. The latter would lead one to conclude that additional provision was both necessary and desirable. The former would lead one to conclude that additional provision is neither necessary nor desirable. 
The use of the expression ‘wholly adequate’ demonstrates that the committee approached adequacy as a relative rather than an absolute concept.” 
16.	If the approach that I have described is correct, then there is nothing objectionable in the decision-maker first asking itself whether existing provision is wholly adequate. Indeed, that is a useful approach since, if the answer is “yes”, that is the end of the case. If the answer is “no”, the other possibilities will fall to be considered. In those circumstances, there is no vice in paragraph 2.5 of the decision, if one looks at it in isolation. It is true that, strictly speaking, the paragraph misstates Sir Louis Blom-Cooper’s judgment in Baker. He did not say that “when considering the necessary or desirable test the primary question is whether or not there is a wholly adequate provision of pharmaceutical services provided to the neighbourhood.”  But the overall approach being taken in paragraph 2.5 is consistent with Sir Louis’ reasoning and with the position as to the construction of regulation 4(4) as I have set it out. For good measure, as Mr Crute for the appellants deposes, plainly the committee were not purporting to quote Sir Louis’ judgment in the paragraph.
17.	On this issue, then, which is the primary point taken in the appeal, I would put the matter differently from the way it was put by the judge. I mean no discourtesy to her in not setting out her reasoning, which was to the effect that the appellants had misstated the terms of Sir Louis’ judgment, in particular in this paragraph. 
18.	That is not the end of the appeal. One of the submissions in the respondents’ notice, and it is engaged in Miss Carrs-Frisk’s appeal, is that the decision does not give adequate reasons. What one would expect in the decision after paragraph 2.5, upon the footing of the construction of the regulation which I have offered, is (1) consideration of the question whether, in truth, there was, on the facts, wholly adequate provision; and (2) if there was not, what was the level of provision, in terms of adequacy; so as (3) to engage as appropriate the tests of necessity and/or desirability, if it were concluded that existing provision was not wholly adequate. But the questions (1) wholly adequate provision? and (2) if not, level of adequacy? are not dealt with in logical sequence in the decision. 2.5 contains no conclusion on either of these issues. 2.8 appears to conclude that existing provision is not adequate, unconditionally, but 2.10 then asserts that existing provision was not “wholly adequate”. 
19.	It is to be noted that Miss Carrs-Frisk submitted this morning that the “essence” (her word) of the appellants’ reasoning is to be found at paragraphs 2.10 and 2.11. There has been some debate whether the use of the term “wholly adequate” in 2.10 properly reflects, or fails to reflect, what the oral hearing panel had said in paragraphs 9.16 and 9.17, which the judge recited. I do not propose to go into that since in any event, in my judgment, one cannot here be confident that the appellants have properly considered the position arising in this case if their conclusion on the facts was, as indeed it was, that existing provision was not wholly adequate. 
20.	A sensible reader of this decision might readily conclude that the appellants have treated the question “wholly adequate?”  (itself a legitimate starting point) as if it were the only or determinative question to be asked. If that is a possible reading of this decision letter, then at least the decision is bad for want of good reasons. If, of course, the appellants actually meant to say that the question as to whether the provision was wholly adequate was itself the determinative question, that would indeed be an error of law. Miss Carrs-Frisk has submitted that paragraphs 2.10 and 2.11 show that the appellant regarded the case as a borderline one, and therefore one in which the test of desirability fell to be applied by them subject to the “margin of appreciation” (to use Sir Louis’ language) which they enjoyed. 
21.	That is not what the paragraphs say, and for my part, I do not consider that such a line of reasoning can be read into the decision letter. I bear fully in mind, what is elementary, that decisions of this kind are to be construed with a degree of benevolence, and certainly not picked over as if the language were statutory. However, it seems to me that one simply cannot be confident that the appellants here have adopted the right  approach. I would therefore dismiss the appeal on the short ground that the decision fell to be quashed essentially for want of reasons. To that extent, I differ from the approach taken by the judge; but the result is the same. 
22.	Mr Dutton, for the respondents, made some very short submissions in order to be of assistance to us, but has not pressed the free-standing points in his respondents’ notice. I have not acknowledged the presence of Miss Oldham who, with the court’s permission, has been here on behalf of SJG. In essence she supported what had been said by Miss Carrs-Frisk. 
23.	For all the reasons I have given, I would dismiss the appeal.
24.	LORD JUSTICE BUXTON:  I agree that this appeal should be dismissed for the reason given by my Lord. But I would in one respect, marginally I think, go further than he did. It seems to me that, in paragraph 2.5 of its decision letter, the committee had already fallen into error. Whether or not it was correctly reporting what was decided by Sir Louis Blom-Cooper in ex parte Baker does not seem to me to be the essential issue in respect of that paragraph. What we have to do is to look at what the paragraph actually says. I venture to quote the relevant part again: 
“. . . when considering the necessary or desirable test the primary question is whether or not there is a wholly adequate provision of pharmaceutical services provided to the neighbourhood. If the answer to that question is borderline then the test of desirability may lead to the application being approved to fill a possible although not certain gap in the service provision.”
25.	That statement seems to me to assert quite clearly that a borderline doubt or question about whether the provision is “wholly adequate” may justify the approval of an application. That is not the test that the Regulations provide. The Regulations speak of adequacy, not of whole adequacy. Any consideration of the borderline, in terms of the assessment that Sir Louis Blom-Cooper referred to, must properly deal with a borderline round the concept of adequacy, not a borderline round the concept of whole adequacy. In paragraph 2.5, therefore, in my judgement, the committee was in error. 
26.	I have to say quite firmly that that approach, and therefore that error, were replicated in paragraph 2.10, when the test is again formulated in terms of whole adequacy and not of adequacy. 
27.	To that extent, therefore, I would consider that the judge is right in the concern that she expressed about the actual decision‑making process, as revealed in this letter. But even if that is not so, I certainly wholly agree with what has fallen from my Lord about the fact that this letter is, at best, not satisfactorily expressed in such a way as to reveal reasoning in accordance with the requirements of the Regulations. I would therefore, as I have indicated, also dismiss this appeal.
28.	LORD JUSTICE THORPE:  I agree with the approach and test proposed for the future by my Lord, Lord Justice Laws. As I read the decision letter, despite the skilful submissions of Miss Carrs-Frisk, I receive the clear impression that the appellants set the test of adequacy too high, to the prejudice of the local general practitioners. I too would therefore dismiss this appeal. 
ORDER:  Appeal dismissed with costs, to be assessed in detail.
(Order not part of approved judgment)