England and Wales Court of Appeal (Civil Division) Decisions

IN THE SUPREME COURT OF JUDICATURE
COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION ADMINISTRATIVE COURT
HIS HONOUR JUDGE HICKINBOTTOM
(sitting as a Deputy High Court Judge)
CO/587/2007, CO/2242/2007 & CO/2189/2007

		C1/2008/0709 Royal Courts of Justice Strand, London, WC2A 2LL
		05/12/2008

Lord Justice Lawrence Collins:

I Introduction

1. A Primary Care Trust ("PCT") must arrange for the provision to persons in its area of essential pharmaceutical services such as the prescription of drugs, medicines and appliances. Admission to the National Health Service Pharmaceutical List is a precondition of dispensing NHS prescriptions and other pharmaceutical services. Under the relevant regulations an application for entry to the list is to be granted by the PCT 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 a pharmaceutical list, of the services, or some of the services, specified in the application.
2. Assura Pharmacy Ltd ("Assura") sought admission to the pharmaceutical list in order to open pharmacies in Todmorden (which is near Hebden Bridge and is in the area of the Calderdale PCT) and Freckleton, near Preston (in the area of the Fylde PCT). In each case the Pharmacy Appeals Committee ("PAC") of the Family Health Services Appeal Unit of the National Health Service Litigation Authority ("the NHSLA") dismissed appeals against the refusal of the relevant PCT of applications to admit Assura to the list.
3. Assura sought judicial review of these decisions, and these are appeals from a judgment of HH Judge Hickinbottom dated February 21, 2008, in which he refused to quash the decision in relation to Todmorden, and quashed the decision in relation to Freckleton.

Todmorden

4. Assura appeals from the judge's refusal to quash a decision made by the PAC on January 25, 2007 dismissing an appeal against the earlier decision of the Calderdale PCT to refuse Assura admission to the list in respect of a proposed pharmacy in the immediate vicinity of a new health centre development, Lower George Street, Todmorden, Yorkshire. There are two pharmacies in Todmorden, both operated by E Moss Limited trading as Alliance Pharmacy (which, following a merger of Alliance Unichem with the Boots group, now trades as Boots). Alliance/Boots intervened in the claim in support of the PAC's decision, and has appeared through counsel on this appeal also.

Freckleton

5. The NHSLA appeals from the judge's decision to quash a decision made by the PAC on November 30, 2006 dismissing an appeal against the earlier decision of the Fylde PCT to refuse Assura admission to the list in respect of a proposed pharmacy in the vicinity of Preston Old Road/Kirkham Road in Freckleton, Lancashire. There is one pharmacy in Freckleton, operated by Co-op Health Care Ltd.

II The legislation

6. The decisions which were challenged were made pursuant to regulations made under section 42 of the National Health Service Act 1977 as amended ("the 1977 Act"). The 1977 Act has been repealed and replaced by the National Health Service Act 2006 ("the 2006 Act"), which came into force on March 1, 2007. The relevant provisions of the 2006 Act are similar to the 1977 Act; and the detailed regulatory framework provided by the relevant regulations remains unchanged and has effect as if it were made under the 2006 Act: National Health Service (Consequential Provisions) Act 2006, section 4 and Sched 2, para 1(2).
7. Section 41(1) of the 1977 Act imposed a duty on every PCT to arrange for the provision to persons in their area of essential pharmaceutical services such as the prescription of drugs, medicines and appliances by a doctor in pursuance of his NHS functions, in accordance with regulations to be made by the Secretary of State for the purpose.
8. Section 41A enabled the Secretary of State to give directions to a PCT either requiring or empowering them to arrange for the provision of "additional pharmaceutical services" over and above the essential services, such as care home service, home delivery service, needle and syringe exchange service and patient group direction service. "Pharmaceutical services" was defined for the purposes of the Act as services provided under Section 41 together with any additional services provided under Section 41A (Section 41(2)).
9. Section 42 required the Secretary of State to make regulations for ensuring that Section 41 services were secured, including directions for the preparation of lists by PCTs of those entitled to make provision of pharmaceutical services and for applications for admission to such lists.
10. By section 42(2)(c) the regulations were to include provision (inter alia)

"that, except in prescribed cases ...

(i) an application for inclusion in such a list by a person not already included; and

(ii) an application by a person already included in such a list for inclusion also in respect of services or premises other than those already listed in relation to him, shall be granted only if the [PCT] or Health Authority are satisfied, in accordance with the regulations, that it is necessary or desirable to grant it in order to secure in the neighbourhood in which the premises are located the adequate provision by persons included in the list of the services, or some of the services, specified in the application; …"

11. Section 129 of the 2006 Act is in substantially the same terms, except that (i) the "shall" following subparagraphs (i) and (ii) is replaced by "may": and (ii) "necessary or desirable" is replaced by "necessary or expedient." Although the word "desirable" has been replaced by "expedient" in the primary legislation, the phrase "necessary or desirable" is retained in the regulations designed to implement that legislation which, although pre-dating it are now treated as if made under the 2006 Act.

2005 Regulations

12. The current applicable regulations are the National Health Service (Pharmaceutical Services) Regulations 2005 (SI 2005 No 641, "the 2005 Regulations"), which came into force on April 1, 2005, and replaced the National Health Service (Pharmaceutical Services) Regulations 1992, SI 1992 No 662, as amended ("the 1992 Regulations").
13. Regulation 12(1) provides for control of entry to pharmaceutical lists (in terms substantially the same as Regulation 4(4) of the 1992 Regulations):

"(1) …[A]n application shall be granted by the [PCT] 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 a pharmaceutical list, of the services, or some of the services, specified in the application ('the necessary or desirable test')".

14. Regulation 12(2) of the 2005 Regulations sets out matters to which the PCT must have regard when considering the "necessary and desirable" test:

"(2) … [I]n considering whether the necessary or desirable test is satisfied, a [PCT] shall have regard in particular to –

(a) whether or not any of the following services are already provided by persons in the neighbourhood in which the premises named in the application are located -

(i) any pharmaceutical services or directed services specified in the application provided by persons included in a pharmaceutical list, or any directed services the applicant agrees to provide if his name is included in the pharmaceutical list… ;

(ii) …

(b) whether the recipients of pharmaceutical services already have a reasonable choice with regard to -

(i) the pharmaceutical services or directed services provided in the neighbourhood in which the premises named in the application are located, by persons included in a pharmaceutical list, and

(ii) the persons included in a pharmaceutical list from whom such recipients may obtain pharmaceutical services or directed services in the neighbourhood in which the premises named in the application are located;

(c) any other information available to the [PCT] which, in its opinion, is relevant to the consideration of the application; and

(d) any representations received by the [PCT] …'.

(3) In considering whether the necessary or desirable test is satisfied, a [PCT] may also have regard to any pharmaceutical services or directed services that the applicant proposes to provide in that neighbourhood in circumstances where he is not obliged to provide those services.

......"

15. When originally made the 2005 Regulations, in error, contained provision only for pharmaceutical services and omitted reference to "directed services". That error was corrected by SI 2005 No 1015.
16. Regulation 2 of the 2005 Regulations includes these definitions: (a) " 'directed services' means additional pharmaceutical services provided in accordance with a direction under section 41A (arrangements for providing additional pharmaceutical services) of the Act;" and (b) " 'pharmaceutical services' means pharmaceutical services other than directed services;".
17. Four categories of pharmaceutical services were exempted from the "necessary or desirable" test by Regulation 13, none of which applies in this case: (1) pharmacies based in approved retail areas, away from town centres, with over 15,000 square metres gross floor space; (2) consortia establishing new One Stop Primary Care Centres; (3) wholly mail-order or internet based pharmacy services; (4) in particular Regulation 13 provides that Regulation 12 shall not apply to an application in respect of certain premises, including "premises which the applicant is willing to keep open for at least 100 hours per week for the provision of pharmaceutical services" and to which the PCT attaches a condition that the premises are kept open for the provision of pharmaceutical services for at least that time: Regulation 13(1)(b), (2)(a).
18. Regulation 12(2) of the 2005 Regulations is substantially the same as Regulation 6 of the 1992 Regulations, except that there was no equivalent in the 1992 Regulations to Regulation 12(2)(b) of the 2005 Regulations. Under the 1992 Regulations there was no express requirement imposed upon the PCT to consider "whether the recipients of pharmaceutical services already have a reasonable choice with regard to" either pharmaceutical services or those on the pharmaceutical list who provide them.
19. The PCT may determine an application with or without a hearing (Regulation 24). An appeal against a decision by a PCT on an application under Regulation 12 by an applicant or interested party lies to the Secretary of State (Regulation 29) who, under his powers under the National Health Service Litigation Authority (Establishment and Constitution) Order 1995 (SI 1995 No 2800, as amended), has directed that the relevant functions be performed by the Defendant Authority, which performs them through the PAC of its Family Health Services Appeal Unit of the National Health Service Litigation Authority.

III The background to the regulations and the NHS guidance

20. The Office of Fair Trading report, The control of entry regulations and retail pharmacy services in the UK, January 17, 2003, recommended the abolition of statutory control on pharmacies which could dispense NHS prescriptions, in order to improve competition, reduce prices for medicines sold over the counter and improve access to, and the quality of, pharmacy services. In July 2003 "the Government published its response, and decided not to implement the OFT recommendation in full but to move cautiously in that direction and introduce a balanced package of reform measures to open up the market and to modernise the current regulatory system": The NHS (Pharmaceutical Services) Regulations 2005 Information for Primary Care Trusts, August 2005, paras 1.7-1.8.
21. The Explanatory Memorandum to the 2005 Regulations stated that, following its response in July 2003 to the Office of Fair Trading report, the Government had announced in August 2004 plans to implement a balanced package of measures to reform and modernise the NHS regulations which governed pharmacies in England: para 7.3. The memorandum stated:

"7.5 The current system does not encourage competition, innovation or new entry. With the reforms, more pharmacies will be able to offer NHS services where people live, work, shop and travel but essential access to pharmacy services in, for example, deprived and rural areas will be safeguarded. The reforms are to be implemented alongside the new contractual framework and apply only to England. …"

22. The Final Regulatory and Competition Assessments for the 2005 Regulations (annexed to the Explanatory Memorandum) stated (para 2.1) that the objective was "to maintain and improve access to and the choice of community pharmaceutical services while continuing to raise the quality of such services provided, to utilise professional skills to best effect and to ensure services reflect and contribute to wider developments in primary care provision." It also stated (paras 4.12 and 5.13)

"4.12 Control of entry: Whilst it is not possible to estimate how many new pharmacies will take advantage of the market reforms, access to retail pharmaceutical services should improve from liberalisation and the benefits on quality and innovation from increased competition should be more easily realised…

5.13 Moves towards increased deregulation are likely to benefit those players currently wanting to enter at the expense of those currently in the market. On one level, larger retail chains are likely to benefit most from increased deregulation, as they will have the readily available resources to invest in relocating/opening pharmacies to capture more/the most lucrative trading position. This will be at the expense of the smaller retailer. On the other hand, improved access to the NHS pharmacy market may result in reducing the costs of purchasing a pharmacy business – the value of which could be inflated by the premium for a NHS dispensing licence – thus making it easier for those pharmacists starting in business to raise the capital needed. In addition, the requirement that exempted pharmacies will have to provide services determined by the PCT will enable PCTs to continue to plan for services to meet local needs."

Guidance on the 2005 Regulations

23. It was within that context that Regulation 12(2)(b), and the exemptions in Regulation 13, were introduced.
24. Guidance was provided in the NHS (Pharmaceutical Services) Regulations 2005 Information for Primary Care Trusts (Revised September 2005). In February 2007, a further version of the Guidance was produced. The Guidance as to the new criteria of "choice promoting competition" was updated and strengthened. Amongst other amendments, it explained that the expression "reasonable choice" was included in the 2005 Regulations rather than the word "competition" "for legislative drafting reasons" (paragraph 3.71).
25. Assura relied in the Todmorden appeal on a number of passages to argue that the PAC had departed from guidance. The guidance explained that explicit criteria of competition and choice were being introduced to the assessment (para 3.68); clearer emphasis had been placed within the Regulations on certain key factors associated with promoting more competition and choice for patients, including choice and diversity in the neighbourhood (para 3.69), in order to help meet the commitment to expand patient choice within primary care (para 3.71). In particular it was said (para 3.72):

"The overall aim is fully in line with the overall objective of the regulations. That is to ensure adequate access to pharmaceutical services for patients. These new criteria, by promoting more competition, aim to improve the choice of where patients may obtain services. In turn, this will mean more choice in where patients can get advice for self-care, and access the range of services which pharmacies will increasingly provide through the new contractual framework."

IV The decisions and the appeals

A Todmorden Claim

26. At all relevant times, there have been two pharmacies in Todmorden, both operated by the same company (previously called Alliance, and now Boots). Both provide the essential pharmaceutical services, but not directed services. In respect of some directed services (e.g. needle exchange, patient group direction, and care home service) the evidence from Assura to the PAC was that the two pharmacies choose not to compete with each other.
27. On May 16, 2006, the PCT determined that two rural areas adjacent to Todmorden (Cornholme and Walsden), with an aggregate population of 5,500 and dispensing lists of 2,000 patients, should cease to be controlled, i.e. within 3 years prescriptions issued by doctors in those villages could no longer be dispensed by the surgeries and there would be a corresponding increase in demand within pharmacies in Todmorden. An appeal was launched against this decision, but that appeal was dismissed by the PAC on September 7, 2006. That decision was not challenged.
28. Assura made an application to be admitted to the pharmaceutical list on June 20, 2006, the relevant premises being within the immediate vicinity of a new health centre development in Todmorden. The application was rejected by the PCT on November 21, and Assura appealed on November 28, 2006. The PAC refused the appeal in a decision letter dated January 25, 2007.
29. The PAC found:

i) there were two existing pharmacies in the neighbourhood, both operated by Alliance (paras 5.7, 5.12);

ii) there was no indication that the demographic information justified a third pharmacy in the neighbourhood (para 5.8);

iii) there was no suggestion that Assura's proposed pharmacy would fill any gap in service identified in any PCT Pharmaceutical Needs Assessment or that the existing pharmacies were not currently coping with demand placed upon them (para 5.8);

iv) whilst not necessarily an indicator that existing services were adequate, the PAC noted that both the PCT and the Local Pharmaceutical Committee had indicated that they were unaware of any complaints regarding existing services in the neighbourhood (para 5.9);

v) the existing pharmacies were located less than 500 metres from Assura's proposed pharmacy site and there was no indication that the existing pharmacies were other than reasonably accessible from all parts of the neighbourhood (para 5.10).

30. The PAC dealt with the issues of increased demand and choice as follows:

"5.11 The PCT's decision letter stated that there was no indication that existing pharmacies are unable to meet demand for services. That 'it is possible they would struggle should there be a major increase in demand for services' appeared to be a matter for speculation. The [PAC] was aware of the applicant's suggestion on appeal, that transfer of dispensing patients from doctors dispensing list following the [PAC] decision that nearby Cornholme and Walsden are no longer controlled localities, and regeneration in Todmorden will increase demand for pharmaceutical services. The applicant has referred to views said to be expressed by Todmorden Town Council to the PCT, that pharmaceutical services are already 'stretched'. The [PAC] having regard to the above statements was provided with no information to demonstrate that existing pharmacies are unable to meet present demand or would be unable to cope with increased demand for services.

5.12 The [PAC] noted a central issue of the appeal was the perceived lack of choice of pharmaceutical services and service provider, given that both existing pharmacies in the neighbourhood are operated by Alliance Pharmacy. Whilst the PCT's decision letter had suggested there is a "question of choice" it was also acknowledged that both pharmacies are under separate management and made separate decisions. The [PAC] was mindful that "reasonable choice" does not override the necessary or desirable test and is one of the criteria when looking at the overall test of securing adequacy. The Regulations do not indicate that choice cannot be secured where pharmacies are operated by the same company Should there be any reason to believe that there was any inadequacy of services linked to both existing pharmacies being owned by the same company, there could potentially be grounds for granting the application. This was not the case here. The [PAC] had no reason to believe that the population do not have a reasonable choice of service and service provider available to them.

5.13 The [PAC] noted the applicant's concern that the PCT failed to consider whether the application would enhance or improve pharmaceutical services in Todmorden. The [PAC] noted from the PCT's decision letter that the applicant was offering to provide the same services as the existing contractors and had made no proposals to improve or enhance services. On appeal the [PAC] considered the applicant had again failed to demonstrate that the proposed pharmacy will provide services which are not already provided or cannot be provided by the existing pharmacies. The [PAC] had no reason to believe that because one pharmacy provides services that the other may not, there was a need for additional services to secure adequacy."

The judge's decision

31. Although the judge rejected the argument for Alliance/Boots that each pharmacy was a separate "person", he was satisfied that, in substance, the PAC dealt with the issue of choice and directed services properly and lawfully. In particular it said (para 5.13): "… The [PAC] had no reason to believe that because one pharmacy provides services that the other may not, there was a need for additional services to secure adequacy." In the judge's view, that showed that it took into account the fact that, in relation to some services there was effectively no choice, and nevertheless decided that the provision of those services in the neighbourhood was adequate.
32. The judge also rejected Assura's argument that the PAC had failed to follow guidance, and had failed to give adequate reasons for its decision.

Assura's appeal

33. The main points made by Assura on this appeal were these: (1) PAC erred in concluding, or applied the wrong test, when it stated in para 5.12 that "the regulations do not indicate that choice cannot be secured where pharmacies are operated by the same company." (2) The proper interpretation of Regulation 12(2)(b)(ii) is that there will be a choice of provider only where there are two or more providers of pharmaceutical services. (3) Provision of choice does not refer to the provision of pharmaceutical services as the judge found, but as to "providers" and, separately, to "services". The PAC's statement that both pharmacies were "under separate management and make separate decisions" shows that the PAC was of the opinion that meant that the pharmacies were separate persons on the list. (4) The two relevant pharmacies in this case are operated by the same "person" for the purposes of Regulation 12(2)(b)(ii) and so there is no choice of "persons included in a pharmaceutical list from whom such recipients may obtain …" let alone a reasonable choice. (5) As to directed services, the evidence was clear that there was no choice as to needle exchange, patient group direction, care home advice or home delivery, all of which Assura was going to provide. (6) There will be no competition between two branches of the same large company, and the PAC's approach emasculates the introduction, or at least unreasonably limits the application, of the choice provisions in the 2005 Regulations. (7) The PAC failed to give any proper or adequate reasons for its decision, "choice" being one of the principal controversial issues.

B Freckleton Claim

34. The relevant neighbourhood is the village of Freckleton. It has one pharmacy, which is sited at the single health centre which accommodates two medical practices comprising a total of twelve doctors. The health centre is some distance from the village centre (about 10 minutes' walk). About 3 miles away is the town of Kirkham, which has two surgeries and five pharmacies.
35. Assura made an application under the 2005 Regulations on March 8, 2006. It was rejected by the PCT without an oral hearing on June 8. The PCT took the view that there was adequate access to pharmaceutical services in the locality and that consultees had not commented in respect of lack of choice in the neighbourhood.
36. Assura appealed on June 13, 2006. Following preliminary consideration by the PAC, a hearing was considered necessary and a Panel was appointed which conducted a site visit, held a hearing on October 26, 2006 and reported on November 9, 2006. The Panel found that the population of Freckleton was about 8,000: although 7,000 worked at a large factory at Warton, within the neighbourhood, and many of those may have lived outside. The daily population was estimated at 10,000-15,000. Both the Panel and PAC dealt with the population in three categories:

i) The general practitioner for about 82% of the resident population practised out of the medical centre. The only pharmacy in the neighbourhood was on the same site. Those patients therefore had "an excellent provision of pharmaceutical services at the same site and at the same time as they attended the doctor" (para 8.2.3.4), and the Panel "had no doubt in concluding that for those residents of Freckleton who attended the health centre for their medical services they had more than an adequacy of pharmaceutical service" (para 8.2.4.2).

ii) Of the 18% who did not obtain their medical services from the health centre, "the patients had a complete adequacy of pharmaceutical services, either by obtaining such services from the health centre in Freckleton or by going to a pharmacy in Kirkham or indeed elsewhere if they did not reside in Kirkham" (para 8.2.5).

iii) As the employees not resident in Freckleton would require pharmaceutical services in Freckleton only very rarely or in exceptional emergency circumstances, their needs would be provided by the existing pharmacy in Freckleton health centre (para 8.2.6).

37. The Panel therefore concluded that "the existing provision of pharmaceutical services to all those either resident in or visiting the neighbourhood was totally adequate" (para 8.3). The Panel said (para 8.4):

"Having come to that conclusion, the panel felt that it did not have to make a specific finding as to whether or not there was an adequate choice of pharmaceutical services to those within the neighbourhood, as suggested by Mr Daly on behalf of [Assura].

Choice, one of a number of considerations that the panel has to take into account when assessing whether or not there is an existing adequacy of pharmaceutical service. Having concluded that the vast majority of residents of Freckleton obtained the medical and pharmaceutical services at the new health centre, and that those who did not would obtain them in Kirkham or wherever else they lived, then all within the proposed neighbourhood had an adequate provision of pharmaceutical service. Even if they lived outside Freckleton, the likelihood is that they would travel by car or public transport and therefore be able to access pharmaceutical services on their way to or from Freckleton, if they did not wish to obtain the service in Freckleton."

38. In its decision of November 30, 2006 the PAC said:

"3.6 With regard to adequacy, the [PAC] considered the population in the vicinity of the health centre as the Panel had done at paragraphs 8.2.1 to 8.2.4. The [PAC] accepted and adopted the Panel's recommendation at paragraph 8.2.4.2.

3.7 As the Panel had done at paragraph 8.2.5, the [PAC] considered the 18% of the population not registered with a medical practice in Freckleton. For the reasons advanced by the Panel, the [PAC] concluded that it was not strictly necessary to grant the application. However, the [PAC] did not consider the pharmacies in Kirkham to provide a reasonable alternative within the neighbourhood. The [PAC] recognised that the indicators were that the majority of Freckleton had privately owned properties, thereby no real issues of deprivation, and that the information available did not indicate an issue of access for that population when in the vicinity of the proposed site. The [PAC] accepts that there is a potential gap for this population however insufficient evidence had been adduced in order to render present pharmaceutical services inadequate.

3.8 The [PAC] considered the arguments around the BAE workforce and concurred with the Panel, paragraph 8.2.6. In the [PAC]'s view, any potential shortfall in adequacy for these workers was likely to add little weight to the issue as there was no evidence that their purpose for being at BAE included accessing pharmaceutical services."

39. The PAC found "the proposed pharmacy neither necessary nor desirable to secure the adequate provision of pharmaceutical services for the neighbourhood" (para 4) and dismissed Assura's appeal.

The judge's decision

40. The judge found that the PAC had erred in law: the Panel and the PAC confused the factors in Regulations 12(2)(a) and (b) respectively, namely (i) access and availability of services and (ii) choice of services: or at least failed to recognise that, although there might well be a relationship between the two, choice was a discrete factor that the decision-maker had to take into consideration, over and above access/availability of services. Whilst the excellence of access and availability of services might be such as to override even a complete absence of choice, it was incumbent upon a decision-maker to do that balancing exercise.
41. Having considered access and availability in some detail (and been impressed by it), the Panel concluded in para 8.3 that provision of services was "totally adequate". But the Panel went on to say (para 8.4): "Having come to that conclusion, the Panel felt that it did not have to make a specific finding as to whether or not there was an adequate choice of pharmaceutical services to those within the neighbourhood, as suggested by Mr Daly on behalf of [Assura]." The judge took the view that that passage revealed that its entire approach to choice was wrong. There was in fact no choice of pharmaceutical services at all in the neighbourhood, there being only one pharmacy. The PAC and the Panel before them were clearly impressed by the service provided by that pharmacy, but it did not engage with the factor of choice at all.

NHSLA's appeal

42. In summary, the NHSLA argues that the judge relied upon a single paragraph in the Panel's recommendation (para 8.3) to conclude that it revealed that its entire approach to choice was wrong, when in fact it had effectively set out the correct approach in the next subparagraph of its report. In stating that, in the succeeding passage, there was no reference to choice except possibly a reference to those who worked in (but lived outside) Freckleton being able to access pharmaceutical service on their way to and from work, the judge wrongly interfered with the decision of the PAC on the basis of the weight that it gave to choice in its application of Regulation 12(2), when the weight that the PAC gave to choice was a matter exclusively for the PAC.
43. The judge employed an overly legalistic analysis of the Panel's recommendations. The Panel had in fact considered choice, even though it said that it did not have to make a specific finding as to adequate choice.
44. The PAC had also considered the issue of choice. It correctly identified its task (para 3.2), and at para 3.7 it departed from the Panel's recommendation on the question whether the pharmacies in Kirkham provided a reasonable alternative within the neighbourhood.
45. For Assura it was argued that the decision letter was silent as to choice. The Panel formed its conclusion on adequacy before considering the issue of "choice" rather than vice versa: the conclusion as to adequacy in respect of those residents who attended the health centre was devoid of any discussion of the issue of choice, and was solely concerned with access and availability; it made its formal conclusion on adequacy without considering choice. In effect there was one pharmacy for up to 15,000 persons and that was sited away from the Town Centre.
46. A decision maker cannot properly have regard to the factor whether there is a reasonable choice of services or providers without assessing and determining first or finding whether there was reasonable choice. But the Panel restricted consideration to the issues it had previously taken into account to reach its conclusions at paras 8.2.4.2 and 8.3 – primarily availability of services. Its consideration of it relied upon the presence of 5 pharmacies in Kirkham, in respect of which the PAC took a different view. Given its view as to the five pharmacies, the PAC should not simply have accepted the Panel's views as to adequacy without giving further consideration as to the impact of its conclusion as to the lack of reasonable alternatives on the issue of choice and competition.
47. The PAC failed to give any proper or adequate reasons for its decision, "choice" being one of the principal controversial issues at the inquiry. Assura does not know why its submissions on choice were rejected and thus how to challenge the decision or to order its affairs in the future. The PAC does not refer to "choice" at all in its decision letter.
48. The PAC failed to follow the guidance as to the new "choice" provisions and failed to give any reasons for so doing. The guidance sets out a structured approach to decision making which was not followed. Whilst the PAC is not bound to follow it, it should be able to demonstrate that it has proper regard to choice but failed to do so.

V Conclusions

49. In R (Lowe) v Family Health Services Appeal Authority [2001] EWCA Civ 128, at [14.3] Laws LJ (with whom Thorpe and Buxton LJJ substantially agreed), considering "adequacy" in Regulation 4(4) of the 1992 Regulations (the predecessor of Regulation 12 of the 2005 Regulations, and in substantially similar terms) said (at [14]):

" …

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 this 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".

50. The Inner House of the Scottish Court of Session has taken a different approach when it considered the construction of the equivalent statutory provision in Scotland, Regulation 5(10) of the National Health Service (Pharmaceutical Services) (Scotland) Regulations 1995 (1995 SI No 414): Lloyds Pharmacy Ltd v National Appeal Panel, 2004 SC 703. The court took the view that "adequacy" connoted an absolute concept. But the difference makes little or no practical difference because the Court of Session recognised (para 10) that the decision-maker could properly have regard to probable future developments, because the standard of adequacy in a particular neighbourhood would obviously change with time, and the Regulation used the word "secure" in relation to the adequate provision of pharmaceutical services. The decision-maker had to determine the adequacy of the existing provision of pharmaceutical services at the time of its decision, based on the adequacy of the existing provision on the basis of what was known at that time, together with future developments that could be considered probable rather than speculative.
51. But despite the extensive discussion of the point in this case, in the end nothing turned in these appeals on the meaning of "adequate provision" in section 42(2)(c) or in Regulation 12(1). Consequently I will say no more on this point than that, quite apart from the fact that this court is bound by its previous decision (since the meaning of adequacy was part of the ratio), I would have preferred Laws LJ's analysis.
52. The main question of construction debated before the judge was what the decision-maker had to have regard to in relation to the "reasonable choice with regard to (i) the pharmaceutical services … and (ii) the persons included" in the list. The PAC argued (as it did before this court) that the "reasonable choice with regard to" pharmaceutical services and the persons included in the pharmaceutical list was different from "reasonable choice of" such services and persons. The latter would require (as Assura argued) the decision-maker to consider whether there was a reasonable choice of services, and discretely whether there was a reasonable choice of persons providing those services. The wording of the regulation meant that the factor that the decision-maker had to take into account was singular or unitary: he was required to consider simply whether recipients of pharmaceutical services had a reasonable choice, although in that consideration the decision-maker must have regard to services and persons.
53. For Assura it was submitted that there was effectively no difference between "reasonable choice with regard to" something and "reasonable choice of" something and the statutory wording required the decision-maker to consider both whether there was a reasonable choice of services, and whether there was a reasonable choice of persons providing those services.
54. The judge was persuaded by PAC's submission, and held (at [59]) that, although it could be unhelpful to paraphrase regulatory provision, the proper construction of Regulation 12(2)(b) was as if the provision read:

"whether the recipients of pharmaceutical services already have a reasonable choice [of pharmaceutical services having regard to] (i) the pharmaceutical services or directed services provided in the neighbourhood…and (ii) the persons included in the pharmaceutical list from whom such recipients may obtain pharmaceutical services or directed services in the neighbourhood…."

55. I agree with the judge that there is nothing in the extra-statutory material which is either helpful or admissible in determining what was intended by the legislator. The OFT report recommended the complete abandonment of control of entry requirements, and the opening up of pharmacies to the free market. All that could be derived from the contemporaneous documents was that the Government was exercised about where that balance should be, and the best means of achieving it through regulation.
56. Although I do not think it is necessary to paraphrase the legislation in order for its meaning to be understood I agree with the judge's conclusion that the issue of reasonable choice has to be looked at compendiously, and not necessarily separately in relation to each of the elements of pharmaceutical services/directed services and persons from whom recipients may obtain pharmaceutical services. But I also agree with the judge that there is no practical difference between the positions of the parties. The factors set out in Regulation 12(2) were ones to which the decision-maker must have regard when considering the "necessary or desirable" test. The factors were not determinative, nor were they to be given any particular weight. Given that weight was a matter for the decision-maker, in practice there would be very little (if any) difference between that exercise and an exercise in which the decision-maker was bound to take into consideration both whether the recipients of pharmaceutical service had a reasonable choice of service, and separately whether they had a reasonable choice of persons providing them. Regard had to be had by the decision-maker of the number and identity of persons on the pharmaceutical list who provided services in the neighbourhood at some stage of the decision-making process on any view.
57. Consequently even where there is limited or even no choice, it is still open to a decision-maker to find that, taking all the relevant factors into account, the provision of pharmaceutical services in the neighbourhood was adequate.
58. Before I consider the challenged decisions, I will set out some uncontroversial propositions.
59. First, decision letters such as the ones which are the subject of this appeal are to be considered on a "straightforward down-to-earth reading… without excessive legalism or exegetical sophistication": Clarke Homes Ltd v Secretary of State for the Environment (1993) 66 P&CR 263 at page 272-3, per Sir Thomas Bingham MR), applied in, e.g. MR Dean & Sons (Edgware) v First Secretary of State [2007] EWCA Civ 1083, at [43].
60. Second, questions of adequacy, need and desirability are to be decided by the decision-makers, and provided that the proper approach is adopted, the answer will inevitably become a question of fact and degree eminently suitable for resolution by a committee of laymen, and not susceptible to sophisticated legal analyses: R v The Family Health Services Appeal Authority, ex parte E.Moss Ltd (1999) 48 BMLR 204, 215 (CA).
61. Third, the mere absence of mention of a factor in the text of the decision does not necessarily mean that it was not considered. The reasons given should contain sufficient detail to enable the reader to know what conclusion has been reached on the principal important issue or issues and why, but it is not a requirement that they should rehearse every consideration to which they have had regard.
62. Fourth, if the Secretary of State issues non-statutory guidance for decision-makers, and there is a radical departure from the guidance, then, although not relevant to the construction of the relevant provisions, the guidance may be relevant to a challenge because the decision-maker may be under an obligation to take it into account and to explain why he has taken that radically different approach.

Todmorden

63. I do not consider that the reasoning of the PAC can be faulted. It properly considered the issue of adequacy, and made a careful evaluation of choice. It did not proceed on the basis that the two Alliance pharmacies were different "persons." The PAC was entitled to take into account that the pharmacies were separately managed when considering the choice of services available. The passage in paragraph 5.12 of which Assura complains does not betray any misdirection on the law. The second sentence is referring to choice of services, rather than choice of provider.
64. The PAC looked at the matter in the round. For the reasons already given, I do not accept that it follows from the fact that there is no choice of persons from whom recipients may obtain services that there is no "reasonable choice" with regard to services provided and persons from whom services may be obtained. Assura was offering to provide the same services as the existing contractors and had made no proposals to improve or enhance services. Assura had failed to demonstrate that the proposed pharmacy would provide services which were not already provided or could not be provided by the existing pharmacies.
65. I agree with the NHSLA's submission that the PAC squarely addressed NHSLA's contention that the existing two pharmacies in the neighbourhood (both operated by Alliance/Boots) offered no choice as to service provider. Having acknowledged that there were two pharmacies in the neighbourhood and that both were operated by Alliance, the PAC reconciled this on an application of the totality of the "necessary and desirable" test (i.e. by reference to all of the factors that were required to be or that could legitimately be considered in an application of that test). I accept that the two facets of reasonable choice identified in regulation 12(2)(b)(i) and (ii) were simply matters to which the PAC had to have regard.
66. For the sake of completeness I should add that Assura relied on the statements in the Department of Health's guidance that there was a commitment to expand patient choice within primary care (para 3.71) and an aim to improve the choice of where patients may obtain services (para 3.72), in order to suggest that there had been such a radical departure from guidance as to require explanation. There is nothing in the point, since there is nothing in the decision to suggest that there was any departure from these aspirations. In any event the guidance itself made it clear that it was "designed to assist decision-takers in reaching decisions within the framework of the law" (para 1.4) and that it did not seek to fetter the decision-making process.

Freckleton

67. I accept the NHSLA's submission that the judge accepted an overly legalistic submission by Assura, and that a fair reading of paragraph 8.4 of the decision leads to a conclusion that the Panel did consider choice. It is plain that although it said at the outset that it did not have to make a specific finding about choice it went on to say that choice did have to be taken into account and considered the availability of services in Freckleton and Kirkham. When the paragraphs are read together it is clear that the Panel took choice into account. The PAC engaged with the factor of choice when (para 3.7) it departed from the Panel's recommendation on the question whether "the pharmacies in Kirkham ... provide a reasonable alternative within the neighbourhood." Consideration of the provision of a reasonable alternative within the neighbourhood involved the question of choice.
68. Nor do I consider that there is any deficiency in the reasoning of the Panel or the PAC.
69. I would therefore dismiss Assura's appeal and allow the NHSLA's appeal. The judge gave a very full and careful judgment, in the course of which he laid down some guidelines for the application of Regulation 12, and the NHSLA invited the court to say that they were wrong and should not have been given. I will say no more than that it seems to me that in cases such as this it is unwise to put a judicial gloss on the approach which decision-makers are bound or permitted by legislation to take.

Lord Justice Sedley:

70. I agree that both PAC decisions are legally tenable, with the results proposed by Lawrence Collins LJ. But I think Assura, and any other commercial pharmacist in its position, is entitled to feel frustrated by a system of statutory regulation which purports to prioritise choice and competition but in practice sustains monopolies.
71. If all that was in issue was the dispensation of prescriptions to a proper standard, it might follow that one pharmacy was enough in each community, for instance in Freckleton. But the pharmacies with which the Todmorden case is concerned are multiple high street chemists, competing in a range of goods for which the presence of a dispensary acts as a magnet, and offering professional advice which will frequently direct customers to non-prescription drugs. To accord one pair of chemists' shops in the same ownership a licence to trade at large in a defined locality without competition – a situation against which the common law has for centuries leaned heavily – requires clear statutory authority.
72. Such authority is, however, provided by the primary and delegated legislation which Lawrence Collins LJ has set out. The fact that in its present form it originates in a policy change purportedly designed to introduce competition and so to improve choice does not enable the courts to rewrite it or distort its meaning or effect. The legislation sets a deliberate hurdle of pharmaceutical necessity or desirability before a competitor, who may well be in a position to introduce healthy competition in over-the-counter sales alongside a no less efficient dispensary, is to be allowed into the same high street. The result is that the chemist who gets there first is shielded not only from unnecessary or undesirable competition in dispensing but from commercial competition in relation to a significant proportion of its turnover.
73. For the reasons given by Lawrence Collins LJ,  neither PAC's reasoning - read, as it has to be, against its statutory backdrop of contradictory criteria – is demonstrably flawed. While not dissenting from what is said by him in paragraph 62, and in the light of paragraph 66, I would wish to reserve to a case in which it is pivotal the question, which appears to be unresolved at appellate level, of how an independent tribunal should treat departmental guidance given otherwise than under statutory authority.
74. I too would accordingly dismiss Assura's appeal in the Todmorden case and allow the NHSLA's appeal in the Freckleton case.

Lord Justice Laws:

75. I agree that Assura's appeal should be dismissed, and the NHSLA's appeal allowed, for the reasons given by Lawrence Collins LJ.