England and Wales Court of Appeal (Civil Division) Decisions

IN THE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION

		Royal Courts of Justice Strand London WC2A 2LL
		27 November 2013

1. LORD JUSTICE SULLIVAN: This is an appeal against the order dated 15 February 2013 of Supperstone J dismissing the appellant's claim for judicial review of the respondent's decision to fix care home rates in its area for a three year period from 1 April 2012.
2. The appellants are members of the committee of Care North East-Northumberland, CNEN, an unincorporated association which represents the interests of its members who are proprietors and managers of care homes in the North East and in particular, in Northumberland.
3. Since there is no challenge to the judge's description of the legislative framework and the factual background to the judicial review claim in paragraphs 1 to 24 of his judgment, which is reported at [2013] EWHC, 234 (Admin), I will not repeat the detail of those matters in this judgment.
4. In summary, local authorities such as the respondent have a duty under section 21 of the National Assistance Act 1948, the 1948 Act, to make arrangements to provide residential accommodation for certain persons who are in need of care and attention. Much of that accommodation is in practice provided in care homes and by section 26 of the 1948 Act, local authorities may discharge their section 21 duty by contracting with private care home providers, such as the appellants, who operate for profit. The relationship between the local authorities commissioning the accommodation and the private care homes providing it is a contractual one but in discharging their duty to provide accommodation under the 1948 Act, local authorities are required to act in accordance with directions given by the Secretary of State under section 7A(1) of the Local Authority Social Services Act 1970 (the 1970 Act). The National Assistance Act 1948 (choice of accommodation) Directions 1992 (the directions) are concerned with the rights of individuals to choose where they receive residential care and are intended to ensure that people have a genuine choice over where they receive residential care arranged for them by local authorities.
5. Paragraph 2 of the Direction provides in effect that arrangements will be made for accommodation at a person's place of choice (if he has a preference) but this is subject to paragraph 3 which sets out a number of conditions, one of which is:

"b) The cost of making arrangements for him at his preferred accommodation would not require the authority to pay more than they would usually expect to pay having regard to his assessed needs."

6. When making such arrangements, local authorities must act under the general guidance of the Secretary of State, see section 7(1) of the 1970 Act. The relevant guidance in the present case is contained in Local Authority Circular, LAC, 2004(20) ("the Circular"); paragraph 2.5.4 of which states:

"One of the conditions associated with the provision of preferred accommodation is that such accommodation should not require the council to pay more than they would usually expect to pay, having regard to assessed needs (the 'usual cost'). This cost should be set by councils at the start of a financial or other planning period, or in response to significant changes in the cost of providing care, to be sufficient to meet the assessed care needs of supported residents in residential accommodation. A council should set more than one usual cost where the cost of providing residential accommodation to specific groups is different. In setting and reviewing their usual costs, councils should have due regard to the actual costs of providing care and other local factors. Councils should also have due regard to Best Value requirements under the Local Government Act 1999."

7. Paragraph 3.3 of the guidance provides:

"When setting its usual cost(s) a council should be able to demonstrate that this cost is sufficient to allow it to meet assessed care needs and to provide residents with the level of care services that they could reasonably expect to receive if the possibility of resident and third party contributions did not exist."

8. In their judicial review claim, the appellants challenged the respondent's decision on four grounds. The principal ground of challenge (ground 2 below) was that the respondent had failed to "have due regard to the actual costs of providing care...", contrary to the guidance in paragraph 2.5.4 of the Circular, and was unable to demonstrate that "its usual costs" were:

"Sufficient to allow it to provide assessed care needs and to provide residents with the level of care services they could reasonably expect to receive if the possibility of resident and third party contributions did not exist."

9. Contrary to paragraph 3.3 of the Circular.
10. The judge dealt with this ground in paragraphs 27 to 46 of his judgment. He concluded that the respondent did have due regard to the actual costs of care as required by the Circular, see paragraph 46, and rejected ground 2 of the claim. He also rejected the other three grounds.
11. Before this court, Ms Mountfield QC submitted in her first and principal ground of appeal that the judge had erred in rejecting ground 2 of the claim, that the judge had further concluded, see paragraph 54 of the judgment, that even if the respondent had departed from the Circular, it was justified in doing so. In her second ground of appeal, Ms Mountfield challenged this further conclusion but she accepted that this issue arose only if she was successful in her first ground of appeal. While there was a third ground of appeal, it was not pursued in Ms Mountfield's oral submissions as a freestanding ground, rather the complaint was advanced in support of the principal submission - that there had been a failure to have due regard to the actual costs of providing care - that the respondents had simply plucked figures for inflation rates and efficiency savings out of the air when setting its "usual costs".
12. Before turning to the principal ground of appeal, I should mention that as part of ground 2 below, the appellant alleged that there had been a failure to comply with paragraph 6.2 of "building capacity and partnership in care" which is described as "an agreement between the statutory and the independent social care, health care and housing sectors" published by the Department of Health in October 2001, ("Building Capacity").
13. Paragraph 6.2 of that document states:

"Providers have become increasingly concerned that some commissioners have used their dominant position to drive down or hold down fees to a level that recognises neither the costs to providers nor the inevitable reduction in the quality of service provision that follows. This is short-sighted and may put individuals at risk. It is in conflict with the Goverment's Best Value policy. And it can destabilise the system, causing unplanned exits from the market. Fee setting must take into account the legitimate current and future costs faced by providers as well as the factors that affect those costs, and the potential for improved performance and more cost-effective ways of working. Contract prices should not be set mechanistically but should have regard to providers' costs and efficiencies, and planned outcomes for people using services, including patients."

14. The judge said that Building Capacity was non-statutory guidance which the respondent had to take into account but from which it was treated upon, provided it gave clear reasons for doing so, see paragraph 49 of the judgment. It was not in issue that the respondent did have regard to Building Capacity, see paragraph 50, and the judge concluded that the respondent had been entitled to depart from the guidance in Building Capacity for the reasons the respondent gave.
15. In my judgment, the non-statutory guidance in Building Capacity adds nothing of substance for present purposes to the guidance in the Circular. When the Direction was given in December 1992, it was accompanied by guidance. That 1992 guidance and further guidance which had been issued in a circular in 2001 was replaced in October 2004 by the Circular. In these circumstances, if there is any significant difference between the non-statutory guidance in Building Capacity in 2001, and the later guidance in the Circular in 2004, then the latter must prevail and if there is no significant difference between the guidance in 2001 and the guidance in 2004, then the former adds nothing of substance to the obligation imposed by the Circular to "have regard to the actual costs of care".
16. In support of her submission that the respondent did not have "due regard", Ms Mountfield referred us to a number of authorities in which the nature of the obligation to have "due regard" to a particular matter or matters was considered in other statutory contexts, including the Public Libraries and Museums Act 1964, the Disability Discrimination Act 1995, and the Equality Act 2010.
17. While the court's conclusions as to what would constitute a sufficient inquiry for the purpose of having "due regard" to the relevant considerations in those cases, were entirely appropriate in those statutory contexts. It is not appropriate to "read across" and to seek to reply to the circumstances of this case. Thus, for example, the proposition that there should be a "structured attempt to focus upon the details of equality issues", see paragraph 61 of Bracking v Secretary of State for Work and Pensions [2013] EWCA Civ 1345 is readily understandable if the decision taker is having to demonstrate compliance with the statutory duty to have due regard to various factors as part of the public sector equality duty imposed by section 149 of the Equality Act 2010. It does not follow that it is necessary for a local authority to follow what Ms Mountfield described as a "structural approach" when it is following the guidance in the Circular to have "due regard to the actual costs of care" for the purpose of setting and reviewing its "usual costs".
18. The Circular contains guidance. It is not to be equated with a statutory duty imposed by an enactment and as would be expected in the case of guidance, it does not prescribe any particular methodology, whether "structured" or otherwise which local authorities must adopt in order to have had "due regard" to the actual costs of providing care.
19. The appellant's submission that as a matter of law a "structured" approach (whatever that may mean, see below) is required, treats a single sentence in guidance in a circular as though it was a duty imposed by primary legislation. When we asked Ms Mountfield what the respondent had failed to do which it was under a duty to do as a matter of law, her reply was that the respondent had not focused on the question of actual cost and had failed to make a "sufficient inquiry" contrary to the well-established principle that a decision-maker must "ask himself the right question and take reasonable steps to acquaint himself with the relevant information to enable him to answer it correctly", see the Secretary of State for Education v Tameside [1977] AC 1014, per Lord Diplock at page 1065.
20. The emphasis in Ms Mountfield's submissions was on the sufficiency of the respondent's inquiries. There is no dispute that the respondent took some steps to equip itself with the relevant information. The appellant's contention is that those steps were insufficient. When considering the force of this submission, it is important to remember that provided some inquiry into the relevant factor to which due regard has to be paid is made by the decision-maker "it is generally for the decision-maker to decide on the manner and intensity of the inquiry to be undertaken into any relevant factor", see per Beatson J, as he then was, in R (on the application of Bevan & Clarke LLP) v Neath Port Talbot County Borough Council [2012] EWHC 236 (Admin) cited in paragraph 37 of the judgment below.
21. The submission that there had been insufficient inquiry was coupled with a submission that the underlying fault in the respondent's approach was that it did not focus on ascertaining the actual cost of providing care because it never asked the correct question of the appellants: "What are your actual costs of providing care?", and instead asked them the wrong question: "Why are you not able to provide care at the lower fee levels being paid by neighbouring local authorities in the North West?".
22. There are two answers to that submission: first, it does not accord with the judge's factual conclusions in paragraphs 39 to 44 of the judgment as to what the respondent actually did against which there was no challenge in the grounds of appeal. Secondly, in any event, the difference between the two questions is a matter of semantics rather than substance. Looking at these two answers in turn, I will not repeat the details of the judge's factual findings which can be found in paragraphs 39 to 44 of his judgment. In summary, the judge found that the respondent had:

(i) considered to what extent its existing rates of payment were leading to overcapacity in the market in its area;

(ii) compared its own rates with those being paid by other local authorities in the region and considered whether there was anything to explain why the cost of providing care in Northumberland should be materially higher than elsewhere in the region;

(iii) taken account of the position of those providers with whom it was able to reach agreement and the evidence that they had provided as to how they had determined that the proposed rates would enable them to meet the actual costs of care;

(iv) sought information from the appellant and when management accounts were provided by one of the members of CNEN, Mr Macado(?), who had sought to explain why the provision of care in Northumberland costs more than elsewhere, carefully considered those accounts;

(v) explained why it did not think it appropriate to accede to the appellant's request to use the PWC model before calculating its "usual costs".

23. On the basis of those factual findings as to the steps that were taken by the respondent to acquaint itself with the relevant information, the judge's conclusion that the respondent did have "due regard" to the actual costs of care as required by the Circular was plainly correct. In reaching that conclusion, the judge followed the approach adopted by Singh J in R (on the application of South West Care Homes Ltd) v Devon County Council [2012] EWHC 1867 (Admin), see paragraph 37 of the judgment below.
24. Although Ms Mountfield sought to distinguish the decision in that case upon the basis that Singh J found that the local authority had knowledge of the actual costs of providing care because, unlike the respondent to this appeal, that local authority ran some of the care homes itself, I am not persuaded that that was a critical element in Singh J's conclusions, not least because the local authority's evidence in that case was that its own costs of providing care would have tended to be higher due to public sector staffing levels and terms and conditions, see paragraph 30 of Singh J's judgment.
25. In that case, the local authority had regard to:

(i) the fact that its fee levels were sustaining a "functional market with the council able to secure placements" (paragraph 28);

(ii) the extent to which its rates were in line with those paid by other authorities in the South West region (paragraph 29);

(iii) the information provided by care providers who, despite their engagement with the local authority, had failed to provide it with information about their costs to support their claims that the local authority's fees did not meet their costs (paragraph 32).

26. Although each case turns on its own facts, the similarities with the present case are obvious and in my judgment, Supperstone J was right to follow the approach adopted by Singh J.
27. One of the features of the South West Care Homes case as mentioned above was the appellant's failure to provide the respondent local authority with evidence in support of their contention that the authority's fees were too low to meet their actual costs. At a later stage in her submissions, Ms Mountfield refers to a letter dated 29 March 2012 from the appellant's solicitors, Eversheds, to the respondents in which it was alleged that:

"Members of our client have offered to provide the council with access to their accounts on an open book basis so that the council can properly understand the costs of running a care home. In addition, our client's accountant Keith Grey has also offered to go through providers' costs with the council's accountant, however, the council has chosen not to accept either invitation."

28. It seems that this allegation was not relied upon by the appellant in the proceedings before Supperstone J, it is not mentioned in his very careful and detailed judgment, and in any event, the allegation in the letter does not accord with the evidence that was before with the judge in the witness statements of both Mr Hunter, on behalf of the appellant, and Mr Bradley, on behalf of the respondent, that the only management accounts which were supplied by the members of the appellant to the respondent were those of Mr McArdle which were very carefully considered by the respondent as demonstrated by the minutes of a meeting between Mr McArdle and Mr Bradley on 18 April 2012 which were in the bundle of evidence before the judge.
29. Indeed, in her submissions at an earlier stage of the proceedings, Ms Mountfield was not contending that the members of the appellant were offering to supply the respondent with information as to their actual costs by way, for example, of providing their management accounts, which offer was being declined by the respondent. At that stage of her submissions, Ms Mountfield accepted that save for Mr McArdle, the members of the appellant had not offered to provide the management accounts to the respondent and she sought to explain their failure to do so by the fact that they had not been asked the right question by the respondent. Instead of asking the members of the appellant: "What are your actual costs?" (Question 1); the respondent had asked the appellant: "Why are your costs in Northumberland higher than those in the neighbouring authorities in the North East?" (Question 2). In practical terms that is a question without a difference; the obvious answer to both questions 1 and 2 would have been to produce the management accounts which would show not only the actual costs but would also have enabled the respondent to understand why those costs were higher in Northumberland than in the neighbouring areas. If that answer to question 2 was not obvious to all of the members of CNEN, it was sufficiently obvious to Mr McArdle. It is plain that when he did supply information, the respondent was prepared to consider that information very carefully indeed.
30. In reality, the members of CNEN, save for Mr McArdle, were unwilling to disclose their management accounts because at that stage and, indeed, throughout the negotiations prior to the claim for judicial review, they were maintaining that the respondent should use the PWC model to ascertain the costs of care, see paragraph 66 of Mr Hunter's witness statement.
31. Ms Mountfield also submitted that the respondent had simply looked at whether the market was making provision for care rather than looking at what were the actual costs of providing that care. I do not accept that submission. Again, it does not accord with the judge's factual conclusions. Whether the respondent's existing fee levels were leading to an over-provision in the market was only one of the matters that was considered by the respondent, see above, and Ms Mountfield did not dissent from the proposition that the state of the local market in care provision was at least a relevant consideration to which the respondent was entitled to have regard. While she submitted that it could not be the complete answer on the judge's findings, the respondent did not treat it as such. The appellant's submission that the respondent's inquiries were "insufficient", despite the fact that all of the matters which it did consider were relevant to the question of what was the actual cost of providing care, appears to be based on the underlying premise that a "structured analysis" was required if the respondent was to be able to "demonstrate" that its usual cost was sufficient to meet the actual costs of the care.
32. As I have already indicated, the decisions to which we were referred in very different statutory contexts do not support the proposition that such an analysis, or any particular form of analysis, is required in the present context. Nevertheless, we sought to explore the matter further and asked Ms Mountfield what the respondent should have done in order to carry out a "structured" analysis, given that the appellant accepted that local authorities are not required to use the PWC or any other form of model.
33. I confess that I found the appellant's answer to this question less than clear unless it was in substance a submission that the local authority must produce some form of arithmetical calculation setting out the figures attributed to the individual cost elements of providing care, such as: occupancy, staff, operating costs, management and administration, capital values per bed and financing costs, to take the list of cost elements in the PWC model as an example. If that was the appellant's submission, then I do not accept it. Carrying out such an arithmetical calculation is one way of having "due regard for the actual costs of providing care" but it is not the only legally permissible way.
34. For completeness, I should mention that in addition to the South West Care Homes case, Ms Mountfield referred us to a number of other authorities in which the administrative court has had to consider the obligation to have "due regard" in this particular statutory context. In chronological order, those authorities were:

1), R (Sefton Care Association and others) v Sefton Council [2011] EWHC 2676 (Admin).

2) R (EMCARE) v Leicestershire County Council [2011] EWHC 3096 (Admin).

3) R (Care North East Newcastle) v Newcastle City Council [2012] EWHC 2566 (Admin).

4) R (Redcar & Cleveland Independent Providers Association and others) v Redcar & Cleveland Borough Council [2013] EWHC 4 (Admin).

5) R (South Tyneside Care Home Owners Association and others) v South Tyneside Council [2013] EWHC 1827 (Admin).

35. Each of these cases turn very much upon its own particular facts, thus in Sefton, the local authority had imposed a freeze on fees without any prior consultation with the care home providers. In EMCARE, the claimant had sent a report prepared by Laing & Buisson (consultants with expertise in ascertaining the cost of care) to the local authority but the local authority had made no attempt to respond to the detailed points that had been made in the report. In Newcastle the local authority had attempted to use the PWC model as a means to ascertain the actual cost of care but had fed inaccurate figures into the model. In Redcar the judge concluded that the local authority had simply "bench marked", ie looked at the fees paid by neighbouring authorities and said that while such information was no doubt useful, it had to be combined with some information which specifically related to the local authority's own area. In South Tyneside the judge distinguished the present case because the local authority in that case had not relied on its own judgment and experience but had instead undertaken what the judge described as "an arithmetical exercise", see paragraph 61 of his judgment, in which the authority had made a number of significant errors, see paragraph 75 of the judgment in that case.
36. The extent to which the judges in some of those cases were prepared to delve in great detail into the facts is at first sight surprising in cases that were after all claims for judicial review rather than appeals on the merits. If it had been necessary to do so, I would have wished to consider whether in at least some of those cases, sufficient regard was paid to the observation of Beatson J in Bevan & Clarke to which I have referred above. In the event a detailed analysis of these authorities is unnecessary. They should, in my view, be regarded as decisions turning entirely on their own particular facts and not as authorities which establish any particular point of principle.
37. Insofar as the approach adopted by the judges in those cases differs from the approach which was adopted by Singh J in the South West Care Homes case and by Supperstone J in the present case, the latter approach should be followed.
38. As an example of the need for extreme caution when seeking to apply observations made in one case to the very different facts of another, HHJ Langham QC's statement in paragraph 55 of EMCARE that: "A much more analytical, indeed arithmetical approach, was called for once EMCARE had raised the issue of the gap [between the actual cost of providing care and the local authority's rates]" was not a proposition of general application. It has to be understood in the context of EMCARE having sent the Laing & Buisson report to the local authority. In those circumstances a considered response to the points made in the Laing & Buisson report could reasonably have been expected and that response might well have required a more analytical and perhaps even an arithmetical approach on the facts of that case but it most certainly does not follow that such an approach is required in all cases.
39. In my view ground 3 of the appeal adds nothing of substance to the principal challenge to the respondent's decision, for these reasons I would dismiss this appeal.
40. SIR STANLEY BURNTON: I agree.
41. LORD JUSTICE AIKENS: I also agree. I particularly wish to associate myself with the remarks that Sullivan LJ has made in concerning the approach of some administrative court judges in decisions to which Sullivan LJ has specifically referred. I agree with him that in general the approach adopted by Singh J and Supperstone J in the present case which we have endorsed is preferable.