England and Wales High Court (Administrative Court) Decisions

IN THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
ADMINISTRATIVE COURT IN WALES

		Cardiff Civil Justice Centre 2 Park Street, Cardiff, CF10 1ET
		17/02/2012

Mr Justice Beatson :

I. Introduction

1. In these proceedings, lodged on 24 June 2011, the claimants, nine operators of residential homes in the area of the Neath Port Talbot County Borough Council ("the Council"), challenge the Council's decision on 25 March 2011 setting the rate to be paid to providers of residential accommodation for the 2011/2012 year at £426 per resident per week with a £23 supplement per week for residents with dementia. This represented an increase of 5.7%. The Council also decided to offer to enter into a four-year agreement with providers with a minimum guaranteed increase of 4% each year. Permission was granted on the papers by HHJ Vosper QC on 25 July 2011.
2. There are 25 care homes with approximately 1032 beds in the Council's area. Approximately 814 of the beds are in independently or voluntarily run homes and 218 are in homes run by the Council. The claimants, six companies, one limited liability partnership, and two individuals, provide 351 beds, approximately 34% of the total number, and 43% of the beds in privately run homes. The Council makes arrangements under sections 21 and 26 of the National Assistance Act 1948 ("the 1948 Act") for approximately 660 elderly and frail persons. The majority are in homes in the independent or voluntary sector. Placements by the Council account for between 45% and 70% of the residents in the homes run by the claimants. The remainder of the residents are funded either by the Health Board, at fee levels set by the Welsh Ministers, or privately. Across the sector as a whole the average figure for residents placed by the Council is about 40% of the total number of residents in a home. When the homes run by the Council are taken into account, it provides or makes arrangements for accommodation for around 58% of the beds in its area.
3. The claimants' case is that the Council unlawfully failed to set a rate which reflected their costs in providing care, and the need, given projected requirements for provision by private care homes, for the sector to be sustainable. It was also submitted by Miss Robertson QC on their behalf that the Council failed to take account in a number of ways of relevant guidance ("the Commissioning Guidance") by the Welsh Assembly Government (the relevant provisions are set out at [12] - [13]) and that the decision was procedurally unfair. As to the latter ground, it is stated that, in setting the rate for 2011/2012, the Council relied on the absence of long-term business plans by the claimants, when such plans (a) were only first mentioned shortly before the decision and (b) were mentioned in circumstances which did not inform the claimants of their importance for the decision for 2011/12.
4. The Council's case is that the decision, which increased the rate at a time of acute pressure on its finances, clearly recognised the need to maintain the care home sector. Miss Laing QC, on its behalf, maintained that the challenge is a disguised attack on the merits of the decision or on the weight given to various factors, and that neither of these are the province of a court exercising its supervisory jurisdiction by way of judicial review. She also submitted that the claimants' reliance on the Commissioning Guidance is misconceived because that Guidance is aspirational and has the purpose of seeking to measure performance and improve performance by reference to standards rather than imposing legal duties on local authorities.
5. More fundamentally, Miss Laing submitted that the Council's function of setting a fee under its contracts with providers is a private function and not amenable to judicial review. She also invited the court to refuse relief because, although these proceedings were lodged one day short of the three-month period from the date of the decision, there was undue delay by the claimants.
6. Over the past twelve months there have been a number of other challenges to the weekly rates set by Councils to be paid to providers of residential accommodation: see the challenges to decisions of Pembrokeshire CC by Forest Care Homes and Mavalon Care Ltd ([2010] EWHC (Admin) 3514 and [2011] EWHC (Admin) 3371) and to a decision of Sefton BC by Sefton Care Homes Association ([2011] EWHC (Admin) 2676). This case differs from those cases because in none of them did the defendant Council argue that its function in setting the fee to be paid to providers under the contracts with them is a private function which is not susceptible to judicial review. Indeed the Council in Mavalon's case declined to adopt the position taken by Neath and Port Talbot in these proceedings: [2011] EWHC 3371 at [16].
7. This case is similar to those cases because the issues between the parties include the way the Council used an economic model, "the toolkit", developed by the Laing and Buisson healthcare consultancy, and the significance of that model. The model was first published in a 2002 report, Calculating a Fair Price for Care: A Toolkit for Residential and Nursing Care Costs, for the Joseph Rowntree foundation. The report was updated in 2004 and in 2008. In 2004 Laing and Buisson also prepared a report, A Fair Price for Care: Wales, for the Welsh Local Government Association ("the toolkit for Wales"). Page 5 of "the toolkit for Wales" states that in order to establish valid fair fee rates in any specific locality "it is essential to enter local data on pay rates and land prices, and to vary any other of the model's parameters if local benchmarks differ from national ones" (emphasis added). The foreword to the 2008 edition of the "toolkit" states that it "allows its users to vary the data entered according to local circumstances and conditions, and is simply intended to inform negotiation from a transparent basis". It made provision for local rather than national baseline costs and fees because pay rates and land prices, the two main determinants of care home costs, vary significantly according to locality. It did not use average baseline costs and fees (i.e. "reasonable costs") because "Councils would not wish to pay for inefficient modes of operation on a cost-plus basis – unless they were specifically to decide to do so for service quality reasons, or some other overriding reason".

II. The evidence

8. The evidence on behalf of the claimants consists of statements of Sanjiv Joshi (23 June and 27 September), Margaret Jenkins (23 June and 27 September), Martin Joyce (23 June), Barry Latham (12 June), Alison Castrey (23 June, 27 September and 9 November), Anita Williams (26 September and 24 November), Eric Davies (2 October), Timothy Valler (30 September), Pauline Barber (30 September), and Nigel Clarke (1 October). Mr Joshi is the Managing Director of the fifth claimant; Ms Jenkins is the fourth claimant and a director of the third claimant; Mr Joyce is a director of the sixth claimant, Mr Valler is the Operations Manager of a care home owned and operated by his mother, the eighth claimant, Ms Barber is a director of the second claimant, and Mr Clarke is a partner in the first claimant. Mr Latham was, until April 2011, when he retired, the senior policy advisor for Care Forum Wales, an organisation representing independent providers. His statement is made on behalf of that organisation. Ms Castrey is the claimants' solicitor. Anita Williams is the matron and company secretary of the ninth claimant. Mr Davies is a partner in the accountancy firm of DRP and Co and the third and fourth claimants' accountant.
9. The evidence on behalf of the defendant consists of statements of Robert Rees (2 September 2011), acting Head of Community Care and Housing Services for the Council since August 2010, Susan Gorman (1 November 2011), the defendant's Principal Officer, Finance, for the Directorate of Social Services, Health and Housing, and Darren Williams (2 December 2011), a Council officer responsible for procurement and contract management.
10. Ms Williams' second statement and Mr Williams' statement in response were filed after the hearing and concerned the ninth claimant's position in relation to PAYE. The claimants' post-hearing submission is that the new evidence supports the evidence previously before the court of a clear risk of enforcement action by HMRC against the ninth claimant and shows that risk has materialised. It is also submitted that it shows that its home "is near having to close suddenly" because it could not meet its PAYE liability. The latter is not supported by the evidence. There does appear to be an outstanding liability for PAYE in respect of 2010. But, while the recently filed material provides some additional evidence of financial pressure on a provider, it was not material before the Council when it made its decision. It is therefore not relevant to the determination of whether that decision was unlawful.

III. The Law:

(i) The 1948 Act

11. Section 21 of the National Assistance Act 1948, as amended ("the 1948 Act") provides:

"(1) Subject to and in accordance with the provisions in this part of this Act, a local authority may, with the approval of the Secretary of State, and to such extent as he may direct shall, make arrangements for providing –

(a) residential accommodation for persons aged 18 or over who, by reason of age, illness, disability or any other circumstances are in need of care and attention which is not otherwise available to them…

(2) In making any such arrangements a local authority shall have regard to the welfare of all persons for whom accommodation is provided, and in particular to the need for providing accommodation of different descriptions suited to different descriptions of such persons as are mentioned in the last foregoing subsection…

…

(4) Subject to the provisions of section 26 of this Act, accommodation provided by a local authority in the exercise of their functions under this section shall be provided in premises managed by the authority…".

12. In the case of Wales, by section 26(1) and (1A) of the 1948 Act, accommodation under section 21 may be provided by a private organisation that manages premises for reward. This may be done provided the premises are a care home, and the manager of the home is registered under the Care Standards Act 2000. The Care Standards Act empowers the National Assembly for Wales to set standards for care homes generally in Wales and to set conditions for individual registrations.
13. Section 26(2) of the 1948 Act provides:

"Any arrangements made by virtue of this section shall provide for the making by the local authority to the other party thereto of payments in respect of the accommodation provided at such rates as may be determined by or under the arrangements…".

14. Section 21 has recently been considered in R (Forest Care Homes) v Pembrokeshire CC [2010] EWHC (Admin) 3514 and R (Mavalon Care Ltd) v Pembrokeshire CC [2011] EWHC (Admin) 3371) In the first of these Hickinbottom J stated (at [46]) that:

"(2) In deciding whether a person is in need of care and accommodation, an authority is entitled to have regard to its own limited financial resources. However, having set that threshold and found that a particular person surpasses it, an authority is under an obligation to provide care and accommodation in fulfilment of its section 21 obligations, which is a specific duty on the authority owed to an individual, not a target duty: lack of resources is no excuse for non-fulfilment of that obligation (R v London Borough of Islington ex parte McMillan (1995) 30 BMLR 20 at page 30; and R v Sefton Metropolitan Borough Council ex parte Help the Aged [1997] 4 All ER 532).

It is, however, also the position (see Forest Care Homes case at [46(3) and Mavalon at [18]) that, provided a local authority meets the minimum requirement under section 21 in some form, it has a wide discretion, both with regard to the nature of the accommodation and care, and its precise standard.

(ii) Government guidance

15. Guidance by the UK government and the Welsh Ministers tempers the wide discretion a local authority has in fulfilling its obligations under section 21 of the 1948 Act. Section 7 of the Local Authority Social Services Act 1970 provides that, in performing its functions, a local authority must "act under" the general guidance of the relevant Minister, and in the case of a devolved function, the Welsh Ministers. While it is clear on the authorities that guidance is not mandatory, it is also clear that it should be given great weight and an authority can only depart from it for cogent reasons: see the line of cases originating with R v Islington LBC, ex p. Rixon [1997] ELR 66 at 71, and most recently the Forest Care Homes and Mavalon cases to which I have referred: [2010] EWHC (Admin) 3514 at [28] and [2011] EWHC (Admin) 3371 at [22].
16. The National Assistance Act 1948 (Choice of Accommodation) Directions 1993 ("the Choice Directions") limit a local authority's obligation to pay for accommodation in the home preferred by the individual concerned to homes which would not cost the authority more than the "usual price" it would expect to pay for the individual's assessed needs. The Choice Directions are part of the background. But in the present case the material guidance is the Welsh Assembly Government's August 2010 Fulfilled Lives, Supportive Communities: Commissioning Framework, Guidance and Good Practice: "the Commissioning Guidance". This replaced earlier guidance issued in 2003.
17. The relevant provisions of the Commissioning Guidance are:-

"Standard 1

Social Services can demonstrate how commissioning plans have translated their commitments in local strategic plans into consistent high quality linked or seamless services to meet the needs of local citizens.

...Commissioning plans are also essential to enable local providers to develop their business plans. They should be public documents and should contain sufficient detail to signal the authority's intentions to potential service providers...

Standard 2

Commissioning plans have been based upon sound evidence and reflect national policy and guidance, local strategic plans, research and best practice. They include comprehensive population needs, services, market and resource analyses.

Commissioners need to have a rationale for their commissioning plans and need to be able to explain to service users, carers, councillors, taxpayers, providers and inspectors, how they arrived at their commissioning decisions...

Representatives of service providers need to be engaged at each stage of the analysis process...

Standard 4

Commissioning Plans have been developed with partners and have involved all key stakeholders including ... service providers...

Standard 7

...Sustainable means that short term considerations should not threaten medium to long term service delivery. Unrealistic fees, for example, may ease the pressure on the budget of the commissioner this year but if the service ceases to operate due to financial difficulties the savings will prove self-defeating. Equally, the continued investment in services which may undermine independence or fail to promote independence may prove to be unsustainable both in financial and workforce terms...

Local authorities will also need to take into account that maintaining sustainable service provision in rural areas can be more costly than in urban areas and that it may be more difficult to attract new provision to such areas if existing services are lost...

Local authorities are required to take into account the importance of continuity of care for individual service users in social care provision..."

Standard 10

Commissioners have understood the costs of directly provided and contracted social care services and have acted in a way to promote service sustainability.

Commissioners will have to take into account the full range of demands on them and their strategic priorities, as well as the resources they have at their disposal in developing their commissioning strategies. As stated earlier the financial outlook is going to be very challenging for some time to come. This makes the commissioning framework more important.

In seeking long term value for money and determining the budget available for specific social care services it is necessary for commissioners to take into consideration a whole range of factors, for example:

The national or local economic environment may be making it difficult for some provider organisations to remain financially viable.

A requirement to improve the quality of services may put a short-term strain on resources.

The move to an outcomes-based approach may pose serious cultural as well as financial challenges.

Recognition of the need for service providers to be able to recruit employees with the skills and aptitudes necessary to deliver good quality care, to provide them with the training they require to obtain qualifications relevant to their duties and to facilitate continuing professional development to extend their abilities.

The need to re-train the workforce to respond to more up-to-date practices may have transition cost and service implications.

Thus, it will be important for commissioners, in contract, fee and service level negotiations, to recognise the financial and service challenges that are having an effect on providers, and consider both short and longer term scenarios.

Local authorities need to have mechanisms in place to discuss costs and performance with providers. 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. The fees need to be adequate to enable providers to meet the specifications set by the Commissioners together with regulatory requirements.

Registered providers also have an obligation to ensure that the income which they receive for providing the service is sufficient to meet the cost of delivering a service which complies with all statutory requirements, contractual conditions and specified service standards.

Commissioners should have a rationale to explain their approach to fee setting. The primary concern is that services operate safely and effectively to promote the welfare of service users and carer and meet regulatory requirements."

18. The references to the "financial and service challenges" and "more cost-effective ways of working" are concerned with what Standard 9 describes as the need for "value for money" and "fit[ness] for purpose". Value for money, under Standard 9 "balances quality, cost and effectiveness, taking account of available resources".

IV. The factual background

19. In about 2007 the Council set up a sub-committee to agree a fair price for care and to narrow areas of dispute about the use of the "toolkit". One issue was that the data initially provided to the Council by care homes was in an inconsistent format which meant that it could not be used to populate the "toolkit". After publication of the 2008 edition, the Council used a version of it to inform its decision regarding fees, but the "toolkit" did not dictate the decision: Rees, statement, paragraph 44. In fact, in all but one year between 2005 – 6 and 2010 – 11 the rate paid by the Council was less than the floor rate calculated using the "toolkit". One reason for this was that the occupancy rates in Neath Port Talbot frequently exceeded the toolkit's assumed occupancy rate of 90%: Rees, paragraph 53.
20. In October 2008, the Council and the local Health Board published the Neath Port Talbot Joint Strategy for Older People 2009 – 2012 ("the Joint Strategy") in order to influence the planning and commissioning of services in the area. The background was an anticipated increase in numbers of elderly people needing care and an overall policy of rebalancing resources to provide a greater element of support for domiciliary and community services to support people in their own homes and communities. There would, it was anticipated, be a corresponding reduction in the use of residential accommodation. Towards the end of January 2010, in the light of a report by officers Improving Residential Care Services in Neath Port Talbot, the Council's Executive Board decided to conduct a consultation exercise based on this as a preferred option. There was wide consultation, including with providers, over a three month period. In the light inter alia of the outcome of the consultation, the Council adopted a policy of rebalancing provision in this way.
21. In January 2010 the Council also decided that the building and management of replacements for its own care homes should be undertaken by a private provider. This project was known as the TOPS project. The Council decided to do this because of the poor condition of its own homes and because it considered that it would be more cost-effective to proceed in this way than for it to refurbish its own homes. Its analysis of the cost in the strategic business plan was based on bed numbers in line with the "toolkit".
22. In April 2010 Care Forum Wales, a group representing the providers of care services in Wales, complained to the Welsh Assembly Government's Chief Inspector of Care and Social Services ("CSSIW") about the inadequacy of the annual increases and claimed that local authorities were not complying with 2003 Commissioning Guidance, which the Welsh Assembly Government was considering updating at that time. It did so in August 2010 when the current guidance was introduced.
23. In October 2010 Mr Latham, on behalf of Care Forum Wales, made a submission about fee levels on the basis of the "toolkit", proposing a floor rate of £499 per resident per week. The next significant event was a meeting of what was known as the fees sub-group on 26 January 2011. It was attended by Sue Gorman and Kath Williams on behalf of the defendant, and Mr Joshi, Ms Jenkins, Mr Joyce and Ms Williams, representing those operating care homes. At the meeting, Ms Gorman, responding to a question by Mr Joshi about the principles for updating the "toolkit", stated that the Council would have to rely on national indicators and figures, not actual figures, because not all the information available was usable in the model. The action points recorded in the claimants' note of the meeting are that the Council's Director was to respond to Mr Joshi's query about Care Forum Wales's proposal for a floor rate, and the providers were to supply evidence to demonstrate increase in care hours, utilities and dependency levels. Ms Jenkins is recorded as asking about current vacancies because she had several empty beds in her care homes, and said that "elderly people's rights are not being considered".
24. On 15 February 2011 the Council met with providers to discuss the process of setting the fee for 2011 – 2012. This was the first meeting attended by Mr Rees. He and Ms Gorman stated that CSSIW had informed the Council there were no major outstanding issues from a quality point of view. They also stated that as there was still new building going on, banks must be happy to lend on a fee level of £403 per resident per week. The providers responded that the building had been commissioned at a time when there were promises of year-on-year increases, and that on current levels they were not able to build.
25. Mr Rees said that he was willing to use the "toolkit", but needed to understand it better and wanted to see the profit margin. He was new in post, and needed to understand providers' costs on an "open-book" basis. The claimants' note of the meeting records him stating he "could not increase fees if they were just going into extra profit". There was also discussion about the "toolkit". Ms Gorman stated the information in the "toolkit" was out of date and Mr Rees that the Commissioning Guidance did not mean that the Council had to apply the "toolkit" to arrive at a fair price. There was also a discussion about the defendant's obligations and the method to be used to arrive at a sustainable fee rate. The providers' representatives stated that there were updated figures reflecting inflation which could be used, and that the "toolkit" had always been used in Neath Port Talbot.
26. Mr Rees asked about the providers' five to twenty year business plans. He was told that providers were unable to plan even a year ahead because they did not know what the fee levels or occupancy levels would be. Mr Rees (statement, paragraphs 66 – 67) stated the Council was concerned that the "toolkit" was not giving accurate information about providers' actual current costs inter alia because the surveys of providers were historic and not enough providers had responded to them. It was this that led him to say he preferred an open-book approach.
27. The next major development occurred on 2 March, when the Council set its overall budget. The claimants maintain that the result of this was that, although the Council had not yet set the 2011 – 12 rate, there was no provision for a change in the allocation for residential care in the light of the costs. The Council's position is that it accepted that it needed to spend more on residential care. This, it is contended, was shown by an increase in the care budget of some £728,000 to £6.4 million. The result of that meant that there would have to be considerable savings in other budgets.
28. On 4 March, Mr Joshi furnished the Council with a synopsis of the financial strains on providers. This inter alia stated that several care homes were in breach of their financial covenants with their respective banks, that many homes stated they were deferring PAYE payments in order to enable them to be able to deal with shortfalls in cashflow, and that their bankers were rejecting applications for fresh finance because their businesses were not viable on the current fee rates. The synopsis also referred to low occupancy rates, as low as 70%, although the "toolkit" model is based on an occupancy rate of 90%. It also referred to strains resulting from increases in the cost of food and utilities in the region of 20%, and increases in the wage bill of at least 5%.
29. The synopsis also referred to the need for capital expenditure, and to the large investment in past years to upgrade existing homes to comply with physical environment requirements of the CSSIW. It stated that the fact that homes had increased capacity in the three preceding years was not a test of the sector's financial health because those homes which had increased capacity had done so in order to enable themselves to run more efficiently, and in anticipation that low fee rates would be addressed. That assumption was based on the Council's action when it began to address the low fee rate in 2008 – 2009. The synopsis also stated that it was impossible for providers to produce business/development plans for the next five to ten years in the current environment. The reason given was that the basis of the projections "would have to be the fee rates and occupancies currently achieved", and that "using these assumptions the forecasts would not allow the development of a sustainable business".
30. The next meeting was on 9 March. It was attended by Councillor Morgan, one of the members of the Board. Mr Joshi took Councillor Morgan through the synopsis of the financial stress experienced by providers. The providers stated that occupancy rates were lower than 90%, and one home was experiencing an occupancy rate of "mid-70%". The providers stated that the Council must be aware of the costs because of its involvement in its own homes, and the TOPS programme. They also said they were unable to go to their banks for further support because, as a result of the low fee rate, they could only make a poor business case for such support.
31. At this meeting, Mr Rees stated that he had sufficient information to deal with the issue. The Council's budget had been approved and he knew the "global" position and what was available for the following year. He also stated that he had to consider the viability of the market and the impact on service users, and that he wanted to explore a legally binding agreement to last four years to provide stability. The issue would be the base point at which to start.
32. On 23 March, two days before the meeting of the Council's Cabinet Board, a copy of Mr Rees's draft report was sent to Mr Joshi. On the day of the meeting, Mr Joshi sent the Council comments on behalf of the providers. He stated inter alia that the likely consequence of paying the sum proposed was that homes would "become increasingly unviable". He proposed a fee for 2011 – 2012 of £457.32 (the floor of the "toolkit" calculation) with a commitment to minimum annual increases of 4% for the next three years. He also proposed that a quality payment over and above this be instituted within the next 12 months backdated to 6 April 2011.

V. Mr Rees's Report to the Council's Cabinet Board and the decision

33. Mr Rees's report to the Council's Social Care, Health and Housing Cabinet Board (hereafter "the Cabinet Board") referred to section 7 of the Local Authority Social Services Act 1970, and to the Commissioning Guidance issued by the Welsh Assembly Government, and in particular Standard 10. He noted that the Council had to have a rationale to explain its approach to fee-setting, and set out the factors for consideration, which included analysis of demand and the providers' legitimate current and future costs. He referred to the Joint Strategy (which was a background paper) and the anticipated increase in the numbers of elderly people needing care and the level of dementia in the older age population. He also referred to the policy of enabling people to remain in their own home when possible.
34. The section of the report on resources referred to the budget allocation for packages of care, £6.4 million for 2011/2012. This was an increase of £728,000 on 2010/2011. The report stated that the Council's strategy presumed that over a period of time resources would be rebalanced to provide a greater element of support for domiciliary and community services which encouraged independent living by residents in their own homes and communities. That process had started and the Council's own TOPS programme contemplated a reduction of the number of its beds from 261 to 220. It was also stated that it was necessary to consider, in consultation and partnership with the sector and with residents, "the numbers, size and type of facilities which will be supported by the Council over a reasonable timescale". This was stated to enable providers to prepare business plans and developments which accorded with the strategic direction of the Council.
35. The report stated that the financial position of providers was a major factor which the Council had to weigh when considering fees. A copy of the providers' representations on financial strains was annexed to it. This section of the report also stated that the providers' response indicated the difficulties that a number of them claimed they were facing in relation to their ability to continue to provide a service, and that it was "necessary to do further work with the sector to evaluate the degree of the problem and its likely impact on providers and their service users".
36. The report also stated that none of the businesses "seems to be able or have worked to any long-term business plan" and that the absence of such basic documents made any assessment difficult. It stated that:

"it is not possible therefore to be able to provide members with any definitive position statement on the financial position of the homes, why it arose in the first place, and what, if any, part the level of fees played in the situation. Neither has it been possible from the information received to date to disentangle or understand the profit margin which is being applied as against any loss or deteriorating financial position, and the degree of likely impact that would have on their service users".

37. In the section on classification and quality, it stated that in the last year several care homes had either extended or rebuilt, with an estimated increase of 60 beds over the next 3 months. As to monthly vacancy information, in January 2011 93% of beds were occupied, compared to 97% in October 2010. This section also considered evidence as to whether the service was operating safely and effectively by reference to contract monitoring and the Inspectorate's ("CSSIW") inspections. The main points noted from the latter were that two homes were not complying with the 2010 85% single to double room ratios. To do so would be costly and reduce the number of beds and consequently the income of those homes. It also stated that five of the homes had to invest in sluicing and laundry facilities, one home required improvements in the physical environment, and another home did not meet the ratio of toilets and bathrooms to numbers of service users.
38. The conclusion section set out the factors the Council had to weigh before making a decision. Those are: the resource available to the Council; demands and strategy priorities; providers' legitimate and future costs; the potential for improved performance and more cost-effective ways of operating; providers' ability to meet contractual and regulatory requirements; and the need to ensure the welfare of service users.
39. The report recommended that the Council consider a dual approach. The first limb of this was the establishment of a minimum payment level for beds for the years 2011/2012 to 2014/2015 and a discussion and consultation process. The second limb would consider the establishment of an open-book approach for ascertaining costs, profits and forward investment plans, the development of a differential fee structure to address differences in quality and outcomes. It would also consider likely bed purchasing policy over the next five to ten years to enable providers to have a framework for development of their business plans to reflect business sustainability. This section of the report referred to the Council's tight financial circumstances. But it stated that balanced alongside that "is the need to ensure that the present occupants…have a safe and effective service", that there is "sufficient finance for the present service and for improvements", and that the Council "will be able to finance sufficient new placements to replace placements which come to an end".
40. The report also stated that, while there was "some evidence to show that there is some pressure on providers", there are other "pointers to the fact that they continue to provide the level of quality of service at the present price". It concluded that "it seems clear that some degree of price movement is required to maintain the sector".
41. The report then stated that the Council had examined the Laing and Buisson figures and what the "toolkit" would lay down as fees for Neath Port Talbot. It stated that the Council's "toolkit" calculation indicated a figure of £457.32 per resident per week "as the cost floor", and the national "toolkit" calculation provided by Care Forum Wales indicated a national figure of £499 as the cost floor for homes which do not exceed the physical standards for existing homes. It, however, stated that "the impact of implementing that level of fee in relation to the budget available is at present unsustainable and would have an unacceptable impact on the Council's ability to finance replacement beds at the present level with considerable impact on both service users and the providers themselves". The recommendation was that the fee be set at £426 per resident per week for 2011/2012, an increase of £23, or 5%, and that the fees for the following three years be set out at a minimum level of £443, £461 and £479. In each case, this was subject to an additional supplement for residents with dementia.
42. On 25 March the report and Mr Joshi's comments were considered by the Council's Social Care, Health and Housing Scrutiny Committee. The Committee supported the proposals that were to be considered by the Cabinet Board. On the same day, the Cabinet Board decided to accept the recommendations in Mr Rees's report and set the rate accordingly.

VI. The claimants' case

43. Miss Robertson submitted the Council fell into reviewable error on a number of grounds, some of which overlap, and some of which were first raised in a letter to the Council dated 12 August 2011, after these proceedings were instituted. I summarise the grounds now pursued thus:-

(1) The Council misunderstood or misstated the nature of long term demand for residential care in its area. Miss Robertson submitted that Mr Rees's report to the Cabinet Board, (and thus the Council's decision) was based on the false assumption that the Council's change of strategy as to the use of residential placements would lead to a fall in the number of placements in privately provided accommodation over time. This, she maintained, was inconsistent with the Council's own projections of the need for funded beds in the private sector which required providers to remain in the sector and, in a number of areas, to expand their capacity by 2015. The decision made no reference to those projections and thus failed to take into account a relevant factor and was also a breach of the Commissioning Guidance.

(2) The Council's decision that it was unable to judge the degree of financial pressure on providers without seeing their business plans was both procedurally unfair and irrational or perverse. As to procedural unfairness, the Council had told providers at the meeting on 9 March that it had sufficient information to make its decision for 2011/12, providers had been led to believe that business plans would only be relevant for decisions for later periods, and such plans had only been requested shortly before the decision. As to irrationality, the Council had over a number of years analysed providers' costs and the rate of return "by using" (skeleton argument, paragraph 49(b)) the Laing & Buisson "toolkit" and could have reached a conclusion on the financial pressures faced by providers from the information provided by providers and as to the finances of the Council owned and run homes and such plans could not be prepared without knowledge of the rates set.

(3) The Council failed to reach a view as to whether there was an accumulated shortfall because of past underpayment of fees, as providers contended and "perversely and unfairly treated the absence of business plans as a reason not to reach any conclusion about this": skeleton argument, paragraph 55.

(4) The Council misunderstood the element of "return on capital", and "took the irrational and unfair position that it was not prepared to pay an increase if this might go into profit". This was because the providers needed profit to be sustainable, a requirement promoted (see [17]) by Standard 7 of the Commissioning Guidance. Miss Robertson accepted that the "toolkit's" use of a 12% rate of return on capital was not the only one but submitted (skeleton argument, paragraph 53) that it is a relevant factor, and in view of its use in the past, in order to depart from that, the Council needed an alternative methodology or rationale which it did not have: skeleton argument, paragraphs 50 and 52(b).

(5) In relation to Laing and Buisson's "toolkit":-

(a) The Council's own calculation of the rate using the "toolkit" produced a figure which, at the lowest end of the range (£457.32), was £34 more per person per week than the rate determined by the Council. The rate set was also some £75 per person per week less than Care Forum Wales's "toolkit" calculation of £499. No rationale was given for picking this figure other than lack of resources. The report and the decision rejected or ignored the Laing and Buisson calculation particularly in relation to inflation. It was contended that the "lack of resources" rationale is erroneous in law. Although a Council's resources are relevant in its determination of the eligibility threshold or whether or not it is necessary to meet an individual's needs by providing residential care, lack of resources is not a reason for declining to fulfil the obligation to provide the residential care which has been determined to be necessary.

(b) The Council used the "toolkit" calculation in its plans to outsource the building and management of six homes. It was submitted that it was inconsistent and irrational to treat the "toolkit" calculation as reliable in that context, but to ignore it when setting the fee rate for independent providers.

(6) The Council's reliance on reports from CSSIW that quality standards were generally satisfactory and that some providers had expanded capacity was flawed because those factors were not inconsistent with the existence of a significant shortfall in the rate paid to providers.

(7) The Council based its conclusion on an assumed occupancy of 93% across the sector when some providers' occupancy rates were significantly lower and some were struggling financially at 100% occupancy: skeleton argument, paragraph 56 and the witness statements referred to, for example Mrs Jenkins, second statement, paragraphs 7-8, Mr Joyce, statement, paragraphs 8-24 and Mr Joshi, second statement, paragraph 2.

(8) The Council failed to have any or adequate regard to:-

(a) relevant guidance from the Welsh Assembly Government (in particular Standards 7 and 10 of the Commissioning Guidance);

(b) the consequences for providers should the rate be insufficient to sustain the service offered;

(c) information about running costs available to it from its own homes; and

(d) increased costs due to reduced occupancy rates as a result of the Council unlawfully directing residents to its own homes or to Southern Cross homes, and delaying funding assessments to residents

(9) The Council failed to take proper steps to balance the welfare and interests of the residents for whom it makes arrangements and its financial resources. This ground had various forms. Originally, one was that the Budget decision of 2 March 2011 was an unlawful fetter on the Council's discretion: summary grounds of complaint, paragraph 3, and skeleton argument, paragraphs 24, 44. In the light of Ms Gorman's evidence this was not pursued in that form but (see supplemental skeleton argument, paragraphs 16-18) it was submitted that the Council failed to budget adequately in the light of the numbers needing care and the costs of the providers, and this was contrary to standard 10 of the Commissioning Guidelines.

(10) Taking into account inflation, the decision is "practically a standstill" "in real terms", in a sense "no more than updating the fee for RPI inflation", an increase of "zero or close to it": see section 5 of the claim form, paragraph 20, summary grounds of complaint, paragraph 6, and first skeleton argument, paragraphs 3 and 55. Having acknowledged that some increase in the rate was necessary, it then failed to provide one in real terms. In the light of the financial pressures on providers recognised in Mr Rees' report, the implication of this (although it was advanced in a muted form at the hearing) that the decision to adopt a figure with this effect was Wednesbury unreasonable or, using Lord Diplock's terminology, "irrational".

VII. Discussion

(i) Amenability to judicial review

44. Logically, the first question is whether the decision to set the rate to be paid to providers is amenable to judicial review. Miss Laing recognised that the first instance decisions on care homes present a mixed picture. She, however, submitted that only in one, R v Cleveland CC, ex p. Cleveland Care Homes Association (1994) 158 LG Rev. 641, was it held after argument that the decision, there to impose a new contract at short notice, was amenable to judicial review. In that case a challenge on Wednesbury unreasonableness/ Diplockean "irrationality" succeeded. But in the other cases (e.g. R (Birmingham Care Consortium) v Birmingham City Council [2002] EWHC 2188 (Admin); R (Forest Care Homes) v Pembrokeshire CC [2010] EWHC 3514 (Admin); R (Sefton Care Association) v Sefton BC [2011] EWHC 2076 (Admin); R (Mavalon Care Ltd) v Pembrokeshire CC [2011] EWHC 3371 (Admin)) amenability to judicial review was assumed without argument.
45. Miss Laing submitted that the Cleveland Care Homes Association case is wrong and inconsistent with R v Newcastle CC, ex p. Dixon (1993) 92 LGR 168, which she invited me to prefer. In ex p. Dixon Auld J accepted that the decisions were not amenable to judicial review. Miss Laing's primary submission was that, as a matter of principle, although the Council is a public body, the function it exercises when setting a fee under contracts with providers is a private law function. She relied in particular on the judgment of Neuberger LJ in Hampshire CC v Supportways Community Services Ltd [2006] EWCA Civ 1035 at [35] – [43] and, by analogy, that of Pitchford J (as he then was) in R (Hopley) v Liverpool Health Authority [2002] EWHC 1723 (Admin) at [39], [55] and [58].
46. The question whether a particular function is a public function has been the subject of considerable analysis and differences of approach by courts: see for example YL v Birmingham CC [2008] AC 95 (Lord Bingham of Cornhill and Baroness Hale of Richmond dissenting) and R (Weaver) v London and Quadrant Housing Trust [2009] EWCA Civ 587 [2010] 1 WLR 363 (Rix LJ dissenting). In those cases the context was whether the bodies were public bodies within section 6 of the Human Rights Act 1998. Weaver's case considered whether, when terminating a tenancy, a registered social landlord, a "hybrid" rather than a "core" public body for the purposes of the 1998 Act, was subject to section 6 and to public law principles.
47. It is clear that, because the purpose of attaching liability under section 6 of the 1998 Act is different to the purpose of subjecting a body to public law principles, "it cannot be assumed that because a body is subject to one set of rules it will therefore automatically be subject to the other": Elias LJ in Weaver's case at [37]. However, the approach taken by the majority of the court in Weaver's case to the section 6 issue is, in its broad thrust, of analogical assistance in the present context. Elias LJ (at [83]) indicated that he agreed with the Divisional Court's view that the landlord's decision to terminate a tenancy was governed by public law principles and susceptible to judicial review on conventional public law grounds. See also the discussion of Weaver's case and the approach taken by the Deputy High Court Judge (Mr John Howell QC) in R(McIntyre) v Gentoo Group Ltd [2010] EWHC 5 (Admin). At [21] the learned judge stated that "… if the act was one to which section 6 of the 1998 Act applied, it was also one also governed by public law and thus susceptible of judicial review on conventional public law grounds".
48. For Elias LJ (at [55] and [57]) the starting point is "to focus on the nature of the act in the context of the body's activities as a whole". The act in the present case is the fee-setting decision of the Council. In respect of that decision, the wider context is the function of a local authority under the 1948 Act in providing care or making arrangements for others to provide care for those who need it. That is a public function. While the fee-setting function of the Council is less closely regulated than those of a registered social landlord, the statutory and regulatory framework shows that a Council does not have the freedom that a private individual would have to use its bargaining power to drive down the price as far as possible. The mere fact that the decision concerns the setting of a fee under a contract does not mean that it is to be characterised as a private act. In Weaver's case Elias LJ (at [76]) distinguished acts necessarily involved in the regulation of what is a public function, which he considered to be public acts, from those which are purely incidental or supplementary to it. The decision in this case cannot be characterised as purely incidental or supplementary to the function of making arrangements for the provision of care in care homes operated by third party providers for those who qualify under the 1948 Act.
49. While there are aspects of the Commissioning Guidance which may be characterised as aspirational or as indicating "best practice", the guidance was issued by the Welsh Ministers under section 7 of the Local Authority Social Services Act 1970. The relevant legislative authority, here the UK Parliament in section 21 of the 1948 Act and section 7 of the 1970 Act, and the Welsh Assembly Government in section 26 of the 1948 Act, has entrusted responsibility for providing or making arrangements for care and accommodation for those who by reason of age, illness or disability need it. The Commissioning Guidance makes it clear that, in performing these functions, a Welsh local authority such as the Council in these proceedings, must actively consult providers. Providers themselves are under a duty to "carry on" the care homes they run in such manner as are likely to ensure they "will be financially viable": Care Home (Wales) Regulations 2002 SI 2002 No. 324, reg. 26. I reject Miss Laing's submission that the purpose of the Commissioning Guidance and its terms mean that its sole effect is to provide a framework of standards against which the effectiveness of a local authority's commission could be measured by the Annual Council Reporting Framework and each local authority's scrutiny committee.
50. The earliest of the cases relied on by Miss Laing was ex p. Dixon. But in that case it was not argued that the defendant was in breach of a public law obligation. Moreover, the statutory requirement in that case (see (1993) 92 LGR 168 at 180) was that the contract should be of a commercial nature. Additionally, there were no constraints on the Council's approach to contracting and fee setting of the sort that there are in the Commissioning Guidance. R v Cumbria CC, ex p. Cumbria Professional Care Ltd (2000) 3 CCLR 79, on which Miss Laing also relied, did not hold that the decision challenged was not amenable to judicial review because the relationship between the Council and the provider was contractual. The claimant in that case did not succeed because it did not identify any relevant public law unlawfulness and because of delay.
51. The other cases relied on by Miss Laing are also distinguishable. I refer only to the three cases principally relied on. In Hampshire CC v Supportways Community Services Ltd the substance of the dispute was whether or not a contract between the Council and Supportways had come to an end in accordance with its terms: [2006] EWCA Civ 1035, per Mummery LJ at [60]. Supportways's complaint was "solely based on the contention that the Council failed to comply with its (purely contractual) obligation…": ibid., per Neuberger LJ at [40]. In Hopley's case the issue, a Health Authority's decision whether to enter into a structured settlement of a personal injuries claim, was very different. There were no relevant legislative provisions or guidance as to the way the Health Authority should approach the issue. The Mercury Energy case concerned a decision by a state enterprise to terminate a contract for the supply of electricity. There was no legislative obligation restricting the power to terminate or guidance as to the approach to be taken by the enterprise to the question of termination. The statutory framework required the enterprise to operate as a successful business and to be as profitable as private sector businesses, and there was no challenge to the new price set by it.
52. Miss Laing had two "fallback" submissions. The first was that any public law duties owed by the Council are owed to those for whom it arranges accommodation and not to those who own or manage the homes in which the accommodation is provided. She relied on the decision of Turner J in R v Cumbria CC, ex p. Cumbria Professional Care Ltd (2000) 3 CCLR 79. She also submitted that the evidence is that there has been no impact on the residents for whom the Council has made the arrangements. As to the Cumbria Professional Care case, there was no guidance similar to the Commissioning Guidance. As to impact, contrary to Miss Laing's submission, in the present context there is an impact on residents. The fee which (see [13]) local authorities are willing to pay providers is relevant to the setting of the "usual price" under the Choice Directions and therefore to whether individuals will have to pay "top-up" fees in order to live in a home they have chosen where its charges are above the "usual price" and how much those "top-up" fees will be. In this way the fee set may have an impact on individual residents. Additionally, if the Council's decision to set the fees to be paid to providers of care is amenable to judicial review by residents of care homes, the question becomes whether the claimants have standing ("sufficient interest") to bring a claim. They clearly would because the decision affects their rights under existing placement agreements and their ability to meet their duty under regulation 26 of the Care Homes (Wales) Regulations 2002 is affected by it.
53. Miss Laing's second fallback submission was that if fee setting is amenable to judicial review by providers, in the light of the contractual context, the scope of review is narrow and (see Mercury Energy Ltd v Electricity Corporation [1994] 1 WLR 521 at 529) normally confined to fraud, corruption or abuse of power. It is said (claimants' supplementary skeleton argument, paragraph 2) to be common ground that none of those exists in the present case. This may certainly be true as far as fraud and corruption are concerned. But "abuse of power" is an umbrella term that is often used (see Wade and Forsyth, Administrative Law, 10th ed., 292-3) to refer to the conventional grounds of failure to take account of relevant considerations or to exclude irrelevant considerations, propriety of purpose, and perversity, Wednesbury unreasonableness or Diplockean irrationality. The claimants' grounds rely on a number of these.
54. Subject to two qualifications, in a case such as this the scope of review in principle extends to all the conventional public law grounds. The first qualification is the caution expressed by Stanley Burnton J in the Birmingham Care Consortium case at [31] - [32] about the court interfering in a process in which the local authority is in effect engaged in a contractual negotiation with providers, who may wish to improve their contractual negotiating position by recourse to public law principles. The statement in the Mercury Energy Ltd case relied upon by Miss Laing may well be an example of this caution. It is to be observed that, in that case there was no statutory or regulatory provision restricting or channelling the Electricity Corporation's discretion. Its statutory duties to operate as a successful business by becoming profitable and efficient, by being a good employer, and showing social responsibility, were very different to the duties on the Council in this case. The second qualification is that, in the very different context of competitive tendering for contracts with public authorities, special considerations, including a different remedial structure, obtain. For these reasons, despite the skill with which Miss Laing developed her submissions, I accept Miss Robertson's submission that the Council's decision is amenable to judicial review.

(ii) The grounds: preliminary observations

55. Before dealing with the substantive grounds relied on, I make three observations. The first arises from the claimants' undoubted disagreement with the merits of the decision made by the Council and the wide-ranging and detailed nature of their challenge. The challenges to the decisions by Pembrokeshire in the Forest Care Homes and Mavalon cases were also wide-ranging and detailed. In those cases, the court commented that the claimants appeared to be inviting it to address the merits of Pembrokeshire's decisions in a way that is inappropriate for a judicial review court: see [2010] EWHC 3514 (Admin) at [50] and [2011] EWHC 3371 (Admin) at [40]. The nature of the evidence and the submissions in these proceedings at times created a similar appearance: see, for example, the analysis of the budgeting process in paragraphs 14 – 18 of the claimants' supplemental skeleton argument. But Miss Robertson QC submitted that this was not so. She maintained that the Council erred in a number of fundamental respects (summarised at [43]), and that those errors vitiated its decision-making process and rendered its decision unlawful.
56. Secondly, at a number of points, the claimants' submissions rely on the absence of a reference in Mr Rees's report to the Cabinet Board of a particular factor. The guidance in the cases on this issue can be summarised as follows. A public law decision-maker must know or be told enough to ensure that nothing that is necessary because it is legally relevant for him to know is left out of account. However, sifting by the decision-maker's officials is acceptable. They are not bound to bring to the attention of the decision-maker all the minutiae relating to the matter: see R (National Association of Health Stores) v Department of Health [2005] EWCA Civ 154 at [61] – [64] and [73] – [75], applying the approach of the High Court of Australia in Minister for Aboriginal Affairs v Peko-Wallsend Ltd (1986) 162 CLR 24 at 30 – 31, and 61 and 65 – 66. Provided that which it is legally relevant for the decision-maker to know is brought to its attention, it is generally for the decision-maker to decide upon the manner and intensity of the inquiry to be undertaken into any relevant factor: see R (Khatun) v Newham LBC [2005] QB 37 at [35] per Laws LJ.
57. A related principle is that, as I observed in Mavalon's case (at [40]), provided the decision-maker has regard to a factor that is legally relevant for it to take into account, the weight given to it is a matter for the decision-maker. Absent Wednesbury unreasonableness or what has (since the GCHQ case) been called public law or Diplockean "irrationality", it is not a matter for the court. This well-known principle (see the cases digested in Fordham's Judicial Review Handbook 5^th ed., 56.3.2 and, in the context of fundamental rights, R (Samaroo) v Home Secretary [2001] EWCA Civ 1139 at [39]) is also reflected in the statement of Laws LJ in Khatun's case to which I have referred, and the decision in ELS Wholesale (Wolverhampton) Ltd v Secretary of State for the Environment (1987) 56 P & C. R. 69, albeit in the context of a statutory appeal. In the latter case May LJ stated that a planning decision is not to be pored over and analysed in a way which would have been appropriate had it been a statutory instrument, a section of a statute, or a contract.
58. My third observation is that, as I also stated in Mavalon's case, a judicial review court will be particularly circumspect in engaging with the conclusions of the primary decision-maker in relation to complex economic and technical questions. In that case it was possible to reach a decision without entering into that difficult territory because Pembrokeshire County Council had stated it would apply the "toolkit" model for determining the rate for 2010/2011. In these proceedings, the Council has not (see [67]) stated this. Some of the submissions invite the court to grapple with similar questions.

(iii) The substantive grounds relied on

59. With that introduction, I turn to the grounds upon which the decision is challenged. As to the first (summarised at [43(1)]), the Council's strategic priorities and decision to place increasing emphasis on enabling those in need to care to continue to live in their own homes are dealt with in Mr Rees's report: see [32]. The report acknowledged that the Council's Joint Strategy, one of the background papers to the report, had indicated that various factors would increase future demand. The reference to the strategic priority to reduce reliance on residential care was a balancing factor to be set against the former factor. I accept Miss Laing's submission on this. In the light of the authorities to which I have referred (see [56] – [57]) the report did not need to refer to the Council's own projections, and the way the competing factors of increased future demand and reduced reliance on residential care were to be balanced was a matter for the Council. I shall consider the submission that the Council's approach and failure to refer to the projections also constituted a breach of the Commissioning Guidance later in this section.
60. The next ground concerns the Council's approach to business plans: see [43(2)]. Was it unfair or irrational? I do not consider that the Council fell into error in its treatment of this matter. The sections of the report on business plans are factually accurate. The report, the Scrutiny Committee and the Cabinet Board used such material as they had from providers about their costs and the pressures on them. The Cabinet Board did not regard itself as bound by the Council's budget. Its decision resulted in it exceeding the budgeted figure for residential care by over £400,000. It recognised the need for providers to plan and for sustainability by recommending minimum increases in absolute terms for a period of four years. It sought to assess the implications of the fact that quality standards were generally satisfactory and some providers had expanded capacity. In having regard to these factors it demonstrated that it had regard to the need (set out in Standard 10 of the Commissioning Guidance) to understand the costs of care and to promote sustainability.
61. What was stated in the report was that, in the absence of business plans, a definitive position statement could not be provided. Moreover, Mr Joshi's final comments accepted that the use of business plans to assist in understanding providers' costs would be instructive, but that the Council's failure to utilise them was due to its own failure because they only raised the point recently. It cannot be said that the Council's treatment of this question amounts to Diplockean irrationality. What of the submission that it was procedurally unfair of the Council to claim at a very late stage in the process that it was unable to judge the degree of financial pressure on the providers without seeing their business plans when it had previously told providers it had sufficient information and when there was no time for providers to furnish plans? Although business plans were first raised at a late stage, the report does not state that the information that was provided by the providers could not be used and that information was used. Recording that, in the state of the information to the Council, the conclusions on providers' costs were less than definitive, was not procedurally unfair. In any event, the providers' final position was not that they did not have plans, but that they had plans which had had to be changed because of what Mr Joshi described as the poor approach of the Council in setting rates. Those plans, which were apparently available, were not, however, provided.
62. In short, the submission that the report and the decision were focussed and premised on the absence of business plans is not borne out by the structure and reasoning of the report. The argument that the Council should have used the "toolkit" to reach a conclusion on the financial pressures faced by providers was flawed because the "toolkit" was concerned with the calculation of costs for the relatively efficient home, but the issues here were the claimants' financial difficulties. The report accepted that there were financial pressures on providers, and examined the "toolkit" calculations before it. The Cabinet Board had regard to the evidence of pressure on providers and the "toolkit" calculation undertaken by the Council and by Care Forum Wales. The report stated that implementing those was unsustainable. What the report did not say or suggest is that the inability of the providers or (in the light of Mr Joshi's last communication before the meeting) unwillingness to provide what they had meant that the fee could not be increased.
63. The third element of the submissions concerning the treatment of the absence of business plans is (see [43(3)]) that this was perversely given as a reason for not reaching a view as to whether past underpayments of fees had resulted in an accumulated shortfall. I reject this submission. It is simply an alternative way of putting the argument that it was Wednesbury unreasonable to conclude that a definitive position statement about the pressures and costs faced by providers could not be made.
64. The third element of the last submission is also similar to the argument (see [43(6)]) that reliance on CSSIW's reports as to quality standards and the expansion of capacity by some providers was flawed. While the contention that these factors were not necessarily inconsistent with the existence of a significant shortfall in the rate paid, they were clearly relevant factors in the Council's assessment of the position of the providers.
65. The next issue is whether the Council fell into error in relation to the element of "return on capital". The submission that it did appears in part to be based on a remark attributed to Mr Rees in the claimants' note of the meeting on 15 February: see [25]. There is, however, nothing in his March report to the Cabinet Board which shows this to be a factor put to the decision-maker. Moreover, absent a demonstrated accumulated shortfall because of past underpayments, in what all accept has been a very difficult financial position for public authorities, it would not have been unlawful for the Council to reject an increase which went beyond reimbursement for reasonable costs and provided "extra" profit.
66. The second limb of the submission that the Council erred in its approach to the rate of return concerns the treatment of and departure from the "toolkit's" 12% figure. Miss Robertson submitted that the Council was entitled to depart from that, but only if it had an alternative methodology or rationale, which it did not have. I reject this submission.
67. The position of the Council in this case differs from the position of Pembrokeshire in the Forest Care Homes and Mavalon Care cases (see [2010] EWHC (Admin) 3514 at [53] and [2011] EWHC (Admin) 3371 at [40]). In those cases, the Council had decided to apply the "toolkit" model for determining the 2010/11 rate and that model involved a 12% return on capital. In the light of that it was clear that, in respect of decisions by Pembrokeshire, the "toolkit" was more than just a relevant consideration. There was no such decision by the Neath and Port Talbot Council. In all but one year since 2005/06, although the Council used a version to "inform" its decisions concerning fees, its rates were less than the floor rate produced by the "toolkit's" calculation. Accordingly, in these proceedings, while the "toolkit" and its methodology is a relevant consideration, it is no more than that. It is noteworthy that, while only using the "toolkit" calculations to "inform" its decision about fees, the Council used them in its plans to outsource the building and management side of its own care homes. But what is relevant in the context of fees are the costs to providers, not the costs to the Council of running its own homes. For example, as the claimants accepted (skeleton argument, paragraph 6(g)), wage rates differed in Council-run homes.
68. The Council's calculation using the "toolkit" and the calculation by Care Forum Wales were before the Cabinet Board (see [41]), but Mr Rees's evidence was that implementing either was "unsustainable" and would have "an unacceptable impact on the Council's ability to finance replacement beds" with "considerable impact on both service users and the providers…". In taking account of its resources in this way, the Council was not acting unlawfully. Taking account of a Council's resources when setting a fee to be paid to providers is different to taking account of those resources when assessing an individual's needs for the purposes of section 21 of the 1948 Act.
69. Moreover, I reject the suggestion that the Council's approach was not underpinned by a methodology or a lawful rationale. I have referred to the fact that it took account of the information it had about providers' costs, decided the budgeted figure for care, and recommended increases for four years. I have also referred to the fact the Council considered standards and the increases in capacity by some providers. That it did so showed that the Council sought to understand the costs of care services and was acting to promote service sustainability in accordance with Standard 10 of the Commissioning Guidance. This was not straightforward. One of the problems identified by the Council at the meeting on 15 February (see [26]) was that not enough providers had responded to surveys about costs.
70. I also reject the submission (see [43(7)]) that the rate was flawed because it was determined by what the claimants (skeleton argument, paragraph 56) characterised as "assumed occupancy figures". What in fact was put to the Cabinet Board (see [37]) was an average occupancy rate across the sector derived from monthly vacancy information. But the Cabinet Board also had before it (see [35]) the providers' critique of occupancy rates which (see [28]) stated that some were about 75%, and significantly lower than the 90% occupancy rate assumed in the "toolkit". Mr Joshi had previously taken Councillor Morgan through his synopsis on 9 March: see [30]. It cannot, therefore, be said that the Cabinet Board did not take this into account.
71. As to the substantive submission that it was wrong to take into account an average, unless rates were to be determined for individual homes, it is difficult to see what other than an average could be used. The occupancy rate of an individual home is determined by a range of factors. It is to be recalled (see [2]) that on average across the sector the Council is responsible for a minority of placements with providers. In the case of the claimants it is responsible for between 45 and 70% of placements. Although the context differs, I also observe that there is some tension between the rejection by the claimants of an average figure in this context and their submission that the Council should have used the "toolkit's" across the board modelled figure for rate of return on capital.
72. It is also of significance that the January 2011 occupancy rate across the sector referred to in Mr Rees's report was 93%. This was not very different from the 90% assumed by the "toolkit's" model. Indeed, it was higher. The report also referred to the October 2010 figure so that the Cabinet Board was aware that, in the three-month period between October and January, there had been a 4% fall in occupancy. But micro-examination of the rate in this way is not the function of a judicial review court.
73. I also reject the submissions summarised at [43(8)]. The Commissioning Guidance was a background paper to Mr Rees's report. The report quoted from it and the reasoning in the report reflected the reasoning in the guidance. I have referred (see [60]) to the words of Standard 10. The guidance's provision that commissioners should "understand" providers' costs and act to promote service sustainability does not require the Council to set a fee which fully reimburses providers for their costs.
74. As to the consequences for providers, Mr Joshi's synopsis and providers' comments on Mr Rees's report were before the Cabinet Board. The synopsis referred to providers' difficulties with their banks and meeting their PAYE obligations and strains from increases in costs of food, utilities and wages. Mr Joshi's comments on the draft report referred to homes becoming "increasingly unviable". As to information about the running costs of its own homes, for the reason I have given, in the context of the "toolkit" calculation ([67]), this was not relevant in the context of determining the fees to be paid to external providers.
75. The submission (see [43(8)(d)]) that account was not taken of increased costs because the Council unlawfully directed residents to its own homes or to Southern Cross homes, and delayed funding assessments, relied on falling occupancy rates in claimants' homes, but high occupancy rates in the Council's homes. The argument that the Council acted in a way which reduced occupancy rates in the claimants' homes was before the Cabinet Board, and there is nothing to suggest it was not taken into account.
76. As to whether, as a matter of substance, the Council unlawfully diverted residents and delayed funding assessments, save for one case there is no evidence of such unlawfulness. Absent evidence that individuals have been placed in homes other than the ones for which they had expressed a preference, or that there have been unreasonable delays in doing so, there was no arguable unlawfulness on the part of the Council. The evidence of a delay in one case in agreeing funding after a vacancy became available in the preferred home is unfortunate but wholly inadequate to render the Council's decision unlawful. As to the impact on occupancy rates, for the reasons stated at [2] placements by the Council were not the only determinants of occupancy rates.
77. I have also concluded that the Council did not (see [43(9)]) fail to take proper steps to balance the welfare of those in care homes who it funded and its financial resources. I have referred (see [37]) to what was stated in Mr Rees's report about improvements, inspections by CSSIW and other compliance visits. Mr Rees's report recognised (see particularly [39], but also [34] - [36]) the need to enable providers to make long-term plans and for sustainability. That was reflected in the recommendation that a dual approach be followed, with increases at a guaranteed minimum level for the three years after 2011/2012 and a dialogue with providers about the long-term.
78. The argument that an increase of 5.7% in absolute terms which was practically a standstill or a cut in real terms was, in all the circumstances, Wednesbury unreasonable ([43(10]), was not abandoned, but it was not at the centre of the challenge. Given the financial pressures on the Council and the fact that the 5.7% increase for the current year was coupled with guaranteed minimum increases for the next three years, it is untenable.

VIII. Conclusion

79. In view of my conclusions on the grounds, it is not necessary for me to deal with the submission (see [5]) that the claimants should be barred from relief by reason of their delay in bringing the claim. I observe only that, had they otherwise succeeded, I would not have been inclined to refuse relief on the ground of delay. For the reasons I have given, however, this application is dismissed.