England and Wales High Court (Administrative Court) Decisions

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

		The Combined Court Centre , Oxford Row , Leeds
		17/01/2013

His Honour Judge Gosnell:

1. The First Claimant is an unincorporated association which represents the interests of its members, who are proprietors and managers of care homes within Redcar and Cleveland. The Second to Seventeenth Claimants are members of the First Claimant organisation. Together by November 2011 they represented 80.64% of the homes for the elderly within the Redcar and Cleveland area which is governed by the Defendant as Local Authority. The Defendant has an obligation to make arrangements for providing or making available residential accommodation for certain adults who are in need of care and attention which is not otherwise available to them, and enters into arrangements with private residential homes for the provision of such accommodation.
2. Residents in care homes can pay their fees personally, or through relatives, or they can have their fees wholly or partly funded either by their Primary Care Trust if they are primarily in need of nursing care, or by the Local Authority if they are not. This dispute centres on the rates which this Local Authority is prepared to pay care homes in its area for residents who are wholly or partly funded by them. The care homes are graded according to quality in four grades with Grade 1 being the highest quality. Supplements are also paid when the residents are categorised as "EMI" (Elderly Mentally Infirm) as such patients will clearly need more care than those who are not. Some residents start out paying their own fees but as their capital declines become entitled to have their fees wholly or partly paid by the Local Authority.
3. Like other Local Authorities the Defendant in this case sets the usual fee they are prepared to pay for different categories of residential home and type of care and review the decision on an annual basis. These proceedings arose as a result of the annual review which took place in March/April 2012 and the Claimant seeks to challenge two decisions: firstly the decision to set the particular rates for 2012/13 effectively reducing the rates below that which they paid the previous year; and secondly the decision to remove from the Defendant's provider list all care home operators who did not agree to accept the Council's new contractual framework by 23^rd April 2012.
4. The Claimant's grounds of challenge are as follows :

Ground 1

That the Defendant has failed or failed properly, contrary to relevant guidance, to assess and to take into account the actual cost of care. In particular, the Defendant:

(i) failed or failed properly to assess and take into account local factors relevant to the provision and cost of care, and

(ii) failed or failed properly to balance these factors against budgetary considerations, but was instead driven purely and to an improper degree by budgetary considerations, as a result of which it is

(iii) unable to demonstrate that the fee rates it has set are 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 absent the possibility of any resident or third party contributions.

Ground 2

That in failing to equip itself with knowledge of the actual cost of care, the Defendant has not been in a position properly to assess the risks to care homes and their residents contrary to its obligations under Article 8 ECHR and/or common law.

Ground 3

That in failing to equip itself with knowledge of the actual cost of care the Defendant has been unable to give proper consideration to the longer term financial viability of care homes, despite having stated that this was a consideration to which it had regard in the formulation of the fee rates for 2012/13.

Ground 4

That the Defendant failed properly to consult with care home providers.

Ground 5

That the Defendant may not, consistent with the relevant statutory directions, maintain a closed list of care homes in which it will place residents.

5. The Statutory Framework

The starting-point is section 21(1) of the National Assistance Act 1948, as amended, under which

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 eighteen 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….

By section 26(1) arrangements under section 21(1)

may include arrangements made with a voluntary organisation or with any other person who is not a local authority where –

(a) that organisation or person manages premises which provide for reward accommodation falling within subsection (1)(a)… of that section, and

(b) the arrangements are for the provision of such accommodation in those premises.

This is the statutory origin of the system under which local authorities fund the care in privately-run establishments of persons who cannot themselves meet the fees charged there.

6. By section 47(1) of the National Health Service and Community Care Act 1990

where it appears to a local authority that any person for whom they may provide or arrange for the provision of community care services may be in need of any such services, the authority –

(a) shall carry out an assessment of his needs for those services; and

(b) having regard to the results of that assessment, shall then decide whether his needs call for the provision by them of any such service.

7. In the exercise of its social service functions, a local authority is required to act in accordance with such directions as may be given by the Secretary of State under section 7A(1) of the Local Authority Social Services Act 1970. An authority must also, by section 7(1) of the same statute, "act under the general guidance of the Secretary of State." Both directions and guidance have been promulgated in relation to the foregoing statutory provisions.
8. The relevant directions are contained in the National Assistance Act 1948 (Choice of Accommodation) Directions 1992, issued on 23 December 1992. The core obligation of a local authority arises where it has assessed a person under section 47 of the 1990 Act and has decided that accommodation should be provided pursuant to section 21 of the 1948 Act. By paragraph 2 of the Directions the local authority shall, in those circumstances,

subject to paragraph 3 of these Directions, make arrangements for accommodation pursuant to section 21 for that person at the place of his choice within the United Kingdom (in these directions called 'preferred accommodation') if he has indicated that he wishes to be accommodated in preferred accommodation.

Paragraph 3 of the Directions limits the core obligation. The local authority

shall only be required to make or continue to make arrangements for a person to be accommodated in his preferred accommodation if

(a) the preferred accommodation appears to the authority to be suitable in relation to his needs as assessed by them;

(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;

(c) the preferred accommodation is available;

(d) the persons in charge of the accommodation provide it subject to the authority's usual terms and conditions.

The cost which the authority usually expects to pay, referred to in (b), is commonly referred to as 'the usual cost.'

9. Statutory guidance was given by the Department of Health in local authority circular, LAC (2004) 20, issued on 14 October 2004. The object of the guidance is set out in a summary at the beginning of the circular:

"This guidance sets out what individuals should be able to expect from the council that is responsible for funding their care, subject to the individual's means, when arranging a care home place for them. This guidance is intended to describe the minimum of choice that councils should offer individuals. Even when not required to act in a certain way by the Directions… councils should make all reasonable efforts to maximise choice as far as possible within available resources."

10. Paragraph 2 of LAC (2004) 20 deals with preferred accommodation. The cost referred to in the 1992 Directions is dealt with in paragraph 2.5.4 of the circular.

"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 respect 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".

11. Reference was also made to paragraph 3.3 of the circular, which is in these terms:

"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".

12. Directions given under section 7A (1) of the Local Social Services Act 1970 are plainly mandatory. Statutory guidance under section 7(1) is not mandatory, but an authority can depart from it only for good reason and following a considered and cogently-reasoned decision. In R v London Borough of Islington ex parte Rixon [1997] ELR 66 Mr Justice Sedley (as he then was) said:

" While "guidance" does not compel any particular decision ….especially when prefaced with the word "general" ,in my view Parliament by section 7(1) has required authorities to follow the path charted by the Secretary of State's guidance ,with liberty to deviate from it where the local authority judges on admissible grounds that there is good reason to do so. "

13. Besides formal statutory guidance, the Secretary of State can also issue general or non-statutory practice guidance, to which a local authority is also required to have due regard: any departure from such guidance must be justified. This proposition was confirmed by Lord Justice Moses in R (Kaur) v London Borough of Ealing [2008]EWHC 2062 (Admin) which was quoted with approval by His Honour Judge Raynor QC in R ( Sefton Care Association) v Sefton Council [2011] EWHC 2676 ( Admin) as follows :

"Formal guidance issued under section 7(1) of the 1970 Act is to be distinguished from general practice guidance issued by the Secretary of State (see Cross on Local Government Law, paragraphs 21-02, 03). However a local authority is obliged to have due regard to non-statutory guidance and would have to justify any departure from it (see R (Kaur) v Ealing LBC [2008] EWHC 2062 (Admin) at paragraph 22 per Moses LJ.) For reasons which will appear, I am satisfied that the distinction between formal statutory guidance and general practice guidance is of no significance in this case."

14. Non-statutory guidance is relied on by both parties in this case in the form of a document entitled Building Capacity and Partnership in Care. It was issued in October 2001 by the Department of Health, and bears the subsidiary title An Agreement between the statutory and the independent social care, health care and housing sectors. Building Capacity contains several references to the need for consultation and collaboration between commissioners and providers of care. The setting of fees is dealt with specifically in paragraph 6.2:

"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 Government'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."

By paragraph 5.9 commissioners should ensure that they have in place

"clear systems for consultation with all (and potential) providers

And by Paragraph 6.7

"fee negotiation arrangements that recognise providers' costs and what factors affect them (as well as any scope for improved performance) and ensure that appropriate fees are paid."

Correspondingly, by paragraph 6.8, providers should ensure that they

"are able to provide a full breakdown of the costs of services provided."

15. The Factual History

Before 2006 there was no meaningful working partnership relationship between the Defendant and the independent residential care sector. There were no grade 1 homes and there was a lack of investment. The Defendant commissioned a report from PricewaterhouseCoopers Accountants (PwC) which became the "Fair Cost of Care" costing model to assess the cost of residential and nursing care for elderly people. In November 2007 the Defendant entered into a contractual framework arrangement (The Framework Agreement) which incorporated a fee matrix produced through the application of the Fair Cost of Care costing model. It included annual review of the fees by the application of an indexation method. The Defendant asserts that the implementation of this model increased fees by 14% in 2007. The model was intended for use for a period of three years but with careful consideration of the input data could possibly be used for up to five years.

16. In early 2010 the Defendant set up a Provider Forum and Steering Group to assist and increase joint working. At a meeting of the forum Mr MacGladrie the Strategic Commissioning and Market Development Manager asserted that the operation of the Fair Cost of Care that year would have led to a reduction in fees. After discussions with the Claimants and others a freeze on rates was agreed. The Defendant also indicated that a replacement for the Fair Cost of Care model was being considered. In 2011 Mr MacGladrie suggested on behalf of the Defendant that if fees were brought into line with fees in the neighbouring borough the fee rates would be reduced by £30 per resident per week. Mr Parvin on behalf of the Claimants sent him representations and data which appeared to show that the application of the Fair Cost of Care model would produce an increase of 0.41%. A very detailed letter was written dated 15^th April 2011 which drew the Defendant's attention to the financial burdens on care home proprietors and the fact that in the face of increasing costs, they could simply not absorb a reduction of £30 per resident per week. The letter did not receive a specific reply but the Defendant did subsequently agree to freeze the fees again for the period 2011/12.
17. The fee setting process for 2012/13

In September 2011 a discussion took place between Mr Parvin of the Claimants and Mr MacGladrie and Mr Hames of the Defendant. Mr Parvin indicated that the Claimant wanted to update the Cost of Care data and methodology. Mr MacGladrie set out the Defendant's position in his witness statement when he said as follows:

"20. The consultation process for the 2012/13 fee review started in September 2011.As noted above the PwC model could not continue to be used, given that it was viable for five years at most, and its approach to inflation and borrowing costs was no longer appropriate given changed economic circumstances. As also noted above, not all providers had participated in the PwC data collection exercise, so for this reason too it did not give the complete picture"

The Defendant's position at this stage was that, like many councils, the Defendant had suffered a reduction in its grant from central government over the previous two years and was anticipating further cuts in the future. All areas of council spending were being closely scrutinised and as the cost of residential care was a significant proportion of the expenditure that was included in such scrutiny. Mr MacGladrie's evidence is that no particular figure was being sought by way of a reduction but serious questions had to be asked as the Defendant felt that it was paying higher fees than comparable local authorities in the North East.

18. The Defendant had received an annual audit letter from the Audit Commission in 2010/2011 which stated "the council is paying high fees for residential places". The council officers did some research into rates in surrounding areas and found that they appeared substantially lower than the Defendant's rates. They considered whether there might be reasons why the Defendant's rates ought to be higher but could think of no compelling reasons why that might be so. They therefore decided to seek providers' views on whether there were any differentiating factors in respect of the actual cost of care between Redcar and Cleveland and surrounding boroughs. Mr MacGladrie's evidence is that benchmarking against the fees paid by other councils was not being used to set fee rates , but only as one of the factors to be considered in drawing up proposals as a basis for negotiation.
19. A meeting was arranged on 3^rd November 2011 where Mr MacGladrie gave a presentation to providers who had been invited to attend. He explained that the PwC model was out of date and had reached the end of its shelf life. He outlined the previous history since 2007 and the Defendant's proposals as to fee structure. He challenged providers to provide information on local factors which differentiated Redcar and Cleveland costs of care from those in neighbouring authorities. Whilst it is not clear what words were used it is clear that providers were asked to comment on:

Local factors , if any which differentiate care home costs in Redcar and Cleveland from those in neighbouring authorities

The potential impact of the council's proposed changes on care homes and their residents.

These bullet points are taken directly from the PowerPoint presentation used at that meeting. The Defendant also served notice to terminate the Framework Agreement which expired on 22^nd April 2012. The Claimants' case is that the Defendant was looking to reduce fees by £40 per resident per week but this is denied by Mr MacGladrie.

20. The Defendant had initially sought responses to its queries by 16^th November 2011 but agreed to extend the deadline and a meeting was eventually arranged between the Claimants' representatives and Defendant's representatives on 12^th December 2011. Prior to that meeting Mr Parvin had sent an email stating that they disagreed with the Defendant's assessment that the PwC model was flawed and the Claimants had voted to continue with the existing model. They also contended that they were unable to make further efficiencies in their expenses. The minutes of the meeting reflected these assertions but Mr Parvin asked that it be recorded that he had produced a copy of the letter of 15^th April 2011 which had explained in detail why care home costs were rising not falling.
21. On 26^th January 2012 the Defendant wrote to providers with a summary of the consultation responses and stated the Defendant's revised proposals in the light of the responses. It is fair to say on many issues of detail the Defendant took into account the providers' responses and agreed not to change the previous arrangements. Details of these issues are set out in bullet points in paragraph 36 of Mr MacGladrie's statement. The Defendant then set out residential care fee rates for each of the four bands of home and EMI rates for each also. The basic fee offered for Grade 1 residential homes was £428 to which could be added £20 for the quality standard payment if the home qualified. This was slightly higher than, but quite close to, the average fee for other North East local authorities according to the Defendant's research. By way of explanation for the decision to set the rates at this level the letter first of all explained why the PwC model was no longer valid and then said as follows:

"The current fees paid in Redcar and Cleveland are higher than in many other North East Authorities (Appendix 1). The Council, however, has not received any evidence from providers that indicate that there are significant differences in operating costs between Redcar and Cleveland and neighbouring boroughs. At the time the current fee structure was set the Council's priority was to encourage the development of new homes within the borough with the aim of increasing capacity and physical quality. Since that time the direction of national policy has been toward the promotion of more care closer to home and to reduce dependency on traditional models of residential care.

In proposing the new agreement and fee structure (Appendix 2) the Council has taken into account the longer term financial viability of care homes in the borough and the 2011-12 fees paid in neighbouring north east councils, including some where local providers also operate successful homes. The Council is proposing to set its fees broadly in line with the average for older person's homes across region whilst also seeking to accommodate the views of providers in terms of GLP grades, differential rates for dementia care and quality rewards. No changes are proposed to the basic fee for disability homes"

22. Further representations or requests for clarification were requested by 20^th February 2012. The Defendant also distributed Business Questionnaires and asked providers to submit them by 20^th February 2012. These were not specific to the new care home fee contract but are required for any provider of a council service, their main purpose being to check on the contractor's financial viability. Few such questionnaires were supplied as the providers were in dispute with the Defendant about the terms of the contract, in particular the level of fees. The consultation period was extended until 29^th February 2012.
23. There was then a meeting held on 20^th February 2012 between representatives of the Claimants and Defendant. The purpose of the meeting was to discuss the terms of the new Framework Agreement and it was intended that the fee structure be considered at another meeting. The minutes however reveal the following exchange:

"What is the model you are using and how is that calculated?"

"Redcar and Cleveland Borough Council have used a benchmarking model by taking the average of the fees /costs across some of the NE areas. The average fee structure has been used to set the base line for the setting the fees for this contract. This is now known as the model"

A further meeting with providers took place on 1^st March 2012 where the Claimants sought to persuade the Defendants that benchmarking was inaccurate and unfair and that the best way to ascertain the actual cost of care was to run the PwC model again. The minutes contain this exchange:

"The Council have asked what is the potential impact on the Council's proposed changes on care homes and their residents.

The Association believe that the proposed changes will devastate the R and C care home industry putting many homes out of business create more unemployment and untold distress to residents and families. This has been outlined to the council on many occasions. The effect on residents will be uncertainty of " will my home close, will I lose my friends?". Quality of care will reduce as care homes try to stay in business by cutting costs.

RCBC It comes back to the core question that if other NE councils can operate at these rates why can't R and C?"

24. The further consultation feedback was again collated by the Defendant's officers and two briefing notes were provided to the Executive Management Team ahead of its meeting on 12^th March 2012 at which the decision on the 2012/13 rates was made. The decision was communicated to providers in a letter dated 16^th March 2012. The letter contained the following statements to explain how the fee structure had been calculated:

"In determining what a reasonable fee level would be, a benchmarking exercise was undertaken by comparing the fees paid by all authorities in the North East. All of these authorities manage to sustain an active range and choice of providers at the fee levels that they pay. The Council has on a number of occasions during this process, invited providers to identify local factors which differentiate the cost base of residential care homes

in this borough from neighbouring authorities in the North East, in the Council's view no reasonable argument has been put forward…

The Council has considered very carefully the representations put forward by providers in relation to the proposed fee structure for 2012/13. The Council maintains that an average based on the benchmarked rates is reasonable; however it has decided to set its fees at a level above the benchmark. The new fees will still be in excess of the regional average and will therefore ensure the continued long-term viability of providers and the co-operative working enjoyed between the two parties. The fee structure for next year is summarised below.

It is essential that the Council considers the reasonable costs of providing care when setting its fees. The Council believes that by paying its providers significantly more than the average paid to providers in local boroughs, it is paying a more than adequate fee"

The rates were then set out with the basic rate for a grade one home being £468.00, an increase on what had been proposed on 26^th January 2012 but £14.32 per week per resident less than had been paid the previous year.

25. The Defendant's letter of 16 March 2012 went on to state that:

"Should a contract not be in place for any care home once the existing contracts

end on the 22nd April 2012 the following action will be taken from the 23rd

April":

• It is proposed that the care home will no longer receive any form of quality payment.

• The care home will be removed from the Council's provider list and so will receive no new placements from the Council.

• Should the Council have an issue in terms of available capacity in the coming period as the move to a new contract takes place, the Council will actively seek to place new residential care admissions in care homes in neighbouring boroughs."

26. The Defendant confirmed that it had finished its consultation on the proposed agreement and fee structure on 19^th March 2012 by email to Mr Parvin. A letter before action was sent to the Defendant by the First Claimant's solicitors on 10^th April 2012 and on 27^th April 2012 the Defendant provided a substantive response in which they confirmed they would delay the implementation of new charging regime and proposal to remove providers from the council's preferred list.
27. I have taken the above factual summary from the statements of Mr Parvin and Mr MacGladrie. I also took into account statements from Mark McArdle for the Claimants and Andrew Hames for the Defendant. Both of these latter statements were directed towards the narrow issue of how many providers also ran homes in neighbouring councils (the implication being that they would then be well informed on the issue of whether there were differences between Redcar and Cleveland and other areas). In all material respects the evidence is not disputed. In one significant respect the Claimant disputes part of the evidence of Mr MacGladrie as being accurate which is the following crucial passage:

54 The new residential fee rates are set out in the letter. The Council had regard both to the 2011/12 fee rates and to the fees paid by other local authorities in the area. Benchmarking was only one among a number of factors considered, and the figures set are not simply a function of the average in the area. Applying the average fee in the North East would have suggested a reduction of around £40 per bed per week (lower if the average in the Tees Valley were used). Applying the existing PwC model would have resulted in a reduction of around £9 per bed per week. The new fee rates amount to a reduction of around £14 per bed per week.

The Claimant's case is that an analysis of the contemporaneous documents reveals that benchmarking was the only real consideration taken into account by the Defendant in fixing the usual cost of care, save perhaps for a consideration of how far they could safely reduce the rate without provoking a judicial review claim from the providers.

28. Whether the issues are amenable to Judicial Review at all

The Defendant has submitted that the issues in this case are not amenable to judicial review firstly because it concerns the terms upon which a party is willing to enter into private law contractual arrangements and secondly because, whilst statutory duties are owed to the recipients of community care provision no such duty is owed to care home providers and so they have no standing. These are somewhat surprising submissions given the number of times the fee setting issue has been considered by other courts and on only one occasion, so far as I am aware has the first point been raised.

29. The Defendant asserts that disputes over contractual terms and decisions whether to enter into contracts are not normally amenable to judicial review. In Supportways Community Services Ltd v Hampshire County Council [2006]EWCA Civ 1035 Lord Justice Neuberger said :

38. Thus, the mere fact that the party alleged to be in breach of contract is a public body plainly cannot, on its own, transform what would otherwise be a private law claim into a public law claim. There are, of course, circumstances where, in a contractual context, a public body is susceptible to public law remedies. However, where the claim is fundamentally contractual in nature, and involves no allegation of fraud or improper motive or the like against the public body, it would, at least in the absence of very unusual circumstances, be right, as a matter of principle, to limit a claimant to private law remedies.

39. Mr Knafler referred to a passage in the sixth (1999) edition of de Smith, Woolf and Jowell's Principles of Judicial Review, at paragraph 3-019, which includes the following three sentences:

"If a public function is being performed, and contract law does not provide an aggrieved person with an appropriate remedy, then action taken under or in pursuance of a contract should be subject to control by judicial review principles. Where a public body enters into a contract with a supplier, a dispute about the rights and duties arising out of the contract will often be determined by private law. However, the decision of a public body to enter, or not [to] enter, into a contract may be subject to judicial review."

In the same case Lord Justice Mummery said:

Thirdly, in order to attract public law remedies, it would be necessary for the applicant for judicial review to establish, at the very least, a relevant and sufficient nexus between the aspect of the contractual situation of which complaint is made and an alleged unlawful exercise of relevant public law powers

30. This is not however a contract with an individual provider in isolation. It is a decision which a local authority makes which will affect the terms it is prepared to offer all providers who are to provide facilities in care homes for residents in that area. The previous Framework Agreement had expired on 22^nd April 2012 and I am unable to think of any private law remedy which the Claimants might have in this situation as the Defendant was merely setting out the terms upon which it was prepared to contract with the providers in future. There was no existing contract that the Defendant could be alleged to be in breach of. The aspect of the contractual situation about which complaint is made in this case is the price. The price is set pursuant to public law powers and guidance which have been set out earlier in this judgement , particularly the obligation to give due regard to the actual cost of care. There does therefore appear to be a nexus between public law powers and private rights as Lord Justice Mummery identified.
31. This issue has in any event been considered twice by Mr Justice Beatson as he then was firstly in R ( on the application of Mavalon Care Ltd and others ) v Pembrokeshire County Council [2011] EWHC 3371 Admin when he gave a strong indication of the decision he was about to reach in the second case :

It was common ground at the hearing that Hickinbottom J's summary of the statutory provision and guidance by the UK Government and, in respect of devolved functions, the Welsh Ministers, in paragraphs [20] – [22] and [28] – [44] of his judgment in the Forest Care Homes case, and his summary at [46] of the propositions derived from the legislation, guidance and caselaw accurately set out the position. It was also common ground that those summaries are applicable to the present proceedings. After the hearing, on 21 November, in the light of a submission by Neath Port Talbot County Borough Council, the defendant in CO/5985/2011, another challenge to a decision fixing the level of fees to be paid to providers of residential care, that such decisions are matters of private law and not amenable to judicial review, or only amenable on limited grounds, I invited Pembrokeshire to consider whether it wished to make submissions on this point. Mr Phillips informed me that Pembrokeshire did not wish to adopt the argument advanced by Neath Port Talbot. He was right not to do so. Significant parts of the relationship between the parties are contractual but, in the particular circumstances of this case, in the light of the positions taken by Pembrokeshire and the relevant guidance (see [25]), the relationship has sufficient public law "underpinning" to bring it within the supervisory jurisdiction by way of judicial review.

32. The issue was not actually argued in Mavalon but it was fully considered in R ... Bevan & Clarke LLP v Neath Port Talbot CBC [ 2012] EWHC 236 where Mr Justice Beatson analysed the issue in this way :

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. "

33. It seems to me that at this point, Mr Justice Beatson has decided that fee setting is in principle a public function. In order to reinforce this point he then went on to consider the commissioning guidance applicable in Wales as follows:

"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."

34. Counsel for the Defendant submitted that Mr Justice Beatson's remarks can be distinguished because they concerned the Welsh legislative framework and statutory guidance which are different from their English counterparts. I do not accept this is significant because I believe the Judge had accepted that fee setting was a public function before he even considered the statutory guidance. In addition, the guidance is in fact similar enough to make no difference to this point, particularly when the Care Quality Commission (Registration) Regulations 2009 are taken into account which at regulation 13 contain an obligation on the service provider to take all reasonable steps to carry on the regulated activity in such manner as to ensure the financial viability of the carrying on of that activity. It was suggested to me that the Judge's remarks were obiter and, in any event not binding on me. I accept they may be not legally binding but I intend to follow them as I believe they are legally correct.
35. The next issue is whether the Claimants have standing to bring this claim because no relevant public law duty is owed to private care home providers. In addition the Defendant has argued that decisions to enter into or vary contractual arrangements are amenable to judicial review only if there is fraud, corruption or bad faith. I can do no better than relying again on the logic put forward for rejecting these arguments by Mr Justice Beatson in Neath Port Talbot :

52Miss 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.

Whilst the Judge referred to the Welsh statutory regulatory system the basic principles apply to this case and there can be no doubt that care home providers have sufficient interest to bring a claim as affects their rights under existing placement arrangements and their ability to meet their duties under the Care Quality Commission ( Registration ) Regulations 2009. This case is based mainly upon an allegation of failure to take account of relevant considerations which is one of the issues mentioned as coming within the phrase "abuse of power" as an umbrella term. It follows from this analysis that I find that the Defendant's decisions are amenable to judicial review for the reasons I have given.

36. Principles relevant to "due regard"

Both parties accept in this case that the Defendant had an obligation , when setting fees to have due regard to the actual costs of providing care and other local factors as set out in statutory guidance in Circular LAC (2004) 20. The Defendant is obliged to comply with this guidance unless there is good reason to depart from it. Both parties agree that due regard is "the regard that is appropriate in all the circumstances" as said by Dyson LJ in Baker v Local Government Secretary [2008]EWCA Civ 141. Similarly it is accepted that this case is authority for the proposition that it is a duty to take the relevant matter into account "not a duty to achieve a result" (paragraph 31). Where the parties differ is whether the failure to have due regard is a matter for the court or is a merits based challenge only able to succeed if the Defendant is Wednesbury unreasonable.

37. The Defendant submits that provided the decision maker is aware of all relevant considerations it is for the decision maker and not the court, subject only to review on public law grounds, to decide upon the manner and intensity of the enquiry to be undertaken into any relevant factor. This of itself is not a controversial submission but the Defendant develops this to mean that once the Defendant has had regard to a particular consideration the intensity of regard is a matter for the decision maker. The Defendant contends this is a merits based test unless the evidence shows that the Defendant has had no regard at all. The Claimant's submission is that it is for the court to determine first whether the Defendant has had due regard to the particular consideration and if the court is satisfied that it has then the weight attributable to a relevant consideration is then a question for the decision maker challengeable only on Wednesbury grounds.
38. The Defendant's interpretation gains support from the decision of Mr Justice Ryder in R ( on the application of D and another) v Manchester City Council [2012] EWHC 17 (Admin) which was a case involving an obligation to have due regard to a public sector equality duty but the issue was the same:

53. The claimants contend in their Amended Grounds and submitted during the course of oral argument that "the court must review whether 'due regard' has been paid, not merely consider whether the absence of due regard was Wednesbury unreasonable". This is a false contrast which could lead to a mistaken conclusion. That the court must review whether due regard to the relevant needs has been had says nothing about the basis on which such a review may be carried out. If no due regard has been had to such needs, then the duty has not been complied with regardless of whether a reasonable authority would have failed to have regard to it but that does not mean that in determining whether the regard which was had to such needs was appropriate in all the circumstances the court does not consider whether or not a reasonable authority could have thought it appropriate: it does.

54. In so far as the claimants pursue their interpretation of the test, I have come to the conclusion that I agree with the defendants that the claimants' submissions are based on a misreading of paragraph [72] of the judgment of Davis J in R (Meany & Ors) v Harlow DC [2009] EWHC 559 (Admin) where all that the learned judge was doing was to reject a false choice being presented to him by counsel in that case. Regrettably, in my respectful opinion, the misreading also appears to have been adopted by the court in R (Boyejo) v Barnet LBC [2009] EWHC 3261 (Admin) at [56] – [57] without citation of the relevant authorities. Even if the 5 authorities cited by the defendants in support of their interpretation (see above at paragraph 48) are limited by their facts or the different statutory schemes with which they were concerned, they are relied upon simply for the description of a principle which is well known and which needs no further elaboration by this court.

39. In R (Meany) v Harlow District Council [2009] EWHC 559 ( Admin) Mr Justice Davis was dealing with the need to give due regard to the need to eliminate discrimination in the various provisions which preceded the Equality Act. The passage which was said by Mr Justice Ryder to have been misinterpreted is as follows:

Mr Holbrook submitted that Mr Wolfe either had to show that no regard was had to the statutory criteria or that the decision was irrational. Since Mr Wolfe disclaimed the latter, he was, said Mr Holbrook, left with the former. I do not agree with that submission of Mr Holbrook for two reasons. First, the statutes require that the public body has "due regard" to the specified matters; and what is "due" depends on what is proper and appropriate to the circumstances of the case. Therefore, if a challenge is made, the question of due regard requires a review by the court. It is not simply a question of determining whether no regard at all was had to the statutory criteria. Second, if the submission of Mr Holbrook were right it would be contrary to the authorities, which indicate that a tick box approach may not necessarily in any given case give a complete answer. It is true that, as Baker and Brown make clear, how much weight is to be given to the countervailing factors is a matter for the decision maker. But that does not abrogate the obligation on the decision maker in substance first to have regard to the statutory criteria on discrimination.

In my view this passage supports the contention that the question of due regard requires a review by the court first and , only if the court is satisfied that there has been due regard, then the question of how much weight is given to that and countervailing factors is a matter for the decision maker.

40. This topic has been considered recently by Mr Justice Wilkie in R ( on the application of Williams ) v Surrey County Council [2012] EWHC 867 (QB) . Again he was dealing with the issue of whether a Defendant had given due regard to equality duties in the Equality Act 2010. Having referred to the very helpful summary of principles relating to "due regard" set out by Mr Justice Blake in R (Rahman ) v Birmingham City Council [2011] EWHC 944 (Admin) he went on to consider the same issue that I have to determine in this case:

18.The one legal issue upon which there has been a dispute is whether the question whether the Defendant has had "due regard" is a matter to be determined by the Court deciding what amounts to "due regard", or whether that is a matter for the Defendant to determine, subject only to a challenge on the "Wednesbury" grounds

19 There have been a number of expressions of judicial view at first instance on this question. It is fair to say that the preponderance of those views has been in favour of the former rather than the latter approach. The first decision which grappled with this issue was that of Mr Justice Davis (as he then was) in R(Meany) v Harlow District Council [2009] EWHC 559(Admin) in a passage that runs from paragraph 72 - 85.

20 In my judgment, a proper reading of his judgment is that he was expressing the view that the question whether there has been "due regard" is a matter for the Court to determine. By way of contrast, once there has been due regard, the question whether the decision ultimately taken is lawful, having regard to the weight to be given to that factor as well as to any countervailing factors, is a matter which can only be determined by the Court applying the "Wednesbury" principles.

21.That approach has been followed in a number of first instance decisions such as R (Boyejo) v LB Barnet [2009] EWHC 3261 (Admin), R (Hajrula) v London Councils [2011] EWHC 448 (Admin) and JM (see above).

22 By way of contrast, in R(D) v Manchester City Council [2011] EWHC 17 (Admin), Mr Justice Ryder decided that the question whether "due regard" has been had to the equality duty is to be determined by the Court solely on the basis of "Wednesbury unreasonableness.

24 In my judgment that exposition of the two stage process of the Court considering: first whether the statutory obligation to give "due regard" has been discharged; and second, (if it is sought to review it) the decision which flows from it, involves the Court, at the first stage, deciding whether the authority has, in fact, surmounted the threshold required by the statute. That is not, on my reading of it, a Wednesbury based exercise. However, once the authority has surmounted the threshold of "due regard," the lawfulness of the decision which emerges from the consideration of those matters and all the other relevant (possibly countervailing) factors, is a matter which the Court has to approach on the Wednesbury basis.

Mr Justice Wilkie had the opportunity of reading the decision of Mr Justice Ryder and also of being able to review a number of other relevant cases on the same issue. I find myself in agreement with Mr Justice Wilkie as to the interpretation of the Judgement of Mr Justice Davis in Meany and therefore, for the same reasons, I find that the correct approach is that set out in paragraph 24 above of Williams.

41. The correct approach in dealing with disputed facts

The Defendant asserts in its skeleton argument that in judicial review, where there are factual issues between the parties, the Court must proceed on the factual basis as put forward by the Defendant, or resolve any disputes of fact in the Defendant's favour. This is particularly important, the Defendant asserts, as the Claimant seeks to dispute the contents of paragraph 54 of the statement of Mr MacGladrie which I have set out in paragraph 27 of this Judgement. In essence Mr MacGladrie states that the Defendant took into account the previous year's PwC rates and comparative data from neighbouring authorities. The Claimant disputes this and says the court should examine contemporaneous documents and other sources of evidence to see what the Defendant actually took into account. The Defendant in a post-hearing note submitted that the court must proceed on the factual position as stated by Mr MacGladrie and that if the court proceeds on a different factual basis, given that Mr MacGladrie has not been cross-examined it will have fallen into error. The Claimant's position is that while the Defendant's submission describes the general rule there can be exceptions where there is objective evidence inconsistent with the witnesses' account.

42. Both counsel were kind enough to provide a number of authorities to support the propositions which they advanced. It is clear that the Defendant's submission reflects the general rule which is obvious in an environment where there is no oral evidence or cross-examination of witnesses. There may however be exceptions and one example of this was given by Mr Justice Stanley Burnton as he then was in S v Airedale NHS Trust [2002] EWHC 1780 (Admin) :

18 It is a convention of our litigation that at trial in general the evidence of a witness is accepted unless he is cross-examined and is thus given the opportunity to rebut the allegations made against him. There may be an exception where there is undisputed objective evidence inconsistent with that of the witness that cannot sensibly be explained away (in other words, the witness's testimony is manifestly wrong), but that is not the present case. The general rule applies as much in judicial review proceedings as in other litigation, although in judicial review proceedings it is relatively unusual for there to be a conflict of testimony and even more unusual for there to be cross-examination of witnesses.

19 In fairness to the Defendant and its staff, and particularly Dr Kehoe, whose decisions and actions are criticised, I think that I should adhere to the general rule, except where the contemporaneous documents dictate that a witness statement must be incorrect.

43. It is obvious that there cannot be an absolute and unbreakable rule that all witness evidence submitted by the Defendant has to be accepted without question. It might be possible for a Defendant's witness to assert in a witness statement that due regard had in fact been given to a particular statutory consideration or that all issues had been adequately weighed before making a decision. If this factual assertion was accepted it would be conclusive as to the result of the judicial review claim. I will however take into account both the general rule and the possibility of exceptions in my assessment of the evidence as a whole.
44. Analysis

Ground One

The Claimants claim that the Defendant has failed, or failed properly to have due regard to the actual cost of care in particular local factors that relate to the same. It is claimed that the Defendant has failed to properly balance these factors against budgetary considerations and been influenced by budgetary considerations to an improper degree and as a result cannot demonstrate that the rates it has set are 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 absent third party contributions. These obligations are set out in Circular LAC (2004) 20 and the Building Capacity Agreement details of which have been given previously. The Claimant contends that the Defendant has an obligation to comply with both statutory and non statutory guidance unless there is good reason not to do so. This was confirmed by His Honour Judge Raynor QC in R ( Sefton Care Association ) v Sefton Council [2011] EWHC 2676 ( Admin ) when he said :

" In my judgment the Agreement was not intended to be, and did not state that it was, formal statutory Guidance, unlike what seem to have been identical provisions issued as formal Guidance in Wales and referred to in the Forest Care Home case. However, I am also of the view that Mr Bartley Jones was right to accept that it made little difference whether the Agreement constituted such Guidance. The Defendant, as previously stated, would have to justify departure from it: as I understand it, not only does it not seek to do that but it contends that in substance it complied with the Agreement by taking reasonable steps to ensure that "appropriate fees are paid"."

45. The Claimants' case is based on an allegation that the Defendant has not ascertained the actual cost of care and having not ascertained it can therefore not give due regard to it. The Claimant alleges that the Defendant has merely benchmarked against fees charged in other areas or has considered little else and accordingly has not had due regard to the actual cost of care and local factors in Redcar and Cleveland. The Claimant relies on further dicta of His Honour Judge Raynor QC as follows:

" In my view, taken as a whole, the statutory Guidance and the Agreement do not contemplate that there will be any significant imbalance between the usual cost of care and the actual cost. If a local authority consciously fixes the usual cost in a sum significantly less than actual costs, then I do not see how it could be said to be having "due regard to the actual costs of providing care" as required by paragraph 2.5.4 of the Guidance. Furthermore, such action by a local authority would in my judgment amount to a breach of the guidance contained in paragraphs 6.2 and 6.7 of the Agreement, namely to take account in fee setting of the legitimate, current and future costs faced by providers, as well as the factors that affect those costs, and to ensure that appropriate fees are paid. If fee levels are set significantly below actual cost, then, in the words of paragraph 6.2 of the Agreement, there will be "inevitable reduction in the quality of service provision", which "may put individuals at risk"."

On the topic of benchmarking he said:

"Whilst it is true that these fees are not out of line with those of other authorities, that does not mean that the fees are adequate, or indeed that these other authorities had due regard to the actual cost of the provision of care"

46. It is an important element of the Claimant's case that the Defendant must ascertain the actual cost of care in order to pay due regard to it. As His Honour Judge Langan QC said in R (East Midlands Care Ltd ) v Leicestershire CC [2011] EWHC 3096 ( Admin)

" In my judgment, this case comes down to quite a short point. EMCARE drew to the attention of the Council the gap between the actual cost of providing care and the Council's banded rates. The point was made explicitly by Ms Cowley at the meeting of 7 February 2011. If it was not made explicitly before that day (and it would be strange if it were not), it was implicit in the observations in Ms Cowley's letter of 13 December 2010 and in her sending the Laing & Buisson report to the Council on 10 January 2011. The gap, if it existed, was clearly of importance, given the freeze imposed in 2010, the complaints made by EMCARE about that freeze, and inflation occurring since the 2009 increase. Once the matter had been raised, it was, in my judgment, incumbent on the Council to ascertain what the actual cost of care was. So long as it remained in ignorance on that cost, it could not possibly pay due regard to it."

The Claimant does not suggest that the Defendant was obliged to apply the PwC model but the Defendant does need to show that its method of assessment was sufficient to inform itself as to the actual costs of care so that it could then give due regard to it. The third limb of ground one , that the Defendant is unable to demonstrate that the fee rates it has set are sufficient to allow it to meet assessed care needs is also dependent on the quality of enquiry into what actual costs are in the local area.

47. The Defendant reminds the court that the weight attributable to a relevant consideration is a question of judgement for the decision maker and the court should only interfere if the decision is so unreasonable that no reasonable decision maker could reach it. The Defendant relies on the following principles outlined by Mr Justice Stanley Burnton as then was in R ( Birmingham Care consortium and others ) v Birmingham City Council [2002] EWHC 2118 (Admin) when issues concerning allocation of resources are involved:

32 "Out of deference to the arguments put before me, however, I mention some general considerations. First, this case concerns the affordability of social services provided by the local authority. Absent a statutory duty compelling the expenditure in issue at the amount contended for, questions of affordability and of the allocation of resources are for the democratically elected executive and legislature, not for the Courts. Secondly, affordability is in general a highly relevant consideration to be taken into account by any local authority in making its decisions on rates to be offered to service providers, subject to the local authority being able to meet its duties at the rates it offers. As Auld J said in R v Newcastle-upon-Tyne City Council, ex parte Dixon (20 October 1993, unreported but cited in the Cleveland Care Homes Association case):

"… where a local authority has a statutory duty to provide services and to fund them in part or in whole out of monies provided by its taxpayers it must balance two duties one against the other. On the one hand it must provide the statutory services required of it; on the other, it has a fiduciary duty to those paying for them not to waste their money. It must fairly balance those duties one against the other."

Thirdly, the Court should be slow to intervene where, as in the present case, there has been a long process of consultation and the local authority and the service providers are, in effect, engaged in a contractual negotiation with the local authority."

These considerations would clearly become important if the Defendant satisfied the court that it had given due regard to the actual costs of care. The balancing of competing factors is thereafter a merits based test which can only be impugned on Wednesbury grounds.

48. The Defendant relies on the difficulty in calculating what actual costs are given that they must be some sort of estimate , can vary from year to year and from home to home. The guidance does not oblige local authorities to set their rates at actual cost, only to give due regard to it. The Defendant submits that a duty to have due regard to actual costs is not the same as having to determine, ascertain or calculate them. The guidance does not stipulate any particular method and there are numerous ways of fulfilling that duty. The Defendant contends there is no duty to broadly align usual costs with actual costs particularly when there is evidence of budget difficulties.
49. The Defendant's case is that although there are various methods that can be used to estimate actual care costs the Defendant has in fact used a combination of three methods: benchmarking with other local authorities; taking into account previous year's fee rates and, by implication, consideration of the PwC model which was taken into account in fixing the previous year's rates. The Defendant's case is that the combination of these three methods was a reasonable way to estimate actual care costs and thus give due regard to the actual costs of care. The Defendant also points out that it is likely that the proposed fee rates are sufficient to meet the council's statutory obligations as private care homes exist in a highly regulated sector and either the Care Quality Commission , the local PCT or the Defendant's employees would soon bring to the Defendant's attention any decline in material standards for residents.
50. An examination of the evidence in the case certainly shows that benchmarking was an important consideration for the Defendant. There were only two issues mentioned in the initial PowerPoint presentation on 3^rd November 2011which might have been relevant to the actual cost of care:

Local factors , if any which differentiate care home costs in Redcar and Cleveland from those in neighbouring authorities

The potential impact of the council's proposed changes on care homes and their residents

In the Defendant's letter of 26^th January 2012 setting out the council's proposals in response to the consultation the reasons for proposing the new fee structure are set out fully: see paragraph 21 of this Judgement. It is fair to say that other than a passing reference to the need to take into account the longer term financial viability of care homes in the borough the Defendant indicated it was proposing to set its fees broadly in line with the average for older person's homes across the region. The Claimants wrote to the Defendant to question this approach and in the Defendant's reply dated 1^st February 2012 it was stated:

"The fee structure was not based on any particular model but instead took account of the average paid across the region; this is believed to represent a sustainable and reasonable fee. The council believes that the PwC model is out of date, as demonstrated by the issue you refer to in your letter and a fee structure based on average payments in the North East is a more accurate reflection of a reasonable fee"

The question of comparison with other North East councils was again referred to in Mr MacGladrie's letter of 17^th February 2012 and at the meetings on 20^th February and 1^st March 2012 (summarised at paragraph 23 above) the only consideration mentioned was benchmarking with other authorities. It would be fair to say that in its communications with the Claimant and other providers the only consideration that seems to have been mentioned as instrumental in setting fees is benchmarking.

51. The Defendant actually made the decision on the 2012/13 fee rates at a meeting of the Executive Management Team on 12^th March 2013. This meeting was informed by two briefing notes which were prepared to assist the Management Team make a decision and they are exhibited at "KM8" and "KM11" of Mr MacGladrie's statement. In my view these documents represent the best evidence of what the Defendant took into account before making the decision to set fees. It was this team that was the effective decision maker, not Mr MacGladrie personally, and the evidence of what they took into account is clear from the documents they were provided with.
52. The briefing paper dated 1^st March 2012 commences with a section entitled "Background" which gives a history of the adoption of the Fair Cost of Care model in 2007. It relates how fees rose until 2010/11 when fees were frozen although the model would have resulted in a reduction of 4.28% and frozen again in 2011/12 although a 0.17% rise should have been justified. The summary concludes:

"Both providers and the Council recognised at a meeting in August 2011 that it would be costly to repeat the Fair Cost of Care exercise and that the outcome could represent a financial risk on both sides as the recommended fee levels would be uncertain until the exercise had been run"

The briefing paper then considered three options: to repeat the PwC Fair Cost of Care exercise; to "tweak" the current PwC Fair Cost of Care model; and for the Defendant to develop its own model to set fees. The third option was chosen for further exploration. Under the title "Developing the Model" it stated:

" In determining what a reasonable fee level would be as a starting point for negotiating a benchmarking exercise was undertaken using the fees paid by all authorities in the North East - taking into account the highest fees paid in the area. All of these authorities manage to sustain an active range and choice of providers at the fee levels that they paid. The exercise showed that RCBC pay the highest fees in the region".

The paper points out that benchmarking is a recognised tool in costing and legal judgements do not appear to favour any one model over another in establishing a point from where to start negotiations. No other consideration or potential consideration is mentioned. The paper goes on to explain that the proposed fee structure was created by taking an average of the fees paid by a number of neighbouring local authorities. The responses of two providers were included in the paper and the implication was that both would support a legal challenge if there was a substantial reduction in fees. The briefing paper then set out three options: to accept the proposals made by the providers; to offer a fee reduction of between £10-£15 per resident per week for two years; and to reduce by £15 per bed in the short term with a new PwC cost of care model to be implemented from 1^st October 2012. The potential savings for each scheme were then set out in tabular form together with the proposal which the Defendant had already made in January 2012.

53. A second briefing paper was provided on 12^th March 2013. The paper again related the background to the issue of fee-setting and under the title "Basic Fee" stated:

"In determining what a reasonable fee level would be as a starting point for negotiating , a benchmarking exercise was undertaken by comparing the fees paid by all authorities in the North East"

There followed a table showing the rates paid by 11 neighbouring authorities for each of the four grade of homes. This was then compared with the fees the Defendant had paid the previous year and the current proposal made in January for substantial savings between £34-£40 per bed per week. It pointed out that the providers felt that an inflationary increase of £14.96 was required to keep pace with inflation and that they would accept a zero increase if a new Fair Cost of Care Exercise was implemented. The fact that certain providers might accept a modest fee reduction was also mentioned. The briefing paper proposed two options; firstly to keep to the proposal which had originally been made in January; or secondly to offer a revised fee structure. The advantage of maintaining the original offer was that this would achieve a higher cost saving but the higher the reduction imposed the more likely a legal challenge would be. In trying to decide on the figures for a revised fee structure consideration had to be given to what level of reduction would attract a significant proportion to sign up to the deal. In was felt that the maximum fee reduction that would generate enough providers to sign up to the deal was a flat rate fee reduction of £12 per resident per week. The Executive Management Team appears to have decided on a flat rate deduction of £14 per resident per week according to the figures in the letter of 16^th March 2012 communicating the decision to providers.

54. It is clear both from the communications which passed between the Defendants and the Claimants and the briefing notes which preceded the Defendant's decision what information it had and what considerations it applied in making the decision. It is fair to say that the decision makers were aware of the rates which had applied from 2007 to 2012 and how they had been reached, in the first three years by application of the PwC Cost of Care model and for the next two years by negotiation. It is also clear that the Defendant did not want to implement the Cost of Care model or a similar model because it felt that it was likely to produce a higher figure than was justified. The benchmarking exercise had clearly convinced the Defendant's officials that the Defendant was paying too much for residential care and that their obligation to obtain best value together with the need for budget cuts meant that some sort of reduction in fees was required. The consultation had produced no convincing reason for the differential which the benchmarking had revealed. It is clear from the briefing papers that officials regarded the average figure for the region as a good starting point for negotiation. This would produce substantial savings for the Defendant but it was reluctant implement this proposal for fear of alienating all the providers or provoking them into legal action. It was attempting to tread a delicate path between achieving the maximum saving and avoiding costly legal action. The parameters for discussion were probably between the average fees which formed the basis of the January proposal and the fees charged the previous years which had been tolerated by the providers. The advice of officials was that a £12 per week per resident reduction would probably attract the agreement of most of the providers. In the event the decision makers chose a £14 per week reduction.
55. This process is one that under normal circumstances would not be amenable to public law challenge. If a local authority has two competing considerations to weigh before making a decision the weight that it actually gives to each is only challengeable if Wednesbury unreasonable. The difficulty here is however that the Defendant has an obligation under statutory guidance in Circular LAC (2004) 20 to have "due regard to the actual costs of providing care and other local factors". The Defendant's case is that it has had due regard to the actual costs of care by using a combination of three methods: benchmarking; considering the figures which applied the previous year; and by implication considering what a Fair Cost of Care Model would have produced. It is obvious that the Defendant had regard to both benchmarking and the 2011/12 rates it had been paying. These provided the parameters between what it had been paying and what it would have liked to have been paying. In my judgement however, the Defendant did not use the 2011/12 rates and the Fair Cost of Care model which underpinned them as mean of ascertaining and then having due regard to the actual costs of care. It is clear from all the documents that I have reviewed that the Defendant proceeded from the starting point that it was paying up to £40 per week more than most of their neighbours and they could think of no reason why they should do so. Its view was that the methodology in the PwC report was at best outdated and at worst flawed. So whilst I accept Mr MacGladrie's evidence that the Defendant had regard to both the 2011/12 fee rates and the benchmarked figures it did so not with a view to ascertaining and having due regard to the actual costs of care but more with a view to calculating what reduction might be possible to negotiate from or impose upon providers without the risk of expensive litigation. It had been argued at one point that the Defendant's request for business questionnaires could be relied on as evidence that providers' accounts had been requested. It was clear from an examination of the documentation however that the purpose of this was for due diligence enquires as to solvency which applied to anyone contracting with the council. It would not have been used to ascertain the actual costs of care.
56. Although the Defendant did not accept that this was a correct interpretation of its actions it would also seek to argue that there is no obligation to actually calculate or estimate the actual costs of care in order to give due regard to them. The Defendant relies on the fact that it may well be impossible to actually fix the actual costs of care at any one time and the best that any council can do is estimate the same on the basis of the information it has. I would accept that it would be difficult to calculate the actual costs of care to the nearest penny but it must be possible to decide in broad terms what the actual costs of care are likely to be in the locality whether as a rough estimate or as a bracket. In my view, in order to have due regard to the actual costs of providing care it is necessary first to determine what that cost currently is , even if only a broad estimate or bracket is calculable. Once this is determined then a local authority can make a decision on what the usual cost of care will be for the next financial year having had due regard to the actual costs of providing care. I accept that the two figures may not be the same provided the local authority has had due regard to the actual costs in the locality. Once it has determined what the actual costs are ,and had due regard to them , I fully accept that other considerations such as budget difficulties may have to be weighed in the balance and this might result in a figure which is lower than the actual costs of care.
57. In this case the Defendant has relied almost exclusively on the benchmarking exercise to inform itself of the actual costs of providing care. I find that whilst it was aware of the previous year's rates this information was used as a means of estimating what level of reduction in rates was likely to be accepted reluctantly by providers. The issue then arises whether benchmarking alone is an acceptable method of estimating or determining the actual costs of care before giving due regard to them. I agree with the Defendant's submission that there is no single defined method for determining the actual costs of care. Previous cases have shown that local authorities have adopted a number of methods or combination of methods, for example: Fair cost of care models ( several variants ); accepting providers' figures; looking at providers' accounts; taking into account previous year's rates; using officers' own knowledge and experience and having regard to comparative data from similar authorities. Whilst I accept the Defendant is not obliged to apply any of these models it was obliged to "have due regard to the actual costs of providing care and other local factors". It is difficult to see how the Defendant can be having regard to "other local factors" when the information it has obtained is from other local authorities and not within its own area. I accept the logic of the argument expressed by His Honour Judge Raynor QC in Sefton Care Association set out in paragraph 45 above that setting fees in line with other local authorities does not necessarily make them accurate nor that the other local authorities had due regard to the actual costs of care. The Claimants were quick to point out that some of the authorities benchmarked have been the subject of judicial review challenges, one of which so far has been successful. There is also the possibility that there may be authorities who are paying less than the actual costs of care but the providers cannot afford or have not decided yet to embark on the risky path of legal proceedings. Whilst I accept that benchmarking is likely to provide useful information to a local authority wishing to ascertain the actual costs of care it will need to be combined with some information which relates specifically to its own area before it can be said to have reliably established what the actual costs of providing care are likely to be.
58. The Defendant submits that there are a range of different methods to take into account the actual costs of care and the statutory guidance gives no steer as to which method or methods are preferable. It is submitted by the Defendant that the Defendant's method of assessment can only be challenged if Wednesbury unreasonable. I do not accept this submission for the reasons I gave in paragraphs 36-40 on the issue of "due regard". The court is entitled to look at the Defendant's methodology and decide whether it has in fact given due regard to the actual costs of care. If it has then the question of weight is a merits test. If however , the court finds that the Defendant has not actually determined properly the actual costs of care and so cannot have given due regard to it then the court is entitled to find that the decision to set the usual rates for care fees is unlawful.
59. I find myself therefore not having to make a contested finding of fact on the contents of paragraph 54 of Mr MacGladrie's statement. He stated that the Defendant had regard both the 2011/12 fee rates and the benchmarking information and that the figures eventually fixed are not simply a function of the average in the area. Whilst I accept the Defendant had regard to the 2011/12 rates they clearly did so for the purpose I have outlined in the previous paragraphs and not to assist in the assessment of the actual costs of care. The reason why the rates were fixed at a higher figure than the average for the area was an attempt to avoid judicial review proceedings which, it transpired was unsuccessful.
60. It follows from this assessment that the Claimant succeeds in relation to the first ground of challenge that the Defendant has failed or failed properly to assess and have due regard to the actual costs of care in particular in relation to local factors.
61. Ground Two

The Claimant claims that by failing to equip itself with knowledge of the actual costs of care, the Defendant has not been in a position properly to assess the risk to care homes and their residents contrary to its obligations under Article 8 ECHR and /or common law. I indicated during the hearing that I could not envisage circumstances where the Claimant could succeed on this ground if they failed on the first ground. As the Claimant has succeeded on the first ground I see no reason to determine this ground conclusively. I remain troubled by the need for the Claimants to establish victim status under s 7(1)(b) of the Human Rights Act 1998 although I recognise the theoretical argument outlined by Mr Justice Singh in South West Care Homes v Devon CC [2012] EWHC 1867 at paragraphs 37-40. He did not feel the need to determine the issue in that case and as the Claimant has succeeded on Ground One, I do not feel the need to do so in this case either.

62. Ground Three

Ground three alleges that in failing to equip itself with knowledge of the actual cost of care the Defendant has been unable to give proper consideration to the longer term financial viability of care homes, despite having stated that this was a consideration to which it had regard in the formulation of the fee rates for 2012/13. Neither party addressed this issue at any length during the hearing but I accept that factually the Defendant did not do this under the methodology they adopted. It may be a moot point whether they had any statutory obligation to do so although there is some support for such an obligation in the Building Capacity Agreement. However, given the success of the Claimant under ground one and the fact that if on appeal I am found to be wrong in relation to ground one this ground would also stand and fall with that decision and there is no need to determine it.

63. Ground Four

Ground Four alleges that the Defendant failed to properly consult with care home providers. It seems to be common ground that the Defendants had a duty to consult. This was set out in paragraph 5.9 of the Building Capacity Agreement where it was said that commissioners should ensure that they have in place "clear systems for consultation with all (and potential) providers". The Defendant's case is that it accepts it had a duty to consult and did in fact do so.

64. In the case of R v North and East Devon HA, ex p Coughlan [2001] QB 213, the Court of Appeal set out what was required if consultation was to be properly undertaken:

"F. Consultation

108 It is common ground that, whether or not consultation of interested parties and the public is a legal requirement, if it is embarked upon it must be carried out properly. To be proper, consultation must be undertaken at a time when proposals are still at a formative stage; it must include sufficient reasons for particular proposals to allow those consulted to give intelligent consideration and an intelligent response, adequate time must be given for this purpose, and the product of consultation must be conscientiously taken into account when the ultimate decision is taken: R v Brent London Borough Council, Ex p Gunning (1985) 84 LGR 168."

In paragraph 112 of the judgment the Court stated:

"It has to be remembered that consultation is not litigation: the consulting authority is not required to publicise every submission it receives or (absent some statutory regulation) to disclose all its advice. Its obligation is to let those who have a potential interest in the subject matter know in clear terms what the proposal is and exactly why it is under positive consideration, telling them enough (which may be a good deal) to enable them to make an intelligent response. The obligation, although it may be quite onerous, goes no further than this"

65. In the present case the Defendant started its consultation process at the meeting on 3^rd November 2011. At that stage it was seeking information on any local factors which differentiate care home costs in Redcar and Cleveland from other neighbouring authorities and the potential impact of the Council's proposed changes on care homes and their residents. At this point the evidence appears to be that no figures were mentioned. I am therefore satisfied that it started at an early enough stage. It would appear there is no issue about the breadth of consultation in that the Claimants' committee members had a number of meetings with council officials and were able to put forward their views forcibly. The complaint is rather that the Defendants only consulted about the issue of comparative cost and did not consult about the actual costs locally. There is of course something in this complaint given my findings in relation to ground one and had the Defendant focussed in consultation more on the issue of what the actual costs of care was locally it might possibly have been able to use that information to assist them in determining the actual costs of care in a way that could withstand legal challenge.
66. The Defendant had an obligation to consult in the sense that they were obliged to tell the providers what their provisional proposals were, to ask the providers for their views and information and take those representations into account when they made their final decision. The meetings with the Claimants are minuted and show that the Claimants were able to express their views on a range of proposals including the usual rate of care. What is clear from the documents is that the Defendant took into account the representations on issues such as grace days, temporary absences, attendance at day centres, cost of NHS/LA support, blended rate for residential /dementia , weighted average GLP payment and quality assessment scheme. On each issue the Defendant appears not only to have taken the Claimants' views into account but amended their proposals to reflect those views. I accept the Defendant did not accept the Claimants' views about the fee setting exercise but it is clear from the briefing papers that the Claimant's views were recorded and considered. The Defendants duty to consult was different to its duty to have due regard to the actual costs of care. I find that it complied with its duty to consult and the challenge under this ground is dismissed.
67. Ground Five

This ground is based on the assertion that the Defendant may not, consistent with the relevant statutory directions maintain a closed list of care homes in which it will place residents. The issue became somewhat simpler however during the course of the hearing. There were three consequences of failing to sign the framework contract spelt out in the Defendant's letter of 16^th March 2012 which are set out in paragraph 25 of this Judgement. In the light of my comments the Defendant agreed to withdraw two of them: the decision that non-signatories would not receive any quality payments for existing residents; and the potential decision to withdraw the offer of a new contract to non-signatories after a period of time. The only issue remaining is whether the Defendant is entitled to remove non-signatories from their approved provider list so that they would receive no new placements from the Defendant.

68. The Claimant relies on of the relevant statutory guidance in LAC (2004) 20 which states as follows:

(d) Terms and conditions

2.5.16 In order to ensure that they are able to exercise proper control over the use of their funds, councils need to be able to impose certain contractual conditions, for example, in relation to payment regimes, review, access, monitoring, audit, record keeping, information sharing, insurance, sub-contracting, etc.

2.5.17 The contractual conditions required of preferred accommodation should be broadly the same as those councils would impose on any other similar operation. Stricter conditions should never be used as a way of avoiding or deterring a placement. As with suitability, account should be taken of the nature and location of the accommodation. There may be occasions where it would be unreasonable for a council not to adapt its standard conditions and others where it would be unreasonable to expect it to do so. For example, councils should take into account the fact that care homes in other areas, or those that take residents from many areas, may have geared themselves to the normal requirements of other councils. Councils should be flexible in such circumstances and avoid adding to the administrative burden of care homes.

69. The Claimants' challenge is to the maintenance of a closed list of providers in whose homes the Defendant is willing to place funded residents , that list being drawn up on the basis of providers' willingness to sign up to ( rather than to accept in particular cases ) the Defendant's rates. This challenge led to the Defendant filing evidence from Andrew Hames who deposed that the Defendant is always open to considering whether there are exceptional reasons in particular cases why different rates should be paid. The Claimants appear to accept that the Defendant can impose its usual terms and conditions when dealing with providers and that the Claimants cannot insist on being paid more than the usual fee , although both parties agree that exceptional cases will be considered. The regulations clearly envisage the resident making the choice as to which care home he would like to stay in. The council has an obligation to set the usual rate for that sort of accommodation and provided the amount the care home wish to charge does not exceed the council's usual rate then the potential resident can be placed in the care home of his choice at the appropriate rate. If the Claimants will not accept the rate the Defendant has set then the Defendant is under no obligation to pay more than the usual rate. The Defendant is entitled to enter into contractual relations with each provider on the same terms and there is no objection to the framework agreement per se (save as to rates at present). I found it hard to envisage during the hearing what the Claimants would achieve by preventing the Defendant from having a closed list if they chose not to sign the framework agreement. By refusing to accept the usual rates they would provide justification to the Defendant for placing the particular resident elsewhere. The answer seemed to lie in the marketing value of being placed on the council's approved list of homes but this seems to me to be a limited advantage where a dispute as to fees means that no resident could be funded by the council fully in a home where the provider was not prepared to agree to be paid at the usual cost.
70. This issue was addressed by His Honour Judge Seys Llewellyn QC in R (Broadway Care Centre Ltd)v Caerphilly CBC [2012] EWHC 37 when he stated that :

"It had already been stated in evidence on behalf of the Defendant Local Authority that it does not maintain an approved care home providers list in other words a list of care home providers who are the only care home providers with which it will contract. (iii) I accept the contention that as a matter of law it would be prohibited from maintaining any such list, because of the choice of accommodation directions, which require the Defendant to enter into arrangements with any care home chosen by a prospective resident, providing the relevant conditions are met at the time. I respectfully consider that there is nothing in this point."

This proposition was clearly obiter in the above Judgement but I agree that the choice of accommodation directions do require the Defendant to enter into arrangements with any care home chosen by a prospective resident, providing the relevant conditions are met at the time. The Defendant however is entitled to insist that the provider enters into contractual arrangements on its standard terms and the provider cannot expect to recover more than the usual fee unless exceptional arrangements are made. I therefore agree that at least in theory the Defendant cannot exclude the Claimants from a list of care home providers with whom it will contract. It can however reasonably only agree to contract on its standard contractual terms including the usual fee rates. The effect would be that the Claimant's homes might be on a list that the Defendant was prepared to contract with but contracts would only be actually entered into if the Claimants were prepared to sign the framework agreement. This would at least leave the choice open to the Claimants in the future should they decide to accept the usual rates. This ground therefore succeeds to this limited extent.

71. Remedy

Neither party specifically addressed me as to remedy but I accept I have discretion. Fortunately the Defendant, very fairly and with the benefit of hindsight, wisely, decided not to put in place their decision to reduce payments by £14 per week. The obvious remedy is for a declaration that the decision to set the fee rates for 2012 /13 on 12^th March 2012 in the rates specified in the letter of 16^th March 2012 is unlawful. The Claimants would also be entitled to a declaration that they should not be excluded from any list of care homes with whom the Defendant is prepared to contract ( on its own terms) . The court will order the Defendants to make a new decision to fix fees for the 2012/13 period and is prepared to hear representations as to how long this process is likely to take.