England and Wales High Court (Administrative Court) Decisions

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

		Royal Courts of Justice Strand, London, WC2A 2LL
		20th April 2016

MR JUSTICE KERR:

1. Near the village of Bidford, Warwickshire, there is a need for a pharmacy, as everyone concerned in this case agrees. Each of two separate businesses wishes to operate it. But only one pharmacy is needed to meet the public need for the service, as assessed by National Health Service ("NHS") bodies. So one of the businesses must lose out. And there is only one suitable building available ("the premises") from which to run it. The premises are controlled by one of the businesses, which does not want to lease them to the other.
2. These agreed facts are making it difficult for the other business, the claimant ("Rushport"), to open the new Bidford pharmacy, although it has a grant entitling it to do so. At present, its rival ("BHL", the first interested party), a company set up by local doctors ("the GPs"), also has a grant entitling it, BHL, to open the pharmacy. And, unlike Rushport, it controls the only available premises. It is therefore in a position to open for business soon.
3. Rushport complains that the NHS bodies must prevent this, because Rushport was awarded its grant first and must be given the chance to persuade BHL to lease the premises to Rushport, although BHL says it is unwilling to do so. Rushport applied for permission to bring a judicial review of the decision by the defendant, ("the NHSLA"), appointed by the Secretary of State for Health to determine appeals about provision of pharmacy services.
4. That decision was to uphold the decision to grant BHL the right to open the pharmacy, and to dismiss appeals by Rushport and another business ("LPL", the second interested party) which operates a pharmacy about six miles away. The NHSLA, through a committee, decided on 8 February 2016 ("the decision") that BHL's application met the necessary criteria and that the first instance decision maker ("NHS England", the first interested party) had rightly so decided.
5. I ordered a "rolled up" hearing to determine whether permission should be granted and if so, to determine the claim. It turned out that none of the parties submitted that the decision should stand. All were content for it to be quashed, and the appeals remitted for re- determination. The disagreement was about whether any further direction should be given to the NHSLA. Is there only one possible outcome, as Rushport contends? Or should the NHSLA simply hear and determine the appeals again, as submitted by BHL and NHS England?
6. Rushport seeks, as Mr Lock QC clarified at the hearing, a direction or declaration that the NHSLA must allow its appeal and quash the grant made to BHL. That will enable Rushport to open the pharmacy if it can persuade BHL or its owners, the GPs, to cede the premises to Rushport. BHL, supported by NHS England, both say it is wrong (and BHL says it is unarguable) that the NHSLA can be ordered to allow the appeals. LPL has not taken part in the proceedings. The NHSLA did not appear at the hearing but has written that it is willing to re-hear the appeals.
7. I will say straight away that I grant permission to Rushport to argue all its points. I do not accept BHL's argument that permission should be restricted to allow Rushport only to seek a quashing order and not a mandatory order requiring the appeals to be allowed. There can be cases where only one outcome is possible on a statutory appeal, either as a matter of law or because no reasonable appellate body could decide otherwise. The main question for me is whether this is such a case.
8. The facts in slightly more detail are these. Rushport applied on 1 September 2014 for inclusion in the statutory pharmaceutical list to operate the proposed pharmacy at Bidford. It hoped to lease the premises from the GPs and was discussing that with them. It had to provide its "best estimate" of the location of the new pharmacy, which it gave as "the immediate vicinity of the new Bidford Health Centre". It gave all the undertakings required under the statutory provisions, including an undertaking to provide the pharmacy services identified in the grant.
9. At that stage, Rushport proposed to acquire alternative premises if agreement could not be reached with the GPs. At some point later, Rushport abandoned the idea of alternative premises. Agreement with the GPs was not reached. They decided instead to apply for a grant to operate the new pharmacy through BHL and operate it from the Health Centre. They made that application to NHS England on 27 November 2014, also giving their "best estimate" of location as "the vicinity of" the Health Centre.
10. Under the rules, NHS England could consider both applications together, or defer BHL's application until after it had determined Rushport's application. It appears to have taken the latter course rather than the former. On 6 March 2015, NHS England refused Rushport's application. Rushport appealed to the Secretary of State, who appointed the NHSLA to decide the appeal. On 14 August 2015, the NHSLA allowed Rushport's appeal. Rushport was notified on 20 August 2015.
11. Under the rules, Rushport then had six months (to 19 February 2016) to provide NHS England with the exact address of the new pharmacy, and a further six months (or up to nine months if NHS England agreed to extend time) in which to serve a "notice of commencement" of the services to be provided within the following 14 days. Having won its appeal, Rushport naturally hoped that BHL's as yet undetermined application would fail. But it succeeded, on 6 November 2015. So there were two grants to provide one pharmacy, but BHL had the advantage of the only available premises.
12. Rushport (and LPL) had a right of appeal against the grant to BHL, as interested parties. They appealed, broadly contending that the rules did not allow more than one grant to provide a single pharmacy, because the statutory need for the services to be provided had already been met by the grant to the first successful grantee – here, Rushport. The Secretary of State again appointed the NHSLA to determine the appeals.
13. On 8 February 2016, the NHSLA dismissed the appeals. That is the decision under challenge. Rather strangely, the NHSLA quashed the decision appealed against and then proceeded to make the same decision again, but that does not matter. What matters is that the appeals failed, so that there remained two grants for one pharmacy. After examining the need for services and reciting the representations made by the parties, the NHSLA committee considered the statutory provisions in detail in its written decision. The relevant part of the reasoning was at paragraphs 6.36-6.39 of the decision.
14. The committee noted that there was an "extant grant" to Rushport to operate the same pharmacy, but reasoned that, since Rushport had not served a notice of commencement, the pharmacy is not included in the statutory pharmaceutical list. The committee decided that "there was nothing in the Regulations which prohibits a second pharmacy application being granted if it was able to secure the improvements or better access applied for; each application is considered on its own merits" (paragraph 6.36).
15. The committee went on to say, again, that "there is no provision within the Regulations preventing more than one application being granted for the same location" (paragraph 6.37). Rushport says this is a clear misdirection of law. BHL and NHS England disagree. They support the committee's position as expressed in those two paragraphs.
16. On the subject of premises, the committee said this at paragraph 6.38:

The Committee noted parties' comments regarding the availability of premises and the likelihood of premises being secured by either the Applicant [BHL] or Rushport, however concluded that this was not a matter which the Committee was required to consider in accordance with the Regulations.

17. Rushport says that last statement is correct in law: it is not for the NHSLA on an appeal to concern itself with whether the first grantee will honour its undertaking to provide the exact address within six months of the grant and thereafter provide the services identified in the grant. It should accept the undertakings at face value. It should not "go behind" the undertakings given when the application was made, as Mr Lock put it.
18. BHL and NHS England disagree. They say the committee's statement at paragraph 6.38 must be wrong in law because the NHSLA must consider the practical question whether the first grantee has premises from which to deliver the services. If it does not, the way is clear for a second grant for the same location; but if it does have premises, a second grant would result in over-provision of services and the statutory tests for a second grant would not ordinarily be met.
19. After the decision, on 15 February 2016 just before expiry of the six month deadline, Rushport optimistically provided the Bidford Health Centre as the exact address of its new pharmacy, from which it proposes to deliver services in accordance with its grant. It hopes that if its present challenge succeeds, the GPs will relent and agree to lease the premises to Rushport before expiry of the next deadline which (unless extended by up to three months) will expire in August 2016.
20. Next, I need to mention the relevant law. Provision of pharmaceutical services is made in Chapter 1 of Part 7 of the National Health Service Act 2006, as amended ("the Act"). So far as material here, section 126 requires "the Board", i.e. NHS England, to make arrangements for providing sufficient drugs, medicines and appliances which are ordered by doctors and other professional health workers in the course of their duties. Section 129 requires the making of regulations to secure sufficient provision.
21. The regulations must include provision for an application for inclusion of a person in the "pharmaceutical list" in respect of particular services and premises: section 129(2). An application may only be granted if NHS England is satisfied having regard to the published "pharmaceutical needs statement" ("the PNA") for each area, that to grant the application would meet a need for the particular services in that area or secure improvements or better access to pharmaceutical services in that area (section 129(2A)).
22. The relevant regulations are the National Health Service (Pharmaceutical and Local Pharmaceutical Services) Regulations 2013 ("the Regulations"). Part 3 deals with pharmaceutical lists and applications in respect of them. Regulation 10 provides for the lists to be maintained and the information (in Schedule 2) that applicants to be included in a list must provide. NHS England must determine applications at first instance.
23. There are various categories of application. I was referred to four categories. An application may be for a grant to meet a current need identified in the PNA (regulation 13); or to meet a future need identified in the PNA (regulation 15); or to secure improvements to or better access to existing services identified in the PNA (regulation 17); or to secure improvements to or better access to services not identified in the PNA (regulation 18). The latter are called "unforeseen benefits" applications because they are aimed at providing benefits not foreseen and identified in the PNA for the area concerned.
24. Here, both applications were unforeseen benefits applications under regulation 18. To determine such applications, NHS England must have regard to six considerations listed as (a)-(f) under regulation 18(2). The first (at (a)) is whether granting the application would cause "significant detriment to … proper planning" in respect of service provision in the area or to "the arrangements … in place" for service provision in the area. If the answer is yes, the application must be refused (see regulation 19(5)).
25. The second consideration (at (b)) is very long and is directed to whether granting the application would "confer significant benefits on persons in the area …." Unless that is, at least, NHS England's preliminary view, it need not consider the remaining matters set out at (c) to (f) (see regulation 18(3)). If such is its view or preliminary view, it may defer determination of the application for up to six months, or invite competing applications, or consider more than one application together (regulation 19(1)). Or it may reach a final view and grant the application: regulation 18(6).
26. The third to sixth considerations (at regulation 18(2)(c) to (f)) are procedural in nature; whether it is better to hear applications together, to invite competing applications, or to defer one to await the outcome of another, or of an appeal in another, or whether to defer or refuse an application for other reasons not material here. In such a case, NHS England may do these things, subject to a time limit of six months if it proposes to defer an application to consider it alongside other applications not yet made (regulation 19(2)).
27. Schedule 2 deals with arrangements for determining applications. Part 1 specifies "information" that an applicant must provide. It includes the address of the intended premises or a "best estimate" of location (paragraph 1(7) and (10)); and "undertakings" including, in a case where the applicant or the premises are new to the list, "to comply with all the obligations that are to be their terms of service …" and "to provide all the services and perform all the activities at those premises that are required under the terms of service …." (paragraph 9(c)). There is no direct sanction for a breach of those undertakings, though it could lead to loss of credibility or reputation in the industry.
28. Where the premises are new to the list and a "best estimate" of location only has been given, an application is granted on the condition that the exact address must be provided within six months of the decision notice (paragraph 31). There is no provision for a change of premises after grant of an application in such a case. Once the application is conditionally granted, a "notice of commencement", i.e. a notice that the service will commence within 14 days, must be sent to NHS England. This must be done within six months of specifying the exact address (paragraph 34(4)(b)(iv)(aa) [sic]); but NHS England may agree to extend the six month period by up to three further months (paragraph 34(4)(c)(i)).
29. Paragraph 35 empowers NHS England to serve a notice to commence providing the services, after an application has been granted but before the services have begun to be provided. This is regarded by NHS England as a reserve power which, Mr Wenban-Smith told me, it is not comfortable with exercising and does not normally use. Nevertheless, the power is there and is relevant to Mr Lock's submissions, as we shall see. There are also various provisions relating to rights of appeal, which I do not need to set out here.
30. For Rushport, Mr Lock advanced the following main arguments:

(1) The statutory public benefit test cannot be met in more than one application for the same location, where the public need is for one application to succeed, not both. Otherwise, the second grant is a decision to provide for superfluous services. The NHSLA erred in law in deciding otherwise (at paragraphs 6.36-37).

(2) A grant once made, albeit conditional on later provision of an exact address and a notice of commencement, confers a right on the grantee which must not be undone by another inconsistent grant that would lead to over-provision if implemented, and wasted investment by the first grantee.

(3) The right to provide the services is a possession for the purposes of Article 1 of the First Protocol to the European Convention on Human Rights. Granting a second application for the same location unjustifiably interferes with enjoyment of that possession and the court should therefore construe the statutory provisions in a manner that avoids that.

(4) It is wrong in principle to grant two competing applications and then let market forces determine which successful applicant succeeds in establishing a service at the location in question. That would encourage "spoiling" applications by a late applicant with a deep pocket.

(5) An undertaking accompanying an application should be accepted and not questioned; otherwise, commercial confidentiality would be compromised. Therefore, in the present case, the NHSLA was right to disregard (at paragraph 6.38) the issue of premises. In any case, the GPs may yet change their mind about the premises.

(6) The wide powers of NHS England (and the NHSLA on appeal) to defer and consolidate applications, or invite competing applications, should be used to hold the balance evenly between applicants and prevent abusive tactical "blocking" applications by an applicant who will be unable to deliver the services.

(7) If NHS England suspects that to be the case, its remedy is to serve a notice under paragraph 35 requiring commencement of services and thereby test the mettle of the first, successful applicant and its ability to deliver on its undertaking to provide the services. The power is there to be used and, if more time is needed, that can be granted on an appeal against the notice.

31. The NHSLA did not appear at the hearing, but put in written submissions, making the following main points:

(1) Its interpretation of regulation 18(2)(b), raising the issue of "significant benefits on persons in the area", was "lawful"; but it accepted that it "could have taken into account the fact that, although [Rushport] had not served a notice of commencement, the grant was extant".

(2) Rushport had not argued in the appeal that upholding BHL's grant would "cause significant detriment" within the meaning of regulation 18(2)(a). It was too late to raise that argument now. Nevertheless, the NHSLA had offered to submit to a quashing order and to reopen the appeal "on a pragmatic basis".

(3) Rushport had rejected that offer because it insisted that the NHSLA also had to agree that on reopening Rushport's appeal, the NHSLA would allow the appeal and quash the grant to BHL. The NHSLA could not agree to that because it would be unfair on the other parties.

32. For BHL, Mr Campbell's main submissions were, in summary, as follows:

(1) There was no conceptual difficulty about granting two applications to provide services from the same location, and then to let market forces decide which of the two would succeed in practice in implementing the grant and providing the services. It was consistent with the public interest in avoidance of tactical "blocking" applications and market distortion to interpret the rules in that way.

(2) The issue as to whether, in the decision maker's view, granting the application would secure improvements or better access to services should be read as meaning that those improvements or better access would be secured provided the pharmacy actually opened in consequence of the grant. It would not make sense to require the decision maker to assume that the pharmacy would necessarily open, given that the decision to grant an application can be made before premises are secured, and with no guarantee that they will be.

(3) By similar reasoning, there could be no factual assumption that a prior grantee would necessarily abide by its non-binding undertaking to open the pharmacy in question. That was a fact-sensitive issue for the NHSLA to consider on the appeal. BHL agrees that the decision should be quashed because the NHSLA did not do so and thereby disregarded a plainly relevant consideration.

(4) In the present case, it was fanciful to suggest that Rushport could deliver the services from the only available premises in the vicinity of the Health Centre, because the GPs will not cede control of those premises to Rushport. The latter's argument therefore required the committee to blind itself to reality and assume the GPs would wreck their own application. And whatever the virtues of commercial confidentiality, it has no factual relevance here to the premises issue.

(5) The required undertaking (under paragraph 9(c) of Schedule 2 to the Regulations) to comply with the obligations that are to be the terms of service and to provide the services from the premises specified, or to be specified later, as those from which the services would be provided, can only generate actual (albeit non-binding) obligations if and when the pharmacy actually opens.

(6) As to Rushport's argument that testing the reliability of such an undertaking could be achieved by service of a notice under paragraph 35 of Schedule 2 to commence services: that involves, albeit outside the context of the adjudication machinery, NHS England questioning the reliability of the undertaking, the very thing Rushport objects to on the ground of commercial confidentiality.

(7) The argument founded on Article 1 of the First Protocol to the Convention does not advance Rushport's case: either its right to exclusivity argument is correct, in which case it does not need to rely on a Convention right; or, if it is not correct, its "possession" or property right is qualified by and subject to any subsequent grant to BHL, and that qualified right is not interfered with.

33. Mr Wenban-Smith, for NHS England, agreed with and adopted all the arguments advanced by Mr Campbell, and added the following further main points:

(1) In other types of application, there are express provisions requiring the decision maker to consider whether the relevant need is "due to be met" by a person other than the applicant. For example, in a case where a current need is identified in the PNA for the area concerned, the need is treated as met if a person is entitled to serve a notice of commencement in respect of the service provision required to meet it (see regulation 13(2)(h) and (3)(a)).

(2) Such a situation triggers procedural powers (see regulation 14) such as deferring an application for up to six months, inviting further applications, or considering further applications together with that of the applicant. Analogous provisions are found in other types of application (see regulation 15(2)(j) and (3)(a), regulation 17(2)(f) and (3)(a)), and in one case can lead to mandatory refusal of an application (see regulation 17(2)(f) read with regulation 19(5)).

(3) These provisions, however, find no equivalent in a regulation 18 application such as this, based on the assertion of unforeseen benefits not identified in the PNA for the relevant area. The only references to other potential service providers are found in the "case management" provisions already mentioned, allowing for deferment, consolidation or inviting of further applications to be considered alongside an existing one.

(4) In a regulation 18 application, if the decision maker is satisfied that the "significant detriment" test in regulation 18(2)(a) is met, refusal of the application is mandatory: see regulation 19(5), already mentioned. That must be a fact-sensitive question for the decision maker. There is no such mandatory refusal provision in the case of BHL's application in the present case. And it is not for Rushport or the court to invent one.

(5) Rushport itself accepts in its skeleton argument (see paragraph 45) that in co-determined applications, more than one could succeed. Regulation 18 applications are only co- determined through exercise of the case management powers in regulation 18(2)(c) to (f). These powers need not be considered at all (see regulation 18(3)) in a case where the application straightforwardly fails the public benefit test in regulation 18(2)(b). It cannot therefore be right that an extant grant precludes the success of a subsequent application in respect of the same subject matter.

34. What are the answers that should emerge from these competing arguments? In my judgment, they can be quite shortly stated, and are as follows.
35. First, there is no express provision in the statutory scheme which requires the NHSLA, as a matter of construction, to decide an appeal in a case such as this in only one permissible way. I do not think the court should read in a mandatory refusal provision in this case, where none appears in the Regulations. Indeed, as Mr Wenban-Smith pointed out, such indications as there are in the provisions dealing with other types of application within the same Regulations, are to the contrary.
36. Therefore, if Mr Lock is to succeed in his contention that the NHSLA had no alternative but to allow Rushport's appeal, he would have to demonstrate that any other result would be an irrational and perverse (i.e. Wednesbury unreasonable) decision. I shall return in a moment to whether that is the position in this case. There can be cases where a decision maker has only one permissible option, but they tend to be quite rare because they entail, awkwardly, a power becoming in practice a duty, or an adjudicative process becoming in practice a rubber stamp.
37. Next, I accept the submission of Mr Campbell that under the statutory scheme set out in the Act and the Regulations, a decision maker can, in principle, find that the public benefit test in regulation 18(2)(b) is satisfied in a case where there is already an extant grant, on the basis that in the decision maker's judgment, the prior grantee will be unable to deliver on its undertaking to provide the services in question.
38. It follows that I reject the proposition of Mr Lock that the decision maker must necessarily accept at face value a statutory undertaking from a prior grantee, even if on the facts the undertaking is manifestly unrealistic and the services to be provided under the prior grant demonstrably undeliverable. The statutory scheme cannot sensibly be interpreted as requiring the decision maker to blind itself to reality. Such an interpretation would lead to decisions not grounded in reality and common sense.
39. Invocation of commercial confidentiality is no answer to that. It is up to the party making an application or opposing a subsequent application to judge where its interests lie. It may decide to waive commercial confidentiality, if free to do so, or to resort to the normal technique of redaction, and so forth. Or commercial confidentiality may not be a problem on the facts, as in this case where the respective positions of the GPs and Rushport is no secret, but part of the evidence to be considered.
40. Nor is the paragraph 35 notice procedure an answer to the common sense reading of the Regulations, which is that the decision maker must look at the relevant evidence that is available, assess it and take it into account when reaching a decision. Any other process would be artificial and against the public interest in getting the service provision right. The case management provisions allowing applications to be deferred, consolidated, and so forth, also support this conclusion. They are plainly there to enable the relative merits of applications to be weighed against each other.
41. Successive applications determined sequentially in respect of the same services can be awkward, and are best avoided if they can be; but they are not impossible under the statutory scheme; and NHS England has to exercise case management judgment without full knowledge of what applications may or may not be made in the future, or how long in the future they will be made and, once made, will be ready for determination.
42. Next, however, in a case where there are two competing applications and one has already been granted, as in this case, it may well be perverse and irrational to grant the second one unless there are good reasons for forming the view that the service provision required under the first grant is considered undeliverable. Such reasons could include, for example, the insolvency of the first grantee, or a public statement that it has lost interest in the pharmaceutical business.
43. It is for the decision maker considering the second grant application to consider and weigh any evidence of that kind, casting doubt on the first grantee's ability to deliver on its undertakings. Contrary to Mr Lock's submission, it is not impossible for the second grantee's application to meet the public benefit test in regulation 18(2)(b) by reason only of the first grant; but the decision maker must be very careful not to decide that it is met in a case where there is a real possibility of services under both grants coming on stream, leading to over- provision at the expense of the public purse (since providers are entitled to charge the NHS for the services).
44. I accept the submission of Mr Campbell that a statutory pre-application undertaking to provide the services required under a grant, if the application is granted, is to be regarded as conditional on the grantee serving a notice to commence service provision. The undertaking does not extend to an undertaking to serve such a notice. Unless and until one is served, there is no entitlement, let alone an obligation, to provide the services. A pre-application undertaking does not, in my judgment, create any obligation worth the name. It is not legally binding and is little more than a pledge of good faith and a requirement to put one's reputation on the line.
45. In the present case, the NHSLA plainly disregarded (see paragraph 6.38 of its decision) the relevant consideration that only one building is available within the "best estimate" of location given by both grant applicants. By doing so, the NHSLA erred in law. The parties are therefore correct to accept that the decision under challenge must be quashed. It is not clear whether the error of law made any difference to the outcome of the two appeals. Therefore, the matter must be remitted back to the NHSLA for the appeals (and in my judgment, that means both of them) to be revisited and freshly determined in the light of this judgment.
46. Finally, as my reasoning above makes plain, it is not clear what the result of the re- determined appeals should or will be once the law is correctly applied on the remission. It is for the committee of the NHSLA to determine the outcome, not the court. I will therefore decline Mr Lock's invitation to direct the NHSLA to allow the appeals, and I do not propose to grant any further relief beyond quashing the decision and remitting the two appeals for reconsideration and re-determination.
47. I am grateful to counsel for all the parties for their helpful written and oral submissions. As I indicated at the hearing, I will deal with costs on written submissions if costs issues cannot be, as I hope they will be, agreed. I invite counsel to agree (as far as possible) the terms of a draft order for my approval, in the usual way.