England and Wales High Court (Chancery Division) Decisions

IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION

		Newcastle upon Tyne District Registry Strand, London, WC2A 2LL
		17/07/2014

Mr Justice Norris :

1. Newcastle City Council ("the Council") is under a statutory obligation to make arrangements for providing residential accommodation for those who by reason of age, disability or any other circumstances are in need of care and attention which is not otherwise available to them. By section 26(1) of the National Assistance Act 1948 the Council can make those arrangements with a voluntary organisation. The Abbeyfield Newcastle upon Tyne Society Limited ("Abbeyfield") is a registered charity established to run care homes and supported sheltered homes in the Newcastle upon Tyne area. It has two residential care homes at "The Grove" (32 beds) and at "Castle Farm" (24 beds). Abbeyfield was one of (at the relevant time) 52 care providers which the Council used to enable it to discharge its statutory obligation. Some of these providers (of which Abbeyfield was one) belonged to an association called "Care North East" ("CNE") which supported providers.
2. Historically the Council had paid a single fee per resident whatever the quality of service or standard of accommodation supplied by the provider. In 2005 the Council began to focus on the quality of provision with the inevitable consequence that the question of graded fees arose. In 2007 the Council commissioned a report from PriceWaterhouse Coopers ("PwC") into the cost of residential and nursing care for older people in Newcastle upon Tyne. The resulting report dated 25 April 2007 ("the PwC Report") was prepared solely on the instructions of the Council and with only the Council's interests in mind. It utilised two separate methodologies to work out costs and to recommend a fair rate: PwC's own methodology and what was called "Rowntree 2004", a data analysis used in the care sector. The authors of the report created a financial model into which they fed financing costs, occupancy rates, operating costs, staff costs, capital value per bed and number of beds, and from which they derived a notional payment rate per occupied bed per week. So far as the "capital value" element was concerned the assumption on which the 2007 PwC report proceeded was that:-

"The key principle of the fair cost of care is that efficient operators running at efficient occupancy levels should be able to recover all reasonable costs and achieve a reasonable return".

3. The application of this principle led to this conclusion:-

"It is clear from the results that the cost of care varies significantly between homes due to differing capital values per bed. Therefore, payment rates need to vary between homes with differing capital values per bed for them to achieve a consistent rate of return. Otherwise a uniform rate will result in homes meeting quality grade 1 achieving a lower rate of return than target, and homes meeting quality grade 4 will achieve a higher rate of return than target".

So this led to the recommendation (accepted by the Council, but with modifications) that graded rates be paid. The actual implementation of the PwC Report departed from its recommendation in that the Council decided to pay Grade 1 homes only at Grade 2 rates.

4. On 18 June 2009 the Council and Abbeyfield entered into a "Pre-placement Agreement" ("PPA") for residential homecare provision. This was in effect an umbrella agreement under which provision for individual residents was "called off". Notwithstanding the date of entry the agreement took effect as from the 1 October 2007.
5. The following provisions of the PPA are material to this case:-

a) By clause 3.1 the Council appointed Abbeyfield to provide a service to users at The Grove and Castle Farm, those services being defined in the specification set out in Schedule 1 to the PPA.

b) This service was to commence on 1 October 2007 and "continue in force until [1 April 2010] or until terminated in accordance with this agreement".

c) By clause 3.2 the Council agreed to pay Abbeyfield £427 per week per resident for residential care in its Grade 1 homes (variable in accordance with the PPA).

d) By clause 18.5 Abbeyfield could request that the Council reviewed that price in the light of any assessment or reassessment of a resident's needs and the Council agreed not unreasonably to withhold its consent to a variation in the price.

e) By clause 18.8 the price was to be adjusted to take account of inflation on the 1 October of each year in the term in accordance with a mechanism set out in Schedule 7 to the PPA; but by clause 18.9 the Council reserved the right not to adjust the fee on the adjustment date if there were "reasons of unusual economic activity that [were] beyond the reasonable control of the Council", in which event the price was to be amended "to reflect both parties' commercial position".

f) Schedule 8 to the PPA contained a detailed mechanism for the review of the price ("the Price Review Exercise") capable of being invoked by either party not more than six months prior to the expiry date of the PPA.

g) The object of this Price Review Exercise was "to advise upon the relative quality and competitiveness of the [24 hour care (inclusive of personal care, board and lodging)….] in relation to the Price…. current at the time of the exercise".

h) This Price Review Exercise was triggered by a notice served by one party upon the other whereupon the PPA obliged the parties to use "reasonable endeavours to agree upon the identity of a Price Review Consultant and instruct the same to conduct the Price Review Exercise in order to advise upon the Reviewed Rate". The parties were also required to use all reasonable endeavours to agree the model to be used (which was to be "a model for establishing the true cost of the Service based upon key cost components"): and in default of agreement then that model was once again to be the PWC model.

i) By paragraph 2.2 of Schedule 8 the consultant who was conducting the Price Review Exercise was to be instructed by the Council to advise upon a reviewed rate and upon a timetable for implementing the revised rate: and the Consultant was to provide in the relevant report "full supporting evidence of the assumptions, source of market pricing information and conclusions reached".

j) Paragraph 3.7 of Schedule 8 reserved to the Council the right to pay its reviewed rate (which, for the avoidance of doubt, was declared to be "not necessarily the Reviewed Rate advised by the Price Review Consultant") with phased implementation, the dates for which were to be determined by the Council in its absolute discretion.

k) This picked up a reference to the key paragraph viz. paragraph 3.5 of Schedule 8 which provided:-

"Notwithstanding any other clause within this agreement, the Council shall not be obliged to accept the Reviewed Rate as the cost of provision of the service or any other finding made in the Price Review Report. The Council shall take into careful consideration all aspects of the Price Review Report when it takes its decision as to the Reviewed Rate the Council will pay for the service, such decision to be made in its absolute discretion".

6. In order to apply the provisions of the PPA to any individual placement of a resident there was separate tripartite agreement between Abbeyfield, the Council and the resident in the relevant Abbeyfield home ("the User Agreement"). However, whilst the PPA had a fixed expiry date of the 1 April 2010 the User Agreement continued for the life of the resident unless terminated in accordance with the provisions of the User Agreement or terminated in accordance with the provisions of the PPA.
7. Under the provisions of the User Agreement:-

a) The resident could terminate the agreement by giving 28 days notice to Abbeyfield:

b) The Council could terminate the agreement by giving not less than 14 days written notice to Abbeyfield (but only where the Council considered it was in the resident's best interest to do so): and

c) Abbeyfield could terminate the User Agreement on giving 28 days written notice to the Council and to the resident, but only if the contribution due from the Council was more than 28 days in arrears.

Unless one of these termination rights could be invoked Abbeyfield had to ask for the resident to be moved, and then only if the resident's behaviour was "persistently unsociable" or of such a nature that it "seriously [affected] the wellbeing or peaceful enjoyment of the Home of other residents".

8. The price to be paid under the User Agreement was that fixed in accordance with the PPA or as varied by the PPA: and (by clause 3.4 of the User Agreement) Abbeyfield could increase the price only in accordance with the PPA.
9. The PPA was due to expire on 1 April 2010. On the 11 January 2010 Abbeyfield invoked the Price Review Exercise by serving a written notice in accordance with Schedule 8 of the PPA. The following day the Council wrote to propose arrangements for contracts operative from 1 April 2010. The Council wrote:-

"As you know, indexation is built into our current agreement, to be considered in each October. Consequently, the Council has applied this principle to current rates and has identified a rate reduction for all grades of homes arising from the reduction in the base rate from 5% to 0.5%. Given the significant improvements in quality and market stability outlined above, and the difficult economic conditions that you and we both face, I would prefer to avoid a potentially destabilising cut in funding at this time. However, to achieve this, I will need your support. I would therefore like to offer you a three year contract for the period 1 April 2010 to 31 March 2013 under terms and conditions essentially the same as at present, with unit prices fixed at current levels for the duration of the agreement".

10. The terms of this letter are truly extraordinary. It was odd to take as starting point the indexation provisions relating to price adjustment under the current contract when setting a rate to be payable under a new PPA. The price adjustment provisions were irrelevant. If any contractual provision was relevant then it was Schedule 8.
11. Moreover, the letter completely distorts the indexation provisions contained in Schedule 7 to the PPA. This required the indexation process to be conducted on a line by line basis by reference to 5 separate cost elements involving reference to the minimum wage, the Average Earnings Index and the ONS inflation index. Only if between October 2008 and October 2009 the minimum wage had been reduced, the movement in the Average Earnings Index showed a reduction in wages, and the inflation index was negative could there be any possibility of a rate reduction in all grades of home by reason of indexation in the fees payable by the Council under the PPA. Base rates were relevant to only one element of the contractual indexation computation: registration fees were to be indexed by the average movement in debt financing costs (based on the base rate plus 2%). Registration fees were a tiny part of overall operating costs. (Movement in base rates would only have been relevant to a financial model that included an assumption as to reasonable rates of return on capital employed, such as the PwC or Rowntree models that would have been in play if Schedule 8 had been operated.).
12. It is fairly clear that what the Council was seeking was (a) to achieve a three year freeze at the rates currently payable, and (b) to avoid the implementation of the Price Review Exercise which might produce data indicating that an increase in fees was warranted (and which the Council would be obliged to consider). It was using the (irrelevant) reduction in base rates as a fig leaf to disguise this unpalatable truth.
13. In January 2010 the fees paid by the Council for residents which it placed in Abbeyfield homes were £436.00 per week (the rate fixed in 2009). The fees paid by privately funded residents were £456.00 per week. On the 1 February 2010 (immediately before the expiry of the PPA) the fees payable by private residents rose to £465.00 per week. Abbeyfield took the view that it was wrong that residents funded by the Council should pay £436.00 per week (fixed) whereas privately funded residents should pay £465.00 per week (rising) for the same service. Abbeyfield was a charity. By regulation 25(1) of the Care Homes Regulations 2001 it is provided that:-

"The registered provider should carry on the care home in such manner as is likely to ensure that the care home will be financially viable for the purposes of achieving the aims and objectives set out in the statement of purpose".

Abbeyfield thought the Council's proposal financially unsustainable and therefore rejected the Council's offer of new terms saying that it was "wholly unacceptable that the price should be frozen for three years from April 2010 (at the 2009/2010 price)".

14. In its response the Council indicated that it intended to consult with individual providers rather than through the CNE Group as a representative body. It stated:-

"In circumstances where you don't want to enter the Contract Offered then the Council will review the following options. Option 1: individual resident home contracts… and/or option 2 the suspension of services while resident contracts are developed or while consultation with resident's (sic) and their representatives takes place".

The options are virtually incomprehensible: but Option 2 appears to contemplate the removal of residents by the Council from Abbeyfield homes "whilst contracts are developed", a move that would have infringed the statutory rights of those residents.

15. Since the Council would not implement the Price Review Exercise provided for in Schedule 8 to the PPA it was implemented by CNE on the 11 March 2010. This report advised that assuming an occupancy rate of 95% (a) using the PwC model the cost of care per occupied bed per week was £477.00 in a Grade 1 home, and (b) using the Rowntree 2008 model was £496.00 per week. (The comparable figures for a Grade 2 home, which was the rate which the Council paid even for a Grade 1 home, were £462.00 and £476.00). If one assessed costs by reference to actual occupancy rates then the cost of care per occupied bed per week on the PwC model for a Grade 1 home was £487.00, and under the Rowntree 2008 model was £510.00. Each of these figures was far above the £436 (frozen for 3 years) that the Council was proposing.
16. The report was produced in May 2010. Whilst it was in preparation the PPA expired by effluxion of time. Abbeyfield did not require any of its Council funded residents to leave by giving notice on the ground that their weekly fees were in arrears. The Council did not remove residents or operate a "suspension of services".
17. The Council modified its original proposal for a 3 year fixed price (by reducing it to 2 years) but otherwise rejected the results of the Price Review Exercise. It stated:-

"The Council has made clear that the price review exercise… is NOT required given that the offer is a fixed price deal over two years. You will be aware that 3 year deal was originally on the table, and the Council reduced it to 2 years through negotiation. The Council has made its rationale for this approach very clear to all providers and remains firm that the cost of undertaking this exercise must not further increase budget pressures in these financially difficult times" (emphasis in original).

18. By the 22 June 2010 the Council had negotiated contracts with 29 out of the 52 providers and required the remaining providers to enter contracts. It stated:-

"As from Monday 12 July 2010 homes not in contract with the Council will be removed from the Council's standing list forthwith as the Council can offer a wide choice to users from the 29 homes that have agreed the contract terms and its variations. For those homes which remain out of contract, we will commence a process of individual user contracting, to empower users and their families, through the Council, to monitor the quality of service in their home".

This threat was plainly unlawful. The Council could not lawfully exclude any provider from a list. It was bound to consider any provider selected by a proposed resident, though it could insist that it would only contract on its standard terms and pay its usual rates.

19. Abbeyfield would not succumb to the Council's demands, pointing out that the Council was paying less per week than were Northumberland, Durham, Hartlepool, South Tyneside, North Tyneside and Redcar and Cleveland. Abbeyfield asked to be paid £465.00 per week on a quantum meruit basis pointing out that this was far lower than the costs assessed in the PwC report.
20. In its response the Council argued that as it had made clear that it was only prepared to offer £436.00 per week and that as Abbeyfield had continued to provide services to Council funded residents at its home "by conduct and implication this rate was agreed between the parties". To this suggestion Abbeyfield responded on the 13 December 2010:-

"Perhaps your Legal Services Directorate needs to be reminded that we are not storing merchandise on behalf of the Council, nor even keeping animals. We are providing homes and care for elderly people. Do they expect us to evict them from their home at the expiration of the last contract?"

21. In October 2011 the Council notified the dissentient providers (including Abbeyfield) that as they had not signed the new terms and conditions the Council would only pay the rates payable under the expired PPA in respect of existing residents and would cease placing new residents forthwith. Within a matter of days all providers but Abbeyfield signed up to the Council's terms (which included payment of a higher rate of £455 per week for Grade 1 homes).
22. On 26 March 2012 the Council fixed rates payable to providers for the period from April 2012 (when the 2-year fixed price contract applicable as from April 2010 expired) until April 2013: and it required those providers who were in contract with it to agree those new rates, in default of which no new placements would be made. The rate so fixed was £455.
23. On the 17 July 2012 Abbeyfield commenced proceedings against the Council. In its final form (a amended at trial) the case advanced was as follows:-

"….[the Council]

(a) has been unjustly enriched in refusing to pay the cost which a reasonable person in the Defendant's position would have had to pay for [Abbeyfield's] services ("the Market Value") and it would be unconscionable for [Abbeyfield] not to be recompensed ;

(b) has refused to pay the reasonable cost pursuant to an implied term under a preliminary contract in which there was no agreement as to price…."

The case on unconscionability refers to a failure to consider the PWC report as to the Reviewed Rate, relying on the moral and legal scruples of Abbeyfield not to insist that the Council remove residents for whom it refuses to pay the true cost, and relying upon the families of residents to make up part of the shortfall between the true cost of providing the service and the payment made by the Council.

24. In its Defence the Council asserts (a) that it must balance its statutory duties to fund the cost of residential care for residents placed with independent providers against its fiduciary duty to those who fund the Council's work: (b) that in making its contract offer the Council was setting the usual cost of care within its area for the period from 1 April 2010 to 31 March 2013; (c) that in so doing it was exercising a public function which was not challenged by Abbeyfield by way of judicial review; (d) that the present action was an abuse of process because Abbeyfield should have sought a judicial review.
25. After commencement of the proceedings two relevant events occurred.
26. First, CNE sought judicial review of the Council's rate-setting decision of 26 March 2012 on the grounds that the Council had failed to inform itself of the costs to care home providers of providing services. HHJ Gosnell decided ([2012] EWHC 2655 (Admin)) that the Council's decision to fix the usual rates to providers for 2012-2013 was unlawful. The Council was required to remake the decision: when it did so the rate fixed for the period from April 2012 to April 2013 was raised from £455 to £473.20. The rate from April 2013 was to be £482.66.
27. Second, the Council abandoned its insistence that Abbeyfield was only entitled to the weekly rate that had been agreed in 2009 and was the rate last payable under the PPA. On 4 November 2013 the Council accepted that it would pay Abbeyfield at Grade 1 rate for the period from 1 May 2012, so that whereas the Council had been insisting it only had to pay £436 per week now it acknowledged that it had to pay £473.20 (although Abbeyfield's fees to private residents were £513), and £482.66 from 1 April 2013 (although Abbeyfield's private fees were £527). A month later the Council made a further concession (described as ex gratia): instead of insisting that it was only liable to pay Abbeyfield £436 per week for the period from October 2011 to the end of April 2012 the Council now accepted that it was liable to pay £455 (though Abbeyfield's private fees were £483 at this point). The result was that immediately before trial the Council's position became that Abbeyfield should be treated the same as other providers rather than singled out for punitive treatment because it had refused to sign the new PPA.
28. At trial both sides concentrated on the status of the original PPA during the period when the new contracts (the two year fixed contract and its successors) were being negotiated and implemented.
29. For Abbeyfield Mr Smithers argued that once the PPA had expired Abbeyfield and the Council were dealing on a "subject to contract" basis, that Abbeyfield continued to provide services in the expectation that a contract would be concluded, and that Abbeyfield is entitled to be rewarded on a quantum meruit basis for the services so provided in that expectation.
30. Mr Holland argued on behalf of the Council that by application of the principle of "holdover" the rate last payable continued to be the rate payable. He submitted in the alternative that a new PPA had come into existence by conduct.
31. I do not agree that the principle of "holdover" applies. It is a body of law developed in a particular context. Mr Holland referred to Halsbury's Laws 5^th ed Vol 62 "Landlord and Tenant" para 212 (cited by Mr Smithers in his argument) which sets out the basis upon which a tenancy arises by implication in favour of a tenant who holds over after the expiration of his lease, paying rent that is accepted by his landlord. But as that paragraph points out:-

"…where there have been negotiations after the expiration of the old lease with regard to the terms of the tenancy, it is a question of fact whether there has been a consent by both parties to a continuance of the old tenancy and, if so, upon what terms…" .

Here there certainly was negotiation: and it is not possible to read the facts as demonstrating any objective agreement between the parties that the PPA would continue according to its old terms and at its old rate. Neither side wanted that.

32. I do not agree that a new contract came into existence by conduct. Relying upon RTS Limited v Molkerei Alois Muller [2010] UKSC 14 (again cited by Mr Smithers) Mr Holland submitted that whether there is a binding contract between the parties and, if so, upon what terms, depends upon what they have agreed. This does not depend upon their subjective state of mind, but upon a consideration of what was communicated between them by words or conduct, and whether that leads objectively to the conclusion that they intended to create legal relations and had agreed upon all the terms which they regarded (or the law required) as essential for the formation of legally binding relation. Here, Mr Holland argued, the fact of the matter is that the placement contract was performed on both sides and this made it unrealistic to argue that there was no intention to enter into legal relations. What they did, and what they must be taken to have agreed, is that the Council would pay £436 per week unless some other figure was later agreed with retrospective effect.
33. Whilst I accept the principles I do not accept their application in this argument. Abbeyfield and the Council were plainly in intense negotiations as to the rate payable for residents then placed with Abbeyfield: and they were also in negotiation over other terms of the new contract (with the detail of which I have not burdened this judgment). As was pointed out by the Court of Appeal in Whittle Movers Ltd v Hollywood Express Ltd [2009] EWCA Civ 1189 at [14], whilst parties are negotiating a contract under which they will (if the contract is concluded) enter into reciprocal obligations binding each other as to future performance it is highly unlikely that by conduct they will conclude in the interim an executory contract containing terms still the subject of negotiation. The more likely result is that they will have entered into an "if" contract i.e. a contract under which if one party supplies, the other party agrees to pay a reasonable remuneration. But there will not even be an "if" contract in event that other important terms are still under negotiation: then a restitutionary remedy for unjust enrichment is the more appropriate analysis.
34. In my judgment the appropriate analysis is not to concentrate upon the PPA, but upon the User Agreement. The User Agreement continued to exist at all material times. It continued to bind the Council and Abbeyfield in relation to each Council-funded Abbeyfield resident as at the expiration of the PPA and even if no new PPA was agreed. Under the User Agreement the Council was bound to pay the rate fixed in accordance with the PPA as varied in accordance with the PPA. The PPA had a fixed expiry date of 1 April 2010. The User Agreement made no specific provision as to the price payable where there was no current PPA and there could be no variation under any current PPA. The question is whether the User Agreement can be construed in a manner such that its express terms cover that situation, or whether a term may be implied which covers that situation.
35. In my judgment the User Agreement, properly construed, does not mean that because the PPA expired by effluxion of time the rate payable under the User Agreement at the point of expiration should continue to be the rate payable during the remainder of the resident's life unless the parties were able to agree some other rate. No reasonable bystander informed of everything that had passed between or was the common knowledge of Abbeyfield and the Council would understand the words of the User Agreement to mean that.
36. The User Agreement must be read in the context of the PPA current at the time when it was entered. This contained an extremely elaborate Price Review Exercise capable of being invoked six months before the PPA expired. Since the PPA was neither a rolling contract nor one that contained a provision for renewal, the only point of this machinery can have been to establish a proper price at the end of the PPA for use as an aid to the negotiation of whatever followed the PPA upon its expiry. The parties were to use reasonable endeavours to implement this machinery: and if there was a technical problem then the reviewed price had to be adjusted "to reflect both parties' commercial position". The existence of a pre-expiry price resetting mechanism and the incorporation of a default reference to the commercial position of the parties are clear indications that the parties to the User Agreement did not intend that the price payable when the PPA expired should be fixed.
37. In my judgment there was an implied term that in the event that the contractual price-setting mechanism broke down then a reasonable price would be paid.
38. On behalf of the Council Mr Holland argued that "a reasonable price" was the same as "the market price", and that the market price was easily determined since it was what the 51 other providers were (as from October 2011) prepared to accept that the Council should pay. Alternatively a "reasonable price" would in this context be the "usual cost" paid by the Council, established by the carrying out of the rate setting exercise (subject to any judicial review).
39. I do not agree. There is no true "market". There is a dominant purchaser which, by virtue of its purchasing power and its ability to make unlawful threats (to "blacklist" dissentient providers) which individual providers cannot counter, is able to secure for itself particular prices which are lower than "the market" (comprising all purchasers of care homes services) is willing to pay. That is why Abbeyfield was able to secure from the general body of its service users a fee of £465 or £513 per week at a time when the Council was only paying £436.
40. Nor do I consider that the mere fact that the Council was able to persuade initially 29 and then the 51 providers to accept its offer of a "usual cost" necessarily establishes that that was a reasonable price. The rate of £455 payable under the Council's decision of 26 March 2012 was its "usual cost" at that time: but it was unlawful and had to be retrospectively altered. The reasonable price is one subject to a lawfully set "usual cost".
41. In my judgment "a reasonable price" would fall to be determined on the footing that the obligations in the PPA had been performed during its currency and on the footing that the Council would perform its statutory obligations and adhere to non-statutory guidance when it came to exercising an "absolute discretion". As Treacy J observed in Gibb v Maidstone and Tunbridge Wells NHS Trust [2009] EWHC 862 (QB) :-

"It is uncontroversial that as a public body the Trust's powers are limited by statute and it must exercise its powers in the public interest in a way which is reasonable in the Wednesbury sense. Decisions should take into account relevant considerations and exclude irrelevant considerations."

42. As to contractual obligations, the PPA obliged the Council to participate in a Price Review Exercise if Abbeyfield so elected six months before the expiration of the PPA, and then to take into account its results. A price that was fixed by deliberately excluding from consideration the results of a Price Review Exercise could not be "a reasonable price" for the purposes of the implied term. So the frozen £436 on which the Council insisted cannot have been "a reasonable price" (even though the contract quite clearly gave the Council a discretion not to accept the results of the Price Review Exercise as determinative). But by the same token, the results of the Price Review exercise cannot be relied upon by Abbeyfield as establishing "a reasonable sum": the parties to the PPA contemplated that the Council would not be bound by the outcome of the Price Review Exercise.
43. As to the Council's statutory obligations these are not performed in a vacuum. All three parties to the User Agreement would, first, understand that because the Council has a statutory duty to provide services and an obligation to fund them out of money provided by its taxpayers it must fairly balance those two duties, one against the other : R v Newcastle upon Tyne City Council ex parte Dixon (20 October 1993, unreported) cited by HHJ Gosnell in his judgment on CNE's judicial review at [2012] EWHC 2655 para [37]. Second, they would also know that under the National Assistance Act 1948 (Choice of Accommodation) Directions 1992 paragraph 3 the Council could not be required to pay more than they would usually expect to pay for such accommodation services. Third, they would know that as a charity Abbeyfield was obliged to carry on its work at The Grove and at Castle Farm in such manner as was likely to ensure that they were financially viable for the purposes of achieving the charity's aims (and that there would be a limit as to the degree to which Abbeyfield could require its privately funded residents to subsidise its Council funded residents).
44. The parties would know that there was statutory guidance concerning the ascertainment of "usual cost", from which the Council could not legitimately depart without a coherent and cogently reasoned decision. That guidance was to be found in Local Authority Circular 20 of 2004 which stated:-

"In setting and reviewing their usual costs, council 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."

The Price Review Exercise was plainly intended to assist in ascertaining the actual cost of providing care.

45. The parties would know that there was also non-statutory guidance concerning rate-setting, and that the Council would have to justify any departure from such guidance: see R (Sefton Care Association) v Sefton Council [2011] EWHC 2676 (Admin). In my judgment the parties to the User Agreement would have contemplated that the Council would have taken into account the terms of a document issued in October 2001 by the Department of Health entitled "Building Capacity and Partnership in Care: an Agreement between the statutory and the independent social care, healthcare and housing sectors". Paragraph 6.2 of this document states:-

"Providers have become increasingly concerned that some commissioners have used their dominant position to drive down or hold down fees to a level that recognises neither the costs to providers nor the inevitable reduction in the quality of service provision that follows. This is short-sighted and may put individuals at risk. … 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…"

46. The "reasonable rate" to be paid under User Agreement was one ascertained by complying with the contract, which enabled the parties to comply with their respective statutory obligations, which followed the statutory and non-statutory guidance (or deviated from it for proper and clearly articulated reasons) and in which the Council took into account all relevant considerations and excluded irrelevant considerations.
47. The £436 per week frozen for two years that Abbeyfield was offered by the Council does not in my judgment constitute "a reasonable rate" for the purposes of the term implied into the User Agreement. It deliberately ignored the provisions of Schedule 8 to the PPA. Its supposed justification (that it somehow arose out of the indexation provisions in the PPA) was plainly unsustainable. At no point did it demonstrate that the Council either knew or had taken into account the actual costs of care (not of Abbeyfield specifically, but generally in the locality), and it did not articulate any reasons for departing from the statutory or non-statutory guidance in that regard. The Council has singularly failed to show that its method of assessment was sufficient to inform itself as to the actual costs of care so that it could then have due regard to them.
48. What was a "reasonable rate" for the purposes of the User Agreement? It is not determined by the rate (£465) that Abbeyfield actually charged its private residents, for the "reasonable rate" cannot exceed the Council's lawfully established "usual cost": and this would not be determined by reference to Abbeyfield's charges alone. It is not determined by the rates established in the Price Review Exercise (£462-£510), for the Council had a discretion conferred by contract (which it had to exercise in a Wednesbury reasonable way) not to implement these findings. It is not determined by the price paid to the other 51 providers (£436) unless this price was lawfully fixed (which on its face it was not).
49. I received no direct evidence on the point and must therefore answer the question posed by inference from the facts found as to lawfully fixed rates. I may take it that the rate lawfully fixed for April 2009 was £436. It is established that the lawful rate from the end of April 2012 was £473. Drawing a straight-line graph between these two points suggests that the reasonable rate payable from the beginning of April 2010 to the end of March 2011 was £450 and the reasonable rate payable from the beginning of April 2011 to the end of March 2012 was £460. I so find and hold. I note that this is not out of line with the ex gratia rate of £455 which the Council "concedes" should be offered from the beginning of October 2011.
50. The rate of £450 payable to Abbeyfield from April 2010 is above the £436 accepted by the other providers. But the fact that 51 providers accepted a rate that was not in my judgment lawfully set and then failed to judicially review it does not in my judgment establish that rate as "a usual cost" (which the reasonable rate payable under the User Agreement could not exceed). The failure of others judicially to review an unlawfully set rate cannot curtail Abbeyfield's contractual rights.
51. This brings me to the argument that these proceedings are an abuse of process and that I cannot lawfully determine the contractual rights as between Abbeyfield and the Council because Abbeyfield should have submitted the Council's rate-setting decision for judicial review. It should be noted that the Council's rate-setting decision was a decision in relation to a new PPA in different terms, and one that Abbeyfield was refusing to enter: it was not explicitly a decision about the reasonable rate payable under continuing User Agreements. The Council was paying Abbeyfield £436 per week under the User Agreement not because it had objectively determined that £436 was the reasonable rate to be paid but because it would not consider paying anything else unless Abbeyfield subscribed to the new PPA.
52. The basic principle is in my judgment set out in Supportways Community Services Ltd v Hampshire County Council [2006] EWCA Civ 1035 at [38] in these terms:-

"…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."

53. The issue between the Council and Abbeyfield was as to the rate payable under existing User Agreements. Did the User Agreement enable the Council to say that the rate last fixed was to endure for the remainder of the resident's life? If not, what rate was payable? If that rate was "a reasonable rate", was the Council in breach of contract in refusing to implement the terms of the original PPA so as to provide the raw material for consideration of and consultation upon the new rate payable under continuing User Agreements? These are private law issues arising out of an existing contract: and Abbeyfield was seeking to enforce its rights to payment under the User Agreement. The consideration of these issues did incidentally involve the examination of a public law issue (how did the "reasonable rate" payable under the User Agreement relate to the "usual cost" which capped the Council's liability?). But that incidental consideration does not in my judgment bar Abbeyfield from seeking to establish its private rights by action: compare Jones v Powys Health Board [2008] EWHC 2562 (Admin) where an analysis of the pleaded case showed that the "primary focus" or "dominant issue" was a challenge to a decision of a public authority (see para. [31]).
54. Had Abbeyfield joined the other 51 providers and accepted the new PPA then its private rights would have been settled by agreement. All that would be left would be a public law challenge to the rightfulness of the rate set under the new PPA. That was all that was open to the 51 providers who signed up. But Abbeyfield did not sign up: and it is entitled to have its contractual rights under the continuing User Agreements determined.
55. If a resolution of the issue based on the existing User Agreements had not been open to me then I would have accepted Abbeyfield's arguments in favour of a restitutionary remedy: and I would have assessed the quantum meruit payment in the same sum, recognising that the value to the Council of the services provided by Abbeyfield could not exceed a lawfully set "usual cost" (which the £436 plainly was not).

Alastair Norris

1 July 2014.