Alexandra Private Geriatric Hospital Pty Ltd v. Blewett, N. & Anor [1985] FCA 313

Federal Court of Australia|1985-07-12|Before: Jenkinson JJ, Smithers J, Woodward J, Lawrie J

Administrative law - judirtial review - private nursing home - : 2. nursing her# tes. approved bv delegate' of Permanent Head of we

Deoartnent of Health - allowance fsr profit based on 1972 values

whether such allowance so unreasonable as to make deieqate's

Administrative Decisions (Judicial Review) Act 1977, paras.

ALEMANDRA PRIVATE GERIATRIC HOSPITAL PTY LIMITED (T/AS ALEMANDPA

No. VG 239 of 1984 Coram: Smithers, Sheppard and Jenkinson JJ. Date: 12 July 1985

SETWEEST ALEVSNDPA FUIVATE CEPIATPIC ICTEITEL OCY LIMITED Appellant AND:

JUDGES MAKING ORDER: Smithers, Sheppard and Jenkinson JJ.

The judgment of the Henourable Mr. Justice Woodward of 7

The decision of the delegate of the Permanent Head of the Department of Public Health dated 13 March 1984 be set aside and the matter remitted to the delegate to be re-considerzd in accordance with the decision of this Court.

The respondents pay the appellant's costs of the appeal.

5 The question of the costs of the proceedings before Mr.

) ) VICTORIA DISTRICT REGISTRY ) VG NO. 239 OF 1984 ) GENERAL DIVISION )

On appeal from a single judge of the Federal Court of Australia.

BETWEEN: ALEXANDRA PRIVATE GERIATRIC HOSPITAL PTY. LTD. (Trading as "Alexandra Private Nursing Home")

AND: NEAL BLEWETT (who is sued as the Commonwealth Minister of Health) and LAWRIE J. WILLETT (who is sued as the Permanent Head of the Commonwealth Department of Health)

Smithers J.: On 13 March 1984 the delegate of the Permanent Head of the Commonwealth Department of Health, operating pursuant to the provisions of the National Health Act 1953, (the Act) made a determination applicable from 15 March 1984 of the maximum fees that might be charged by the Alexandra Private Nursing Home (the appellant) which was a nursing home

approved under the Act. This decision of the delegate is

challenged under the Administrative Appeals (Judicial Review)

For some years prior to 1973 the appellant conducted the nursing home at Caulfield in Victoria. The business was carried on successfully and profitably. It was in 1973, shortly after the introduction of the Commonwealth scheme for the provision of nursing home care for qualified patients pursuant to the National Health Act No. 149 of 1972 that the home became an approved home. Pursuant to s.40AA(6)(c)(i) of the Act there was forthwith a determination by the Permanent Head of the Department of a scale of maximum fees which the home might charge patients for the service provided by it. For the purpose of that first determination the delegate assumed, that at the existing fee structure established by the home it was making a profit satisfactory to itself and not unduly burdensome to the patients. That scale of fees was determined at the rates previously adopted by the home. It was fixed without specific or perhaps even conscious reference to the amount of that profit but it did reflect it. That existing fee structure was used in each subsequent determination before that of March 1983 as the basis of the determination. Increases in approved costs were simply added to the scale as last determined. Not all actual costs incurred by the appellant were approved because the appellant maintained a staff structure higher than was thought necessary by the department. As a result the "profit" component in the

fee structure was eroded and the financial position of the

Fee determinations from time to time are initiated by an application by the proprietor on what is known as form NH19. On 15 October 1982 the appellant submitted an application for a determination of a scale of fees to reflect rising costs. Like previous submissions it made no reference to profit allowance. Form NH19 did not provide for any specific yeference to capital values or profit. Pursuant to this application a determination was made on 8 March 1983. This determination was made after specific consideration of the amount of profit which, as a separate component, might be allowed for in the scale of fees for the period of the new determination. The change in departmental procedure reflected the view of the department that to comply with the decision of

the Full Court of the Federal Court in Howells v. Nagrad

Nominees Pty. Ltd. (1982) 66 FLR 169 it was necessary for the

delegate to consider the question of profit specifically and separately and to anclude an allowance therefor in the scale of fees determined. Thus the previous method of adding increases in costs to the fee structure as last determined was

Thereafter in each determination the total approved costs were calculated on a basis which took into account CPI adjustments and other variables and to such actual costs there was added a sum for profit. Two avenues of assessment were -used. First actual profits for twelve months prior to June 1972 were ascertained from data supplied by the proprietor.

Secondly, there was calculated ten per centum of the amount

shown in the balance sheet of the home as at June 1972 as the cost of land and buildings, in this case being $113,129.00, and twelve and one half per centum of the value of the other assets shown in that balance sheet namely $94,911.00. The result of this calculation was the sum of $23,177.00. That sum slightly exceeded the actual profit for 1971-72 ascertained by the first method of approach. $23,177.00 was adopted as the profit figure for the period commencing 15 March 1983 and was reflected in the relevant scale of fees. The profit included in the fee structure determined to operate from 15 March 1984 was $27,280.00 there being included an additional $4,103.00 for profit being 10% of the capital cost

of additional hospital accommodation recently provided.

By letter dated 20 October 1983 Nasah Management Services acting for the appellant sought an increase in the scale of fees to reflect the current rental value of the land

and buildings of the nursing home. It was submitted that:

"The major problem we seek to overcome is the totally inadequate return to the Proprietor of this Nursing Home who, has recently been advised by your Department that she is entitled to make $23,177.00 per annum return for the Nursing Home freehold and business. This figure relates to approx. s8.00 per patient per week. To support our claim that the amount currently recognised is grossly inadequate and restricts the Proprietor from selling her Nursing Home at a fair market value we have enclosed for your attention a copy of a Valuation undertaken by K. L. Dowling & Co., Estate Agents & Registered Valuers of 424 St. Kilda Road, Melbourne on August 16, 1983. The report clearly indicates that a reasonable rental for the property, on current market value, would be in the vicinity of $27.70 per patient per week or $77,781.60 per annum.

In addition to the above, any responsible Proprietor who undertakes to operate the Nursing Home business would require in addition to the above rental a minimum of $67,500 per annum or $1,250.00 per patient per annum (including working capital) to provide a service and facility commensurate with current acceptable standards."

The delegate responded to the submission in the following

"the excess of permanent fee income over approved expenditure currently included in the fee structure provides for a reasonable return on the historical investment in Alexandra Nursing Home and no further adjustment 18 considered necessary at this stage. If you are not satisfied with this determination you have the right of appeal under Section 40 AE (of the National Health Act). If you require further information in respect of your

rights of Appeal please contact Mr. R. Dunlop on 669 6231."

The determination of 13 March 1984 proceeded in accordance with the views so expressed. As stated in the affidavit of Mr. Taft the senior executive officer of the Nursing Home Benefits & Service Branch, Victorian Regional

from the 15th March, 1983, the Delegates have had regard to the cost (as disclosed by the financial reports) of land, buildings, plant and equipment. It ais, however, only the actual cost to the Applicant which has been taken into account. The Delegates have not allowed for any increased value which may be placed upon the land, buildings, Plant and equipment through the effects of inflation or other market forces."

Tt is said for the appellant that in adhering to a profit figure calculated substantially by reference to the

value of the land and buildings as at 30 June 1972 the

delegate in March 1984 failed to perform in accordance with the Act, the duty imposed upon him by s.40ARA 6(c)(1) of the

Act. And whether he did so or not is the question before the

In March 1984 the Act was not in the form in which it

was when Howells v. Nagrad (supra) was decided. In particular

"(6) The approval of premises as an approved nursing home is, except in the case of a Government nursing home, subject to the following conditions:

(i) the fees charged in respect of the nursing home care of a qualified nursing home patient in the nursing home will not exceed such fees as are from time to time applicable in respect of the nursing home care of the patient in accordance with such scale of fees as is determined, subject to any principles that have been formulated under sub-section (7) and that are in force, by the Permanent Head in relation to the nursing home;"

and s.40AA(7) had been replaced by a new sub-section reading

"(7) The Minister may, by writing under his hand, formulate principles in accordance with which scales of fees are to be determined for the purposes of sub-paragraph (i) of paragraph (c) of sub-section (6) in relation to nursing homes generally or in relation to nursing homes included in specified classes of nursing homes.

(7A) Without limiting the generality of sub-section (7) principles formulated under that sub-section may -

(a) specify matters of a kind that are, in the case of each nursing home or of each nursing home included in a class of nursing homes, to be taken into account in determining a scale of fees for the purposes of sub-paragraph (i) of paragraph (c) of sub-section (6);

(b) specify matters of a kind that are, in the case of each nursing home or of each nursing home included in a class of nursing homes, to be disregarded in determining a scale of fees for the purposes of sub-paragraph (1) of paragraph (c) of sub-section 6; and

{c) specify criteria for assessing, in relation to matters of a kind that are required, in accordance with principles of a kind referred to in paragraph (a) of this sub-section, to be taken into account in determining a scale of fees, the amounts that are to be so taken

(7B) In formulating principles under sub-section (7) the Minister shall have regard to -

(a) the need to ensure that nursing homes are efficiently and economically operated;

(b) the need to ensure that the cost to nursing home patients of nursing home care is not excessive or unreasonable; and

However, in March 1984 the formulation by the Minister of principles as contemplated in these amendments had not materialised. Accordingly the delegate's primary duty was to determine the scale of fees for the hospital in accordance with s.40AA(6) as the scale of fees which, in making charges against its patients, the hospital in future would not exceed.

There was nothing in the Act specifically guiding the delegate

in his approach to his task. He did not even have the

assistance of a provision such as the earlier s.40AA(7) which had at least told him that he must have regard to those costs necessarily incurred in providing nursing care in the nursing home. Nevertheless his duty was to be gathered from the provisions of the Act and the purpose of Parliament discernible therein. He might have regard to the Ministerial and other statements to Parliament made in relation to Parliament's consideration of the Act and its amendment. From all this it would have appeared that ait was Parliament's auntention that there should be in the community as many nursing homes as were considered desirable for providing nursing care to qualified patients needing such care and that such nursing homes should be conducted on a private enterprise basis. Efficiency and such economy as is attainable consistently with efficiency may be assumed to be purposes of the Act. But in the exercise of setting the upper limit for any such home considerations of the financial viability of

From the decision of the majority of the members of the

High Court in R. v. Hunt; Ex parte Sean Investments Pty. Ltd.

(1979) 53 ALJR 552, (1979) 25 ALR 497 it 1S apparent that in

determining the scale of fees pursuant to s.40AA(6) as it stood before the recent amendments, the delegate was required

to take into account "costs necessarily incurred and profit".

And the same view is expressed in Nagqrad Nominees Pty. Ltd. v.

Howells (1981) 54 FLR 170. There is no lack of recognition by

the respondent that this is so and it appears that the same

view is taken by the respondent with respect to the situation

The respondent contends that on 13 February 1984 it took into account the question whether some and what allowance should be made in respect of profit and determined that it was appropriate to allow in respect of profit an amount equal to 10% of the cost to the proprietor of the land and buildings of the nursing home as at the date of its original approval in 1972 as a nursing home under the Act together with 10% of the cost of the recent additions and 12 1/2% on the value of certain equipment. This is true. But it does not state fully what the delegate did. Stated fully 1t 15 necessary to

incorporate the statement of Mr. Taft set out above.

The situation is stated succinctly by the learned trial

to suggest that he disagreed with this policy." To my mind the evidence amply supports this finding. It raises the critical issue in this case. Clearly, the delegate in determining a scale of fees for the appellant is entitled

to look at the question whether any and what amount for profit should be allowed. But in doing so it is his duty to take

into account all relevant considerations affecting the

finances of the home with respect to the period during which the determination will apply. It is profit for that period which is in contemplation. It is apparent that just as it is the amount of costs which will be incurred in the conduct of the home in the contemplated period which are relevant to the task, so the contribution made by the appellant by way of capital in the form of land and buildings during that period is a relevant consideration. It is a most important factor in any such exercise. It 1s the combination of that capital contribution plus the day to day services rendered to patients in the home which are the justification for charges to the patients. Of course in one sense the capital contribution in 1984 is the same as it was in 1972. Subject to the recent additions, it is the same land and buildings that are contributed. But profit is by its nature commercial, and when one comes to consider profit, commercial considerations are inevitably involved. Commercially the capital contribution is much more than it was in 1972. And just as it was reasonable for a 1973 profit to have regard to a 1972 valuation so it is reasonable for 1984 profit to have regard to the 1984 valuation. The shrinkage in the value of money rendered it inevitable that real profit in 1984 of the home considered as a private enterprise project must be related to the 1984 value

The rule that for the purposes of an assessment of an allowable profit the capital contribution of the appellant should be taken into account at the 1972 cost value of the

land and buildings meant that with respect to the period for

which the determination was to be made no regard was paid to the true value of the capital contributed to the project during that period. To my mind the exclusion from consideration of the current value of the appellant's contribution to capital for the relevant period necessarily invalidated the exercise of the discretion of the delegate. And it did so whether it was done by way of implementation of

There may be reasons why, when the costs of the contemplated period are assessed and the capital contribution of the proprietor for the period is assessed at its true value, the delegate may refrain from determining a scale of fees to apply during the relevant period which includes an allowance proportionate at any particular rate ta that true value. But until the contribution is assessed and its true value with reference to the period of operation in

contemplation is known and treated as relevant it is simply

not possible to exercise a discretion as to the amount of

profit to be allowed. When it is known, all those considerations such as the fear of mounting valuations of goodwill and the increase in sale value of homes may be given such weight as they are, if relevant, entitled to. But to exercise a discretion as to profit, where profit is and must be considered, without regard to the value of the appellant's actual contribution to the project is to rob the exercise of any value. In the exercise carried out by the delegate it was recognized that the profit must be assessed by reference to

some standard. The standard adopted was the profit made by

the hospital twelve years earlier in 1972. Even if it be said that the delegate or the Minister might ultimately take the view that proprietors ought to be satisfied in perpetuity with the profit that was made before the home was approved under the Act, it would still be necessary for the delegate or the Minister in performing their statutory duty to have before him the capital contribution of the proprietor with reference to the particular period with respect to which consideration of

the matter was proceeding. The learned Judge commented on the

"Tt is arguable that the profit allowed by the delegate ~- $27,280 - is so much less than its 1972 profit, adjusted for changes in the value of money (estimated as $70,900), or than the economic rental of the premises (said to be about $78,500), that it shows no concern for the viability of such enterprises.

I agree that it is, from the applicant's point of view, quite unfair that 1t should have to accept a profit in 1984 that is little different from that which 1t was receiving in 1972. But can it be said that this enforced reduction of profit margins in real terms is so contrary to the policy of the Act as to be unlawful? An expert accountant, called for the applicant, described the use of historic costs, allied to a 10% profit rate, as "patently absurd" and "just a fantasy". He said that in his opinion the applicant company was not financially viable; it was significantly undercapitalized and could only continue in business with an injection of capital and a significant and sustained improvement in profitability. He made the very reasonable suggestion that the profit element in fees, so far as it related to lands and buildings, should be calculated by reference to the economic rent of the premises, thus putting all nursing homes, whether new or old, owned or leased, on the same footing.

The Department's attitude as explained by its chief witness, Mr. Tratt, is that in the case of

to allow a profit element based on 10% of the historic costs of land and buildings and 12.5% of

other assets. If the business is sold along with the premises, the same figure will be allowed - on the basis that a change of ownership should not affect patients' fees. If it leased, the same allowance will be made irrespective of the rent actually paid, on the basis that a change of method of occupation should not affect those fees.

In the light of this evidence, there can be little doubt that the Department is taking a hard line with the proprietors of established nursing homes.

A new nursing home, by way of contrast, would have its fees fixed to include a profit element based on the notional fair rent of the premises, to be determined by the Department after valuation, together with a 12.5% allowance for other assets. Such a nursing home would, of course, be much better off than the applicant, because the valuation would have to be at current prices. But its profits would in its turn be eroded with the passage of time, and with inflation, in the same way as the applicant's. In the meantime the contrast only serves to highlight the unfortunate position in which the applicant has been placed - through no fault of its own, unless a determination to give a good standard of nursing care can be described as a fault. The applicant's basic difficulty is that the poor level of profit at ais allowed is not sufficient to cushion it against the losses sustained by its use of more

staff than the Department will recognize. It is in this sense that the applicant's business is not viable or barely viable. It is certainly not

"On the other hand, it was pointed out for the Department that lack of competition, very high nursing home occupancy rates, negligible had debts, anda high level of cost recoveries are virtually guaranteed and, at the profit levels allowed, many people are still trying to get into the industry. Indeed the ruling figures for sale of goodwill would enable the applicant to sell its

business for some $400,000 in addition to the value of the fixed assets. In the face of this

surprising but uncontradicted evidence, I cannot be satisfied that the Department's approach to profits is 50 contrary to the policy of the Act as to make 1t unlawful."

The considerations last referred to may carry, weight if they are taken into account in any particular case. But to assess the weight they ought to carry in any particular case it is essential that the true value of the capital contribution of the proprietor to the project during that period be known and taken into account. It is not enough toa make an ainflexible rule by which the scale of fees 15 determined not by the finances of the home as they exist during the period in question but by what they were twelve years earlier. So to do inevitably introduces what the learned Judge described as a hard line with the proprietors of established nursing homes. And of course the longer the process of ignoring current values continues the more seriously does this hard line operate against such proprietors. The notion that 1t 41s always appropriate to ignore current values in favour of historical costs seems to have little to recommend it save that 1t minimises the amount of fees which may Le allowed. It is the refusal to consider at all that which has happened between 1972 and 1984 which renders the so called exercise of discretion a barren exercise. Every year that passes, with inflation still in operation, the value, in monetary terms, of the capital contribution made by the proprietor to his service to the sick, the fees for which Parliament seeks to provide and control under its scheme, increases. To exclude from all consideration the actual current monetary value in determining a fee structure for an ensuing period is inconsistent with any standard of reasonableness. The legal significance of so

doing was simply that the discretion reposed in the delegate,

or for that matter in the department, or the Minister, with respect to the period commencing on 15 March 1984 just was not exercised in accordance with the requirements of the Act. A policy which operates so harshly against one section of proprietors has the appearance and to my mind the substance of operating unfairly and oppressively. One would think that the problems which have been in the mind of the department and have caused it to adopt the policy in question could be dealt with in some other manner. And we have been informed by counsel for the respondent that the policy has been materially

It is said that if the proper inference to be drawn from the facts is that the delegate did take into account the fact that the current value of the land and buildings far exceeded the 1972 cost price thereof and regarded himself bound by departmental policy to base his calculation on that historic cost, that was but a proper exercise of his discretion. The policy was based on considerations which the delegate was entitled to take account of, namely the possibility that unless such a policy were implemented excessive valuations for goodwill might be established and nursing home businesses would change hands at exorbitant prices to the detriment of the taxpayer and patient. Steps to reduce these possible undesirable developments were reasonable and justifiable. With this in mind it could be seen that the delegate had recognized that the current value of the land and buildings was anelement to be taken into account, but he did not

attribute any weight to it as a matter of discretion. In that

sense the delegate took into account the current value of the land and buildings. But it was not to do so in the sense relevant to the implementation of the requirements of the Act. To perform the duty imposed on the delegate by the Act it was necessary for him to look at all relevant matters including the current value of the land and buildings with respect to the circumstances of the individual home in question and with respect to the period for which the determination was to be made as a factor to which, in those circumstances, weight might be given. In the instant case if one looked at the current value one would recognize that it far exceeded the 1972 value and that during the twelve years that had elapsed the real profit of the business had been eroded year by year by rising prices and that unless some additional profit was allowed as from March 1984 the real profit for the ensuing period would be much less than the profit component in the existing scale of fees as established twelve years earlier. And the view might well have been taken that it was not

But the adoption of the policy as a rule precluded any reference by the delegate to any of these considerations. The so-called exercise of the discretion eliminated consideration of the relevant factor, namely, the actual size of the proprietor's capital contribution for the relevant period and the degree of hardship imposed by adopting the 1972 valuation. The so-called exercise of discretion was applied for the wrong

purpose, namely to exclude from the exercise of determining

the appropriate fee consideration, a relevant factor. If the

order of the procedure had been reversed, namely first to consider the relevant factors and their significance and then to bring to bear relevant discretionary considerations the injustice of ignoring the proprietor's current capital contribution would have been avoided and the statutory duty would not thereby have been unfulfilled. In that case the allowance to be made in respect of profit would depend, after proper scrutiny, on all the relevant circumstances. But the policy which was applied eliminated a consideration of profit

according to at least one of the relevant circumstances.

Performance of the task of the Court was facilitated by the acknowledgement by counsel for the respondent that the statutory provisions dealt with in, for instance, The Shire of

Swan Hill v. Bradbury (1937) 56 CLR 746 and The Queen v. The

Australian Broadcasting Tribunal & Ors; Ex parte 2HD Pty. Ltd.

(1979) 144 CLR 45 may be distinguished from the provisions applicable to the exercise of the discretion under the Act. As he said "under the Act the scale of fees 1s being fixed for a statutory purpose and unless regard is had to certain considerations the statutory purpose will not be achieved ... it is a necessary implication of the statute that the delegate must have regard to certain considerations." He referred to

the observations of Deane J. in Sean Investments Pty. Ltd. v.

MacKellar (1981) 38 ALR 363 at 374 and 375 to the effect

"As has been seen, a failure to take a relevant consideration into account in the exercise of a power is, under s.5(1) and (2)(b), a permissible ground for attacking a decision pursuant to s.5 of

the Administrative Decisions (Judicial Review) Act 1377. This does not, however, mean that a party affected by a decision is entitled to make an exhaustive list of all the matters which the decision-maker might conceivably regard as relevant and then attack the decision on the ground that a particular one of them was not specifically taken into account. ...

In a case such as the present, where relevant considerations are not specified, it ais largely for the decision-maker, in the light of matters Placed before him by the parties, to determine which matters he regards as relevant and the comparative importance to be accorded to matters which he so regards. The ground of failure to take anto account a relevant consideration will only be made good if it is shown that the Gecision-maker has failed to take into account a consideration which he was, in the circumstances, bound to take into account for there to be a valid exercise of the power to decide." It is obviously possible for the Court to identify some matters which it is essential, according to the Act, that the

delegate should consider in relation to the determination of a scale of fees to be charged as from a particular date. The scale of fees affects the various parties having diverse and even opposing interests in the conduct of the home. The fact that the basic unit of service to the patients is a private enterprise project, which the statute uses as such, is of importance. The viability of the project is alsa of importance because the standard of care in a home not financially viable is likely to deteriorate perhaps seriously. As a private enterprise project the level of profit is anevitably a relevant matter. To determine what profit should be reflected in the fee structure for any period it is clearly essential to know and to take into account the amount of

capital then involved in the project. And the amount of

capital 15 not taken into account 1f the items constituting it

are taken into account, not at current values, but at the

When all the tacts an current terms are taken into account in relation to what 1s required by way ot land and buildings and equipment and recurring costs then the delegate and the Minister are in a position to assess whether in balancing the interests of the taxpayer, the patients and the proprietor, discounts should be imposed by which a propriet- or s returns may fall below commercial rates. But to attempt to do this without full consideration of the current

contribution ot the proprietor appears to me inevitably to involve a fundamental failure of duty 1n the exercise or the

Accordingly, the appeal should be allowed with costs thereor and the matter remitted to the delegate for further consideration in accordance with the views expressed in these reasons for judgment. I would refer the question ot costs ot

the proceedings before the learned trial judge to him.

I certify that this and the eighteen (18) preceding pages are a true copy of the Reasons tor Judgment of the Honourable

Mr. Justice Smithers. J AWW O th, bho bbe Associate

an . \LESANDRA PPIVATE GEFIATRIC Ee Hos SPITAL PTY LIMITED Appeliant AND

SHEPPAPD J.: For the purposes of developing my reasons in this matter, I have drawn heavily upon the carefully detailed judgment of the learned primary Judge. I have also had the advantage of reading the judgment to be delivered by Smithers J. The comprehensiveness of the two judqments makes it unnecessary for

me to set out fully the relevant legislation and the overall

Tne only questions which arise for decision centre upon

whether the delegate of the Permanent Head of the Department of

Health was bound. as a matter of law, when determining a scale of fees for the appellant's nursing home, to have regard to the

current freehold market value and the current rental market value

of the property in which fie nursing home 1s carried on. The appeliant's contentions were put in various ways. Pirskly, 1t was submitted thar the deleqate's decision to omit rurrent values

from consideration was so unreasonable as ta make the decision

and 5(2)(q) of the Administrative Decisions '/Jisiicial Review'! Act

1977 ("the Judicial Review Act")). Then it was said that the

delegate ain reaching Al cision had omitted a relevant consideration from account, namely, the current values of the

2 paras. 5(1)fe) amd 5/2)(5) of the Judicial Review Act. A third submission was that the delegate had decided the matter according to a rule or policy without cegard to the merits of the instant case; see paras. 5(1}(e) and 5:2)\f). It will eventually be seen that there may well be some overlap of these grounds; cf. Associated Provincial Picture Houses Limited v.

Wednesbury Corporation £19487 1 K.B. 223 at p. 229,

The legislation in question is essentially to be found in sub-secs. (6), (7) and (7A) of s.40AA of the National Health Act 1953 ("the Act"). Section 40AA was the subject of amendment in

1983; see National Health Amendment Act 1983, s. 3. Sub-section (6) was amended, sub-section {7) was replaced and a number of new sub-sections, including sub-section (7A), were added to the

section. The relevant provisions of sub-secs. (6) and (7) in

"(6) The approval of premises as an approved nursing home 18, except an the case of a Government nursing home, guk ject to the following conditions: , Ca

(i) the fees charged in respect of the nursing heme care of a quat2fied nursing home patient in the nursing home will not exzcee es as are from time to t le in

x re of eowith such scale of fees as is determined, subject to any principles that have been formulated under sub-section (7) and that are in force, by the Permanent Head in relation to the nursing home;

(7) The Minister may, by writing under his hand, formulate principles in accordance with which scales of fees are to be determined for the purposes of sub-paragraph (1) of paragraph (c) of sub-section (6) ain relation to nursing homes generally or in relation to nursing homes included in specified classes of nursing homes."

Sub-section 40AA(7A) specified certain principles which the Minister might formulate pursuant to sub-sec. 40AA(7). No such principles had been formulated before 13 March 1984 when the delegate made the decision in question in the present case. Principles have since been formulated; see Commonwealth of

Australia Gazette No. 5 166 of 9 May 1984. These principles are

Since the amendments to s.40AA were made, there has been no decision of the High Court nor of this Court in relation toa problem such as the present except the decision of the learned peimary Judge now under consideration. It follows that the

decision of the High Court in Req. v. YWint; 8x parte Sean

Investments Ptv Limited (1979) 53 A.L.J.R. 52 and the deci

$ of this Court in Nagrad Nominees Pty Limited v. Howells '19981) 38

A.L.R. 145; (1982) 43 A. R. 283, Sean Investments Pry Limited v.

Mackellar (1921) 392 A.L.R. 362; (1982) 42 A.L.R. 9676 and Croft wv.

Minister for Health (1993) 45 A.L.R. 449 must be read with it in

mind that they were decided at a time when the legislation was in a different form. At that time the words, "subject to any Principles that have been formulated under sub-section (7) and

that are in force," did not appear in sub~-para. 40AA(6)(c)(1) and

"(7) The Permanent Head shall, in determining the scale of fees in relation to a nursing home for the purposes of sub-paragraph (i) of paragraph (c) of the last preceding sub-section have regard to costs necessarily incurred in providing nursing home care in the nursing home."

It was with the words, "costs necessarily incurred" that the High Court had been concerned in the first of the cases to which I have referred. But in Nagrad's case this Court held that the Minister or his delegate in discharging his function under s.40AA

was bound, in deciding upon the scale of fees he would approve,

to include an allowance for profit to be earnt by the nursing

home. That was not because of the words, "costs necessarily incurred," but because of the terms of sub-para. (6)(c)(i) of the sectier. In Nagrad's case Smithers J. said '43 A.L.R. at p.

"The prigary duty "to deteymine a suitable scale of fees 1s to be found in "sub-s. (6). Sub-section (7) ensures that allowance 1s made in respect of all costs necessarily incurred in providing the

nursing care. Under sub-s. (6) the discretion is wide enough to enable and require the Permanent Head to consider items not being costs which are costs necessarily incurred within the meaning of sub~-s. (7) but which are relevant to the level of

fees appropriate, in a particular case, to implement the statutory provisions. Thus profit is a proper item for consideration."

A consideration of the history of the administration of the legislation since 1972 reveals that although 1t was not mentioned specifically, profit was taken into account. But the method adopted, both before and after Nagrad's case was a historical cost method. In other words, assets were taken at their 1972

values. These values were never increased. It is the fact that

they have not been increased which is at the heart of the appellant's complaint in this case. Mr. P.D. Tratt is a senior executive officer of Nursing Home Benefits and Services Branch for the Victorian Regional Office of the Department of Health. He is one of the Permanent Head's delegates. Mr. Tratt gave the principal evidence on behalf of the respondents to the

application. In his affidavit he made the position quite clear.

"It is. however, oniy the actual cost to. the Applicant which has been taken into account. The Delegates have nat allowel for any increased value which may be flaced upon the land,

buildings, plant and 2quipment through the effects of inflation or other market forces."

The policy 218 one which, 32 far as.he evidence discloses, has are .

been invariably applied. Apparently over the years, when rroprietors of nursing homes have made complaint about the policy, they have been invited to appeal to the Minister. A

number of appeals were brought; so far as Mr. Tratt was aware mone was ever successful. The volicy seems to have evolved from what was said in 2 letter written by the hen Minister for Health, Mr. Hayden, to Mr. McGregor, the Chairman of the Nursing Homes Fees Review Committee of Inquiry on 17 May 1973. Amongst

"It is my view that fees determined by my Department, in the first place, or by me acting on a recommendation of a Committee, should not be such as to put a home in an improved financial position to that which it held previous to the introduction of the fee control measures. This means, for example, that if a home was earning a return on capital at a particular rate then, provided that rate was not excessive - say less than 12 and ahalf per cent - it could be permitted fee increases to maintain that rate but

it should not be permitted fee increases to improve that rate."

It 1S not apparent to me that the then Minister intended any

policy that profits were to be determined on the basis of

historical costs to arise out of what he said. Indeed, I would

not myself have taken him to mean that values were, in effect, to be frozen at 1972 values and never increased, even for the purpose of allowing for inflation. Netwithstanding that view, +" the policy waz adopted and applied by suczessive administrations

May 1984 when the new principles formulated ¢ pursuant te sub-sec. 40NA(7) came unto'sffect. cm That the policy was consisteéntiy applied is underlined in the

"There are some principles which are adopted by the Department and by various Ministers since the scheme started in 1972 which become really basic premises for determining fee stuctures. The one you mentioned, historical ccst, it 1s a policy which, as I said before, ail Ministers, ranging from Mr. Hayden to Mr. Carlton, Mr. Hunt, they have all written letters at various times sticking to this policy of historical costs and that is one area where 1t is a major principle, we believe, of the Department and it is one which we do not feel ourselves we can depart from."

Mr. Tratt went on to mention a right of appeal but, because of what he had said about it elsewhere, it seems to have been an

Mr. Tratt was pressed on whether there were written guidelines for the benefit of delegates dealing with this

problem. He said that delegates had regard to the basic principles that profit should be determined on a historical cost

basis. He conceded, however, that there was nothing in any

manual concerning the matter but he referred again to the Ministers' attitudes. He said that neither he nor any other of the delegates had any discretion about the matter. He added, "It is a major principle which the Department has adopted for

Some other aspects of- the molicy need to be understocd. The freeholds of many nursing homes are not owned by the proprietors of the businesses carrying them on; they ars owned by investors who lease them to the proprietors. If a nursing home, in existence in 1972, were the subject of a lease, the proprietor

was entitled to recover as part of his costs the amount of rent

paid to the lessor. So much was decided by the High Court in

Hunt's case. That, of course, was under the Act as 1t was prior to the amendments to which I have earlier referred. A different position prevailed in relation to a nursing home which was carried on by the owner of the freehold in 1972, but subsequently leased by that owner to a lessee who thereafter would carry on the business. The matter was explained by Mr. Tratt. He said that if the appellant in the present case were to sell the business, but retain the freehold, the new proprietor would be allowed a rental value of $13,887, that is, the same profit figure as the appellant is presently allowed in respect of the provision of the freehold for use as a nursing home. The new

proprietor would not be allowed what might be thought to bea

current market rent. In those circumstances it would seem

unlikely that a purchaser of the business taking a lease from the

appellant would be prepared to pay a rental of more than the sum

of $13,887. That would provide the appellant with the same

Tf a new nursing home were established aftr 1972, the

Department would approve its being taken in at the actual cost or

At a glance

Court

Decision date

Before

Source

Judgment (307 paragraphs)

Cases Cited (7)