R v Hunt; Ex parte Sean Investments Pty Ltd

40ae.(1) Where the proprietor of an approved nursing home makes application, in writing, to the Permanent Head for the Permanent Head to alter the conditions applicable to the nursing home, the Permanent Head shall, within two months after receipt of the application, either alter the conditions, whether in accordance with the application or otherwise, or refuse the application, and notify the applicant, in writing, accordingly.

(2) Where the Permanent Head does not alter the conditions in accordance with the application, the proprietor may, by writing under his hand, request the Minister to review the decision of the Permanent Head.

(3) Upon receipt of a request under the last preceding sub-section the Minister shall, after such investigation of the matter as he considers necessary, either confirm or vary the decision of the Permanent Head, and advise the proprietor accordingly.

(4) Where a request under sub-section (2) of this section relates to the fees applicable to a nursing home the Minister shall, as part of his investigation of the matter, refer the matter to the appropriate Nursing Homes Fees Review Committee of Inquiry established under Division 3A of Part VIII of this Act for examination and report to the Minister and shall not take any further action in the matter until he has received the report of the Committee.

By letter dated 12 December 1977, the Director of Health (N.S.W. Division), evidently acting under a delegation from the Permanent Head, refused the prosecutor's application. This refusal was followed by a review "in an informal manner" of the decision of the Director but this also resulted unfavourably to the prosecutor. The prosecutor then requested the respondent Minister, in a letter dated 15 February 1978, to review the refusal of its application pursuant to s. 40AE(2). This request for review was referred by the Minister, pursuant to s. 40AE(4), to the Nursing Homes Fees Review Committee of Inquiry which had been established for the State of New South Wales. After an inquiry conducted on 21 April 1978, the Committee submitted a report dated 9 June 1978 to the Minister. Thereupon the Minister confirmed the refusal of the application, notice of the refusal being conveyed to the prosecutor by letter dated 7 July 1978 signed by the Acting Director.

The prosecutor's case is that the Minister has failed to consider and determine the application for review according to law because he has failed to have regard to "costs necessarily incurred in providing nursing home care in the nursing home". In support of this case the prosecutor relies on s. 40AA(7). It provides:

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.

At the threshold there is the question whether this sub-section, which is expressed to apply to a determination by the Permanent Head of the scale of fees in relation to a nursing home for the purposes of s. 40AA(6)(c)(i), that is, for the purposes of the condition which that sub-paragraph attaches to the approval of premises as a nursing home, also applies to a determination made by the Permanent Head of an alteration in the conditions of the approval under s. 40AD(1)(b) and to a review by the Minister under s. 40AE(3).

The answer to the respondent's argument on this point is provided by the language of s. 40AA(6)(c)(i). It speaks of "such fees as are from time to time applicable in accordance with such scale of fees as is determined by the Permanent Head". It contemplates that fees will not remain constant, that they will vary from time to time as a consequence of the Permanent Head making determinations and this he necessarily does by way of altering the condition of approval that related to the fees charged for nursing home care in the nursing home. Accordingly, when s. 40AA(7) makes mention of the Permanent Head determining the scale of fees in relation to a nursing home "for the purposes of sub-paragraph (i) of paragraph (c)" of sub-s. (6), it refers not only to a determination made in connexion with the grant of approval of premises under s. 40AA(2), but also to a determination made by way of alteration of conditions under s. 40AD(1)(b) and s. 40AE(1), and for that matter to any determination made by the Minister upon a review under s. 40AE.

The respondent then submitted that rent was not a "cost" within the meaning of s. 40AA(7). It was said that s. 40AA(1) when it provides that the "proprietor of premises, being a nursing home, may apply for the approval of the premises as an approved nursing home" restricts the class of premises which can be so approved to those which are adapted for use as a nursing home at the time application is made. See also the statutory definition of "nursing home". Sub-sections (1) and (2) of s. 40AA, it was urged, look to premises which at the time application is made for approval are fully fitted out and are conducted as a nursing home. From this the respondent sought to deduce the conclusion that the reference to costs in s. 40AA(7) is to costs other than the costs of acquisition of premises; in other words, that the reference is to the regular costs of operation of the nursing home excluding rent.

The statute does not stipulate that the premises must be conducted as a nursing home before application for approval is made. Indeed, there is much to commend the view that it is enough that the premises are adapted for use as a nursing home when approval is granted. But even if one accepts that in all cases approved premises have been previously acquired and operated by the proprietor as a nursing home before application for approval was made, this supplies no reason for thinking that rent paid in respect of the right to possession of the premises after the grant of approval should not be reckoned as a relevant cost within the meaning of s. 40AA(7). The sub-section speaks not only of the costs incurred in providing nursing home care but of providing that care in the nursing home. Another answer is that the statutory definition of "nursing home care" includes accommodation as well as care. Rent is therefore a cost incurred in providing accommodation and care in the nursing home.

The Minister's function under s. 40AE(2) is to "review" the decision of the Permanent Head. Under s. 40AE(4) the Minister has the benefit of the report of the Committee which is itself described as a "Review Committee". The ambit of the statutory discretion reposed in the Minister on a review of the Permanent Head's decision is co-extensive with that enjoyed by the Permanent Head, for the section does not prescribe independent criteria to be applied by the Minister on a review. Accordingly, the Minister, like the Permanent Head, must have regard to the matter mentioned in s. 40AA(7).

There is no reason to give the expression "necessarily incurred" where it appears in s. 40AA(7) the meaning which has been assigned to those words in s. 51(1) of the Income Tax Assessment Act 1936 Cth (as amended), that is, "clearly appropriate or adapted for" [1] . So much is conceded by the prosecutor.

1. See Ronpibon Tin N.L. v Federal Commissioner of Taxation (1949), 78 C.L.R. 47.

The words "costs necessarily incurred in providing nursing home care in the nursing home" mean costs which the proprietor incurs, and is obliged to incur, in the provision of the nursing home care which he is providing in his nursing home. "Necessarily" indicates a distinction between costs which are incurred voluntarily and those which are incurred compulsively because one is obliged to incur them in order to carry on the activity in question. The payment of rent at a level higher than the prevailing rate does not of itself indicate that it is a cost unnecessarily incurred. A lessor may insist on a rent higher than the prevailing rate and, unless the lessee is willing to pay it, he will not secure possession of the premises for use as a nursing home. The liability to pay the rent is then a cost necessarily incurred, notwithstanding that it may be described as excessive. But if the lessee voluntarily agrees to pay rent at a level higher than the prevailing rate because he wishes to benefit the lessor the lessor being a relation of the lessee or a company in which he has an interest, the whole of the rent is not a cost necessarily incurred. This is because the expenditure has been incurred voluntarily and, in consequence, it lacks the required connexion with the provision of nursing home care in the nursing home.

When sub-s. (7) directs the Permanent Head to "have regard to" the costs, it requires him to take those costs into account and to give weight to them as a fundamental element in making his determination. There are two reasons for saying that the costs are a fundamental element in the making of the determination. First, they are the only matter explicitly mentioned as a matter to be taken into account. Secondly, the scheme of the provisions is that, once the premises of the proprietor are approved as a nursing home, he is bound by the conditions of approval not to exceed the scale of fees fixed by the Permanent Head in relation to the nursing home. In many cases it is to be expected that the scale of fees will be fixed by ascertaining the costs necessarily incurred and adding to them a profit factor. In the very nature of things, the costs necessarily incurred by the proprietor in providing nursing home care in the nursing home are a fundamental matter for consideration.

However, the sub-section does not direct the Permanent Head to fix the scale of fees exclusively by reference to costs necessarily incurred and profit. The sub-section is so generally expressed that it is not possible to say that he is confined to these two considerations. The Permanent Head is entitled to have regard to other considerations which show or tend to show that a scale of fees arrived at by reference to costs necessarily incurred, with or without a profit factor, is excessive or unreasonable. It may be that the rent paid by the proprietor of a nursing home, though a cost necessarily incurred, exceeds the prevailing rental which is paid for comparable premises and that the determination of a scale of fees by reference to that rent would result in a scale of fees which is unreasonably high. The Permanent Head would be entitled to take this factor into account in making his determination.

It has to be kept steadily in mind that the function is that of determining a scale of fees in relation to the particular nursing home. It is not a matter of determining a scale of fees for all nursing homes in the State and making that a scale applicable to each and every nursing home. That is why s. 40AA(7) directs that regard shall be had to the costs incurred in providing the care in the particular nursing home. No doubt there is a variation in the services which nursing homes provide and that variation will be reflected in a variation in costs. Likewise, costs, notably the cost of rent, will vary according to the location of the premises.

The issue for decision is whether the Minister had regard to the costs necessarily incurred by the prosecutor in providing nursing home care in its nursing home. It was conceded that the Director, in acting as the delegate of the Permanent Head, did not do so. In refusing the application the Director stated that, because the increased rent was "higher than normally paid under leasehold arrangements in this State", the increased cost of rent "is not considered to be a cost necessarily incurred in the provision of nursing home care to nursing home patients". To say that the rent was higher than that normally paid in the State is not to say that it was unnecessarily incurred. A rent may be higher than normal yet at the same time it may be a cost which is necessary because possession of the premises cannot be obtained except on terms that rent in that amount will be paid.

It is quite evident that the Department was labouring under a misapprehension as to the meaning of s. 40AA(7). In a letter dated 13 February 1978 in which the Director responded to the prosecutor's request for an informal review he said:

In your letter you have mentioned that the Department is using Section 47AA(7) [sic] to deny an increase in rent. I would like to mention that the authority for the Department to approve increases in fees for nursing homes is contained in that Section and when considering applications for increases the Department can only have regard to the wording of the Section and allow costs necessarily incurred.

With regard to increases in rent the Department does not accept that rent should be automatically adjusted in accordance with movements in the Consumer Price Index.

It is considered that rent is a payment made by the lessee to the lessor to compensate him for the loss of use of the premises. Under the terms of the lease the lessor may covenant to meet certain payments. This could result in an increase in rent which would be accepted as a cost necessarily incurred in providing nursing home care. On the other hand an increase in rent solely to increase the profit of the lessor is not regarded as a cost necessarily incurred in accordance with Section 40AA(7).

Of these paragraphs, the first is incorrect when it states that the Department can only allow costs necessarily incurred; as I have pointed out, the Department can allow a profit factor and it can take other considerations into account. The last paragraph shows that the Department departed altogether from the concept of costs necessarily incurred and looked to the reasons why the lessor was increasing his rent in deciding whether it was a cost necessarily incurred.

The Minister's decision on review was indicated by the letter dated 7 July 1978, signed by the Acting Director of Health. It states:

The Minister for Health has received the report of the Nursing Homes Fees Review Committee of Inquiry for New South Wales in relation to your request under section 40AE(2) of the National Health Act, for a review of the scale of fees determined by the Delegate of the Director-General in respect of Rockdale Nursing Home.

The Committee reported to the effect that the original rent for Rockdale Nursing Home was based on a net return of 11 per cent on a capital valuation of $5,700 per bed. The Committee expressed the view that at the time the lease was entered into a valuation of $5,000 per bed would have been a top figure, whilst 10 per cent would have been a reasonable return.

The Committee also reported to the Minister that it was advised that the current upper valuation for nursing home beds in New South Wales is approximately $6,000 per bed. On this basis, allowing a maximum net return of 10 per cent, the Committee assessed a current reasonable rental would approximate $37,800 a year.

I wish to advise that after consideration of the Committee's report the Minister, in pursuance of section 40AE(3) of the National Health Act, has decided not to allow the appeal.

In terms this letter makes no reference to s. 40AA(7) or to costs necessarily incurred in providing nursing home care in the nursing home. All that the letter does is to mention considerations which indicate that a reasonable rental for a nursing home with sixty-three beds would be $37,800 per annum. The terms of the letter therefore suggest that the Minister has not had regard to the one matter which the statute explicitly directs shall be taken into account. The impression which the letter creates in the mind of the reader is that the Minister proceeded on the footing that the only question for his attention was: What is a reasonable rental for the premises?

This impression is strengthened by a reading of the report of the Review Committee and of an advice dated 23 May 1978 from the Deputy Crown Solicitor to the Committee on which its report was based. The advice stated: "For my part, I would take the view that rental of nursing home premises is a cost necessarily incurred provided that it is paid bona fide as rental and is, in all the circumstances, a reasonable rental." As I have already explained, this is not a correct statement - a rental which is unreasonable because it exceeds the prevailing rate for comparable premises may none the less be a cost necessarily incurred.

The advice went on to deal at some length with the writer's conception of "reasonableness", observing:

Whether a rental is reasonable depends upon whether the rental is comparable to that charged for similar premises, or to put the matter another way, whether the rental is such as one would have expected a lessor and lessee who are at arms length to have arrived at having regard to ordinary business considerations. In the case of an arrangement for an increase in rental during the term of the agreement, the question whether the increase is reasonable will depend upon the same criteria. There must always, of course, be some flexibility in applying the test of reasonableness because of the room for dispute as to what is a reasonable rental in any particular case.

The vice of this advice was that it conveyed to the Committee that the reasonableness of the rent was an essential factor in determining whether the rental was a cost necessarily incurred. Moreover, the subsequent reference to "the test of reasonableness", when read in isolation, suggested that the function of the Committee and the Minister under the statute was merely to decide whether the costs incurred were reasonable. That the Committee took this to be its function appears from par. (vii) of the Committee's report which stated:

It appears from the Deputy Crown Solicitor's opinion that the Department was in error in refusing the claim on the grounds that "rent was not a cost necessarily incurred" although it might have refused it on the grounds of it being unreasonable. The Committee decided to consider the appeal on the basis as to whether or not the rent increase was reasonable.

The Committee's report therefore reinforces the impression that one gains from a reading of the letter of the Acting Director, namely, that the Minister proceeded on the footing that the sole question for determination was whether the increased rental was reasonable and that, because he thought that this was the sole question, he failed to have regard to the costs necessarily incurred in providing nursing home care in the nursing home. It may also be, as the prosecutor submitted, that the Minister failed sufficiently to direct his attention to the task of determining a scale of fees in relation to the prosecutor's nursing home. The terms of the Director's letter appear to indicate that the Minister, like the Committee, was preoccupied with State-wide statistics, it maintains a deafening silence on considerations related to the rental costs of this particular nursing home. However, I do not base my conclusion on this ground.

In the result, I am of the opinion that the Minister failed to deal with the application for review in accordance with the requirements of the statute and that mandamus should go directing him to consider and determine the application according to law. I would therefore grant a mandamus.

The prosecutor, Sean Investments Pty Ltd, seeks a writ of mandamus to direct the Minister for Health to consider and determine according to law its application for approval for an increase in fees for nursing home care in an approved nursing home. The history is set out in Mason J.'s judgment.

Section 40AA(7) of the National Health Act 1953 Cth as amended, requires that "the Permanent Head shall, in determining the scale of fees in relation to a nursing home have regard to costs necessarily incurred in providing nursing home care in the nursing home". The Act does not in terms require that regard shall be had to costs necessarily incurred when a determination is made by the Permanent Head of an application for alteration of the scale of fees (under s. 40AD(1)(b)) or on a review by the Minister under s. 40AE(3). However, it gives a sensible operation to the Act, if the direction to have such regard is implied. This fits with the expression in s. 40AA(6)(c)(i), "such fees as are from time to time applicable in accordance with such scale of fees as is determined by the Permanent Head".

I will assume that rent of the nursing home and the increased rent (brought about by the operation of the cost of living indexation clause in the lease) are costs necessarily incurred in providing nursing home care in the nursing home. The evidence shows that in determining the application, the Permanent Head did not have regard to the increased rent as a cost necessarily incurred, but no application for mandamus was sought against the Permanent Head. Instead, the prosecutor requested the Minister (in accordance with s. 40AE(2)) to review the decision of the Permanent Head. The Minister, as part of his investigation of the matter, referred it to the appropriate Nursing Homes Fees Review Committee of Inquiry for examination and report, in accordance with s. 40AE(4). The Committee having sought the advice of the Deputy Crown Solicitor, reported to the Minister, inter alia:

It appears from the Deputy Crown Solicitor's opinion that the Department was in error in refusing the claim on the grounds that "rent was not a cost necessarily incurred" although it might have refused it on the grounds of it being unreasonable. The Committee decided to consider the appeal on the basis as to whether or not the rent increase was reasonable.

The Committee reported that in its opinion the original rent and the increased rent were both unreasonably high, and recommended that "the appeal be disallowed". The Minister (by letter from his delegate, the Acting Director) advised the prosecutor of the Committee's report and its advice that both the original rent and the increased rent were unreasonably high, and that the Minister had decided not to allow the appeal.

The prosecutor relies upon the impression created by the letter to sustain its claim that the Minister did not have regard to the increased rent as a cost necessarily incurred. I find this conjectural and unconvincing. What the Minister did is presumed to be rightly and duly performed until the contrary is shown. In my opinion, the letter does not even begin to displace the presumption of regularity which must be accorded to the Minister's decision. The letter shows that the Minister has had regard to the increased rent, he has considered it, taken it into account, and, in reaching his decision, taken the view that it is unreasonably high and, therefore, declined to increase the scale of fees. The prosecutor claims that the Minister has had regard to the increased rent, but because he considered it unreasonably high, has not had regard to it as a cost necessarily incurred, and, therefore, refused to increase the scale of fees. The natural inference, which I draw, is that the Minister, in accordance with the Committee's report, regarded the rent as a cost necessarily incurred The letter did not express this, but it did not express or imply that he did not.

The requirement that the Permanent Head (and on review, the Minister) shall have regard to the costs necessarily incurred, tends in itself to show that his duty in respect of those costs is limited to having regard to them. He must take them into account and consider them and give due weight to them, but he has an ultimate discretion. He is not bound to increase the scale of fees on a basis which incorporates the whole or any part of the increased costs [2] but, of course, he may do so if in his opinion it is proper to fix such a scale for the nursing home. If the applicant or other proprietor arranges to rent premises, hire equipment or contract for services for accommodation or nursing, the Minister is not required to rubber-stamp these costs, by adding all such costs then a profit margin on top, and determine a scale of fees accordingly, as the applicant contended. On fixing a scale of fees for the home, the Minister is not restricted to having regard to costs necessarily incurred, but may have regard to other facts and circumstances. The purpose of providing a government subsidy is to lower costs to the public. This legislative purpose might be defeated if the Minister were to fix scales of fees by automatically including any costs necessarily incurred, even if this resulted in unreasonably high scales. It was suggested during argument that if the fees are high, persons seeking nursing care are free to go elsewhere. In truth, however, there is not a free market because there is a quasi-monopoly in that the existence of approved nursing homes in a locality may ground a refusal of an application for approval of another nursing home (see s. 40AA(3)). The Minister may adopt a general policy in regard to scales of fees, and deal with a review of fees for a nursing home in the light of that policy, but his determination or review must be in order to arrive at an appropriate scale of fees for the particular nursing home. If the costs necessarily incurred are excessive for any reason whether inside or outside the control of the proprietor, it may be that the scale of fees the Minister determines is such that if those costs continue, the home can be conducted only at little profit or at a loss. If that result follows it is because the Minister is not engaged in determining a scale of fees according to a cost plus system; he is carrying out a statutory duty to determine what, in his opinion, is an appropriate scale of fees in relation to the approved nursing home.

1. See Ishak v Thowfeek , [1968] 1 W.L.R. 1718, at p. 1725 (P.C.).

In R. v War Pensions Entitlement Appeal Tribunal; Ex parte Bott [3] , Rich, Dixon and McTiernan JJ. held:

A writ of mandamus does not issue except to command the fulfilment of some duty of a public nature which remains unperformed. If the person under the duty professes to perform it, but what he actually does amounts in law to no performance because he has misconceived his duty or, in the course of attempting to discharge it, has failed to comply with some requirement essential to its valid or effectual performance, he may be commanded by the writ to execute his function according to law de novo, at any rate if a sufficient demand or request to do so has been made upon him. In the case of a tribunal, whether of a judicial or an administrative nature, charged by law with the duty of ascertaining or determining facts upon which rights depend, if it has undertaken the inquiry and announced a conclusion, the prosecutor who seeks a writ of mandamus must show that the ostensible determination is not a real performance of the duty imposed by law upon the tribunal. It may be shown that the members of the tribunal have not applied themselves to the question which the law prescribes, or that in purporting to decide it they have in truth been actuated by extraneous considerations, or that in some other respect they have so proceeded that the determination is nugatory and void. But the prosecutor who undertakes to establish that a tribunal has so acted ought not to be permitted under colour of doing so to enter upon an examination of the correctness of the tribunal's decision, or of the sufficiency of the evidence supporting it, or of the weight of the evidence against it, or of the regularity or irregularity of the manner in which the tribunal has proceeded. The correctness or incorrectness of the conclusion reached by the tribunal is entirely beside the question whether a writ of mandamus lies. 1. (1933) 50 C.L.R. 228, at pp. 242-243.

Those principles govern this case. The prosecutor has not shown that the Minister has failed to perform his duty. The application for mandamus should be refused.