Care home briefing 127 – Yet another care homes judicial review

Regular readers of our care home briefings will know that there has been a steady flow of Court cases, judicially reviewing the setting of fees paid to care homes by local authorities. These have resulted from the extreme dissatisfaction on the part of care home operators with the fees levels set (and the methods of assessment used) by local authorities. One of the latest cases, South Tyneside Care Home Owners Association and Others v. South Tyneside Council [2013] EWHC 1827, is yet another example of the issues to be considered if a challenge to a local authority on fee setting is to be brought in the Administrative Court.

This case was heard on 28 June 2013 in Leeds. In total, 14 care home operators took South Tyneside Council to court arguing that the council’s decision regarding the fees it would pay to care homes (set out in an agreement dated 31 May 2012) was unlawful and/or procedurally unfair and/or “Wednesbury unreasonable”. It was acknowledged by the Council that the background to its fee setting exercise was to achieve reductions in residential and nursing home fees of 10% across the board.

The proceedings were issued just within the 3 month time limit which applies in judicial review (“JR”) cases.

There were 6 grounds of challenge, most of which will be familiar to our care home briefing readers. These included allegations of a failure to consult properly before reaching the decision regarding fees and a failure to pay due regard to the actual costs of care. Also familiar were the assertions that the Council had made a number of identifiable errors in its financial analysis in determining the fees and had failed to comply with its public sector equality duty pursuant to section 149 Equality Act 2010. Slightly less familiar was the assertion that the council failed to take into account the operators’ return on capital/return on equity and took a flawed approach to the concept of profit.

In assessing the fees, the Council had been assisted by Price Waterhouse Cooper (“PWC”). By the PWC model the estimated return on equity (“ROE”) was 15%. ROE is the surplus available to the operator, after all expenses are paid. This is needed to fund repayment of the capital element of debt, to provide funds for reinvestment and for there to be a profit.

Unsurprisingly, during the hearing, the judge in the case (HHJ Belcher) was referred to a number of the earlier JR cases involving care home fees. The judge concluded that ROE is an actual cost to the operator, and that the Council failed to have proper regard to the ROE and thus to the actual cost of care. Apart from the ROE, the judge held that the Council had not had proper regard to other ‘actual costs’ including building costs. For EMI service users, there was an uplift of £10 per week. In this regard, the judge was satisfied that no due regard was had by the Council to the usual cost of care for EMI residents.

The judge held that there was a failure on the part of the Council to consult properly before reaching his decision on fees. This failure by the Council is a little surprising given the extent to which this point was highlighted and proved in previous JR cases. The so-called identifiable errors in relation to the Council’s financial analysis related to a failure by the Council to have any regard to inflation. The immediate effect of failing to allow for inflation was to over-estimate profits since there would be an ongoing underestimate of costs. This ground of challenge succeeded and, finally, the Equality Act challenge succeeded so that the care homes had a clean sweep in relation to their 6 grounds of challenge.

As is well known, even though some or all of the grounds of challenge may succeed, it is a matter for the court’s discretion as to whether or not it will grant the claimants relief. In this case, the care homes sought an order that the Council’s decision should be quashed. Unsurprisingly, this was opposed. The judge concluded that she should exercise her discretion in favour of the care homes. Accordingly, she quashed the Council’s decision to issue its contract and adopt the fees bands contained in it.

She remarked that the errors of the Council in the process in the case went to the very heart of the decision making process. It seems unlikely that this flow of care home/JR cases will abate any time soon.


Disclaimer

This briefing is for guidance purposes only. RadcliffesLeBrasseur accepts no responsibility or liability whatsoever for any action taken or not taken in relation to this note and recommends that appropriate legal advice be taken having regard to a client's own particular circumstances.