N C a (Brisbane) Pty Ltd v D W MCA Simpson

307

SOCIAL SERVICES - National Health Legislation

- nursing home -

_ _

determination of fees chargeable	- matters for consideration	-
absence of Minister’s guidelines	- reliance on governmental

policy - National Health Act 1953, ss.40AA.

40AE - Administrative

Decisions (Judicial Review) Act 1977, ss.5,lO.

Administrative Decisions (Judicial Review)

Act 1977, ss.5,lO.

National Health Act 1953,

ss.4OAA, 40AE.

Alexandra Private Geriatric Hospital Pty.Ltd.	v. Blewett (1984) 2
F.C.R. 360

N.C.A. (BRISBANE) PTY.LTD. & ANOR. v. D.W.McA. SIMPSON

QLD. G39 of 1984

CORAM - Spender J.

Brisbane

3 July 1985.

IN THE FEDEZAL COURT OF AUSTRALIA

)

UKEIJSLAMD

DISTRICT

REGISTRY

)

QLD G39 of 1984

GENERAL DIVISION

)

BETWEEN :

N.C.A. (BRISBANE) PTY.LTD.

First Applicant

AND:

N.C.A.

(COUNTRY) PTY.LTD.

Secona Applicant

AND :

DAVID WI1,LIAI.I McANDREM SIMPSON

Respondent

SPENDER J.

3 JULY 1985.

REASGbJS FOR JUIjGMENT

This is an application pursuant to the Administrative Decisions (Judicial Review) Act 1977 ("the Judjcial Review Act")

review a

decision by David William McAndrew Simpson, the

respondent,

the

delegate

the

Permanent

Head

the

Commonwealth Department of Health fixing the fees which N.C.A. (Brisbane) Pty.Ltd. (the applicant), is allowed to charge the

patients at the Jindalee Nursing Centre,

a nursing home owned

the applicant and conducted	by it at	Jindalee in the State of
Queensland.

IN THE FEDERAL COURT OF AUSTRALIA 1

QUEENSLAND

DISTRICT

REGISTRY

QLD G39

of 1984

DIVISION

GENERAL

BETHEEN :

N.C.A.

(BRISBANE) PTY.LTD.

First Applicant

AND:

N.C.A.

(COUNTRY) P!IY.LTD.

Second Applicant

AND:

DAVID WILLIAM McANDREW SIMPSON

Respondent

MINUTE OF ORDER

JUDGE MAKING ORDER:	Spender J.
DATE OF ORDER:	3 July 1985
WHERE MADE:	Brisbane
THE COURT ORDERS THAT:
The application be dismissed.

Note: Settlement and entry or orders are dealt with

in Order 36

of the Federal Court Rules

2 .

The applicant

owns the realty upon which it conducts the

said nursing home. At the core of the application is

a challenge

to the approach adopted by the respondent to the assessment of the profit component in those fees. That assessment is based on historical costs. The applicant says that the approach adopted is

unlawful and involves error reviewable pursuant to the Judlcial Review Act. It was submitted on the applicant's behalf that the prcfit component ought properly to reflect the current market

value of the assets employed in the operation 'of the nursing

home, although

it was not necessary for the purposes of reviewinq

the decision for the applicant to go

so far.

Section 40AA of the Wntional Health Act 1953 ("the Act")

was inserted in 1972

and, amongst other things, provides

fo r the

approval of

nursing homes and for the fixing of the fees that

they would be permitted to charge from

1973 onwards. A condition

of the

approval of nursing homes was the observance by them oi

such maximum fees.

The Permanent Head

of the

Department, then

the Department

Social Security and

now

the Department of

Health, was given the power to fix a scale of fees for each

nursing home and to vary it from time

to time (ss.4OAA and 40AB

of the Act).

This power was delegable and, in the present case,

was exercised by the respondent as the delegate of the Permanent

Head of the Department of Health. An application was made for

variation in

the fees that the applicant was entitled to charge

in respect of its operation of the Jindalee Nursing Centre and

this application seeks to challenge the propriety of the decision

made by the delegate in respect

of that application.

It is not disputed that:-

(a) the

decision

made by the delegate is

decisiGn of an administrative character;

(b)	the applicant	has standing, consistent with
the definition	of "a person aggrieved" under

the

Judicial Review

Act,

bring

the

application of review; and

to be challenged is

decision	to which the Judicial Review Act
applies.

The application seeks to review the decision

of the

respondent that the conditions applicable

to the Jindalee Nursing

Centre for the purposes of

s.4OAA of the National Health Act

1953

be altered by substituting

as from the Zifteenth day

of January

1984 (instead of the fee structure previously applying) a

different fee structure, the details	of which are set out in the
application.

Essentially it is the quantum of the

new fee structure

which is sought to

be challenged.

In the application It is said

that the applicant is aggrieved by that decision in that,

as a

result of that decision, it is unable to charge

fees to

the

patients of the Jindalee Nursing Centre at

a rate necessary to

provide a reasonable return to the applicant	on its Investment in
respect of the said nursing home.

The grounds of ehe application

are:-

(1) That the making

the decision by the Respondent

was an improper exercise of the power conferred

the Respondent by Section

40AD

of the National

Health Act

1953,

in that the Respondent in the

oxercise of the power:-

(a)

took into account irrelevant considerations, including -

(i) the

cost

the

Appllcants

of the

acquisition

prior

1972

the

assets employed in the said nursing

homes, and

(ii) the amount of profit earned when the

fees and charges for the said nursing

homes were first set

in 1972;

(b) Failed

take

into

account

relevant

considerations which

he ought to have taken

into account, including

(i) the present value of the assets employed

in the

sald nursing homes;

(ii)

the

amount

profit which

might be

expected to be

earned by

a'reasonable

investor having regard to that present

value; and

(iii)

the

amount

the fees

and

charges

imposed and approved by the Respondent

in respect of comparable nursing homes;

(c)

Exercised

the discretionary power at the

directlon or behest of another person

...

namely the

Minister for Health

...

;

(d) Exerclsed the discretionary power without

having

regard

the

merits

the

Applicants' applications, but in accordance with certain rules or policies, including:-

(i) the Australian Government's policy that

nursing home fees should be

s o set that

the

amount

profit

earned

the

proprietor should remain fixed

at the

amount earned when

fee3 are first set in

respect of that nursing

home;

and (or

alternatlvely)

(ii) the policy of the

Department

of Health

that-nursing home fees should be

so set

that the amount of profit earned by the

proprietor should remain fixed at the

amount determined by the Minister

Health upon

a review of the fees imposed

in respect of

that nursing home at

prior point in time

(which policy

published in the Department's circular

number 50 issued to nursing	home
proprietors).

(e)

Exercised the power

in the manner that was

unreasonable that

no reasonable person

could have

so exercised the power.

( 2 ) That there was

evidence or

other material to

justify the maklng of the decisions; alternatively

( 3 ) That the decisions were otherwise contrary to law.

The Applicants claim:

(i) An

order

quashing

setting

aside

the

declslons, with effect from the date of the

said decisions;

(ii) An order referring

the matters to which the

decisions of the Respondent relate

to the

Respondent for further consideration, and to

be determined according to

law;”

The history of this matter is

as follows:

Approval of premises as

approved nursing home is

granted subject to certain conditions: s.4OAA(6) of the Act. The

condition relevant for present purposes is that referred to in

~.40AA(6)(c)(i), namely, that the fees charged will not exceed

that determined by	the Permanent Head in relation	to the nursing
home.

That sub-section has been amended since the applicants‘

home was originally approved. The amendments

now provide for the

formulation of principles for the Permanent

Head’s

guidance.

However, at the date of the decision under appeal, no such principles had been formulated.

On 9 December 1982,

the applicant made an application

for an increase in fees, applying for

alteration in the

conditions applicable to its nursing home	and, in particular, for
an alteration of the condition relating	to fees (s.40AD(l)(B)).

It applied to the Department

of Health

for art increase in the

maximum fees which could be charged to patients in respect of the

Jindalee Nursing Centre, such as would result in an increase in

annual

income

from

that

nursing

home of two

hundred

and

twentg-seven thousand and twenty-nine dollars

($227,029.00).

The

principal ground upon which the application for the increase was

made was that the then existing

fee structure resulted in an

inadequate return

to the applicant on its capital investment in

the Jindalee Nursing Centre.

The application detailed, on the

basis of the new fees which had been approved for the Centre

operate

as from

1 5 Septecber

1982,

the total annual income

(excluding

loadings)

$1,152,480.20

and ' total

annual

expenditure of $1,110.687.75.

This indicated an operating profit

of $41,792.45,

from which was deducted a sum of

$36,000.00, said

to be the interest on

$200.000.00

borrowed for the purposes of

the business, leaving

a net profit of

$5,792.45.

In that application it was claimed that the proper fee structure should be significantly increased.	The application
included -

"Based on the method of determining

a reasonable

return on investment

adopted

the

Commonwealth Department of

Health, the return on

our investment in the nursing

home should be as

follows :

Return on Land and Buildings

(12.5% X $1.892.210)

236,526.00

Return on Plant and Equipment

(14.75% X $93,000)

13,718.00

Return on

Workmg Capital

(14.75% X $125,944)

18,577.00

Return

Investment

Total

$268,821.00

Accordingly we apply for

an immediate fee increase

$227,029

per

annum

(required' return

investment - operating profit)"

1 .

I .

Other

minor

matters

were

also

sought

that

application. The figure

of 12.5% in respect of land and bulldings

was used by the Department in the initial determination in 1975

of the return of land and buildings, and the figure of 14.75% was

the Commonwealth bond rate at the relevant time.

On 19

May 1983, the Department advised of

an approved

small increase in the

maxjrnum

fees which the applicant was

entitled to charye in respect of the Jindalee Nursing Centre.	It
requested further information from the applicant which it said

was

necessary

before

the

Department

could

make

final

determination on that; application.	The information it requested
was: -

(a)	the historical cost of land and buildings used in respect of the Jindalee Nursing Centre as at 30 June 1972; and

(b) the historical costs

of plant and equipment,

and furniture and fittings used in respect

of the business of the Jindalee Nursing

Centre as at 30 June 1972.

That material was supplied by the applicant by letter on

1 4 September

1983.

The material supplied shows the historical

cost of the land and buildings

as at 30 June 1972 as $368,780.44

and the historical costs

of leased items totalling $94,006.91,

making a total of $462,787.35.

In supplying that information the

applicant asked the Department to advise whether its review to determine the rates of return was based on historical cost or

current market cost.

It also sought both the reasons

for adopting

a particular basis

for determination of the rates o f return and

full details

of the calculations.

letter

dated

31 January 1984, the

decision

the

subject of this application of review was communicated to the

appllcant. In that letter, and an appendix.

a section dealing

with "Return on Investment" indicates that the amount included

for this head

has

been based on the amount determined and

included in the fee of the applicant as a result of the decision of the Minister for Social Security advised to the applicant on

l8 July 1975, plus

subsequent

increase/decrease

the

interestlrent. That amount totals $162,434.00.

in fact, as will

later appear, the figure allowed for profit is something of the

order of one-third of that sum.

The applicant, on 2

February 1984 sought, pursuant to

9.13 of the Judicial Review Act, a statement of reasons for the

Department's decision. On 7 March 1984, the Department provided that statement, which included a breakdown of the decision and, in particular, stating that:-

"This decision had

a number of components, viz:-

...

To increase the base fee by $1.02 per patient

per day with effect from 19 September 1983 (the date of receipt of the application) to allow a

return on investment componert of

$51,705

p.a.

to be reflected in the fees."

This figure,

as the documents show, was fixed in

1975 and applied

thereafter.

A major source

of grievance was that the basis on

which the fee structure was calculated involved the consequence that this component was immutable. This immutability would not

change in the future, independently of the extent to

whlch costs

altered or rent changed. The profit would be iised at

$51,705.00,

a figure said by counsel

€or the applicant to be "as immutable

the laws of

the Medes and Persians".

That statement also stated:-

"That it is current Government policy that

a profit

component should be included in the fees

initially

determined for nursing homes approved under the increased in later fee determination5 specifically to provide an increase in profitability except in cases where the nursing home's bed capacity has

increased.

Certain

costs (such as rent

and

interest)

are

however,

normal

commercial

practice, funded from profit and to the extent

that increases in these costs are allowed in the

fees, profitability is increased."

2.19.2

Proprietors of approved nursing homes may request the Minister to review the scale of fees determined by the Permanent Head. The Minister is

required to refer such requests

to the relevant

Nursing Homes Fees Review Committee

of Inquiry for

examination and report to the Mlnister. In makinq

his decislon on any such review the Minister has

regard to the merits

of the particular case.

2.19.3 That in determining

a scale of

fees where the

Minister has made

a decision under Sub-Section

AE(3)

of the Natlonal Health Act to vary the

decision of the Permanent Head with respect to

return on investment it is Departmental practice

to take into account the return on investment that

was taken into account by the Minister."

It further appears that in 1975

.the applicant appealed

to the Minister under s.4OAE(2)

of the Mational Health Act for

review.

The Nursing Hone Fees Review Committee

of Inquiry for

Queensland, in its report of

May

1975

to the Minister,

had projected a profit for twelve months

of $51,705.00. The

Minister determined that the then existing approved scale of fees should remain unchanged after he had considered the Committee's report. Later in the reasons at paragraph 2.19.7, the delegate

said:

' I . . .

I considered

reasonable,

that

the

Minister's decision under Sub-Section

40 E ( 3 ) did

not vary the decision of the Permanent Head with

respect to

the return on investment to be taken

into account; In the scale of fees, the return on investment to be taken into account in the scale of fees, the return on investment to be taken into account for purposes of determining a scale of fees should be the projected return on investment

determined by the Revlew Committee of Inquiry in

their report to	the Mlnister.	This	amount was
$51,705 p.a."

The delegate expressly said in

his reasons:-

"I saw

no reason to depart from Government policy and Departmental practice generally applicable to

the determination of nursing home

fees."

It is clear that the scale of iees which had been

increased

the

delegate

reflected

a profit

component of

$51,705.00, the same amount of profit

as had been reported by

the Nursing Home Fees Review Committee of Inquiry for Queensland

in its report in Yay

1975. In the supplementary statement of

reasons which Mr. Simpson gave on 11 May

1984, he said, in part:-

"A statement of the general policy

on profitability

is included in Item

6.1

of Part I, page 26 of the

'Draft Nursing Homes Fees Control Manual' which is

available to nurslng home proprietors through the

Australian Nursing Homes Association. This policy

11.

has now been incorporated into the principles

formulated by the

Minister pursuant to the pawers

conferred by Sub-Section

40AA(7) of the National

Health Act

1953.

These principles were gazetted

in Special Gazette

No.Sl66 of 9 May 1384."

In the introduction to that manual

in a paragraph headed

'Background' appears:-

"Many

such

patients

are

accommodated

non-Government

'participating'

homes

which

are

conducted by the private sector as business enterprises obtaining income from patfents' fees subsidised by Commonwealth benefits."

It refers to a number of controls developed by the Commonwealth

relating to non-Government "participating" nursing homes, which

controls include growth control, admission control and fees

control. It says of the last:-

"Fees control ensures that, in the face of a high demand for beds and a limited supply, fees do not escalate to unreasonable levels resulting in both

adverse effects on patients and excessive demands

on Commonwealth funding.

So far as Departmental administration is concerned, this

appears

"An increased scale of fees

is determined by the

Department, only on the basis of demonstrated increases in costs, and is not related to the

maintenance of profit levels.

The fee control provisions of the National Health Act

were originally implemented by requiring each home which wished

become a

participating nursing home to undertake to charge

12.

patient's fees which do not exceed those normally charged at

June 1972.

Each home was free to contlnue to charge the fees

was chargxnq at 30 June 1972 and those fees formed the 'base' for

subsequent

fee increases related to demonstrated increases

i'n

costs.	For homes which have been opened subsequently, the 'base'
fee is	related to the initial cost structure and is negotiated

with the Department.

In a section dealing with 'Calculation of approved

annual income', the manual says:-

"In establishing an approved scale of fees for

new nursing home, consideration should

be given to

estimated

operating

costs,

as well

appropriate

return

on the

proprietor's

total

investment, with the level of investment being

scrutiny

subject

that

any

over-capitalisation can be accounted

for."

far as

the assessment of

an appropriate return is

concerned, at the initial stage the manual directs attention to

the ascertainment of the value, the fair market return for

individual nursing homes by

a Commonwelth valuer. In relation to

expenditure not involving increased bed capacity, the manual

says :

"Under current fees control policy, provision does

not

exist

for

the

allowance

a return

additional

capital

expenditure

relating

improvements to nursing home premises."

And then in section 5.1, headed "General Policy", the following

appears :

13.

"The method

of operation

a nursing home is

entirely the decision

of individual proprietors.

Those proprietors who have invested capital to

purchase or establish the nursing home premlses

as well as the busmess are entitled to a return

on funds provided and that return is available to

finance

capltal

costs

(e.g.

interest

borrowings) or provide profit to those proprietors

who have supplied their own funds.

The return on

land

and

buildings

calculated

for

new

nursing homes is explained in section 1.2(b) and represents the market return as assessed at a reasonable level. The return on investment is not

updated to maintain real value."

And later, in section

6 dealing with proZitability,, paragraph

6.1

dealing with general policy it is made plain:-

"In determining approved scales of fees for nursing

homes,

the

Department

does

not

consider

profitability.

With

the

exception

the

calculation of

a return on investment for new

nursing homes and additlonal beds constructed in existing nursing homes, the determination of fees

should not have regard to return

on investment."

The applicant asserts that in making the decisions the

subject of the application, the respondent has:

taken into account irrelevant considerations, those assets employed when the fees and charges

namely the cost of the assets employed in the

nursing home when fees were first set by the

for the nursing home were first set

in 1972; and

not taken into account relevant considerations

which

ought to

have taken into account,

namely the present value of the assets employed

by the applicants in conducting the nursing home

and a reasonable return of profit having regard

to	the present value of those assets and the

fees charged by comparable nursing homes.

The material shows a valuation of the land and

improvements of the Jindalee Nursing Centre as at

30 June, 1983.

14.

That valuation expressed the opinion that summation value

of land

and improvements is in the vicinity

oi $1,750,912.00. It was

submitted that the decision fixing the level

of fees in respect

of the Jindalee Nursing Centre was

so unreasonable that

reasonable person could have reached that decision.

The question in issue in this case was the subject

consideration by Woodward

J. in Alexandra Private Geriatric

Hospital Pty.Ltd. v. Blewett (1984) 2 F.C.R. 368.

His Honour

gave judgment in that matter on

7 August 1984. An appeal to the

Full Court was lodged and was heard in November of last year but

judgment has not yet been given by the

Full Court on

the appeal.

His Honour gzve a history of the legislative scheme and dealt

with the previous decisions concerning

s.40 AA of the National

Health Act 1953, including

Re Hunt: ex parte Sean Investments

Ptv.Ltd. (1979) 53 A.L.J.R. 552; judgment of Northrop J. in appeal Howells v. Naarad Nominees Ptv.Ltd. (1982) 66 F.L.R. 169;

Sean Investments Ptv.Ltd. v. Mackellar

(1981) 38 A.L.R. 363, a

judgment of Deane J. and on appeal to the

Full Court of the

Federal Court to be found in (1982)

42 A.L.R 676; and the

judgment of Smithers J. in Croft v. Minister	of Health (1983) 66
F.L.R. 196.

The decision with which his Honour was concerned had

been made on

15 March 1984, at

a time when the

Minister had not

formulated principles under s.4OAA(7). The 1983 amendments to

the National Health Act 1953 received the Royal Assent in June

1983. His Honour concluded that those amendments came into

15.

"operation" within the meaning

of 5.9 of the Acts Interpretation

A c t 1901 and had the effect, inter alia,

of repealing the earlier

sub-5.7. He concluded that, in the absence of specific

principles, a determination under s.40AA(6)(c)(i) must accord

with the general policy

of the act as it was after the

1983

amendments. On a review of the authorities, he concluded at

382 :

"The following principles, in my

view, still applied:

1. the

costs

necessarily

incurred

the

proprietor of

a nursing home in providing

nursing home care remained

"a fundamental

matter for consideration" bv the deleaate

(to quote Mason J. in Re:

hunt; Ex parte

Sean Investments	Pty.Ltd:	(1979) 53 A.L.J.R.
552) .

Fees

should have been iixed in accordance

with principles

which

presupposed

"the

existence

and

continuation

private

nursing

homes" (Nxthrop J.

Naqrad's

case)

In other words, nursing homes

generally,

though

not

necessarily

particular nursing home (Bowen C.J. and FOX

J. in Sean

Investments' case), should be

commerciallv viable when eificientlv run.

~~~~~

3 .

Commercial

viability

requires

some

reasonable

return

investments

reasonable level of profit.

"People have to

encouraged

provide

the

services"

(Smithers J. in Howells' case).

The

scale of

fees suggested by principles

1-3 above

must

not

excessive

unreasonable

for

patients,

including

indigent patients (Bowen C.J. and Fox J. in

Sean Investments' case).

5. The

fees

finally

determined

must

appropriate for the particular nursing home

and its patients (Murphy

J. in Hunt's case

adopted by

Dean

J. in Sean Investments'

c a s e ; Franki J. in Sean Investments' case.)

I	respectfully accept that the determination in the

instant case

was obliged to meet those requirements.

16.

In that case, his

Honour held that the use of 'historic

costs' in iixing profits,

which

amounted to a compression

profit for the applicant to appoint just short

causlnq the

enterprise to

fail, whilst unfair was not within the

Judicia'l

Review Act, 5.5,

even though with the passage of time and rislng

inflation it may become	so unreasonable as to fall within the
section.

In my respectful view, whether a particular decislon is

fair or unfair is not a relevant matter for consideration under the Judicial Review Act. The position in the present case is that

when the 1983 amendments received the Royal Assent on

19 June

1983, the old sub-section

(7)

was repealed and sub-sections

(7)-(7FF) came into operation; the

old

sub-section (7) was not

in force then at the time the delegate made the determination

fees

in this case but at that time

principles hed

been

formulated by the Minister. Those principles were promulgated

2 May 1984 by the Minlster of State for Health and were published

in the Commonwealth of Australia Gazette No.Sl66 of Wednesday, 9 May 1984. It follows in my opinion that any limitations on the

discretion of the delegate have to be derived	from the general
policy of the Act.

It	is nonetheless interesting to note that, in the

principles, principle 3(5) provides:

"Notwithstanding

anything

contained

these

principles, the Permanent Head shall determine

scale

fees

which

not

excessive

unreasonable.

17.

It 1 s

the short contention by the applicant that the level

Eees determined in this' case was unreasonable and would

fall,

even if the principles were in operation

the time of the

- -

determination.

The question then becomes simply whether the

level of profit incorporated in the level of fees determined by

the	delegate was such that he could reasonably come to that

conclusion. Was it open to the delegate to conclude that

a profit

component

which was the same number of dollars as the profit

component in	1975 was such as to provide a	reas,onable level of
profit?

On the question of a determination of fees based on the

historic costs approach, as is admittedly the situation in this

application, Woodward

J. at: p.395 had this to say:-

"In an area as important

the calculation of

profits for nursing homes there must necessarily be a substantial degree of uniformity of approach to questions of principle, or injustice as between

nursing

homes

could

become

rife.

It would

create obvious difficulties if different delegates were to adopt different criteria in deciding when to depart from historic costs in order to allow

much larger profits based on current valuations.

There

much to be said for the view that

exceptions to such a general rule should be made

in a consistent

and

co-ordinated

way

the

Minister who is responsible

to Parliament for both

the economical and eqditable administration of the

legislation.

The	only requirement of the delegate in this

connection is that, if he is urged to depart from

such a

policy, he is prepared to listen to that

argument: see Water Conservation and Irriqation

Commission (N.S.W.) v. Browninq (1947) 74 C.L.R.

492 at 506; British Oxyqen Co.Ltd. v. Minister of

Technoloqy C19711 A.C.610 at 624-625. There is no evidence that the delegate refused to "listen', in this sense.

? '

In my opinion, if the applicant is to succeed in its challenge to the way

In which a proiit element

is presently allowed in its

fee structures,

must be on the basis that the Departmental

Ministerial pollcy is wrong and unlawful,

. . . ' I

It is

clear that a determination of a

level of profit

which is based on historic cost is going to erode in real terms

over time.

A s Northrop J. at first instance in Naqrad Nominees

v. Howells (1981-82)

38 A . L . R .

145 at pp.159-160 said:-

"The application

those

gujdelines

has some

startling results. Profitability of a business is

to be determined when

a nursing home is first

approved. A capital value and a percentage return

of the order of 12.5 per cent thereof

then

determined.

Thereafter,

despite

increases

value

the investment in the premises due to

inflation and other features, and despite upward

variations in interest rates, nevertheless the

profit remains at a set figure resulting in a

rapidly decreasing value to the proprietor of the

nurslng home business.

a result,

no person

properly

advised

would

consider

purchasing

approved nursing home business.

A s

a corollary,

existing proprletors are saddled with

a business

producing a diminishlng financial return and are unable to sell that business for anything

like its

current value. Likewise, no account is taken

capital actually invested by

proprietor in a

nursing

home

business,

but

profitability

determined on an artificial amount

capital

expended at an

earlier and irrelevant time by the

proprietor

premises in which a nursing home

business is conducted.

. . . ' I

On the other hand,

it can correctly be said in my view

that a level of

fees which reflected

government guaranteed

commercial return

on assets valued on the basis of current value

could very easily and properly be characterised

as excessive.

Northrop J. in the case to which

I have earlier referred

said at

p. 162 :

19.

“In	my opmion, the relevant essential policy of

the Act

to ensure that the proprietors of

private

nursing

homes

do not

make

excessive

proflts

provlding

nursing

home

care,

particularly since the Commonwealth

to some extent

does subsidlze patients admitted to those homes.

”.

The Act

presupposes

the

exlstcnce

and

the

continuation of private nursing hones. The number of approved nurslnq homes can be restricted. The Commonwealth does not provide all nursing home

care, but; because

subsidizes

patients

private nursing homes it is concerned to ensure

that

the

proprietors

do not

make

excessive

profits.

”

His Honour expressed his view that any

fee structure which had

the

effect

making

a particular

nursing

home

business

non-viable financially would, in his opinion, be contrary to the

policy of the Act and consequently would be an lnvalid exerclse

of the power.

In the joint judgment of Fox and Frank1 JJ. in Howells

v. Nasrad Nominees (1982) 43 A.L.R.

283 at p.305, on appeal from

Northrop J.,

their Honours dismissed the appeal. In the course

of the joint judgment, they said:-

“Whether

an allowance should be

made for profit,

and what fees are necessary

to make the hospital

business economically

viable

are

factors

for

consideration, but a question can properly arise

whether, all

these elements having been

calculated, the result is

a scale of fees

which is

excessive or unreasonable.

In the end, necessary

and

proper

considerations

being

taken

into

account,

the

Permanent

Head

has a wide

discretion.

”

It is also not inappropriate to note that the principles

enunciated by the Minister include:-

20.

“the

Permanent

Head

shall,

exercising

any

dlscretion

permitted

these

principles

determining a scale

of fees, have regard to:

(a)	the desirability of ensurlng the financial viability of nursing homes generally;

(b) the

need

ensure

that

nursing

homes

a e

efficiently and economically operated;

(c)

the need to ensure that the cost

to home patients of

nursing home care is not excessive

or unreasonable;

(d)

the need to ensure that public monies are being economically and properly expended; and

(e)

the need for consistent and fair admlnistration of

Part V of the Act.

‘I

Principle 9, however, dealing with return on investment

essentially

puts

into

the

statutory

principles

that

which

previously appeared in the manual and on which the determination

was made in this case.

It was submitted by the applicant that there may very

well be a serious conflict between the principle dealing with the

manner

which return on investment ought properly to

calculated, and the overriding consideration of fixing

a scale of

fees that was not unreasonable. In particular, this may happen where much time ha5 elapsed and significant rates of inflation have operated between the time when the nursing home came into

being or when the original application had been dealt with, and

the time of

a later determination.

Reference may profitably be made to the observations of

Bowen C.J. and Fox J.

in Sean Investments

v. MacKellar (1982) 42

A.L.R.

676 at p.681, where their Honours say:-

21.

"When considering the purposes of the Act, it is

almost always easier to declde, negatively, and in

relation to concrete cases what is inconsistent

with

those

purposes

than

propound

them

positively.

While

wise

administration

would

probably suggest that each nursing home be kept

viable, we

are unable to construct a

purpose of

the Act to the effect that adequate profit must be

allowed in every case. This is evident from what

we have already said.

..."

Whether a

scale of fees

is unreasonble or excessive may depend

very much on from whose point of

n e w the assessment is made, be

it patient, proprietor, taxpayer or Department.

view it

not

without

significance

that

s.40AA(7B) provides:-

"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 nursinq

home patients

of nursing home care is not

excessive or unreasonable; and

(c)

any other matters the Minister considers to

be relevant.

(The emphasis is mine).

However,

that

provision

40A?i(7B)(b)

repeated

precisely in principle 2(4)(c),

the overall prohibition in

principle 3(5) is directed to a scale of fees which is excessive

or unreasonable in

an abstract or objective sense.

As indicated,

there

was

here

express

provision

specifying the criteria to be obserced in fixi'ng the	fee level
under rzview.

22.

Tn similar circumstances, the High

Court consisting of

Stephen, Mason, Murphy, Aickin, and Wilson JJ.

in The Oueen v.

Australian Broadcastins Tribunal; ex	parte 2HD	Ptv.Ltd. (1979)
144 C.L.R. 45 at p.49 said:-

''... the problem lies in ascertaining what are the

proper limlts

of the discretion.

In the absence

of some positlve indication of the considerations

on which

grant

or refusal of consent is to

depend, the discretion is 'unconflned except In

far as the

subject

matter

and

the

scope

and

purpose of the statutory enactment5

may'enable the

Court to pronounce given reasons to be definitely extraneous to any objects the legislature could

have had in view', to use the words

of Dixon J. in

Erovminq !l9771

74 C.L.R.

492 at p.505.

In that

case his Honour went on to remark,

(as he had done

earlier in Swan

Hill

Corporation

v. Bradbury

(1937) 56 C.L.R. 746 at p.758) . 'on

the

impossibility, when an

admlnistrative discretion

is undefined,

a court's doing more than saying

that this	or that consideration is extraneous to
the power . "

The approach of

Woodward J. in assessing the underlying

policy of the Act, subsequent to the 1983 amendments and before

the formulation of the principles by the Minister, to which I

have earlier referred, is consonant with the approach indicated

by the High Court in that judgment.

In Sean Investments v. MacKellar (1981-82) 38 A.L.R.

363, Deane J. at first instance said at pp.367-368:-

' I . . .

appears

clearly

from

both

the

major

judgments in that case that neither the Permanent

Head nor the Minister is confined

to considering

only such

costs

and

what

constitutes

appropriate profit element. As Mason J.,

with

whom Gibbs J.

agreed, commented (ALR at 504; ALJR

at 554):

'The Permanent Head is

entitled to have

23.

regard to other considerations which show or tend

to show that a scale

fees arrived at

reference to costs necessarily incurred,

with or

without

profit

factor,

excessive

unreasonable'.

Murphy

J., who

was

the

third

member of the court, dissented as to the ultimate

decision that a writ

of mandamus should issue. It

does

not, however, appear to me that there

was

real

conflict

between

the

views

expressed

Murphy J and the views expressed by Mason J as to the effect o€ S 40AA(7) of the Act. In particular, I can see no conflict between the ~uclgment of

Mason J and the following

extract

from

the

judgment of Murphy J (ALR at

508-9; ALJR at 556)

with

which I would

respectfully

agree:

'The

Minister may adopt a general policy in regard to

scales of fees, and deal with a review

of fees for

a nursing home

m the light

of that policy, but

his determination or review must be in order to

arrive at an approprlate scale of fees for the

partlcular 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."

In this case, I do not accept that; there has been any

blind or slavish

application of

policy.

The delegate

has

expressed his approach by saying that in the instant case he saw no reason to depart fro m governmental policy. A s Dixon

J., as he then was, observed in

Water Conservation & Irriqation

Commission (N.S.W.) v. Browninq

(1947) 74 C.L.R. 492 at p.506:-

"The application

a rule antecedently adopted

does not vitiate an exercise of

discretion of

the kind belonging

to the Commission. unless there

was a failure to consider the application

as an

individual case.

24.

The flxation

of fees with the profit level determined on

an historical cost basis, in thls case, allows

small profit

after an allowance of $36,000.00

interest on a

s u m of $200,000

borrowed for the purpose of the business.

I am

far

from

satisfied

that

the

method

adopted

seriously places the viability of nursing homes in jeopardy and

that, as a consequence, is contrary to the "subject matter, scope

or purpose" of the Act.

11; my view, it is the determination to

which

the

delegate

could

properly

come.

~t was

not

" s o

unreasonable that no reasonable person could

have

so exercised

the power":

S. 5 of the Judicial Review

Act.

At the outset

of the hearing of this application, the

respondent moved on notice that the Court in its discretion

refuse to grant the applicant's application.

This is based on

the provisions of s.l0(2)(b)(ii) of the Judicial Review Act which

provides :	-
"Notwithstanding sub-section (1) -

(b)

the Court may, in its discretion, refuse to grant an application under sectlon 5,6 or 7 that was made to the Court in respect of a decision, in respect of conduct enqaqed in

for the purpose of making

a decision, or In

respect of a failure to make

a decision, for

the reason

...

(ii)	law other than thls Act under which the

that adequate provision is made by any by the Court, by another court, or by another tribunal, authority or person,

of that decislon, conduct or failure."

25.

The basis

of that application is to be found

i n Division

3A of the Act, which provides that the Minister may establish

Nursing Homes Fee Review Committee

of Inquiry in each State and

s.117B provides that that Committee shall inquire into and report

to the Minlster

on any matter referred to the Committee

by the

Minister under s.4OAE(4). Section 40AE(2)

provides:-

"Where

the

Permanent

Head

does

not

alter

the

conditions

applicable

nursing

home

accordance with an application under

subsection

4OAD(lB), the proprletor of the nursing home may,

by writing under his hand, request the Minister to

review the declsion

of the Permanent Head."

And sub-s.(4) provides:-

"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 Divislon 3A of Part

VI11 of this

Act for examination and report to the Minister and shall not take any further action In the matter

until

has

received

the

report

the

Committee."

It was submitted on the respondent's behalf that the

reasons the discretion conferred by s.l0(2)(b)(ii) of the the ap9lication are:-

(1)

the existence of an alternative tribunal with

expertise in the area capable

of promptly resolving

a review:

( 2 )

that tribunal has power to consider the whole

matter including the merits

of the decislon; and

26 .

( 3 )

if the hearing were successful, it would merely

result in a referral back to the delegate of the

Minister for further decision accordlng to law.

Such a reference would be sterile in that

principles which were not in existence at the time

oi the original declsion had since been gazetted.

For the applicant it was submitted that it, being

dissatisfied with the decision

of the Permanent Head in relation

to the present matter, had two avenues. One was

to the Court

under the Judicial Review Act, and the other avenue

1 s to the

Committee.

The applicant chooses to come

to the Court, which has

jurisdiction to entertain the application. It was submitted that

the question involved here was one of principle. It

is a question

which, It was submitted, was appropriate to be determined by the Court. It is an issue which is not an isolated one but applies to

a number of nursing homes and involves

a considerable amount of

money. Reference was made to the judgment of Toohey J. in Kelly

v. Coates (1981) 35 A.L.R. 93.

In my opinion, there is much

t o be said for the view,

that the power conferred by s.l0(2)(b)(ii) of the Judicial Review

is one which will commonly be exercised

so as to permit

recourse to a review of the decision on

a broad basis including

inquiring into the merits. Nonetheless,

Ir consider the present

case is not one which the Court, in the proper exercise

of its

discretion, should decline to entertain. The question is

important, is substantially a legal one, and has ramifications

beyond its own facts. For these reasons,

I thought it proper

consider substantively the application for

an order of review.

27.

For reasons I have earlier expressed, I dismiss the

application.

I will hear the parties as to the costs of the

application and the costs

of the motion.

[1985] FCA 307

3 Jul 1985