Octet Nominees Pty Ltd v The Honourable D.J. Grimes

[1986] FCA 431

Re: OCTET NOMINEES PTY. LTD. (trading as "Hallam Private Nursing Home")
And: THE HONOURABLE DONALD JAMES GRIMES (who is sued as the Commonwealth
Minister of State for Community Services) and MICHAEL HENRY CODD (who is sued
as the Secretary of the Commonwealth Department of Community Services)
No. VG212 of 1985
Administratrative Law

COURT

IN THE FEDERAL COURT OF AUSTRALIA

VICTORIA DISTRICT REGISTRY
GENERAL DIVISION
Jenkinson J.

CATCHWORDS

Administrative Law - judicial review - determination of scale of fees for nursing home - return on investment in land and buildings - lease to applicant by person not considered to be at arm's length - whether purpose of lease that a higher scale of fees should be determined. Nursing Home Fees Determination Principles 1984 - whether ultra vires for unreasonableness.

National Health Act 1953 - ss. 6(5), 6(6), 40AA(6), 40AA(7), 40AA(7A), 40AA(7B), 40AD(1B), 40AE(3A), 45C

Administrative Decisions (Judicial Review) Act 1977 - s.5.

Jones v. Metropolitan Meat Industry Board (1925) 37 C.L.R. 252

Carter v. The Egg and Egg Pulp Marketing Board (1942) 66 C.L.R. 557

The Victorian Chamber of Manufactures v. The Commonwealth (1943) 67 C.L.R. 413

Television Corporation Ltd. v. The Commonwealth (1963) 109 C.L.R. 59

R v. Hunt; Ex Parte Sean Investments Pty. Ltd. (1979) 25 A.L.R. 497

Sean Investments Pty. Ltd. v. MacKellar (1982) 42 A.L.R. 676

Howells v. Nagrad Nominees Pty. Ltd. (1982) 43 A.L.R. 283

Alexandra Private Geriatric Hospital Pty. Ltd. v. Blewett (1984) 56 A.L.R. 265

Alexandra Private Geriatric Hospital Pty. Ltd. v. Blewett (1985) 7 F.C.R. 341

Schroeder Holdings Pty. Ltd. and Extaris Giselle Nominees Pty. Ltd. v. Donald James Grimes (unreported) 18 Feb., 1986

HEARING

MELBOURNE

#DATE 30:9:1986

JUDGE1

Application for an order of review in respect of a decision of a delegate of the second-named respondent under the National Health Act 1953.

1. At material times the applicant has been the proprietor of an approved nursing home, within the meaning of that expression in that Act. It is a condition subject to which approval of a nursing home under Part V of that Act is granted that 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 that care in accordance with such scale of fees as is from time to time determined by the Secretary of the Department of Community Services or by his delegate : see ss. 6(5), (6); 40AA(6)(c)(i); 40AD(1B) of the Act. By a letter dated 12 August 1985 a delegate of the Secretary notified the appellant of a determination the delegate had made of the scale of fees which should apply in respect of the nursing home from 15 August 1985. The decision to make that determination is the subject of this application for an order of review.

2. Several of the grounds of the application relate to the reasoning which led the delegate to allow in the computation of the scale of fees an amount of $79,560 per annum in respect of the commitment, to the enterprise which was the nursing home, of the land and the buildings on and in which the enterprise was carried on. From the time when the nursing home was first approved in August 1979 the applicant has held possession of the land under lease from the registered proprietor, and beneficial owner, of the fee simple estate. The legal and beneficial fee simple was in Maurice Joseph Dowd from the time when the nursing home was first approved until 18 April 1985, when three persons who were unconnected with Mr. Dowd and with the applicant and its shareholders became the registered proprietors and beneficial owners of the land, pursuant to a contract of sale by Mr. Dowd to them which had been made in March 1985. The delegates who from time to time determined scales of fees while Mr. Dowd owned the land beneficially regarded the tenancy by which the applicant held the land of him as not a tenancy negotiated "at arm's length", because a shareholder of half the applicant's issued capital held the shares in trust for Mr. Dowd's children and the remainder of the shares were held in trust for members of the family of Mr. Dowd's wife. Being of the opinion that it was a purpose of the parties to that lease that a higher scale of fees should be determined than would have been determined if Mr. Dowd had himself been the proprietor of the nursing home, those delegates had disregarded, in the determination of the scales of fees, the payments of rent for the land which the applicant made to Mr. Dowd. They had allowed in computation of the scales of fees from time to time determined during the period when Mr. Dowd owned the land the amount which they considered, in reliance on the opinion of an expert valuer, to have been the fair market rent, at the time when approval was first granted in August 1979, for the premises in which the nursing home was conducted, that is $79,560 per annum. That amount was not discarded, as Mr. Monotti of counsel for the applicant submitted that it should have been, when the freehold owners who had purchased the premises leased them to the applicant from 18 April 1985 at an annual rent of $136,400. There was uncontradicted and persuasive evidence, which the respondents were not concerned to controvert, that $136,400 was the fair market rent of the premises in April 1985 and that the transaction of lease at that rent was quite at arm's length. The determination made of the scale of fees which should apply from 15 August 1985 was quite uninfluenced by the existence of the lease : it was the fair market rent of August 1979 which was taken into account in the making of that determination.

3. Until the National Health Act 1953 was amended by the National Health Amendment Act 1983, the criteria upon which determinations of scales of nursing home fees were to be based were not spelt out in any legislation. There had been some curial discussion of criteria thought to be appropriate : R v. Hunt; ex parte Sean Investments Pty. Ltd. (1979) 25 ALR 497; Sean Investments Pty. Ltd. v. MacKellar (1982) 42 ALR 676; Howells v. Nagrad Nominees Pty. Ltd. (1982) 43 ALR 283; Alexandra Private Geriatric Hospital Pty. Ltd. v. Blewett (1985) 7 FCR 341. But by the amending Act of 1983 the Minister was empowered to formulate principles in accordance with which scales of fees were to be determined for the purposes of the relevant provisions in Part V, in relation to nursing homes generally or in relation to nursing homes included in specified classes of nursing homes : s.40AA(7) of the National Health Act 1953, as amended. The following sub-sections provide:
   
   

"(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

(i) 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 into account in relation to matters of that kind.

(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

(c) any other matters the Minister considers to be relevant."

Section 45C of the Act provides:

"(1) In this section, 'principles' means principles formulated under sub-section 39A(6) or 40AA(3C) or (7).

(2) Sections 48, 49, 49A and 50 of the Acts Interpretation Act 1901 apply in relation to principles as if in those sections references to regulations were references to principles, references to a regulation were references to a principle and references to a repeal were references to a revocation.

(3) Principles shall be deemed not to be statutory rules within the meaning of the Statutory Rules Publication Act 1903, but sub-sections 5(3) to

(3C)(inclusive) of that Act apply in relation to principles in like manner as they apply in relation to statutory rules.

(4) For the purposes of the application of sub-section 5(3B) of the Statutory Rules Publication Act 1903 in accordance with sub-section (3), the reference in that first-mentioned sub-section to the Minister of State for Administrative Services shall be read as a reference to the Minister administering this Act.

(5) Section 5 of the Evidence Act 1904 applies to a principle formulated by the Minister in like manner as that section applies to an order made by the Minister."

The power conferred on the Minister by s.40AA(7) of the National Health Act 1953 was exercised by a formulation of principles in relation to nursing homes generally. They may be cited as the Nursing Homes Fees Determination Principles 1984. They took effect from 9 May 1984 and they were amended on 15 May 1985 and 19 July 1985. It was the submission of Mr. Brett of counsel for the respondents that the allowance made of $79,560, in the determination of the scale of fees which should apply from 15 August 1985, was that which the principles required. Mr. Monotti, on the other hand, submitted that, properly construed, the principles required allowance of a much larger sum in respect of the commitment of land and buildings to the business which the appellant was conducting. Or, if the principles did require that the scale of fees be determined at or about the level notified by the delegate, those principles were in Mr. Monotti's submission beyond the power conferred by s.40AA(7) on the Minister.

1. The scale of fees first determined after the principles had taken effect in May 1984 applied from 15 February 1985. The delegate who made that determination adhered to the allowance of $79,560 which had been made in earlier determinations, because he was of the opinion that principle 9(4) required that he take that course. When the determination which is the subject of this application for an order of review was made, principle 9 had been amended, but the amended provisions are substantially the same as the original principle 9. It is convenient to deal with the amended principles.

2. In Part I of the principles a general direction is given that the Secretary shall in determining a scale of fees take into account a return to the proprietor of the nursing home on the investment in the nursing home and in the business or undertaking carried on at the nursing home determined by the Secretary in accordance with Part II : principle 3(1). In Part II principle 9(4) provides:
   
   

"Where a nursing home was first approved as an approved nursing home for the purposes of the Act before these principles came into effect, the Secretary shall, in determining a return on investment in relation to the nursing home, take into account, in lieu of the return referred to in sub-principle (1) and the returns referred to in sub-principle (3), the returns on the matters referred to in those sub-principles reflected in the scale of fees as at the date these principles came into effect save to the extent that the scale of fees reflects an allowance for operating costs in excess of those otherwise allowable under these principles."

Principle 9(1) provides:

"The Secretary shall, subject to sub-principles (2) and (4) to (8) inclusive and principle 12A, in determining the return on investment in relation to a nursing home take into account a return on the land and buildings used as the nursing home being the fair market rental when the nursing home was first approved as an approved nursing home for the purposes of the Act as determined by a valuer from the Valuation Branch of the Australian Taxation Office."

Since principle 9(1) is a statement of the policy in accordance with which scales of fees were determined in relation to this nursing home before the principles took effect, the application of principle 9(4) produces the same result, in relation to the land and buildings, as would have been produced by the application of principle 9(1).

1. Principle 10(1) provides:
   
   

"Where the premises occupied by a nursing home are or were at any time after they were approved as an approved nursing home, leased to the person who is, or was at that time, the proprietor of the nursing home, the Secretary shall, in determining the return on investment in respect of the nursing home -

(a) take into account all reasonable increases and, subject to sub-principle

(2), all reductions in the rent payable in respect of the premises during the period or periods during which the premises were so leased; and

(b) disregard all other expenditure incurred on rent in respect of the premises."

It will be observed, upon a consideration of principles 9(1) and 10(1), that the direction expressed in principle 3(a) to "take into account a return to the proprietor of the nursing home on the investment in the nursing home" binds the Secretary whether or not the proprietor has made what would ordinarily be called an investment of land and buildings, as freeholder or tenant for a substantial term of years. Even if the proprietor is but a weekly tenant of the land, the direction is for account to be taken of "a return to the proprietor of the nursing home on the investment in the nursing home". The primary measure of that return is the same whether the proprietor be freeholder or weekly tenant : "fair market rental when the nursing home was first approved as an approved nursing home" (principle 9(1)), but all reasonable increases and, subject to a qualification which need not be considered, reductions in the rent during any period when an approved nursing home has been leased to the proprietor shall be taken into account in determining the return (principle 10(1)(a)). Whatever the nature of the proprietor's interest in the land, the return to him on the investment of the land is to be determined without regard to any other expenditure incurred on rent (principle 10(1)(b)).

1. Before the principles took effect in May 1984 a policy of which principle 10 represents the continuation had been applied in determining scales of nursing home fees, and there had been substantial increase in the rent payable by the applicant to Mr. Dowd from the time when approval had been first granted in August 1979. But the application of the policy that a tenancy regarded as not having been created "at arm's length" and as having a purpose of gaining a higher scale of nursing home fees should be disregarded had precluded any allowance in respect of increases in the rent payable for the premises until strangers succeeded Mr. Dowd as lessors in April 1985. Even after the succession of the strangers the delegate disallowed a claim by the applicant that the difference between the rent payable to Mr. Dowd and the higher rent payable to the strangers - a difference of $35,000 per annum - should be taken into account in obedience to the command expressed in principle 10(1)(a), in determining the return on investment. The policy to which I have referred, of disregarding transactions considered not to have been at arm's length and to have had a purpose of attracting an increase in the scale of fees, was given expression in principle 6(5), which provides:
   
   

"Where any transaction between a proprietor and another party is not at arm's length and where the Secretary is of the opinion that a purpose of the transaction was to increase the scale of fees at any time, the Secretary shall, in determining a scale of fees:

(a) in the case of rent in respect of premises or increases in interest payments, disregard the transaction entirely; and

(b) in the case of other transcations, take into account in place of the transaction the reasonable price or payment for which the service or goods the subject of the transaction may have been obtained."

In principle 2 the meaning of the expression "not at arm's length" is defined in terms which comprehended the relationship between Mr. Dowd and the applicant. Disregarding the transactions of lease by Mr. Dowd to the applicant, the delegate found himself unable to discern any increase or reduction in rent because there was no rent with which to compare the rent reserved by the lease granted in April 1985 by the successors in freehold title of Mr. Dowd. Mr. Monotti submitted that the application of principle 10(1) was not, as a matter of construction, subject to any operation of principle 6(5), which was to be understood as referring only to transactions occurring since the formulation of the principles, he said. I do not accept that submission. Principle 6(5) is in Part I of the four Parts into which the Nursing Homes Fees Determination Principles 1984 are divided. That Part is a repository of diverse provisions, most of them of general application in respect of all the other Parts. Many of the provisions of the Nursing Homes Fees Determination Principles 1984 require, in their application to nursing homes first approved before the formulation of those Principles, the ascertainment of, and the allowance of significance to, circumstances which occurred before 9 May 1984. There is nothing in those principles to suggest an implied temporal limitation on the operation of principle 6(5). The application of principle 10(1) requires a comparison between the rent payable at the time a scale of fees is to be determined and the rent payable at some preceding time. If compliance with principle 6(5) has for a consequence that at no preceding time was a rent payable to which regard may be had, then no increase of the kind principle 10(1) contemplates will be disclosed. The process directed by principle 10(1) to be undertaken is in my opinion one "in the case of rent in respect of premises", within the meaning of that phrase in principle 6(5)(a), and the direction in that latter principle to "disregard the transaction entirely" in my opinion precludes regard to the rent agreed as a term of the transaction.

1. It was submitted that there was lacking evidence or other material to justify the formation of the opinion specified in principle 6(5), but I think it was open to the delegate, on the material before him, to form the opinion that a purpose, entertained by each of the parties to each of the transcations concerning the applicant's tenancy of the nursing home premises from Mr. Dowd, of that transaction was the gaining of a higher scale of fees than would have been allowed if Mr. Dowd had himself been the proprietor of the nursing home.

2. It will be observed that when an increase, or a reduction, of the rent payable to Mr. Dowd's successors in freehold title occurs, the comparison required by principle 10(1) will be possible, and principle 6(5) will not hinder the application of principle 10(1).

3. It is to be observed also that, before the formulation of the principles, the Departmental policy in accordance with which scales of nursing home fees were determined allowed as a return on the land and buildings used as the nursing home an amount equal to the fair market rental when the approval of the nursing home was first granted. If at that time and thereafter the proprietor of the nursing home were a tenant of that land at a rent, account was, according to that policy, to be taken of all reasonable increases of rent, as and when those increases occurred, in the determination of scales of fees. But if at that time when the nursing home was first approved the proprietor held the freehold of that land, the only return which the policy conceded on the investment of land and buildings was an amount equal to the fair market rental at that time, no matter what the effect of monetary inflation or market fluctuation on the nominal value of the land and buildings. It was by reason of the existence and, in 1979, the notoriety of such a policy that a delegate might not unreasonably have concluded that the transactions by which the applicant, a company controlled and owned by Mr. Dowd and those near in blood or affection to him, took a tenancy from Mr. Dowd of the land and buildings used as the nursing home and assumed proprietorship of the nursing home at the time when approval of it under Part V of the National Health Act 1953 was first obtained, had for a purpose the gaining of increases of the scales of fees in respect of that nursing home as increases of the rent should occur, increases that is to say which would be matched by no comparable increase of the scales of fees if Mr. Dowd had been both the freehold owner of the land and the proprietor of the nursing home when approval was first granted.

4. That was the policy adherence to which in the determination of a scale of nursing home fees was held by the Full Court of this Court in Alexandra Private Geriatric Hospital Pty. Ltd. v. Blewett supra to have compelled the conclusion that the decision to make that determination should be set aside. It was Mr. Monotti's submission that, if it were held, in contradiction of his primary submission, that the application of the principles precluded the allowance by the delegate of any greater sum in respect of the increase of fair market rental for the nursing home premises between August 1979 and August 1985 than might be conceived to be comprehended by the allowance of an additional return on investment in accordance with Part III of the principles, then the principles themselves were to that extent ultra vires. (Principle 3 provides for the taking into account, in determining a scale of nursing home fees, of an additional return to the proprietor "on the investment in the nursing home and in the business or undertaking carried on at the nursing home determined by the Secretary in accordance with Part III".) But Mr. Monotti's primary submission was that, properly interpreted, the principles did not have the effect of precluding a reasonable return on the investment of land and buildings. On the contrary, principle 2(4)(a) required, according to Mr. Monotti's submission, that such a return be allowed. Principle 2(4), which is in Part I of the principles, and which it is interesting to compare with s.40AA(7B) of the Act, is in these terms:
   
   

(4) The Secretary shall, in exercising any discretion permitted in these principles in determining a scale of fees, have regard to:

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

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

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

(d) the need to ensure that public moneys are being economically and properly expended; and

(e) the need for consistent and fair administration of Part V of the Act."

Mr. Monotti submitted that the objectives which Part V of the National Health Act 1953 was designed by the legislature to secure include the provision of adequate nursing home care in nursing homes of which a substantial proportion will be conducted for the private profit of the proprietor. He submitted - and the evidence of the history of this particular nursing home tended to indicate - that the application of the principles in the way the Secretary's delegates had applied them in relation to this nursing home would inevitably preclude the gaining of any profit by the proprietor. In the circumstances of this particular case, Mr. Monotti submitted, the provisions of principle 48, in Part IV of the principles, afforded an appropriate means of attaining the objective to which I have referred without any violation of the other principles.

1. Principle 48 provides:
   
   

"The Secretary may, in determining a scale of fees, take into account any other expenditure which, in the opinion of the Secretary, is necessarily incurred in providing nursing home care in the nursing home."

1. The applicant's liability to pay to the freehold owners the rent reserved by the lease made between them was within the description of cost comprehended by principle 48, it was submitted. And the submission is fortified by the reasoning of Mason J. (with which Gibbs J. agreed) in R v. Hunt; ex parte Sean Investments Pty. Ltd., supra. Principle 48 is a faint echo of the provision formerly contained in s.40AA(7) that the person determing a scale of nursing home fees "shall have regard to costs necessarily incurred in providing nursing home care in the nursing home". In my opinion principle 48 is to be read down to exclude from its ambit expenditure expressly excluded from consideration by other provisions of the principles. Such an exclusion, in respect of rent, is to be found in principle 10(1)(b), so that in my opinion principle 48 would not justify the taking into account of rent as expenditure necessarily incurred.

2. Principle 3B was another provision by reliance on which the delegate might, in Mr. Monotti's submission, have justified the allowance of a reasonable scale of fees - reasonable in the sense that the fees allowed would be sufficient to enable the proprietor to carry on the nursing home business without loss. Principle 3B provides:
   
   

"Notwithstanding anything contained in these principles, the Secretary -

(a) may, in determining a scale of fees in relation to a nursing home, take into account the scale of fees determined in respect of, and the level of costs incurred in, other comparable nursing homes; and

(b) shall determine a scale of fees in relation to the nursing home that is not excessive or unreasonable."

The final phrase of principle 3B is an echo of the final words in s.40AA(7B)(b) of the Act and in principle 2(4)(c). In the statutory provision I cannot doubt that the unreasonableness contemplated is limited to that which would be contrary to the economic interests of nursing home patients, notwithstanding Mr. Monotti's submission that the word "unreasonable" in that paragraph of s.40AA(7B) comprehends both unreasonableness to the prejudice of the patient and unreasonableness to the prejudice of the proprietor. And I think that the same limitation is to be understood to narrow the meaning of the word in principle 3B(b).

1. Mr. Monotti's argument that allowance should have been made, in the determination of the scale of fees, for the fair current market rental which, it was common ground, was payable by the applicant did not, however, depend on the terms of principle 48 or principle 3B, or indeed on the provisions of any other particular clause of the principles. His fundamental contentions were that the provisions in Part V of the Act disclosed a legislative intention that the determination of scales of fees should be directed to ensuring, inter alia, that efficiently conducted private nursing home businesses should yield to their proprietors sufficient profits to enable the businesses to be carried on, and that the principles formulated by the Minister were to be interpreted and applied consistently with the fulfilment of that legislative intention. The Act itself, in Mr. Monotti's submission, manifested a legislative commitment to what in principle 3B is specified as "the desirability of ensuring the financial viability of nursing homes generally". The principles should, according to the submission, be interpreted as imposing on the Secretary and his delegates a duty to exercise the discretionary power of determining scales of fees so as to give effect to that legislative intent, and any obstacle which a restrictive provision of the principles might oppose to the fulfilment of that duty was to be overcome by exercising the discretionary power in conformity with what was submitted to be the overriding legislative objective.

2. After its amendment in 1983, Part V makes it quite clear that what would otherwise be a discretionary power to determine scales of fees is a power of determination that is, when exercised by the Secretary or one of his delegates, "subject to" principles formulated by the Minister under s.40AA(7) and is, when exercised by those persons, to be exercised "in accordance with" those principles : see ss. 40AA(6)(c) and 40AA(7); compare s.40AE(3A).

3. The principles, in their turn, afford quite limited opportunities for the exercise of discretion in pursuit of policy objectives, in my opinion, and no opportunity at all to have taken into account, in the determination which is the subject of this application, the fair market rental of 1985 which the applicant was paying for the land and buildings. The principles are so drawn, in my opinion, that the express directions contained in principles 9(4) and 10(1) (the latter principle being applied in conformity with the requirements of principle 6(5)(a)) left the delegate no discretion, in exercise of which he might have had regard to principle 2(4)(a) or principle 2(4)(e). It will be observed that principle 2(4) has effect only when the Secretary or his delegate is exercising a "discretion permitted in these principles in determining a scale of fees".

4. If the application of the Nursing Homes Fees Determination Principles 1984 precluded regard to the fair market rental payable by the applicant, as I have held to be the case, then those principles were in Mr. Monotti's submission to that extent ultra vires.

5. It was submitted that the principles were so lacking in certainty, of expression and operation, that they failed to comply with that requirement of certainty which, according to the submissions, is inherent in the provisions by which the Minister's power to formulate principles is created. (See Television Corporation Ltd. v. The Commonwealth (1963) 109 CLR 59 at 69-71). But, although the principles are not easily and readily comprehended, they are not in my opinion so lacking in certainty that they could be said not to have been an exercise of the power conferred by the Act.

6. Mr. Monotti further submitted that, if on their proper construction the principles compelled the determination which the delegate made, the principles were ultra vires, as contradicting and frustrating the legislative object disclosed by Part V of the Act of enabling nursing homes to be conducted for private profit, and as manifesting such unreasonableness that they could not be accepted as an exercise of the statutorily conferred power. In support of the latter submission Mr. Monotti cited the reasoning of members of this Court in Alexandra Private Geriatric Hospital Pty. Ltd. v. Blewett, supra. That case concerned the determination of a scale of nursing home fees in respect of a nursing home conducted on land of which the nursing home proprietor had at all times been the freehold owner. The determination had been made, before the formulation of the principles, in accordance with a Departmental policy to which principle 9(1) later gave continuing effect : no greater return on the proprietor's investment of the land and buildings used as the nursing home was allowed than represented a reasonable return on the value of the land and buildings at the time the approval of the nursing home was first granted. The failure of the delegate to have any regard to what would be a reasonable return on the value at the time when the determination was made was regarded by two members of the Court as vitiating the exercise of the discretionary power to determine the scale of fees. The third member of the Court held that the same result was a consequence of the unreasonableness of so confining the return to such a freehold proprietor while allowing, in accordance with the Departmental policy, for increases in the rent of the proprietor of a nursing home which was leased to its proprietor from the time when approval was first granted. (See now principle 10(1)(a), 9(4).) Because the transactions of lease between Mr. Dowd and the applicant were "disregarded ...... entirely", in accordance both with Departmental policy and later with principle 6(5)(a), the determination which is the subject of this application allowed the same return on the investment of land and buildings (if the special provisions of Part III of the principles be left out of account) as would have been allowed if the proprietor had been at all times the freehold owner. A determination in the making of which regard had been confined to such an allowance in respect of the investment of land and buildings had been held in the Alexandra Private Geriatric Hospital Case to be an exercise of power that is so unreasonable that no reasonable person could have so exercised the power, Mr. Monotti submitted, and therefore, as he further submitted, principles which compelled the same limitation were so unreasonable as to be ultra vires.

7. I shall assume, but without deciding, that the power conferred on the Minister by s.40AA(7) is a power to make legislative, rather than administrative provisions, and that delegated legislation, by a Minister of State, which is subject to Parliamentary review of the kind which is ordained by s.48 of the Acts Interpretation Act 1901 may be held ultra vires for unreasonableness. (See Jones v. Metropolitan Meat Industry Board (1925) 37 CLR 252; Carter v. The Egg and Egg Pulp Marketing Board (1942) 66 CLR 557; The Victorian Chamber of Manufactures v. The Commonwealth (1943) 67 CLR 413 at 418; Sykes, Lanham and Tracey : General Principles of Administrative Law (2nd ed.) pp 103-107; Pearce : Delegated Legislation, p 200.)

8. Before the amendments effected in 1983, Part V of the National Health Act 1953 did not give explicit guidance as to the considerations which should be weighed in exercise of the power to determine a scale of fees in respect of a nursing home, except that s.40AA(7) at that time directed that regard should be had to "costs necessarily incurred in providing nursing home care in the nursing home". In those circumstances judicial reasoning upon Part V proceeded to discover, by reference to the legislative purposes which could be inferred to have animated the enactment of Part V, considerations of the kind which are now conveniently set forth in paragraphs (a), (b), (c), (d) and (e) of principle 2(4). In Alexandra Private Geriatric Hospital Pty. Ltd. v. Blewett (1984) 56 ALR 265 at 278 the trial judge summarised considerations to which judicial exegesis had drawn attention (and which he called "principles") before the amendment of 1983. He expressed the opinion, in which Smithers J. later concurred (Schroeder Holdings Pty. Ltd. and Extaris Giselle Nominees Pty. Ltd. v. Donald James Grimes : unreported; judgment 18 February, 1986) that the amendments of 1983 had "made little, if any, difference to the underlying policy of the Act". The principles which the trial judge (Woodward J.) thought "still applied" after those amendments he summarised in these terms (56 A.L.R. at 278):
   
   

"(1) The costs necessarily incurred by the proprietor of a nursing home in providing nursing home care remained 'a fundamental matter for consideration' by the delegate (to quote Mason J in R v Hunt; Ex parte Sean Investments).

(2) Fees should have been fixed in accordance with principles which presupposed 'the existence and continuation of private nursing homes' (Northrop J in Nagrad). In other words, nursing homes generally, though not necessarily a particular nursing home (Bowen CJ and Fox J in Sean Investments), should be commercially viable when efficiently run.

(3) Commercial viability requires some reasonable return on investments - a reasonable level of profit. 'People have to be encouraged to provide the services' (Smithers J in Howells v Nagrad).

(4) The scale of fees suggested by principles 1-3 above must not be excessive or unreasonable for patients, including indigent patients (Bowen CJ and Fox J in Sean Investments).

(5) The fees finally determined must be appropriate for the particular nursing home and its patients (Murphy J in R v Hunt, adopted by Deane J in Sean Investments; Franki J in Sean Investments)."

1. It may be - I need express no opinion - that none of the summarised principles was displaced by the 1983 amendments. But in my opinion those amendments did disclose a legislative intention to subject those principles to displacement by the exercise of the power conferred by the substituted s.40AA(7). The provisions introduced into Part V in sub-sections (7A) and (7B) of that section made it clear, in my opinion, that "principles" or considerations of the kind which had been judicially derived from an examination of Part V as it stood before the 1983 amendments were subject to alteration by the exercise of a power restricted in point of policy only by the first two paragraphs of s.40AA(7B) and by the pleasure of each House of the Parliament. I think s.40AA(7A) to be indicative of a legislative intention that the widest discretion as to policy objectives and as to the choice of means by which those objectives might be pursued should be available in exercise of the power conferred by the preceding sub-section. Neither of the guidelines imposed by paragraphs (a) and (b) of the following sub-section requires, in my opinion, that the economic interests of nursing home proprietors be regarded in the formulation of the principles which s.40AA(7) contemplates, unless and to the extent that experience may demonstrate that efficient or economical operation of nursing homes, or reasonable cost, or cost not excessive, of nursing home care to nursing home patients cannot be ensured without such a regard. Experience has not yet shown any of those things, so far as the evidence before the delegate or before this Court shows. The evidence on the point related only to the nursing home conducted by the applicant, not to nursing homes generally.

1. What the provisions introduced into Part V indicate is confirmed by reference, if as Woodward J. thought (56 A.L.R. at 271-272) reference may be had, to the speech of the Minister on the introduction of the amending Bill of 1983 into the Parliament. The problem as perceived by the Parliament for the alleviation of which those amendments were passed was the constraining by judicial review of the execution of the policy of the Executive Government in respect of scales of nursing home fees. The solution was to empower the Executive Government to specify, subject to Parliamentary review, precisely how the determination of scales of nursing home fees should be carried out (s.40AA(7A)), having regard to two statements of Parliamentary policy (ss.40AA(7B)(a) and (b)), and to the policy which the Executive Government might from time to time embrace (s.40AA(7B)(c)). In that legislative context it could in my opinion be only the grossest and most undeniable unreasonableness which might justify a court in concluding that a purported exercise of the power conferred by s.40AA(7), and not disallowed by either House of the Parliament, had failed. Unreasonableness of that kind has not been shown in this case. At the best for the applicant the evidence may show that the application of the principles will result in determinations of scales of fees so low as to result in substantial and continuing loss in the conduct of the nursing home by the applicant. But the survival of this particular nursing home business is not in my opinion an objective the failure to pursue which reveals such unreasonableness, either in the delegated legislation I have called the principles or in the delegate's exercise of the determining function, as would justify granting this application.

2. It was submitted that the delegate's slavish adherence to what the principles constrained him to allow in the computation of the scale of fees was an error of the kind specified in s.5(2)(f) of the Administrative Decisions (Judicial Review) Act 1977 - "an exercise of a discretionary power in accordance with a rule or policy without regard to the merits of the particular case". But in my opinion the principles, on their proper construction, preclude the exercise of discretionary judgment in respect of the matters under consideration in this case. And, in my opinion, the legislation which authorised the formulation of the principles authorised the subjection of the repository of the powers conferred by ss.40AA(6)(c)(i) and 40AD(1B) to such a "rule or policy".

3. There were several other items of cost in the conduct of the nursing home business for which in Mr. Monotti's submission proper allowance had not been made by the delegate in making the determination. In each instance the delegate was in my opinion constrained to take the course he did by the principles.

4. My conclusion is that the application must be dismissed.