Schroeder Holdings Pty Ltd v Grimes, D.J.

[1986] FCA 37

Re: SCHROEDER HOLDINGS PTY. LTD. and EXTARIS GISELLE NOMINEES PTY. LTD.
(Trading as "Balmoral Lodge Private Nursing Home")
And: 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. VG 192 of 1985
Administrative Law

COURT

IN THE FEDERAL COURT OF AUSTRALIA

VICTORIA DISTRICT REGISTRY
GENERAL DIVISION
Smithers J.

CATCHWORDS

Administrative Law - Judicial Review - decision fixing nursing home fees - requirements of natural justice - application of principles formulated by the Minister - effect of amendments to the legislation - purpose of the legislation - exercise of discretion by the courts.

Administrative Decisions (Judicial Review) Act 1977 s. 5

National Health Act 1953 s. 40AA

HEARING

MELBOURNE

#DATE 18:2:1986

ORDER

1. The application be dismissed.

2. The costs including reserved costs be paid by the applicants.

Note: Settlement and entry of orders is dealt with by Order 36 of the Federal Court Rules.

JUDGE1

This is an application for relief pursuant to s. 5 of the Administrative Decisions (Judicial Review) Act 1977.

1. On 12 July 1985 the delegate of the Secretary of the Department of Community Services purporting to exercise the authority conferred by s. 40AA(6)(c)(i) of the National Health Act (the Act) 1953 made a determination of the maximum fees to be charged in respect of nursing home care of qualified nursing home patients at Balmoral Lodge Private Nursing Home, a nursing home approved under s. 39A of the Act. The home is approved for sixty beds. The applicants have been the proprietors of the nursing home business carried on at Balmoral Lodge since 9 December 1983. They are the lessees of the business premises. The rent payable under the lease was at the rate of $9,222.00 per month.

2. It is contended by Mr. Paterson Q.C., on behalf of the applicants, on a number of grounds, that the determination should be set aside. It is said that:
   
   

(a) the maximum fees determined on 12 July 1985 are so low that at the rates so fixed the business cannot be carried on except at a loss. It is said that the fees as determined are so low that having regard to the costs of conducting the home no reasonable person exercising his discretion reasonably under s. 40AA(6)(c)(i) of the Act could have made the determination in question;

(b) by the determination the delegate effected a substantial reduction in the level of fees from the level previously established by the delegate and did so without affording to the applicants an opportunity to make submissions on the issues. Accordingly, the determination was made in disregard of the requirements of natural justice;

(c) the determination was based upon or incorporated earlier determinations made by reference to principles formulated by the Minister but which at the date of those determinations were not legally in force or applicable;

(d) that despite the circumstances that the rent payable by the applicants was a rent established on an "arms length" basis, and was shown to be reasonable as a rental reflecting commercial reality, the delegate in his determination of 12 July 1985 and in making earlier determinations failed to have regard to the amount of rent actually payable by the applicants; and

(e) that in making the determination of 12 July 1985 the delegate acted in error in adopting the principles formulated by the Minister pursuant to s. 40AA(7) of the areas amended by Act No. 35 of 1983.

The Home as a viable enterprise

1. As to (a) above, it was not established on a balance of probability that the nursing home could not be carried on profitably if the income of fees at the home was that provided by the scale of fees determined by the delegate under s. 40AA (6)(c)(i) on 12 July 1985.
   Natural Justice
   
   

2. As to (b) above the relevant circumstances appear to be as follows. In December 1984 Mrs. Moore, one of two directors who control the applicants, was advised by the Department that the scale of fees then applying in accordance with a determination taking effect on 15 December 1984 included a loading of $261.92 per day for 115 days which would expire on 8 April 1985. This loading was included in the fee as determined as a temporary loading to recoup the proprietor of the home in respect of expenditure previously incurred in conducting the home and not allowed for in the approved fee then applicable. It was well understood by Mrs. Moore, that the loading would expire on 8 April 1985. By 8 April 1985 an NH 19 return in respect of the year 1983 to 1984 had been submitted to the Department by the applicants. The NH 19 return is a return, ordinarily made annually by a nursing home proprietor to the Department, containing information relevant to the determination under s. 40AA(6)(c)(i) of maximum fees payable by patients of the home for the ensuing period. Also, at that time, it was understood that the management agency of the applicants was preparing the salaries and wages information requested by the Department on 18 January 1985, namely,
   
   

"(i) A summary of total actual hours worked at your nursing home for all categories of staff for each pay fortnight for the period 9 December 1983 to 24 June 1984, including a dissection between hours worked by nursing home staff and hours worked by agency staff.

(ii) A summary of wages paid for both nursing home staff and agency staff for each pay fortnight for the period 9 December 1983 to 24 June 1984, including a dissection detailing any payments for sick leave, recreation leave and any other leave payments;

(iii) Any other information relating to payment made for salaries and wages. On submission of the above information, together with certification by the proprietor that the hours included in the summary were worked at the nursing home and the costs claimed were paid to the staff members named in the wages records of the nursing home, an appropriate adjustment relating to the variance calculated above will be made to the approved scale of fees." (PDT 32 Folio 51)

In a telephone conversation with Mrs. Moore shortly before 8 May 1985, Mrs. Moore was advised by Mr. Ward, acting on behalf of the delegate, that the loading would not be removed on 8 May and that the fee structure would be completely reviewed when the NH 19 was processed and the salaries and wages details requested on 18 January had been received from the proprietors or Nasah. Nasah was an entity engaged by the proprietors in a managerial capacity. It was felt that it would be unreasonable to remove the loading when it might well be allowed again in the new fee structure.

1. It is clear that Mrs. Moore understood that the determination of the new fee was awaiting the submission of the salaries and wages information sought on 18 January 1985. This is to be inferred from the evidence of Mr. Tratt and the record made by Mr. Ward at the time. It is clear also from the evidence of Mrs. Moore in these proceedings. The following passages are relevant:
   
   

"Well, now, you knew right from the start that long before this business about the validation, you knew the department wanted to see your papers, did not you; wanted details - I will put it that way - wanted details of what you were spending it on. You knew that did not you, is not that the substance of the matter? --- I was unaware when I went into the nursing home, not of that particular fact, but of the methods that they were using to intimidate proprietors and I became well ---

HIS HONOUR: Cook, would you answer the question? Could we have it again?

MR BLACK: You knew, did not you, from the very start that the department was wanting to see your papers to work out your details - to work out whom you were paying and what you were paying them for? Now - cutting aside all the refinements of language, that was the substance was it? --- Yes, yes." (p. 257 T)

. . .

MR BLACK: Mrs. Moore, when the loading - you know there was a $216 loading that this case is substantially all about, that was to expire in April this year? --- A loading yes.

Now when that was about to expire, the fact was you still had not supplied the information, had you? --- No.

And you spoke - the substance of the matter was, you spoke to Mr. Moore - I am so sorry, Mr. Ward - and you said to him: Look, leave it - leave the loading there, did not you? --- Yes.

And you said to him, in substance, did not you, leave it there and you will get the information. Is that right? --- Yes.

And you did not supply the information, did you? --- Not at that time, no.

Well what are you complaining about? Forget the law; you say you have been unfairly treated. Now what was unfair about this, what Mr. Ward did? --- Well ---

Let us get down to the tin-tacks, what was unfair about it? --- Well I think, I believe it was unfair; the extent of the work that he required me to do relating to that information in trying to split up all these hours.

HIS HONOUR: That is nonsense. All he wanted was --- ? --- The wages.

--- wheelbarrow full of documents? --- Yes.

No work at all.

MR BLACK: And the documents existed did not they? --- Yes.

And you could put them in a big box and send a truck around to Mr. Ward and say: well, there you are, Mr. Ward. Happy Christmas. Now can I have my loading back.

HIS HONOUR: It is a computer.

MR. BLACK: I need a few computer discs as well. Now you could have done that? --- Yes, I ---

Either politely or with your nose stuck in the air, whichever way you chose, and you did not do it did you? --- No.

And you are complaining about Mr. Ward for removing the loading, now that is what you are really cross about, is not it? --- I am complaining about the general fee being so low, in addition to that.

After Mr. Ward and you had talked about this extension of the loading - he was a very polite man, was not he? Perfectly nice to you about it? --- Yes.

And after that, a couple of months after that, you wrote a note to the department, did not you, and you signed it, saying in substance that all the information I have given you previously in NH19s is suspect. I will read you what you said, if you do not remember it, but that is the substance of it. It might be misleading or wrong - did not you? --- Yes. I was advised that the material was voluminous amount and my advisers wanted to take away - take it away and examine it because of what had happened to me." (pp. 262 and 263 T)

But a further difficulty ensued in that the NH 19 form which had been submitted on 15 February 1985 was withdrawn by the applicants on 14 June 1985. And the withdrawal was in terms calculated to raise questions as to the general reliability of the applicants assertions as to their expenditure. The withdrawal was in very formal terms, namely, that the applicants and Mrs. Moore "wholly retract and withdraw the application for fee variation" delivered on 15 February 1985 with respect to the year 1983 - 1984 together with all applications made to the department since 9 December 1983 as the same may be deficient, misleading or incorrect in some particulars or some particulars in the application and supporting statements may be deficient, misleading or incorrect to afford an opportunity to the said proprietors and Sister Louisa Moore to correct the same and the said proprietors and Sister Louisa Moore request you to treat the same as a nullity meanwhile". Clearly, the proprietors and Sister Moore desired to move as far as possible from the existing NH 19. It is to be inferred that this was a consequence of activity of the Federal Police who had seized documents and records connected with the accounts of the nursing home.

1. The withdrawal of the NH 19 and all existing applications for fee determination and the non-delivery by Nasah of the salary and wages records left the Department with a fee structure including a loading which there was no information to support and created a general state of uncertainty as to the true state of expenditure of the applicants in connection with the home. By 12 July 1985 the NH 19 had not been re-submitted and no information as to salaries or wages had been submitted by the proprietors or Nasah.

2. The Department is responsible for the administration of the National Health Act 1953 and the expenditure thereunder in connection with the conduct of nursing homes. It has a duty to protect the revenue. The Permanent Head has a duty to determine the level of fees which might be charged. As at July 1985 the NH 19 return which had been submitted to the Department in support of an application for a new determination had been withdrawn in terms calculated to raise questions of a serious kind as to the financial management and correctness of records of the applicants. Its somewhat dramatic terms suggested something quite serious had been discovered in the accounts of the nursing home. There was by 12 July no indication as to when a new NH 19 would be submitted or when the information as to the expenditure relating to the 1983-84 period would be forthcoming. On the information in the possession of the Department the continuation of the loading was not justified. Having regard to the duty on the Department to protect the revenue and patients the delegate decided to determine fees at the pre-existing level omitting however the loading. He did this without further notice to the applicants. It is said that in doing this he failed to observe the requirements of natural justice. It is relevant that the determination was made in circumstances in which the applicants knew that the Secretary of the Department was willing to act in accordance with all relevant information submitted to it. By s. 40AD(1)(1B) of the Act the applicants were entitled to seek a new determination at any time. They might have sought a new determination substituting a new scale of fees for the home as soon as they were able to submit relevant information, even on the day after the determination was made, if the information was then available. It was of the nature of the determination that it remained operative for no fixed period. It operated until reviewed in the light of new facts or superseded in accordance with normal procedure.

3. It was within the authority of the Secretary to include in a substituted scale of fees a loading in respect of previous expenditure by the home not recouped under the scale of fees previously applicable. The opportunity of the applicants to obtain a determination covering all proper expenditure and recouping any past deficiencies suffered by them was not annulled or diminished by the determination of 12 July 1985. In addition that determination was subject to appeal to the Minister. See s. 40AE(2) and (3) of the Act.

4. The removal of the existing loading would cause no loss to the applicants if they established, thereafter, that its continuation was justified. As indicated above there was ample authority in the Secretary to grant loadings if for some reason a determination has erroneously omitted to allow for items of genuine expenditure. The determination of 12 July 1985 determined nothing in a final way, and the desirability, in the circumstances, of crystalising the situation in relation to the fee structure at the home in the light of such information as was before the Department was clear. It should not, in my opinion be held that according to the principles of natural justice it was a condition of the making of the determination that notice of intention to make it be given to the applicants. At and about the time of the making of the determination the requirements of natural justice were in substance, in operation. The Secretary was ready and willing to accept any submission on the part of the applicants and was in a position as an administrator to redress any short fall in the determination he had made. The applicants were well equipped with legal and accounting advice. It is impossible to believe that the applicants did not know that the determination was subject to review and appeal. And it is not easy to see why they did not supply the information sought by the department in January 1985 and seek a review of the determination of 12 July 1985.

5. There are three possible reasons. First, as far back as 5 September 1984 the solicitors for the applicants had written a letter in the following terms:
   
   

"The Regional Director,

Commonwealth Department of Health, Commonwealth Centre,

Corner Spring and Latrobe Streets, MELBOURNE, 300.

Dear Sir,

BALMORAL LODGE PRIVATE NURSING HOME - APPROVAL NUMBER 4308

We act for the proprietor of the abovenamed nursing home and for The Private Geriatric Hospitals Association of Victoria.

We are instructed that your departmental officer, Miss K. Ramadan, has contacted both the proprietor of the nursing home and its Manager, Manatta Management Services Pty. Limited, demanding to inspect the wages records of the nursing home, apparently for the purpose of 'validating' the expenditure on salaries and wages, and also to inspect the nursing home premises.

The right of a person authorised in writing by the minister to act under Section 42 of the National Health Act 1953 to enter and inspect the nursing home premises is admitted.

However, your right to inspect the financial statements and accounts, including the wages records, of an approved nursing home, is denied.

If you have any purported authority under the National Health Act 1953 to inspect, make copies of, or take extracts from the financial statements and accounts, including the wages records, of an approved nursing home, all of which are specifically denied, such purported authority is beyond the legislative power of the Commonwealth of Australia conferred by paragraph (xxiiA) or

(xxxix) of Section 51 of the Australian Constitution.

We have been instructed by The Private Geriatric Hospitals Association of Victoria and its member nursing homes to issue a Writ in the High Court of Australia to challenge these actions of your Department and that Writ will be issued shortly.

Further action will be contemplated should your officers persist in demanding production of financial statements and accounts, including wages records, of approved nursing homes.

Meanwhile, without prejudice to the above action and with a full reservation of the rights of Balmoral Lodge Private Nursing Home in relation to that action, we deliver herewith a copy of the entire wages records of Balmoral Lodge Private Nursing Home, being a computer print-out prepared by Nasah Management Services, for the period from the 1st December, 1983 to the 22nd October, 1984, to assist you in verifying claims made by our client with respect to salaries and wages.

Should you wish to communicate with our client, or Manatta Management Services Pty. Limited, further concerning these matters, and in the light of the pending action, you are requested to direct all such communications to this office.

Yours faithfully,

LLOYD & LLOYD." (PDT 23 p. 128/9)

Secondly, there were errors in the roster submitted by the applicants, in which quite false statements were made that certain persons, three in number, had worked in the nursing home and received substantial remuneration for their services. Third, there were genuine mistakes in the roster which the applicants were embarrassed in correcting.

1. As to the first of these the evidence suggests that the Private Geriatric Hospitals Association of Victoria had decided to oppose all process of validation by the Department of salaries and wages said by proprietors of nursing homes to have been incurred in conducting their nursing homes. Such a notion could hardly be taken seriously. But there is ground for thinking that the Association took a different view and that the applicants' nursing home was in the front line in the inevitable confrontation. Mrs. Moore now appears to regret this.

1. It is unnecessary to examine the reasons for the appearance of the false information as to the three persons appearing in the roster as workers in the nursing home. Suffice it to say that their appearance therein together with the non-delivery of the information required in January 1985 would tend to raise doubts as to the entitlement of the applicants to the continuation of the loading after 8 April 1985.

2. In the circumstances the proper inference is that it was a proper exercise of the administrative duty of the delegate of the Secretary of the Department on 12 July 1985 to crystalise the fee level of the nursing home by making the determination he did in the manner that he did. The situation is to be classified therefore as one in which, with respect to that determination, there was in the circumstances no obligation to extend to the applicants an opportunity to be heard prior to the making thereof. The circumstances were unusual and the requirements of natural justice are flexible and responsive to circumstances. As was observed by Kitto J. in Mobil Oil Australia Pty. Ltd. v. Federal Commissioner of Taxation (1962-1963) 113 CLR 475 at 503 and 504:
   
   

"I do not think it is necessary to decide the point. Even if the Board is bound in law to act 'in the spirit and with the sense of responsibility of a tribunal whose duty is to mete out justice' (to quote Lord Haldane's words in Local Government Board v. Arlidge (1915) AC 120, at p 132 it does not follow (and his Lordship proceeded immediately to say so) that the procedure of each such tribunal must be the same: 'what that procedure is to be in detail must depend on the nature of the tribunal'. And notwithstanding what Lord Loreburn said in Board of Education v. Rice (1911) AC 179 about 'always giving a fair opportunity to those who were parties in the controversy to correct or contradict any relevant statement prejudicial to their view, the books are full of cases which illustrate both the impossibility of laying down a universally valid test by which to ascertain what may constitute such an opportunity in the infinite variety of circumstances that may exist, and the necessity of allowing full effect in every case to the particular statutory framework within which the proceeding takes place. By the statutory framework I mean the express and implied provisions of the relevant Act and the inferences of legislative intention to be drawn from the circumstances to which the Act was directed and from its subject-matter: cf. Ridge v. Baldwin

(1963) 2 WLR 935 at p 947. As Tucker LJ said in Russell v. Duke of Norfolk (1949) 1 A11 ER 109, in a passage approved by the Privy Council in University of Ceylon v. Fernando (1960) 1 A11 ER 631, at p 637, there are no words which are of universal application to every kind of inquiry and every kind of tribunal: 'the requirements of natural justice must depend on the circumstances of the case, the nature of the inquiry, the rules under which the tribunal is acting, the subject matter that is being dealt with, and so forth'

(1949) 1 A11 ER at p. 118. What the law requires in the discharge of quasi-judicial function is judicial fairness. That is not a label for any fixed body of rules. What is fair in a given situation depends upon the circumstances. And it is not a one-sided business. What is a fair opportunity to allow the taxpayer in a given case is a question which by its very nature forbids an answer in disregard of the interests of other people. This is particularly true where, as here, the statute giving rise to the duty of decision expressly recognizes and aims to protect the interests of others which may come into competition with those of the taxpayer. For this reason the proposition cannot be maintained that even assuming that the board is legally bound to determine the reference in a case under s. 136 in accordance with the substantial requirements of justice it must disclose all that it has learned about the affairs of other companies. How much it should disclose is a question which this Court ought not to attempt to answer in the abstract. On the opposite hypothesis, that the Board is not bound legally to act in a quasi-judicial manner, all questions as to disclosing information to the taxpayer are questions of pure discretion; but the Board's sense of fairness and responsibility will no doubt make the decision as to how the discretion should be exercised practically indistinguishable from that which it would have to make if faced with a legal necessity to conform to natural justice."

If the maximum fees determined by the delegate on 12 July 1985 were at a level lower than that which it would have been determined had the applicants made submissions supported by accurate information as to the expenditure in conducting the establishment, that would have been because the applicants failed to make submissions supported by evidence in support of a higher level before or within a reasonable time after 12 July 1985. In any event having regard to the circumstances I would not regard the application as one which, as a matter of discretion, should be granted.

The adoption, for the purpose of determinations, of principles formulated by the Minister, prior to such principles acquiring the force of law under s. 40AA(7) of the Act as amended in 1983

1. This is the matter referred to in item (c) above. It is clear that when the Act was amended in 1983 by, inter alia, removing therefrom s. 40AA(7), the delegate felt free to act in accordance with principles thereafter formulated by the Minister although those principles had not acquired legal status. Those principles reflected, in substance, policy which the Department had desired to implement even before their formulation by the Minister, but which, particularly in the presence of s. 40AA(7) as previously in force, it had found difficulty in doing.

2. It is said by Mr. Paterson that during the period between the removal in 1983 of s. 40AA(7) from the Act and the coming into operation in May 1985 of principles formulated by the Minister the delegate was bound to determine levels of fees as if s. 40AA(7) were still in force. I cannot accept this submission. On the removal of s. 40AA(7) in 1983 the discretion of the delegate under s. 40AA(6)(c)(i) was freed from the requirements of s. 40AA(7) as previously in force. It became unfettered save by implications arising from the purposes of the Act as discerned in its operative provisions. I am not persuaded that the principles as formulated by the Minister before becoming legally operative under s. 40AA(7) of the Act and by reference to which the delegate made his determinations prior to that of 12 July 1985 were incompatible with the purposes of the Act. Of course when the determination of 12 July 1985 was made the principles had become legally operative and binding and the delegate was required to act by reference thereto. But Mr. Paterson contended that in making the determination of 12 July 1985, save so far as he eliminated a loading, the delegate merely adopted a level of fees previously made but invalidly arrived at by the delegate acting on the principles formulated by the Minister but not yet in force.

3. I do not think this is a correct analysis of what occurred on 12 July 1985. Even if there were any irregularity in the delegate acting by reference to the Minister's principles before they became legally operative as such, which I very much doubt, the determination of 12 July 1985 was a complete and separate operation on the part of the delegate. It stood on its own feet and represented the decision of the delegate by reference to the principles by which at that stage he was bound. That he may have obtained assistance from the circumstance that he had earlier gone through the intellectual exercise of applying the same principles to the conditions of the Balmoral Nursing Home at an earlier date, is beside the point. He applied them on 12 July 1985.
   Disregard of rent actually payable
   
   

4. As indicated in item (d) above the applicants submitted that in determining the level of fees payable by patients of the Balmoral Home on 12 July 1985 the delegate did not have regard to the amount of rent payable with respect to the initial period of the applicants tenancy in accordance with the terms of their lease. There is no question of disregarding any increase in that rental payable in respect of any later period.

5. It was conceded that there was included in the fee structure an allowance of $84,240 annually for rent. But this was $21,760 less than the actual rent initially payable by the applicants. It was contended that the failure to include an allowance reflecting the actual rent payable was contrary to the delegate's duty under Part V of the Act, in particular s. 40AA(6)(c)(i). In this respect the principles formulated by the Minister are directly in point. Section 40AA(7), (7A) and (7B) of the principal Act which were inserted by s. 3 of the National Health Amendment Act 1983 (No. 35 of 1983) provides:
   
   

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

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

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

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

The principles as formulated by the Minister came into force on 15 May 1985 (see Commonwealth Government Gazette No. S162 of 15 May 1985). These principles are called "principles in accordance with which scales of fees are to be determined by the Permanent Head for the purposes of s. 40AA(6)(c)(i) of the National Health Act 1953.

1. On the subject of rent principle 10(1) provides that:
   
   

"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."

However, provision is made in principle 9(1) in respect of return on land, buildings, furniture and other items, that,

"9(1) 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 a nursing home being the fair market rental when the nursing home was first approved . . . as determined by a valuer from the Valuation Branch of the Australian Taxation Office".

Balmoral Lodge was approved as a nursing home under the Act in 1980. The rental value of the land and buildings at that date would have been substantially less than it was in 1985.

1. It is said by Mr. Paterson for the applicants that a principle in accordance with which actual current rent payable in respect of a nursing home at an arms length commercial rate is to be ignored, contravened the implied provisions of the Act, namely, that allowance be made for all expenditure necessarily incurrred in conducting the home. This provision is said to arise from the general structure of the Act and its purposes as disclosed therein. They depend on the validity of observations such as those made by me in Howells & Anor v. Nagrad Nominees Pty. Ltd (1982) 43 ALR 283 at 290 and 291 in relation to the Act as it stood at that date. Those observations were:
   
   

"The duty of the Permanent Head under s. 40AA of the Act in relation to the determination of scale of fees is to be ascertained from the statutory framework set out above. It is manifest that Parliament's intention is that there will be as many nursing homes as are considered reasonably desirable for providing the nursing home needs of the qualified patients needing such care. People have to be encouraged to provide the services. It is an important objective and depends upon people of the right kind being willing to undertake the work and risk involved in providing that care. It is a private enterprise approach to the problem. Obviously, from every point of view the success of the scheme is dependent upon there being available to the proprietors of homes providing nursing care financial returns which will constitute reasonable financial income to them taking into account the use of capital and the exertion involved in running the home as manager and worker.

. . .

At the same time it can be seen that Parliament intended to control the income gained from conducting a home so that the proprietor should not be permitted to exploit the scheme and so make excessive profits. The scale of fees determined by the Permanent head as maximum fees will ensure this."

But since those observations were made the Act has been amended by Act No. 35 of 1983. These amendments are most significant. They are not in conflict with the notion that objects of the Act are those set out above, but they certainly proceed expressly on the basis that those purposes of Parliament can be achieved notwithstanding that in the exercise of his function under s. 40AA(6)(c)(i) the delegate may disregard particular expenditure actually incurred in the conduct of a nursing home. He is to do this where the principles formulated by the Minister so require. Sub-section 40AA(7) of the Act as originally enacted provided:

"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."

Section 3 of Act No. 35 of 1983 repealed that paragraph, and enacted a new provision Sub-s. 40AA(7) as follows:

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

And there was inserted into the Act sub-s. 40AA(7A) as set out above.

1. No doubt in enacting sub-s. (7A) Parliament proceeded on the basis that the principles formulated by the Minister would be such that fees fixed by the Secretary in accordance therewith in relation to each nursing home would be at a level at which the business might be profitably carried on. Of course, a proprietor might undertake such obligations as he saw fit in relation to the acquisition and conduct of his home, and it was not the intention that whatever obligations were undertaken the level of fees would be adequate to provide therefor. But it was the intention that administration in accordance with the principles should provide for the profitable conduct of homes where the obligations undertaken were within acceptable limits. The difficulty was to devise principles which would result in a level of approved fees which would achieve both the containment of the level of obligations undertaken by proprietors within what could be regarded as acceptable limits and the viability of the proprietor's business. The latter was reflected in principle 2(4)(a) set out below. The former was provided in those principles which state that certain expenditure shall be disregarded. The main items of such expenditure are referred to below. The concept would appear to be that if obligations are undertaken with knowledge of the content of the principles the risk that a home operating at a level of fees fixed in accordance therewith will be avoided or at least made remote. As indicated below, with respect to obligations undertaken before the principles came into effect, principle 9(d) provides that in making a determination of fees the Secretary shall take into account the return on investment already reflected in the scale of fees as at the date when the principles came into effect.

2. It is consistent with the purposes to be discerned in the Act as amended in 1983 that there be a level of fees so determined as to tend to control the level of expenditure undertaken by proprietors, particularly expenditure which encourages the assessment of the value of goodwill at high levels. It has been a feature of the industry that the level of fees fixed in accordance with the requirements of sub-s. 40AA(7) of the Act as in force prior to Act No. 35 of 1983 created a situation in which commercially accepted levels of goodwill were higher and accelerated upwards more swiftly than was regarded as appropriate for a protected industry supported by government subsidy. Those levels of goodwill translated into capital costs when nursing homes changed hands provided a basis for claims for high levels of permitted fees. This situation was regarded as contrary to the public interest. Rental expenditure at levels arrived at by agreement between parties was also a significant factor. It was to introduce a measure of control that s. 40AA(7) of the Act was repealed by Act No. 35 of 1983 and re-enacted in terms set out above. Section 40AA(7A) was enacted at the same time.

3. It is certainly compatible with the purposes of the Act that appropriate action be taken to protect the revenue against inflation of the level of fees by expenditure in the conduct of a home that is incurred at a level higher than that which would obtain if strict scrutiny were applied to the relevant transactions on behalf of the taxpayer and patients. It is clear for instance that over award payments to staff are not compatible with a level of expenditure strictly scrutinized. It is not practicable for scrutiny of the level of obligations incurred by a proprietor to be applied by any departmental agency. But if principles which the Secretary must apply in assessing the level of fees under the Act are known, and they have restrictive provisions in them, the probability that appropriate voluntary discipline will operate is high. In such cases the possibility that the nursing home industry will fade away so that there will not be as many approved homes as are considered reasonably necessary for providing for the nursing home needs of qualified patients needing such care, is remote.

1. It is the effect of the Act as amended and the procedures under s. 48 of the Acts Interpretation Act 1901 whereby the principles were laid before Parliament and not disallowed, that the principles formulated by the Minister are as much part of the law as the provisions of the Act itself. The notion that the legitimate authorisation of the formulation of principles by the Minister which form part of the law of Australia might be a form of delegated legislation not constitutionally valid was mentioned only to be rejected by the parties.

2. Accordingly, the implications that might otherwise have arisen from the Act are subject to such qualification as arises from the express provisions of s. 40AA(7) as amplified by s. 40AA(7A). The provisions of sub-s. (7A) that in the principles the Minister may specify matters of a kind that are to be disregarded in determining a scale of fees for the purpose of sub-para. (i) of para. (c) of sub-s. (6) of s. 40AA of the Act clearly contemplates that certain expenditure actually incurred may be disregarded. It follows that theoretically, the level of fees determined under s. 40 AA(6)(c)(i) in accordance with the principles might possibly fall below the level of actual expenditure and to that extent the viability of a home might be in peril. But if so that is the effect of the law. It is clear, however, that the principles are designed to provide a framework which intending proprietors will have in mind when undertaking obligations as such. And despite the limitations imposed on the Secretary the principles as formulated to reflect an intention to provide for and preserve the viability of approved nursing homes as business enterprises. Thus principle 2(4)(a) provides:
   
   

"2.(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;"

The scheme which the principles implement is comprehensive and intricate. In general it authorises the Secretary in performing the function of determining fees under s. 40AA (6)(c)(i) to take into account matters including the following:

(a) a return on investment taking into account:

(i) the fair market value rental of the land and buildings at the date when the home was first approved and all reasonable increases in rent, but disregarding all other expenditure in relation to rent;

(ii) a return on the investment in the home and in the business undertaking carried on thereat including a return on the cost of furniture, fittings, plant, equipment and chattels used therein and certain

establishment costs at the rate of return on Australian Savings Bonds when the nursing home was first approved;

(b) in the case of homes first approved before the principles came into effect the returns on the matters aforesaid reflected in the scale of fees as at the date when the principles came into effect;

(c) reasonable increases in interest on money borrowed to acquire the premises occupied by the home, disregarding, however, all other interest payments made by the proprietor;

(d) expenditure on salaries, wages and allowances by approved staff at award rates disregarding however any salaries, wages or allowances paid in excess of the relevant award rates; and

(e) upon request of the proprietor of a home to allow an additional return on investment, in the case where the yearly return from fees as determined does not exceed $1,100 per bed according to the formula set forth in principle 12D(1)(a), and where the yearly return from such fees exceeds $1,400 but does not exceed $2,600 per bed, according to the formula set forth in principle 12D(1)(b), as a result of which in the circumstances referred to minimum returns per bed up to $1,400 and $2,600 per bed respectively may be provided.

1. In Alexandra Private Geriatric Hospital Pty. Ltd. v. Blewett & Anor (1984) 56 ALR 265 Woodward J. at p 278 expressed the opinion that the 1983 amendments made little if any difference to the underlying policy of the Act as a result of which the following principles remained applicable, namely:
   
   

"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 p 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 homes (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.)"

And it was urged by the applicants that if the principles as formulated by the Minister and which came into operation in May 1985 contravene these principles they are unlawful. This was a difficult submission in view of the unambiguous and specific authority conferred on the Minister to specify classes of expenditure which the Secretary must disregard. But although the principles do specify certain classes of expenditure which the Secretary is to disregard, it is no doubt still true that the underlying policy of the Act as discerned therefrom remains substantially unaffected by the amendments of 1983. There are different approaches which may be pursued to achieve those fundamental purposes. One of those purposes was, as his Honour pointed out, that the scale of fees must not be excessive. And it is clear that to achieve that result, a level of fees reflecting actual expenditure undertaken voluntarily at a level chosen by proprietors, could not, be accepted unconditionally. And over time it has become necessary to adopt a method of administration providing a measure of discipline in the level of expenditure actually incurred by intending proprietors. As indicated above the principles are designed to achieve this and at the same time to preserve the existence and continuity of viable private nursing homes. The method adopted in the principles has been before Parliament and not disapproved. It has not been shown that administration of the Act in accordance with the principles will subject any proprietor to greater financial burdens than are tolerable in his case. I do not have to consider principles so formulated as to bring the nursing home industry to an end or seriously threaten it. On the contrary it is manifest that the principles in question have been formulated with careful thought in an endeavour to achieve the continued existence of the industry in conditions which provide justice to proprietors in a climate in which the costs of the provision of nursing care is in the words of s. 40AA(7B)(b) not excessive or unreasonable.

1. In the light of the foregoing I am not satisfied that the applicants have established a case for relief under the Administrative Decisions (Judicial Review) Act 1977. I observe also that the exercise of the Court's jurisdiction pursuant to s. 16 thereof is to grant relief "in its discretion". Having regard to the circumstances discussed above, I would not consider this application to be one in respect of which the discretion of the Court should be exercised in favour of the applicants.

2. In the result the application is dismissed the applicants to pay the costs including reserved costs.