Anning v Minister of Education HC Wellington CP122/00
[2002] NZHC 1404
•26 April 2002
IN THE HIGH COURT OF NEW ZEALAND WELLINGTON REGISTRY
BETWEEN
CP 122/00
ROSS JOHN ANNING First Plaintiff
Hearing:
AND
AND
AND
29 October — 8 November 2001
UNIVERSITY OF OTAGO
Second Plaintiff
THE MINISTER OF EDUCATION
First Defendant
THE ATTORNEY- GENERAL OF NEW ZEALAND
Second Defendant
Counsel: L L Stevens QC, RJ M Sim and S Porter for the Plaintiffs
C R Carruthers QC, L M Hansen and T J Warburton for the
Defendants
Judgment:
Introduction
26 April 2002
JUDGMENT OF GODDARD J
[1] Mr Anning represents more than 460 former students of the Otago University
School of Dentistry (“the Dental School”) who claim they have suffered seriou
financial harm, anxiety and stress consequent upon a decision of the Minister of Education, the Hon Lockwood Smith, in June 1994, to reduce the level of tuition subsidy paid to the Dental School out of Vote:Education. The result of that decision was a reduction to 46% of the cost of the course during the years 1995 to1999 inclusive. The flow-on effect of the reduction was a dramatic increase in the fees the Dental School had to levy Mr Anning and his particular generation of dental students during the years 1995 to 1999. The impact of that fee increase and the resultant debt incurred by the students remains of a magnitude that may prove a lifetime burden.
[2] The situation was not rectified until 2000 when the present Government reinstated the subsidy rates for dental tuition so that fees for dentistry and medicine were able to be realigned. However the affected group of students has not been reimbursed for the fees they paid above expected levels during 1995 to 1999.
[3] Mr Anning’s claim is supported by the University of Otago (“the University”) as second plaintiff. The University is the only institution in New Zealand which provides training for dentists: that training includes all under graduate training, all specialist teaching and all clinical training. The University’s claim rests on the obligation it had to incur and absorb the balance of the unexpected funding reductions over and above the increase in fees it passed on to Mr Anning and his fellow students. The losses incurred by the University for the period were
$4,744,090.00.
[4] The plaintiffs now seek a review of the Minister’s June 1994 decision to reduce the dental tuition subsidies. They also seek a review of a subsequent refusal by the Minister, in September 1994, to revisit his decision. They also seek review of a later Cabinet decision, on 24 August 1998, not to reinstate the subsidy rates for dental tuition to a level comparable to the rate originally cut in 1994.
[5] The grounds pleaded are that the three decisions were ultra vires andlor invalid. The plaintiffs contend that, in making the June 1994 decision to cut dental funding, the Minister was mistaken as to material facts; took into account irrelevant considerations; and failed to consult with the University as might have reasonably been expected in the circumstances. They say his subsequent refusal to revisit the
issue in September 1994 rested on a failure to fairly and reasonably take into account their advice that his June 1994 decision was based on material mistakes of fact. They say the Cabinet decision of 24 August 1998 also failed to take into account their advice and other information about the flawed nature of the earlier decisions; failed to take into account the findings of a Ministry of Education Review of Costs of Dentistry Education dated 13 November 1997; and failed to take into account a proposal in a paper dated 20 August 1998.
[6] Preliminary determinations relating to the three decisions are sought, together with a determination as to whether the Minister breached natural justice in deciding to reduce the dental subsidies.
[7] The relief claimed is a declaration that all three decisions were ultra vires andlor invalid and of no effect; an order setting aside the decisions; a declaration that the difference in the dentistry funding which would have been paid to the University in the academic years 1995 to 1999 inclusive had the first decision not been made and the quantum which was in fact paid during that period was the sum of
$10,549,922.00; a declaration that as a result of the June 1994 decision the affected students have been levied additional fees to a total of $5,805,832.00; a declaration that the University has absorbed or incurred losses in the sum of $4,744,090.000 during the period 1995 to 1999 inclusive as a consequence of all or any of the three decisions; andlor a direction that Government lawfully and fairly reconsider and determine the level of fees grant to be paid to the University in the years 1995-1999 inclusive; damages of $5,805,832.00 being the additional fees levied to the affected students as a result of the June 1994 decision; interest on the loss incurred by the University on a commercial basis; costs and interest.
[8] The Crown has opposed the application for review from the outset, arguing that none of the three decisions is justiciable. The Crow’s case is that the critical decision of June 1994 was a budget policy decision, carried forward into legislation as part of the 1994/1995 Appropriation Act. An attack on that decision is an attack on the legislation itself and not reviewable. It would mean that every change in government expenditure reducing a payment to a previous recipient should involve
consultation and be subject to review. To take such an approach would render the budget decision-making process unworkable.
[9] The starting point on review is the justiciability of the June 1994 decision. Determination of that issue turns on the scope of the statutory power conferred on the Minister to make that decision. His power in that regard derives from s199
Education Act 1989 (“the Act”). If the Minister exceeded the scope of his power
under s199 when reaching his June 1994 decision, that decision will be amenable to review.
[10] It is helpful, at the outset of the judgment, to state the guiding principles of review as redefined by the Court of Appeal in Wellington City Council v Woolworths NZ Limited (No 2) [1996] 2 NZLR 537 at 545 (a case concerned with local authority decision-making):
Amenability to judicial review: the legal test
The legal principles are well settled and were discussed in Mackenzie
District Council v Electricity Corporation of New Zealand [1992] 3 NZLR
41 at pp 43-44 and p 47. In summary, judicial review of the exercise of local authority power, in essence, is a question of statutory interpretation. The local authority must act within the powers conferred on it by Parliament
and its rate fixing decisions are amenable to review on the familiar Wednesbury grounds. Rating authorities must observe the purposes and criteria specified in the legislation. So they must call their attention to matters they are bound by the statute to consider and they must exclude considerations which on the same test are extraneous. They act outside the scope of the power if their decision is made for a purpose not contemplated by the legislation. And discretion is not absolute or unfettered. It is to be exercised to promote the policy and objectives of the statute. Even though the decision maker has seemingly considered all relevant factors and closed its mind to the irrelevant, if the outcome of the exercise of discretion is irrational or such that no reasonable body of persons could have arrived at the decision, the only proper inference is that the power itself has been
misused.
Education Reforms in the Late 1980s and Early 1990s: The Development of thc
EFTS Formula
[11] The statutory power of decision exercised by the Minister under s199 of th Act had its origins in the education reforms of the late 1980s and the early 1990s, The Act heralded an era of sweeping education reforms, completed by the Educatior
Amendment Act 1990 (“Amendment Act”). The Amendment Act was particularly concerned with reforms of the tertiary sector. That reform involved a distinct policy shift towards a user-pays philosophy, requiring students to pay some portion of the cost of their education. Commensurately it marked a transfer of autonomy to the responsible tertiary institutions, quite different to the former funding arrangements under which the University Grants Committee (for instance) had been responsible. The new scheme embraced “bulk funding”: its aim was to give tertiary institutions:
as much independence and freedom to make academic, operational and management decisions as is consistent with the nature of the services they provide, the efficient use of national resources, the national interest and the demands of accountability;
[12] That is one of the purposes of the Amendment Act, as stated in its long title. The other purposes in the long title are:
(b)Establishing a consistent approach to the recognition of qualifications in academic and vocational areas; and
(c)Encouraging greater participation in tertiary education and training, in particular by removing barriers to access for those groups of persons who have previously been under-represented; and
(d)Contributing to a dynamic and satisfying society by promoting excellence in tertiary education, training and research.
[13] The object of the Amendment Act (under the heading Establishment and Dis
establishment of Tertiary Institutions) is stated in ss 160 and 161.
160 Object
The object of the provisions of this Act relating to institutions is to give them as much independence and freedom to make academic, operational, and management decisions as is consistent with the nature of the services they provide, the efficient use of national resources, the national interest, and the demands of accountability.
161 Academic Freedom
(1)It is declared to be the intention of Parliament in enacting the provisions of this Act relating to institutions that academic freedom and the autonomy of institutions are to be preserved and enhanced.
(3)In exercising their academic freedom and autonomy, institutions shall act in a manner that is consistent with—
(b) The need for accountability by institutions and the proper use
by institutions of resources allocated to them.
(4)In the performance of their functions the Councils and chief executives of institutions, Ministers, and authorities and agencies of the Crown shall act in all respects so as to give effect to the intention of Parliament as expressed in this section. [Emphasis added.]
[14] Sections 193(2)(h), 227 and 228 of the Act also support the principle object of providing tertiary institutions with independence in the management and control of their resources. This autonomy includes prescribing the amount of fees to be levied from students. (The way in which the University in this case has chosen to structure its fees will be described in more detail shortly.)
[15] The statutory power of decision conferred on the Minister of Education by s199 is introduced by the heading Bulk Funding. The relevant parts of si 99 provide:
199. Grants to institutions - (1) In each academic year an institution -
(a) Shall be paid a general grant, the amount of which shall be determined by the use of the equivalent full-time student formula; and
(b) May be paid one or more special supplementary grants,
- out of the money appropriated by Parliament for the purpose.
(2)The amounts of every general grant and every special supplementary grant shall be determined by the Minister.
(3)Where an institution has submitted to the Secretary a statement of objectives in relation to 3 consecutive academic years in accordance with section 203(2)(c) of this Act, the Minister shall, if he or she considers the objectives are suitable for the implementation of the institution’s charter, determine the amount of any grant for the institution in light of the statement.
[16] Read together, the above subsections place a mandatory obligation on the Minister to determine the amount of any general grant to an institution by “use of’ the EFTS formula and “in light of’ the institution’s stated objectives.
[17] It is the Crown’s view that whilst each institution is entitled or has a right to a general grant using the EFTS formula under s199(2), the determination of the amount of any general grant by the Minister involves the broad allocation of limited resources between numerous different institutions and different disciplines and thus
involves substantial policy discretion on his or her part. The Crown says not only is the Minister allocating grants in accordance with policy priorities across the tertiary education sector as a whole, but he or she will also be considering priorities across all education sectors. All that the government is required to provide is a grant towards the cost of dentistry. Once it has the entitlement of the university to receive funding under s199 will have been met. Whether the amount of the grant is sufficient is a matter within the discretion of the Minister. To summarise the Crown’s argument, its case essentially is that determination of the amount of a general grant under s199 is a wholly discretionary policy decision, not bound by the actual cost of any tuition and not reviewable.
[18] Whether the Crown is correct in its view is dependent on two factors: first, the interpretation of s199; and secondly, the correct application of the EFTS formula which is incorporated by reference in s199(l)(a).
[19] As to the first — I have already stated my interpretation of the mandatory requirement of the section. It is the Minister’s obligation to determine the amount of the general grant to which any institution is entitled paid in each academic year by use of the EFTS formula and in light of the institution’s objectives.
The EFTS Formula
[20] Under s159 of the Act, “equivalent full-time student formula” is defined as a formula based on a student workload that would normally be carried out by a full- term student in a single academic year. A normal year’s full-time study is equivalent to one EFTS unit. All programmes of study offered by tertiary institutions are grouped into cost categories and each institution is funded on the basis of the number of EFTS units it has for each cost category, multiplied by the funding window for that cost category. Development of the EFTS formula was part of the tertiary education reforms that led to the Amendment Act being passed. It was developed over a considerable period of time and was subject to thorough review by a “Working Party on Funding” and by a Deloitte Ross Tohmatsu team (“Deloitte”) on instructions from the Ministry of Education.
[211 The intention behind the development of an EFTS formula was to unify funding arrangements in the tertiary sector and to fund equivalent courses across the tertiary sector on an equal basis, using a bulk funding system and requiring students to pay some portion of the cost of their education. A preliminary policy paper described the structure of tertiary institutions, including the way in which they would be funded through bulk grants, in the following way:
The bulk grant will be determined by a funding formula based on the nominal value of a full-time equivalent student. This will be adjusted by weightings for different course costs — so that familiar courses in different institutions will be funded similarly. The weightings will be determined initially by a thorough review of course costs, and, in subsequent years by monitoring of these costs.
[22] Between the report of the Working Party and the Deloitte report, 23 programme classifications were formulated and a range of costs found for each. Dentistry was covered by programme classification 7 and medicine by programme classification 15. Each programme classification was allocated to one of nine cost categories, which for dentistry and medicine in 1991 were as follows:
base Cap Wks TOTAL
F Dentistry $40,290 $1,030 $41,320
G Medicine $24,582 $1,030 $25,612
[23] EFTS funding was divided into Study Right and Non Study right funding (according to a government policy at the time that funding would be reduced for students who had completed three years of tertiary study). In 1994 dentistry was funded at $38,317 per EFTS for study right students and $30,251 for non study right students.
[24] What it is important to understand is that the rate for each of the costs windows was established through consultation with the institutions involved and relied on information relating to the costs of providing individual courses formerly used (by the University Grants Committee in the case of universities) and detailed information on the costs of conducting individual courses from the course providers themselves. The special nature of the dentistry cost category, established by this process of consultation, is confirmed in the Deloitte report. It is also important to
understand that whilst the cost windows were established by reference to the actual costs of delivery of the course, as included in those windows, they are not intended to reflect actual costs. The intention is that each institution manages the appropriation it receives calculated in accordance with the EFTS formula and manages those funds with utmost efficiency, levying students for the shortfall. It is also important to understand that the costs windows are subject to monitoring and ongoing review.
[25] These principles are clearly reflected in the introduction to the Ministry of
Education’s handbook The EFTS Funding System in Tertiary Institutions (1991 ed):
The EFTS (Equivalent Full-Time Student) funding system is being introduced as part of the Learning for Life reforms of the administration of tertiary education. The new system will balance increased financial freedom for tertiary institutions with proper accountability for the way in which they use public funds.
The EFTS (Equivalent Full-Time Student) System: Definition
The government grant to each tertiary institution (e.g: university, polytechnic, college of education) is based on the numbers of students enrolled at the institution and the cost of running the various courses they are taking:
The number of EFTS units at an institution becomes its EFTS count. Institutions are bulk-funded on the basis of their EFTS level, which is their EFTS count for each cost category.
The EFTS Funding System: Aims and Effects
The aim of the EFTS funding system is to distribute government funds fairly among tertiary institutions. All sizes and types of institution are funded on a common basis, and similar courses in different institutions are funded in a similar way.
Each institution is able to see exactly how its funding level has been set.
The EFTS system gives institutions full self management; they use the bulk grant from Government to meet all their own expenses including those for capital works.
There is a clear link between the amount of funding which an institution receives and its accountability for the responsible use of that funding.
Development of the EFTS Funding System
To achieve the aims of the new system, a way had to be found to count all enrolments at all institutions in a similar way. A consistent method of collecting and checking the costs of the various programmes also had to be found.
A Task Force on PCET (Post Compulsory Education and Training) Institutional Costing was set up as part of the Learning for Life reforms. The Task Force review how government funds were being spent in relation to the cost of running programmes for each equivalent full-time student in all 37 tertiary institutions for the 1988 calendar year.
The institutions assisted the Task Force in collecting and checking data; they assigned funding and student costs to the programme classifications in EFTS form. The amount spent on capital works was not included in the analysis, nor was income from student fees.
A range of costs was found for each of the 23 programme classifications, and an average cost was then found for each classification. When these average costs were set against the numbers of equivalent full-time students
[26] The University in the present case participated in the comprehensive costing exercise undertaken in the establishment of the EFTS formula. It contributed cost information in 1989/1990. This information continued to provide the basis of the costs exercise for EFTS funding for each year up until 1994 when the Minister decided that the dentistry subsidy should be reduced so that government funding covered only 46% of the actual cost of providing dental training. It was always intended that the amount of the EFTS funding for all categories would be progressively reduced each year, despite increasing costs faced by institutions, but that this should be done through monitoring and review.
Fee Structure at University of Otago
[27] The University calculates and sets its fees for each course individually, based on the cost of providing that course. Some New Zealand universities havc apparently charged a flat rate for all courses, resulting in students in less expensivc courses subsidising students in more expensive courses. It has however been th University’s policy not to cross-subsidise between courses in that manner.
[28] To set its fees, the University calculates the actual costs of provision of a particular course and then sets off against that the funding received from the Government by way of EFTS funding for that course. The residual income gap is addressed from other sources, primarily through the levying of fees on enrolled students. The fees payable by dental students at the University in 1994 based on this calculation were $7,600.
[29] How the University gets it fees is of course totally a matter for it and the
Minister has no role to play in setting fees or in any operation or management matter.
CHRONOLOGY OF RELEVANT EVENTS
[30] Because of the nature of the decision-making process in this case, it is
important to set out the chronology of relevant events in some detail.
The First Decision: The 1994 Budget
Genesis of the Three Decisions
[31] In preparation for the 1994 Budget, the Ministry of Education began to examine how funding might be re-allocated within the education sector to make better use of available resources. On 1 February 1994 a paper entitled New Policy Proposals (compensatory savings) for 1994/95 was delivered to the Minister. In the paper, Policy SpecfIcation STO6, contributed by Mr Catherwood, Senior Manager, Tertiary Charters and Funding, proposed the following reduction in the dental subsidy:
Proposal
Reduce the tuition subsidy rate for dentistry (base rate $40907) to the level of the tuition subsidy for medicine (base rate $25356).
Justification
The current tuition subsidy rates for dentistry were determined at the time of
the reforms of educational administration and were set at a high level on the basis of historical costs for low staff-student ratios and expensive state-of- the-art technology and equipment. These high costs for dentistry tuition subsidies can no longer be justified, by comparison with tuition subsidy costs for medicine. The private benefit to those who practise dentistry is also considerable, and should be borne by the student (through the loan system).
Savings
1994/95 1995/96 1996/97
1.35 2.71 2.71
Risk
There will be high political risks as the institution(s) are likely to pass their
costs on to the students in increased fees. The fees could rise by up to
$15000 each per student if the university were to seek full compensation for
the current costs windows, and, on top of the existing fees for dentistry students of over $7000, would create a possible fee regime of up to $22000 per student. There would be likely to be consumer resistance from existing students, reactionllobbying from health groups and the dentistry profession,
a decrease in participation in dental training, and flight to overseas universities. There is likely to be a transfer of costs of compensatory fees set by the institutions to the loans scheme.
[32] On 4 February 1994 a Revised New Policy Proposals (Additional expenditure, compensatory savings — 1994/95 Budget) was delivered to the Minister with STO6 included. STO6 appeared again in a further paper, Refined New Policy Proposals (Additional expenditure & compensatory savings — 1994/95 Budget on 16
February 1994.
[33] On 3 March 1994 the Minister suggested to his Ministry officials that “it might be preferable to phase the tuition subsidy reduction in over three years” and sought advice as to how that might best be done. Subsequently, a three-year phased reduction and associated calculations were included in a revised version of STO6. The revised proposal, which contained no reference to equity and the private benefits of dentistry, read:
Description
2 It is proposed that the dentistry tuition funding rate (base value
$40,334 in 1994) be reduced in three stages (1995 to 1997 academic years) until it is the same as the medicine funding rate (base value
$25,001 in 1994).
Objectives
3The current tuition subsidy rates for dentistry were determined at the time of the tertiary administration reforms on the basis of particularly high historical costs at the time. This arbitrary reduction would equalise the dentistry and medicine categories and would rationalise the number of categories.
Problem Definition
4There is some political risk in this proposal if institutions pass on the reduction in funding categories directly to students in increased fees. The fees could rise by up to $5,000 per year over the three years. This would be on top of the 1994 fee for dentistry students of
$7,600. There would be likely consumer resistance from existing students, reaction/lobbying from health groups and the dentistry
profession.
Evaluation
Cost
5The savings from the progressive reduction of dentistry funding category to medicine funding category are set out in table one
TABLE ONE -
SAVINGS FROM REDUCTION OF DENTISTRY FUNDING CATEGORY
$ million
1994/95 1995/96 1996/97 1997/98
Savings 0.476 1.429 2.382 2.858
[34] On 24 May 1994 a new document was prepared for the Minister in response to specific questions about some of the Ministry’s proposals. Included in this paper was a further revised version of Policy Specflcation STO6, which contained a new paragraph:
NOTE: In answer to Ministers’ specific questions
It is unclear how the University of Otago would react to the proposed reduction. It may choose to pass the impact of the funding reduction directly on to students which will have a dampening effect on student demand. However, given the current excess in demand the University will still have no problems meeting the quota that is in place for dentistry courses. Alternatively, the University may choose to spread the reduction across all their students, in which case the impact will be greatly reduced.
[35] At Cabinet meetings on 27 and 30 May 1994, the cuts to the dental tuition subsidy sought by the Minister were approved. On 29 June 1994 the Ministry prepared a paper for the Minister outlining the options available in the event that the University “indicate that in the light of the proposed reduction to the cost category for dentistry announced in the Budget [it] will discontinue its current Dentistry
programme.”
[36] Option 1 outlined the possibility of seeking tenders from other institutions in New Zealand and Australia with a view to offering a dentistry programme at the new level of funding. Option 2 suggested that the Government could consider ceasing to
train dentists in New Zealand for a period and target its immigration policies at importing qualified dentists from overseas countries. Option 3 bears repeating in full:
Option 3: Set up a Review of the Dentistry programme at the University of Otago
13 The Minister of Education could indicate to the University of Otago that Government would set up a review of the Dentistry programme at the University. Such a review should include international comparisons and peer review from other high-cost disciplines such as medicine. An eminent person with credibility in the university sector such as Dr Norman Kingsbury could be engaged to chair such a review. The outcome of the review could be a series of recommendations to the Minister of Education on the appropriate level of funding for dentistry programmes in New Zealand.
Comment on Option 3:
14 Should a review exercise as outlined above recommend to Government that the current level of funding for dentistry is too high it would then justify Government’s decision to reduce the current funding for this programme to Otago University.
15 However, should the review indicate that the current level of funding (cost category F) (base rate of $40,334 per EFT place) is comparable internationally then there could be a problem for Government is [sic] deciding that while the review exercise supported the current level of funding, Government was not prepared, or could not afford to continue to pay the high level of funding for that particular programme.
[37] On 27 June 1994 Mr Catherwood wrote to the Minister in the following vein: BUDGET DECISION ON A DECREASE IN THE TUITION
SUBSIDY FOR DENTISTRY
Background
1.The Government has decided as part of the 1994/95 budget that the dentistry base tuition subsidy currently paid for the education and training of dentist trainees will be reduced in three stages over the
1995, 1996, and 1997 academic years until it reaches the same level as the base tuition subsidy for medical students. The base tuition subsidy for dentistry reduces from its current value of $40,033 per equivalent full time student (EFTS) to the level of the base tuition subsidy for medicine (currently) $25,001) over three years. [Emphasis added.]
2. The 95% Study Right tuition subsidy for dentistry is currently
$38,371. This figure will reduce over three years in equal reductions
to the level of the Study Right tuition subsidy for medicine (currently
$23,751).
3. The 75% Non-Study Right tuition subsidy for dentistry is currently
$30,251. This figure will reduce in 3 equal reductions over 3 years to
the leveL of the Non-Study Right tuition subsidy for medicine
(currently) $18,751).
4. The following savings are expected from this decision:
1994/95 1995/96 1996/97 1997/98
$million $million $million $rnillion
0.476 1.429 2.382 2.858
5.These savings are being redirected to fund your new policy proposals on teacher development.
6.The Vice-Chancellor of the University of Otago should receive a letter from you following the presentation of the budget to inform him of the decision. The draft letter attached for your consideration should therefore be sent on 1 July 1994 following the budget presentation on 30 June 1994.
[38) When the Budget was delivered on 30 June 1994 the reduction in dental subsidies were announced. They were described as putting funding for dentistry students “on to an equitable basis with education funding for other professions.”
[39] The following day, 1 July 1994, the Minister wrote to Dr Graeme Fogelberg, the Vice-Chancellor of the University of Otago, informing him of the decision to reduce the tuition subsidy for dentistry and the basis for the decision:
Government has decided as part of the 1994/95 Budget, that the base tuition subsidy currently paid through the Ministry of Education for the education and training of dentistry students will be reduced in three stages over the 1995, 1996, and 1997 academic years until it reaches the same level as the base tuition subsidy for medical students. The base tuition subsidy rate for dentistry in 1998 will be identical to that for medicine which is currently $25,001. [Emphasis added.]
In making this decision Government has taken into account that the base funding rate for dentistry ($40,334) is currently higher than for any other course category, including medicine. In addition, practising dentists generally are among the highest income earners in New Zealand and therefore gain substantial benefit from their years of taxpayer-funded training. The current base subsidy for dentistry will be reduced in three stages by equal amounts over the 1995, 1996, and 1997 academic years.
Students will continue to have access to the Student Loan Scheme to pay for any increased costs they may incur as a result of this decision.
The Government is directing the savings made from this decision to other higher priority areas within Vote:Education.
Unbundling Funds from Vote:Health for Clinical Training in Health Courses
[40] At the same time as the 1994 Budget proposals were being considered, the Ministries of Health, Education and Finance were carrying out an “unbundling” process to improve transparency in government spending. Up to that point the clinical training costs for medicine and other health professions, although not dentistry, had been included within the general funding received by hospitals from Vote:Health. The unbundling exercise resulted in funds that had been used for clinical training in a variety of health-related courses, including medicine but not dentistry, being unbundled from Vote:Health to Vote:Education. A government announcement on 24 April 1994 stated that from 1 January 1995 all tertiary institutions would be required to use the funds allocated to them from the Ministry of Education, after the unbundling process, to negotiate directly with the relevant Crown Health Enterprise (CHE) for the provision of clinical training for their health- related courses.
[41] On 19 May 1994, a paper prepared for the Ministers of Education and Finance entitled Pre-entry clinical training: required adjustments to tertiary EFTS funding categories, proposed that EFTS funding for clinical training in health-related courses could be allocated by way of additional sub-classifications, related to and incorporating the base funding categories for health-related programmes which the paper identified as EFTS funding categories B, C, D, E and G. Funding category F, the funding category for dentistry, appears to have been specifically left out of the list.
[42] The Ministry of Education suggested that 13 new clinical training funding sub-categories should be established for a number of health-related programmes including medicine, pharmacy and physiotherapy (“Option A”).
[43] The Treasury favoured the introduction of a flat clinical funding subsidy for all clinical training course/programmes (“Option B”) but suggested a transitional option (“Option C”) of only 5 new clinical funding sub-categories. It also raised the concern that to increase EFTS funding to medicine for clinical training would be
inconsistent with the current government initiative to align funding for medicine and dentistry. That concern was explored in more detail in a revised version of the proposal, prepared on 22 July 1994:
Evaluation of options
29The Ministry of Education considers that its proposal is consistent with Cabinet decisions and ensures medicine is given the same treatment recommended for funding the clinical component as the other health professions.
30The Treasury points out that, if either the Ministry of Education’s proposal for 13 new funding categories or the transitional alternative of 5 new categories is adopted, then the dental and medical tuition subsidies would no longer be aligned by 1997 as was announced in the 1994 Budget. It is not clear on what grounds medical training should be subsidised by a greater amount than dentistry.
[44] It is unclear why this paper should have excluded dentistry as a health-related course requiring clinical training or why no-one was alerted to the fact that dentistry was being excluded from clinical training, despite the anomaly being adverted to by the Treasury. The Crown’s explanation was that no additional clinical funding was given to dentistry because dentistry students did not require access to hospitals for the provision of clinical training.
[45] A further version of the paper, again dated 22 July 1994, included the following revised “Treasury View”:
20Treasury has concerns about increasing the proposed level of the medical undergraduate tuition subsidy, as a decision to do so would result in medical undergraduate tuition subsidies being higher than those for dentistry. The reductions in the dentistry tuition subsidies were intended to align the dental tuition subsidy with the medical tuition subsidy. It is inconsistent to propose a higher rate of subsidy for some medical students given that the public and private benefits of dentistry and medicine are thought to be similar. The proposed adjustment to the undergraduate medical category should be zero.
[46] The final version of this paper dated 1 September 1994 contained a recommendation that if the Ministry of Education’s preferred Option A were to be adopted it should be as an interim measure only and should be reviewed by 31
March 1995 as part of the government-commissioned Todd work programme.
The Second Decision: The Refusal to Reverse the First Decision
[47] On 6 July 1994 Dr Fogelberg wrote to the Hon Lockwood Smith detailing specific concerns the University had with the dental subsidy reductions. The matters he raised were:
1.Your reported statement that the School can achieve efficiency gains. We would like to know on what empirical evidence this claim is based.
2.The claim that the cost of educating dental students is the same as for Medical students. This is factually incorrect. The University has to carry all the costs of clinical work for Dental students, this is not the case for Medical students.
3.The impact which this announcement will have upon students currently enrolled in our Dental degree ... If substantial increases in fees are made for 1995 and beyond I will be surprised if some students do not withdraw.
4. The impact which this proposal will have on future student choice.
I have little doubt that the Government has succeeded in creating a
psychological barrier which will work against its policy of equal educational opportunity ... We believe that with this proposal Government has completely overlooked the implications of its policy to have equal access to all tertiary education programmes.
5.The manner in which Government has chosen to communicate this change in funding to us. Surely in the interests of building a strong working relationship and trust a better course of action would have been for Government to consult about what was being contemplated and to give us a chance to respond before making any announcement.
[48] The Minister responded to Dr Fogelberg on 11 August 1994:
I acknowledge that this was a hard decision, both to make and to accept, but believe that, in the interests of equity, it was a reasonabLe decision in the circumstances.
The Government’s position is that the current tuition subsidy which exists for dentistry is excessive by comparison with other forms of training, in view of the high incomes subsequently earned by dentists and the direct financial benefit dentists derive personally from their training. [Emphasis added.]
[49] Similar reasons were advanced by the Prime Minister, the Rt Hon James
Bolger, in a letter of reply he wrote to a concerned student, Justine Brock, on
9 August 1994. Ms Brock had written to the Government expressing concerns about
the funding cuts and specifically referring to the differences in funding sources for clinical training at the Medical and Dental Schools. Mr Bolger’s response was:
The Government is ensuring that a quality, affordable tertiary education is made available to a greater number of New Zealanders than ever before. As a means of achieving this goal, some of the inequities inherent in the funding of tertiary education have had to be addressed. Based on the expectations New Zealanders have, of the tertiary education sector, I consider the reduction in the tuition subsidy for dental students to have been reasonable.
The Government’s position is that the current tertiary tuition subsidy which is paid for dentistry training is excessive by comparison with the tuition subsidy paid for other forms of training. In view of the high incomes earned by dentists, and the direct financial benefit dentists derive personally from their training, a decision was made to reduce the level of the tuition subsidy for dentistry training to that paid for medicine, over a period of three years.
The University of Otago Prepares a Submission on the Issue
[50] The University and the members of government involved in the decision- making process set up a meeting to discuss the issues raised by the University. On
16 August 1994 the University sent the Minister a submission it had prepared in anticipation of that meeting. The executive summary read:
1. Even at current fee levels of $7,600 per annum it is possible that some dental graduates will never repay their loans.
Analysis shows that a student entering dentistry in 1995 borrowing his/her full entitlements would have to earn an average annual income of $58,573 from age 24 to 65 inclusive to repay the loans taken out during his/her university study. This average is higher than the average mean life income earned by dentists throughout their career on an annuaLised basis. 1991 census data shows that at age 55 the average dentist’s income is $56,958.
2.If student tuition fees are increased to an average of $12,000 per annum the problem will be exacerbated. Many student [sic] will never repay their Loans since an average income of $70,412 per annum will be required to achieve this.
3.If student fees rise to $20,100 per annum and a student borrows to finance his/her fees and other expenses he/she will have to earn an average annual income from age 24 to 65 inclusive of $92,210 to repay the debt in full over his/her working life. This is nearly twice the current mean income earned by dentists. Therefore dental students will, without voluntary repayments, never repay their loans in full unless their incomes rise leading to substantial increases in the charges which they make for dental services. This is obviously
not in New Zealand’s best interests and will lead to an erosion in the quality of dental care and hygiene.
4.Offers of dental school places are already being turned down. With the increase in fees to $7,600 for 1994 some 29 students who were only offered places in the dental school declined to accept them. More than half said that the reason was the high fee level. This is a clear warning that the Government’s policy of equity in educational opportunity in dentistry will collapse.
5.Current university funding for dentistry includes clinical costs whereas that for medicine does not.
In New Zealand the university funding cost category for dental education is more than that for medicine because the university has to fund all the clinical costs of training students. Costs per efts (inclusive of gst) at Otago are teaching $21,785; clinical work
$18,271; total $40,055.
6. Medical clinical costs are funded by the Che’s through vote health.
If a comparison is to be made, it is either by comparing only the
teaching costs for dental and medical education or by comparing both the teaching and clinical costs. A simple comparison of the cost categories for dentistry and medicine is misleading and incorrect.
7.Dental education costs in New Zealand are comparable to those in Australia. Detailed data obtained from four of the five Australian dental schools shows quite conclusively that New Zealand’s university dental education costs are in line with those in Australia. We are not inefficient when compared to the Australians. What should be noted is that both New Zealand and Australia are more than cost competitive internationally. Our costs are under those in the United States, Canada and England.
[51] Part 4 of the submission covered the costs of running the dental school:
4.THE COST OF DENTAL EDUCATION AT THE UNIVERSITY OF OTAGO
Currently Ministry funding provides for both the teaching and clinical training of dental students. By contrast current Ministry funding for medical education makes no provision for medical clinical training which is provided for in the Health vote.
A copy of the School of Dentistry’s budget for the 1994 year is given on the following page. The clinical component of this budget amounts to
$18,271 per efts or 46% of the school’s total budget.
The net cost of the clinical operation for 65,000 patient attendances is
$3 .983 million and these activities relate to two areas:
the provision of clinical training for undergraduate and postgraduate students
- the service of a dental hospital providing dental care to eligible persons; services not available from a dentist in private practice due to special needs of the patient; basic dental services for low income adults who are unable to attend a private dentist; maxillofacial surgery.
At the present time the university receives only $120,000 per year from
Healthcare Otago for the provision of these services.
The Ministry of Education funded the University of Otago $7.49 1 million in 1994 for Dentistry comprising 69 study right and 159 non study right efts with supplements for 3 wholly research efts, 1 foreign wholly research efts and 1 extramural efts. The funding received from the New Zealand government is $38,317 for study right students and
$30,251 for non study right students. Clearly the reductions proposed in the Government’s budget will have a severe impact on the school’s finances.
It will be impossible to absorb the total reduction in funding of $2.8 million over without substantial student fee increases if the quality of dental education in New Zealand is to be maintained.
Details of the 1994 School of Dentistry budget follow:
Teaching Clinical Total
Expense $000s $000s $000s
Academic Salaries 1,578 1,778 3,356 (note 1)
General Salaries 709 1,658 2,367 (note 2)
Salary Related Costs 127 192 3 19 (note 3)
Materials/General Exps 620 828 1,448 (note 4)
Occupancy 305 222 527 (note 5)
Depreciation
- Building 86 63 149
- Equipment 200 20 220 (note 6)
Overhead 671 35 706 (note 7)
Total Expenses 4,296 4,796 9,092
Income 75 1,255 1,330 (note 8)
Net Cost 4,221 3,541 7,762
EFTS 218 218 218
Cost per Efts $21,785 $18,271 $40,055 (GST inclusive)
Note 1 Academic salaries include the remuneration of all staff involved in delivering patient care — part time clinical staff, teaching fellows, house surgeons and 42.5% of the core academic staff. This percentage is based on the 1991 review and subsequent annual staff reviews...
Note 2 General Salaries include the remuneration of all staff involved in clinic administration, auxiliary services and support services. These include appointments, reception, recalls, patient records, fee collection, nursing and associated services, technical services, radiology, equipment maintenance, custodial and stores.
Note 4 Materials and general expenses include the day to day non salary costs of operating the clinics, stores, workshop, laboratories and patient reception.
Note 5 Occupancy includes repairs and maintenance, cleaning materials, security, rates, insurance and energy costs with the separation of costs between teaching and clinical operations calculated on a per metre basis.
Note 6 Depreciation is calculated on equipment identifying research and teaching equipment separately from clinical plant. The equipment depreciation for clinical plant is low because all the major items involved in running the dental clinics have been written off, being more than ten years old. An additional $300,000, based on 10% of the estimated $3 million required to replace and update the dental clinics including sterilisation equipment, should be included when considering the cost of providing dental services.
Note 7 Overhead has been allocated to clinical services to recognise the use of human resources and financial services staff within the university for services relating to patient care.
Note 8 Income includes contract income from Healthcare Otago of
$120,000 referred to earlier, $60,000 from Otago Polytechnic for the clinical training component for the dental hygienists course, and from patients $45,000 for specialised oral implants and $1,030,000 for general treatment...
[52] Mr Catherwood prepared a briefing paper for the Minister on 17 August
1994, in preparation for his meeting with Dr Fogelberg on 18 August 1994. In the paper Mr Catherwood noted there was substantial criticism from dentists, dental students, the Dental Association and the University, and that there were allegations that the decision to reduce dental subsidies had been made on the basis of incorrect factual information:
Decision to Reduce funding
8The decision to reduce the tuition subsidy payable to the University of Otago for the training of dentists was principally to rectify what was seen as an inequity in the EFTS funding model. The tuition subsidy for dentists will now be reduced, over a three year period, to that of medical students.
9Dentists personally derive considerable benefit from their training, principally the potentially high incomes which a qualified dentist has the capacity to earn. A report of graduate employment in 1993, prepared by the New Zealand Vice-Chancellors’ Committee, found that the average salary earned by dental graduates was, at $40,645, the highest of any discipline ... The Ministry is of the opinion that such salaries are generally greater than those of most university graduates and are a direct benefit stemming from the choice of study at a tertiary level.
10The Ministry’s initial view is that comparisons with tertiary funding regimes in other countries (principally Australia, England and the United States of America) indicate that dentistry and medicine are usually funded at roughly equivalent levels. The Ministry is undertaking further research to verify the validity of this conclusion.
11The Ministry believes a distinction needs to be made between the funding provided by Government, and the total costs of the programme.
12The university’s position is that a major factor in the cost of dental training is the cost of clinical training. The provision of the dental hospital is a major component in these costs.
Student loans
17 The Ministry would agree that it is likely that some students would never repay their loans. This cost would be borne by the state and has been included as a component of the funding for the Student Loan Scheme.
Clinical Training
18Attached ... is an extract from the report on dentistry training undertaken by Coopers and Lybrand, the consultants who investigated the costs of clinical training in health-related professions. The conclusion from this investigation was that the provision of clinical experience for dentistry training by Crown Health Enterprises was cost-neutral. This is due to the fact that the University of Otago operates its own dental hospital and very little training is provided by Crown Health Enterprises.
19 The EFTS funding, applied by the University to the School of Dentistry, subsidises the total costs of the operation of the School. The School, in turn, provides free or low cost dental services to people in the Dunedin area, under the guise of practical training. The net effect of this is that Vote:Education is subsidising the dental care and treatment to adults who are fortunate enough to live within the Dunedin area. You may wish to suggest to the University that it considers charging fees to recover costs.
20The Ministry’s position is that further study and analysis of Dr Fogelberg’s submission on dentistry clinical training is required. One option officials would like to explore with officials from the Ministry of Health and Treasury is whether the costs of the provision of dental care to the Otago region and the costs of dentistry clinical training should be “unbundled” and treated separately.
Fees payable by students
21The announcement of the reducing tuition subsidy has prompted most observers to anticipate a proportionate rise in the fees which an enrolled dental student will be expected to pay. It is important that the Government stress that it expects the University to make efficiency gains. Fees are the sole responsibility of the University’s Council which, in a competitive environment, should be ensuring that the efficiency of the university translates into affordable fees for enrolled students in all disciplines. Last year the University of Otago increased its fees to match the reductions in tuition subsidies. You may wish to stress that you would expect the University to achieve efficiencies when considering the setting of fees for 1995.
Other issues
24The Ministry advises that it is for the University of Otago to justify the continued operation of the School of Dentistry and to present a case as to why dentistry ought to cost more to teach than medicine. The Ministry suggests you may wish to ask Dr Fogelberg whether he believes dentistry training ought to cost more than medicine...
[53] On 18 August 1994 a Ministry paper was prepared for Mr Catherwood, commenting on the submission from the University. The paper summarised the concerns raised by the University and suggested responses andlor solutions to those concerns. In response to the concern that fees for dentistry would rise, the authors of the paper pointed out that the university should concentrate on efficiency gains and also suggested that it might consider passing the effects of the subsidy reductions on to all Otago University students by charging a flat rate for all courses. This would
mean reversing the University’s firm policy of not cross subsidising between courses.
[54] The University had also expressed concern at the high level of debt that dentistry students would incur under the student loan scheme if fees were raised. The view taken by the authors of the paper was that repayments of the student loans incurred were income-contingent and the repayments not onerous.
[55] Paragraph (c) of the paper addressed the issue of funding for clinical training:
c It is incorrect to seek to align the dental tuition subsidy with that of medicine as medical students receive subsidised clinical training through the CHEs
•From January 1995 onwards all funding for pre-entiy clinical training will be funded from Vote.Education. Previously, the clinical component of medical undergraduate training was funded through Vote:Health. This ended in the 1994-95 budget with a fiscally neutral transfer of funding from Vote:Health to Vote:Education.
•Ministers have yet to decide how the money that was transferred from Vote: Health to Vote.Education, will be allocated among different clinical courses. The Treasury has recommended that funding for pre entry clinical training for medicine be set at the same level as funding for pre-entry clinical training for dentistry. If the Treasury recommendation is adopted any funding disparities between dentistry and medicine will evaporate.
•It appears that the School of Dentistry, unlike the Schools of Medicine has the ability to generate direct income from its clinical patients and can and should use this to off-set its clinical training costs.
[56] Paragraph (d) stated that international comparisons about the cost of providing dentistry training were not relevant as the decision had been made primarily to ensure that “courses such as medicine and dentistry which have similar net public benefits receive similar funding”. This despite the justification at the time the decision was made that, internationally, medicine and dentistry were funded at similar levels.
[57] Paragraph (f) of the paper confronted the allegation by the University that high fee levels were deterring low-income students from studying dentistry and that the course would become the preserve of the wealthy. The authors of the paper suggested that an education campaign about “the benefits of the loan scheme” might
be of assistance. They went on to state that if low-income students were still not taking up student loans then it was possible that could be attributed to risk- averseness and there was little the Government could do about that.
[58] In response to the University’s concern that potential dentistry students would take up law and accountancy rather than dentistry, the authors of the paper said this would mean students would not over-invest in dentistry, thus ensuring that New Zealand did not end up with an over-supply of dentists.
[59] The authors did not consider that it was certain that fees charged by dentists would rise in the future as a result of raised tuition fees, but stated that if they did, it was appropriate that the users of dental services pay for that rather than all tax payers. The effect of higher charges on low-income families could be addressed by providing a subsidy to low-income families directly.
[60] Part Two of the paper was entitled The Argument for Reducing the Tuition Subsidy for Dentistry Training. It identified five justifications for the subsidy reduction: namely, that the cost of courses should reflect their net public benefits; the private benefits of dentistry were high; that the student loan scheme meant that higher tuition fees should not be a barrier to dentistry training; that it was appropriate that the users pay for increased dental charges if that occurred; and that subsidies for dental care could be provided directly to low-income families if necessary. The paper concluded:
5The University of Otago is to be commended for compiling such a comprehensive report on this issue. However, in our view, the arguments they raise are not convincing. The University’s argument focuses on the costs of dentistry tuition, rather than the benefits of a dentistry degree. The suggestion that dental tuition fees should be kept low in order to ensure cheaper dentistry service fees for low-income earners is very inefficient. The reduction in the dentistry tuition subsidy was appropriate given that the net public benefits of dentistry are similar to medicine, and that there are high private benefits arising from the practice of dentistry.
[61] This paragraph confirms what is evident throughout the paper; that the authors did not properly consider what the University had told them and chose to focus only on those areas of the University’s submissions that they could argue
strongly against. The focus of the University’s submission had been that the government had failed in its stated intent to align funding for medicine and dentistry because of a lack of understanding offunding sources and structure.
On 19 August 1994 Dr Fogelberg wrote to Mr Bolger again, expressing the University’s concerns and pointing out some apparent mistakes the government had made. He reiterated the fact that clinical funding for medicine and dentistry came from different sources and that the way in which clinical training was provided was fundamentally different because of the role of the public hospitals as opposed to the University’s own stand-alone dental clinic.
[62] Dr Fogelberg also corrected an apparent error in the information provided to the government regarding the total cost to the government of funding a dental student. The government understood that it was $175,453 per student but the letter attached a table with the correct calculations compared with the incorrect calculations on which the government relied:
STATE SUBSIDY RECEIVED FOR DENTISTRY
As stated in Towards 2000 document $175,453
University of Otago calculation $139,306
Year 1
1994 Cost Window 1994 Cost Window
Costcategory Efts Study right Non study Total Study right Non study Total right right
Intermediate Science 1.2000 $9,468 $11,362 Dentistry $38,317 $38,317
Year 2
Dentistry Science 0.2250 $9,468 $2,130 Dentistry $38,317 $38,317
Health Sciences 0.2276 $11,927 $2,715
Dentistry 0.7100 $38,317 $27,205
1. 1626
Year 3
Dentistry Dentistry 0.6374 $38,317 $24,423 Dentistry $38,317 $38,317
Dentistry 0.3626 $30,251 $10,969
1.0000
Year 4
Dentistry Dentistry 1.0000 $30,251 $30,251 Dentistry $30,251 $30,251
Year 5
Dentistry Dentistry 1.0000 $30,251 $30,251 Dentistry $30,251 $30,251
S139,306 $175,453
[63] Dr Fogelberg also took issue with the stated median figure for a dentist’s salary of $63,000, pointing out that according to the 1991 census the average salary was actually $55,000. He outlined the potential level of the loans that dental
students would incur if the planned cuts went forward. A similar letter was sent by
Dr Fogelberg to the Hon William Birch, the then Minister of Finance, on the same day. Both letters were copied to Dr Smith.
[64] On 8 September1994 Dr Smith wrote to Dr Fogelberg advising that the Government was not prepared to change its mind over the subsidy reductions. This letter is relied on by the plaintiffs as “the second decision”:
Thank you for the comprehensive briefing you provided to me on the funding of dentistry training on 18 August 1994. Thank you also for your further letter of 19 August 1994 on the matter of the tuition subsidy paid to the University of Otago for the training of dentists.
I appreciate the constructive way in which you have presented the University’s position. I also appreciate your commitment to investigate ways of achieving efficiencies within the University to minimise impact upon students.
The decision to reduce the tuition subsidy for the training of dentists was taken by Cabinet, and I am not in a position to rescind it. I should be grateful if you would monitor the impact of the inevitable student fee increases upon student enrolments in the dental school for 1995, and advise me of the results once your 1995 enrolments are finalised.
As I indicated at our meeting, I am prepared to investigate ways of assisting the University to make the transition to the new tuition subsidy rates for dentistry training. I am therefore seeking a meeting with my colleague, the Minister of Health, to discuss the funding of community dental care services in Otago...
I note the points you have made about student loans. While it may be true that a student would not necessarily repay the full loan if payments were made at the minimum rate over the dentist’s working life, a higher rate of repayment is always possible...
I shall continue to monitor the issue of the tuition subsidy funding for dentistry training, and would be grateful if you would keep me informed of developments.
[65] Dr Fogelberg replied to Dr Smith’s letter on 12 September 1994 asking that the government review the decision as part of future budget considerations, even though the 1994 decision was unable to be reversed. He also noted that some community dental care services would have to be cut back or eliminated if further funding was not forthcoming.
Funding for Community Dental Services in Otago
[66] On 2 September 1994 the Hon Lockwood Smith wrote to the Minister of Health, the Hon Jenny Shipley, regarding the funding of the dental school for its role of providing community dental care:
I met recently with Dr Graeme Fogelberg, Vice-Chancellor of the University of Otago, to discuss the Government’s decision in the Budget to reduce the tuition subsidy funding of dentistry training to the level of the tuition subsidy for medicine, over a period of three years
2During the course of the University’s presentation of its case to me, reference was made to the University’s role in providing community dental care services to the people of the Otago region. The cost of providing this service has been a major factor in the high tuition subsidy previously paid for dental training.
3 I have indicated to the University that I do not wish to review the Government’s Budget decision on the reduction of the tuition subsidy rate for dentistry training.
4I did indicate, however, that I would seek a meeting with you to discuss the matter.
5The University has provided me with data that, if it is accurate, suggests there is considerable regional variation in funding of community dental care services around the country. The figures provided by the University are as follows:
Area Attendances RHA Funding
Dunedin 65,000 $120,000
Wellington 15,000 $600,000Christchurch 22,700 $1,000,000
Auckland 27,000 $2,000,000
Hamilton 3,000 $290,000
6These figures reveal that the cost of community dental care services in the Otago region has been subsidised in the past by Vote: Education.
7I understand that officials from Health and Education have met, and have agreed that a first step would be to investigate and identify the actual costs of providing community dental care services in Otago. This ‘unbundling’ of costs would need to involve both the University and the Regional Health Authority. A report could then be made to us jointly to consider further action.
[67] During September 1994, Dr Times, the Dean of the Dental School, gave a speech to the New Zealand Dental Association during which he outlined the University’s concerns over the subsidy reductions. A copy of his speech was sent to Mrs Shipley, who asked the Ministry of Health to advise her whether the
implications of the funding cuts on dental fees, training and care had been
understood by the Ministry of Education at the time of the decision. She received a report on 27 September 1994, The Ministry of Health Report, advising her in summary that:
Ministry of Education officials did not appear to have considered, prior to the announcement in the 1994/95 budget, all of the possible impacts of the decision to reduce the subsidy currently paid from Vote:Education for the education and training of dental students to the level paid for medical students. Officials also appear not to have taken into consideration the fact that the training of medical students is also supported through Vote:Health. Consultation with the Ministry of Health during policy development would have assisted with the consideration of potential impacts.
It is the view of the Ministry of Health that addressing the funding of community dental services in the Otago region, while necessary in itself, will not overcome the financial problems of the School of Dentistry brought about by the measures in the 1994/95 budget. The only real way to address these problems appears to be to revisit the budget decision.
[68] The substantive part of the report reveals that the Ministry of Health undertook the sort of investigative exercise one might have expected the Ministry of Education to have undertaken before making the 1994 decision. A copy was sent to the Ministry of Education at Mrs Shipley’s request. It is worth repeating large parts of the paper in full:
The cost of clinical training
The budget decision to lower the dentistry base tuition subsidy to that for medical students is based on the assumption that the current subsidy levels are comparable. However, as the speech given by the Dean of the School of Dentistry makes clear they are not.
Currently the costs of training medical students are met from both Vote:Health and Vote:Education. Vote:Education meets the costs associated with the schools of medicine teaching medical students. Vote:Health meets the costs associated with clinical training of medical students. Clinical training is provided to 4th 5th and 6th year medical students and is currently funded out of the personal health care payments made by RHAs to CHEs. Virtually all of this funding for clinical training is provided to 6th year students ($6.127M out of the $6.157M total) who, in addition to receiving training with CHEs, are also paid a small salary. These costs (and the benefits the CHEs derive from having 6th year students training on their premises) were recently “unbundled” and the nett costs identified. A comparison with dental students is shown below.
Financial support provided by the State to medical and dental students in 1994
dental student medical student 6th year medical
(2nd — 5th yr) (2nd — 6th yr) student
Vote:Education
Subsidy 21,763 25,001 25,001
Vote:Education
clinical training 18,270 nil nil
Notes:Vote:Health
clinical training nil 4,561 22,963
The split between dental education and clinical training is based on figures provided by the School of Dentistry in its I 994budget.
2Two alternatives are given for medical students. In the first, the cost of clinical training (including 6th year salary) is spread across 2nd to 6th year students. In the second, the cost of clinical training is confmed to 6th year students.
3It is assumed that the medical baseline tuition subsidy reflects the actual cost of medical training.
There are a number of assumptions underlying the above figures. The Vote:Education subsidy is the base line tuition subsidy. For medical students this is currently $25,001. For dental students it is currently $40,033 (but this also meets the cost of clinical training). What training institutions actually receive will be based on the mix of Study Right and non Study Right students. For comparative purposes the base line has been used in these examples for medical students and the base line figure, nett of the clinical training costs identified by the School of Dentistry, shown for dental students. It allows an approximate identification to be made between the current levels of funding for the formal “teaching” part of dental and medical student training.
Appropriate costing methodology
If an accurate comparison is to be made of the cost of clinical training for medical and dental students the same methodology should be used. The medical student clinical training figures are largely marginal costs (indirect costs only include the marginal space, occupancy and administration costs that would be avoided if a particular training programme was scaled down or ceased to be undertaken by a CHE). “Slow down” costs have been included and any financial benefits from students’ clinical workloads through reductions in numbers of other rostered staff have been recognised and offset against costs and extra staff required by crown health enterprises. The dental student clinical training figures are developed on a different basis. Because the School of Dentistry is a “stand alone” institution providing both education and clinical training the methodology used by the School of Dentistry in budget development details all costs of clinical training ... Also, medical student costs are nett costs while those for dental students are gross costs and do not have the full benefits to the community taken into account.
These two factors, the basis of the calculation of the medical student training figures and the use of nett costs for medical students and gross costs for dental students, will have the likely effect of understating the medical student clinical costs in comparison to that of dental students.
Community dental services
RHAs purchase community and hospital dental services from some CHEs principally through hospital dental departments.
Community dental services at the School of Dentistry
Community dental services are provided in Dunedin by the School of
Dentistry and are indirectly subsidised by Vote:Education. The extent of
this indirect subsidy has not been identified. The only payments from
Vote:Health to the School of Dentistry are:
$120,000 for surgical services (from Otago Healthcare)
$40,000 for school dental service management (from Otago
Healthcare)
$100,000 (approx) for adolescent dental benefits
The Dean of the School of Dentistry has advised Southern RF{A that unless the School can receive adequate funding from the RITA they do not see how they can continue to offer community dental services after 1 January 1995.
Historical basis for this dual agency funding arrangement
The Dean of the School of Dentistry in his speech stated that the University’s previous understanding with the Government was that the payment that they received from Health was unrealistic for the service provided. However, this was taken into consideration when the grant from Education was determined. This is confirmed by a 1968 letter from the Department of Health to the Otago Hospital Board...
The letter stated:
...on the subject of an increased grant to the University of Otago for services provided by the dental school, I am setting out for your information an extract from a memorandum that has been received from the Secretary of the Treasury:
“It is agreed that $7,000 per annum is no longer a realistic charge for the dental services supplied. However, all of a University’s income is offset against its needs in the calculation of the required quinquennial grant. Thus any increase in the grant for dental services made prior to 1970 (the end of the current quinquennium) would require an equal decrease to be made to the quinquennial grant paid to Otago University to preserve the basis of the quinqennial grants. There therefore appears to be no case for making any adjustment in the dental grant paid.”
Impact of the decision to reduce the subsidy on student tuition fees at the School of Dentistry
Comment on the impact of the reduction of the student tuition fees on dental training and dental care is necessarily speculative. Nevertheless the Ministry of Health has some serious concerns about the possible impacts.
Matters considered by the Ministry of education
The matters taken into account in advice to the Minister of Education were:
•the base funding rate from Vote:Education for dental tuition fees is currently higher than for any other course category including medicine
•practising dentists generally are among the higher income earners in New Zealand and therefore gain substantial private benefit from their years of taxpayer funded education
•there is some political risk in that individual student fees could rise by up to $5,000 per year for the three years
•students can access the student loan facility and cover the increased cost of tuition
•it is likely that there will be consumer resistance from existing students, lobby groups and the dental profession.
Matters that do not appear to have been taken into account by the
Ministry of Education
•the major issue is that officials do not appear to have taken into account that funding for dental training (both clinical and educational) comes from Vote:Education while the funding for medical training comes from both Vote:Health for clinical training and Vote:Education for the educational component.
•the estimates of medical student clinical training costs are composed of largely marginal and “slow down” costs. As well, medical student training costs are nett costs while those for dental students are gross costs. These two factors will have the likely effect of understating the medical student training costs in comparison with those of dental students.
[117] Mr Maharey’s suggestions were agreed to at the Business Committee’s meeting on 26 January, and then by Cabinet on 31 January 2000. The Prime Minister released a press statement on 31 January announcing that subsidies for dentistry training would increase in time for the 2000 academic year:
Prime Minister Helen Clark and Associate Minister of Education Steve Maharey said that the high fees paid by dentistry students under the previous National Government had been a disgrace.
“The government has taken this decision on dental fees because of the injustice to dentistry students of the previous government’s decision to increase their fees in 1994 radically.
“The Tertiary Education Commission, soon to be established, will begin the process of reviewing fees levels overall. We believe it is important, however, to address this particular gross injustice in order that students enrolling in dental school this year could do so on a much more reasonable fee level,” Helen Clark said.
[118] On 3 February 2000 Cabinet rescinded its decision to address a slight difference in tuition fees set by the University of Otago in 2000 for medicine and dentistry. The amended decision ensured that fees for medicine and dentistry were completely aligned in 2000.
[119] The Minister of Education, the Hon Trevor Mallard, wrote to Mr Edgar and Dr Fogelberg on 7 February 2000 advising them of Cabinet’s decision, and seeking an undertaking from them that the increase in subsidy would be used to immediately re-set dentistry tuition fees at the level of medicine fees and refund any fees already paid at the higher level. He also noted that the decision was an interim measure for the 2000 academic year only and invited the University’s input on strategies for fee equalisation between dentistry and medicine.
[120] On 15 February 2000 Mr Michael McLellan wrote to the Minister of Health requesting a refund for his daughter, who graduated from the dental school in 1998, of the fees paid by her for her dentistry course.
[121] The Ministry of Education addressed the issue of reimbursement to former dental students in a paper of 3 March 2000:
The Government has not approved the reimbursement of former dentistry students for the higher tuition fees paid between 1995 and 1999. This is for several reasons:
•fiscal constraints — reimbursing all former students would cost approximately $15 - $16 million;
•precedent that such a compensation would set. Several other subjects received significant reductions in funding during the past decade (for example physiotherapy, teacher education), and all tertiary education courses experienced a decrease in tuition subsidy levels (on average 12% between 1991 and 1999), which may have resulted in higher tuition fees being charged by institutions. If dentistry students were reimbursed, it would be likely to result in claims for compensation from other students;
•considerable difficulty in validating claims from students affected by the 1994 policy decision. It is known that the university charged different fees to students in different years of study during the phase-in period. It is likely, therefore, that determining individual entitlements could be costly.
[122] On 6 March 2000 Mr and Mrs Butchard wrote to Steve Maharey urging the Government to reimburse students from previous years. They argued that it would be unjust for such a small group of students to bear the consequences of a mistake by the previous government, and that the uniqueness of the situation would mean that a precedent would not be set. As well, they suggested that the government could make any reimbursement conditional on the money being applied to the repayment of a student loan where the student had drawn on the scheme to pay for the fees in the first place. That way, they said, there would be no fiscal consequences for the government because the money would be given straight back again. Extrapolating this argument, it is possible to discern benefits for the government in reducing the loans of the affected students to a level at which they will be able to repay them over their lifetime; an outcome not currently achievable for many of the students of the dental school during the period 1995 to 1999.
[123] Letters to Ms Gear on 17 April 2000, Ross Anning on 27 April 2000, and Mr Croxson and Mr and Mrs Butchard on 2 May 2000 from the Hon Steve Maharey outlined the Government’s position with regard to reimbursement of affected students, reflecting the reasoning in the Ministerial briefing paper of 3 March 2000 (paragraph [121]).
[124] On 31 May 2000 the Cabinet decided to continue the increased dentistry tuition subsidy into the 2001 academic year and beyond.
[1251 These proceedings were instigated on 27 June 2000 when the Statement of
Claim was filed. An amended Statement of Claim was filed on 26 February 2001.
Table: Fees for dentistry and medicine at the University 1994-2000
Dentistry Medicine
2hlh year 3rd year 4th year 5th year
1994 $7,600 $7,600 $7,600 $7,600 $5,250
1995* $10,100 $10,100 $10,100 $10,100 $5,467.50
1996 $12,783 $17,900 $11,800 $11,800 $6,450
1997 $19,950 $19,950 $19,950 $13,950 $7,210
1998 $20,060 $20,060 $20,060 $20,060 $7,820
1999 $21,590 $21,590 $21,590 $21,590 $9,180
2000 $9,180 $9,180 $9,180 $9,180 $9,180
*Final fees in 1995 were the result of a rebate after funding was provided from Vote:Health for community dental care. The original fee level for 1995 was set at $18,000 for 2nd year students.
JUSTICIABILITY
Are the Decisions Reviewable?
[126] The essential issue is whether the decisions under challenge are amenable to review by the Court. The starting point is clearly the decision of the Minister in
1994 to reduce the dental subsidy component of the general grant for that year and to seek Cabinet approval accordingly. In reaching that decision, the Minister was exercising a statutory power of decision: that being so, he was bound by the prescribed statutory criteria. Those criteria, which are mandatory, required him to determine the amount of the general grant to which the University was entitled in
1994, by use of the EFTS formula and in light of the University’s objectives. For the reasons I shall give, I am satisfied that the Minister exceeded the scope of his statutory authority under s199, by his misuse of, or failure to use, the EFTS formula as required in calculating the 1994 dental subsidy. His misuse of, or failure to use, the formula was based on material mistakes of fact. It also amounted to an arbitrary amendment of the EFTS formula; an eventuality not provided for under the Act.
[127] The fundamental mistake made by the Minister was his erroneous belief that the proposed reduction in the dental subsidy would align that subsidy with the subsidy being paid for the education and training of medical students. The Minister erroneously believed that, for both dentistry and medicine, the EFTS subsidy supported both tuition and clinical training. In reality however the EFTS subsidy for medicine supported the cost of teaching only and the cost of clinical training was provided by a subsidy from Vote:Health. The Minister was therefore in error as to the respective base tuition rates for dental and medical students, which in 1994 were not, in fact, aligned.
[128] The Minister also erred in his oversight of the Dental School as a stand-alone dental hospital, and the implications this had for the cost of dentistry training. He also erred in relying on the overseas’ figures supplied by his Ministry, because these
were not comparative and represented tuition costs only. They did not include the cost of providing clinical experience.
[129] Had the Minister, or officials on his behalf, consulted with the University as to its 1994 operational costs and its efficiency; or consulted with Deloitte Ross Tohmatu as to the basis for the base tuition rates for dentistry between 1990 and
1994; or consulted with the Ministry of Health about its role in subsidising clinical training for medical students, he would not have made such gross errors of fact.
[130] All of the above matters were relevant considerations which the Minister was bound to take into account: they were “facts obviously material to the mandatory statutory considerations” in si 99: see New Zealand Fishing Industry Association Inc v Minister of Agriculture and Fisheries [1988] 1 NZLR 544 per Cooke P at 552. The Minister’s material mistakes of fact, his failure to take into account material facts, and his reliance on some irrelevant considerations (which I shall refer to) render his s199 determination amenable to review. I will elaborate my reasons shortly. As already adverted to, I am of the view that the Minister also had a duty to consult in the circumstances of this case and he failed to do so: see SmithKline Beecham (NZ) Ltdv Minister of Health [1992] NZAR 347.
[131] However I do not find the second and third decisions under challenge amenable to review, for the following brief reasons. The second decision, the Minister’s refusal in September 1994 to revisit his 1994 determination under the Act, was not the exercise of a statutory power of decision but a matter totally within his discretion. The third decision, that of Cabinet in 1997 not to realign dental and medical funding, was a policy decision and accordingly not amenable to review by
the Courts.
Why the 1994 Determination Under s199 is Reviewable
Is there any discretionary element in s]99?
[132] In the present case I find it questionable whether there is any true element of discretion in the determination of a general grant by the Minister under s199 (as
opposed to the determination of a supplementary grant). The Minister’s role in determining the amount of any general grant is confined to fixing the amount in accordafice with the current EFTS formula costs windows, and in light of the objectives of an institution.
[133] Even if there were an element of discretion in the Minister’s power to determine general grants under s199, I am satisfied that the basis of his 1994 determination was so erroneous that it could only be categorised as irrational; or unreasonable in the Wednesbury sense; or unlawful. On any basis it was ultra vires. There is ample authority to support the principle that an exercise of discretion is amenable to review where there has been a misdirection of fact or of law, or where the outcome of the exercise of the discretion is irrational, or such that no reasonable person could have arrived at the decision: see Padfield & Ors v Minister of Agriculture Fisheries and Food & Ors [1968] AC 997 (HL); Secretaiy of State for Education v Tameside Metropolitan Borough Council [1977] AC 1014 (HL); New Zealand Maori Council v Attorney-General & Ors [1987] 1 NZLR 641 (CA); MacKenzie District Council v Electricity Corporation of New Zealand [1992] 3
NZLR 41 (CA); and Wellington City Council v Woolworths NZ Limited (No 2)
[1996] 2 NZLR 537.
The Crown ‘s Position Cannot Be Correct
[134] To reiterate the Crown’s position: it is that the power of the Minister to set the amount of any general grant under s199 is non-justiciable for three reasons:
First, it involves the allocation of scarce resources requiring the balancing of competing economic and social policy considerations. The Courts are institutionally unsuited to resolving these kinds of problem, which are best left to be decided in the politicaL arena. ... In this case the plaintiffs obtained a political resolution to the issue of the level of government funding for dentistry when the new government decided in February 2000 to provide a supplementary grant to the University to ensure that the dentistry and medical fees were equalised. Secondly, the Minister has an absolute statutory discretion to set the dentaL subsidy at whatever level he regards as appropriate. Thirdly, the plaintiffs are in reality attacking the merits of the decision itself rather than the process.
[135] The core of the Crown’s argument turns on the nature of the decision, which it argues was a policy decision taken into an Appropriation Act and thus for reasons
of parliamentary sovereignty or non-justiciability thereby protected. This argument arises from the fundamental constitutional principle that all expenditure of public
funds must be authorised by statute (Hogg and Monahan Liability of the Crown
Carswell, 3id ed, p220). On that basis the Crown’s submission was that:
statutory authority for the payment of the government subsidy for dentistry is found in the relevant Appropriation Acts for the years 1994,
1995, 1996 and 1997 and their associated Estimates. Once Parliament
approved the relevant appropriation, that approval and the amount of government funding is not reviewable in the courts.
Once Cabinet made the decision to reduce the level of dentistry funding, the matter was included in the 1994/95 Budget round which expressly provided for the reduction in the dentistry subsidy. From 1994 onwards, the appropriations Bills, presented in the House for debate, expressly referred to the dentistry funding rates in the associated Estimates.
[136] Whilst I readily accept the Crown’s argument that neither Cabinet’s approval of the Minister’s decision nor the Appropriation Acts themselves are amenable to review, I do not accept the argument that Cabinet approval or the subsequent enactment of legislation can retrospectively render valid that which was unlawful; or can shield an unlawful exercise of statutory power from review by the Courts. The fact that the Minister’s decision was taken into the Estimates for 1994 and ultimately became part of that year’s Appropriation Act, does not retrospectively render his determination lawful or immune from review. The supervisory jurisdiction of the Court is not so easily ousted. The Minister’s determination of the amount of a general grant under s 199 did not fall within the category of a general funding decision, ungoverned by statutory criteria or any promulgated policy. His decision did not fall within the category of decision-making referred to by M Gronow in Judicial Review of Ministerial Policy Discretion (Law Institute Journal, September
1994, 835) at 836:
There are other areas, however, where no matter how important a decision is to the interests of a person affected, the courts will not interfere by imposing requirements of reason giving, natural justice or rationality on the grounds that the decision is one of government policy. One example is, generally speaking, government funding decisions. A person affected may well have a strong expectation that funding will continue to be allocated in a particular way and may have acted in reliance on that expectation. Nevertheless, the courts will not intervene due to a recognition that, with perhaps only limited funds to distribute, a government will constantly have to alter its funding decisions. It may not be able to accord procedural fairness: if the money isn’t there to spend, worthy causes may have to miss out.
[137] Nor can a lack of resources serve to validate the Minister’s failure tc determine the University’s 1994 general grant in accordance with the mandatory criteria in s199. An argument along similar lines was rejected by the House of Lords in R v East Sussex County Council, Ex. p. Tandy [1998] AC 714 (referred to iii
Daniels at para [119]) at 748-749:
[L]ack of resources is relied upon to preclude any statutory duty arising. My Lords, I believe your Lordships should resist this approach to statutory duties.
First, the County Council has as a matter of strict legality the resources necessary to perform its statutory duty under section 298. Very understandably it does not wish to bleed its other functions of resources so
as to enable it to perform the statutory duty under section 298. But it can, jf it wishes, divert money from other educational, or other, applications
which are merely discretionary so as to apply such diverted moneys to discharge the statutory duty laid down by section 298. The argument is not one of insufficient resources to discharge the duty but of a preference for using the money for other purposes. [Emphasis added.]
[138] The effect of an Appropriation Act on unlawful, or potentially unlawful Ministerial decision-making, or on purported policy-making, was commented on by Baragwanath J in Daniels & Ors vAttorney-General (HC Auckland M1615-SW99, 3
April 2002). Daniels, a case decided subsequent to the hearing in this case,
concerned the formulation of a policy (known as “SE2000”) which regulated the manner in which children with special needs were to be educated. Such matters were already provided for in both the Education Act 1964 and the Education Act
1989 but SE2000 purported to extend and/or alter that policy. The proceedings were based in both judicial review and on the plaintiffs’ rights under the New Zealand Bill of Rights Act 1990 and the Human Rights Act 1993.
[139] The Crown in Daniels had argued that, to the extent necessary, SE2000 had been duly authorised by Parliament, especially in annual Appropriation Acts. In similar vein (to this case), the Crown had submitted that issues of adequacy of provision are not justiciable by the Courts. Baragwanath J found however that while there were indeed policy considerations involved in the provision of funding, such considerations were only determinative to the extent that they were consistent with the operative statute (at para [51]):
I am minded to accept the Crown’s argument that the provision which Parliament has made regularly each year for supply for education may be lawfully applied towards a special education regime; but only to the extent that such provision is not inconsistent with EA64 [the Education Act 1964] and EA89 [the Education Act 1989]. As Professor Enid Campbell has shown, the procedure for granting supply has no capacity for amending or suspending the law: Parliamentary Appropriations (1971) 4 Adelaide Law Review 145, 162. See Commonwealth of Australia v Colonial Ammunition Co Ltd (1924) 34 CLR 198, 222-3. The material question is whether SE2000 is inconsistent with EA64 and EA89. [Emphasis added.]
[140] As in Daniels, the material question in this case is whether the Minister used the EFTS formula and the dentistry costs window developed under that formula as statutorily required, when he determined the amount of the dental subsidy for inclusion in the University’s 1994 general grant. The answer is that he did not.
The Minister exceeded the scope of his authority under s]99 when he effectively amended the EFTSformula
[141] The Minister’s decision in this case amounts to a purported re-evaluation of the way in which EFTS funding was originally allocated to dentistry. He singled out, on an apparently arbitrary basis, dentistry for a specific significant reduction, greater than the general reduction being applied at the time as part of the overall policy to reduce tertiary funding. I am satisfied that any change to the EFTS formula could not be made in such arbitrary fashion, because the EFTS system resulted from
a comprehensive review of educational funding, conducted over a lengthy period, for the purpose of unifying funding arrangements in the tertiary sector and with the intent of funding equivalent courses across the tertiary sector on an equal basis. The fact that dentistry is taught in only one tertiary institution does not alter the purpose of unification. In any case, dentistry has equivalents in other health science courses, such as medicine and veterinary science. For the Minister to single out one costs window for significant change in the absence of review of equivalent costs windows is not contemplated by the legislation and is unprecedented in the history of the EFTS scheme.
[142] Reinforcing my view that the EFTS formula and its costs windows, as developed, are not to be departed from arbitrarily, is the absence of any provision in s199 for change to the EFTS formula by the Minister.
[143] The Crown ventured to suggest that the Minister’s decision-making power under s 199 is wholly unfettered. I am satisfied however that the Minister does not enjoy an absolute and unfettered discretion to alter funding levels for individual courses, or across all courses, within the EFTS system. That cannot have been Parliament’s intent. Contrary to the Crown’s argument, the Minister is constrained by the purpose and object of the Amendment Act and by the mandatory decision- making criteria in s199 itself. The situation is reminiscent of that in PadjIeld, where Lord Reid held (at 1030):
It is implicit in the argument of the Minister that there are only two possible interpretations of this provision — either he must refer every complaint or he has an unfettered discretion to refuse to refer in any case. I do not think that is right. Parliament must have conferred the discretion with the intention that it should be used to promote the policy and objects of the Act; the policy and objects of the Act must be determined by construing the Act as a whole, and construction is always a matter of law for the court. In a matter of this kind it is not possible to draw a hard and fast line, but if the Minister, by reason of his having misconstrued the Act or for any other reason, so uses his discretion as to thwart or run counter to the policy and objects of the Act, then our law would be very defective if persons aggrieved were not entitled to the protection of the court.
[144] It is the principle of parliamentary sovereignty which must prevail. The Courts have long emphasised their inability to judicially legislate: likewise individual Ministers cannot purport to legislate by acting contrary to their statutory obligations.
It would amount to amending the Act by judicial legislation. In a sensitive and controversial field which the New Zealand Parliament may be said to have taken to itself, we do not consider that this court would be justified in such a course. If the Act is to be amended it should be done by Parliament aflerfull consideration of the arguments ofpolicy. [Emphasis added.]
(R v Stack [1986] 1 NZLR 257 at 26 1-262, per Cooke P)
[145] As Baragwanath J found, in the circumstances in Daniels, “it is the executive, not the judiciary, that has misapprehended the will of Parliament as expressed in its
legislation”. In the present case, it is the Hon Lockwood Smith who has misapprehended the will of Parliament, as expressed in s199 of the Act.
[146] The comments of Lord Denning in Laker Airways Ltd v Department of Trade
[1977] QB 643 are also relevant to this case (at 704):
There is no doubt that the Secretary of State acted with the best of motives
in formulating this new policy — and it may well have been the right policy —
but I am afraid that he went about it in the wrong way. Seeing that the old
policy had been laid down in an Act of Parliament, then, in order to reverse it, he could have introduced an amending bill and got Parliament to sanction it. He was advised, apparently, that it was not necessary and that it could be done by ‘guidance’. That, I think, was a mistake ... It was in this respect ultra vires and the judge was right so to declare.
[147] The situation in Laker was similar to the situation in this case. It concerned conflict between policy guidance fonnulated by the Secretary of State for Trade in purported exercise of a power conferred under the Civil Aviation Act 1971 and the objectives of the Act set out in another section. The plaintiffs sought a declaration that the new policy guidance was ultra vires the powers conferred on the Secretary of State under the Act and were granted relief on the basis that the statutory power to give guidance could not be construed as conferring on the Secretary of State power to override the objectives of the Act, and thus effectively reverse one of those objectives.
[148] The present case concerns the reverse situation but is analogous. The Hon Lockwood Smith has purported to override a promulgated policy incorporated by reference in statute, by failing to apply that policy as directed.
Failure to act consistently (including taking into account irrelevant considerations)
[149] There was also a duty on the Minister to act consistently towards all courses covered by the EFTS system, so that if he were to apply the considerations that he did to dentistry (such as earning potential upon graduation) he would have to apply them to all courses. If the Minister had been properly acquainted with the facts, he surely would have differentiated between dentistry and medicine, because they had different funding sources and different needs.
[150] In Daniels, Baragwanath J considered that an additional requirement to act consistently attached to some decisions (at para [136]):
[136] In my opinion it is now an axiom both of public administration and of law, that a person or body exercising public authority must not only:
[a]direct itself correctly as to the policies required by law...; but also
[b]establish and maintain practices that will give systematic effect to such policies and to no less than the minimum extent needed to avoid unreasonableness...;
[c] provide equal treatment for those equally placed (see Reckitt
& Colman v Taxation Board of Review).
[151] In the present case, the Minister’s duty was to act not only in accordance with s199 but also with s161. On that basis one would expect him to have reassessed the dentistry course on the same criteria that all courses (including dentistry) were originally assessed for EFTS purposes. It is clear from the documentary evidence that such considerations were put to one side in favour of others, such as bringing dentistry funding into line with medical funding on the unsubstantiated basis that because dentistry required more funding it must be less efficient. Considerations such as the earning potential of dental graduates had not been applied during the original formulation of the EFTS system; there was no reference to such a consideration in either s161 or sl99; and no other professional training course was subject to such an analysis when it funding was considered. Such considerations were irrelevant and the Minister erred in taking them into account.
[152] Relevant considerations may of course extend (beyond those imposed by reference to the provisions, purpose and scope of the Act) to “such facts obviously material to the mandatory statutory considerations as were or ought to have been known to [the Minister] or the Ministry ... the duty to consider statutory criteria extends to facts so plainly relevant to those criteria that Parliament would have intended them to be taken into account and a reasonable Minister would not fail to do so”: New Zealand Fishing Industry Association Inc (supra) (paragraph [130] above).
Failure by the Minister to consult
[153] In the circumstances of this case, I am of the view that there was a duty on the Minister to consult with (at the very least) the University before departing from the 1994 costs window for dentistry. The whole concept of responsibility and accountability by the University under the bulk funding scheme militates in favour of
the University being consulted about a funding decision that will directly affect it and affect a class of students in a profound way.
[1 54] Given the Minister’s effective intention — to reassess and redefine the amount of money dentistry was entitled to under the EFTS scheme — the terms of reference for the original report (by Deloittes) would have been highly relevant. So too would s161(3)(b), “the need for accountability by institutions and the proper use by them of resources allocated to them.” The Minister gave inefficiency as one of the reasons for his decision, but such an assertion has little utility if one has regard to the paper of 29 June 1994 prepared for the Minister outlining the possible options if the University threatened to discontinue its dentistry programme as a result of the funding cuts (referred to above in paragraph [35] and following). Option three of the paper proposed a review of the dentistry programme to determine whether in fact the existing level of funding was already at the appropriate level. Such a review should have been undertaken prior to a decision being made. A review would also have alerted the Minister to other relevant facts; for example, the difference in funding sources for dentistry and medicine and the higher running costs faced by dentistry, due to the need to maintain its own independent infrastructure, while medicine had the use of affiliated public hospitals. Both of those facts were extremely relevant, given the Minister’s stated intention to align dental and medical funding.
[155] If the Ministry had undertaken a review (to ascertain why there was an apparent imbalance between dental and medical subsidies) it would have discovered, as the Ministry of Health did in its review, that the dental school was already very efficient and that any cut in funding would inevitably raise the fees dental students would have to pay. The long title to the Amendment Act includes a statement that the Act is aimed at “encouraging greater participation in tertiary education and training, in particular by removing barriers to access for those groups of persons who have previously been under-represented”. The Ministry’s view in 1994 that “the private benefit to those who practise dentistry is also considerable, and should be borne by the student (through the student loan system)” failed to recognise the potential barriers to entry to dentistry for under-represented persons if fees reached an exorbitant level. Nor did it take into account the fact that a student borrowing a
substantial amount to cover fees may never pay the loan back on the current calculation of a dentist’s average income over a lifetime.
[156] I accept Mr Steven’s submission that:
It is not inconsistent with the objectives [of the Act] to require the Minister to give the University the opportunity to be heard (or at least the opportunity to ensure the Minister has the correct information and all relevant information) in relation to some quite complex issues prior to fundamentally altering an independent and professionally developed costing exercise.
[157] I also accept his further submission that, as to the context of the subject matter:
The University of Otago operates the only facility in New Zealand for the education and training of dental students. Therefore the practical task of consulting with the University (or even the affected students — who have an established Association) is not an unreasonably onerous one, particularly when weighed against the potential impact of the implementation of the First Decision.
[158] Also his submission that:
The University had contributed to the establishment of the EFTS formula by the supply of cost information in 1989/1990 and could legitimately expect that any grants made under section 1999 (which formula), could be undermined or circumvented by introducing arbitrariness into the formula itself.
[159] And his submission that the effects of the Minister’s failure to achieve consistency and coherence:
are obvious in this case where a provision has been introduced in purported reliance on justifications which do not feature elsewhere in the formula, e.g. the “high earnings justification”, the “excess of demand justification” and Treasury’s attempted abandonment of the costs based nature of the scheme. The evidence establishes that the EFTS funding arrangements are clearly to be regarded as having costs as their foundation: see factual submissions Part III, section 13. The evidence also confirms that earnings potential and student demand have had, and continue to have, no place in the formula.
RELIEF
[160] Daniels considered the issue of relief in a situation very similar to the present, although Baragwanath J reserved his final decision pending a further hearing on the matter. He referred to the decision of the Irish Supreme Court in Sinnott v Minister of Education [2001] IESC 39. That case concerned the provision of education to an intellectually handicapped boy. The proceedings were both rights- based and founded in judicial review. The nature of the case has echoes of the present one:
18.The trial judge found that the primary weaknesses in the administrative structures of the State which gave rise to the claims of the plaintiff and Mrs Sinnott were twofold. First, there was a lack of liaison between the two relevant departments of state — education and health — where a particular problem involved both of them
19.The second feature of the administrative structures which gave rise to the weaknesses resulting in the institution of the proceedings was the role of the Department of Finance. The trial judge said it appeared to him that its officials were inszfJiciently informed as to the constitutional obligations of the State to the weak and deprived in society. [Emphasis added.]
[161] The trial judge in Sinnott found that the plaintiff was entitled to declarations of breach; general damages for past and future suffering, distress and loss of enjoyment of life; and, damages for the future cost of the best available education to make up lost ground and minimise permanent damage.
[162] The Supreme Court of Ireland quashed the damages award, noting that such relief trespassed on the exclusive role of the popularly elected house of Parliament in the raising of taxation and the appropriation of public monies. No Irish Court had previously gone further than granting a declaration that certain expenditure was unlawful. Delivering the judgment of the Court, Keane CJ commented at paragraph
71:
I think is it clear that this court would not grant mandatory relief requiring the Oireachtas to provide funds for a particular purpose in order to uphold the constitutional or purely legal rights of members of the public: see Brady
& Ors .v. Cavan County Council [1999] 4 IR 99.
[163] He continued at paragraph 73:
In such cases, while in principle there is nothing to preclude the granting of mandatory relief directed to the Minister concerned, it is appropriate, in my view, for the courts to presume that where this court grants a declaration that he or she has failed to meet his or her constitutional obligations, the Minister will take the appropriate steps to comply with the law as laid down by the courts.
[164] Citing parts of the above passages, Baragwanath J concluded that such an approach was accepted in New Zealand (at paragraph [126]):
[126] . . . the preference for declaratory rather than injunctive relief against an expert body also accords with New Zealand practice; it is unthinkable that we would encounter such a case as Gairy v Attorney-General of Grenada [2001] 3 WLR 779 (PC), where the Crown failed to give effect to
a judgment against it and a mandatory order for payment was required. The recognition of declaratory relief accords with New Zealand practice.
[165] In this case the Crown is concerned that, if the plaintiffs succeed, the floodgates will open to anyone who has suffered a reduction in government funding. In my view that is not necessarily so. This case is unique, because the funding decisions were governed by statute, and also because the error of decision-making was so singular. In enacting s199, Parliament chose to afford certainty and thereby a measure of protection to tertiary funding (albeit on a reducing basis). The Minister’s decision in 1994 undermined that certainty and degree of protection. The plaintiffs should be entitled to a declaration that the Minister’s decision was unlawfUl. It is not within the Court’s powers to award damages in judicial review cases, but I respectfully suggest that the Attorney-General be directed to the discussion in the preceding paragraphs.
Judgment
[165] There will be the following declarations:
1.The decision of the Minister in June 1994 to reduce the level of tuition subsidy paid to the Dental School out of Vote:Education was ultra vires, invalid and of no effect.
2.The difference in the dentistry funding which would have been paid to the University in the academic years 1995 to
1999 inclusive had the first decision not been made and the quantum which was in fact paid during that period was the sum of $10,549,922.00.
3.As a result of the June 1994 decision the affected students have been levied additional fees to a total of $5,805,832.00.
4. The University has absorbed or incurred losses in the sum of
$4,744.090.00 during the period 1995 to 1999 inclusive as a consequence of the decision.
Costs
[166] The plaintiffs are entitled to costs in accordance with Category 3 of the Third Schedule of the High Court Rules, such costs to be calculated in accordance with Table C of the Fourth Schedule of those Rules.
Solicitors:
Gallaway Cook Allan, Dunedin, for the Plaintiffs
Crown Law Office, Wellington, for the Defendants
Deliveredat pmon 2002.
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