a Gee here mate Se irk lak alte TaN Sak HEIR Eta a che ne Me Nad at eee a Oe tek Rhee ai De deity ISN Medea a ae nyt ate tee mt BE hee OK CATCHWORDS Administrative Law - Judicial Review - duty of Minister to determine a scale of fees applicable to approved nursing home - regard to costs necessarily incurred in providing nursing care in the nursing home - reasonableness thereof - relevant considerations - purpose of legislation - whether scale of fees should be adequate to enable the home to be carried on without loss - whether payment for goodwill by purchaser to previous proprietor a relevant consideration - application of policy - reference to past determination - whether proper exercise of power. National Health Act 1953, ss. 40AA, 40AB, 40AE, 41, 43, 44, 47, 51, 60A, 138. Administrative Decisions (Judicial Review) Act 1977, s.8. Dr. GWYN HOWELLS (who was sued as the Permanent Head of the Department of Health Australia) and MICHAEL MacKELLAR (who was sued as the Minister of State for Health) v. NAGRAD NOMINEES PTY. LTD. (trading as "CARRUM PRIVATE NURSING HOME") VG No. 192 of 1981 Smithers, Fox and Franki JJ. 10 September 1982 Melbourne. ae eee pete ty YE IN THE FEDERAL COURT OF AUSTRALTA VICTORIAN DISTRICT REGISTRY No. VG 192 of 1981 et GENERAL DIVISION ON APPEAL FROM THE HONOURABLE MR. JUSTICE NORTHROP DR. GWYN HOWELLS (who was sued as the Permanent Head of the Department of Health Australia) and MICHAEL MacKELLAR (who was sued as the Minister of State for Health) Appellants NAGRAD NOMINEES PTY. LTD. (trading as "CARRUM PRIVATE NURSING HOME") Respondent ORDER JUDGES MAKING ORDER: Smithers, Fox and Franki JJ. DATE OF ORDER: 10 September 1982 WHERE MADE: Melbourne. THE COURT ORDERS THAT: 1. The appeal be dismissed. 2. The appellants pay the respondent's costs. ere EER aa he oe Li eee a a denna eats pe nadernet ttc Ntee ah renin A da en nel pe ca niall Nita eet te Led Li a? etna tna ates nee Tn wenn enter aek aloe hw Teuetigals Ber acciioe Pa IN THE FEDERAL COURT OF AUSTRALIA ) ) VICTORIA DISTRICT REGISTRY ) VG No. 192 of 1981 ) ) GENERAL DIVISION ON APPEAL from the Honourable Mr. Justice Northrop Between: DR. GWYN HOWELLS (who was sued as the Permanent Head of the Department of Health Australia) and MICHAEL MacKELLAR who was sued as the Minister of State for Health) Appellants nd: NAGRAD NOMINEES PTY. LTD. (trading as "CARRUM PRIVATE NURSING HOME") Respondent Coram: Smithers, Fox and Franki JJ. 10 September 1982 Melbourne REASONS FOR JUDGMENT Smithers J.: This is an appeal from an order of Northrop J. pursuant to s.8 of the Administrative Decisions (Judicial Review) Act 1977 by which the Judge quashed a decision made by Mr. Hede, the Delegate of the Permanent Head of the Commonwealth Department of Health on 23 June 1981 fixing the seme ep en ep te ee -- -- Men atthe rook eee ~ "q rope oy sae a ee Nn rt an TA AA a ad Mee te in on pt artalet oi bat eel tecaetah tac nan taomitasne Hil fubal Nears ome ASIU IN toe alm aeere mnt met na i inne earth Lace Ree a ae — en en ee 2. maximum fees which might be charged to patients from 15 July 1981 until December 1981 in respect of nursing home care provided by the respondent in the Carrum Private Nursing Home. The decision was made pursuant to authority conferred on the Permanent Head by s.40AA(6)(c)(i) of the National Health Act 1953 (the Act). Since September 1976 the business of a _ private nursing home has been conducted at a site known as 440 Station Street, Carrum, in a building specially designed and constructed for use as a nursing home. That building was constructed by the two directors of Khoury Developments Pty. Ltd., namely Messrs N & R. Khoury. In September 1976 another corporation, N. & R. Private Hospital Pty. Ltd., controlled by the Messrs. Khoury, applied under s.40 AA of the Act for approval of the premises as an approved nursing home. The Permanent Head granted the application and approval was effective from 29 November 1976. The name of the business conducted at the premises was Carrum Private Nursing Home. Initially provision was made for sixty beds in the home, but later ten further beds were added and approval therefor was effective from 10 July 1978. A scale of fees for the Home was duly determined and was amended from time to time by the Permanent Head. . eee me im ae - - oe eee - - = "4 PRIN ete thas ee eset ae anette aaa, selegnn en eal SE eh ah nce A Ra in Ea Pe SN ween rene Between September 1976 and 15 January 1980 the nursing home was carried on by N & R Private Nursing Home Pty. Ltd. By the latter date the premises were an approved nursing home within the meaning of the Act, for seventy beds, in respect of which the maximum fees which might be charged had been fixed under s.40AA(6)(c)(i) of the Act at $29.35 per week for patients requiring ordinary care and $35.35 for patients requiring intensive care. In those fees as determined by the Permanent Head tnere was a component constituting 12.5 per centum of the capital cost of the home including the initial cost of the land, the cost of construction of the building, the wages of Messrs. Khoury during the period of construction and the cost of equipment for use in the home. On 15 January 1980 the respondent acquired the nursing home business from N & R Private Nursing Home Pty. Ltd. and has carried on the business at the same premises ever since. The respondent paid to N & R Private Hospital Pty. Ltd. $400,000 for the goodwill of the business and $80,000 for the fixtures and fittings and obtained possession of the premises pursuant to a lease granted by Khoury Developments Pty. Ltd. The lease was for a term of five years with three consecutive five-year options for renewal thus entitling the respondent to remain in possession, if the options were exercised, for twenty years. The initial rent was $84,000 per annum and was subject to annual review based upon movements in the consumer price index. The current rent is $91,042 per > ia ve wd xen Pecans ensue kllhalat tia) UT ae ES eh RL psc entation ntl Cea AD nan a a aay annum which, in the opinion of a valuer engaged by the respondent, represents a reasonable rent for the premises. The agreement entered into by the respondent to acquire the business was at arms length, and as indicated hereafter, it is to be inferred that the rent was a reasonable rent for the premises, the amounts paid for fixtures and fittings were reasonable. According to current commercial opinion, the amount paid for goodwill was reasonable. The respondent paid $280,000 of the purchase money out of the proceeds of the sale of certain of its assets. The balance of $200,000 was provided on loan to it from N & R Private Hospital Pty. Ltd. to be repaid by five annual instalments of $35,000 each and $25,000 in the sixth year, together with interest on monies owing at the rate of 15% per annun. The respondent is controlled by a Mr. & Mrs. Dargan. Each has had previous experience in conducting a nursing home business. Mrs. Dargan is a qualified nurse and is employed by the respondent as the matron of the nursing home. The respondent employs Mr. Dargan as its manager. Each receives a salary pursuant to their contract of employment. From time to time, since acquiring the business, the respondent has sought increases in the maximum fees which may be charged to patients at the nursing home. A determination by the Delegate of the Permanent Head was made on 23 June 1981 Rte ee ee me ee eet ee aso oe --. -- momen ee caster oe A etal attire ofthe fea ran Gin Pan abt cts lite lt La abaya Lanterman niin heist etme li ll Sl ae te cae ee et i pnt aoe nee os tae ye 5. fixing the maximum fees at $29.45 per bed for patients requiring ordinary care and $35.45 for patients requiring intensive care. In the determination of these fees the Permanent Head acted by reference to various items of the costs of providing accommodation and care of patients in the nursing home and dispute has arisen as to the decision made by him concerning those items. Those items comprise:- (a) the rent paid by the respondent to the lessor of the home; (b) the interest paid to a bank in respect of working capital borrowed on overdraft; (ec) the sums paid by way of rent in respect of equipment including motor vehicles used in the nursing home leased by the respondent; (d) the provision for superannuation benefits in respect of Mr. Dargan and Mrs. Dargan; Ce) the amount of interest payable by the respondent in respect of $200,000 borrowed by it to provide part of the amount paid for goodwill; (f) an amount representing loss of use of the xy eine lem zt an ete ae Bd tbe bik ane wate Hawa taa/ cet Co Ata 8 6 ta Mm tre heptane kere Unrelated —rn any (g) (h) (i) 6. sum of $280,000 of the respondent's own funds used as to $200,000 to provide the balance of the goodwill and $80,000 for fixtures and fittings; an item termed "negative loading" arising out of the circumstances that in relation to a period earlier than 23 June 1981 the actual wages cost of the respondent in eonducting the home exceeded those anticipated by the Permanent Head when he had determined maximum fees to be charged in respect of nursing home care at the home during that earlier period. an allowance in respect of profit. It was eontended that the maximum fees fixed pursuant to s.40AA(6)(c) of the Act should reflect a recognition that financial viability of the business of conducting the nursing home was essential to the operation of the scheme established by the Act and that a margin of profit was essential to viability. an allowance in respect of goodwill. During the hearing by Northrop J. but not prior ve cums peas yn an pu bien nbn Veet dlp ne ne SS ne i ota ttaalet e aes SE Stee: thereto, the respondent formulated and made a claim that the fee determined by the Permanent Head should contain a component adequate to amortize, over twenty years, the goodwill payment of $400,000 made by it to N & R Private Hospital Pty. Ltd. When this claim was made in the review proceedings before the learned Judge it was dealt with by the parties on the basis that it was properly a matter for consideration in those proceedings. The same has occurred on this appeal. Accordingly, the matter was fully argued and a conclusion may be expressed. ° The application sought review by the Federal Court of the determination of the fees on various grounds including the alleged failure of the Permanent Head to have regard to certain costs necessarily incurred by the respondent in providing such nursing care and his alleged failure to take into account the necessity for the conduct of the nursing home business on a financially viable and profitable basis. The Statute A decision on the issues raised depends to a large degree on the perception in the terms of the Act, of its purposes. Precise guidance in respect of matters of TOY TEMETE TON Toco se - aeme - rae ' ne ve ' STR ee Sone ee TT an tiwe went buatl Rereats ESCs Denese a Retin nee medal nl Ny arent emery cine pmaembttn wmalertiand Pi aah atte 8. importance concerning the duties of those administering the Act has to be found by implication and inference rather than in express provision. It is necessary to have in mind the main provisions relating to the nursing home subsidy scheme. Part V of the Act which is headed "Approved Nursing Homes" includes the following provisions. Sub-sections (1),(2), (6) and (7) of s.4OAA provide:- WHOAA, (1) The proprietor of premises, being a nursing home, may apply, in the authorised form, for approval of the premises as an approved nursing home. (2) Subject to this section, where the Permanent Head is satisfied that the premises in respect of which an application is made are a nursing home, the Permanent Head shall approve the premises as an approved nursing home for the purposes of this Act. ~ (6) The approval of premises as an approved nursing home is, except in the case of a Government nursing home, subject to the following conditions: (a) a condition that the number of beds available in the nursing home for qualified nursing home patients or Repatriation nursing home patients will not at any time exceed such number of beds as is determined from time to time by the Permanent Head as the approved number of beds ... (b) a condition that a person will not, after the commencement of this section, be admitted to the nursing home as a qualified nursing home patient unless the admission of the person to an approved nursing home has been approved by the Permanent Head under the next succeeding section; (e) a condition that - tee cee ee eer er ce -- ene na DS peaterDMots 195, coven y LE tender a 2D ere weal ane D De a LNA ls Dr Aig ten Sen nn nl tenn "ane atden (i) the fees charged in respect of the nursing home care of a qualified nursing home patient in the nursing home wiil not exceed such fees as are from time to time applicable in respect of the nursing home care of the patient in accordance with such seale of fees as is determined by the Permanent Head in relation to the nursing home; and (ii) no extra charge will be payable by or on behalf of a qualified nursing home patient in the nursing home except in respect of matters not related to nursing home care provided for the patient; and (d) any other conditions determined by the Permanent Head for the purpose of ensuring that the needs of qualified nursing home patients or Repatriation nursing home patients in the nursing home are satisfactorily provided for. (7) The Permanent Head shall, in determining the seale of fees in relation to a nursing home for the purposes of sub-paragraph (1) of paragraph (c) of the last preceding sub-section, have regard to costs necessarily incurred in providing nursing home care in the nursing home." Subsection 3 of s.40AB provides:- "(3) Where the Permanent Head is satisfied, with respect to an application under sub-section (1) of this section, that, by reason of infirmity or illness, disease, incapacity or disability, the patient requires such nursing care as would warrant his admission to an approved nursing home, the Permanent Head shall approve the application but, if not so satisfied, shall refuse the application and, in either case, shall notify the applicant, in writing, accordingly." Section HOAD provides:- "HOAD. (1) The Permanent Head may at any time, on application by the proprietor of a nursing home or otherwise, alter the conditions applicable to the nursing home - nn omens Fd oN ler Dh ot ecu alley Bes A ea ee Toa chin Niemi Naa FR nt" ee wate ean asl nn pS tee mAh nae ets ate Eine Se A Ae mee me Fle ee 10. (a) by substituting for the number of beds determined ... for the purposes of paragraph (a) of sub-section (6) of section HOAA of this Act such other number as is determined by the Permanent Head; (b) by substituting for the scale of fees determined in relation to the nursing home for the purposes of sub-paragraph (i) of paragraph (c) of sub-section (6) of section forty AA of this Act such other scale of fees as is determined by the Permanent Head; or (e) by determining conditions in relation to the nursing home under paragraph (d) of sub-section (6) of section forty AA of this Act or by revoking or varying any conditions previously determined by him in relation to the nursing home under that paragraph. Section 40OAE provides:- WHOAE. (1) Where the proprietor of an approved nursing home makes application, in writing, to the Permanent Head for the Permanent Head to alter the conditions applicable to the nursing home, the Permanent Head shall, within two months after receipt of the application, either alter the conditions, whether in accordance with the application or otherwise, or refuse the application, and notify the applicant, in writing, accordingly. (2) Where the Permanent Head does not alter the conditions in accordance with the application, the proprietor may, by writing under his hand, request the Minister to review the decision of the Permanent Head. (3) Upon receipt of a request under the last preceding sub-section, the Minister shall, after such investigation of the matter as he considers necessary, either confirm or vary the decision of the Permanent Head, and advise the proprietor accordingly. l (4) Where a request under sub-section (2) of this section relates to the fees applicable to a nursing home, the Minister shall, as part of his Z Srtheds aie! ro ee ee rea cet Ve eR ene Ace a ARN lange Ln ta mS tees Na Meare ne tate te er et mts ta RN Pere ret er cath te eel Be errs te cers 11. investigation of the matter, refer the matter to the appropriate Nursing Homes Fees Review Committee of Inquiry established under Division 3A of Part VIII of this Act for examination and report to the Minister and shall not take any further action in the matter until he has received the report of the Committee. (5) Where the Minister varies the decision of the Permanent Head, the Permanent Head shali, for the purposes of sub~section (2) of the last preceding section, be deemed to have altered the conditions applicable to the nursing home in accordance with the decision as so varied." Section 41 provides:- wy, (1) Upon the approval of premises as an approved nursing home, the Permanent Head shall cause to be issued to the proprietor of the nursing home a certificate of approval in the authorised form, ... Section 43 provides:- "h3, (1) If the proprietor of an approved nursing home ceases to be the proprietor of the nursing home; he shall, by notice in writing, notify the Permanent Head accordingly within 1 month after that cessation. (2) ..." Section 44 provides:- "Hh. (1) The Permanent Head may, at any time, review the approval of a nursing home under this Part. (2) If the Permanent Head considers that ~ (a) the nature of &n approved nursing home has changed since the approval under review was given or deemed to have been given; or Tee cee ee . - - ~ O28 pee td a we ce teal (b) 12. a condition applicable to the approved nursing home has not been complied with, he may vary the nature of the approval or revoke or suspend the approval as he considers justified in the circumstances of the case. Part VA of the Act which is headed, respect of provisions. "47, nursing home care" includes the following Section 47 provides:- (1) Subject to this Part and to Part VC, there is payable to the proprietor of an approved nursing home, in respect of each uninsured nursing home patient, for each day (not being a day before the commencement of this section) on which the patient receives nursing home care in that nursing home a Commonwealth benefit of - (a) wee (b) where the nursing home is situated in the State of Victoria - $19.65 or such higher amount as is prescribed from time to time; (ec) eee (2) Where - (a) an uninsured nursing home patient referred to in sub-section (1) is receiving nursing home care in a nursing home that is not a Government nursing home; and (b) the sum = "Commonwealth Benefits in (i) the amount of Commonwealth benefits that would, but for this sub-section, be payable in pursuance of sub-section (1) in respect of that patient for a day; (ii) the amount (if any). of Commonwealth extensive care benefit in respect of that patient for that day; and (iii) $6.70 or, if a higher amount is prescribed for the purposes of this sub-paragraph, the steno pn TM acts fiel tothe GAA ad tet AE Nl Atalay hate eg amb rd diel ee Npgret A tn tN ET tt an Nn te am A » amount so prescribed, Frat anton cen hE rere oe, oe APR Lie a SORE abe aS a Nad filet Aca el Litem vasntttnah el cate Tp aante ABN Aart tt nt el 13. exceeds the fees charged in respect of the nursing home care of that patient for that day, the amount of Commonwealth benefit payable in pursuance of sub-section (1) shall be reduced by the amount of the excess. (3) 2..." Section 51(1) provides:- "51. (1) For the purpose of obtaining payment of Commonwealth benefit, the proprietor of an approved nursing home shall, as soon as practicable after the end of each month or such other period as the Permanent Head approves, submit - (a) a claim, in the authorized form, for Commonwealth benefit payable in respect of that month or that period; and (b) such information relating to the claim as is shown in the authorized form to be required or as the Permanent Head requests." Part V(C) of the Act which is headed "Administration of Part V,VA and VB" includes the following: Section 60A provides:- "60A Where the Permanent Head considers that the fees in respect of nursing home care for qualified nursing home patients in a nursing home are less than is appropriate, having regard to the standard of nursing home care provided in that nursing home and to any other matter that he considers relevant, the Permanent may, by instrument in writing, direct ~ (a) that sub-section(2) of section 47 does not apply in relation to any of the uninsured nursing home patients in that nursing home; and (b) that, for the purposes of calculating a nursing home fund benefit in accordance with sub-section (2) of section 73C, sub-section (2) of section 47 shall be taken not to apply in relation to any of the insured nursing home patients in that nursing home." ere een eres gee Tee eee - a+ ee --- - - a - - ---- cae veo = ' ts we ee ane lcs FREE Loar et eA A hee tae See ee ia Ellen alee ft! weet denne el th ne Ln nk ee ne a a AE ee 14, Section 138 of Part IX "Miscellaneous" provides:- - 1138, The exercise of a power by the Permanent Head under this Act is subject to the directions (if any) of the Minister." Opposing contentions - general It was the general contention of the appellant that there is an absolute discretion in the Permanent Head to fix the scale of fees pursuant to s.40AA(6) of the Act at such sums as in his opinion are fit and proper subject only to his observance of the direction in s.40AA(7) of the Act that he is to have regard to costs necessarily incurred in providing nursing care in the nursing home. The subsidiary contention was that that direction is complied with if the Permanent Head omits from the scale of fees for any reason that seems fit to him, any component relating to any such costs, provided that in the course of his determination of the scale of fees he had such costs in his mind as items for consideration. It was further contended that the Permanent Head acting in accordance with the requirements of his function might act by reference to what he believed to be the relevant departmental policy. For the respondent it was contended, generally, that the Permanent Head was required by s.40AA(7) to fix a scale of fees which would provide funds to cover the total costs to the proprietor of providing nursing care in the hospital, that those costs included all the items set forth above, together Sones cape] Dima ant Ere anal ta ale plane Die nahn ete apie ty sabe tae aee ad Nailin ah earn te ea ite en en ee errenenn IUE bee mE woh Eee FLT mt ce 15. with a provision for profit. It was said that the provisions of the Act were to be understood in the context of its purposes as disclosed therein. Accordingly, so it was said, the discretion of the Permanent Head was not absolute but was to be exercised so as to promote the purposes of the Act. It Was said also that his duty was not performed if he made his decision, not by the exercise of his discretion in the particular case, but according to a declaration of departmental policy made by some person other than himself, not being the Minister, and which he treated as binding upon hin. Furthermore it was contended that to implement policy which was in conflict with the Act properly construed would not be a proper performance of the Permanent Head's duty under the Act. Statutory Purpose The duty of the Permanent Head under s.40AA of the Act in relation to the determination of scale of fees is to be ascertained from the statutory framework set out above. It is manifest that Parliament's intention is that there will be as many nursing homes as are considered reasonably desirable for providing the nursing home needs of the qualified patients needing such care. People have to be encouraged to provide the services. It is an important objective and depends upon people of the right kind being willing to undertake the work and risk involved in providing that care. It is a private eee ee wt Tee tem mre mt See ee en = ws meee we - - ae lene ee ee RL ee tne hole aes A ca ae te BT Se eta ULE NOLES Rig ID Ran AO a hte lt i ll Nc Ao el Ne Sa PRY Art ee imate etn rained ane fh ht 16. enterprise approach to the problem. Obviously, from every point of view the success of the scheme is dependent upon there being available to the proprietors of homes providing nursing care financial returns which will constitute reasonable financial income to them taking into account the use of capital and the exertion involved in running the home as Manager and worker. It is manifest that for the achievment of its objectives in relation to nursing homes Parliament would intend the Act to be implemented so that each home would be a viability. To realize the importance to the proprietor of an authorised nursing home having access to the funds required to meet the costs of giving the basic care in a nursing home it is only necessary to visualize for a moment the lamentable plight of old, sick and largely helpless inmates should they not receive sufficient food and physical attention. And of course it is not only important to the proprietor of the home but basic to the whole scheme visualized by Parliament. It is clear from the judgment of the Full Court of this Court in Sean Investments Pty. Limited v. The Honourable Michael Ronald Macke The M ister f kat fthe Commonwealth of Australia No. G177 of 1981 (unreported) that an allowance in respect of an item in the nature of a necessary cost may be appropriate although it does not provide for the whole of such a cost if there are reasons for regarding an allowance of the whole thereof as more than is reasonable in the circumstances. I do not read that decision as establishing that the viability of the nursing home is not ror r diecast emtl cere nianeles pmiahin Rs anncaehin atemnmaniabtinn Alamein anerre mil pe tke allie me te NT ld Ge Lee rae LMR Steet Ret Weenie fy De te Ree Ten tn th a iceteeteintel ete) ee Nadae ne Rcd 17. a critical consideration. At the same time it can be seen that Parliament intended to control the income gained from conducting a home so that the proprietor should not be permitted to exploit the scheme and so make excessive profits. The seale of fees determined by the Permanent Head as maximum fees will ensure this. Determination of the scale of fees - Consideration of costs and other matters. The costs to which the Permanent Head must have regard when determining a scale of fees under s.4OAA(6) must include the costs necessarily ineurred in providing the nursing care in the nursing home (sub-section 7). But such costs are not the only consideration to which regard must be had. As appears from the foregoing, and according to the decision of the High Court in the application against the Minister of Health Ex Parte Sean Investments Pty. Ltd. (1979) 53 A.L.dJ.R. 552, profit is one matter to which regard should be had by the Permanent Head. As stated by Mason J. at p. 554:- "When sub-s. (7) directs the Permanent Head to "have regard to" the costs, it requires him to ee W ad as oe aaa SN ee tee abla bn pene Mee tne unl e ae Mc e oee Marc lati il nm aie Ale cit em een ete nine tere linn nee came Pe ne A a or mermaids tar Rat = a ni i es - 18. take those costs into account and to give weight to them as a fundamental element in making his determination. There are two reasons for saying - that the costs are a fundamental element in the making of the determination. First, they are the only matter explicitly mentioned as a matter to be taken into account. Secondly, the scheme of the provisions is that, once the premises of the proprietor are approved as a nursing home, he is bound by the conditions of approval not to exceed the scale of fees fixed by the Permanent Head in relation to the nursing home. In many cases it is to be expected that the scale of fees will be fixed by ascertaining the costs necessarily incurred and adding to them a profit factor. In the very nature of things, the costs necessarily ineurred by the proprietor in providing nursing home care in the nursing home are a fundamental matter for consideration. However, the sub-section does not direct the Permanent Head to fix the scale of fees exclusively by reference to costs necessarily incurred and profit. The sub-section is so generally expressed that it is not possible to say that he is confined to these two considerations. The Permanent Head is entitled to have regard to other considerations which show or tend to show that a scale of fees arrived at by reference to costs necessarily incurred, with or without a profit factor, is excessive or unreasonable. It may be that the rent paid by the proprietor of a nursing home, though a cost necessarily incurred, exceeds the prevailing rental which is paid for comparable premises and that the determination of a scale of fees by reference to that rent would result in a scale of fees which is unreasonably high. The Permanent Head would be entitled to take this factor into account in making his determination." Thus, it is thought that, in the absence of some factor relating to profit or to a necessary cost that renders it unreasonable to make allowance in respect thereof in the fee structure, the Permanent Head should include such an allowance. Considerations applicable in the particular case to a particular item of profit or cost may show that the gm Pe < cea dthind dere i 25 Sasa ut blank 1 ene aS cane cas kine att il aetna td sella le dette ah itn ate et Sinn Re —aenetenne tate Antennas memmbnwrmabientiin far er nm = ee ow, we cette SS 19. inclusion of an allowance in respect of that item in the fee structure would not be reasonable. But where no such consideration is applicable the statutory purpose of calling into being homes efficiently and honestly conducted would restrain the Permanent Head from exercising his discretion by excluding a suitable allowance in respect of each item of necessary cost, or profit, from the fee structure. Although the discretion conferred by s.40AA(6) is in unfettered terms the limits of that discretion are necessarily defined by the purposes of the statute. The specific direction in sub-section (7) to the effect that in determining the fee under sub-section (6) the Permanent Head shall have regard to the costs necessarily incurred in providing nursing care in the nursing home requires that those costs be identified. The relevant costs are those of which it can be said at the time of determining a seale under sub-section (6) that they are costs necessarily incurred in providing nursing care in the nursing home. As expressed the provision in sub-section (7) does not invite the question, "what actual costs will be incurred in the future in providing nursing care?", nor, "What costs have been incurred in the past?" But rather, the question is, whether, looking at each alleged cost in a preliminary way in respect of an anticipated entry into the enterprise of providing the nursing eare in the home, can that item be said to be of such a nature that it is a cost necessarily incurred in providing such yr Iaeem i Meccan Le elt nk ie tae raesh Recetas bem APL eA, ron RAO LAE Nl AE AMD = Sane eaten ed Mae ete Baie a Tc eal te te Pa Ret Cal Bd are panwete> 20. nursing care?" At that stage the critical factor is the nature of the cost in relation to the particular enterprise. Is a cost of that nature a cost necessarily incurred therein? An affirmative answer would be given in respect of all those costs which are of such a nature that a person acquainted with such an enterprise would be able to say are necessarily incurred in providing the nursing care. The actual amounts of such costs do not require an answer at that stage. What they are or are likely to be is the relevant question when the costs in question are seen to be costs of such a nature as to be necessarily incurred and a determination is being made as to the allowance to be made in the fee structure in respect thereof. The classes of costs necessarily incurred in providing the nursing care are for the most part readily identifiable. They would include the costs of acquiring premises or access to the premises, of acquiring beds and all usual equipment used in providing such care, the wages of nurses and ancilliary staff, the acquisition of means of transport and the like. A question might arise as to an item such as the cost of working capital or provision for employees" superannuation. Onee the classes of costs necessarily incurred in providing health care in the home are identified then in determining the scale of fees under sub-section (6) the Permanent Head must have regard to all of them. This is a mandatory obligation. He must treat them as fundamental elements (see Ex parte Sean Investments Pty. Limited (supra)) in the making of the determination. - PRETO Pre Ae ees ee 7 oe - 7 ow tes - - - 7 os para aek ts 1 Aearatanratnad JH we eae ne Wea el et a, earl ee ae TL NAP hel SSP te Re ae deli rs ntcen eee a TE or NEE EL tte om Eales aR rt Mtereh nde Ee tet Cael CL se MEGA eles 21. As fundamental elements, suitable allowance must be made in respect thereof. It is in determining what that suitable allowance is that questions of the reasonableness of the amount of any alleged item of cost may arise. It is at this stage that all relevant considerations are to be applied, such as, the appropriate level of such costs from a business point of view, from the point of those who have to pay the fee and the appropriate fee from the point of view of the viability of the establishment and the purposes of the Act. When the duty to determine the fee imposed by sub-section (6) is read subject to the duty imposed by sub-section (7) then it is in my opinion, permissible and proper to adopt the language of Viscount Simon in Palser v. Grinling (1948) A.C. 291 at p. 534 where he said "the direction that regard is to be had to the value to the tenant Uof certain services and furnitures i.e. that- such value must not be overlooked but must be suitably allowed for ...". His Lordship used these words with respect to a very different problem from the present, but in view of the context of s.40AA(7) of the Act, they do seem appropriate to describe what Parliament intended to convey in the statutory direction in that section. The context of that direction is that it is to operate in an exercise of determining a fee for conducting a subsidised private enterprise business. Such an exercise is different from that exemplified in Ishak v. Thowfeek (1968) 1 W.L.R. 1718 where in a different context, a duty to have regard to various matters Eats, a ete iee ae oe Sane a Needle Reece wedi, Baca beer TE A el a oe De we eek end Laie 2 ae NASI arc tts Sel ed Name i ri ea a tate ten adhe vate 8 22. including the religious law and custom of the Muslim community concerned in relation to the appointment of Mosque trustees was regarded as adequately performed where the relevant authority took the prescribed matters into consideration but gave preferential regard to other considerations. But in a case like the present to construe the statute as failing to imply that the Permanent Head must consider the classes of costs necessarily incurred in providing care in the nursing home and suitably allow for them would be contrary to the purpose of the Act. Also it would not reflect the thrust of the reasons for judgment of the majority of the Court in Ex Parte Sean Investments Pty. Ltd. (supra). The costs referred to in sub-section (7) are, as stated by Mason J. in Ex Parte Sean Investments Pty. Ltd. (supra) at p.554 "a fundamental Matter for consideration" by the Permanent Head. It would appear from the judgment of his Honour with which the Chief Justice expressed his concurrence, that in determining the seale of fees, costs qualifying as costs necessarily incurred in providing nursing care in the nursing home must be suitably allowed for, and further, that when the actual expenditure in respect of an item of such costs is able to be quantified, then, the amount of that expenditure shall be a component of the fee unless, because of particular circumstances, it appears that that amount is unreasonable or inappropriate. And it would appear that the determination of the seale of fees pursuant to sub-section (6) of s.4O(AA) is not Se pune Fea Soe eee ete stat PL once le LE Se DA Cel RD A AMEN Re Eat aati tamil ne TY tht nn La A le ot a a Doe Tt Edm Heth 23. restricted by sub-section (7) to the inclusion of an allowance in respect only of the costs referred to in that sub-section. Profit is not a cost. The primary duty to determine a suitable scale of fees is to be found in sub-section (6). Sub-section (7) ensures that allowance is made in respect of all costs necessarily incurred in providing the nursing care. Under sub-section (6) the discretion is wide enough to enable and require the Permanent Head to consider items not being eosts which are costs necessarily incurred within the means of sub-section (7) but which are relevant to the level of fees appropriate, in a particular case, to implement the statutory purposes. Thus profit is a proper item for consideration. As to item (a) of the matters in dispute - Rent A maximum fee was first determined in November 1976. It appears that in fixing that fee the Permanent Head had regard to the basic day to day costs such as, for example, wages, payroll tax and also to an item of $62,500 called "return on land and buildings". This item was calculated as being 12.5% of $500,000 being the cost to the original proprietors of the home of erecting it. An "allowance" was made in respect of this item in the fee structure. Between November 1976 and January 1980, when the respondent became the proprietor, the view was taken that this item should be regarded as having increased to $80,00C and "allowance" was made in respect of that sum in the fee structre. Before eI APS Ae Qa ero ae ae eet + oes Med Dare absrabedanier toed betta KS yada tna aah Ds Godan iteatnens Anat sone etn ie lle a Lee Ne Re aire mame oe it Mate Ahem warden ted rake wie ated In Pa 24. purchasing the business the respondent applied to the Delegate requesting him to delete from the fee structure the sum of $80,000 as it was no longer relevant to their costs and to replace it with an item substantially of the same amount, but in respect of rent. This request was not granted. The basis of this was that the fee structure was not to be disturbed by reason of a change of proprietor of the home. In May 1980, by which time the rent had been increased to $84,000, the Delegate confirmed that the Department was not able to adjust the fee structure where there is a change from freehold operation to leasehold operation at a nursing home and therefore the adjustment requested would not be made. Thus, this $84,000 was not "allowed" and no provision to cover that payment was made in the maximum fee determined on 31 June 1981. But of course the allowance of $80,000 already in the fee structure remained therein and the maximum fee determined reflected that fact. But in the determination of 23 June 1981 the fee structure was amended to include $7728 the amount by which the rent had increased from the time when the respondent first went into possession. The retention in the fee of the $80,000 "return on land and buildings" was explained by the Delegate in the following terms:- "T gonsidered the fact that $84,000 was the base rental being paid by the Applicant for its premises. However, I accepted as correct the previous determinations of a Delegate of the TER aa 2s "eee MOY Te ye PR Te At i arty PRT alae ao toa ae endear ONE oe eR CU Ho Le ttt ans ale z wend tee Sh a7 le we Da 25. Permanent Head not to incorporate this amount, as such, as part of the fee structure. My reason for this course was that it was, and is, the long established policy of successive Ministers that upon change of ownership new proprietors are required to acquire the existing fee structure as part of the package when they acquire a nursing home business, and that they are required to pay interest commitments and rental out of the existing fee structure. The fundamental reason for this policy is that fees should not increase merely because a nursing home is acquired by a new proprietor who has a different and more costly financial structure. The claimed increase in rental was however allowed in full in making the said decision." The item of rent appears to raise a question of some general importance in relation to the administration of the Act in those cases where there is a transfer of proprietorship of the business. The view has been taken by the Permanent Head and by the person responsible for the issue of guidelines, who is unidentified, that a transfer of proprietorship, whether or not it involves a change from a freehold proprietor to another freehold proprietor or from a freehold proprietor to a leasehold proprietor, should not affect the fee structure. It was for this reason that after the acquisition of the business by the respondent the Permanent Head continued to include in the scale of fees fixed by him an allowance in respect of what was called, return on eapital. This operated to introduce an artificiality into the fee structure. It meant that there was in it an allowance unconnected with any item of cost which at that time was incurred by the proprietor"in providing nursing care in the home. The then proprietor had not incurred that capital cost moot pul att oe RRL, SR URED AAR RAI Lat: Se Loe, ane eae 26. and the previous proprietor, who had incurred it, was no longer interested in the fee structure. Of course he had an indirect interest in it by reason of the claim for inclusion of an allowance in the fee structure for goodwill. But that is a separate matter. The artificiality of the situation has become apparent in that the Permanent Head has seen fit to include a suitable allowance in the fee structure of the difference between the rent payable at the time the respondent acquired the home and the rent payable at a later period. If, ona change of proprietorship the cost structure genuinely changes the duty of the Permanent Head is to make such determination as will reflect the true situation. And of course, this was recognised in this very case by the allowance for the inereases in rent. It so happened in this case that the initial amount of rent was approximately the same as the allowance previously made in respect of return on capital. A degree of practical balance was thus initially preserved. But it could quite well happen that the rent payable by a new proprietor is substantially different from the amount previously allowed for return on capital. It was necessary therefore, that the Permanent Head should have deleted from the fee structure the item of return on capital and included the item of rent. As there is no reason for thinking that the rent payable is not a proper and we ee ee ee a ne eee wee -ite AE ER no wry a QE ce Me nl Ne tare memati armel ae hel Ne A nel a me eet Ta ea Mh MER edadenety ANd dentemsnl Te Med rine waver natin tt temlaran we Tactlon ata Mertd od ' woe mee 27. reasonable rent then a suitable allowance in respect thereof should be included in the scale of fees. Item (b) concerns interest payable on overdraft incurred in respect of working capital. The first question is whether it is a cost necessarily incurred in providing nursing care in the home. This is a question of fact. But it would seem reasonable that on occasion recourse to overdraft would be proper in the ordinary management of the home. If so it is a cost which may be said to be necessarily incurred in providing the nursing care in the home. If this view is taken it would be for the Permanent Head to determine what suitable allowance should be made in respect of it in the fee structure. As to item (ec), rent in respect of equipment including motor vehicles used in the home and leased by the reaspondent the observations made in respect of item (b) are applicable. As to item (d), provision for superannuation benefits, it was submitted by Mr. Charles for the respondent that payments made to Mr. & Mrs. Dargan of sums directed to the establishment of superannuation benefits in respect of their employment by the respondent should properly be considered as costs necessarily incurred in providing nursing eare in the nursing home. Whether they are or not is a Pe ret ee - + wee eee ce MT eden stam ce Ancrbnas aaa TALS aT ae tie tite rat tet ali dD eine! ental pale ee aden BOASI es tate n whnawrunentirnt thane eda denn Che Oeiet pine tle atath Tekh tin states eats tb Tilt 28. question of fact. But obviously the suggestion that such an expense is to be regarded as a necessary outgoing in the provision of nursing care requires careful consideration. Where the fee fixed has a component for profit that would be a relevant consideration. Items (e) and (f) are discussed below. As to item (g), the negative loading claim, a different type of question arises. It goes, I think, to the nature of the operation performed by the Permanent Head in determining the scale of fees at any particular time. It is apparent that the scale of fees must reflect allowances made in respect of various items of cost where the actual amounts thereof to be incurred in the future are unknown. It is apparent also that it may reflect allowances in respect of various classes of costs which are made by estimate and judgment. Possible examples of the latter are allowances in respect of interest on working capital, allowances in respect of superannuation. And so far as wages are concerned changes in rates, or even perhaps in the requirement from time to time to employ all the anticipated staff, may well occur during the period for which the seale of fees is expected to apply. Also, items such as rent obligations, falling due on long term dates, have to be reduced to daily figures and the rent itself may change during the period. Thus the scale of fees when determined does not represent precise amounts in respect of various items of costs added up and representing the actual amounts of outgoings that oe ae ead oes ws Bence bikie terme web PAD bien Fen, den eete Si wnt tee 2 nig ae paitetintelas tee eee pie an nerd THES we an NE a er Bee te tere 29. will be incurred. When the scale is determined, then while it remains in force the proprietor may lawfully charge the maximum fees allowable thereunder. There is no authority to be found in the Act for an attempt to recover money from the proprietor, any part of those fees, or for the determination, at any time of a scale in respect of a particular period at less than appropriate having regard to the then relevant costs, because the estimate of costs by which the scale of fees was previously determined in respect of a particular period turned out to be the precise costs incurred. One would think that the problem raised may be solved by appropriate administrative provisions. In the present case the Permanent Head made a determination of the scale of fees to operate from 23 June 1981 at a lower level than he would otherwise have adopted because it appeared that the labour costs actually incurred by the proprietor during an earlier period when an earlier determination applied were less than had been anticipated when that determination was made. There is no suggestion of misconduct on the part of the proprietor in this respect. It had however, conducted the home with less staff than was anticipated. That an eventuality of this kind may work unduly to the advantage of a proprietor is obvious and is to be avo1ded. An appropriate adjustment procedure may need to be worked out to obviate this kind of undue advantage. But each determination is complete in itself during the period it fed Dee ww dee ase tw we Eee er ee Ee ite a allt ee aE ae anal a HA Tat Lee LES ee ThE So eee ee adele a 30. operates and fees charged and received in accordance with it are lawfully and finally charged and received. As to item (h), profit, the situation is sufficiently covered in observations made earlier in these reasons. As to items (e), (f) and (i) = goodwill. The first question is whether the payment made by the respondent in respect of goodwill was, in the relevant sense, a cost necessarily incurred in providing nursing care in the home. When the respondent obtained a lease of the premises it had gained all that it required by way of access to a place in which to carry on the business of providing nursing care. It appears that it agreed to pay a reasonable rent for the premises. It purchased the beds and other equipment both of which were.costs necessarily incurred in the sense relevant to s.40AA(7). The sum of $400,000 was paid for something called goodwill. Goodwill comprises the intangible advantages associated with the acquisition of an established operating business. They comprise the right to use the name, the probability that the reputation of the business will attract custom in the future. Goodwill has been said to be "the attractive force which brings in custom" (Inland Revenue Commissioners v. Muller & Co. Margarine Ltd. [1901] A.C. 217 at p.224 and also per Rich J. in Federal Commissioner of Taxation v. Williamson (1943) 67 C.L.R. 561 at p.564). It 22g nena 4 DL tr ee a ere CR ete edie sed nae eh ot Bee OR er eet ee Dee tee manned Atak TA TE te sae bee "cade eee ae Re 31. means every affirmative advantage that has been acquired in carrying on the business whether connected with the premises of the business, or its name or style and everything connected with or carrying with it the benefit of the business. See Wood vV.C. Churton v. Douglas 28 L.d. Ch. 845. Thus the $400,000 was a payment for various advantages and benefits associated with the ownership of the nursing home business theretofore carried on by the vendor company. Those advantages included the use of the name and its good reputation. They included also the possibility that the Permanent Head would determine the scale of fees relating to the home at a level arrived at by inclusion of an allowance in respect of the payment of the $400,000 or some part thereof and the cost of raising that sum for the purpose of making the payment which would ensure the recovery thereof by the respondent, and which would provide also for such profit as the Permanent Head might consider appropriate. It is put that the payment was not made voluntarily. It had to be made to enable the respondent to provide nursing care in the home because the previous proprietor would not grant a lease of the premises unless the goodwill of the business was purchased. There is thus a sense in which the payment for goodwill was a cost necessarily ineurred in the provision of nursing care in the home. However, in my opinion, the fact that the lease could not have been obtained, if the $400,000 had not been paid for goodwill, does not, alone, make it such a cost in the relevant sense. When the question whether that cost is a cost necessarily er, ee lee ang af A BI ea ASD ANNI atin A Lane tenn Od nthe am Lb rane La tae AE ate BE Ae te tar at hi ate tT ale bine ee = endl a ha Wah "ww 32. incurred in providing nursing care in the home, is put in the preliminary way referred to earlier in these reasons, in which it is posed by s.40AA(7), the answer must be in the negative, if all that is relied on, is that the payment was a condition of obtaining the lease. A payment made to satisfy such a condition has nothing to do with the actual provision of nursing care in the home. If every payment so demanded were a eost in the relevant sense there would be no limit to the burdens which might be imposed on future fees payable by patients and on the Commonwealth subsidy. A payment made to satisfy a demand by the vendor that the respondent should also purchase his vintage Rolls Royce would not be a cost necessarily incurred in the provision of nursing care. However it is contended that a demand that he purchase the business carried on by the previous proprietor is such a cost because ownership of that business is essential or ancilliary to the conduct of the business of providing nursing care in the home. But this is not necessarily so. To provide nursing eare in the nursing home the purchase of the business is not strictly necessary. Given the tenancy, nursing care could be provided in the home whether or not the respondent had bought the business. For the respondent to become the owner of the business or undertaking carried on at the nursing home, and so become the proprietor of the nursing home for the purposes of of s.40AA and s.40AE of the Act in accordance with the definition of proprietor in s.4 of the Act, it was necessary only for it to become the occupier of the home and carry on WG ONO AL TE ee - orf ee ne aetna eed adiad de we le ae Be ne EO ep a le a a cee an ea LG Er eee te an LOT ee teeth atte tee ae ne eee ee eh a 33. the business of providing nursing care therein. It did not even require that the respondent have the right to use the name. The approval of the home under the Act was attached to the premises. So considered the goodwill of the business may be seen to be of similar significance in the transaction as would have been the vintage car. But the goodwill purchased by the respondent was comprised of two elements. First, there was the the name and reputation of the home. Secondly there was the possibility or expectation that the fee structure determined by the Permanent Head would provide not only for the recoupment of the amount paid for goodwill but also for the cost of raising the money to pay for it and for profit. It is a reasonable inference that the valuation of goodwill at $400,000 proceeded on the assumption that the amount paid for goodwill would be treated by the Permanent Head as a cost appropriate to be included as a component of the scale of fees determined by the Permanent Head on an application for an amendment of the existing scale which would be made by the respondent on his taking over the home. It may well be that the proportion of the goodwill payment referable to the name and reputation of the home could properly be regarded as a cost necessarily incurred in providing nursing care in the home. The Act contemplates that the proprietorship of a home may be acquired by acquisition of wn pan la Bae tds AS a he ane Tat LED ger AES iene opie Chibi nas TRS ee rt Nt le ae URS AE het ep AA Lah matte nd ad aA ar et ots Wee 34. a right of occupation by purchase or lease. The acquisition of a home already in operation as such with a name and reputation is a reasonable and normal method of going into business as a proprietor of a nursing home. The name and reputation of the home is very much part of the nursing home considered as a going concern. Looked at as a practical commercial transaction acquisition of the right of occupation of the home by purchase or lease could hardly be contemplated unless the name and reputation were also acquired. Commercially the reputation of the home would go with the premises whether the purchaser bought or paid for it or not. Nevertheless I cannot accept the view that the proportion of the goodwill payment referable to the name and reputation is a cost necessarily incurred within the meaning of s.40AA(7). However, in view of the observations above as to the practical commercial aspects of the purchase of the home I consider that an allowance in respect of that proportion of the goodwill payment would be proper to be made in the exercise of the discretion conferred upon the Permanent Head in s.6. This discretion is discussed hereafter. What proportion of the payment for goodwill ought for present purposes to be regarded as payment for the name and reputation cannot be calculated simply by reference to any objective criteria. It is a matter for the judgment of the Permanent Head acting by reference to such relevant considerations as are put before him by the proprietor or are otherwise available to him. MOS nets ein open eee ee -- - ed ' yore Ee ee ner date meee ke MME Re ad AE Oe eile ie eae ene ean et img Le Bae oe tems ade eho Mian wae PN ll i ta ot tN ete a hate OAT RN ane 35. But to the extent that the goodwill payment exceeded the proportion thereof referable to the name and reputation and was referable to the assumption or expectation that the Permanent Head would include in the scale of fees determined by him a component to provide for the recovery of that excess from future patients of the home the situation is different. Had it been known that he could not, or even that the Permanent Head might not regard it as an item of cost to be taken into the fee structure, then this element of goodwill would have had little or no value. The evidence of the value of goodwill that was given in this case could not have been given. It is difficult to know how, in any event, it was given in the absence of information as to the views of the Permanent Head on the matter. How it could have been so eonfidently assumed that the goodwill payment would be included in the fee structure remains quite a mystery. When the purchaser of the home seeks amendment of the fee structure by inclusion of an allowance in respect of the excess referred to, the Permanent Head must have regard to the fact that the payment of the excess was a payment for something intangible and contributing nothing towards or relating to the provision of nursing care in the home. It could not be considered a cost necessarily incurred in providing nursing care in the home within the meaning of s.4OAA(7). It is clear however that the discretion conferred by s.40AA(6) extends to permit the inclusion in the scale of fees serene meee Or ree tern eee eee ee --y - we te HSE ee ete ties wade ee roaPrdndlias ee UH Bete bree Bt Charman mm Ree Oe nate ae De Bain we - nl eee bre atin ante ar yk Ma Es me baie re dee te 36. determined by the Permanent Head of an allowance in respect of items other than costs. Thus an allowance for profit may be included. There is a question therefore whether an allowance in respect of this excess payment might properly be made. It is my view however that this question must be answered in the negative. The situation is that the proprietor having conducted the home for five years, and having received the appropriate benefits under the Act in respect thereof for that time, has stipulated for another benefit justifiable as between him and the purchaser only on the basis that the purchaser might be reimbursed by further payments to be made under the Act and this time by future patients in respect of future services to be rendered not by the original proprietor but by the purchaser or a purchaser from him. When the Permanent Head is asked to include an allowance in the scale of fees determined by him he must have regard to the substance of the transaction giving rise to the payment. In substance, the operation of the transaction secures to the previous proprietor a financial benefit, to be provided under the statutory scheme by future patients in the home or the Australian Government, additional to that which had been received by him for the provision of nursing care therein during the time he conducted the home under the scheme at fees determined by the Permanent Head. By the statute the in me. Mae PRIS Og gy ye Times eset ee ~ os - ed ~ we ee Shale pe AON dae a ath fame a oe ened awe fi. Fe aans an mete ety de renee Ceeknt ine td anna ee met AE a AM ieee tet oT Bathe Bre an ate A Plante Jo AO, ke ~ aoe NR ete ene 37. benefit payable under the scheme to the original proprietor for the nursing care he provided was limited to the maxinum fees determined by the Permanent Head. That he should receive further benefit from the operation of the scheme directly or indirectly arising out of the circumstances that he conducted the home for some period under the scheme would contravene the statutory provision imposing that limitation. It would render of little effect the condition of approval of premises as a nursing home, that the fees charged should not exceed the maximum fee determined by the Permanent Head, if the proprietor might conduct the home under the eertificate of approval containing that provision and then sell the home on condition of a so called goodwill payment recoverable by the purchaser from the future patients. The reasons for judgment of the majority of the Court in Ex Parte Sean Investments Pty. Ltd. (supra) support the view that for the purpose of determining a scale of fees the substance of the arrangement pursuant to which any cost is incurred is a matter for consideration by the Permanent Head in relation to the formation of an opinion as to whether it is a cost reasonably to be regarded as a basis of a component in the scale of fees. As is there pointed out a payment in respect of a cost the amount of which reflected an undue benefit to the payee concurred in by the payer could not be regarded as a cost in respect of which allowance ought to be wetatie "ages wk te ee cet ee ck ee oe pee ee (Re re Oe OS A ie ee ee ey 38. made in the seale of fees. In my opinion the same must be said of a payment in respect of an intangible expectation or hope which contributes nothing to the provision of nursing care in the home and the practical effect of which is to give a benefit to a previous proprietor for nursing care provided by him and for which he has already been remunerated under the statutory scheme to the limit permitted by the statute. i Accordingly it is my opinion that so much of the goodwill payment as exceeds that which would have been a commercially reasonable payment for goodwill representing merely the name and reputation of the home is not a cost or other expense to which regard should be had by the Permanent Head in fixing the maximum fees to be charged in respect of the nursing home care of qualified nursing home patients in the nursing home. It is apparent that the exclusion of this excess of the goodwill payment from the scale of fees operates also to exclude the claim for interest on the money raised to pay for the goodwill by loan or sale of assets. Policy Guidelines Reference to the evidence discloses that in determining the scale of fees on 23 June 1981 the Permanent Head acted in certain respects on the view that it was his duty to observe the terms 6f what were called departmental guidelines. Those were expressed in terms akin to Re Ree tee Mane Cb hee Caer Dale eee a ene Der ee het chee nme erate Oe meaeat iment Lemania bE Nel ed Ret eee a he ee ee nt NNER san te ane tae i 39. departmental orders. This is no evidence as to the departmental source of these guidelines. Merely to observe such guidelines would not be to perform the duty imposed by the Act upon the Permanent Head. It is the decision of the Permanent Head as to the scale of fees to be determined which is required. He may not surrender his judgment to departmental guidelines or even to departmental policy. This is not to say of course that he may ignore the directions of the Minister applicable to any particular case (see s.138). It is apparent from the above that the departure from the views expressed in the reasons for judgment of the learned trial judge, save with respect to goodwill, are of small significance. Accordingly, the appeal must be dismissed and the appellants be ordered to pay the costs. TT em meme nmeT eyReren eet gmt ee —- - - ah mee ee etnies ti A Nie Re aT Ue Bw tes a tae tn ee Poe Peed EN Te enn rete Ne on BE Nt eee aa IN THE FFDERAL COURT OF AUSTRALIA VICTORIAN DISTRICT REGISTRY No. VG 192 of 1981 re GENERAL DIVISION ON APPEAL FROM THE IIONOURABLE MR. JUSTICE NORTHROP DR. GWYN HOWELLS (who was sued as the Pormanent Head of the Department of Health Australia) and MICHAEL MacKELLAR (who was sued as the Minister of State for Health) Appellants NAGRAD NOMINEES PTY. LTD. (trading as "CARRUM PRIVATE NURSING HOME") Respondent Coram: Smithers, Fox and Franki JJ. Date: 10 September 1982 REASONS FOR JUDGMENT FOX and FRANKI JJ. This is an appeal from the decision of a judge of this Court (Northrop J.) made under the Administrative Decisions (Judicial Review) Act 1977 ("the Judicial Review Act"). The presont respondent was the successful applicant before his Honour in a challenge to a determination made under s.40AA(6) of the National Health Act 1953 ("the Act") by a delegate of the Permanent Head of the Department of Health. He had fixed a scale of fees for a nursing home of which the applicant was the proprietor, in the sense defined by s.4 of the Act. The Permanent Head has now appealed from Ane Ree ee Ae eed Ee ANA eee ats ened cae Rae rd ee ean tne eh TT be eee hte PT et et ae ee ee a Pane his Honour's judgment. There is under the Act provision for review by the Minister (s.40AE). This course was not pursued and it is not suggested that 1t should have been (see s.10(1)(a) of the Judicial Review Act). It is common ground that there was for the purposes of that Act 2 "decision" and that it was that of the Delegate. Delegation is provided for in s.6(2) of the Act. The respondent became the lessee of the premises upon which the nursing home business was carricd on, and the owner of that business, in January 1980. The lessor to it, and owner of the premises, was the previous proprictor, who had sold the business to the respondent. The scale of fces now in question was notified to the respondent by letter on 23 June 198], and that has been taken as the date of the determination. There were two items in the scale, one for ordinary care ($29.45 per day) and another ($34.45 per day) for extensive care. In both cases the fees represented a reduction of $2.50 per day on the fees previously in operation. The reason given for this was that, due to the respondent not employing certain categorics of people, or not employing them full-time, the allowance for salaries and wages made as part of the earlier detcrmination had proved excessive. The new fees became effective from 15 July 1981. The respondent applicd to this Court under the Judicial Review Act in reliance upon paragraphs (b), (d), (c) and (£) of s.5(1) and so far as concerns para. (e) (improper exercise of power) on paragraphs (a), (b), (c), (ce), (Cf), (g) and (h) of s.5(2). The learned trial judge quashed (amen MS haste tite ee Ee Cena fee ee ee ee eet a ae oe ee Pio Emaanet Mme ae ae le i BN we AST kere penetac ate NG > aren aneentatnnet ae Suton af bE aN Me ks ante mele the decision and ordered that a fresh scale be determined within fourteen days. We have been told that a fresh scale was determined, and is in operation. -So far as appears, there has becn no challenge to that scale by the respondent. It is not disputed, however, that the appellant is entitled to maintain the appeal against his Honour's decision, Parts V, VA and VC of the Act deal with "approved nursing homes", a term defined in s.4. When the Permanent Head (or his delegate) has approved of a nursing home for the purposes of those Parts, the Commonwealth will pay what is described as a Commonwealth benefit in respect of each uninsured nursing home patient in the home, whose presence there is approved by the Delegate. The qualification for admission as a patient appears from the definition of "nursing home". "Nursing home care" is defined in s.4(1) as follows: "tnursing home care' means accommodation and nursing care of a kind provided in a nursing home." The amount of the benefit is paid to the proprietor. A nursing home may have patients who do not come within this scheme, but apparcntly most, if not all, do, and the beds in approved nursing homes are virtually fully occupied at all times. It is a condition of approval of a nursing home that the proprietor charge no more than the fees determined from time to time by the Delegate, on application made to him or on his own motion. The benefit wee eee ee ee ete ee te LA te ee UN ee ee Pee ete Seen Tee Tereer ere ee Ts ee te -! fey s pre benefit, also pres & eribed from time to tame. Ir the prescribed together wrth another smaller amount which is vibed from time to time, excceds the churge being mace, the amount of the benefit is to be reduce by the amount of the excess (s.47(2)). Claims for payment are made tonvh or (s.51). "as soon as pricticable after the end of each such other period es the Permanznt Head arproves" Section 4044(6)(c) is as follows: "The approval of premises as an approved nursing hone is, excent 1m the case of a Government nursinz hone, subject to the follovnn: cont4itions: (¢) a condition that - (i) the fees charged in respect of the nursinz home care of a qualified nursing home patient the nursing home will not exceed such fees as ere from time to time anrlicable in respect oz the nursing home care che patient in accoraance oath such scale of fees is 15 deternined by the Pernanent Head in relation to the nursing home; and (ii) no extra charres will be payable by or on behalf of a qualified nursing hone patient in the nurcins home excent in respects of masrers not related to the nursing home czre provided:for the patient; " J Section 40.4(7) is as follows: "The Permansnt dead snall, in determinin:, tne scale of fves in relation to a nursing home Tor the nurnoses of sub-percerarn (1) of paracrarh (c) of the last preceding sub- section, hove retard to costs necessarily incurvea 1n croviding nursine home care in the nursing home." eee ee Dats el mel te ee ek ant nett el on ee een Lene cet anes Lene ee ree etd fe Pe Rl en ne re ee nn ae i Nn i te Ba pre His Honour dealt fully and in detail with the relevant facts, and it is not necessary to canvass them 'all for the purpose of this appeal. There is one fundamental question, which relates to the method adopted by the Delegate in arriving at his determination. As to this, there is no dispute of fact. The Delegate took as a starting point the ingred- ients upon which the fces were fixed for the previous owner. By way of example, one such ingredient was an amount ($80,000 per annum} called "return on land and buildings" which was calculated as 12.5% of the cost of buildings the nursing home. The view of the Delegate, consistently with departmental policy, was that this amount should be carried forward, notwithstanding the change in ownership of the business and fresh financial arrangements which were made, the fact that the new owner was a lessee, and other changes in circumstances. The result of the view taken by the Delegate was that the respondent's claim that the fees should reflect the rent paid and payable by it was rejected. Interest paid on part of the purchase money which was borrowed, and other outgoings, were disallowed on the same ground. By complex calculations, the Delegate attempted to up-date the figures upon which the carlier determination had been based. In this way, of course, some new or changed expenses had to be recognised, and some adjustments were made referable to the new situation, but the historical figures remained the foundation. There seem to be at lcast two reasons piven for rege pee ere ey weer ee ee eS pe ee - ee ee eee ee sae ee one oo ee ea ae eae ere tee aeDaniuate eee Saat elena atest EVR cae ener ate Lan Unit Woe camen eens PED dR eco awtne this approach. One is that reassessment on every change of ownership would, 1t 1s said, make the statutory scheme (in 1ts broad sense) unworkabic. There would be an intolerable administrative burden when the total number of approved nursing homes 1n Australia is considered. The other reason given is to control an upward creep in fees consequent upon profit-taking by successive owners. We shall return to discuss administrative policy, as it arises in another connection, but it is clear that the requirements of the Act, express or implied, must govern what is to be done. Manifest administrative problems, if major, might perhaps provide a guide in the interpretation of legislation of doubtful or ambiguous intent, but in our view the meaning and intended operation of the present Act is reasonably clear. What it requires is that the scale of fees be determined by reference to the business as conducted by the proprietor for the time being. To talk of the costs of a nursing home is but an e]liptical way of referring to the costs incurred by the proprietor of the nursing home business. A change of ownership will in all probability become known to the Department in the due course of administration, but there is also a specific requirement that an outgoing proprietor notify the Permancnt Head within one month after ceasing to be proprictor (s.43(1)). The nursing home cannot be treated as an abstract entity, a continuun, persisting regardless of changes made, including changes related to the situation in which the new proprictor ON Se Ad oS me aa mle ee et et wee. WR eek set er SOR ee ek eee AONE et eee ev ene tates ned! bret Sak at Tee eT ae et sere -amtate Fee -7- acquires it and carries it on. This does not mean that the Delegate is the slave of all that has happened, or of all that he is told is likely to happen. It is expected of him that he use his experience and good sense, his own judgment. The discretion given to the Permanent Head (and Delegate) is a wide one, in the sense that, save for one matter, it is not subject to any express qualifications or limitations as to the matters he might take into account, the manner of its exercise, or the scales of fees he may Gecide upon. It is subject to the requirements and quali- fications of the general law, and in particular those indicated in s.5 of the Judicial Review Act. The decision of this Court in Sean Investments Pty. Ltd. v MacKellar (26 July 1982) deals with the need to ascertain the purpose or purposes of the legislation, and to recognise their controlling force, The exercise of the discretion now in question is subject to the express requirement in s.40AA(7). This sub-section was considered by the High Court in Re Hunt; ex_ parte Sean Investments Ptv. Ltd. (1979) 25 A.L.R. 497, and it was mainly by reference to it that the learned judge held that the Delegate had erred. Not approaching the matter correctly had the consequence, with which his Honour dealt, that the Delegate did not "have regard to" some "costs necessarily incurred in providing nursing home care in the nursing home" (s.40AA(7)). His Honour was looking, correctly, at costs incurred by the respondent. foe Ar Berber eet and eta He rene Solna At Need hn Ah, cee ed et a ee en Se ea we. SET Cente de Tn MELE rr a RS LEAT Eat ERY Sree Nahas OE ee ee tl canipiabas yen Henn The crrors he found were manifestations of the more fundamental error with which we have dealt. It is not necessary for the purposes of this appeal to consider the details of the determination. There is in ourview danger in doing so because, with a correct approach, the questions which now seem to be posed may not arise, or will arise in a different context. The calculations leading to the determination of a fee will in any event depend to a large extent on an applica- tion of accepted accounting principles. The ascertainment of "costs necessarily incurred" is an appropriate starting point in a determination. We do not tnink we can usefully suggest an order in which other relevant matters might be considered. Whether an allowance should be made for profit, and what fces are necessary to make the hospital business economically viable are factors for consideration, but a question can properly arise as to whether, al] these elements having been calculated, the result is a scale of fees which is excessive or unreasonable. In the end, necessary and proper considerations being taken into account, the Permanent Ilead has a wide discretion. An aspect discussed at length in the course of this appeal can be mentioned. It was what allowance, if any, should be made in respect of $400,000 paid by the respondent for "goodwill". The particular point was whether it should in some way, and over some period, be A ee ns ere et ween ene - - oe ¥ need - "rm - — Ce ee ee i a wee me cee eee ee wort lee Nee be tae ee me aoe + ~9- allowed in full, and whether the payment of interest referable to it should be allowed. The query arose from its size, and the fact that it was received by the lessor after it had conducted the business for a short period of years only. The amount would normally represent, or anclude, the benefit expected from future profits, and it might well be unreasonable for the permitted charges to be inflated unduly, or at all, by any amount paid in expectation of what they will be. It is possible that if a lesser amount for goodwill had been agreed upon, a "greater rent would have been demanded, with a consequent increase in the costs necessarily incurred. It is to be observed that sub-section (7) of s.40AA does not relate "costs necessarily incurred" to any period or periods of time. This circumstance assists a conclusion that capital costs are included; the distinction between capital and income being largely a time-related one. The costs must of course be those necessarily incurred "in providing nursing home care" but as already stated "nursing home care" is defined to mean "accommodation and nursing care... .". Capital and revenue expenditure will still be treated separately, by reference to the periods to which the expenditures respectively relate, and in this regard accepted accounting procedures will be a guide. * re Saree ee] i oT ae ar eo ee ee war ae Fiteme wan WS ee ee Se - eee widen entree ~ 10 - The practice has developed of adjustments being made for what have been called "loadings". These can flow from under-estimates or over-estimates of future costs, when scales are being determined. An estimate may be sound when made, but the factual basis may be displaced by events, as, for example, by the number of employees of a hospital being greater or less than anticipated. The adjustments are made in determining subsequent scales of fees for the hosvital. Whilst care must be shown in doing this, and the process cannot be regarded as one of automatic arithmetical adjustment, the Permanent Head can in our view properly exercise a discretion in relation to the matter. There is a matter of a general nature which should be mentioned. It is that of reliance by a Delegate upon departmental policy. There was a lengthy document issued in the Department after the decision of the High Court in Sean Investments which attempted to state for the benefit of those concerned a series of "guidelines" for determining scales of fees for approved nursing homes. The authorship of the document was not stated in evidence, but it did not amount to, or include, directions by the Minister under s.138 of the Act. Although expressed to provide guidelines, it was detailed, and several matters were stated in mandatory terms. No reference was made to the essentially discretionary aspect of the Delegate's function. The learned judge found as a fact that "the etn cote ie oe Yee Rak oe Rede A we ntareste cee wT Se pecans cecal Gon td lan MG Ledeen oe i Tanta elt AUST ETE om teae aTtatet tow mala AE to asente cle ok le ee Se te, - 11 - strict application of dcpartmental policy prevented Mr. Hede from giving any or any duc weight to the matters to which he had to have regard under s.40AA(7)"'. Mr. Hede was the Delegate in question. He gave evidence, and in his frankness made it manifest to the Court that he had in many respects simply followed the guidelines, and departmental policy appear- ing therefrom or known scparately. As was pointed out by Mason J. in Sean Investments, (supra, at p.504) to "have regard to" in the context of s.40AA(7) means to have regard to as a "fundamental" element. We do not wish to attempt to find a synonym for what, with respect, is such an apt term, but it is obvious that costs necessarily incurred in accordance with sub-section (7) are to be given due weight, as matters of basic importance. The discretionary power vested in the Delegate must be exercised separately in relation to each nursing home. It is the purpose of the Jegislation that the position of each nursing home busincss be considered on its merits, and s.40AA(7) requires that due weight be given to each cost to which it relates. The consideration must at least be sufficiently open-minded to permit of a particular cost being taken into account in greater or less degree. We appreciate that the matter of policy presents a difficulty. Under the gencral law there is no objection to considerations of policy being taken into account. It is in our view reasonably clear that in relevant respects the present Act regards policy as important. JIn the first FR riage OP yd CREE RURITRTE STRAT aE Re a ne ren me ene ree wet Aare on - 12 - place, the discretion is vested in the Permanent flead, and we take this to be in the intcrests of continuity and uniformity. He would be expected to be in close touch with governmental and departmental policy. He is respon- sible, under his Minister, for the administration of many laws affecting health and medical and nursing care which operate throughout Australia, and it is probably con- sidered that he should try to kcep a balance between many relevant factors. The appeal from the Permanent Head is to the Minister, who, where fees are concerned, is obliged "to obtain a report from the appropriate Nursing Home Fees Review Committee of Inquiry (s.40AE(4)). <A further aspect, related to what we have already said, is that there are many approved nursing homes in Australia. As complementary to the necd which has been recognised for the power of the Permanent Head to be delegated, is the nced to ensure a reasonably uniform basis of treatment. The interface between policy and discretion in the exercise of statutory powers 1s a difficult one. Lead- ing statements on the subject are found in R. v Port of London Authority; Ex parte Kynoch Ltd. (1919) 1 K.B. 176, at p.184, per Bankes L.J.; British Oxygen Co. Ltd. v Minister of Technology (1971) A.C. 610; The Queen v Anderson; Ex parte Ipec-Air Pty. Limited (1965) 113 C.L.R. 177, at pp.188-190; Ansett Transport Industries (Operations) Pty. Limited v The Commonwealth of Australia and Others (1977) 139 C.L.R. 54, at pp.82-83; Bread Manufacturers of eRe ee Ce ee Bde on cal ee ot a amet ot we ene temas ae Sa a te me ee a SE te ee eS ee ea me et ee pate ee nee Rete mart eo TT oe 9 ee - 13 - N.S.W. v Evans (1982) 38 A.L.R. 93, at p.114 and in the setting of administrative review, see Drake v The Minister for Immigration and Ethnic Affairs (1979) 24 A.L.R. 577, at pp.590-591. No one test can be articulated for all cases. Where the power given relates to the consideration of individual cases, it is not to be denied that the predomi- nant aspect must be the consideration of the particular case. The merits of that case must be considered genuinely and realistically; there must always be a readiness to depart from policy. The policy does a disservice to those who have to measure it against the individual situation if it is expressed in dogmatic or mandatory terms. The term "policy" is itself difficult of definition. What it does not include is a serics of fairly precise _requircments. In a way, this is quite likely the fundamental defect in the decision at present under consideration. If the guidelines had been more gencral, expressing in a broader and possibly more direct way the policv sought to be maintained, the Delegate would have been freer to cest the individual case against it, or to test it against the merits of the individual case. Because guidelines are issued it is not to be assumed that each guideline expresses policy, as distinct from stating someone's view as to how policy should be carried out. It 1s in this last-mentioned situation that the use of so-called policy can readily become antithetical te the proper making of a decision related to the particular case. Li eel a a ek ae ke a a oe laa a a - - -— led is a nk lly ene wae ie we stimu Noam anche See at Lal tne talent ema AE I OY a i Be ne AE Re mere ee mt et tere ane ne mame mone a ome fen epee sen a RENN tee cee There is a minor matter we should mention. With the guidelines to which we have referred a form was provided for use by Delegates in promulgating their decisions. It contained a pro-forma sentence that regard had been had to "costs necessarily incurred in providing nursing home care in the nursing home", the critical language of s.40AA(7). The recitation of the formula is not enough, and was not relied upon in the present case. It may be of more assistance to Delegates if they were left to express their own conclusions and reasons in their own words. We are of the opinion that the appeal should be dismissed. The appellants should pay the respondent's costs. & ao by Lb >Z ' a oaiz G fa) * = ~ -_n ' 5 = POUL + Tedapont horsin of Wee POG patedt (0.292 Plerenclra vecutentep . et a a nC tel ee ee ee