CATCHWORDS ADMINISTRATIVE LAW - Judicial Review - decision fixing nursing home fees - considerations to be taken into account - staffing levels and profit - reliance on departmental policy - viability of nursing home - purpose of legislation - effect of amendment to legislation. STATUTES - Interpretation - use of extrinsic material to determine purpose of amending legislation - Minister's Second Reading speech. Administrative Decisions (Judicial Review) Act 1977 s.5 National Health Act 1953 ss.40AA, 40AD ALEXANDRA PRIVATE GERIATRIC HOSPITAL PTY. LTD. (trading as "Alexandra Private Nursing Home") Vv NEAL BLEWETT (who is sued as the Commonwealth minister for Health) and LAWRIE J. WILLETT (who is sued as the Permanent Head of the Commonwealth Department of Health) No. VG 46 of 1984 Woodward J. 7 August 1984 Melbourne IN THE FEDERAL COURT OF AUSTRALIA VICTORIA DISTRICT REGISTRY ) No. VG 46 of 1984 ) ) GENERAL DIVISION BETWEEN: ALEXANDRA PRIVATE GERIATRIC HOSPITAL PTY. LTD. (trading as "Alexandra Private Nursing Home") Applicant and NEAL BLEWETT (who is sued as the Commonwealth Minister for Health) and LAWRIE J. WILLETT (who is sued as the Permanent Head of the Commonwealth Department of Health) Respondents ORDER JUDGE MAKING ORDER Woodward J. DATE OF ORDER 7 August 1984 WHERE MADE Melbourne THE COURT ORDERS THAT: The application be dismissed with costs. IN THE FEDERAL COURT OF AUSTRALIA VICTORIA DISTRICT REGISTRY No. VG 46 of 1984 www ww GENERAL DIVISION BETWEEN: ALEXANDRA PRIVATE GERIATRIC HOSPITAL PTY. LTD. (trading as "Alexandra Private Nursing Home") Applicant and NEAL BLEWETT (who is sued as the Commonwealth Minister for Health) and LAWRIE J. WILLETT (who is sued as the Permanent Head of the Commonwealth Department of Health) Respondents JUDGE: Woodward J. DATE: 7 August 1984 REASONS FOR JUDGMENT Summary of main issues This is an application by a nursing home to review an administrative decision made within the Commonwealth Department of Health, ('the Department'), fixing the fees which the nursing home is allowed to charge its patients. It is alleged by the nursing home that the Department's method of calculating the fee is open to challenge under the Administrative Decisions (Judicial Review) Act 1977 ('the ADJR Act'). Originally, a number of aspects of several distinct decisions were challenged by the applicant but, as events have developed and issues have been refined, two central issues have emerged. The first is whether the Department can be successfully challenged under the ADJR Act for allowing the applicant only a modest amount by way of profit in calculating the fees which the applicant is allowed to charge. The second is whether the Department can be similarly challenged over the way in which it arrives at the staffing levels upon which it calculates the salary component of permitted fees. e History of legislative scheme Before dealing with these and other subsidiary issues which have been raised, it is convenient to set out the relevant history of the Department's involvement with nursing homes and the legislative framework within which it operates and has operated. Before 1972 the Department's involvement with nursing homes was slight. A moderate subsidy was paid by the Commonwealth to approved nursing homes, and the Department supervised these payments. In the 1972 Budget, the subsidy to approved homes was substantially increased and, from 1 January 1973, the Commonwealth assumed powers to approve nursing homes and to control the numbers of approved homes, the admission of patients to those homes and the fees which they could charge. It was theoretically open to nursing homes to remain outside the scheme, charging patients what they wished and receiving no Commonwealth subsidies. Given a scheme which provided substantial subsidies (which at present cover about three-quarters of the fees), remaining outside such a scheme can have had little attraction to the great majority of nursing homes. Section 40AA of the National Health Act 1953 ('the Act') was inserted in 1972 and it provided, among other things, for the approval of nursing homes and the fixing of the fees they would be permitted to charge from 1973 onwards. The observance of such maximum fees was a condition of the approval of nursing homes. The Permanent Head of the relevant department (then the Department of Social Security, now the Department of Health) was given the power to f1x a scale of fees for each nursing home and to vary it from time to time (ss.40AA and 40AD of the Act). de could delegate this power (s.6), and sincé the power is normally exercised by a delegate, and was so exercised in the present case, I shall generally refer in this judgment to the delegate rather than the Permanent Head. It is not contested that the first fixation of nursing home fees, to apply from 1 January 1973, was based upon the fees charged by the particular nursing home at 30 June 1972. The intention was to provide the same gross return as the nursing home had set for itself six months earlier. It was then intended that the fees would be adjusted from time to time as costs rose, salaries being adjusted in accordance with movements in award wages and other costs in accordance with rises and anticipated rises in the Consumer Price Index. Adjustments were to be made annually and the inevitable differences between predicted and actual rises would be further adjusted by a system of loadings - temporary variations in fees to apply for a period of some months -— which would recoup the nursing home for underpayments, or the patients for overpayments. It will be seen from this description that the original fees fixed would have contained some element of profit - whatever was being achieved by the nursing home in 1972 - along with the necessary allowance for costs. After 1973, it was Departmental policy that only the changes in costs would be provided for in fixing fee increases. The element of profit was not adverted to and so, provided costs were fully and accurately adjusted, it would remain the same in money terms, but decline in real value as e a result of inflation. For Victorian nursing homes, the wages component in the costs was based upon the minimum staffing requirements laid down by the Health Commission of Victoria ('HCV') under relevant State legislation. However the evidence establishes that these figures could be, and quite often were, varied upwards by the Department in particular cases. Because the Department's officers had little or no expertise in the running of nursing homes, they relied upon officers of the HCV to advise them when they thought an increase above minimum standards was required. This, in broad outline for present purposes, was the scheme for nursing homes which came into force in 1973. Previous decisions concerning s.40AA of the National Health Act 1953 The scheme was the subject of challenge and examination in several actions in this Court and the High Court in the years that followed. Most of these cases revolved around sub-section (7) of s.40AA of the Act, which gave the only direct guidance to the Permanent Head or his delegate as to how fees were to be fixed. It provided "(7) The Permanent Head shall, in determining the scale of fees in relation to a nursing home ..... have regard to costs necessarily incurred in providing nursing home care in the nursing home." The first case in which these words and their context were considered was R v Hunt, ex p. Sean Investments Pty. Ltd. (1979) 53 ALJR 552, 25 ALR 497. There Mason J., speaking for the majority of the High court, held that the costs to be considered included the costs of acquiring premises - which in that case was by payment of rent. The payment of rent was "necessarily incurred" if it was lawfully demanded by a landlord at arm's length from the nursing home proprietor, even if it was higher than the normal rent for similar premises. However the Permanent Head was only required to "have regard to" costs necessarily incurred. As Mason J. said, at ALJR p.554, ALR p.504, "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 incurred 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." In October 1981, Northrop J. decided the case of Nagrad Nominees Pty. Ltd. v Howells, 38 ALR 145. His Honour there held, among other things: (a) The policy of the Act required that private nursing homes should generally be viable. He said, at p.162, "In my opinion, the relevant essential policy of the Act is to ensure that the proprietors of private nursing homes do not make excessive profits in providing nursing home care, particularly since the Commonwealth to some extent does subsidize patients admitted to those homes. The Act presupposes the existence and the continuation of private nursing homes. The number of approved nursing homes can be restricted. The Commonwealth does not provide all nursing home care, but because it subsidizes patients in private nursing homes it is concerned to ensure that the proprietors do not make excessive profits." (b) Departmental guidelines, prepared following the High Court decision in R v Hunt ex p. Sean Investments (above), requiring that increased costs resulting from changes in proprietorship should not be considered when fixing fees, were contrary to the Act. (c) In determining a profit factor (which the delegate should normally do) the delegate was required to consider it in relation to the outlay of capital by the current proprietor, "and not give consideration to the profit factor applied to another ' person at another time" (p.167). This decision of Northrop J. was the subject of an appeal to the Full Court. The judgment of that court is to be found, under the name of Howells v Nagrad Nominees Pty. Ltd., at (1981) 43 ALR 283. In the course of his judgment, Smithers J. described the statutory purpose of the relevant legislation in the following terms: "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 ef the right kind being willing to undertake the work and risk involved in providing that care. It is a private enterprise approach to the problem. Obviously, from every point of view the success of the scheme is dependent upon there being available to the proprietors of homes providing nursing care financial returns which will constitute reasonable financial income to them taking into account the use of capital and the exertion involved in running the home as manager and worker. It is manifest that for the achievement 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 authorized 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." (pp.290-291). His Honour went on to say that the costs necessarily incurred in providing nursing care are not the only consideration to which regard must be had. His Honour found, following R v Hunt ex p. Sean Investments (above) that profit, which he specifically said was not a cost, is another matter to which regard should be had. The other members of the Court, Fox and Franki JJ., ina joint judgment, said at p.305 "The ascertainment of "costs necessarily incurred" is an appropriate starting point in a determination. We do not think we can usefully suggest an order in which other relevant matters might be considered. Whether an allowance should be made for profit, and what fees are necessary to make the hospital business economically viable are factors for consideration, but a question can properly arise as to whether, all these elements having been calculated, the result is a scale of fees which is excessive or unreasonable. In the end, necessary and proper considerations being taken into account, the Permanent Head has a wide discretion." Following this decision the Act was amended, and it will be necessary to consider the inter-relation between the Nagrad case and the Act so amended. Before doing so it will be convenient to conclude this review of authorities in which the scheme of the Act relating to nursing homes has been considered. In Sean Investments Pty. Ltd. v Mackellar (1981) 38 ALR 363, Deane J. dealt with the power of the Minister to determine fees for nursing homes under the Act. There is provision in the Act (s.40AE) for an appeal to the Minister from a decision of the delegate. The constraints imposed by the Act were at that time the same in either case, although a later (1983) amendment gives the Minister more latitude. At p.368, Deane J. adopted a passage from the judgment of Murphy J., who had dissented in R v Hunt ex p. Sean Investments Pty. Ltd. (above), saying that he could detect no conflict between it and the majority judgment delivered by Mason J. The passage read, "The Minister may adopt a general policy in regard to scales of fees, and deal with a review of fees for a nursing home in the light of that policy, but his determination or review must be in order to arrive at an appropriate scale of fees for the particular nursing home. If the costs necessarily incurred are excessive for any reason whether inside or outside the control of the proprietor, 1t may be that the scale of fees the Minister determines is such that if those costs continue, the home can be conducted only at little profit or at a loss. If that result follows it is because the Minister is not engaged in determining a scale of fees according to a cost plus system; he is carrying out a statutory duty to determine what, in his opinion, is an appropriate scale of fees in relation to the approved nursing home." ~ 10 - Applying this approach to the matter before him, Deane J. held that there had been no failure by the Minister to have regard to relevant matters, nor any other defect in his decision which could be challenged under the ADJR Act. His Honour's decision was upheld by the Full Court of this Court in Sean Investments Pty. Ltd. v MacKellar (1982) 42 ALR 676. Referring to the purpose of the legislature, as determined from the language used in the legislation, Bowen C.J. and Fox J. (with whom Franki J. agreed) said, at p.681, "When considering the purposes of the Act, it is almost always easier to decide, negatively, and in relation to concrete cases what is inconsistent with those purposes than to propound them positively. While wise administration would probably suggest that each nursing home be kept viable, we are unable to construct a purpose of the Act to the effect that adequate profit must be allowed in every case. This is evident from what we have already said. Also, we are unable to conclude that the ability of patients, that is to say, uninsured patients, to pay cannot be a relevant factor. This view is unaffected by the consideration that in the case of pensioner patients their income is largely, and in some cases wholly, what the government decides to provide out of its funds. A major purpose of the whole scheme must be to provide nursing home care for indigent patients, and one would expect that fees, and subsidies, will be determined with this in mind." In his separate judgment, Franki J. said, at pp.683-4, "In my opinion five fundamental points arise from the judgments of the majority in Re Hunt; Ex parte Sean Investments Pty Ltd (1979) 25 ALR 497; 53 ALJR 552. They are that:- (1) The maximum fees must be determined in relation to the provision of nursing care in the particular nursing home under consideration. -ll- (2) All costs necessarily incurred by the proprietor in providing nursing home care in the nursing home must be taken into account and weight given to them as a fundamental element in the determination. (3) An allowance for profit may be made. (4) Account may be taken of other considerations which tend to show that a scale of fees arrived at by reference to costs necessarily incurred, with or without a profit factor, 1s excessive or unreasonable. (5) Within the scope of (1) to (4) the Minister has a wide discretion. A difficulty arises in considering from whose point of view the reasonableness of the fees may be examined. Must the fees be looked at in relation only to the costs of the particular nursing home? Murphy J, in the minority judgment, said at 556 that "The purpose of providing a government subsidy is to lower costs to the public". I think there is much to be said for the view that, although some account may be taken of factors relating to the position of occupants, the income of pensioners, who were not specifically referred to in the sections of the National Health Act 1953 dealing with nursing homes, should not be the determining factor in fixing maximum fees which, after due regard is paid to costs necessarily incurred in providing nursing care in the nursing home under consideration, are not otherwise thought to be unreasonable." The final case to be considered at this point is Croft v Minister for Health (1983) 45 ALR 449. There Smithers J. held that the Minister had failed to take into account the rent which the proprietor of the nursing home business was required to pay pursuant to an agreement and had therefore not considered an important element of the "costs necessarily incurred" which s.40AA(7) of the Act obliged him to consider, though not necessarily to act upon. -12- His Honour said, at pp.465-6, "It is manifest that the success of the scheme depends upon there being available to the proprietors of nursing homes financial returns which will constitute reasonable income taking into account all genuine items of cost. The provisions in s.40AA(7) serve the objective that the essential interest of the old and largely helpless inmates of nursing homes that care is honestly provided and is reasonably adequate. Hence the command in s.40AA(7) requires attention in every case to be the reasonableness and propriety of necessary costs said to be involved in providing nursing care in the particular home concerned. That the level of fees be adequate to encourage honesty and service at an acceptable level is obvious. In these circumstances it is important that costs especially those which are said to be necessarily incurred, should be considered on their merits as possibly reasonably incurred and proper to be taken into account in relation to the proper and reasonable financial circumstances of the home. To exclude such consideration of such costs on the ground that they have been incurred in association with the purchase of the home offends this requirement. Attempts by nursing home proprietors, including purchasers, to exploit the system by increasing costs by contrived legal arrangements or otherwise may be dealt with appropriately by applying the tests of reasonableness, fairness and propriety." 1983 amendments to s.40AA It 1S against this background of legislation, judicially construed, that I must consider the amendments to s.40AA of the Act which received Royal Assent on 19 June 1983. In doing so I have been invited by the respondents to make use of the Minister's Second Reading Speech to assist me in determining the effect of the amendments on the general scheme and purpose of the Act. It was argued that, whether or not the amendments to the Acts Interpretation Act 1901, concerning the use of extrinsic material in the interpretation of an Act, are in -13- force by the time this judgment is delivered (as in fact they are), there is recent authority entitling me to do so, see TCN Channel Nine v AMP Society (1982) 42 ALR 496 at 507-8, and cases there cited. I prefer to rely on that authority rather than on the amending legislation, because the new s.15AB of the Acts Interpretation Act 1901 relates to "the interpretation of a provision of an Act". What I am concerned with here is not exactly a question of interpreting a provision. It is rather the determination of the policy underlying the part of an Act which includes particular provisions granting powers, in order to determine what restrictions are to be implied on the exercise of those powers. Although the decisions of this Court could not be categorized as "the mischief to which a statute is directed" (which the TCN case was concerned with) I believe the analogy 1s close, and when it appears likely or possible that Parliament has enacted or amended legislation in order to override or reduce the impact of certain judicial decisions, it is convenient and proper to consider Hansard reports (along with any other relevant material) as an aid in determining the true intent of the legislature. The Minister (who is of course the first-named respondent to these proceedings) had this to say in introducing relevant amendments on 11 May 1983: - 14 - "The Government intends to develop a Community Care Program to provide support for the elderly who wish to remain in their own homes. Under this program there will be a comprehensive range of domiciliary and community services provided across Australia. On the residential side our task will be to moderate growth in the nursing home sector, while continuing to pursue more equitable geographic distribution of nursing home beds, and to increase the availability of hostel accommodation. It is our view that neither per capita nursing home benefits funding nor deficit funding are ideal methods for 'securing the proper national development of nursing homes in the context of a total care policy for the aged. Existing nursing home benefits and deficit funding arrangements will be replaced by program grants paid to nursing homes. These program grants will be based on standard costs for the services delivered less the income received by the homes through standard patient contributions. The program grant system will take some time to develop. In the meantime the existing funding arrangements for nursing homes, will be maintained. The principal purpose of clause 3 of the Bill is to ensure protection for patients against excessive fee increases and at the same time to ensure appropriate control of expenditure on benefits under the current nursing home benefits arrangements pending the introduction of the Government's Residential Care Program. Expenditure on the Nursing Homes Benefits Program is determined by the number of approved beds and the level of benefit. The benefit level in each State 1s related to the levels of nursing home fees in that State which in turn are determined by my Department having regard to costs necessarily incurred by nursing home proprietors. The existing legislation on the control of fees simply provides that in determining fees the permanent head shall 'have regard to costs necessarily incurred in providing nursing home care in the nursing home'. Two recent Federal Court Judgments have shown that this legislation is not able to support the policies and practices followed over many years in the administration of fees control - policies and practices which have been followed by both Labor and Liberal-national Party governments. These judgments have serious implications for the overall cost of the Nursing Homes Benefits Program. - 15 - The practical effect of the judgments is that the continued application of the policies and practices currently used in the determination of fees for nursing homes would result in many determinations being set aside, if challenged, as being made contrary to law. Costs which previously were not allowed for the purpose of setting fees now have to be given consideration possibly resulting in significant fee increases contrary to Government policy. This would lead to higher benefits and therefore increased Government expenditure. Within the protected environment of the nursing home industry, there is very little incentive to constrain costs given the cost-based nature of fees determination and the high occupancy rates resulting from Government controls on new beds. Limited costs validations undertaken by my Department have revealed cases where costs have been artificially increased as a means of increasing profits. A recent consultancy survey undertaken with the co-operation of the industry revealed considerable variations in costs and profits between like homes. Legal opinion has been given to the effect that, in the light of the recent Federal Court judgments, the legislation greatly circumscribes the use of policy guidelines. Consequently, very great burdens will be placed upon delegates of the permanent head whose task it is to determine fees. The judgments interpret the legislation as requiring the- permanent head and his delegates to regard all costs necessarily incurred as fundamental matters for consideration, with each fee being determined on the basis of the merits of each individual case. The considerable difficulties involved in maintaining consistent administration Australia-wide will be much exacerbated. Successive governments have acted on the basis that Parliament, in passing the fees control legislation, did not intend to limit significantly central control and accountability, particularly given that the legislation makes detailed provision for appeals against, and reviews of, delegates' determinations. There are indications that the effect of the Federal Court judgments could be an eventual increase in government expenditure on benefits of the possible order of $50m per annum. In a program which is expected to cost more than $600m for benefits alone in 1983-84, it is imperative that consistent and effective controls be exercised on costs which may have an inflationary effect on approved fees. The effect of clause 3 will be to allow the effective continuation of established policies and practices pending the introduction of the Government's residential care program. The Bill provides that the Minister for Health may formulate principles in accordance with which the permanent head or his delegate is required to determine a scale of fees. It is intended that the principles will reflect established policy. The Bill provides for scrutiny of the principles by Parliament. In formulating these principles, regard is to be had to the factors set down in the proposed sub-section 40AA(7B). These factors will permit delegates to take account of the lack of normal market constraints on the nursing home industry. Clause 4 of the Bill is designed to ensure that the Minister 1s not, of necessity, constrained by principles authorised by clause 3 which are intended to limit the discretion of a large number of delegates of the permanent head throughout the country. Thus, on appeal, the Minister may, in considering the merits of a case, decide that rigid application of the principle is inappropriate. This change puts beyond legal doubt a practice which has been followed by successive Ministers of governments of all complexions. In summary, the proposed changes will ensure that the Government is able to continue the application of policies and practices in nursing homes fees control, established and supported by successive governments, pending the introduction of the present Government's residential care program." The amendments to which the Minister was referring took the form, for present purposes, of an addition to sub-section 6(c)(i) of s.40AA - which gives the Permanent Head (and his delegate) the power to determine nursing home fees - and the substitution of a new sub-section 7 and additional sub-sections (7A) to (7F). Sub-section 6(c)(i) now reads, "(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: {c) a condition that - (i) the fees charged in respect of the nursing home care of a qualified nursing home patient in the nursing home will not exceed such fees as are from time to time applicable in respect of the nursing home care of the patient in accordance with such scale of fees as is determined, subject to any principles that have been formulated under sub-section (7) and that are in force, by the Permanent Head in relation to the nursing home; " The words added by recent amendment are underlined. The relevant new sub-sections replacing sub-section (7) are as follows: "(7) The Minister may, by writing under his hand, formulate principles in accordance with which scales of fees are to be determined for the purposes of sub-paragraph (i) of paragraph (c) of sub-section (6) in relation to nursing homes generally or in relation to nursing homes included in specified classes of nursing homes. (7A) Without limiting the generality of sub~section (7), principles formulated under that sub-section may — (a) specify matters of a kind that are, in the case of each nursing home or of each nursing home included in a class of nursing homes, to be taken into account in determining a scale of fees for the purposes of sub-paragraph (1) of paragraph (c) of sub-section (6); (bo) specify matters of a kind that are, in the case of each nursing home or of each nursing home included in a class of nursing homes, to be disregarded in determining a scale of fees for the purposes of sub-paragraph (i) of paragraph (c) of sub-section 6; and (c) specify criteria for assessing, in relation to matters of a kind that are required, in accordance with principles of a kind referred to in paragraph (a) of this sub-section, to be - 18 - taken into account in determining a scale of fees, the amounts that are to be so taken into account in relation to matters of that kind. (7B) In formulating principles under sub-section (7), the Minister shall have regard to - (a) the need to ensure that nursing homes are efficiently and economically operated; (b) the need to ensure that the cost to nursing home patients of nursing home care is not excessive or unreasonable; and (c) any other matters the Minister considers to be relevant." The other new sub-sections give the envisaged principles the status of regulations or statutory rules for certain purposes. At the time the hearing in this matter began, no principles had been formulated by the Minister in accordance with sub-section (7), although a set of draft principles had been in existence for some time and were regarded by delegates as representing general departmental policy. Towards the end of the hearing I was informed that these draft principles had now been formulated in accordance with the Act. In accordance with the provisions of sub-section (7C) they must be tabled in the Parliament and are subject to the possibility of disallowance. Thus, as counsel for the respondents conceded in reply, "... perhaps that matter is in limbo at the moment". The principles which are most relevant for present purposes are as follows: "3.(4) The Permanent Head shall, in exercising any discretion permitted in these principles in determining a scale of fees, have regard to: (a) (b) (c) (a) (e) "4.(1) (2) (3) (4) (5) -19 - the desirability of ensuring the financial viability of nursing homes generally; the need to ensure that nursing homes are efficiently and economically operated; the need to ensure that the cost to nursing home patients of nursing home care is not excessive or unreasonable; the need to ensure that public moneys are being economically and properly expended; and the need for consistent and fair administration of Part V of the Act." The Permanent Head shall, subject to principles 5 to 13 inclusive and to sub-principles (2) to (5) inclusive herein, in determining a scale of fees, take into account the operating expenditure of a proprietor referred to in Part II necessarily incurred in providing nursing home care in the nursing home to the extent and in the circumstances specified in Part It and shall disregard all other expenditure. The Permanent Head shall, in determining a scale of fees, take into account a return to the proprietor on the investment in the nursing home and the business or undertaking carried on at the nursing home which the Permanent. Head determines in accordance with principle 10. The Permanent Head shall, in determining a scale of fees, determine a separate scale of fees for extensive care patients. The Permanent Head may, in determining a scale of fees, take into account the scales of fees determined in respect of and the level of costs incurred in other comparable nursing homes. Notwithstanding anything contained in these principles, the Permanent Head _ shall determine a scale of fees which is not excessive or unreasonable." "10.(1)The Permanent Head shall, subject to sub-principles (3) to (7) inclusive herein, in determining a scale of fees, take into account a return on the land and buildings (2) (3) (4) - 20 - used as the nursing home being the fair market rental when the nursing home was approved as an approved nursing home for the purposes of the Act as determined by the Taxation Valuation Branch of the Australian Taxation Office. Subject to sub-principles (3) to (7) inclusive herein, the Permanent Head shall, in determining a scale of fees, take into account: (a) a return on the cost of fittings, furniture, plant, equipment, and other chattels used in providing nursing home care in the nursing home whether owned by the proprietor or not; (b) a return on the investment in working capital which shall be valued at the equivalent of two weeks salaries and wages expense when the nursing home was approved as an approved nursing home for the purposes of the Act; and (c) a return on the establishment costs which shall be valued at the operating expenditure which was reasonably incurred prior to the commencement of the provision of nursing home care in the nursing home and the reasonable legal and accounting costs relating to the establishment of the nursing home, being the rate of return on Australian Savings Bonds when the nursing home was approved as an approved nursing home for the purposes of the Act. Where a nursing home was approved as an approved nursing home for the purposes of the Act before these principles come into effect, the Permanent Head shall take into account as the return on investment for the purposes of sub-principles 5(2) the return on investment reflected in the scale of fees as at the date these principles come into effect. The Permanent Head shall, in determining a scale of fees, disregard any increase in the value of any of the items constituting the investment in a nursing home or the business or undertaking carried on at the nursing home as provided in sub-principles (1) and (2) herein and save as set out in - 21 - sub-principles (5) and (6) herein shall not increase at any time the return taken into account in determining a scale of fees. (5) The Permanent Head shall, in determining a scale of fees, take into account further investment expenditure by the proprietor in a nursing home or the business or undertaking carried on at the nursing home provided such expenditure relates to the provision of increased bed capacity in the nursing home. (6) Notwithstanding anything contained in sub-principles (1) to (5) inclusive herein, where the Minister has made a decision under sub-section 40AE(3) of the Act varying the decision of the Permanent Head with respect to the return on investment to be taken into account in the scale of fees, the Permanent Head shall take into account as the return on investment for the purposes of sub-principle 5(2), the return on investment taken into account by the Minister. (7) Where the investment in any of the matters referred to in sub-principle (1) herein is provided in part or whole by way of any grant or subsidy by the Federal or a State or Territory Government, the Permanent Head shall disregard that portion of the investment representing the grant or subsidy un taking into account a return on investment for the purposes of sub-principle 10(1)." "13. The Permanent Head shall, in determining a scale of fees, take into account all benefits, income and advantages received, earned or enjoyed by the proprietor in respect of the business or undertaking carried on at the nursing home over and above the determined scale of fees in respect of the provision of nursing home care in the nursing home from any source whatsoever." Provisions of s.40AA at time of relevant decision The first question which I have to determine is the effective state of the legislation at the time the delegate made his determination of fees on 15 March 1984. It was argued for the ~ 22 - applicant that the old sub-section (7) of s.40AA of the Act was still in force because of the operation of s.9 of the Acts Interpretation Act 1901. That section reads "Where an Act repeals in the whole or in part a former Act and substitutes provisions in lieu thereof, the repealed provisions shall remain in force until the substituted provisions come into operation." It was argued that "the substituted provisions" of the new sub-section (7) had not "come into operation" because the principles for which they provided had not been formulated by the Minister. The validity of this argument depends upon the meaning to be given to the phrase "come into operation" in s.9 of the Acts Interpretation Act 1901. Is the reference to formal operation or to effective operation? The National Health Amendment Act, No. 35 of 1983, provided that the amendments to s.40AA should "come into operation" on the day on which the Act received the Royal Assent, which was 19 June 1983. Taken at face value this means that from that day s.40AA was amended "by omitting sub-section (7) and substituting" the new sub-sections (7) to (7F). If, however, s.9 of the Acts Interpretation Act 1901 is to be taken as applying to the coming into effective operation of the new sub-sections (7) to (7F), then that could only occur when the principles, to which those sub-sections exclusively related, were formulated by the Minister. Although the formulation of those principles is referred to in permissive rather than mandatory terms, it is clear from the Minister's Second Reading Speech that they form an integral part of the new legislative scheme. In the events which have occurred - namely the failure of the Minister, for almost a year, to formulate such principles - the applicant's argument has a logical attraction; but I do not think it can succeed. I believe the reference in s.9 of the Acts Interpretation Act 1901 is to the formal coming into operation or commencement of amending legislation. Some such provision would be appropriate to put beyond doubt any possibility of a hiatus between Royal Assent and proclamation of a particular amending provision. That is sufficient to explain the existence of the provision. It is true that, concerning related provisions of comparable legislation in the United Kingdom and the Australian Capital Territory, courts have held that "operation" can mean "effective operation". In those cases the provision in question enabled rules to be made or other appropriate steps to be taken "so far as may be necessary or expedient for the purpose of ' bringing the Act into operation" (Usher v Barlow 1952 1 Ch. 255 @ 263), or "for the purpose of bringing the ordinance into operation at its commencement" (Novacic v Cooper (1973) 21 FLR 436 @ 446). In these cases the Court of Appeal and the Full Court of the Australian Capital Territory, respectively, found, in effect, that in order to make sense of these provisions "operation" had to be - 24 - read as meaning "effective operation". It is interesting to note that in 1976 the parallel provision in s.4 of the Acts Interpretation Act 1901 was amended in a way which avoided the difficulty caused by the word "operation" having two different meanings in the one section. It would appear that the word now has the consistent meaning of "formal operation", so that "coming into operation" is synonymous with "commencement" wherever the phrase is used in the Act. I therefore jhhold that the old sub-section (7) was not in force at the time the delegate made his determination of fees in this case. Since the new sub-sections were not in effective operation, the Act was silent for eleven months as to specific guidelines for the delegate to follow. Any limitations on his discretion had to be derived from the general policy of the Act. Policy of the Act at time of relevant decision What then was the policy of the Act after the 1983 amendments? Had they effected any change in the policy found by the several decisions in the Sean Investments, Nagrad and Croft cases referred to above? In my view they made little, if any, difference to the underlying policy of the Act. The following principles, in my view, still applied: 1. The costs necessarily incurred by the proprietor of a nursing home in providing nursing home care remained a fundamental matter for consideration" by the delegate (to quote Mason J. in R v Hunt ex p. Sean Investments). - 25 - 2. Fees should have been fixed in accordance with principles which presupposed "the existence and continuation of private nursing homes" (Northrop J. in Nagrad). In other words, nursing homes generally, though not necessarily a particular nursing home (Bowen C.J. and Fox J. in Sean Investments), should be commercially viable when efficiently run. 3. Commercial viability requires some reasonable return on investments - a reasonable level of profit. "People have to be encouraged to provide the services", (Smithers J. in Howells v Nagrad). 4. The scale of fees suggested by principles 1-3 above must not be excessive or unreasonable for patients, including indigent patients (Bowen C.J. and Fox J. in Sean Investments). 5. The fees finally determined must be appropriate for the particular nursing home and its patients (Murphy J. in R v Hunt, adopted by Deane J. in Sean Investments; Franki J. in Sean Investments.) Events leading up to the relevant decision Although it may be necessary to refer in general terms to events concerning the applicant which occurred before 15 October 1982, that marks a convenient starting point for the detailed narrative of the events preceding this application for review. - 26 - On that date, Sister Margaret Goode, on behalf of the applicant, signed an 'Application for variation in approved fees', commonly known as an NH 19. This form called for detailed information as to the number of beds, the numbers of patients occupying those beds from day to day (very close to a 100% occupancy rate in this and most other nursing homes), the gross income received from or on behalf of patients, and the total expenditure of the nursing home on some 35 separate items of expenditure there listed. Among other things, the nursing home was also expected to provide details of its staff rosters for particular weeks and copies of its audited balance sheet and profit and loss statement for the previous year. In this case the balance sheet showed the value of land at cost as $46,102 and of buildings, before allowance for depreciation, at $67,027. Furniture and equipment, before depreciation, was shown at $35,342. Armed with this information, the delegate made a determination which was conveyed to the applicant by a letter dated 8 March 1983. The relevant parts of this determination, for present purposes, were (a) an "adjustment to salaries and wages" representing a reduction of $111.66 per day, being "the difference between the cost included in the fee structure at 20 June 1982 and the amount actually being incurred at that time as determined from the recent validation of wage records conducted at your nursing home". This meant that the amount allowed for wages when the fees were last fixed had, in the delegate's view, proved excessive when checked against the rosters actually worked in particular weeks. (b) The delegate said, "It should be noted that salaries and wages expenditure is now based on a 14% replacement loading for permanent staff and casual rates where applicable". This "replacement loading", which had previously been 21%, was to cover the cost of extra staff to replace those on leave for any reason, whose salaries would in most cases continue. This change from 21% to 14% seems to have been largely responsible for the adjustment noted in (a) above. (c) The total amount allowed by the delegate for salaries and wages in the coming year - $858,852 - was based on approved staffing levels of 468 hours per week for registered nurses (including the matron), 383 hours for enrolled nurses and 395 hours for nursing assistants, a total of 1246 hours. These were the hours in fact worked by the nursing home in the week ended 9 June 1983, but they were less than the 1297 hours rostered for the following week or the 1265 hours which the Department had "validated" or checked as the average for the eight weeks up to that time. The applicant was "advised that any application for an increase in the approved staff hours should be supported, in writing, by the Health Commission of Victoria". - 29 - Then by letter dated 13 September 1983 an increase was sought based on extensions to the nursing home building which provided an additional 4-bed ward. The claim was for $5499 per year, being 13.5% of the construction cost of $40,734. On 13 October 1983 the attention of the Department was drawn to certain requirements of the Health Commission of Victoria ('HCV') which the nursing home had been asked to meet, involving expenditure on fittings and furnishings. These matters were dealt with together in a determination dated 15 December 1983, which, after representations from the applicant, was replaced by another, effective from the same date. This determination was conveyed in a letter dated December 1983, no day being indicated. It refused any adjustment to fees arising from the numbers of nursing staff employed, reiterating that increases in the approved level of nursing hours would only be considered if supported in writing by the Health Commission of Victoria. An adjustment was, however, made to "the approved Excess of Permanent Fee Income over Approved Expenditure" (that is, the allowance for profit). The adjustment represented "a return on the additional capital that was invested in order to obtain approval for the increase in bed capacity from 50 to 54 beds". It - 30 - was shown in evidence that the adjustment was calculated as 10% on new building works and 12.5% on new fittings and equipment. This increased the allowance for profit from $23,177 to $27,280. No variation was made to the 14% replacement loading referred to earlier, but it was indicated that a "reconciliation" would be made when the actual wages paid for the 1982/83 year were processed. Meanwhile another claim, central to these proceedings, had been made, by letter dated 20 October 1983 on behalf of the applicant, by a firm called Nasah Management Services. The letter of 20 October foreshadowed an application to the Fees Review Committee of Inquiry, which had been established by the Act (s.40AE) to advise the Minister when appeals were made to him concerning fees. The main argument of the letter, which was addressed to the delegate then handling matters relating to the applicant, a Mr. Nugent, was in the following terms: "The major problem we seek to overcome is the totally inadequate return to the Proprietor of this Nursing Home who has recently been advised by your Department that she is entitled to make $23,177.00 per annum return for the Nursing Home freehold and business. This figure relates to approx. $8.00 per patient per week. To support our claim that the amount currently recognised is grossly inadequate and restricts the Proprietor from selling her Nursing Home at a fair market value, we have enclosed for your attention a copy of a Valuation undertaken by K.L. Dowling & Co., Estate Agents & Registered Valuers of 424 St. Kilda Road, Melbourne on August 16, 1983. The report clearly indicates that a reasonable rental for the property, on current market value, would be in the vicinity of $27.70 per patient per week or $77,781.60 per annum. In addition to the above, any responsible Proprietor' who undertakes to operate the Nursing Home business would require in addition to the above rental a minimum of $67,500 per annum or $1,250.00 per patient per annum (including working capital) to provide a service and facility commensurate with current acceptable standards. It can therefore be seen that the current return in inadequate and would require a minumum adjustment of $122,104.60 per annum to allow this Nursing Home to operate in a manner consistent with reasonable business practise, i.e. Rental Year 1 $ 77,781.60 p.a. Business Return $ 67,500.00 p.a. $145,281.00 Less Current Return $ 23,177.00 $122,104.60 As it currently stands the Proprietor has difficulty operating the Nursing Home because of financial limitations and, indeed, cannot sell the Nursing Home at a current market price because the current administrative structure and policies refuse to adequately address this problem. As this situation is iniquitous in its treatment of the current Proprietor we would appreciate your earliest adjustment to the fees to incorporate the short fall in return previously mentioned." A prompt. reply to this claim was received, dated 25 October 1983. It read, "DETERMINATION OF APPROVED FEES As a result of an application submitted on your behalf by NASAH Management Services a determination has now been made and you are advised that there has been no variation to the approved scale of fees. The excess of permanent fee income over approved expenditure currently included in the fee structure provides for a reasonable return on the historical =- 32 - investment in Alexandra Nursing Home and no further adjustment is considered necessary at this stage." The letter went on to refer to the applicant's right of appeal under the Act. No appeal was in fact taken to the Minister. The next determination of fees for the applicant was in response to a claim for adjustment to cover national wage increases which had come into force in December 1983, backdated to 6 October 1983. This claim was granted in the ordinary course of events but, because of the expiry of certain "loadings" previously granted, the net result was no change in the fee scale. The delegate's letter of 14 February 1984 containing this determination also said "You are advised that your application for a review of staff hours will be processed as soon as possible". This application, dated 19 January 1984, was not tendered in evidence. It was against this background that the determination which is ultimately challenged in these proceedings was made. It was primarily in response to the basic annual claim on the NH 19 Form which set out the costs of the applicant for the financial year 1982/83. The form was dated 7 October 1983 and received in the Department on 10 October 1983. The determination was conveyed in a letter from the delegate dated 13 March 1984, to take effect from 15 March. - 33 - The balance sheet attached to the NH 19 showed fixed assets of $46,102 (land), $92,766 (buildings) and $36,385 (furniture and equipment). Current assets (consisting again almost entirely of trade debtors, and excluding refundable income tax) were shown at $94,543. The profit and loss statement showed a net loss for the year of $52,247 which, after adjusting for abnormal items, came down to $22,516. The determination of 13 March 1984 included the following statements: "with regard to nursing hours, no increase in the total approved hours has been granted however the costings have been adjusted to reflect the rostered hours for SRN's and SEN's. This increase in the costed hours for these classifications has resulted in a compensatory decrease in NA hours. As advised in previous correspondence from this Department, any increase in the approved levels of hours will require written authorization from the Health Commission of Victoria stating that the additional hours are necessary for the provision of nursing care at Alexandra Nursing Home." The effect of this was that the total hours allowed were unchanged, but more hours were allowed to registered and enrolled nurses and fewer to nursing assistants. Included in the tabulation showing how the new fee scales were arrived at was the item - "Excess of Permanent Fee Income Over Approved Expenditure $27,280". - 34 - The issues generally In order to identify the issues which have to be determined in this matter, it is necessary to decide first where they are to be found. Because the issues were considerably refined between the time the application was filed and the date of the hearing, counsel for the applicants produced, on 10 May 1984, "Applicant's Statement of Issues" for purposes of their final address. It is convenient to use that as the basic statement of the matters I am asked by the applicant to determine. . However it cannot be the sole point of reference, because it contains some matters which were not raised in the amended application, nor by way of further particulars, nor yet in the document headed "Issues" handed up by counsel for the applicant on 2 April 1984, in the course of interlocutory argument. The most obvious additional matter consists of several allegations of denial of natural justice. I shall accordingly treat the "Applicant's Statement of Issues" as representing the outer limits of its claims, to be read down where it contains matter of which the respondents had no notice before the commencement of final addresses. Counsel for the applicant understandably did not seek formal amendments to their application, raising fresh issues, at that late stage. - 35 - I shall not, however, attempt to deal separately with each way in which the applicant's case is put. In their "Applicant's Statement of Issues", counsel have purported to identify 25 separate (though overlapping) ways in which the delegate fell into error, and an average of four different ways in which each error can be challenged under the ADJR Act, making a potential total of over 100 separate issues. I shall deal only with the alleged errors which in my view have some substance and, in each of those cases, with the most obvious ground or grounds of challenge under the Act. Loadings Before dealing with the two substantial matters which were finally relied on by the applicant, namely allowance for nursing staff salaries and allowance for profits, it is convenient to mention the one other matter which was still faintly relied upon. This related to "loadings". The method of the delegate in fixing fee scales has always been to determine costs other than salaries in the previous financial year and add a factor for anticipated Consumer Price Index changes. For salaries, current award rates have been determined, plus an element for additional staff to cover leave, determined at an assessed rate of 14% (previously 21%). When the costs actually incurred are known, after the next form NH 19 is submitted, the shortfall or excess is calculated and is added to or subtracted from the basic scale of fees for a number of weeks until the difference has been accounted for. - 36 - It was submitted by counsel for the applicant that this approach was inappropriate and should be replaced by one which made a budget estimate of all costs for the coming year and then fixed fees in accordance with that budget, probably without any later adjustment. The argument was summarized in the following words: "We say that state of affairs for a business run on a private enterprise basis is just unacceptable and that basically the permanent head ought to address his mind in consultation with the applicant to find some other suitable way of determining the scale of fees without having to rely upon loadings. We say that by adopting this system of loadings the permanent head in effect has acted contrary to the Act and unreasonably." I need only say that, whether or not the Department's method is the best available, it is certainly not "so unreasonable that no reasonable person could have so exercised" his discretionary power in adopting it - which is the test of reasonableness prescribed by s.5 of the ADJR Act. Nor was it suggested that the method runs contrary to any express provision of the National Health Act 1953. I cannot see that its use is in any way forbidden by the underlying policy of the Act. This argument of the applicant is accordingly rejected. Nursing Staff Salaries Although there were three aspects of the March 1984 determination concerning staff salaries which were challenged by the applicant, by far the most important matter was the way nursing staff numbers were arrived at by the delegate for purposes of his calculations. - 37 - As was made clear on this occasion, as in earlier determinations, the delegate based his salary calculations on the "approved" numbers of staff, saying that these would only be increased if the Health Commission of Victoria ('HCV') was prepared to support the variation, in writing. It was explained in evidence that the reason for this is that the Department has no officer in Melbourne with experience of nursing homes, or indeed with any nursing experience. It accordingly relies on appropriate officers of the HCV to make recommendations about nursing staff numbers. The starting figure is that provided by Victorian law as the minimum permissible number to provide adequate nursing care. This is based on a simple ratio of hours per patient and, in the case of the applicant, provided a figure of 1039.5 hours per week. However it was recognized that some nursing homes had particular requirements, or particular difficulties due, for example, to their layout. In the case of the applicant it had been claimed, and confirmed by an officer of the HCV, that the hospital had an unusual amount of heavy lifting - largely due to the 12 male patients included in the total of 54. This consideration, taken together with the actual hours rostered in the week ended 9 January 1983, led to the fixing in March 1983 of a total of 1246 hours per week for the applicant. - 38 - The applicant maintains that this provision is quite unreasonably low, is always exceeded by the applicant in the interests of proper nursing care, and so regularly results in financial loss to the applicant. Having heard the evidence of Sister Goode, who is a director of the applicant, which is a family company, and matron of the nursing home, I am satisfied that the applicant takes care with its rostering of nursing staff and, so far as possible, determines a proper level of staff after taking account of the individual needs of each patient. I have no reason to think that the numbers arrived at by this method are extravagent or that there is any inefficiency in the use of staff. No such suggestion was put to Sister Goode by counsel for the respondents. Since Sister Goode well knows that any use of staff above the approved numbers is likely to be paid for by the applicant without recompense, she would not lightly engage extra staff. It is interesting to note that most nursing homes employ fewer staff in practice than are approved by the Department. In spite of this, Sister Goode's latest roster of which I have evidence showed 1286.5 hours being worked in September 1983, and she had indicated to the Department that to give care at the level she considers necessary she would like to work 1340 nursing hours per week. The difference between these hours sought and those presently approved (1246) is made up of 94 hours of nursing assistants' time. - 39 - Although I am satisfied that Sister Goode's approach to the question of nursing hours is entirely reasonable, it does not necessarily follow that the differing view of the Department, as expressed by the delegate in the decision of 13 March, is unreasonable. The hours actually worked by the applicant in September 1983, and the hours sought by Sister Goode in January 1984, only exceed the hours approved by the Department by 3.25% and 7.5% respectively. On the present basis of a 38 hour week, the respective differences in notional staff are approximately 32.8 nurses approved, 33.9 nurses working in September 1983 and 35.3 nurses sought in January 1984. It is, in my view, impossible to categorize the Department's allowance, on its face, as so unreasonable that no reasonable person could have arrived at it. Nor, in my view, can the Department's method of arriving at its figures be impugned. It began with the hours actually rostered by the applicant in a particular week in January 1983. It is true that an average figure over 8 weeks would have yielded an extra 19 hours, and this would seem to'have been a fairer figure to take. But the Department chose to take the lower figure and I have to decide not whether that was fair, but whether it was lawful. I believe it was. The Department then required the applicant to obtain support from the HCV if it wanted more hours approved. This approach was challenged by counsel for the applicant on the basis that the HCV is only required by relevant Victorian legislation to - 40 - fix minimum staffing levels. While that is true, it is clear from the evidence that officers of the HCV are prepared to adjudicate, on request, on questions as to the staffing levels which ought to be approved by the Commonwealth Department. The arrangement may not be a very satisfactory one, given the limited time which HCV staff can be expected to spend on these matters and their lack of personal experience in the running of nursing homes. It can hardly, however, be said to be an unreasonable arrangement from the Department's point of view. In addition to relying on the HCV, the delegate also had available to him some comparisons taken out in May 1983 with other nursing homes of comparable size. These tended to confirm the Departmental view that the nursing hours which had been approved for the applicant were adequate. It was argued for the applicant that the delegate should not have relied on the determination of approved hours made by another delegate twelve months earlier, but should have reconsidered the matter for himself. In the absence of any substantial fresh material before the delegate, I do not believe this criticism can be sustained. It has to be remembered that there are some 240 nursing homes in Victoria and that this was the fifth request for a review by the applicant in twelve months. Further, the Department had made it clear to Sister Goode that it would only consider any further increase in approved nursing hours if those hours were supported in writing by the HCV. This, as I have said, was not an unreasonable stand for the Department to - 41 - take, given its own lack of expertise; and it had the affect of putting this particular ball into the applicant's court. The applicant could no doubt have returned to the attack without such support, if it had other persuasive material to use; but the delegate was entitled to assume that the Department's position had been accepted by the applicant at the time he made his decision. In my view the delegate's reliance on a previous approval of nursing hours did not, in all the circumstances I have mentioned, amount to the following of "a rule or policy without regard to the merits of the case" (ADJR Act s.5(1)(e) and (2)(f£)). This was the strongest way the particular challenge could be put. It was next argued that the delegate failed to have regard to the views of the matron, Sister Goode, about the nursing hours required by her patients and, for this purpose, failed to seek further information from her. It was pointed out that she and the applicant had statutory obligations, under Victorian legislation, to provide proper standards of care. In my view the strongest way this could be put for the applicant was that the delegate failed to take these relevant considerations into account (ADJR Act s.5(1)(e) and (2)(b)). However I do not believe that this challenge can be sustained. The delegate was aware of Sister Goode's views on this matter, and of the fact that her staffing levels were somewhat higher than those approved. I do not believe he was under any obligation to seek further material, in addition to that which she had provided in her application, and the weight, to be given to her views on the subject was a matter for him. Next it was said that the delegate acted unreasonably in not getting "a suitably qualified expert on nursing homes" to g g visit the nursing home.and assess its requirements for nursing staff. Although the word "unreasonably" was used in formulating the claim, the explicit particulars of challenge under the ADJR Act were that the delegate failed to take a relevant consideration into account, or alternatively acted "in accordance with a rule or policy without regard to the merits of the particular case". In my view there was no obligation on the delegate to go beyond reliance on the HCV. As I have said, that may not have been a very satisfactory solution to the problem of approving appropriate nursing hours, but it is not for the Court to prescribe precisely what enquiries the delegate must make before fixing fees. He had enough material before him to enable him to perform his task, and the weight to be given to the recent approval of hours by another delegate was entirely a matter for him. Finally, on the subject of salaries, it was argued that the delegate failed to deal properly with an issue referred to as "the replacement factor" and, in doing so, failed to correct a - 43 - previous delegate's disallowance of a sum of $38,136.20, part of which should have been allowed. The main point at issue here is how much should be allowed for the fact that, while staff are absent on annual leave or sick leave, and still being paid, other staff have to be employed in their places. Until recently the Department was prepared to allow a 21% loading on the salary bill to cover such cases. It then decided that this was excessive, and the allowance was reduced to 14%. It must be understood that this is merely a preliminary estimate for purposes of forward fee calculations. At the end of the financial year, the actual approved cost of such replacements is calculated, and any shortfall or excess allowance is adjusted over succeeding weeks until the amount has been absorbed. In the case of the applicant, the sudden change in the allowance from 21% to 14% was, it seems, very largely responsible for the disallowance of the sum of $38,136 as excess wages. This was not made clear to the applicant, as the Department now concedes it should have been, in order to give the applicant a proper opportunity to challenge the figure. Now that this has come to light there should be a further review of this matter in due course. In any event the complaint only has an indirect bearing on the determination under review. The applicant's chief complaint on this score is that the 14% allowed is unrealistic, bearing in mind that replacement staff are usually casuals who have to be paid at a higher hourly - 44 - rate than permanent staff. It is said that the ultimate adjustment in accordance with actual experience does not solve the problem because, in the meantime, the nursing home is out of pocket, has to use a bank overdraft to pay salaries, and is never re-imbursed for the lost interest on that overdraft. The Department's reply is that the overall experience of nursing homes shows that 14% is the appropriate level of allowance, requiring no great adjustment either way when the actual figures are known. I have no reason to reject that evidence; it does not seem unreasonable for the Department to use an arbitrary figure, fairly calculated, in its advance estimates of costs for all nursing homes; and accordingly this particular challenge to the delegate's decision must fail. By way of summary on the question of allowance for salaries in the fee structure, I find that the staffing levels of the applicant's nursing home are carefully and properly arrived at by the matron. They are not excessive and, in the experienced judgment of the matron, they are necessary to provide what she considers to be a reasonable standard of care for her patients. I would not accept the suggestion, which was put only faintly on behalf of the Department, that the difference between approved hours and hours actually worked represents inefficiency on the part of the nursing home. On the other hand, I am unable to say that the conduct of the Department, through the delegate, in having regard to approved hours, and in refusing to increase the number of approved - 45 - hours without the imprimatur of the HCV, is unreasonable or otherwise improper or unlawful within the meaning of the ADJR Act. Nor has the applicant satisfied me that the Department's approach to the "replacement factor" is wrong in law. Allowance for Profit I have already described the earlier history of the allowance which the Department has been prepared to make for a profit element in fixing fees. Until the Nagrad decision the effect of the Departmental approach was that the nursing home was allowed the same money sum by way of profit that it had earned in 1972. This was implicit rather than explicit in the successive calculations of delegates. After Nagrad, in the determination here reviewed, the delegate took the valuation of land and buildings appearing in the applicant's balance sheet for 1972 and allowed, by way of profit, 10% on that book value of the land and buildings, 124% on the book value of furniture and equipment and on the value of current assets, and 10% on the value of any Later improvements to puildings, provided they increased the bed capacity of the nursing home. This "historic cost" approach was attacked by the applicant on a number of grounds. In the first place it was said that the delegate applied policy derived from ministerial statements either incorrectly or slavishly - without regard to the merits of the particular case. - 46 - The ministerial statements referred to were put in evidence. The first was dated 17 May 1973 and was contained in a letter from the then Minister, the Hon. William Hayden, to the then Chairman of the NSW Nursing Homes Fees Review Committee established to deal with appeals under the Act. Copies of this and the later letters I shall refer to were distributed through the Department and placed on file for the guidance of delegates. Dealing with the question of allowing for profits in fixing fees, Mr. Hayden said, "It is my view that fees determined by my Department, in the first place, or by me acting on a recommendation of a Committee, should not be such as to put a home in an improved financial positaon to that which it held previous to the introduction of the fee control measures. This means, for example, that if a home was earning a return on capital at a particular rate then, provided that rate was not excessive - say less than 125% - it could be permitted fee increases to maintain that rate but it should not be permitted fee increases to improve that rate. At the same time, I am prepared to give consideration to fee increases where a particular home was operating at a loss pefore 30 June 1972, so as to enable it to achieve a break-even financial experience. However, I would be reluctant as a general rule, to approve of fee increases so as to enable such a home to return a profit margin and, further, in considering such a case I would also wish to have regard to any particular circumstances that resulted in a home operating in deficit." It is to be noted that this statement did not give any guidance as to how "capital" was to be calculated; but it did provide that each nursing home earning less than 124% on that capital, should be able to maintain its individual rate. It seems that this directive was not followed by the Department, because no year-by-year calculation of return on capital was made. On any - 47 - view as to the way in which fixed assets were to be valued, fluctuations in shareholders funds should have been taken into account but, until the Nagrad decisions, they were not considered by delegates, although it seems from the following exchange of letters that Review Committees may have considered them on appeal if attention was drawn to them. The next relevant Ministerial statement was that of the Hon. Ralph Hunt, dated 2 January 1977, in reply to a letter from the Chairman of the Victorian Fees Review Committee. The Chairman had quoted Mr. Hayden's statement and gone on to say, "Funds used or employed are considered by my Committee to comprise Proprietors Capital, borrowed funds e.g. bank overdrafts, loans etc. undistributed profits, current accounts) and Reserves less goodwill. Under the current economic conditions 1t is considered that the 124% return has become too low to be acceptable as a sound business concept. In support of this the following points are listed. (a) As long ago as 1940 the late Professor Copeland as Commissioner of Prices allowed 15% on funds employed as a guideline for a working proprietor. (b) Related to this 1940 figure interest on secured bank overdraft is now approximately 12% as against 5% to 6% in 1940. (c) Proprietors of Nursing Homes who have to borrow money for purchase and capital improvement are paying on the average 15% interest on such loans (usually not fully secured). When the fee fixing scheme was introduced in January 1973 the Committee found that Proprietors or investors in Nursing Homes were able to borrow from financial institutions at 9%% interest. The margin between this rate and the 12% return was allowed to compensate the Proprietor for his entreprenurial ability. This margin has now been eroded. It is now possible to invest in - 48 - debentures and receive a comparable rate allowed to nursing home Proprietors, e.g. Chrysler 4 + 5 year Debenture Stock 12% 3 year 12%; Australian Guarantee Corporation 4 + 5 year Debenture Stock 124%; 2 year unsecured notes 12%; General Motors Acceptance Corporation 5 years 124%; 3 years 12%. (dad) Solicitors first mortgage rates are currently about 14%. Consequently it is considered that a more equitable rate of return on invested funds where there is some (albeit small) element of risk and personal work involvement is in the range of 175% - 20%. The matter is referred for your consideration and guidance and the Committee would appreciate your guidance in the matter." To this the Minister replied, "Having given full consideration to the points in your letter I have decided that a return of up to 17%% on invested funds may be allowed in those cases where your Committee considers a fee increase is justified by increases in the costs incurred by a nursing home proprietor. As with the previous guidelines I believe that the principle that a fee increase should not be such as would put a home in an improved financial position should be retained. This means, for example, that if a home was earning a return on invested funds at a particular rate then, provided that rate was not in excess of 17%% it could be permitted a fee increase to maintain that rate but it should not be permitted a fee increase which would enable it to improve that rate. I agree that in the above context the term "invested funds" could generally be interpreted as having the meaning defined in your letter of 19 October 1976. However, I do not consider that the principle should be applied in all cases. The financial structure and borrowing practices vary from one nursing home to another and universal application of the principle could seriously advantage or disadvantage some proprietors. Therefore, the principle you have propounded should only be used - 49 - as a broad guideline and each case should be considered having regard to the particular circumstances that apply." This appears to mean that, "as a broad guideline", the nursing home proprietor could be allowed up to 17%% profit on its invested funds, provided it was earning that rate before 1973. This letter would seem to have made no difference to departmental practice, since delegates continued to make no calculation of a profit element. They merely adjusted the costs, leaving invested funds to earn the same money sum as they had in 1972. Finally, on 20 May 1982, the then Minister, the Hon. James Carlton, wrote to the Acting Chairman of the Victorian Committee, referring to letters he had sent to nursing home proprietors, and saying, «+. you will note that I have indicated that the principle endorsed by Mr. Hunt in 1977, namely the use of historical costs in measuring profit levels, should continue to apply. ... You will note that essentially the position 1s that in considering profitability appeals the principle to be applied is that a fee increase should not be such as would put a home in an improved financial position. However, if a home was earning a return on invested funds at a particular rate then, provided that rate was not in excess of 17% per cent, an increase in fees could be recommended to maintain, but not increase, that rate of return on invested funds. However I have also indicated in my reply to the proprietor in New South Wales the importance of Fees Review Committees of Inquiry having regard to the merits of particular cases. I am of course required to have regard to the merits of a case in considering fees appeals and, in this regard also, I depend to a large extent on the advice of the Fees Review Committees of Inquiry. As I have indicated, the appeal process is an appropriate means of carefully examining the profitability levels of particular nursing homes. In cases where an increase in profitability is considered justified on the merits by the Committee, I would like to be confident of the validity of the costs incurred and other financial data used in calculating the current profitability, and to have some appreciation of the quality of care provided by the nursing home. I have asked my Department to provide any assistance Committees may seek in these matters." This is the first Ministerial statement to refer directly to historic costs. Mr. Hayden would hardly have been concerned with them in 1973 and in Mr. Hunt's case the principle would have to be implied from his use of the expression "invested funds". Although these Ministerial statements were not properly followed by delegates before the Nagrad decision, as I have explained, the delegate in the present case did make a calculation of a profit element in fixing the applicant's fee scales. He took the historic costs and calculated 10% for land and buildings and 12.5% for current assets, furniture and equipment. These figures represented Departmental policy, apparently derived from experience related to rents of leased nursing homes, in the case of the 10% figure, and Aussie Bond rates over a period in the case of the 12.5% figure. In 1972, according to calculations made in the Department, the applicant earned profit at a rate of $20,312 on total assets of $108,108 - a return of 18.8%. Given the very loose way in which the latest statement was expressed, it could not be established, in my opinion, that the delegate was in breach of any ministerial instructions. In any event, I cannot accept - 51 - the applicant's submission that the delegate's decision was contrary to law or uncertain by reason of any such alleged departure. These were the two grounds on which this particular challenge was based. The Ministerial letter had no legal force even if it could be shown to have been contravened. The applicant's alternative, and somewhat contradictory, argument that the delegate followed the Ministers' polacy statements slavishly and without regard to the merits of the particular case, does raise a more difficult issue. It is clear from the evidence that there was, in the post-Nagrad era, a departmental policy said to derive from the Ministers' letters, to the effect that any profit element allowed by delegates had to be based on historic costs. If there was to be any departure from this approach (now formulated as principle 10 above), it would only be allowed on appeal to the Minister who, under the 1983 amendment to s.40AE of the Act, is now specifically empowered to depart from his own principles where he "is satisfied, in all the circumstances of the case, that the application of the principle in relation to that nursing home is not appropriate". This policy, applied even before the principles were formulated, has troubled me because it seems to have removed an important consideration from review by the delegate. However, on reflection, I am satisfied that if the historic costs approach can be justified at all, it was not unlawful or unreasonable to provide, in effect, that exceptions to it had to be decided by the Minister after a hearing by a Review Committee. - 52 - In an area as important as the calculation of profits for nursing homes there must necessarily be a substantial degree of uniformity of approach to questions of principle, or injustice as between nursing homes could become rife. It would create obvious difficulties if different delegates were to adopt different criteria in deciding when to depart from historic costs in order to allow much larger profits based on current valuations. There is much to be said for the view that exceptions to such a general rule should be made in a consistent and co-ordinated way by the Minister who is responsible to Parliament for both the economical and equitable administration of the legislation. The only requirement of the delegate in this connexion is that, if he is urged to depart from such a policy, he is prepared to listen to that argument; see Browning v Water Conservation and Irrigation Commn (NSW) (1947) 74 CLR 492 at 506; British Oxygen Co. Ltd. v Minister of Technology 1971 Ac 610 @ 624-5. There is no evidence that the delegate refused to 'listen', in this sense. In my opinion, if the applicant is to succeed in its challenge to the way in which a profit element is presently allowed in its fee structures, it must be on the basis that the Departmental or Ministerial policy is wrong and unlawful, not that the delegate failed to depart from that policy in the particular case. I come now to the cluster of arguments which the applicant has advanced in order to establish the impropriety of the Department's reliance on historic costs. To paraphrase those arguments, it is said that the Department is wrong because, (a) the profit presently allowed is unreasonable by comparison with that earned in 1972, (b) it has failed to recognize that the nursing home is a private enterprise venture which must make reasonable profits to survive, (c) the profit allowed is too low to maintain the viability of the nursing home, (4) a reasonable return on the present value of capital employed would require something like a three-fold increase in the profit* allowed, and (e) aif the applicant were paying rental for comparable premises, a much larger amount would have to be allowed. In reply to such arguments it was maintained for the respondents that there was no obligation on the delegate even to consider questions of profit. In one sense, that question does not arise for decision in this case, because profits were considered. However it arises indirectly because of the challenge to the way in which profits were dealt with. It would be difficult to mount such a challenge if there was no obligation to consider profits at all. Given the scheme of the Act, and the intention evinced even in the amended s.40AA (7B) that nursing homes should be efficiently operated, it is my view that the delegate in this case was obliged to consider the question of - 54 - profits, because he could not expect any nursing home to be efficiently operated, or even to remain viable over a period of time, if no profit at all was allowed. Putting this extreme argument to one side, it 1s necessary now to consider the five heads of challenge, listed above, to the delegate's actual determination of a profit element. These related arguments were put under a number of different sub-paragraphs of the ADJR Act. It was said firstly that the use of historical costs was contrary to the National Health Act 1953, secondly that it involved leaving out of account a relevant consideration - namely the present value of the applicant's land and buildings and thus of the capital employed, and thirdly that it was so unreasonable that no reasonable person could have reached such a decision. The first of these arguments relied heavily upon the -success of the applicant's preliminary submission that the amendments to s.40AA(7) of the Act were not in force at the relevant time. I have already rejected that argument and set out what I believe to have been the policy of the Act which the delegate was required to observe at the time of his decision. This policy still leaves the applicant with an arguable case, because it requires a level of profit for nursing homes generally which will maintain their viability. It is arguable that the profit allowed by the delegate - $27,280 ~- is so much less than its 1972 profit, adjusted for changes in the value of money - 5 - (estimated as $70,900), or than the economic rental of the premises (said to be about $78,500), that it shows no concern for the viability of such enterprises. I agree that it is, from the applicant's point of view, quite unfair that it should have to accept a profit in 1984 that is little different from that which it was receiving in 1972. But can it be said that this enforced reduction of profit margins in real terms is so contrary to the policy of the Act as to be unlawful? An expert accountant, called for the applicant, described the use of historic costs, allied to a 10% profit rate, as "patently absurd" and "just a fantasy". He said that in his opinion the applicant company was not financially viable; it was significantly undercapitalize@ and could only continue in business with an injection of capital and a significant and sustained improvement in profitability. He made the very reasonable suggestion that the profit element in fees, so far as it related to lands and buildings, should be calculated by reference to the economic rent of the premises, thus putting all nursing homes, whether new or old, owned or leased, on the same footing. The Department's attitude, as explained by its chief witness, Mr. Tratt, is that in the case of nursing homes established before 1973 it continues to allow a profit element based on 10% of the historic costs of land and buildings and 12.5% of other assets. If the business is sold along with the premises, the same figure will be allowed - on the basis that a change of ownership should not affect patients' fees. If it is leased, the - 56 - same allowance will be made irrespective of the rent actually paid, on the basis that a change of method of occupation should not affect those fees. In the light of this evidence, there can be little doubt that the Department is taking a hard line with the proprietors of established nursing homes. A new nursing home, by way of contrast, would have its fees fixed to include a profit element based on the notional fair rent of the premises, to be determined by the Department after valuation, together with a 12.5% allowance for other assets. Such a nursing home would, of course, be much better off than the applicant, because the valuation would have to be at current prices. But its profits would in its turn be eroded with the passage of time, and with inflation, in the same way as the applicant's. In the meantime the contrast only serves to highlight the unfortunate position in which the applicant has been placed ~ through no fault of its own, unless a determination to give a good standard of nursing care can be described as a fault. The applicant's basic difficulty is that the poor level of profit it is allowed is not sufficient to cushion it against the losses sustained by its use of more staff than the Department will recognize. It is in this sense that the applicant's business is not viable or barely viable. It is certainly not making a profitable use of valuable assets. On the other hand, it was pointed out for the Department that lack of competition, very high nursing home occupancy rates, negligable bad debts, and a high level of cost recoveries are virtually guaranteed and, at the profit levels allowed, many people are still trying to get into the industry. Indeed the ruling figures for sale of goodwill would enable the applicant to sell its business for some $400,000 in addition to the value of the fixed assets. In the face of this surprising but uncontradicted evidence, I cannot be satisfied that the Department's approach to profits is so contrary to the policy of the Act as to make it unlawful. Nor do I believe that the delegate left the current values of the applicant's lands and buildings out of account in exercising his discretion. I believe that he was fully aware of this consideration, but regarded himself as bound by a departmental policy to base his calculations on historic costs. There is nothing to suggest that he disagreed with this policy. For similar reasons, I do not believe that the use of historic costs by the delegate is "so unreasonable that no reasonable person could have so exercised the power" to fix fees in such a way- With the passage of time, and depending on levels of inflation, the situation may eventually be reached where such a decision could be so described; but the wording of the ADJR Act on this point, which I have just quoted, is very restrictive. I have already said that I think the applicant is entitled to regard the decision as quite unfair. Others, looking at the overall costs of health care, may take a different view and say that all incomes and profits in this area have to be closely watched, and perhaps in real money terms curtailed; but those are not matters for this Court. I have carefully considered the helpful and persuasive evidence of Professor Officer concerning the role of profit in maintaining the long-term viability of an enterprise. The approach he advocated - of basing the profit element in fees on opportunity costs of funds invested ~ was entirely reasonable, provided an answer could be found to the potential spiralling of costs if nursing homes were made more lucrative and became progressively more valuable as a result. This approach is, of course, a far cry from that of the Department which, in the present case, seems to involve a compression of profit to a point just short of causing the enterprise to fail. But it is not for this Court to say that Professor Officer's approach, or some compromise between it and the Department's approach, would be more appropriate or fairer than the course the delegate took. My task is to say whether the use of historic costs in fixing profits is so unreasonable as to be unlawful, or otherwise contrary to the relevant legislation, and of that I am not persuaded. For these reasons the challenge to the way in which profits were included in the fee structure also fails. There were two minor errors alleged by the applicant against the delegate in the area of profit calculation. The first was that working capital was excluded from calculation and the second was that an alleged arithmetic error of some $3000 had been made in calculating current assets. Neither matter was pressed in final address and in my opinion neither claim was made out. Ona proper analysis, there was no working capital in the business at the relevant time and the delegate making the determination under review only left unvaried the previous delegate's allowance for current assets because he did not want to decrease the profit factor. He did not feel obliged to bring a further $3000 into account when the allowance had no validity anyway. These considerations have no significance beside the Department's reliance on historic costs as a basis for profit allowance. Before concluding these reasons I should say that since the hearing of this matter finished I have received short written submissions on behalf of the applicant, dated 28 May and 12 June, and on behalf of the respondents, dated 28 May and 6 July. I have considered the matters raised in these memoranda, but do not find it necessary to deal with them expressly. - The application to review will be dismissed with costs. I hereby certify that this and the fifty-eight (58) preceding pages are a true and accurate copy of the Reasons for Judgment herein of The Hon. Mr. Justice Woodward Associate Dated: 7 August 1984 FEDERAL LAW COURTS MUU *840224* * 4874 of 10056 DATACOM INFORMATION SYSTEMS swe PRACTLCH AND PROCEDURE amounting to a fresh countec-claim to counter-claim ro a Coury. TPADL PoO.CTICrS —- the Aer, Judicsary Act 1903 a cross-ciain - perzrod of Limitation f£f claim CATCH ~ amendment vo statemene Of Claam - wv under cause cf action - whether in substance a is) the aceruec jurisdiction of the yo 7 period of lamitation for claims under s.8/ o} ss.79 & Trade Praccices Act 19/4 55.82 & Limitation of Actions act (Vic) 1958 5.30 BRVPST WiLutatt BAT Voodvard J. 3 Ausust 98+ Melbourne v INTRRUATI UNS COSPUTERS (AUSTRALLA) PYZ. LTD. \ ~ IN THE FEDERAL COURT OF AUSTRALIA ) ) VICTORIA DISTRICT REGISTRY ) VG No. 53 of 1972 ) ) GENERAL DIVISION BETWEEN: ERNEST WILLIAM BATE Applicant and INTERNATIONAL COMPUTERS (AUSTRALIA) PYy. LIMITED Respond e ORDER JUDGE MAXING ORDER : Woodward J. DATE OF ORDER : 3 aAugqusr 1954 WHYURE WADE s Melbourne THE COURT ORDERS THAT: 1. The application by the plaintiff for leave to amend 1ts statement of claim to the form produced to the Court on 5 April 1984 be allowed. 2. The costs of this application be costs in the cause. IN THE FEDERAL COURT OF AUSTRALIA ) ) VICTORIA DISTRICT REGISTRY ) VG No. 53 of 1978 ) ) GENERAL DIVISION BETWEEN: ERNEST WCLLIAM BATE Applicant and INTERNATIONAL COMPUTERS (AUSTRALIA) PTY. LIMITED Respoudent JUDGE: Woodward J. DATE. 3 f/ugust 1984 REASGHS FOR SULGMENT The matter was cownenced in Sepcomper 1978 by @ nit of suiamons, with statement of claim annexed, issued under the rules then applying to this Court; it has since been ordered that the matter proceed under the Federal Court Rules, but it Ys convenient in these reasons to continue to refer to the parties as plaintiff and defendant. The defendant entered an appearance seven inonths later and filed a request for further and better particulars six months after that. Then nothing happened, so far as the Court was concerned, for four years. On 3 November 1983 the defendant filed a cross-claim against the plaintiff. The mavtor was then set down by Lhe Court for a directions hearing. 'The defendant then Filed a notice of motion seeking to have the statement of claim dismissed for want of presecution or, alternatively, leave to deliver an amended @efence and countercJaim with consequential directions. On 5 April 1984 the Court refused the application to strike out the statement of claim, gave leave retrospectively (and without objection) for the filing of the cross-claim, and adjourned the hearing to allow the plaintiff to formulate an amended statement of claim. The plaintiff£ now sees leuve to nake a number of amendments and the defendant has objected to leave being granted in respect of several of them. The defendeant' abjection is that these amendments disclose a cause of action not Pleatl3 cy the platatif£€ in his sergimal satatemert of clazr wa the. the cause of tctacn now disclaced is slatvte pared. Ot wes assimead vi chou! arganent, by boch counsel, that @ six-veet pevayd oC Jamilation applics to the presaut case, presumably by orecarion of the Tamitatio: of Actions Act (Victorra) 1958, erongatl aunty play by ss.79 and 8U of the Judiciary Act 1903. In my view the position 1s more complicated than that. * In the first place I believe that the applicant's claim is governed by a three-year period of limitation. The Trade Practices Act 1974 provides, in s.82(2), for a three-year period for damages claims brought under s.82(1) of the Act, as this claim clearly is (see below). In my view the same limitation period must apply to the other claims under s.87 of the Act which are supplementary and ancillary tc that basic claim for damages. This must clearly be so if s.87(1) is invoked, as appears to be the case here (see below), because its availability 1s wholly dependent upon the claim under s.82. Even if s.87(1A) were relied upon, enabling the other claims to stand on their own feet, I peLlireve that the scheme of the Act requires that claims so closely related to damages claims as are the claims in this case must meet the same limitation requirements; see Fenech v Sterling 1983 AIPR 40-413. The situation may well be different if claims under s.87(14) were appended to an application for an injunction under s.80, as to which there is no limitation period in the Act - although the Court would no doubt be slow to grant relief where an application had been long delayed. The question as to whether, and to what extent, a State Limitations Act amnlics to the exercise of federal jurisdiction by D @ CcO.rt exstablisued by the Commonvetlch Per lianent, has concerned ihe Hid) Couct on severel ocaasions; seo, in particular. Wid baad Crosby & Co. Prey. Ltd. v Commonwemith or Australia (1963) 109 Cnn 490, Pederson v Young (1362) 1120 Cun 162 and Joli Robertson & Va, Ltd. v Ferguson Transformers Pty. Lta. (1975) 125 CLR 65. jt us not necessary for present purposes to analyse the respective judgments in those cases, because I think it 1s clear in principle that the relevant state Limitalions Act must apply to a claim entertained under the accrued jurisdiction of the Federal Court which would otherwise have been heard in a state court. The state Act will apply, in its terms, both to the right to bring the claim and to the right to counter- claim against that accrued jurisdiction claim. There is nothing in any of the Hiyh Court judgments to suggest otherwise. The basic facts of this case are that between 14 May 1974 and 16 September 1977 the plaintif£, a puthologist, and the defendant company entered into a series of agreements for the rental, sale, licensing and servicing of a considerable range of computer equipment and components to be used by the plaintiff in his profession. The agreements were reduced to writing. ft as common ground that the written agreements relevant for present purposes relate to two different computer systems and various components for those sysLems; they nave been described as the 2903 series computer ('2903 computer') and the 2960 serics computer ('2960 computer'). The 2903 computer was delivered to the plaintiff and used by him; the 2960 computer had not been delivered? to the nlainkiff rt the time he renudiated aay liability under the agreements relecing to ii. By the statement of claim it 18 allegsd LLer sn tne course of negotiations hetweon the plainciél and de kevdans, leading to the making of vartcus 'coapute. agreements', cb? defendant engaged in conduct, and made representations, in contravention of sections 52(1) and 53(a) of the Trade Practices Act 1974 ('the Act'). The term 'computer agreemenls' as used in the statement of claim is particularised in parayraph 3 of the statement of claim; it is not necessary here to set out that list of 28 agreements. The list consists of 26 agreements that relate to the 2903 computer and its components and includes oniy two agreements that relate to the 2960 computer. It 1s common ground that the two 2960 computer agreements listed are not the central contracts for that series. The particulars of the alleged contraventions of sections 52(1) and 53(a) are stated in the following terms: 'In or about the month of August, 1973 the Defendant supplied to the Plaintiff a "Management Summary" in respect of the Defendant's computer eguipment known as I.C.L. 2903 Computer System heretnafter called "the 2903" The said Management Summary inter alia contained the following representations and/or statements -" (A list of eleven detailed representations then follows). The statement of claim then goes on to allege that these representations proved to be untrue and inaccurate, and as a result sections 52(1) and 53(a) of the Act have been contravened. "yon in the statoment of claim which is relevant for Another alleg present pusposer reads: "The seid conduc. or sore of it and the said : Ld ni o 4, cecerciciolns and,or skatcments or sone of kher eee. Wore matucaine}? and/or enyaged in anud/o repealed by the Defendane tovacds and to t Plasut1ft cvom time to time between tae mouths o August, 1973 and June, 1977." No particulars of the occasions or of the form in which the representations were repeated are provided. Although it does not express it clearly, this paragraph suggests that it was not only the 'Management Summary' referred to in the particulars that unduced the plainciff£ to enter into the computer agreements listed, but that other statements and representations were also made by the defendant and relied on by the plaintiff. The particulars of relief sought by the plaintiff demonstrate that it is to be limzted to the Listed 'coenuter agreements'. The relief sought is - "A. An order that the Defendant refund to the Plaintiff moneys paid by the Plaintiff by way of rent, hire end other consideration pursuant to the agreements referred to in the Particulars to paragraph 3 nereof. B. Damages. Cc. A declaration that pending payment of such damag2s the Plaintiff be no Longer required to pay auy of the sums due by him pursuant to the contracts particularized under paragraph 3 hereof. D. An injunction restraining the Defendant pending the hearing of this action and pending payment of such damages as should be assessed aun favour of the Plaintif£ from seizing the 2903 Computer or any component part or associated pieces of equipment pursuant to any of the terms of the contracts particularized in paragraph 3 hereof. E. Orders that the said concracts insofar as the terms thereof are inconsistent with these orders be ve-wrrvtten to conform to wouch orders. FE. Sach furtiuer Orgsars, Deelurations ot Relief us the Court shal! desma just." Paragraph Bois clewrly a ciaim pursuank rt: 5.62(1) of the Act, and paragraphs A, C and E appear to rely upon s.87(1), which enables ancillary orders to be made in such a case. The plaintiff now seeks leave to amend its statement of claim to include, in the particulars to paragraph 3, a number of additional agreements relating to the 2903 computer and, more umportant, a series of written agreemencs that relate to the 2969 computer. Counsel for the plaintiff submitted that, although not previously particularised, these 2960 computer agreements clearly fall within the period 14 May 1974 to 16 September 1977, which was referred to in paragraph 3 of the sLatement of claim. The defendant contends that the inclusion of these agreements is more than a mere particularisation of agreements not previously specified. It is in effect the pleading of facts establishing a new cause of action. In developing this argument counsel reliled particularly on the proposed amendment to Lhe particulars which sets out the representations on which the platntifF would rely in relation to the 2960 compuLcr. These representations, sct out in a proposed paragraph 5(3), are quite different from those alleged in relation to the 2903 compuLer. Although these are also amended in proposed paragraph 5(2), such amendments are in elaboration or explanation of the allegations in the original statement of claim. Although some variation 15 involved, this amendment in 5(2) is, in my view, clearly permissiple. Sub-paragraph 5(3) 1s ain ai Giffercent cateyorcy altogethesc. lt wakes clear thar the piaintif& nuoaw wsshes te cumplain of quite separate representations regarding a g ete separate set of contracts. The two 2960 computer contract previously lumped together with the 2903 computer contracts are now back in their rightful place. No explanation of this has been offered to the Court; one can only assume that they were previously included with the 2903 contracts in error. The argument that the proposed amendments concerning the 2960 computer amount to the raising of a fresh cause of action is further supported by the amended claim for relief. This is in the following terms: SETAE RIE EE firm of auditors who had been responsible for the auditing of "A. A declaration that the Defendant has contravened the provisions of Sections 52 and 53 of the Trade rractices Act 1974. B. An order that the Defendant refund to tne Plaintiff moneys paid by the Plaintiff by way of rent, hare, and other considerations pursuant to the Computer Agreements. Cc. Damages. D. A declaration that each of the Computer Agreements in Series 17, 19 and 20 [the 2960 contracts] was void ab initio or alternatively, rescinded by the Plaintiff as from December 1977 or such other date as to the Court shall seem properc. he An order that the Computer Ayreements comprised in Series 2 to 20 inclusive [the 2903 and 2960 contracts] be varied in such manner as shall to the Court seem proper. F. Such further orders, declarations, or relicl as the Court shail decom just. The deferndaut's central obyc.ctro. to the belitec inclusion of the main 2900 commuter agreements ts wns che plaintaff, by his failure to anelud? them in whe origin. statement of claim, or to introduce them in the Five years thar followed, nas abandoned his claim in relation to them. it contends that the agreements and the statements and representations in relation to them constitute a new cause of action which 1s now statute barred. Accordingly, it is said thar, following the practice that originated with Weldon v Neal (1887) 19 QBD 394, the amendment ought not to be allowed. A leading Australian authority on this subject 1s the High Court decision of Renowden v McMullin (1970) 123 CLR 584. Ina that case the piaintiff£, a solicitor. brought an action against e firm of auditors who had been responsinle for the auditing of books relating to his practice. By his general endorsement on the writ of summons he claimed loss and damage alleging breach of contract and breach of the duty of care imposed on the defendants, as auditors, by the provisions of the Legal Professional Practice Act (Vic) 1958. The statement of claim delivered pursuant to the writ claimed only loss and damage in respect of the breach of statutory duty. At a time when the accion in respect of breach of contract was statute barred the plaintiff sought leave tec amend his statement of claim to include it. The High Court held that the plaintiff's failure to include this cause of action in iis statement of claim amounted te an abandonment of 1t and, since 34 was statute barred at the time Lhe amendment was sought, the emeandment ooild nor be alleesc4 Oven Gs, who Relivere?* the decision of the magoraty, gaid (er w-603); Soy. an a case iu which an amendment to a 8 of claim 33 sought whist rarees @ cisse vo o£ & kind differeat we thot slich 16 allegeit an alaterent of ¢cleim end 1t wopeacs Lhat at the whep the amonduent ws sought thac cause cf action would be statute barred if a wric were then issucd, the amendment should not be allowed except perhaps in what Lord Esher had described [in Weldon v Neal above] as 'very peculiar circumstauces" ..." ~~ Although in the present case it 1s the particular set of contracts, rather than the nature of the action, which is different, I think the inference of deliberate abandonment of any substantial claim relating to the 2960 computer is clear enough. In my view the Facts of the present case can bo distinguished from those cousidered by the High Court in Black v City of South Melbourne (1964) 38 ALJIR 309. There the Iligh Court was asked to decide, among other things, whether an amendment to the plaintiff's statement ot claim on the day of the trial allowed by the trial judge, should have been permitted, given that the period of limitation had run at the time the amendment was seught. The plaintiff had claimed damages for injuries sustained whilst using the defendant's public baths. He alleyed by his statement of claim that the defendant occupier owed him a duty of care as an invitee, and so was responsible for the injurics sustained when he dived tn and collided with a submeryed piece of timber. He had sought to amend his claim to include allegations that, because of the combination of the height of the platform asda the depth of the water, he had struck his head on che bottom. Marwick C.J., (ir a dudgment ww which Kitto & Taylor dJ., concur ya) s2id (9.310): 'lt seems to m2 uticre pluin that, yplaintif£'s cause of action Eid nol ILS partileularising of the facts by whien he wropos?d to sustain the cause of ection die suborarvcially alter. It would, in my opinzos:, nave keen an improper exercise OF yudtcial discrec.n for the trial judge in this case to have refused the plainciff the opportunity to present his proots of that cause of action differently to the manner in which he had originally proposed. Gnestions of surprise and disadvantage because of a change of course in proof can almost always be met by adjournment and appropriate orders as to costs. It would certainly have been so in this case. As there was, in my opinion, no new cause of action involved in the changed particulars, no guescion of the statute of limitations fell for consideration." The case argued by counsel for giving leave to amend to include the 2960 computer agreements, can be summarized in the following propositions: 1. Paragraph 3 of the statement cf claim describes a series of 'computer agreements' made hetween the parties on datcs between 14 May 1974 and 16 September 1977. The statements and representations alleged to have contravened the Act which are now sought to be included (and the respective agreements to which they relate) are computer agreements and are specified as having occurred within that period, which was unnecessarily wide to cover the 2903 computer agreements, the last of which was entercd into on 30 June 1977. 2. The particulars of 'computer agreements' referred co in paragraph 3 of the stacement of claim do, whether erloneously or not, make reference +9 two of the 2960 computer aqreemonts. As a result the 2¢60 computer agreesrents ars not couwplete:7 alien i9 3. The starement of clair does suv est thet wae + s' eins and vepreseucations detailed in the Unuadcaedrth Gur Ly repeated and maintained between the months of Auqust 1973 and June 1977. Although, this allegation does not specifically relate to . the 2960 computer agreements and the statements and representations alleged to have been made in respect of them, it serves to indicate that the statemenls and representations particularised un the statement of claim were not the whole of the relevant communications between the partics. Lt could be argued that the inclusion of the new sub-paragraph 5(3) merely incorporates further particulars of the statements and representations thus referred to. wee * 4, The defendant is not confronted with a cause of action of a diftterent nature from that previously raised. Section 52(1) and 53(a) contraventions are alleged and the relief sought 1s similar, though not identical. Although these are cogent arguments, I would be inclined to refuse leave to amend on the ground of a clear intention to abandon the central claim concerning the 2960 computer agreements, were it not for the circumstances surrounding the filing of the cross-claim by the defendant. Although this matter was not particularly relied upon in argument it 1s, in my vicw, decisive of the case. Ze 2s not necessary to consider the cross-claam in detart for present purposes, excep! fo say that by that claim the dceiencant sees damages for the hreach (by way reputiation in October 1977) of computer agreements with the plaintiff, including those that relate tro the 296!) computer. In fact by its cross-claim the defendant raises the basic 2960 computer agreements for the first time in this action. The agreements the defendant incorporates in its cross-clzil unciude all the agreements which the plaint.&f& now seeks leave tv incorporate in the particularised list in paragraph 3 of the statement of claim. By objecting to the plaintiff's amendments to include claims relating to the 2960 computer agreements, the defendant 1s an effect asking the Court to deny the plaintiff an opportunity to counter-claim against the defendant in respect. of the basic 2969 a computer agreements. Tt is clear that, pursuant to s.30 of the Victorian Limitation of Actions Act 1958, either a set-oFfF or counter-claim which might otherwise have been statute barred in cases such as the present, is put beyond challenge by being deemed "to have been commenced on the same date as the action in which the set-off or counter-claim is pleaded". The defendant's sross~claim, pursuant to the Court's accrued jurisdiction, in the present case having already been saved by this rule, the plaintiff must also receive the benefit of it. I am satisfied that the matters the plaintiff now wishes to raise for the first time can properly be regarded as a counter-claim, and there 1s authority for the view that, in the circumstances of this case, they are properiy pleaded ny way of amendmen: to th2 statement of clart: see Aura) Purcas Ply. Dtl. vo Graham Karp Developmouts Pty. Jitd. 1975 VR 202 ac 220. The substanc? of the matter is that the plarntirf nas sued the defendant over the 2903 computer, claiming it was misrepresented to him. The defendant has belatedly cross-claimed over the 2960 computer which the plaintiff refused to accept. The plaintiff now wishes to counter-claim, within the meaning of the Limitation of Actions Act (Vic) 1958, to show that that computer was also misrepresented. In my view he is entitled to do so. 'The plaintif€ will have leave to amend his statement of claim as sought. I hereby certify that this and the twelve (12) preceding pages are a true and accurate copy of the Reasons for Judgment herein of The Hon. Mr. Justice Wogdward . a LEA Virnr£ie (ete Associate Dated: 3 August 1984