ZATIONS BE Administrative Law - Judicial faview - decision tixing nursing Lome fees - requirements of natucal justice - application of principles tormulated oy the Minister - etfect af amendments to the legislation - purpose or the legislation ~- exercise of discretion by the courts. Administrative Decisions (Judicial Review! Act 1977 5.5 National Health Act 1953 s.40AA SCHROEDEX HOLDINGS PTY. LTD. and EXTAP'S GISELLE NOMINEES FTY. LTD. v. COMALD JAMES GRIMES and MICHAEL HENRY CODD ty a = = is) oo 'L be is) mo od iva) m 18 February 1986 Melbourne. IN THE DEDERAL COURT OF AUSTRALIA VICTORIA DISTRICT REGISTRY GENERAL DIVISION Judge Making Order: Date of Order: Where Made: Between: ) ) ) VO No. 192 of 1985 ) ) SCHROEDER HOLDINGS PTY. Smithers And: LTD. and EXTARIS GISELLE NOMINFES PTY. LTD. (Trading as "Balmoral Lodge Private Nursing Home" ) (Applicants) DONALD JAMES GRIMES (who J. 18 February 1986 Melbourne. 1s sued as the Commonwealth Minister of State for Community services) and MICHAEL HENRY CODD (who is sued as the Secretary of the Commonwealth Department of Community Services) (Respondents) MINUTE OF ORDER THE COURT ORDERS THAT: l. The application be dismissed. a) . The costs including applicants. reserved costs be paid by the Note: Settlement and antry of orders 1s dealt with by Order 36 of the Federal Court Rules. * 5 . . ' ay ' ae ' 1 ' 1 ' - " .- , ' ' ' ae ' whet . 1 "e 1 . nc ' ' shoe ' - 1 . ' ' ' ' 4 ' ty . Hoot oa Pye 4 - ' ' mya ts boris, , mh 1 of w . : s "" a ' an) 1 toe ft wa at 1 44 "y . at . ' Wve i - ' th m4 ks ' , ta, ~ 4 ~) ' ' ' ' my ' mts ' t Ur] THE FODRE AG WET OF STE D ) VTETR Ds COLSTRIP FEGLSTE Y > UZ No. 192 or Lads ! ) VENETAL OLVTS ICN Berecsen: SCHROEDER HuLDINs pry. CTD. and EXTARCS Gi3hbLe MIMCNEES ETY. LTO. (Trading as "Balmoral Lodge Frivate Nursing Home '> vAppitcants) And: QONALD JAMES GRIMES (who 1s sued as the Commonwealth Ministcr ot State tor Community Services) and MICHAEL HENRY CODD (who 1s sued as the secretary or the Commonwealth Department of Community Services) . (hespondents) Coram: Smithers J, Date: 18 Fepruary 1986 REASONS FUE [UDGMENT This 15 an application fer rel1let pursuant to s.5 of the Administrative Decisions ' Judicial Review: Act L977. Yn L2 July 1985 the delegate or the Secretary of the Department of Vommunity Services purporting to cxercise the authority conterred by s,4UAA (4)(c)(t) of the National Health Act (the Act) L953 made a determination ot the maximum tees to be charged un respect of nursing nome care of qualified nursing home patients at Balmoral Lodge Private Nursing Home, a nursing home approved under s.ivA or the Act. The home 1s u approved ter sixty beds. The applicants have been the Peopeiertors or the nursing home business carried on at Balmoral Sodge since 3 December 1983. They are the Lessees or Ehe ousiness premises. 'The rent payable under the lease was at the rate of $4,222.00 per month. fb 1.3 cantended oy Mr, Faterson y.C., on behalr or the applicants, ona number ot grounds, that the determination should of set aside. If 15 said that: va) the maximum trees determined on le Juiz LY¥BkS are so law fhat ak the ¢ py wt it) rr] so fixed the business cannoh be carried on |xcept ata loss. ft 13 gain that the rees as determined are 30 low that having regard to the c > ui (tT a or conducting the home no reasonable person exercising his discretion reasonably under s.40AA (6)te¢)(1) oF the Act could have made the determination in question; {bi by the determination the delegate effected a substantial veduction in the level ot fees from the level previously established by the delegate and did so without aftording to the applicants an opportunity to make submissions on the issues. Accordingly, the determination was made in disregard of the requirements of natural justice; (ca) fhe determination was based upon or incorporated earlier determinations made by rererence to principles formulated by the Minister but which at the date ort Ehese cdererminations were moat legally ain force ar applicable; td) Ehat despite the circumstances that the rent payable by the applicants was a rent established on an "arms tength" basis. and was shown to be reasonaple as a tental rerlectting commercial reality, the delegate in his determination of 12 July 1985 and in making earlier determinations railed to have regard to the amount of vent actually payable by the applicants; and (@) that aun making the determination of 12 July 1985 the delegate acted in error in adopting fhe principles formulated by the Minister pursuant to s.4VAA (7) or tne py reas amanded by Act No, 725 of LY8S. The Home a3 a viable enterpriss As to (a) above, 1t was not established on a balance ot probability that the nursing home could not be carried on protitably if the income ot tees at the home was that provided by the scale of rees determined by the delegate under 5.40AA (6)(e)¢1) on Le July 1985. Natural Justice A3 to (6b) above the relevant circumstances appear to be as tollows. In December 1984 Mrs. Moors, one ot two directors who control the applicants, was advised by tne Department that the scale or tees then applying in accordance with a determination taking ertect on 15 PBecember 1984 aincludeda loading or $251.32 per day for 115 days which would expire on 8 April 1985, This loading was included in fhe tee as aetermined as a temporary loading to recoup the proprietor or fhe home in respect of expenditure previously incurred in conducting the home and not allowed for in the approved fee then applicable. It was well tinderstooa by Mrs. Moors, fhat the loading would expire on 3 April L285. Gy @ April 14985 an NH 19 return in respect of the year LOAS fo Lyad had been submitted to the Department by the applicants. The NH LS return 3s a return, ordinarily made annually by a nursing home proprietor to the Uepartment, containing information relevant to the determination under s.40AA (H3tc)(1) Of maximum fees payable by patients of the home ror the ensuing period. Also, at that time, 1t was understood that the management agency ot the applicants was preparing the Salaries and waqes inrormation requested by the OBepartment on 18 January 1985, namely, (1) A summary ot total actual hours worked at your nursing home for all categories ot staft for each pay rortnight ror the period 9 December 1783 to 24 June 1984, including a dissection between hours worked by nursing home start ana hours worked by agency stafr. (11) A summary otf wages paid tor both nursing home starf and agency start for each pay tortnight ror the period 9 December 1983 to 24 June 1984, including a dissection detailing any payments tor sick leave, recreation Leave and any other leave payments; (iii) Any other intormation relating £0 payment made for galarles and wages. wn On submission of the above intormation, together With eartiricatiron by the proprietor that the hours included un fhe summary were worked at the nursiry home and the costs claimed were paid to the starf members named un the wages records oar the nursing home, an appropriate adjustment relating to the variance calculated above will be made to the approved scale of fees." (PDT 32 Folio 51 i In a telephone conversation with Mrs. Moore shortly before 3 May 1985, Mrs. Moore was advised by Mr. Ward, acting on behalt or the delegate, that the loading would not be removed on 2 May and that the tee structure would be completely reviewed when the WH L9 was processed and the salaries and wages details requested on 13 January had been received from the proprietors or WNasah. Nasah was an entity engaged by the proprietors in a managerial capacity. Tt was telt that it would be unreasonable to remove the loading when 1t might well be allowed again in the new ree structure, It 1s clear that Mrs. Moore understood that the determination of the new tee was awaiting the submission of the salaries and wages intormation sought on 18 January 1985. This 18 to be inrerred from the evidence or Mr. Tratt and the record made by Mr. Ward at rhe time. It ius clear also trom the evidence or Mrs. Moore in these proceedings. the tollowing passages are relevant: "Well, mow, you knew right trom the start that long berore this business about the validation, you knew the department wanted to see your papers, did not you; wanted details - Iwill put it that way - wanted details of what you were spending 1t on. You knew that did not you, 1s not that the substance of the matter? --- I was unaware when [ went into tne mursing home, not cf that particular rack, but or Che methods that they were using to untimidate proprietors and [ became well HIS dAuUNUUR: Leok, would you answer the quesrion? Would we have 1t again? MR BLACK: You knew, did not you, trom the very Start that the department was wanting to see your papers to work out your details - to work out whom you were paying and wnat you were paying them for? Now - cutting aside all the retinements of language, that was the substance was 1£7 --- Yes, yes." (p.257 T) MR. LACK: Mrs. Moore, when the loading - you «now there was a $2lo loading that this case 1s substantially all about, that was to expire in April this year? --- A loading yes. Now when that was about to expire, the fact was you still had not supplied the information, had you? --- Mo. And you spoke - the substance ot the matter was, you spoke to Mr. Moore - I am 80 sorry, Mr. Ward - and you said to him: Look, Leave it - leave the loading there, did not you? --- ves. and you said to him, in substance, did not you, leave 1t)06there)=6 and you will get the information. Is that right? --- Yes. And you did not supply the intormation, did you? --- Mot at that time, no. Well what are you complaining about? Forget the law; you say you have been unrairly treated. Now what was untalr about this, what Mr. Ward did? --- Well --- fet us get down to the tin-tacks, what was unfair anout it? --- Well I think, I believe it was untair; the extent or the work that he required me to do relating to that information in trying to split up all these hours. HIS HONOUR: That is nonsense. All he wanted was ---? --- The wages. --- wheelbarrow tull ot documents? --- Yes. No work at all. MP BLACK: And the documents existed did not they? --- fe5, Ana you could put them in a pig sox and send a Rruck around to Mr. Ward and say: well, there you are, Mr. Ward. Happy christmas. Now can [ have my Loading back. HIS HONOUR: [t 15 a computer. MR. BLACK: I need a few computer discs as well. Now you could have done that? --- Yes, I --- Either politely of with your nose stuck in the alr, whichever way you chose, and you did not do 1t did you? ~--- No, And you are complaining about Mr. Ward for eemoving the loading. now that is what you are really cross about, 13 not it? --- [ am complaining about the general tee being 30 Low, 1n addition to that. Atter Mey. Ward and you haa talked about this extension or the loading - he was a very polite man, was not he? Parrectly nice to you about it? --- Yes. And after that, a couple of months atter that, you wrote a note to the department, did not you, and you signed it, saying in substance that all the 1information fo have given you previously in NH193 1s suspect. I will read you what you said, if you do not remember it, but that 1s the substance of 1t. It might be misleading or wrong - did not you? --- Yes. I was advised that the material was voluminous amount and my advisers wanted to take away - take it away and examine it because orf what had happened to me." (pp.2602 and 263 T) But a turther ditticulty ensued in that the NH 19 form which had been submitted on 15 February 1985 was withdrawn by the applicants on 14 June 1485. And the withdrawal was in terms calculated to raise questions as to the general reliability of the applicants' assertions as to their expenditure. The withdrawal was in very formal terms, namely, that the applicants and Mrs. Moore "wholly retract and withdraw the 3. application for T¢8 variation" delivered on 15 February 19385 wt with respect to he arc 1983 - 1924 together with all applications made to the Department since 7 December L383 as the same may be deficient, misleading or incorrect in some particulars or some particulars in the application and supporting statements may be dericient, misleading or ancorrect to afford an opportunity to the said proprietors and Sister Louisa Moore to correct the same and the said proprietors and Sister Loulsa Moore request you to treat the same as a nullity meanwhile". Clearly, the proprietors and Sister Moore desired to move as far as possible trom the existing NH 19, It 1s to be interred that this was a consequence of activity ot the Federal Police who had seized documents and records connected with the accounts or the nursing home. The withdrawal of the NH ly and all existing applications for fee determination and the non-delivery by Nasah of the salary and wages records lett the Department with a Yee structure including a loading which there was no information to support and created a general state of uncertainty as to the true state of expenditure of the applicants 1n comnection with the home. Sy 1l2 July 1985 the NH 19 had not been re-submitted and no information as to salaries or wages had been submitted by the proprietors or Nasah. The Department 1s responsible ror the administration or the National Health Act 1953 and the expenditure thereunder in a connection with the conduct of nursing homes. It hag a duty to protect the revenue. The Permanent Head has a duty to determine the level or fees which might be charged, As at July 1985 the NH 4l9 return which had been submitted to the Department In support or an application tor 2 new determination had been withdrawn in terms calculated to raise questions or a serious kind as to the rinancial management and correctness ot records of the applicants. Its somewhat dramatic terms suggested something quite serious had been discovered in the accounts of the nursing home. There was by lz July no indication as to when a new NH 19 would be submitted or when the aiuntormation as to the expenditure relating to the 1983-84 period would be forthcoming. On the information in the possession or the Department the continuation ot the loading was not justified. Having regard to the duty on the Department to protect the revenue and patients the deleqate decided to determine fees at the pre-existing level omitting however the loading. He did this without further notice to the applicants. It 1s said that in doing this he failed to observe the requirements of natural justice. It 1s rélevant that the determination was made in Clrcumstances in which the applicants knew that the Secretary or the Department was willing to act in accordance with all relevant intormation submitted to it. By s.40 AD(1)(1B) of the Act the applicants were entitled to seek a new determination at any time. They might have sought a new determination substituting a new scale or fees for the home as soon as they were able to submit relevant information, even on the day after the determination was made, 1f the intormation lo. was then available. [t was or the nature of the determination that 1t vcemained operative tor no rixed period, lt operated until reviewed 12 the light of new tacts or superseded in acccrdance with normal procedure. It was within the authority of the Secretary to include in a substituted scaie of fees a loading in respect ot previous expenditure by the home not recouped under the scale of tees previcusly applicable. The opportunity ot the applicants to obtain a determination covering all proper expenditure and recouping any past deficiencies suffered by them was not annulled or diminished by the determination or 12 July 1985, ln addition that determination was subject to appeal to the Minister. See s.40AE(2) and (3) of the Act. The removal of the existing loading would cause no loss to the applicants 1f they established, thereatter, that its continuation was justified. As indicated above there was ample authority in the Secretary to grant loadings 1f for some reason a determination has erroneously omitted to allow for items or genuine expenditure. The determination of 12 July 1385 determined nothing ina final way, and the desirability, in the circumstances, of crystalising the situation in relation to the fee structure at the home in the light of such information as was berore the Department was clear. I[t should not, 1n my opinion be held that according to the principles of natural justice it was a condition ot the making or the determination that notice of tntention to make if be given to the applicants. At and about the time ot the making of the ll. determination the requirements of natural justice were in substance, 1n operation. The Secretary was ready and willing to accept any submission on the part of the applicants and was in a position as an administrator to redress any short tall in the determination he had made. The applicants were well equipped with legal and accounting advice. Tt 15 tmpossible to believe that the applicants did not know that the determination was subject to review and appeal. And it 1s not easy to see why they did not supply the information sought by the department in January 1985 and seek a review of the determination or 12 July 1985. There are three possible reasons. First, as far back as 5 Septemoer 1984 the solicitors for the applicants had written a letter in the following terms: "The Regional Director, Commonwealth Department of Health, Commonwealth Centre, Corner Spring and Latrobe Streets, MELBGURNE, 300. Dear Sir, BALMORAL LODGE PRIVATE NURSING HOME - APPROVAL NUMBER 4308 We act for the proprietor of the abovenamed nursing home and for The Private Geriatric Hospitals Association of Victoria. We are instructed that your departmental ofticer, Miss K. Ramadan, has contacted both the proprietor of the nursing home and its Manager, Manatta Management Services Pty. Gimited, demanding to inspect the wages records of the nursing home, apparently for the purpose of 'validating' the expenditure on salaries and wages, and also to inspect the nursing home premises. The right of a 'person authorised in writing by the minister to act under Section 42 ot the Natonal Health Act 1953 to enter and inspect the nursing home premises 15 admitted. However, your right to inspect the financial statements and accounts, including the wages records, of an approved nursing home, 1s denied. Ir you have any purported authority under the National Health Act 1953 to inspect, make copies af, or take extracts from the financial statements and accounts, including the wages records, of an approved nursing home, all of which are specifically denied, such purported authority is peyond the legislative power of the Commonwealth or Australia conrerred by paragraph (xx11A) or (XXN1xX} or section 5l of the Australian Constibution. We have been instructed by The Private Geriatric hospitals Association of Victoria and its member nursing homes to issue a Writ in the High Court of Austrai1a to challenge these actions of your Department and that Writ will be issued shortly. Further action will be contemplated should your orficercs persist in demanding producticn of financial statements and accounts, including wages records, of approved nursing homes. Meanwhile, without prejudice to the above action and with a full reservation ot the rights of Balmoral Lodge Private Nursing Home in relation to that action, we deliver herewith a copy ot the entire wages records of Balmoral Lodge Private Nursing Home, being a computer print-out prepared by Nasah Management Services, tor the period from the lst December, 1983 to the 22nd October, 1984, fo assist you in veritying claims made by our client with respect to salaries and wages. Should you wish to communicate with our client, or Manatta Management Services Pty. Gimited, further concerning these matters, and in the light of the pending action, you are requested to direct all such communications to this office. Yours faithtully, LLOYD & LLOYD." (PDT 23 p.128/9) Secondly, there were errors in the roster submitted by the applicants, un which quite talse statements were made that certain persons, three wn number, had worked in the nursing 13. home and received substantial remuneration tor their services. Third, there were genuine mistakes in the roster which the applicants wera embarrassed in correcting. As to the first of these the evidence suggests that the Private Geriatric Hospitals Association of Victoria had decided to oppose all process of validation by the Department or salaries and wages said by proprietors of nursing homes to have been incurred in conducting their nursing homes. Such a notion could hardly be taken seriously. But there 1s ground tor thinking that the Association took a different view and that the applicants' nursing home was in the front line in the inevitable confrontation. Mrs. Moore now appears to regret this. Tt 28 unnecessary to examine the reasons tor the appearance or the false information as to the three persons appearing in the roster as workers in the nursing home. Sutfice it to say that thelr appearance therein together with the non-delivery of the information required in January 1985 would tend to raise doubts as to the entitlement of the applicants to the continuation of the loading after 8 April 1985. In the circumstances the proper interence is that 1t was A proper exercise ot the administrative duty of the delegate of the Secretary of the Department on 12 July 1985 to crystalise the fee level of the nursing home by making the determination he did in the manner that he did. The situation 14+. 1s to be classified thererore as one in which, with respect to that determination, Chere was in the circumstances no obligation to extend to the applicants an opportunity to be heard prior to the making thereof. The circumstances were unusual and the requirements of natural justice are rlexible and responsive to crrcumstances. As was observed by Kitto J. in Mobil 011 Australia Pty. Ltd. v. Federal Commissioner of Taxation (1962-1963) L113 CLR 475 at SU3 and 504: "T do not think 16 15 necessary to decide the point. Even 1f the Board 1s bound in law to act "in rhe spirit and with the sense of responsibility ot a tribunal whose duty 1s to mete out justice' (ta quote Lord Haldane''s words in Local Government Board v. Arlidge £19153 Ac 120, at p.132 1t does not follow (and his Lordship proceeded immediately to gay s0) that the procedure ot each such tribunal must be the same: 'what that procedure 1s to be in detail must depend on the nature of the tribunal'. And notwithstanding what Cord Loreburn said in Board of Education v. Rice £1911] AC 179 about 'always giving a tair opportunity to those who were parties in the controversy to correct or contradict any relevant statement prejudicial to their view, the books are full of cases which illustrate both the impossibility of laying down a universally valid test by which to ascertain what may constitute such an opportunity in the infinite variety of circumstances that may exist, and the necessity of allowing full eftect in every case to the particular statutory tramework within which the proceeding takes place. By the statutory framework I. mean the express and implied provisions of the relevant Act and the inrerences of legislative intention to be drawn trom the circumstances to which the Act was directed and from its subject-matter: cr. Ridge v. Baldwin C19633 2 WLR 935 at p.947. As Tucker LJ said in Russell v. Duke of Norfolk £1949] 1 All ER 109, in a passage approved by the Privy Council in University of Ceylon v. Fernando £1960] 1 All ER 631, at p.o37, there are no words which are or universal application to every kind of inquiry and every kind of tribunal: 'the requirements of natural justice must depend on the circumstances of the case, the nature of the inquiry, the rules under which the tribunal 18 acting, the subject matter that is being dealt with, and = so forth' is. (19437 1 Ali ER at p.113. What the law requires in the discharge of «quasi-judicial function 18 judicial tairness. That 15 not a label tor any tixed body ot rules. What 13 falr in a given Situation depends upon the circumstances. And it 15 mot a one-sidéd business. What 1S a tair opportunity to allow the taxpayer in a given case 15 a question which by 1ts very nature forbids an answer in disregard of the interests of other people. This is particularly true where, as here, the statute giving rise to the duty of decision expressly recognizes and aims to protect the interests or others which may come into competition with those of the taxpayer. For this reason the proposition cannot be maintained that even assuming that the board 13 legally bound to determine the reference in a case under s.136 in accordance with the substantial requirements of justice 1t must disclose all that it has learned about the affairs of other companies. How much 1t should disclose 18 a question which this Court ought not to attempt to answer in the abstract. On the opposite hypothesis, that the Board is not bound legally to act in a quasi-judicial manner, all questions as to disclosing information to the taxpayer are questions ot pure discretion; but the Board's sense of fairness and responsibility will no doubt make the decision as to how the discretion should be exercised practically indistinguishable from that which 1t would have to make if faced with a legal necessity to conform to natural justice." If the maximum rees determined by the delegate on 12 July 1985 were ata level lower than that which it would have been determined had the applicants made submissions supported by accurate intormation as to the expenditure in conducting the establishment, that would have been because the applicants failed to make submissions supported by evidence in support of a higher level betore or within a reasonable time after 12 July 1985. [n any event having regard to the circumstances I would not regard the application as one which, as a matter of discretion, should be granted. The adoption, tor the purpose of determinations, ot principles tormulated by the Minister, prior to such principles acquiring the force of Law under 3.40AA(7) of the Act as amended in 1983 This 18 the matter referred to in item (c) above. [t 15 clear that when the Act was amended in 1983 by, inter alia, removing theretrom s.40AA(7), the delegate felt tree to act in accordance with principles therearter tormulated by the Minister although those principles had not acquired legal status. Those principles retlected, in substance, policy which the Department had desired to implement even before their formulation by the Minister, but which, particularly in the presence of s.40AA(7) as previously in force, 1t had found difficulty in doing. It 1s said by Mr. Paterson that during the period between the removal in 1983 of s.40AA(7) from the Act and the coming into operation in May 1985 of principles formulated by the Minister the delegate was bound to determine levels of fees as 1f s.40AA(7) were still in force. I cannot accept this submission. On the removal of s.40AA(7) in 1983 the discretion of the delegate under 3.40AA (6)(¢)(1) was freed from the requirements of s.40AA(7) as previously in force. It became unfettered save by implications arising from the purposes of the Act as discerned in its operative provisions. I am not persuaded that the principles as formulated by the Minister before becoming legally operative under s.40AA(7) of the Act and by reference to which the delegate made his determinations prior to that of 12 July 1985 were incompatible 17. with the Purposes ot the Act. Or course when the determination of 12 July 1985 was made the principles had become legally operative and binding and the delegate was required to act by reference thereto. But Mr. Paterson contended that in making the determination of 12 July 1985, save so tar as he eliminated a loading, the delegate merely adopted a level ot fees previously made but invalidly arrived at by the delegate acting on the principles formulated by the Minister but not yet in force. I do not think this is a correct analysis of what occurred on 12 July 1985. Even if there were any irregularity in the delegate acting by reference to the Minister's principles before they became legally operative as such, which CI very much doubt, the determination of 12 July 1985 was a complete and separate operation on the part of the delegate. It stood on its own feet and represented the decision of the delegate by reference to the principles by which at that stage he was bound. That he may have obtained assistance trom the Circumstance that he had earlier gone through the intellectual exercise ot applying the same principles to the conditions of the Balmoral Nursing Home at an earlier date, is beside the point. He applied them on 12 July 1985. Disregard ot rent actually payable As indicated 1n item (d)- above the applicants submitted that 1n determining the Level ot fees payable by patients ot the Balmoral Home on 12 July 1985 the delegate did not have 18. regard to the amount ofr rent payable with respect to the initial period of the applicants tenancy in accordance with the terms or their lease. There 15 no question of disregarding any increase in that rental payable in respect ot any later period. It was conceded that there was included in the tee structure an allowance of $84,240 annually for rent. But this was $21,760 less than the actual rent initially payable by the applicants. ft was contended that the failure to include an allowance reflecting the actual rent payable was contrary to the delegate's duty under Part V of the Act, in particular S.40AA (6)(C)(1), In this respect the principles formulated by the Minister are directly in point. Section 40AA (7), (7A) and (7B) of the of the principal Act which were inserted by 5.3 of the National Health Amendment Act 1983 (No. 35 at 1983; provides: "(7) The Minister may, by writing under his hand, formulate principles in accordance with which scales of fees are to be determined for the purposes of sub-paragraph (i) of paragraph (c) of sub-section (6) in relation to nursing homes generally or in relation to nursing homes included in specified classes of nursing homes. (7A) Without limiting the generality of sub-section (7), principles formulated under that sub-section may (a) specify matters of a kind that are, in the case of each nursing home or of each nursing home uncluded in a class ot 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); (b) specify matters or a kind that are, in the case or each nursing home or of each nursing home included in a class of nursing homes, to 13. be disregarded in determining a scale of fees For the purposes of sub-paragraph (1) of paragraph (c) of sub-section (6); and a specify criteria for assessing, in relation to matters of a Kind that are required, in accordance with principles of a kind referred to in paragraph (a) of this sub-section, to be taken into account in determining a scale of fees, the amounts that are to be 30 taken into account in relation to matters of that kind. In formulating principles under sub-section (7), the Minister shall have regard to - (a) the need to ensure that nursing homes are etficiently and economically operated; (b) the need to ensure that the cost to nursing home patients of nursing home care 15 not excessive or unreasonable; and (c) any other matters the Minister considers to be relevant." The principles as formulated by the Minister came into force on 15 May 1985 (see Commonwealth Government Gazette No. $162 of 15 May 1985). These principles are called "principles in accordance with which scales of fees are to be determined by the Permanent Head for the purposes or s.40AA (6)(c)(i)of the National Health Act 1953. On the subject of rent principle 10(1) provides that: "where the premises occupied by a nursing home are, or were at any time after they were approved as an approved nursing home, leased to the person who 1S, or was at that time, the proprietor of the nursing home, the Secretary shall, in determining the return on investment in respect or the nursing home: (a) take into account all reasonable increases and subject to sub-principle 2 all reductions in the rent payable in respect tJ a . or the premises during the period or periods during which the premises were 30 leased; and (bd) disregard all other expenditure incurred on rent in respect of the premises." However, provision 1S made in principle 9(1) in respect of return on land, buildings, furniture and other items, that. "9(1) The Secretary shall subject to sub-principles 2 and 4 to 8 anclusive and principle 12A, in determining the return on investment in relation to a nursing home take into account a return on the land and buildings used as a nursing home being the fair market rental when the nursing home was first approved ... as determined by a valuer from the Valuation Branch of the Australian Taxation Office". Balmoral Lodge was approved as a nursing home under the Act in 1980. The rental value of the land and buildings at that date would have been substantially less than it was in 1985. It 1s said by Mr. Paterson for the applicants that a principle in accordance with which actual current rent payable un respect of a nursing home at an arms length commercial rate 1s to be ignored, contravened the implied provisions of the Act, mamely, that allowance be made for all expenditure necessarily incurred in conducting the home. This provision 1s said to arise from the general structure of the Act and its purposes as disclosed therein. They depend on the validity of observations such as those made by me in Howells & Anor v. Nagrad Nominees Pry. Ltd (1982) 43 ALR 283 at 290 and 291 in relation to the Act as ut stood at that date. Those observations were: "The duty ot the Permanent Head under s.40AA of the Act in relation to the determination of scale of fees 1s to be ascertained from the statutory Tramework set out above. It 1s manifest that Parliament's intention 1s that there will be as many nursing homes as are considered reasonably desirable for providing the nursing home needs of the qualitied patients needing such care. People have to be encouraged to provide the services. It 1s an important objective and depends upon people ot the right kind being willing to undertake the work and risk involved in providing that care. It 1S & private enterprise approach to the problem. Obviously, from every point of view the success of the scheme 1s 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. eee At the same time it can be seen that Parliament intended to control the income gained from conducting a home so that the proprietor should not be permitted to exploit the scheme and so make excessive profits. The scale of fees determined by the Permanent head as maximum frees will ensure this." But since those observations were made the Act has been amended by Act No. 35 of 1983. These amendments are most signiticant. They are not in conflict with the notion that objects of the Act are those set out above, but they certainly proceed expressly on the basis that those purposes of Parliament can he achieved notwithstanding that in the exercise of his function under s.40AA (6)(c)(i) the delegate may disregard particular expenditure actually incurred in the conduct of a nursing home. He ais to do this where the Principles tormulated by the Minister so require. sSub-section 40AA(7) of the Act as originally enacted provided: lw tu "The Permanent Head shall. in determining the scale of fees in relation to a nursing home for the purposes or sub-paragraph (i) of paragraph (c) of the last preceding sub-section, have regard to costs necessarily incurred in providing nursing home care in the nursing home," Section 3 of Act No. 35 of 1983 repealed that paragraph, and enacted a new provision Sub-s. 40AA(7) as follows: "(7) The Minister may, by writing under his hand, formulate principles in accordance with which scales of fees are to be determined for the purposes of sub-paragraph (1) of paragraph (c) of sub-section (6) in relation to nursing homes generally or in relation to nursing homes included in specified classes of nursing homes. And there was inserted into the Act sub-s. 40AA (7A) as set out above. No doubt im enacting sub-s. (7A) Parliament proceeded on the basis that the principles formulated by the Minister would be such that fees fixed by the Secretary in accordance therewith in relation to each nursing home would be at a level at which the business might be protitably carried on. of course, a proprietor might undertake such obligations as he saw tit in relation to the acquisition and conduct of his home, and it was not the intention that whatever obligations were undertaken the level of fees would be adequate to provide therefor. But ait was the intention that administration in accordance with the principles should provide for the profitable conduct ot homes where the obligations undertaken were within acceptable limits. The difficulty was to devise principles which would result 1n a level of approved fees which would achieve both the containment ot the level of obligations undertaken by proprietors within what could be regarded as acceptable limits and the viability of the proprietor's business. The latter was retlected in principle 2¢4)(a) set out below. The former was provided in those principles which state that certain expenditure shall be disregarded. The main items ot such expenditure are referred to below. The concept would appear to be that if obligations are undertaken with knowledge of the content of the principles the risk that a home operating at a level of fees fixed in accordance therewith will be avoided or at least made remote, As indicated below, with respect to obligations undertaken before the principles came into effect, principle 9(d) provides that 1n making a determination of fees the Secretary shall take aunto account the return on investment already reflected in the scale otf fees as at the date when the principles came into effect. It is consistent with the purposes to be discerned in the Act as amended in 1983 that there be a level of fees so determined as to tend to control the level of expenditure undertaken by proprietors, particularly expenditure which encourages the assessment of the value of goodwill at high levels. It has been a feature of the industry that the level of fees fixed in accordance with the requirements of sub-s. 40AA(7) of the Act as in force prior to Act No. 35 of 1983 created a situation in which commercially accepted levels of goodwill were higher and accelerated upwards more swiftly than was regarded as appropriate for a protected industry supported by government subsidy. Those levels of goodwill translated at, unto capital costs when nursing homes changed hands provided a basis tor claims for high levels of permitted fees. This situation was regarded as contrary to the public interest. Rental expenditure at levels arrived at by agreement between parties was also a significant tactor. It was to introduce a measure of control that s.40AA(7) of the Act was repealed by Act No. 35 of 1983 and re-enacted in terms set out above. Section 40AA (7A) was enacted at the same time. It 1s certainly compatible with the purposes of the Act that appropriate action be taken to protect the revenue against inflation of the level of fees by expenditure in the conduct of a home that is incurred at a level higher than that which would obtain if strict scrutiny were applied to the relevant transactions on behalf of the taxpayer and patients. It is clear for instance that over award payments to staff are not compatible with a level of expenditure strictly scrutinized. It is not practicable for scrutiny of the level of obligations incurred by a proprietor to be applied by any departmental agency. But if principles which the Secretary must apply un assessing the level of fees under the Act are known, and they have restrictive provisions in them, the probability that appropriate voluntary discipline will operate 1s high. In such cases the possibility that the nursing home industry will fade away so that there will not be as many approved homes as are considered reasonably necessary for providing tor the nursing home needs of qualified patients needing such care, 1s remote. 25. It is the etfect ot the Act as amended and the procedures under s.48 or the Acts [nterpretation Act 1901 whereby the principles were laid berore Parliament and not disallowed, that the principles formulated by the Minister are as much part of the law as the provisions of the Act itself, The notion that the legitimate authorisation of the formulation of principles by the Minister which form part of the law of Australia might be a form ot delegated legislation not constitutionally valid was mentioned only to be rejected by the parties. Accordingly, the implications that might otherwise have arisen from the Act are subject to such qualification as arises from the express provisions of s.40AA(7) as amplified by s.40AA(7A). The provisions of sub-s. (7A) that in the principles the Minister may speciry matters of a kind that are to be disregarded in determining a scale of fees for the purpose of sub~para. (i) of para. (c) of sub-s. (6) of s.40AA of the Act clearly contemplates that certain expenditure actually auncurred may be disregarded. It tollows that theoretically, the level of fees determined under s.40 AA(6)(c)(i) in accordance with the principles might possibly fall below the level of actual expenditure and to that extent the viability of a home might be in peril. But 1f so that 1s the effect ot the law. It is clear, however, that the principles are designed to provide a framework which intending proprietors will have in mind when undertaking obligations as such. And despite the limitations imposed on the Secretary the principles as formulated do retlect an intention to 26. provide tor and preserve the viability of approved nursing homes as business enterprises. Thus principle 2(4)(a) provides: "2.(4) The Secretary shall, in exercising any discretion permitted in these principles in determining a scale of fees, have regard to: (a) the desirability of ensuring the financial viability of nursing homes generally;" The scheme which the principles implement 1S comprehensive and intricate. In general it authorises the Secretary in performing the function of determining fees under s,40AA (6)(c) (i) to take into account matters including the following: (a) a return on investment taking into account: (i) the fair market value rental of the land and buildings at the date when the home was first approved and all reasonable increases in rent, but disregarding all other expenditure in relation to rent; (ii) a return on the investment in the home and in the business undertaking carried on thereat including a return on the cost of furniture, fittings, plant, equipment and chattels used therein and certain (Db) (c) (d) Ce) 27. establishment costs at the rate of return on Australian Savings Bonds when the nursing home was tirst approved; in the case ot homes first approved before the principles came into effect the returns on the matters aforesaid reflected in the scale of fees as at the date when the principles came into effect; reasonable increases in interest on money borrowed to acquire the premises occupied by the home, disregarding, however, all other interest payments made by the proprietor; expenditure on salaries, wages and allowances by approved staff at award rates disregarding however any salaries, wages or allowances paid in excess of the relevant award rates; and upon request of the proprietor of a home to allow an additional return on investment, in the case where the yearly return from fees as determined does not exceed $1,100 per bed according to the formula set forth in principle 12 D(1)(a), and where the yeariy return from such tees exceeds $1,400 but does not exceed $2,600 per bed, according to the tormula set forth in principle 12D(1)(b), as a result of which in the circumstances referred to minimum returns per bed up to $1,400 and $2,600 per bed respectively may be provided. 28. In Alexandra Private Geriatric Hospital Pty. Ltd. v. Blewett & Amor (1984) 56 ALR 265 Woodward J. at p.278 expressed the opinion that the 1983 amendments made little if any difference to the underlying policy of the Act as a result of which the following principles remained applicable, namely: "lL. 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 exp. Sean Investments). 2. Fees should have been fixed in accordance with principles which presupposed 'the existence and continuation of private nursing homes' (Northrop J. in Nagrad). In other words, nursing homes generally, though not necessarily a particular nursing homes (Bowen CJ and Fox Jd in Sean investments), should be commercially viable when efficiently run. 3. Commercial viability requires some reasonable return on investments - a reasonable level of prorit. 'People have to be encouraged to provide the services', (Smithers J. oan Howells v. Nagrad). 4. The scale of fees suggested by principles 1-3 above must not be excessive or unreasonable for patients, including indigent patients (Bowen CJ and Fox J in Sean Investments). 5. The fees tinally determined must be appropriate for the particular nursing home and its patients (Murphy J. in R. v. Hunt, adopted by Deane J. in Sean Investments; Franki J. in Sean Investments.)" And it was urged by the applicants that if the principles as formulated by the Minister and which came into operation in May 1985 contravene these principles they are unlawful. This was a difficult submission in view of the unambiguous and specific authority conferred on the Minister to specify 29. classes of expenditure which the Secretary must disregard. But although the principles do specify certain classes of expenditure which the Secretary 1s to disregard, 1t 1s no doubt still true that the underlying policy of the Act as discerned therefrom remains substantially unaffected by the amendments of 1983. There are different approaches which may be pursued to achieve those fundamental purposes. One of those purposes was, as his Honour pointed out, that the scale of tees must not be excessive, And it is clear that to achieve that result, a level of tees reflecting actual expenditure undertaken voluntarily at a level chosen by proprietors, could not, be accepted unconditionally. And over time it has become necessary to adopt a method of administration providing a measure of discipline in the level of expenditure actually incurred by intending proprietors. As indicated above the principles are designed to achieve this and at the same time to preserve the existence and continuity of viable private nursing homes. The method adopted in the principles has been before Parliament and not disapproved. It has not been shown that administration of the Act in accordance with the principles will subject any proprietor to greater financial burdens than are tolerable in his case. I do not have to consider principles so formulated as to bring the nursing home industry to an end or seriously threaten it. On the contrary 1t is manifest that the principles in question have been formulated with careful thought 1n an endeavour to » a 'ay 2" c 30. achieve the continued existence of the industry in conditions which provide justice to proprietors 1n a climate in which the costs ot the provision of nursing care is in the words of s.40AA(7B)(b) not excessive or unreasonable. In the light of the foregoing I am not satisfied that the applicants have established a case for relief under the Administrative Decisions (Judicial Review) Act 1977. I otserve also that the exercise of the Court's jurisdiction pursuant to 3.16 thereof is to grant relief "in its discretion". Having regard to the circumstances discussed above, I would not consider this application to be one in respect of which the discretion of the Court should he exercised in favour of the applicants. In the result the application 1s dismissed the applicants to pay the costs including reserved costs. I certify that this and the preceding twenty-nine (29) pages are a true copy of the Reasons for Judgment herein of the Honourable Mr. Justice Smithers. Associate Dated: 18 February 1986