S29 [8} rh | ADMINISTRATIVE LAW - judicial review - discretion of Delegsa \ Permanent Head of Department of Health to fix nursinag home ' decision not to increase fees so as to increase profit tor increased value of land and improvements - whether an infl application of departmental policy - whether failure to 1 account of a relevant consideration viz the current value of land and improvements - whether unreasonable - orovision ' appeal fo Minister from delegate's decision ~ whether deleaa abdicated his discretion in favour of the Minister oan anpeal i policy now having statutory backing - whether remissicen koa _ Deleqate would be futile. i hep ct Hd 0 Inet ® brid TOPs, eA rid X DD rh we i) {Ds DO ' Administrative Decisions (Judicial Review) Acr National Healtn Act 1953 ss.40AA, 4038D, 40AR, Acts Interscretation Act 1901 5.48 Jie 4 In 4 3 t b * a anata Dan -aoor any Re Hunt: Ey carte Sean Investments Ptv Ltd (1979) Nagrad Nominees Pty Ltd v. Howells (1981) 32 ALR 1 Alexandra Private Geriatric Hospital Pty Ltd v. Bl (1984) 2 FCR 268: (1985. 7 FCR 341 Howells v. Nagrad Nominees Pty Ltd (1992) 43 ALP 782 4 R. v. Port of London Authority: Ex parte Kynoch Ltd - £1919] 1 kB 176 : British Oxvqgen Ca Ltd v. Board of Trade £1971] AC 4610 t P, ov. Moore: Fx varte Australian Teleohone and Phonocram be Nfficers' Association (1982) 148 CLR 490 he Rv. Environment Secretarv: Ex parte Nottinghamshire City I Council C1986] 2 WLR 1 R, v. Internal Revenue Commission: Ex parte National Federation of Self-Emploved and Small Business Ltd. C1982] AC 616 Kioa v. Minister for Immigration and Ethnic Affairs (1985) 62 ALR 221 ' P, vw, Stepney Corvoratzon £1902] 1 KB 317 R. v. Australian Broadcasting Tribunal; Ex parte 2HD Pty Ltd. (1979) 144 CLR 45 Minister for Aboriginal Affairs v. Peko-Wallsend " (4985) 5 FCR 532: (1986) 66 ALP 299 Sean Investments Pty Ltd v. MacKellar (1921) 38 i ALR 363: (1982) 42 ALR 674 Drake v. Minister for Immicration & Ethnic Affai (1979) 24 ALR 577 Drake v. Minister for Immigration & Ethnic Affairsfsy (1979) 2 ALD 434 ¥ a Sy ee J In_ ve Clarkson (1982) 6 ALIP 224 ' 2. Leaal Services Commission of NSW v. Stephens £1981] 2 NSWLR 697 In_re Findlay £19857 1 AC 318 ~~ Attornev-General ex rel Tillev v Wandsworth Londen Borouch Council €1981] 1 WER 854 Chumbairuzx v. Minister for Immicration & Ethnic Affairs (Burchett J. 17.9.86) Turner v. Minister for Immiqration & Ethnic Affair (1983) 35 ALR 388 Kaufusi v. Minister for Immigration & Ethnic Affai (Smithers J, 20.9.85) Qetet Nominses Pty Ltd v. Grimes (Jenkinson J, 30.9.86) Cary v. Finance Corrporation of Australia Ltd (1982) 150 CLR 139 Maxweli v. Murphy (1957) 96 CLR 261 a tay s Yew Bon Tew v. Kenderaan Bas Mara [19837 1 AC $53 Qoden Industries Pty Ltd v. Lucas (1967) 116 CLR 537 Wattmaster Alco Ptv Ltd v. Button (Pincus J. 8.4.86) Commissioner for Railways (NSW) v. Cayanough (1935) $3 CLR 220 NLC.A, (BRISBANE) PTY. LTD. vy. DAVID WILLIAM McANDREW SIMPSON No. OLD G66 of 1985 CORAM: FOX, NEAVES AND BURCHETT JJ. rc 9 Navember 1986 Svdney ao eee Pn rs rie IN_THE FEDERAL COURT OF AUSTRALIA No.OLD. G66 of 1985 ) ) QUEENSLAND DISTRICT REGISTRY ) ) GENERAL DIVISION ) ON APPEAL from a single judge of the Federal Court of Australia BETWEEN : N.C.A. (BRISBANE) PTY.LTD. Appellant AND: DAVID WILLIAM McANDREW SIMPSON Respondent MINUTE OF ORDER JUDGES MAKING ORDER: FOX, NEAVES AND BURCHETT JJ. DATE OF ORDER: 19 November 1986 WHERE MADE: Svdney. THE COURT ORDERS THAT: 1. The appeal be dimissed, with costs. Note: Settlement and entrv of orders is dealt with in Order 36 of the Federal Court Rules. = a : pa Tay eee oe at weve cr pee ses Eee, 7 RY te oa er iie ar wee IN_THE FEDERAL COURT OF ANSTPALTA OJEENSLAND DISTPICT REGISTRY baad Do Q n a rh be 1DSt GENERAL DIVISION OM RPPEAL from a Sinale qiudde of the Federal Court of auskralia BETHFEN : H.C... (BRISBANE. FTV. LTD. appellant NAVID WILLIAM McANDREW STMPSON Respondent ' CORAM: FOX, NEAVES AND BURCHETT JJ. DATE: 19 November 1986 REASONS FOR JUDGMENT ROxe I. This ais an appeal from a& fudamenk «€ Spender 7. Aelivered in an application by Fhe appellant W.C.a,. (Brisbane) Pty, ,Ltd. under the Administrative Decisions (Midicial Pewiew) Act 1977 in which it sought review of a decision by the respondent wees ey * leg oo ape ee oes oe harry sy wT res yrs foyer e gne cee o . : le qeae ne nee wha was the Deleaate of the Permanent Head of the Department of Health, Although the record oriaqinally named two appellants, nothina was said about the second or on tuts behalf. Apparentiv it owned another nursing home. An arder was made at the hearina striking it from the recard. The appellant has for some time conducted the Jindalee Nursing Home, on land owned by it at Jindalee. Oueensland. On 9 December 1982 it applied under s.40AA(4A) (c(i) of the National Health Act 1953 ("kthe Act") for an increase in the fees it canld charae. Qn 19 Mav 1983 a small increase was approved, and the Department requested the appellant to provide further information. It is the determination made after the provision of thac unformation. notified on 31 Januarv 1984, which 1s in issue here, Io set ok the notice of determination and 4ppendix A rheretoa: "The Proprietor Jindalee Nursing Hame C/-Nursina Centres of Aust Ltd 31/1 fnr Logan Rd & Somerfield St MI GRAVATT 4122 ~fe CONFIDENTIAL Dear Sir As aAovesulk of vour applications for a fee increase, detailed in wour Letters of 20 (Tune 1983, 2 Awrust 1983, 14 September 1983. 22 September 1983. 30 September 1982, 11 November 1983. 19 December. 20 December 1983, ad made. Your approved dailv fee stru January 1984 is:- etermination has now been cture effective from 15 Ordinarv Care Extensive Care Single Rooms (OF) (18 Beds) $39.15 $45.15 Sinale Rooms (NF) (15 Beds) $38.15 $44.15 Two Bed Wards (OF) (34 Beds) $37.35 $43,35 Two Bed Wards (NF) (2 Beds) $36.95 $42.95 Feur Bed Wards (NF) (24 Beds) $36.55 $42.55 These fees are all inclusive except for personal Laundrv for which a charge of $1.00 per week is also approved. The abave scale of fees for Jindalee Nursing Home has been determined in accordance with the power conferred on the deleqate bv Section 40AA(AY(c)(i) of the Mational Health Act. The provisions of the Ack are desianed to ensure that fees charaqed in the private nursing home wundustrv, which is a conkrolled and Government supported industry lacking 'the competitive market forces which applv in other industries do not become excessive or unreasonable. Appendix A details anv items which were considered Eo be incorrectly claimed as costs necessarily incurred. or were unsufficientlvy documented to substantiate the claim. Details of anv Departmental calculations made are also included in this Appendix. For expenditure items covered by the Form WNH19 procedures Appendix B lists the amounts comprisina adiusted Other Expenditure which have been accepted bv the Department and included in the approved fee structure. A combined loading of $2.13 per dav 1s included in the fee structure and is due ta expire on 20 July 1984. Advice will be forwarded to vou when the loading is deleted from the approved scale of fees. Details of the loadings are shown at Appendix C. Your letter of 30 September 1983 concerning the swimmina pool at Jindalee has been examined. However, costs relating to hvdrotherapy are not considered to be costs necessarv in the provision of nursina home care. Anv expenditure incurred in celation to the swimming pool would not be acceptable as a basis for determining any increase in fees. In the event that vou are in need of further explanation eoncernina this determination. please contact this office. Should vou remain dissatisfied with the fee determined bv rhe Department, the National Health Act allows vou to appeal to the Minister for Health for a review of fees. Proprietors wishina to lodae such an appeal should address their correspondence to: The Secretarv Nursing Homes Fees Review Committee of Inauirv for Queensland . eee ee "4 Peo tee sae st oe ee ey m4 sr ospe -f ' : "fa - <--> © Py wae" t Sern eens sees ase mere coe ee . hoe peemret GPO Box 567 BRISBANE 4001 Please note fhat Section 40AA(6)(c)}(i) of the National Health Act states: ° '"(i) the fees charqed in respect of fhe nursing home eare of a qualified nursing home patient in the nursing home will not exceed such fees as are from fime to time applicable in respect of fhe nursing home care of the patient in accordance with such scale of fees as is determined. subiect to anv principles that have been made Csicl under sub-section 7 and that are in farce. bv the Permanent Head in relation to the nursing home': Section 44(2) of the National Health Act provides 'T£ the Permanent Head considers that...a condition applicable to the approved nursina home has not been complied with. he mav varv the nature of the approval or revoke or suspend the approval as he considers justified in the circumstances of the case'. The enclosed Certificate of Approval must be prominentiv displayed inside the nursing home. Please complete the attached acknowledaement form and return it to this Office toaether with vour previous Certificate of Approval as soon as possible. Yours faithfullv D.J.Bartlett, Deleqate of the Permanent Head Encls. Appendix "A" DETAILS OF DEPARTMENTAL CALCULATIONS AND ITEMS INCORRECTLY CLAIMED OR INSUFFICTIENTLY DOCUMENTED AS COSTS NECESSARILY INCTIRRED Comments: The determined fees have been calculated as follows: PER PATIENT PER DAY Previous Fee $31.80 Less: Previous Loading 9.68 woe aoe S. Previous Base Fee $31.12 Plus: Occupational Therapy Increase "0.18 NH19 82/83 6,81 Salaries and Waqes Review __ 0.07 32.18 Basic Wage Increase 10/10/83 1.22 Return on Investment 1.02 New Base Fee $34.42 New Loading (See Appendix 'C') 2.13 New Base Fee Plus Loading $36.55 SALARIES AND WAGES REVIEW: The current approved hours are as follows: Trained 810 per Tortniaht Tntrained 1808 =" " Domestic 1184 =" " NQecupational Therapy 380 «2 " Clerk so" " Handyman/Gardener ao" " DEPRECTATION To enable the depreciation application of 22 September 1983 to be considered. please supplv details of leased plant and equipment as at 30 June. 1972, including the cost for each item, and depreciation on that cost for one year using prime cost method and Taxation Department depreciation rates, FEE REVIEWS The current approved fee was examined in accordance with vour application for a review of the profitability of the home as follows: Ll. Salaries. Wages & Pavroll Tax This was costed using the above hours and award rates prior to 10 Aetober 1983. i] Adiusted Other Expenditure - as per approved 1982/83 NH19. Return on Investmenk a eer " , rocotp: mo es ote, a = y a TT The amount included has been based on the amount determined and included in vour fee as a result of the decision of the Minister for Social Securitv advised to vou on 18 dJulv 1975. plus subsequent increase/decrease in interest/rent. 4, Havina reaard to the above an increase of $1.02 pppd Cscil. per patient per david has been determined as follows: Salaries, Wages. and Pavroll Tax 945779 AOE 177901 Return on Investment . 16243 Annual Income Required 1306114 Less: E/C Income 64 x $6 x 3465 140160 Differential Income 36062 x 0.999 36026 Laundrv Income 77 x 1 x 52 4004 180190 Basic Fee Income Required 1125924 Base Fee Required - $1125924 - 365 - 0.999 33.20 Base Fee to Date . 32.18 Increase Required $ 1.02" The notice of determination states that the réturn on investment component of the fees was based on an amount determined 1n 1975. This earlier determination was apparently the first which accorded with an established policv. and resulted in the allowance of an amount of $51,705 which has been maintained since. without increase except for adiustments arising out of extensions and changed occupancv levels. SENT: The method of arriving at the fiaqure of $51,705 was conveniently set out in the Supplementary Statement of the Deleaate given in relation to the present matter, which has heen verified. and part of which was as follows: "hL. Since the introduction of nursing home fee control in 1972 increases in fees have been aranted to cover demonstrated increases in operating costs necessarily incurred bv the proprietor in the provision of nursing home care. These operating costs fall into 3 categories: (i) Those covered bv the Salaries and Wages procedures. Currently, these are: Salaries and Waces . Payroll Tax (TIntil 1979/80 Workers' Compensation Insurance was covered by the Salaries and Wages procedures. but since that time it has been covered bv the Form NH19 procedures). (ii) Those covered bv the Form NH19 procedures. Currentiv, these are: . Workers' Compensation Insurance Premiums - Food Supplies (excluding private use) . Accountinag Charges . Advertising . Bank Fees and Cheque Books (excluding interest) . Cleaning and Laundrv Materials . Contract Cleaning Expenses : Contract Laundrv Expenses (eaxcluding personal laundry costs charqed direct fo patients) . Chemist and Medical Supplies » Electricitv. Gas and Fuel . Garden Expenses (other than wages) » Insurance Premiums (excluding Workers' Compensation) . Management Fees . Mctor Expenses , + Travel and Entertainment Expenses j , Pa INCOME Patients' Personal . Rates and Taxes (except income and payroll tax) Repairs and Maintenance » Replacements . Stationery. Printing and Postaqde - » Subscriptions . Telephone (nursing home - nett of callections from patients) - Paramedical Services and Activity Proarams (materials and other expenses, excludind wades ) » Other Expenses , Provision for Repairs and Maintenance Expense (i1i) Those not covered by either thé Salaries and Wages or Form NH19 procedures. . Superannuation . - , Lona Service Leave Expense (annual yariation to pravision/actual payment) . Depreciation Interest paid Rent Directors' Fees . Leqal Expenses . Leasing and Hiring Charges (not rent of premises) Conference and Education Expenses These are the items referred to as non-staff expense items not covered bv the Form MNH19 procedures. In 1974 the proprietor appealed to the Minister under Sub-Section 40AE(2) of the WNational Health Act for a review of fees. The Nursina Home Fees Review Committee of Inauiry for Oueensland heard the appeal and. in its report of 13 Mav 1975 to the Minister, projected a profit for 12 months of $51,705 calculated as follows: Fees (based on 469 intensive care and 24 ardinarv care patients and 98% occupancy) Laundry (based on 52 patients) Other (same as for 1973/74 P & L Statement) $558.144 2.704 4,233 $565,081 a ee Ade arané frgan a ae woes eae oe .— rte) EXPENDITURE Wages $341,883 Other Costs Total Expenditure as per 1973/74 Profit and Loss Statement $363,077 Less Salaries and Waces (Nursing Home) $197,065 . Pavroll Tax 171 Depreciation 18,174 Mt Gravatt Charaes 5.000 220,410 142,667 (#1) Plus 16.0% CPI increase anticipated by the Committee 22-826 165,493 Depreciation on Buildings (@ 2.0%) __ 6,000 513,376 Profit § 51,705 #1 This figure included the following items not currentlv covered bv either the Salaries and wages or Form WH19 procedures (i.e. non-staff expense items not covered by the Form NH19 procedures): Interest $27,112 Plant Rental 24,915 Professional Fees 2,420 Borrowing Expenses 1,896 Purchases for Patients 7,888 A statement of the qeneral policy on profitabilitv is included in Item 6.1 of Part I. page 26 of the "Draft Nursing Homes Fees Control Manual" whichis available to nursing home proprietors throuch the Australian Nursina Homes Association, This policy has now been incorporated into the principles formulated by the Minister pursuant to the powers conferred bv Sub-Section 40AA(7) of the National Health Act 1953. These principles were aqazetted in Special Gazette No.S166 of 9 Mav 1984." we , ON poco ee ee Sees -¥ eee pp corgi c vote TNS tyme od 10. It is important to recoaqnise that the amount of $51,705 represented estimated "profit" of the nursina home business {allowing apparently for depreciation on buildings and interest on capital invested), and not simply. a return on the value of the land. There was at the time a check against the amount invested, as. appears from para.4 of the report of the Nursing Homes Fees Review Committee of Inauirv for the State of Queensland dated 13 Mav 1975: "The eaquitv stated by the proprietor was $396442 and the profit of $51705 represents a return of 13.04%. It is considered that this return would be substantiallv higher on the actual cash invested." The question posed by the appeal is whether in computing the fees, it was open to the Deleqate of the Permanent Head (now called ""Secretarv", Act No.95 of 1985) to adhere to the allowance for "profit" of the nursing home made in the determination of Mav 1975 ($51,705) or whether he was obliaed to increase the figure, or at least consider increasing it. to take account of the present value of the land {including improvements). namelv $1,752,912. The equity of the appellant in the land at the time of the determination of Mav 1975 was then stated bv the proprietor to be $396,442.00 although the evidence before the judge in this case was that its then value was $368,780.44, Increases in the value of the land have not been taken into account in previous determinations. which in that respect were not made the subiect of judicial review. . ve ota? re Doct priscc cs eo eee IY ST wrerspe ie re fod te Poor 11. There have been a number of cases before this Court dealing with the operation of s.40AA6) in the form it has taken from time to time. I set out sub-para (c){i) as it was at the time of the abovementioned determination: "40RA bees (6) The approval of premises as an approved nursing home is, except in the case of a Government nursing home. subject to the following conditions: (a) wee (b)} aes {c) a condition that - (1) the fees charqed in respect of the nursing home eare of a aualified nursing home patient in the nursing home will not exceed such fees as are from hime to time applicable in respect of the nursing home care of the patient in accordance with such scale of fees as is determined, subiect toa anv principles that have been formulated wmder sub-section 7 and that are in force, bv the Permanent Head in relation to the nursing home:" Sub-paraaqraph (c) is notable for its reference to "principles", this being part of what was was inserted bv Act No.35 of 1983. Section 40AA(7). discussed in Re_Hunt;: ex parte Sean Investments Ptv. Ltd. (1979) 25 A.L.R. 497 was repealed bv the same Act. Three new sub-sections were inserted: s.40AA(7) "The Minister mav. by writing under his hand. formulate principles in accordance with which scales of fees are to be determined for the purposes of sub-paraqraph (i) of paragraph (c) of sub-section (6) in relation to nursing homes generally or in relation fo nursing homes included in specified classes of nursing homes. a a Yee Wa nine = esr Pry ' mages ee TO (7A) Without limiting the qenerality of sub-section (7). principles formulated under that sub-section may ~ (a) (b) specifv 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-paraaqraph (i) of paragraph (ec) of sub-section (6): specifv 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 disreqarded in determining a scale of fees for the purposes of sub-paraaraph (i) of paragraph fc) of sub-section (6): and specifv criteria for assessina, in relation to matters of a kind that are required. in accordance with principles of a kind referred to in paradraph (a) of this sub-section. to be taken into account in determining a scale of fees. the amounts that are to he so taken into account in relation to matters of that kind. (7B) In formulating principles under sub-section (7). the Minister shall have reaqard to - (a) (b) (ec) A sanction 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: and anv other matters the Minister considers to be relevant." for the non-performance of conditions. referred to in s.40AA(6) is contained in s.44(2) of the Act. Act No. of 1983 hecame law after the date of the we org re ee ' Moe tee eee a 13. present application but before the date of the determination now in issue. As : at the latter date no principles had been notified. They were aqazetted on 9 Mav 1984. The Act did not at the relevant time lav down anv criteria for the determination of allowable fees although factors such as those set out in the new s.40AA(7B) would have been relevant. as of course would anv clear indication from the scope and purpose of the relevant parts of the Act. The determination now in question. as doubtless with other similar decisions. placed reliance on. and was quided bv the "Draft Nursing Home Fees Control Manual". Meither the date. nor the author, of the manual appears, but it seems to have been in existence for some vears. possiblv with occasional amendments. Tk devotes some space to discussing "costs necessarily incurred" in the light of the High Court decision in Sean_ Investments (supra) respecting the provision since amended. Ina circular of the Department, (also undated) described as "Nursing Homes (Participating) Circular No.50" it was stated that the Department "will continue to have reqard to the established policies and assessment criteria contained in the Draft Fees Control Manual" until principles were finalised. I set out parts of the manual. some of which are onlv of backaround interest. Paraaqraphs 5.1, 6.1 and 6.2 are of direct relevance (the occasional emphasis is my own): "2.2.1 Calculation of approved annual income om wrote er ce wo ree ok wey a2 In establishing an approved scale of fees for a new nursing home, consideration should be aqiven to estimated operating costs. as well as an appropriate return on the proprietor's total investment, with the level of investment beina subject to scrutiny so that any over-capitalization can be accounted for. The initial fees for a new nursing home would then be determined so as to provide for estimated operating costs as well as the appropriate return on the accepted level of investment. All capital costs, including rent of premises, interest on borrowed funds, etc. would have to be found from the return provided. Once the nursing home had commenced business and operating experience was gained, actual operating cost levels would be monitored bv the Department within the concept of costs necessarilv incurred and in relation to approved budaeted expenditure levels. Operating costs refer to those costs incurred in the dav-to-dav operation of the nursing home and variations in those costs form the basis of subsequent adjustments to approved fees.... 2.2.3 Assessment of return on investment (i) Assessment of appropriate return It is important that the procedure followed for calculating initial fees for new nursing home achieves comparabilitv of fee levels for comparable new nursing homes, whether freehold or leasehold operated and irrespective of the method of financing the investment. Consequently. as outlined previouslv, the level of total investment provided by a proprietor should be subject ta scrutinv. so that any unnecessarv expenditure or over-capitalization will not be reflected in approved fees. Total capital investment would include all costs incurred in obtaining the nursing home premises as well as other fixed assets such as furniture, fittings, plant and equipment. (ii) Land and Buildinas (a) The assessment of an appropriate return on the lands and buildings which constitute nursing home premises is to be achieved bv engaging the services of the Commonwealth Valuer who would be requested to determine the fair market return for individual nursing homes (that is, a return to both freehold and leasehold operated nursing homes from which proprietors would meet interest. rental and similar costs). In determinina the market return for a nursing home the valuer would have.reqard to anv special circumstances and prevailing local investment opportunitv, A return so calculated i were i ner see mee a mr el " ee a po irs pame would appropriatelv be related to the use of the land and buildings for a nursing home business rather than on construction costs and land value. Consequently, comparable returns would be calculated for similar nursing homes, reqardless of anv over-capitalization or efficiency in the construction of the nursing home, Similarilv, the initial scale of fees determined for comparable nursing homes would be similar for both freehold and leasehold operated homes.... (iii) Other Capital Investment fa) (bp) (a) (da) (e) 2.2.4 (2) To determine the appropriate return on capital invested in other than land and buildings. a percentage equivalent to the prevailing Commonwealth Bond rate should be applied to the approved certified investment figure. A return so calculated would reflect the prevailing investment climate and Market pressures as well as accounting for the protected nature of the industrv."... Working Capital Reasonable working capital requirements should be recoanised as a necessary part of invested capital. However, in assessing the amount of working capital fo be approved, consideration should be qiven to the tvpes of expenditure reauiring available workind capital. as well as the sources of income and anticipated promptness of payment. Initiallv. working capital equivalent to two weeks buddeted salaries and wages expenditure should be approved. However, financial statements are to be examined on a requiar basis to ensure that working capital continues to be provided. Establishment of initial Occupancy levels and Extensive Care Ratios Having determined estimated annual operating expenditure and an appropriate return on total ur "3. 3.1 3.2 16. os investment, annual income to be obtained from fees can be established. In order to determine the approved dailv bed fee. consideration must be aiven to anticipated levels of occupancy and extensive care patients. Realistic levels must be estimated since any sianificant departure from such levels would have a considerable effect on the level of income actuallv achieved." Additional Capital Expenditure Incorporatina increased bed capacitv "Where the introduction of additional capital is directlv related to an increase in bed capacitv, such action is normaliv the result of a decision bv the proprietor with the view to achievina economies of scale and therefore increased operating returns. In such cases, where State or Local Government arders are not involved. economies should result in benefits to the proprietor and patients alike. Consequentliv, fees for the additional beds should be determined in the same wav as fees are calculated for new nursing homes. Fees are to be based on estimated total operating expenditure. havina reaard £0 «anticipated unit cost savinas resultina from economies of scale. A _yeturn on funds invested _in the extensions should also be calculated on the same basis as the return for new nursing homes. That is. the services of the Commonwealth Valuer are to be engaged to assess a fair market return on the additional investment in land and buildings. Investment in other assets is to be assessed anda return caiculated. Where necessarv, fees for all beds may be rationalised on the basis of the new levels of operating and capital expenditure. Expenditure not involving increased bed capacity Under current fees control policv, provision does not exist for the allowance of a return on additional capital expenditure relating to improvements to nursing home premises. Although expenditure in respect of various improvement or uparading programmes mav result from State or Local Government construction orders. such expenditure 1s, nonetheless. of a capital nature and cannot be allowed to pass into approved fees. Chance of proprietorship Approved fees and variations in cost structures conn wae Wwe mere eee eee nee ay ' -F SEE de , "S, 5.1 6.2 17. On change of proprietorship of a nursina home. increases in fees should not be allowed on the basis of costs associated with the transaction. The existing fees at the time proprietorship changes should remain and the incomina proprietor is to finance his commitments. including rent. interest, etc. from the income provided from existing fees. It_is stressed that patients should not be required to meet higher fee levels in order to finance a new proprietor's higher capital cost structure. Where proprietorship of a nursina home changes and measures introduced bv the new proprietor have the effect of decreasing operating costs. fees should not be decreased as a result of such efficiencies, provided that there is no decrease in standards of care." Freehold/Leasehold operated Nursina Homes General Policy The method of operation of a nursing home is entirely the decision of individual proprietors. Those proprietors who have invested capital to purchase or establish the nursing home premises as well as the business are entitled toa return on funds provided and that return is available to finance capital costs (e.q.iinterest on borrowinas) er to provide profit ta those proprietors who have supplied their own funds. .The return on land and buildings to be calculated for new nursing homes is explained in section 1.2(b) and represents the market return as assessed at a reasonable level. The return on investment is not updated to maintain real value." Profitability General Policv In determing approved scales of fees for nursing homes, the Department does not consider profitability. With the exception of the calculation of a return on investment for new nursing homes and additional beds constructed in existing nursing homes. the determination of fees should not have reaard to return on investment. Eluctuations since rationalization Apart from the presence of certain costs which are a th 18. not reaqarded as having been necessarilv incurred, the level of profit earned bv a nursing home mav decline as a result of reduced income. A_reduction in income should not provide the basis for an adjustment to approved fees, except to the extent that profits have been completely eroded and an operating loss situation has developed. For example, where a nursing home's bed capacity is reduced and consequently. through no action on the part of the proprietor, the corresponding reduction in income places the nursing home into an operating loss situation compared with the profit level which existed at rationalisation in June, 1972, consideration mav_ be given to approving an increase in fees which allows the nursing home to break even. In calculating the break even level of fees income, capital costs, such as interest on borrowings. etc. should not be taken into account. It is emphasised that a decision to take such action is onlv to be considered in order to remedv a situation which has developed in relation to the situation which existed at rationalization of fees in June. 1972." The care of qualified nursing home patients is subsidised by the Commonwealth (see Part VA of the Act and Naqrad Nominees Ptv. Ltd. v. Howells (1981) 38 A.L.R. 145). According fo the Budget Papers for 1986/7 Nursina Home benefits under Part VA cost the Government in the year 1985/6 $703,400.000. References to the subsidv. the extent of Commonwealth control and the associated lack of competitiveness are made in the notification addressed to the proprietor of the Jindalee Nursing Home which I have already set out. When in Mav 1983 the Minister introduced into Parliament the amendments to s.40AA (which were part of Act No.35 of 1983) and which allowed principles to be formulated bv statutory instrument. he said: sere care ee tae eee "The existing leqislation on the control of fees simplv provides that in determining fees fhe Permanent Head shall 'have regard ta casts necessarilv incurred in providina nursina home care in the nursing home'. Two gecent Federal Court iudaments have shown that this leaqislation is not _able to support the policies and practices followed over manv vears in the administration af fees control - policies and practices which have heen followed by both Labor and Liberal-National Partv aovernments. These iudaments have serious implications for the overall cast of the WNursina Hames Benefits Program." (The speech is reported more fully in Alexandra Private Geriatric Hospital Ptv. Ltd. v, Blewett (1984) 2 F.C.R. 368 'Woodward J.) at first instance'). The Principles. published on 9 Mav 1984, were said by Circular No. 50 to "reflect established principles and oD practices". It is of interest. and perhaps not without relevance in this case, particularly when considering views taken i Alexandra in the Full Court, ((1985) 7 F.C.R. 341) to note that paras. 9(1), 9(5), 96) and 9(7) read as follows: "9.(1) The Permanent Head shall. subject to sub-principle (2) and sub-princirles (4) to (8) inclusive herein, in determining a scale of fees. take inta account a ceturn on the land and buildings used as the nursing home being the fair market rental when the nursing home was first aooroved as an aporoved nursinos home for the purposes of the Act as determined by a valuer from che Valuation Branch of the Australian Taxation Office. 9.(5) The Permanent Head shall. in determing a scale of fees. disregard any _ increase in the value of anv of the items constituting che investment in a nursing home or the business or undertaking carried on ak the nursing home as provided in sub-orinciples (1) and (3) herein and save as set out in sub-principles /6) and (7) herein shall not increase at any time the return taken into account in determining a scale of fees. 9,(6) The Permanent Head shall. in determining a scale of awe vie aq Toaa, Pewee at = ort eee ee es ot fees, take into account further investment exoendifture by the proprietor in a nursing home or the business ar tindertakina carried on at the nursing home provided suich expenditure relates fa the provision of increased bed capacitv in the nursing home. 9.(7) Notwithstanding anvthing contained in sub-principles (1) to (6) inclusive herein. where the Minister has made a decision under sub-section 40AE(3) of the Act vyarvina 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 fake into account as the return on investment for the purposes of sub-principle 3(¢2), the return on investment taken into account bv the Minister." (the emphasis is mine) The substantial challenge has been to the policy itself. A superficially attractive wav of putting the matter is tos a ay that a policy which fixes fees, or an inaredient of them. as ata without reaard to the aqreat increase past date, in value of th 1D land which has occurred since, must be weona. and invalid. plain that it has been the policy or che is maintained. : home fees have been Many vears to ensure that profit The nursing fixed on a basis which takes regard of the nursing home opnerations. as un D the nature of a business. - one miaht almost sav a business acauired partlv bv the Commonwealth '(so far as pavout of fees bv iT it is concerned) at the date of it first becoming an approved nursing home. The fees pavable are to be adjusted in accordance with increased outaoings and allowance is made for depreciation. The need to iD rT5 increase ""profitabilitv" to the propri is ge} s ct ay p mn expressly disavowed as a basis for increasina fees, and 1s wee ' intended to aprly to an enhanced walued of the land. An increase in the value of the land is of course itself in the nature of an unrealised profit. It is quite understandable that fhe owner is not also given periodical percentaqe allowances for it. The increase now souqaht is not one of "profit", in the sense of profit from the nursing home business. Tb 1s an increase based on the amount by which the value of the land has increased. In so far as Fhis is reflecred in increased costs. fhe policv expressed in the manual brinas ik into account. If an increase in fees were fo be allowed, 1t would have £9 he one based (contrary to the facts) on an assumption that the land was leased and rental value had increased. In that situation. the owner would not have the benefit of capital increment: rather the contrarv. The fact is that the land is used for a nursing home business. and while it was thought appropriate to allow for money oriainallv invested. the araument for an increased allowance is nok at all compelling. As is mentioned in the last woaraaqraph of the statement I have set out (para.7). the principles recently declared, which have statutory backing, maintain the yolicv. Tk is of sianificance, fon. that, un the Act as 1k existed ak the time of the determination. the Minister was required in formulating principles to have reaqacd toa two principal matters, which I have already set out: $s. 40AA(7B) fad the need ta ensure that nursing homes are eeemmmee tpeeere oe en genie wed. Rome ten ay efficiently and economicallv operated: (b) the need fo ensure that the cast to nursina home patients of nursina home care is not excessive qe unreasonable:..." TE wis submitted that the Deleqate, as decision-maker followed the policy too mechanically without reaard ca the particular situation. It us said, in effect, that he did not exercise his discretion. I do not think this 1s so. oan the facts. The Deleaate had been made well aware of the increased value of the land and indeed he must at all times in recent vears have been conscious of the fact that 1t had increased since the fees were first fixed. He mav consciously have taken this consideration into account for the purpose of dismissing it, but so bo say is rather hollow. because he (as with other decision-makers in Australia dealina with the same problem) would a be auided stronaly by the well astablished poliev in its application toa totaliy ordinarv situation. Nothing was put before the Deleqate in this case to show there was a new oar special situation which called for deviation from pelicy. Tk was more than an internal policv because it had bean announced. and was well known. and many people mav have acted in reliance on it. Certainlv. if anv nursing home proprietor wished it to be altered in its application fo him. he would know that strona representations would have to be made. The auestion of the place of policv in relatian to the operation of the earlier leaislation was discussed in Howells v. ak ren ee ey eee rs aw se ae weeps ao t ote ee eee od i: » t a a enn ee we N ld Nagrad Nominees Ptv. Ltd. (1982) 43 A.L.R. 283 but the leqislation was then in 1ts unamended form, and the facts were rather different from those in the present case. What was said in the soint judament of Franki J. and mvself at pp.306.7 seems to correctly represent the law. and I would not wish to deviate from it. In this case, appropriate quidance is to be found in the well-known passage in the tudament of Bankes L.T. in R. vw. Port of London Authoritv: Ex parte Kynoch Lrd, C1919] 1 K.B.176 ac p.184, cited with approval by Lord Reid in British Oxvoen Co. Ltd, v. Board of Trade £19713 A.C, A410 at 6.625 and by Gibbs C.J. in R. v. Moore: Ex parte Australian Telephone and Phonceoram Officers' Association (1982) 148 C.L.R. 500 at pp.612. 613. Lord Reid said: "The general rule is that anvone who has to exercise a statutory discretion must not "shut his ears to an application" (to adapt from Bankes L.J. on p.183). T do not think there is anv great difference between a policy and a rule. There may be cases where an officer or authority ought to listen to a substantial araument reasonably presented wuraing a chance of policy. What the authocity mav not do is to refuse to listen at all. But a Ministry or large authority may have had to deal already with a multitude of similar applications and then thev will almost certainly have evolved a policy so orecise that 1f could well be called a rule. There can be no objection to rhat. provided the authority 15 alwavs willing to listen to anvone with something naw to sav..." It seems to me that the extent to which the individual can expect examination of his individual position. with a view to rx wpe eee s L ie a ' oe alteration of policv (or "rule")., 2s a matter depending on the operation of the particular legislation. the particular policy and the particular situation of the individual. Tf the decision-maker has a wide qeneral discretion. and the Act has application to many individuals and situations. ut might be D rh sh 1) cr ively or expected that administration of the Act cannot c This is B ft ently be carried out without policies and rul D n rh je rp] Hs especiallv so when there are numerous decision-makers of D . the a] + co-ordinate standing. In manv cases. such as the prese or individual can be expected ta know the policy. and to make representations. uninvited. The requirements of natural justice will be satisfied in this wav. Tt is of course entirelv proper that a decision made pursuant to an administrative policy be tested for its leaality. Minder the Judicial Review Act such a decision can be tested on in anv of the carounds set out in s.5. The difficulty. in relation at least to presentiv available arounds. is in drawina the line. There 1s T think a serious question as ta how far a court can usefully or properly ao in derermining the permissible ingredients, or scope of a policy. particularly when the auidance offered to the court is only of the broadest 'see Sean Investments Pty. Ltd. ov. MacKellar (1982) 42 A.L.R. 676 at p.681). Tt seems to me that a court must be careful not to substitute its own views for those of the administrators on what it is most suitable to do administrativelv. What might seem verv add. even unreasonable, fo a court is an unsure auide to legal am ewe ante ae, a ee wore nw wn —< review. In the present case a wide discretion was left to fhe decision-maker {subiect to the auidance offered by s.40AA(7B)), and there was much scope for policies to be established to auide his decision. Generally speaking. the administration will know much more about relevant factors than can the Court. and be ina much better position to weigh relevant factors. Tn the present aa ft) ease. the decision involved the financial luabilitv of tt Commonwealth itself: economicaliv. if not politically also. it had an interest in keepina fees down. In R. v. Environment Secretary: Ex parte Nottinghamshire itv Council £19867 2 W.L.R. 1. Lord Scarman 'at pp. 6-7) made a statement concerning policy in which he reminds us of the words of Lord Dipiock in R. v. Internal Fevenue Commission: Ex parte National Federation of Self-Emploved and Small Business Gtd. C1982] A.C. 616 at p.644: "so far as regards efficiency and policv, and of that Parliament is the oniv tudae; thev CIniland Pevenue Commissioners] are responsible toa court of justice for the - lawfulness of what they do. and of that the court is the onlv judae" -- Lord Scarman went on ta sav (at p.&): "Judicial review isa areat weapon in the hands of the juddes: but the tudaes must observe the constitutional limits set by our parliamentary svstem upon their exercise af this beneficent power." OQuLtte properly. we were pressed with the decision of the Full Court of this Court in Alexandra. Although. aS wAS submitted. there mav net be a ratio decidendi in that case, and 26. in anv event it is not clear, all the judges of the Court were of the opinion that on the facts presented to it current land values should be taken into account. or, at least, considered. The leaislation was then in the same state as it was when the determination fell to be made in the present case, except that we now know what che orescribed principles are. The Full Court overruled the trial iudde (Hoodward J.). but its vwudament was qviven after Spender J. had delivered his judoment in the present case. and his Honour was influenced bv the earlier jiudament. We should follow and apply the decision of the Full Court in Alexandra's case. if fully in point. unless satisfied that 1t was clearly wrond, or decided per incuriam. both of which are unlikelv events. There are howev D xy three matters which Lead eT me to the belief that we should not. in his case, reaard ourselves as bound to a particular result by Alevandra. From a reading of the jiudaments, it appears that the facts relative to Departmental policy came out differentlv in that case. as compared with that before us. Tt seems that the Draft Fees Control Manual was not before their Honours, at least it was not referred to in the judaments. The Manual explains the total approach to the problem of fixind fees. So far as the decision involved an understandina of the operation of the lecislation. particularly in relation to financial arranqements. the decision would seem to have been made without the benefit of two Parliamentary Peports. which may not — ee a ee ler ee have been available at the time. T refer to the Review of the Auditor General's Efficiency Audit Report: Commonwealth Administration of Nursing Home Proqrams (1982) and the Report of the House of Representatives Standing Committee on Exrenditure (1982) - the McLeayv Report. We were not referred to these in araument and I came upon them only 'when reading an article bv Mark Drevfus in (1984) Federal Law Review at p.89. There is then the decision of the High Court in Kioa v. Minister for Immigration and Ethnic Affairs (1985) 62 A.L.R. 321 in which the judament was delivered on 18 December 1985. after Ehe Full Court's decision in Alexandra. Kioa dealt with natural qustice, but what was said about policv is for the most part applicable here. Established policv was there qiven bv Brennan T, (at pp.375,6) a higher status in relevant respects than it was in Alexandra: "When the ledislature reposes a power in a Minister or officer of the executive gavernment, the renositorv of the power is frequently intended to exercise that power. bearing in mind the interests of the public. When the validity of an exercise of power is challenged in a court, the public is not a partv and the interests of the public are represented. if at all, by the party seeking to uphold the exercise of power against the party who challenges its validity. The oftentimes broad considerations which weicdh. and riahtlyv wme1agh, with the repository of the power when he is performina executive or administrative functions are not easily evaluated by a court enaaced in decidina adversarv Llitiqation. Especially is that so when the party challenaing the validitv of an executive or administrative decision or action is an individual whose interests are in conflict with the interests of an indeterminate number of other individuals who are not parties to the litiaation but whose interests are to some extent affected bv the decision or action. in the present case, the Minister's deleaqate placed some weight on the policy aqainst "queue-jumping", and it would net be surprising if a court, were if to examine the merits of the pee ne - Pe sae ate aac eA eRe ter ee e decision in litigation to challenaqe the validitv of a deportation order, might give that consideration less weiaqht than was qiven it bv the Minister's deleqate. It is hard to place the unseen suffering of a large and innominate group against the evident suffering of a present litigant and the difficulty is enhanced by the court's lack of famil1raritv with the considerations which the volicy reflects. Ynless the courts rigidly limit their examination of the observance of the principles of natural justice to the procedures adopted by the repository of the power, the courts trespass into a freld of decision-makina for which their own procedures are 11il-suited ('cf per Lord Diplock in Bushell v. Environment Seretarv C1981] AC 75 at 95). But as the caurts must vcigidly limit their examination to procedures, the volicy element involved in the exercise of a statutory power which iS apt to affect individual interests in the distinctive wavy which attracts the presumption 1s not necessarily a cogent reason for excluding the presumption." This matter was further elaborated in an extra-judicial statement of his Honour delivering an address to a seminar an Judiczal Review of Administrative Action (Legal Research Foundation, Auckland, Feb.20-21. 1986). T quote at lenath. from pages 37-38 "The Courts and policy". "The courts are kept out of the lush field of administrative policv, (69) except when policy 1s inconsistent with the express or implied vrovisions of a statute which creates the power to which the policy relates or when a decision made in purported exercise of a power is such that a repository of the power. acting reasonably and in aood faith. could not have made it. In the latter case. "something overwhelmina" must appear before the court will intervene. (70) That is, and ought to be a difficult onus for an applicant to discharge, The courts are mot verv good at formulating or evaluating policy. Sometimes when the courts have intervened on policy qrounds. the court's view of the ranae of policies Open under the statute or of what is unreasonable policy has not won public acceptance, Qn the contrary. curial views af policy have been subiected to stringent criticism.(71) In the world of politics. the court's opinions on policy are naturally less likely to reflect the pooular view than the policies of a democratically elected qovernment or of expert administrators. The court does not have the resources either to develop or review the merits of a general wolicv: its procedure focusses its concern oan the interests of the © ee ee ee a p 7 mers pe ee ene ro individual litigant rather than on the interests of the public at large: and it mav not see the instant case in the context of the mass of cases to which the policy applies. The considerations by reference ta which the reasonableness of a policy mav be determined are rarely judiciallv manageable. For this reason, the court is slow to intervene when iniustice has been done to individual interests bv what mav appear to be an uniust policv. To undo such an injustice. the court must reject the view of the public interest which is held bv the politicial branches- of government, and that is a course from which the courts must refrain except in the clearest cases. {I have omitted the relevant footnotes) I therefore do not think that Alexandra is in anv way binding on us. The indications are from what has since been decided and said that we should follow a different path. The case is one in which the decision-maker applieda policy which the evidence discloses has been in existence for some time. The extract from the Second Reading_ Speech which I have set out discloses an intention on the part of Parliament that the policv should continue to apolv. It would not at all be a reason for departing from precedent, but it mitiaqates the consequences that the relevant law is. since Alexandra. bv introduction of the principles, in much the same position as it was. in mv view, before. Some reliance was placed on part of Circular No. 50, which read as follows: "The question of profitability will continue ta be considered on appeal bv the Minister rather than bv the an Pao moe irate hat 30. Permanent Head or his Deleaates." I must confess that I do not understand this sentence. taken literallv. It does not seem to me to accord with the practice before or after the legislation of 19 June 1983. and is contrary ta what the Minister, the Permanent Head and his deleqates must have understood from decisions of the Court. The words may have been intended to mean no more than that policv was ultimatelv in the hands of the Minister. At all events there is nothing to show that the Deleqate in the present case surrendered his ba discretion on "profitabilitv" to the fe) ial inister, in the s 1D ns cr ob w cr 15) a iH) leaving a factor in his determination to the Minister =) a with by the latter on the hearing of an appeal (cf. P. v. Stepnev 'D Corporation £19092] 1 K.B. 317). Te was submitted on behalf of the Delegate that since the determination. and the application to this Court were made. the principles have been introduced, with the result that a fres determination now made could not improve the avplicant's position. It is unnecessarv for me to deal with this submission. but my present view is that the orinciples only apply to determinations made after the date on which they came into effect (9 Mav 1984). It seems to me that where a prior determination is reviewed. and remitted. the fresh determination should apply the law as at the time of the original decision - in the absence, that 1s. of some contrary statutory indication. Of course. a determination on this footing. assuming 1t aave more to the appellant than an application of the later policv, would in due we wee arep reine - seg time be overtaken by the latter T would dismiss the appeal. with costs. . oe ly certify that this and the thirty (30 'preceding pages are a true copy of the Reasons for Judgnent herein of his Honoxr Mr. Justice Fox { ond Asgssdciate _ Dated' 19 November 1986 i rT oe Salt len oon eee Si er oaeaden tl lat tee sy ar ar a "4 " wy IN THE FEDERAL COURT OF AUSTRALIA ) ) QUEENSLAND DISTRICT REGISTRY ) No. Qld G 66 of 1985 ) GENERAL DIVISTON ) ON APPEAL FROM A SINGLE JUDGE OF THE FEDERAL COURT OF AUSTRALIA BETWEEN : N.C.A. (BRISBANE) PTY. LTD. - Appellant AND: DAVID WILLIAM McANDREW SIMPSON Respondent CORAM: Fox, Neaves and Burchett JJ. DATE: 19 November 1986 REASONS FOR JUDGMENT Neaves J. This is an appeal from a judgment of the Court constituted by a single judge (Spender J.) dismissing an application under the Administrative Decisions (Judicial Review) Act 1977 (Cth) ("the Judicial Review Act") for an order of review in respect of a decision made on 10 January 1984 by David William McAndrew Simpson ("the respondent"), a delegate of the Permanent Head of the Department of Health. That decision determined, pursuant to the provisions of Part V of the National Health Act 1953 (Cth) ("the Act"), a scale of maximum fees which N.C.A. (Brisbane) Pty. Ltd. ("the eon erg wore tases ye aes ioe © a . 4 aan we mney Vv. Ln oo seme ag tt pte ee appellant") was permitted to charge with effect from 15 January 1984 in respect of the nursing home care of qualified nursing home patients in the approved nursing home, known as the Jindalee Nursing Centre, owned and operated by the appellant at Jindalee in the State of Queensland. The decision of 10 January 1984 dealt with a number of applications which had been made by the appellant for an increase in the scale of fees which it was permitted to charge patients in the Jindalee Nursing Centre. For present purposes it is necessary to refer to only one of those applications, that dated 9 December 1982. That application sought an increase in the scale of fees on the ground that the existing approved fee structure (a structure which had been operating from 15 September 1982) would result in an inadequate return to the appellant on its investment in the nursing home. The application estimated the annual fee income of the nursing home based on the existing fee structure and its annual expenditure (including an amount for depreciation) at $1,252,480 and $1,110,688 respectively, resulting in an estimated surplus of fee income over expenditure (described in the application as "operating profit") of $41,792. The application requested that the scale of maximum fees that might be charged by the nursing home be determined at such levels as might be expected to result in the surplus of annual fee income over annual expenditure being not $41,792 but $268,821., The later figure was described in the application as "total return on investment" and was said to represent a return of 12.5% on the value of the land and buildings (shown at $1,862,210) anda py way return of 14.5% on the value of plant and equipment ($93,000) and on working capital ($125,944). It may be noled, however, that Mr D.J. Peel, the director of the appellant in charge of finance, in an affidavit filed in these proceedings conceded that the effect of the decision under challenge was to allow the appellant a "profit" of $162,434 and it was that figure which he suggested should be increased to $268,821. The respondent's decision upon the application was communicated to the appellant by letter dated .31 January 1984. The text of that letter and of Appendix "A" thereto is set out in the reasons for judgment of Fox J. and need not be repeated. That letter was supplemented by statements, dated respectively 7 March 41984 and Jl May 1984, furnished to the appellant pursuant to s.13 of the Judicial Review Act and by affidavit evidence before the learned primary judge. The statement dated 7 March 1984 disclosed that the respondent, in reaching the decision of 10 January 1984, allowed the amount of $162,434 as a return on investment. One component of that figure was an amount to cover what were referred to as ""non-staff expense items". The other component was arn amount of $51,705, being an amount described as the profit for 12 months projected by the Nursing Home Fees Review Committee of Inquiry for Queensland in its report dated 13 May 1975 to the Minister for Health upon an earlier application by the appellant for a review of the fees that it might charge patients in the Jindalee Nursing Centre. orn heen pr rng oe x soy 8 2 " eas Tt 4. The Committee had projected the operating costs of the nursing home for 12 months based on the profit and loss account eae) for the year ended 30 June 1974, with certain adjustments thereto which it considered proper, and had increased the resultant figure by 16.1% to reflect an increase in the consumer price index. The Committee had also projected the annual income to be derived from the fees at the approved levels, making an allowance of 2% for unoccupied beds. The profit component was then assessed as follows ~ Projected annual fee income $565,081 Projected expenditure (including depreciation) 513 ,376 Assessed profit component $51,705 The Committee had noted that the appellant had declined to provide information relating to the actual cash funds invested in the nursing home but concluded that the amount of $51,705 represented a return of 13.04% on the equity stated by the appellant in the balance sheet as at 30 June 1974 supplied to the Committee ($396,442) and that, as the equity was based, in part, on an asset revaluation reserve arising from a revaluation of land and buildings, the percentage return on the actual cash invested would have been substantially higher. It is upon the figure of $51,705 that the appellant's challenge to the determination made on 10 January 1984 centres. we ot ror Sty mse ses ee At the time the application dated 9 December 1982 was made, sub-s.40AA(6) of the Act, so far as material, provided: "(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 by the Permanent Head in relation to the nursing home; and (ii) eaae Sub-section 40AA(7) provided: , -"(7) The Permanent Head shall, in determining the scale of fees 'in relation to a nursing home for the purpose of sub-paragraph (i) of paragraph (c) of the last preceding: sub-section, have regard to costs necessarily incurred in providing nursing home care in the nursing home." At the time the respondent made his decision upon the application, the relevant part of sub-s.40AA(6) had been amended to provide that the power of the Permanent Head to determine a scale of fees in relation to anursing home was "subject to any principles that have been formulated under sub-section (7) and that are in force" (see National Health Amendment Act 1983 (Cth), s.3(a), a provision which came into operation on 19 June 1983). By the same amending Act, Rg Se rege TT cane Spemgie ap? a 6. inserted. Reference should be made to the new sub-s.(7) sub-ss. (7A) and (7B) which took the following form: "(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 homé or of each nursing home included ina class of nursing homes, to be taken into account an determining a scale of fees for the purposes of sub-paragraph (i) of paragraph (c) of sub-section (6); (b) specify matters of a kind that are, in the case of each nursing home or of each nursing home included ina class of nursing homes, to be disregarded in determining a scale of fees for the purposes of sub-paragraph (i) of paragraph (c) of sub-section (6); and {c) specify criteria for assessing, in relation to matters of a kind that are required, in accordance with principles of a kind referred to in paragraph (a) of this sub-section, to be taken into account in determining a scale of fees, the amounts that are to be so taken into account in relation to matters of that kind. (7B) In formulating principles under sub-section (7), the Minister shall have regard to - (a) the need to ensure that nursing homes are efficiently and economically operated; (b) the need to ensure that the cost to nursing home patients of nursing home care is not excessive or unreasonable; and sub-s.40AA(7) was omitted and a number of new sub-sections and . pore net re oes, , ee ee . ene te ee eet ee te ay, (c) any other matters the Minister considers to be relevant." The principles formulated under sub-s.(7) were required to be notified in the Commonwealth of Australia Gazette and were to take effect from the date of notification or from another date which might "be specified (see sub-s.40AA(7C) and s.48 of the Acts Interpretation Act 1901 (Cth)). As at 10 January 1984 no principles had been so notified, the first notification of principles formulated under sub-s.40AA(7) and dated 2 May 1984 appearing-in. the Commonwealth of Australia Gazette No.S166 of 9 May 1984. The position, therefore, was that the statute did not specifically provide any criteria by reference to which the power to determine the maximum fees that might be charged was to be exercised. Such limitations as there might be on the otherwise unconfined discretion conferred upon the Permanent Head and his delegates were, therefore, to be found in a consideration of the subject matter and the scope and purpose of the statutory provisions as they stood after the amendments effected by the National Health Amendment Act 1983 (Cth): The Queen v. Australian Broadcasting Tribunal; Ex parte 2HD Pty. Ltd. (1979) 144 C.L.R. 45 at p.49. In reaching his decision, the respondent had regard, amongst other things, to the provisions contained in the Nursing Homes Fees Control Manual, a document issued by the Department of Health setting out policy guidelines for the asSistance of delegates of the Permanent Head in determining he gee ma oo ous eeatelne nica st us a wes mri, ete pee 1} ' Ly . ron , 8. scales of fees in approved nursing homes. It should be mentioned_that the provisions which had been contained in the manual were reproduced in substance in the principles formulated by the Minister under sub-s.40AA(7) and published on 9 May 1984. The manual, under the heading "Establishing initial fees for new nursing homes" and the sub-heading "Calculation of approved annual income", provided in par.2.2.1: "In establishing an approved scale of fees fora new nursing home, consideration should be given to estimated operating costs, as well as an appropriate return on the proprietor''s total investment, with the level of investment being subject to scrutiny so that any over-capitalization can be accounted for. The initial fees for a new nursing home would then be determined so as to provide for estimated operating costs as well as the appropriate return on the accepted level of investment. All capital costs, including rent of premises, interest on borrowed funds, etc. would have to be found from the return provided. Once the nursing home had commenced business and operating experience was gained, actual operating cost levels would be monitored by the Department within the concept of costs necessarily incurred and in relation to approved budgeted expenditure levels. Operating costs refer to those costs incurred in the day-to-day operation of the nursing home and variations in those costs form the basis of subsequent adjustments to approved fees. Proprietors should be informed that the fees are 'all inclusive' and consequently extra charges are not to be raised in respect of items such as personal laundry, etc." After referring to the examination of budgeted operating costs, the manual dealt, in par.2.2.3, with the "Assessment of return on investment". Relevant parts of that paragraph provided: Meyers z rors nner ya og "2.2.3. Assessment of return on investment (i) Assessment of appropriate return It is important that the procedure followed for calculating initial fees for new nursing homes achieves comparability of fee levels for comparable new nursing homes, whether freehold or leasehold operated and irrespective of the method of financing the investment. Consequently, as outlined previously, the level of total investment provided by a proprietor should be subject to scrutiny, so that any unnecessary expenditure or over-capitalization will not be reflected in approved fees. Totai capital investment would include all costs incurred in obtaining the nursing home premises as well as other fixed assets such as furniture, fittings, plant and equipment. Invested funds would also be required to provide working capital and various costs incurred prior to the opening of the nursing home. Methods to be adopted for treating items of capital expenditure for the purpose of calculating an appropriate return on total investment are detailed below. (ii) Land and Buildings (a) The assessment of an appropriate return on the land and buildings which constitute nursing home premises is to be achieved by engaging the services of the Commonwealth Valuer who would be requested to determine the fair market return for individual nursing homes (that is, a return to both freehold and leasehold cperated nursing homes from which proprietors would meet interest, rental and similar costs). In determining the market return fora nursing home the valuer would have regard to any special circumstances and prevailing local investment opportunity. A return so calculated would appropriately be related to the use of the land and buildings for__a nursing home business rather than on construction costs and land value. Consequently, comparable returns would be calculated for similar nursing homes, regardless of any over-capitalization or efficiency in the construction of the nursing home. Similarly, the initial scale of fees determined for comparable nursing homes would be similar for both freehold and leasehold operated homes. (Db) wane (iii) Other Capital Investment An appropriate return is also to be calculated on funds invested by proprietors other than in land and buildings. The return to be calculated should be based on capital funds invested in respect of 1: et! wt ? ' mry rd 6 ator ee rc tee as are ae ran ) PIER TOPS Types eee ry . yy . ' ae 10. necessary expenditure of a non-recurring nature. Such expenditure would relate to the purchase of capital assets and the provision. of working capital, preliminary services and other necessary establishment costs. It is important that the return provided is based on the value of assets and services, regardless of the method of financing the investment and irrespective of whether equipment, furniture, etc. is leased or purchased. To determine the appropriate return on capital invested in other than land and buildings, a percentage equivalent to the prevailing Commonwealth Bond rate should be applied to the approved certified investment figure. A return so calculated would reflect the prevailing investment Climate and market pressures as well as accounting for the protected nature of the industry. (a) Plant and Equipment, Furniture and Fittings An itemized list of all aepreciable assets purchased for use in the nursing home should be submitted by the proprietor, together with certification of the total cost (where equipment is leased, equivalent purchase prices should be provided). Individual and total costs should be examined and the nature of all items identified. Total expenditure levels should be compared with those of other similar nursing homes and any major discrepancies thoroughly investigated. The approved level of investment in capital assets can then be determined. (b) Working Capital Reasonable working capital requirements should be recognised as a necessary part of invested capital. However, in assessing the amount of working capital to be approved, consideration should be given to the types of expenditure requiring available working capital, as well as the sources of income and anticipated promptness of payment. Initially, working capital equivalent to two weeks budgeted salaries and wages expenditure should be approved. However, financial statements are to be examined on a regular basis to ensure that working capital continues to be provided. Paragraph 3 of the manual dealt with "Additional Capital Expenditure" and provided: noted. ll. "3.1 Incorporating increased bed capacity Where the inlroduction of additional capital is directly related to an increase in bed capacity, such action is normally the result of a decision by the proprietor with the view to achieving economies of scale and therefore increased operating returns. In such cases, where State or Local Government orders are not involved, economies should result in benefits to the proprietor and patients alike. Consequently, fees for the additional beds should be determined in the same way as fees are calculated for new nursing homes. Fees are to be based on estimated total operating expenditure, having regard to anticipated unit cost savings resulting from economies of scale. A return on funds invested in the extensions should also be calculated on the same basis as the return for new nursing homes. That is, the services of the Commonwealth Valuer are to be engaged to assess a fair market return on the additional investment in land and buildings. Investment in other assets is to be assessed and a return calculated. Where necessary, fees for all beds may be rationalised on the basis of the new levels of operating and capital expenditure. 3.2 Expenditure not involving increased bed Capacity Under current fees control policy, provision does not exist for the allowance of a return on additional capital expenditure relating to improvements to nursing home premises. Although expenditure in respect of various improvement or upgrading programmes may result from State or Local Government construction orders, such expenditure is, nonetheless, of a capital nature and cannot be allowed to pass into approved fees." Two other provisions, pars 5.1and 6.1, should be Paragraph 5.1 provided: "5.1 General Policy The method of operation of a nursing home is entirely the decision of individual proprietors. Those proprietors who have invested capital to purchase or establish the nursing home premises as well as the business are entitled to a return on funds provided and that return is available to finance capital costs (e.g. interest on borrowings) or to provide profit to those prcprietors who have . ! : | 1 Paragraph 6.1 under the sub-heading "Profitability" provided: provisions in the statement dated 7 March 1984 furnished 12. supplied their own funds. The return on land and buildings to be calculated for new nursing homes is explained in section 1.2(b) and represents the market return as assessed at a reasonable level. The return on investment is not updated to maintain real value. In the case of proprietors who operate nursing homes under lease agreements, rental payments and other capital costs are to be found from within the return provided. However, increases in rent are to be considered as they are incurred." "6.1 General Policy In determining approved scales of fees for nursing homes, the Department does not consider profitability. With the exception of the calculation of a return on investment for new nursing homes and additional beds constructed in existing nursing homes, the determination of fees should not have regard to return on investment." The respondent relevantly summarised the pursuant to s.13 of the Judicial Review Act as follows: After Review Committee of Inquiry to which reference has been made "2.19.1 That it is current Government policy that a profit component should be included in the fees initially determined for nursing homes approved under the National Health Act. Such fees are not generally increased in later fee determinations specifically to provide an increase in profitability except in cases where the nursing home's bed capacity has increased. Certain costs (such as rent and interest) are however, in normal commercial practice, funded from profit and to the extent that increases in these costs are allowed in the fees, profitability is increased." referring to the report of the Nursing Homes Fees above ll done "aeteatent ar eaten aad einen eee oman o> Sete oes ere ow a ' - rn "and to the 13. Aue circumstance that the Minister for Health, after wewoe considering the Commiltee's report, determined that the then existing approved scale of fees should remain unchanged, the statement proceeded: Py "2.19.7 That having regard to Government policy and Departmental practices on profitability .... I considered it reasonable that, as the Minister's decision -.-. did not vary the decision of the Permanent Head with respect to the return on investment to be taken into account for purposes of determining a scale of fees should be the projected return on investment determined by the Review Committee of Inquiry in their report to the Minister. This amount was $51,705 p.a." The statement concluded as follows: "4.1 Having examined the information on Departmental records and the information provided by the proprietor, and having regard to Government policy, Departmental practices, and the provisions of Part V of the National Health Act, I concluded that the base fee should be increased by $3.30 per patient per day to cover the increases in costs detailed at paragraphs 2.14 to 2.17 of this Statement and to provide a return on investment detailed at paragraph 2.19 of this Statement. 4.4 I saw no reason to depart from Government policy and Departmental practice ~ generally applicable to the determination of nursing home fees." -Ww- aot ecco % ' wy On the hearing of the appeal it was submitted on™ behalf of the appellant that the respondent, in making the decision under review, had exercised the power conferred upon him in accordance with a rule or policy without regard to the merits of the particular case, that he had failed to wei om ees re eae meres wo oe , ft 14. "take into account a relevant consideration namely the then current value of the nursing home business by reference to which, so it was said, the profit component to be included in the determination of the fee structure should be assessed, and that the exercise of the power was so unreasonable that no reasonable person could have so exercised it. As to the first of these submissions, there can be no doubt that the respondent relied, and relied heavily, upon the policy guidelines contained in the Nursing Homes Fees Control Manual but the fact that he did so, of itself, provides no sufficient basis upon which to set aside the determination which he made. The learned primary judge did not accept that there had been any blind or slavish application of policy. In that connection his Honour obviously gave weight to the respondent's statements that in the instant case he had taken into account the information provided by the appellant and saw no reason to depart from government policy generally applicable to the determination of nursing home fees. It is significant in this regard that, although the respondent swore an affidavit in the proceedings, he was not cross-examined and the statements to which his Honour referred were not challenged in any way. I do not, myself, see any sufficient basis for disagreeing with his Honour's conclusion. The first ground of appeal, therefore, fails. 2 ero wee es op ta Pome es eal deo nee yest ees meg cara WO oe re ew ee 5 - 8 Sree eae a 15. It must, I think, be accepted that the policy guidelines set out in the Nursing Homes Fees Control Manual had been widely circulated amongst those involved in the provision of nursing home care and were well known to the appellant. It must, therefore, have been aware that, if the respondent was to be persuaded to depart from the policy generally applicable by reason of circumstances pertaining particularly to -the _ appellant's business, it would be necessary that cogent material be put before the respondent to that end. Notwithstanding this, no supporting material of any kind accompanied the application dated 9 December 1982. There was simply the bald assertion that an amount equal to the total of amounts representing a percentage of the then current value of the land and buildings and a higher percentage of the current value of plant and equipment and of working capital should be allowed. In due course the appellant did provide some material on which it relied in support of its claim, that materia? consisting, however, solely of a document described as a valuation as at 30 June 1983 of land and improvements. That document was hardly apt to achieve the appellant's purpose. It begins with a statement of the instructions given to the valuer in the following terms: "Assess the value of Land and Improvements in relation to 'Jindalee Nursing Centre', at Cnr Endeavour and Capitol Drive, Jindalee. on vee ner oe oe seg ees a Saeoty tame yer name or 2 ' sy oo 2 poate ' 16. The Appraisal is to be on the theoretical basis of summation of land value and improvements at estimated current replacement cost less fair and reasonable depreciation. It is acknowledged that this is not a market value appraisal. The Valuation 1s to exclude goodwill, furniture, furnishings, floor coverings, andall items of plant and equipment. Whereas the appraisal will allow for appropriate — interest on improvements over the hypothetical construction period, it is specifically requested that the appraisal excludes all interest or holding costs on land. Appraisal of land value is only to involve that section of the property utilised for the existing nursing centre." The document then gave a detailed description of the land and its location and of the building complex. It then described the appraisal as being "on the theoretical basis of summation of land value and improvements at estimated replacement cost less depreciation" and as being a theoretical calculation only .... not influenced by any economic factors or sales evidence relating to market value". It re-affirmed that plant, chattels, equipment and goodwill were excluded from the appraisal and put the depreciated value of the improvements at $1,452,912 to which was added a figure of $300,000 as the value of one hectare of land on which the nursing centre stood. The latter figure was otherwise unexplained: the basis upon which it had been arrived at was nowhere stated. It cannot, I think, be doubted, on the evidence, that the respondent did take into account a profit figure. toa, 17. 'What is said, however, is that he did not allow a sufficient sum in that regard and, in particular, that he did not allow the sum contended for by the appellant. In those circumstances, I am of opinion that the appellant cannot succeed on this appeal on the basis that the respondent failed to take a relevant consideration into account. - If the appellant is to succeed, it must be on the basis that the exercise of the power Was "So unreasonable that no reasonable person could have so exercised it. That question must be resolved, so it seems to me, upon the material that was before the respondent and that material, as I have said, consisted solely of the document to which reference has been made. This is not a case in which there was available other relevant material knowledge of which is to be attributed to the respondent: see Minister for Aboriginal Affairs v. Peko-Wallsend Ltd. (1985) 5 F.C.R. 532: (1986) 66 A.L.R. 299. Nor, inmy view, were the circumstances such as to require the respondent to make his own independent enquiries. The appellant relied upon the decision of the Full Court of this Court in Alexandra Private Geriatric Hospital Pty. Ltd. v. Blewett (1985) 7 F.C.R. 341, But what was said in that case must be read in the light of the facts that were then before the Court. It is apparent from a reading of the judgments of the members of the Court that there was a great deal of evidence, absent in the present case, as to We crane z : ey av eatcleoee vA sre f 18. 'the commercial viability of the nursing home in the event that the fees that might be charged were not increased. It was on this evidence that Sheppard J. relied to sustain his conclusion that the decision of the delegate of the Minister for Health in that case was so unreasonable that no reasonable person could have arrived at it. In the present case, the respondent was not provided with any comparable material. In my view it has not been demonstrated that the exercise of the power by the respondent was, on the material that was before him, so unreasonable that no reasonable person could have so exercised it. For the limited purpose of considering this aspect of the matter, it would, I think, be unrealistic to ignore the circumstance that, if the principles formulated by the Minister under sub-s.40AA(7) of the Act and published on 9 May 1984 had been in force at the time the power was exercised, the respondent would have been bound to exercise the power in the manner he did. The valuation _on which the appellant relied was, in my view, quite inadequate as a foundation for the contention that the exercise by the respondent of the power to determine the fees that might be charged in the Jindalee Nursing Centre was so unreasonable that no reasonable person * Meo : a ane ae ve » ' 19. could have so exercised it. That fails. —_— In the result, Iam of should be dismissed with costs. ground of appeal also opinion that the appeal I certify that this and the preceding 18 pages are a true copy of the Reasons for Judgment herein of the Court. Vicki Frou Associate Dated: 19 November 1986 mae Map wo ower see seen . Tartores =; aarp "ome " IN THE FEDERAL COURT OF AUSTRALIA QUEENSLAND DISTRICT REGISTRY No. 66 of 1985 Neer ww GENERAL DIVISION ON APPEAL FROM A SINGLE JUDGE OF THE FEDERAL COURT OF AUSTRALIA BETWEEN: N.C.A. (BRISBANE) PTY LTD Appellant is DAVID WILLIAM MCANDREW SIMPSON Respondent CORAM: Fox, Neaves & Burchett JJ. DATE: 19 November 1986 REASONS FOR JUDGMENT BURCHETT J. This is an appeal by an unsuccessful applicant under the Administrative Decisions (Judicial Review) Act 1977. The appellant conducts a nursing home in a building owned by it at Jindalee, Queensland. The fees charged in respect of the nursing home care of qualified nursing home patients in the nursing home are, under -s.40AA(6)(c) and s.40AD of the National Health Act 1953, determined by the Permanent Head or his delegate. On 31 January 1984 a determination, to apply as from 15 January 1984, was notified to the appellant. On 7 March 1984 reasons under s.13 of the Judicial Review Act were supplied in respect of this | ' ee ie is te Tea tose mer et res a ee ake — Sipe ap meer cine ow ane ' eo wy v ape ete Ras ef el noel eater oe a 2. determination. On 11 May -1984 a supplementary statement pursuant to s.13 was supplied." * A crucial issue in the applications, in response to which the determination was made, was the amount of profit or return on investment allowed in the calculation of the scales of fees. This had been fixed in 1975 and, subject to certain adjustments irrelevant for present purposes, had remained unaltered despite the effects of inflation. Those effects had of course both eroded greatly the value of the return in real terms and, at the same time, caused it to shrink as a percentage of the real value of the land and buildings devoted by the appellant to the nursing home business. The cost of the land and buildings as at 30 June 1972 was $368,780-00 plus items of equipment totalling $94,007-00 making a total of $462,787-00. A valuation as at 30 June 1983, on the basis of land value plus estimated current replacement cost of improvements less depreciation, was $1,752,912-00. The valuer commented: "Tt is one of the best (nursing homes) in south-eastern Queensland, and is of a high standard of design, materials and workmanship. It was first opened on 24/9/71 and whereas it is 11.75 years old-(as at 30/6/83), Jindalee Nursing Centre has been very well maintained and is visually and structurally almost equal to new premises." The learned trial Judge said: "At the core of the application is a challenge to the approach adopted by the respondent to the assessment of the profit component in ese oe ee sree aaa r ee ee eee ee eee ' ) ore - nes pee eee rere . a s ' Rota wees cae we pores tte echnical 4a ete : 4 - ey <= yo ae ene 3. those fees. That assessment is based on historical costs. The applicant says that the approach adopted is unlawful and involves ~ error reviewable pursuant to the Judicial Review Act. It was submitted on the applicant's behalf that the profit component ought properly to reflect the current market value of the assets employed in the operation of the nursing home, although it was not necessary for the purposes of reviewing the- decision for the applicant to go so far." The grounds of the application under the Judicial Review Act included that the delegate had "failed to take into account relevant considerations which he ought to have taken into account, including (i) the present value of the assets employed in the said nursing (home); (ii) the amount of profit which might be expected to be earned by a reasonable investor having regard to that present value", that the delegate "exercised the discretionary power without having regard to the merits of the (application) but in accordance with certain rules or policies", that the delegate "exercised the power in (a) manner that was so unreasonable that no reasonable person could have so exercised the power", and, "that the decision (was) otherwise contrary to law." The year before this matter was heard by the learned Judge at first instance, Spender J., there had been decided, also at first instance, Alexandra Private Geriatric Hospital Pty Ltd v. Blewett (1984) 2 F.C.R. 368. Spender J., in his reasons, said: "The question in issue in this case was the subject of consideration by Woodward J. in procter Se pr te ee > a a woe 4. Alexandra Private Geriatric Hospital Pty Ltd v. Blewett ...." The appellant says it is clear that in rejecting the appellant's application his Honour was following the earlier decision and that, as that decision has since been overruled (see Alexandra Private Geriatric Hospital Pty Ltd v. Blewett (1985) 7 F.C.R. 341) it can now be seen that his Honour fell into error. The respondent, on the other hand, contends that. the Alexandra Hospital Case turned on questions of fact, and further that no common principle of law can be derived from the judgments in the Full Court. I shall return to an examination of that case. The letter notifying the decision of 31 January 1984 included an appendix which, under the heading "Return on Investment", stated: "The amount included has been based on the amount determined and included in your fee as a result of the decision of the Minister for Social Security advised to you on 18 July 1975, plus subsequent increase/decrease in interest/rent." The original s.13 Reasons contained a section headed "2.19 Profitability", as follows: "With respect to the proprietor's application concerning profitability, I found: 2.19.1 That it is current Government policy that a profit component should be included in the fees initially determined for nursing homes approved under the National Health Act. Such fees are not generally increased in later fee determinations specifically to provide an increase in profitability ee = eange ey eee en re af a tee io wen care 2.19.2 2.19.3 2.19.4 2.19.5 2.19.6 2.19.7 5. except in cases where the nursing home's bed capacity has increased. Certain costs (such as rent and interest) are however, in normal commercial practice, funded from profit and to the extent that increases in these costs are allowed in the fees, profitability is increased. Proprietors of approved nursing homes may request the Minister to review the scale of fees determined by the Permanent Head. The Minister is required to refer such reguests to the relevant Nursing Homes Fees Review Committee of Inquiry for examination and report to the Minister. In making his decision on any such review the Minister has regard to the merits of the particular case. That in determining a scale of fees where the Minister has made a decision under Sub-Section 40 AE(3) of the National Health Act to vary the decision of the Permanent Head with respect to return on investment it is Departmental practice to take into account the return on investment that was taken into account by the Minister. That in 1975 the proprietor appealed to the Minister under Sub-Section 40 AE(2) of the National Health Act for a review of fees. That the Nursing Home Fees Review Committee of Inquiry for Queensland heard the appeal and, in its report of 13 May 1975 to the Minister, projected a profit for 12 months of $51,705. That after considering the Committee's report the Minister determined that the then existing approved scale of fees should remain unchanged. That having regard to Government policy and Departmental practices on FINDINGS WERE BASED", "Draft Fees Control Manual". 6. profitability (as stated in paragraphs 2.19.1 to 2.19.3 of this Statement) I considered it reasonable, that as the Minister's decision under Sub-Section 40 AB(3) did not vary the decision of the Permanent Head with respect to the return on investment to be taken into account in the scale of fees, the return on investment to be taken into account for purposes of determining a scale of fees should be the projected return on investment determined_by the Review Committee of Inquiry in their report to the Minister. This amount was $51,705 p.a. 2.19.8 That having regard to the practices outlined in paragraphs 2.19.1 to 2.19.3 and 2.19.7 an increase in the base fee of $1.02 per patient per day was required to take account of a return on investment of $51,705 Deae? this was calculated as follows: ..." (A series of detailed calculations followed). Under the heading "EVIDENCE OR OTHER MATERIAL ON WHICH THE DECISION" the delegate stated: "Having examined the information on Departmental records and the information "provided by the proprietor, and having regard to Government policy, Departmental practices, and the provisions of Part V of the National Health Act, I concluded that the base fee should be increased by $3.30 per patient per day to cover the increases in costs detailed at paragraphs 2.14 to 2.17 of this Statement and to provide a return on investment detailed at paragraph 2.19 of this Statement. see I saw no reason to depart from Government policy and Departmental practice generally applicable to the determination of nursing home fees." a number of items were listed including _Under the heading "REASON FOR a ' Pe TT ee a et y at ree =e ¥ S mae ema - 4 oan ' The supplementary statement pursuant to s.13 contains details of calculations designed to maintain the precise profit figure of $51,705-00 per annum, notwithstanding that certain expenditure, treated in a particular way in 1975, was currently being treated in a different way, thus producing some minor distortions to the adjustments of costs which would normally have been made. The document states: "Having regard to the practices outlined in paragraphs 2.19.1, 2.19.3 and 2.19.7 of the Statement of Reasons of 7 March 1984, the increase in the base fee required to maintain the profit at $51,705 p.a. is $0.24 dollars per patient per day calculated as follows..." (There followed certain calculations). The supplementary statement concluded: "A statement of the general policy on profitability is included in Item 6.1 of Part I, page 26 of the "Draft Nursing Homes Fees Control Manual" which is available to nursing home proprietors through the Australian Nursing Homes Association. This policy has now been incorporated into the principles formulated by the Minister pursuant to the powers conferred by Sub-Section 40AA(7) of the National Health Act 1953. These principles were gazetted in Special Gazette No. S166 of 9 May 1984." The "General Policy" referred to, as set out in the Fees Control Manual reads as follows: "In determining approved scales of fees for nursing homes, the Department does not consider profitability. With the exception Monnet epee mee pe re a oe ee Mw Ae nnn re tes en se er 8. of the calculation of a return on investment for new nursing homes and additional beds constructed in existing nursing homes, the determination of fees should not have regard to return on investment." Earlier in the same manual it is stated: "The return on land and buildings to be calculated for new nursing homes is explained «ee and represents the market return as assessed at a reasonable level. The return on investment is not updated to maintain real value." The discretion which the delegate was required to exercise arose under the provisions of Part V of the National Health Act 1953. That Part is headed "APPROVED NURSING HOMES". At the time the decision was made, which was after the amendments effected by the National Health Amendment Act 1983, assented to on 19 June 1983, Part V provided, as it still does, for the following statutory scheme. By s.40AA provision is made for approval of nursing homes for the purposes of the Part, subject to a power to refuse approval in certain cases where the Permanent Head of the Department of Health is of the opinion that approved nursing homes in the locality "make adequate provision for nursing home care in that locality". Approval is subject to certain statutory conditions which are set out in sub-sections (5A) and (6). The conditions in sub-section (5A) are concerned to ensure that Commonwealth benefits and nursing home fund benefits are deducted from fees charged in respect of nursing home care. Sub-section (6) provides for the following further ere e re we a y wae conditions: (a) {b) (d) A condition, which is clearly intended to reinforce the power earlier mentioned to refuse approval where there is already adequate provision in the locality for nursing home care, enabling the Permanent Head to determine from time to time the number of beds available in the nursing home for its patients; A condition giving control of admissions of patients to the Permanent Head; and in addition: a condition that - (i) the fees charged in respect of the nursing home care of a qualified nursing home patient (this is an expression defined in s.4 in terms not relevant to these reasons) 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; and (ii) no extra charges will be payable by or on behalf of a qualified nursing home patient in the nursing home except in respect of matters not related to the nursing home care provided for the patient; and any other conditions determined by the Permanent ' Head for the purpose of ensuring that the needs of qualified nursing home patients or Repatriation bowel delta eahad.smied pla tall en ell alone ' . ' pow oy 10. nursing home patients (a term also defined in s.4) in the nursing home are satisfactorily provided for." The reference in paragraph (c) to "such fees as are from time to time applicable ... in accordance with such scale of fees as is determined..." must be read in the light of s.40AD(1)(b) which provides as follows: "The Permanent Head may at any time, on application by the proprietor of a nursing home or otherwise, alter the conditions applicable to the nursing home - (b) by substituting for the scale of fees determined in relation to the nursing home for the purposes of sub-paragraph (i) of paragraph (c) of sub-section (6) of section forty AA (sic) of this Act such other scale of fees as is determined by the Permanent Head." Prior to the amendments in 1983 to which referred, s.40AA(7) provided: "The Permanent Head shall, in determining the scale of fees in relation to a nursing home for the purposes of sub-paragraph (i) of paragraph {c) of the last preceding sub-section, have regard to costs necessarily incurred in providing nursing home care in the nursing home." The 1983 amendments omitted this section and substituted a new sub-section (7) together with a new sub-section (7A) and (7B) as follows: "(7) The Minister may, by writing under his I have et (7A) (7B) -—hand, formulate - il. 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. Without limiting the generality of sub-section (7), principles formulated under that sub-section may - (a) specify matters of a kind that are, in the case of each nursing home or of each nursing home included in a class of nursing homes, to be taken into account in determining a scale of fees for the purposes of sub-paragraph (i) of paragraph (c) of sub-section (6); (b) specify matters of a kind that are, in the case of each nursing home or of each nursing home included in a class of nursing homes, to be disregarded in determining a scale of fees for the purposes of sub-paragraph (i) of paragraph (c) of sub-section (6); and (c) specify criteria for assessing, in relation to matters of a kind that are required, in accordance with principles of a_ kind referred to in paragraph (a) of this sub-section, to be taken into account in determining a scale of fees, the amounts that are to be so-taken into account in relation to matters of that kind. 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 sae arn weet, mae 2, "a ? boa maser epee on ee - r 12. nursing home care is not excessive or unreasonable; and (c) any other matters the Minister considers to be relevant." By further sub-sections (7C), (7D), (7E) and (7F), provisions were made which assimilate principles formulated under sub-section (7), for some purposes, to regulations, statutory rules and orders made by a Minister. By s.40AE provision is made enabling the proprietor of an approved nursing home to request the Minister to review a decision of the Permanent Head. In the case of a review of a decision relating to the fees applicable to a nursing home, the Minister is required to refer the matter to a Nursing Homes Fees Review Committee of Inquiry established under the Act for examination and report to the Minister. A i The 1983 Amendment Act inserted a sub-section (3A) into s.40AB as follows: "(3A) Where a request made under sub-section (2) relates to a decision of the Permanent Head in respect of fees applicable to a nursing home, the Minister shall, in undertaking, in accordance with sub~section (3), such investigation of the matter as he considers necessary, apply any principle that was in force under section 40AA at the time the decision was made and that continues in force at the time of the undertaking of that review unless the Minister is satisfied, in all the circumstances of the case, that the application of that principle in relation to that nursing home is not appropriate." Y ielicoemadiath-ediieal-tenadacemmenenatamtnnartelimmndehemmendeaiien er "ey Po re ~ 13. By s.42 provision is made for inspection of approved nursing homes, and under s.43A the proprietor of an approved nursing home may be required to furnish audited accounts to the Permanent Head. Under s.44, the Permanent Head may vary the nature of an approval, or revoke or suspend it, if he considers the approved nursing home has changed since its approval or a condition has not been complied with. The foregoing summary of the provisions of Part V is by no means exhaustive. Although the 1983 amendments were in force prior to the decision in the present matter, the principles for which sub-section (7) of s.40AA provided were not gazetted until 9 May 1984, that is after the decision was made. An undated circular from the Department of Health, which appears to have been sent to nursing home proprietors shortly after 19 June 1983, advised that until the formulation of the principles the Department would "continue to have regard to the established policies and assessment criteria contained in the Draft Fees Control Manual." The circular continued: "The legislative amendments also clarify the provisions relating to appeals to the Minister concerning fees determined by the Permanent Head or his Delegate. The amendments provide that the Minister is not constrained by the principles in considering appeals. In considering the merits of a case on appeal, the Minister may decide that strict application of the principles is 14. - inappropriate. The question of profitability will continue to be considered on appeal by the Minister rather than by the Permanent Head or his Delegates." (Emphasis added.) This passage in the circular throws a clear light on ss.2.19.1, 2.19.2 and 2.19.3 of the s.13 Reasons, and on the Statement of General Policy on Profitability referred to by the delegate with its blunt assertion: "In determining approved scales of fees for nursing homes, the Department does not consider profitability. With the exception of the calculation of a return on investment for new nursing homes and additional beds constructed in existing nursing homes, the determination of fees should not have regard to return on investments." But does the statute permit the delegate to abdicate, or be stripped of, a power and duty to consider the current profitability of the nursing home in respect of which he is fixing a scale of fees? It seems to me that several considerations unite to demand an answer in the negative. It is plain from s.40AA(6)(c) that what the statute contemplates is the determination of a scale of fees "from time to time applicable in respect of the nursing home care" provided. §.40AD ensures that the scale can be updated as often as is necessary, and s.40AE(1) requires the updating process to be carried out promptly. The scheme laid out in the Act envisages that from time to time fresh scales of fees will be applicable. The Act no more contemplates that the economics of the home will Lo 7 fa 7 _ ae ener ee ne Set oe e 15. —_— be unnaturally immutable than it does that the satisfactory provision (with which s.40AA(6)(d) is concerned) for the needs of patients, by nursing methods and equipment, must be locked into obsolescence. The context of Part V recognizes that nursing homes will change and that scales of fees must be adjusted from time to time. To apply the provision as if it authorised only a partial updating of the scale, by reference to some only of its elements, would be not to understand and obey the statute, but to change it. As Fox and Franki JJ. said in their joint judgment in Howells v. Nagrad Nominees Pty. Ltd. (1982) 43 A.L.R. 283 at 304: "(I)t is clear that the requirements of the Act, express or implied, must govern what is to be done... What it requires is that the scale of fees be determined by reference to the business as conducted by the proprietor for the time being." This passage sees the Act as concerned with the current position. In the same case at 295 Smithers J. said: "If, on a change of proprietorship the cost structure genuinely changes the duty of the Permanent Head is to make such determination as will reflect the true situation." The Court held that to base fees on "historical figures" involved a "fundamental error" (per Fox and Franki JJ. at 303, 304), in the changed circumstances following a sale of the nursing home business. It must also be erroneous to do so where the historical figures are irrelevant to the existing situation for any other reason. wut > 16. But in any case, when aie statute commits to an administrator the task of making a particular decision, the presumption is that he is to consider the matters involved in' the light of the actual facts as disclosed by the material in his possession at the time, and should not make his decision on an assumption rendered false by a change of circumstances. C£. the remarks of Gibbs C.J. in Minister for Aboriginal Affairs v. Peko-Wallsend Ltd. (1986) 66 A.L.R. 299 at 301. In the same case Mason J., with whom Gibbs C.J. and Dawson J. agreed, referred at 313 to "the general principle that an administrative decision-maker is required to make his decision on the basis of material available to him at the time the decision is made." He added: "But that principle is itself a reflection of the fact that there may be found in the subject matter, scope and purpose of nearly every statute conferring power to make an administrative decision an implication that the decision is to be made on the basis of the most current material available to the decision-maker." If the profitability of the nursing home, or the return on investment which it achieves, is a factor to which the delegate is bound to have regard, I do not think it can be gainsaid that both the particular statutory scheme, and also general principle, demand that the current position be considered. Even in the presence of an express statutory provision obliging a fair rents board to consider in each case we sala aiieiele etait oendiascel a meena a can Rael ckaleinaaer'analinciea. Sammeraanadmeieniatadientr aires oad wa Steal Dhel racerentacenar ecaae . ae 17. the 1939 value of the premises in question, Kitto J. in Rathborne v. Abel (1964) 38 A.L.J. 293 at 301 said: "But while a board cannot lawfully leave that value out of consideration, neither, in my opinion, can it lawfully leave out of consideration any matter which is truly material to the fairness of a determination. That the current capital value of the premises is such a matter seems hardly open to doubt." Whether the delegate is bound to have regard to profitability or return on investment is to be determined by construction of the statute, and may be found by implication from its subject matter, scope and purpose: Peko-Walisend Case (supra, at 308-9). The question has been considered in a number of cases. This Court,-in Alexandra Private Geriatric Hospital Pty. Ltd. v. Blewett (1985) 7 F.C.R. 341 has accepted that the answer should be in the affirmative. Smithers J., at 350 said: "It is obviously possible for the court to identify some matters which it is essential, according to the Act, that the delegate should consider in relation to the determination of a scale of fees to be charged as from a particular date. .. The Fact that the basic unit of service to the patients is a private enterprise project, which the statute uses as such, is of importance. The viability of the project is also of importance because the standard of care in a home not financially viable is likely to deteriorate perhaps seriously. As a private enterprise project the level of profit is inevitably a relevant matter." Sheppard J., at 356 said: "Does it follow from the words in question wy oe ene ee wrest a ree Hae woe La v ory 18. that the delegate must necessarily allow anything for profit? This question cannot be answered without a consideration of the policy underlying the Act. That policy is that approved nursing home care is to be provided, at least in part, by privately owned nursing homes. The premise is that each of these homes will be carried on, not by a government agency, but by a person carrying on business on his own account. The object underlying business activity is profit making. One cannot make profits unless the return which is received covers costs and leaves a surplus for the proprietor; compare the judgment of Smithers J. in the Nagrad case (Howells v. Nagrad Nominees Pty. Ltd. (1982) 66 F.L.R. 169) at 180-181... . His Honour took the view that profit was a proper item for consideration, not because of anything contained in the former s 40AA(7), but because of the provisions of s 40AA(6)(c). -~-That provision has not undergone relevant amendment, no principles having been formulated pursuant to the new s 40AA(7) at the relevant time. I am thus of opinion that, notwithstanding the generality of the language in subs(6) of the Act, the delegate was obliged, as a matter of law, to take into account costs and to provide for a profit margin when he came to consider what fees should be approved." The third member of the Court, Jenkinson J., did not find it necessary, in the view which he took, to deal with this point. Not only should I follow a majority view, recently expressed, of a Full Court of this Court, except in the rare cases where principle permits me to do otherwise - the views to which I have referred are consonant with earlier authorities. In the first place there is the decision of the High Court of Australia in Re Hunt; Ex parte Sean Investments Pty. Ltd. (1979) 53 A.L.J.R. 552." That case was decided when sub~s.(7) of s.40AA a —o tro ner ote nee eee lee ote a 19. was in its earlier form. An increase in rental was not taken into account, in a determination, upon the basis of a view that the increased rental was not "reasonable". The majority of the High Court (Gibbs J. (as he then was) and Mason J.) held for reasons given by Mason J. that the Minister had failed to deal with the application in accordance with the requirements of the statute, and granted a mandamus. At 554 Mason J. said: "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. (This of—course was a reference to the then form of sub-s.(7), but the reason which follows is not affected in any way by the amendment.) 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." Because the issue involved in that case related to costs, this was the factor upon which Mason J. concentrated. But the second reason he gives is as applicable to the matter of RD pee + we 4 pene eee mayne rus 20. ——s ~~ profit as to the matter of costs, as he expressly recognises in his formulation of it. It is that the proprietor is bound not to exceed the scale, so the procedure for fixing it must take as fundamental elements his necessity to cover his costs and earn a profit from the conduct of the nursing home. In the second paragraph of the quoted section of the judgment, Mason J. goes on to point out that other considerations may lead to the conclusion that a scale derived from an addition of a profit factor to costs is, in a particular case, too high, and it may still be too high even if profit be eliminated altogether. But to reach such a conclusion is not, of course, to fail to have regard to the two factors mentioned. In Sean Investments Pty. Ltd. v. MacKellar (1981) 38 A.L.R. 363 at 367, Deane J. referred to the decision of the High Court in Re Hunt; Ex parte Sean Investments Pty. Ltd. in terms which indicate a similar understanding of the judgment of Mason J. He said: "(I)t appears clearly ... that neither the Permanent Head nor the Minister is confined to considering -only such costs and what constitutes an appropriate profit element." (Emphasis added.) At p.373 he said: "The Permanent Head, and the Minister on review, must act on the basis that what is involved is the fixing or variation of a scale of fees for a particular nursing home in the circumstances applicable to that home." pooner soar ac et ee oie ae pees aie wv n--aee n a = cami 21. In Howells v. Nagrad Nominees Pty. Ltd. (1982) 43 A.L.R. 283 at 291 Smithers J. said of the statutory scheme: "Te is a private enterprise approach to the problem. Obviously, from every point of view the success of the scheme is dependent upon there being available to the proprietors of homes providing nursing care financial returns which will constitute reasonable financial income to them taking into account the use of capital and the exertion involved in running the home as manager "and worker. -.. At the same time it can be seen that Parliament intended to control the income gained from conducting a home so that the proprietor should not be permitted to exploit the scheme and so make excessive profits." In the joint judgment of Fox and Franki JJ. at p.304 reference is made to "the need to ascertain the purpose or purposes of the legislation, and to recognise their controlling force." The joint judgment notes that "the calculations leading to the determination of a fee will in any event depend to a large extent on an application of accepted accounting principles", and at p.305 refers to "necessary and proper considerations" in a context which includes the aspect of economic viability. The decision of Deane J. in Sean Investments Pty. Ltd. v. Mackellar was taken on appeal. The joint judgment of Bowen C.J. and Fox J. (reported (1982) 42 A.L.R. 676) affirms the decision of Deane J. that it was open to the Minister, having had regard to a cost, to decline to reflect it fully in the scale of fees. At 681 the joint judgment states: "While wise administration would probably suggest that each nursing home be kept ha see nD te poe ' Tt weet tee ae "yea ee en re ry ee ees eneene = ne eo noe lt wae 22. viable, we are unable to construct a purpose of the Act to the effect that adequate profit must be allowed in every case." It seems to me to be implicit in this statement' that profitability must be considered, though in a particular case the circumstances may justify the fixing of a fee scale at an appropriate level notwithstanding that the proprietor of the particular nursing home is unable to make a profit at that level. I conclude that there is no reason to doubt the view expressed in the Alexandra Hospital Case that the statute requires the Permanent Head or his delegate to have regard to the current profitability of the nursing home when fixing a new scale of fees. He is not bound in every case to allow an adequate profit. It may be that the home is operated in an uneconomic manner. There may be special circumstances. But his duty is to have regard to the situation of that particular home, and not merely to prescribe a scale of fees for nursing homes in general. He cannot perform that duty if he leaves out of account so fundamental a matter as the profitability of the home, substituting the automatic application of a figure derived from a distant past. A policy which requires him to do that is not a policy formulated to guide the determination of a fee "from time to time applicable", but on the contrary a policy which aims, despite the provisions of the Act, to prevent the fixing of a fee from time to time in favour of the establishment of a fee once and for all, subject to incremental increases on some only of the 7 f yo eee =. ae AF epoca we eo re ei ' 23. figures which are its components. It is a policy that there shall not be a redetermination from time to time of the fees, as the appropriate fees to be charged. Indeed, it amounts toa ruling that a fundamental element, to which the statute, properly understood, requires regard to be had, shall be left out of account, to be replaced by the arbitrary adoption of a figure assessed at a different time, and upon the quite different factors of that time. There is an independent consideration which also points to the conclusion that the delegate was not entitled to decline to re-examine questions of profitability and return on investment in this case. It will be recalled that the policy documents to which he referred, and which he made it clear he applied, stated: "Tn determining approved scales of fees for nursing homes, the Department does not consider profitability. wee (T)he determination of fees should not have regard to return on investment." The circular, which I have quoted earlier in these reasons, makes it clear that the system is that these matters are considered by the Minister, if and when an appeal to him is launched, and not by the Permanent Head or a delegate. This is in any case implicit in the s.13 Reasons in the present case. After setting out in s.2.19.1 that there is a policy to include a profit component in the initial determination of fees, and not generally to increase it relevantly in later fee determinations, the reasons in s.2.19.2 draw attention to the right to have a determination by the Permanent Head reviewed by the Minister, and > nat oo er at ore aimee es sercgae ' ear 24. it is added: "In making his decision on any such review the Minister has regard to the merits of the particular case." In the context, what the delegate is saying seems plainly to be that he does not have regard to the merits, so far as the question of profitability and return on investment is concerned, but that the policy takes care of this problem by permitting a review which will have regard to the merits. That this was indeed the approach adopted is further confirmed by an examination of the delegate''s reasons as disclosed. He goes into meticulous detail to explain the way he had translated the Minister's nine years old profitability figure from the old fees calculation into a new fees calculation, in which some of the component factors of the profitability figure had to be adjusted if the original intention (as to exactly what the proprietor's reward covered) was to be strictly preserved. A supplementary statement of s.13 Reasons was issued which reveals an almost pedantic insistence upon precise calculations to ensure that the original profit basis is maintained in changed circumstances. Yet there is no discussion at all of whether the far greater changes wrought by inflation demand a reconsideration of the profitability component. The delegate has tinkered with the bits and pieces of the old profit assessment, and justified his doing so minutely, but refused to make a new assessment without pausing to give any reason except the policy. His ears Rape er yee my * N ae ree eee a et ee -f wees Qo ee a oe or 25. were filled with the clamour of relatively petty considerations, while deaf to the call of a major issue. The reasons do not say ~ that the delegate had regard to the merits of the particular case, and decided that there was no reason to depart from policy. What he said was simply: "I saw no reason to depart from Government policy and Departmental practice", that policy and practice being that it was for the Minister, and not for the delegate, to have regard to the merits of the particular case. Plainly, the delegate was acting in obedience to the departmental rulings to which he referred. In mandatory terms, they required him to refrain from trespassing upon an area preserved for the Minister. His avowal that he saw no reason to depart from the requirement does not alter the fact that he did not enter that area. So the question is quite different from that which commonly arises in cases of disputed observance of the warning sounded in de Smith, Judicial Review of Administrative Action, 4th edition, page 311:- "A tribunal entrusted with a discretion must not, by the adoption of a fixed rule of policy, disable itself from exercising its discretion in individual cases." The question is rather whether the delegate of the Permanent Head could lawfully leave the area of current profitability for a - ge eine Woe ye te ee Some ope qe ne 26. consideration only upon a review by the Minister. To this I think there can only be one answer. The Act commits to the Permanent Head the whole task of from time to time determining a scale of fees for the particular nursing home. In Re Hunt; Ex parte Sean Investments Pty Ltd (supra, at 554) Mason J. said: "The ambit of the statutory discretion reposed in the Minister on a review of the Permanent Head's decision is co-extensive with that enjoyed by the Permanent Head, for _ the section does not prescribe independent criteria to be applied by the Minister on a review." As Bowen C.J. and Deane J. made clear in their joint judgment in Drake v. Minister for Immigration & Ethnic Affairs (1979) 24 A.L.R. 577 at 590, it is only by a policy which is not inconsistent with the provisions or the objects of the relevant act that an administrator exercising a statutory discretion is Uj entitled to be guided. ; Even if the matter could be considered within /the parameters of the principle to which de Smith refers in'the passage I have cited above, and accepting to the full the delegate's statement that he saw no reason to depart from the policy and practice, upon a fair reading of the delegate's reasons (including the documents they incorporate by reference) I think it is clear that he did not give any real consideration to the merits of the particular case, so far as the question of profitability and return on investment is concerned. In Drake v. Minister for Immigration & Ethnic Affairs (No. 2) [1979] 2 A.L.D. = mayer ree - ee 27. 634 at 640-1 Brennan J. said: after referring to a number of the leading authorities, state: "A policy must be consistent with the statute. oe. His (i.e. the Minister's) discretion cannot be so truncated by a policy as to preclude consideration of the merits of specified classes of cases. ... That is not to deny the lawfulness of adopting an appropriate policy which guides but does not control the making of decisions, a policy which is informative of the standards and values which the Minister usually applies. There is a distinction between an unlawful policy which creates a fetter purporting to limit the range of discretion conferred by a statute, and a lawful policy which leaves the range of discretion intact while guiding the exercise of the power." In the Nagrad Nominees Case at 307 Fox and Franki JJ., "Where the power given relates to the consideration of individual cases, it is not to be denied that the predominant aspect must be the consideration of the particular case. The merits of that case must be considered genuinely and realistically; there must always be a readiness to depart from policy. The policy does a dis-service to those who have to measure it against the individual situation if it is expressed in dogmatic or mandatory terms. The term 'policy' is itself difficult of definition. What it does not include is a series of fairly precise requirements. Ina way, this is quite likely the fundamental defect in the decision at present under consideration. If the guidelines had been more general, expressing in a broader and possibly more direct way the policy sought to be maintained, the Delegate would have been freer to test the individual case against it, or to test it against the merits of the individual case. Because guidelines are issued it is not to be assumed that each guideline expresses policy, as distinct from stating someone's view as to how policy 28. should be carried out. It is in this last-mentioned situation that the use of so-called policy can readily become antithetical to the proper making of a decision related to the particular case." I find myself in respectful agreement with this passage, and I think it is relevant to the question I am presently discussing. Apart from the true meaning of the word "policy", one reason why a policy to guide a statutory discretion of the kind under consideration cannot consist "Of a "Series of fairly precise requirements is that to state a purported policy in this way would be inconsistent with the conferment by the Act of a discretion to meet the individual case. A true policy will operate conformably with the maintenance of the statutory discretion, and as a guide to its exercise; but it is not permissible to substitute the rigidity of detailed rulings for a discretion with which Parliament has chosen to endow an administrator, where that discretion has been given to ensure an individual examination of the particular circumstances. There are cases involving discretionary decisions of kinds more susceptible of precise regulation than the decision with which this appeal is concerned: In re Clarkson (1982) 56 A.L.J.R. 224; British Oxygen Co. Ltd. - Minister of Technology [1971] A.C. 610; Legal Services Commission of NSW v. Stephens [1981] 2 N.S.W.L.R. 697. A wide variety of decisions may be called discretionary, and they cannot all be seen as identical in nature (see In re Findlay [1985] 1 A.C. 318 at 335 and cf. coetaiinaietets Teme recite a Sa hasten andiateens Scamtemmmmes oeate 29. Attorney-General ex rel. Tilley v.- Wandsworth London Borough Council [1981] 1 W.L.R. 854). But here the discretion was given to the Permanent Head in order that a scale of fees might be tailored according to the measure required to match the purposes of the Act to each separate nursing home. On the view I have taken, I have been unable to regard the delegate's statement, that he saw no reason to depart from the policy and practice, as preserving his approach from the consequences of its collision with his statutory obligations. But had the Act permitted him to decline to consider current profitability, and to require the appellant if he wished to pursue that aspect to take the matter on review to the Minister, a question would have remained whether the use of a formula of that kind showed, in the phrase of Fox and Franki JJ. in the Nagrad Nominees Case, that the merits of the case had been considered genuinely and realistically. At p.307 of that case their Honours comment, concerning a rather more precise assertion that a relevant issue had been considered: "The recitation of the formula is not enough."". In a recent decision of my own (Chumbairux v. Minister of Immigration and Ethnic Affairs, unreported, 17 September 1986) I referred to Turner v. Minister for Immigration and Ethnic Affairs (1981) 35 A.L.R. 388 at 392 and Kaufusi v. Minister for Immigration and Ethnic Affairs (Smithers J., unreported, 20 September 1985) as supporting the proposition that a statement in srergnens ore any, 30. s.13 Reasons, which was expressed in terms similar to those involved in the present case, was not conclusive of compliance with the obligation to consider the individual merits of the case. In the present matter, the context shows that those merits were not considered, because consideration of profitability was regarded as the prerogative of the Minister. So far I have found it necessary to refer to the Alexandra Hospital Case only for the proposition that profitability was a matter to which the delegate was bound to have regard. However, as senior counsel for the respondent submitted that no agreed ground of decision could be extracted from the case, I think it is desirable that I examine it briefly. It is apparent that I do not accept the submission, so far as the proposition I have cited is concerned. But I also think the submission misreads the substance generally of the judgments of Smithers J. and Sheppard J. in that case. As a passage I quoted early in these reasons shows, the learned judge at first instance regarded the issues in this case and the Alexandra Hospital Case as at least closely similar. I agree with him. There were minor differences, and of course the precedent value of a case does not lie in its facts. It is correct to say views which differed to some extent were expressed by the three Judges who comprised the Court in the Alexandra Hospital Case, although they all reached the same result. But there are reasons common to the judgments of Smithers J. and Sheppard J. that involve propositions for which the case is authority. Smithers J. held the delegate's ota yr pe (oor os ae ' uw ay 31. decision, fixing fees by reference to a profit component assessed some twelve years earlier, to be bad in law on two grounds: first, he found the delegate had failed to consider a matter he was bound to consider, namely "the current value of the appellant's contribution to capital for the relevant period" (see 346, 349); and secondly, he found the decision was vitiated by the application of a policy as a rule without "a proper consideration of the merits (see 349). Sheppard J., at 351, commenced his judgment by referring to both of these grounds, as well as to the ground that "the delegate's decision to omit current values from consideration was so unreasonable as to make the decision one to which no reasonable person could have come". It was this last ground upon which he preferred to put his decision, but at 358 he expressly added: "I would also take the view that the appellant has been the victim of the implementation of a policy without the individual circumstances of its case having been taken into account: see s.5(2)(f£) of the Judicial Review Act. I do not find it necessary to reach a conclusion on the question of whether the delegate has omitted a relevant matter from consideration, namely, the current value of the property: see s.5(2)(b) of the Judicial Review Act." As the aspects of the matter taken into account in the two judgments in arriving at the conclusion about policy are the same, there is clearly a majority view on this ground of decision. The difference between the final conclusions of Smithers J. and Sheppard J. is that the refusal to consider the changes in profitability resulting from the effects of inflation 7, MP seen arene o a r ' ul 32. upon the money value of the assets devoted to the business was regarded by Smithers J. as demonstrating a failure to take into account a matter to which the delegate was bound to have regard, while the same factor was regarded by Sheppard J. as demonstrating that the delegate's decision was so unreasonable that no reasonable person could have arrived at it. The apparent conflict is lessened, however, by Sheppard J.'s observation at 351: "It will eventually be seen that there may well be some overlap of these grounds", and by the fact that he expressed no disagreement with the view of Smithers J., simply preferring to put his "judgment on the alternative basis. But there is in reality no conflict. In Minister for Aboriginal Affairs v. Peko-Wallsend Ltd. (supra, at 310) Mason J. said: "(B)oth principle and authority indicate that in some circumstances a court may set aside an administrative decision which has failed to give adequate weight to a relevant factor of great importance, or has given excessive weight to a relevant factor of no great importance. The preferred ground on which this is done, however, is not the failure to take into account relevant considerations or the taking into account of irrelevant considerations, but that the decision is 'manifestly unreasonable'. This ground of review was considered by Lord Greene M.R. in Wednesbury Corporation (Associated Provincial Picture Houses Ltd v. Wednesbury Corporation [1948] 1 K.B. 223) at pp.230, 233-4, in which his Lordship said that it would only be made out if it were shown that the decision was so unreasonable that no reasonable person could have come to it. This ground is now expressed in ss.5(2)(g) and 6(2)(g) of the ADJR Act in these terms." It is apparent from this statement that the grounds taken by ire —_ 33. Smithers J. and Sheppard J. are, upon analysis, but two ways of expressing the legal basis for setting aside a decision vitiated by the one vice. A finding that the decision has been so vitiated can be put either way, though Mason J. expressed a preference. Such a difference as that provides no reason for declining to follow an authoritative decision, so far as the underlying legal proposition is concerned. It is clear that Jenkinson J. (who has since summarised the approach of the majority and his own approach at pp.19-20 of his unreported judgment of 30/9/86 in Octet Nominees Pty Ltd v. Grimes) did take a different view of the case, although he, like Sheppard J., concluded "that the exercise of the power in conformity with the policy was so unreasonable that no reasonable person could have so exercised the power" (362). He reached that view, not upon the considerations which appealed to both Smithers J. and Sheppard J., but upon the basis of a much narrower consequence of the delegate's implementation of the policy to exclude consideration of profitability. At least as regards the majority view that, in the circumstances of the Alexandra Hospital Case, the ground in s.5(1)(e) and 5(2)(£) of the Administrative Decisions (Judicial Review) Act was established, I cannot relevantly distinguish those circumstances from the circumstances of the present appeal. It remains to consider a submission of the respondent that, even if the Court could come to the conclusion that the onser ep eooer "es 34. od - ' 2 — delegate's decision was unlawful in one of the ways discussed in these reasons, the appeal should still be dismissed because no useful result could ensue from setting it' aside. The respondent submitted that the delegate would be bound, upon remittal of the matter to him, to make any fresh decision in accordance with the principles gazetted on 9 May 1984. Senior counsel for the appellant made a number of answers to this submission. In the view that I take, it is not necessary to consider all of them. In particular, I find it unnecessary to consider any question of the validity of the principles (which Jenkinson J. accepted as valid in the Octet Nominees Case) and as to whether, having regard to the terms of ss.40AA and 40AE(3A), it was competent for the Minister to achieve through the principles the division of function which in my opinion the Act, as construed by the High Court in Re Hunt; Ex parte Sean Investments Pty Ltd (supra, at 554), previously denied. I do not think the principles can be applied retrospectively in the way the respondent suggests. Until the principles came into force, the appellant was conducting its nursing home as an approved nursing home, and with the right to have fees determined from time to time by the Permanent Head under the provisions to which I have previously referred. At the time the decision was made, the appellant was conducting the nursing home on the footing that it had the right to a reward as provided by the Act according to its provisions then in force. To make a determination of a fee, in respect of that period, on tf 35. some other basis would be to take away a vested right and substitute a different right. It would be to ignore what the joint judgment of Mason, Murphy and Wilson JJ. in Carr v. Finance Corporation of Australia Limited (1982) 150 C.L.R. 139 at 150 calls "the care of the common law for vested rights and its concern to avoid injustice." At p.151 the joint judgment states: "The common law presumption against imputing to the legislature an intention to interfere retrospectively with rights which have already accrued does not call for a narrow conception of a right. If it were otherwise, the essential justice of the rule would be eroded." At the same page, their Honours referred to Maxwell Vv. Murphy (1957) 96 C.L.R. 261 at 267, and said: j "(T)he common law presumption against affecting vested rights will operate unless a contrary legislative intention appears,: in Sir Owen Dixon's words, 'with reasonable certainty'". In Yew Bon Tew v. Kenderaan Bas Mara [1983] 1 A.C. 553 at 563 the Privy Council, which also referred to Maxwell v. Murphy, said: "Their Lordships consider that the proper approach to the construction of the Act... is not to decide what label to apply to it, procedural or otherwise, but to see whether the statute, if applied retrospectively to a particular type of case, would impair existing rights and obligations." As Kitto J. made clear in Ogden Industries Pty Ltd v. Lucas (1967) 116 C.L.R. 537 at 564, the amount in which a right Pan ee pe ee eae 36. sounds does not have to be fixed to enable the right to be vested for the purposes of the principle. Far from it appearing with reasonable certainty that there was a legislative intention to impair the existing rights of nursing home proprietors in respect of fees or the determination of fees, it seems to me that the Act indicates an intention that it should operate prospectively only. In s.40AE(3A), which I quoted earlier in these reasons, it is expressly provided that the Minister on review is empowered to apply a principle that was in force at the time the original decision was made, subject to the further terms of sub-s.(3A) - there is no suggestion that the Minister on review could apply a principle which had come into force after the original decision. Had I taken a different view on the question of retrospectivity, I would still have thought it appropriate to grant the appellant relief. It appealed against a decision which I have held was made unlawfully. It was in my opinion entitled to a lawful decision, with all the consequences of a lawful decision. One of those consequences, even if the decision-maker on remittal could validly apply the principles, would be that the appellant would then be entitled, if still dissatisfied, to seek a review by the Minister under s.40AE. Upon that review, it would be open to the Minister, pursuant to sub-s.(3A), to be "satisfied, in all the circumstances of the case, that the application of that principle (i.e. any principle in force at the rye . to é; fe Li | | i b. lye b 37. time the decision upon remittal was made) in relation to that nursing home is not appropriate." It does not seem to me that remittal can properly be said to be useless while this provision is in the Act. One of "the circumstances of the case", of course, is that, at the time the original decision was made, the principles were not in force, and the nursing home was caring for patients as a nursing home approved under the provisions of the _ Act as they then stood. For these reasons, I would allow the appeal with costs and order that the decision of the delegate be set aside and the matter be remitted to him for decision according to law. Under s.16(1)(a) of the Administrative Decisions (Judicial Review) Act 1977, the Court has a discretion as to the date from which it makes such an order take effect. In Wattmaster Alco Pty Limited v. Button (Pincus J., unreported, 8 April 1986), it was held there is an onus upon a party to show why an order should not operate simply from its date. With respect, in the case where a decision is set aside as not made according to law and the matter is remitted to the decision-maker, I do not think the section evinces an intention to confer some prima facie temporary validity upon the invalid decision. The section embraces a range of situations from the quashing of a decision (which implies wholly expunging it - cf. Commissioner for Railways (N.S.W.) v. Cavanough (1935) 53 C.L.R. 220 at 225) to the setting aside of part only of the decision (which implies at least partial validity). In the present case, I think it is appropriate that ure, Poort Catal ee ta Sine ie ee ene mene pee NLA 38. the Court order that the decision of the delegate be set aside as at and from its date. I would so I certify that this and the_ preceding thirty-seven (37) pages are a true copy of the Reasons for Judgment herein of his Honour Mr. Justice Burchett. _ Associate Dated: November, .1986.- order. aoa er yee oe ropes earyecree mr shows