eam se oars rns a ne EE RET ne Se, os ¢ JUDGMENT No.S!3,.7.82.. CATCHWORDS Administrative law ~ judicial review - determination of fees for approved nursing home - principles formulated by Minister - whether principles valid - whether principles certain - negative loadings for previously under-incurred expenses - change of proprietorship - whether , determination unreasonable. Acts Interpretation Act 1901 - s.46(a) Administrative Decisions (Judicial Review) Act 1977 - s.5. National Health Act 1953 - ss.4(1), 40Aa(1)(6)(7)(7A) (7B), 40AD(1B), 40AE(2), 42(1), 44(1). NEVISKIA PTY. LIMITED v- THE HONOURABLE CHRISTOPHER HURFORD,ALAN DOUGLAS ROSE, PETER DAVID TRATT pn = VG 143 of 1987 18TH SEPTEMBER 1987 No. Gray J. MELBOURNE Laeaddedelnatehdananedieentenememends neaetennenioarindnedteeete ee Tad IN THE FEDERAL COURT OF AUSTRALIA VICTORIA DISTRICT REGISTRY GENERAL DIVISTON No. VG 143 of 1987 BETWEEN : NEVISKIA PTY. LIMITED (trading as "Kenilworth Private Nursing Home") Applicant -and- THE HONOURABLE CHRISTOPHER HURFORD (who is sued as the Commonwealth Minister of State for Community Services) ALAN DOUGLAS ROSE : (Department of Community Services) PETER DAVID TRATT (who is sued as a Delegate of the secondnamed Respondent) Respondents MINUTES OF ORDER COURT : Gray J. DATE : 18th September 1987 PLACE : Melbourne THE COURT ORDERS: 1. The application is dismissed. 2. The applicant pay the costs of the second and third respondents. (mote: Settlement and entry of orders is dealt with by 0.36 of the Federal Court Rules.) et linet tert NE Se IN THE FEDERAL COURT OF AUSTRALIA VICTORIA DISTRICT REGISTRY GENERAL DIVISION No. VG 143 of 1987 BETWEEN : NEVISKIA PTY. LIMITED (trading as "Kenilworth Private Nursing Home" ) Applicant -and- THE HONOURABLE CHRISTOPHER HURFORD (who is sued as the Commonwealth Minister of State for Community Services) ALAN DOUGLAS ROSE (Department of Community Services) PETER DAVID TRATT (who is sued as a Delegate of the secondnamed Respondent) Respondents REASONS FOR JUDGMENT JUDGE: Gray Jd. DATE: 18th September 1987 The applicant in this proceeding seeks an order of review in respect of a determination made on 13th May 1987 of fees applicable to the Kenilworth Nursing Home. The application is made pursuant tos.5 of the Administrative Decisions (Judicial Review) Act 1977. The determination was made by the third respondent, Peter David Tratt, as a delegate of the Secretary of the Department of Community Services, pursuant to s.40AA(6)(c)(i) of the National Health Act 1953. The applicant alleges that the fees determined are inadequate in amount. efoen eo Mr. Monotti of counsel appeared for the applicant. The first respondent, the Minister for Community Services was not served with the application, did not appear, and was not represented. Mr. Downing of counsel appeared for the second and third respondents. The applicant is a company. It acquired the business of the Kenilworth Nursing Home ("Kenilworth") pursuant to a contract of sale dated 16th June 1986. The applicant took possession of the business on 15th July 1986. The vendor was a company known as Naish Nominees Pty. Ltd. The applicant is the trustee of a unit trust in which the unit holders are Naish Nominees Pty. Ltd., which holds 540 units, Brynal Holdings Pty. Ltd., which also holds 540 units, and Saitta Pty. Ltd., which holds 252 units. Naish Nominees Pty. Ltd. holds its units as trustee for the family of one Erica Naish, who is a director of the applicant. Prior to 15th July 1986, the business of Kenilworth was owned and operated by Naish Nominees Pty. Ltd. for some years. The sale to the applicant was the result of financial difficulties experienced by Naish Nominees Pty. Ltd. At all relevant times, Kenilworth was managed by Saitta Pty. Ltd., through its servant or agent Graeme Peter Menere. nm we ee ee ee = repre - eI es errr ee eee tee ar ee - A Le . aon en Some understanding is needed of the scheme whereby fees are fixed for approved nursing homes, pursuant to the National Health Act 1953. Under s.40AA(1L) of that Act, the proprietor of a nursing home may apply for approval of the premises occupied by the nursing home as an approved nursing home. The word "proprietor" is defined in s.4(1), so far as is relevant for present purposes, as "the owner of the business or undertaking carried on at the nursing home". Sub-section (6) of s.40AA sets out a number of conditions to Which the approval of premises as an approved nursing home is subject. Among these conditions are the following: "(c) a condition that, except in the case of a Government nursing home (i) the fees charged in respect of the nursing home care of a..,patient in the nursing home will not exceed such fees as are from time to time applicable in respect of the nursing home care of the patient in accordance with such scale of fees as is determined, subject to any principles that have been formulated under sub-section (7) and that are in force, by the Secretary in relation to the nursing home... (dad) any other conditions determined by the Minister for the purpose of - {i) ensuring that the needs of qualified nursing home patients, short-term respite care patients or Repatriation nursing home patients in the nursing home are satisfactorily provided for; or ee we ne (ii) otherwise protecting the welfare and interests of qualified nursing home patients, short-term respite care patients or Repatriation nursing home patients in the nursing home." Sub-section (7) empowers the Minister to formulate principles in accordance with which scales of fees are to be determined for the purposes of sub-paragraph (6)(c)(i), in relation to nursing homes generally, or in relation to nursing homes included in specific classes of nursing homes. Sub-sections (7A) and (7B) provide as follows: "(7A)Without limiting the generality of sub-section (7), principles formulated under that sub-section may - (a) specify matters of a kind that are, in the case of each nursing home or of each nursing home included in a class of nursing homes, to be taken into account in determining a scale of fees for the purposes of sub-paragraph (6)(c}(1i); (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 (6)(c)(i); (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 Poste: se ea ore (a), 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 (c) any other matters the Minister considers to be relevant." Under 5.40AD(1B) the Secretary may, at any time, on application in writing by the proprietor of a nursing home or otherwise, alter the conditions applicable to a nursing home by substituting for the scale of fees determined in relation to that nursing home such other scale of fees as is determined by the Secretary. Where the Secretary does not alter the conditions in accordance with such an application, the proprietor of the nursing home may make a written request to the Minister to review the decision of the Secretary, pursuant to s.40AE(2). In reviewing the decision, the Minister is not absolutely bound by the principles declared under s.40AA(7). Section 44(1) gives the Minister power to review the approval of a nursing home and to vary, revoke or suspend the approval, in particular if a condition applicable to the approved nursing home has not been complied with. wens; - Lp ee ee oe: ae eer The relevant Minister has formulated principles pursuant to s.40AA(7) of the Act. From time to time, those principles have been amended. As they stood at the time of the making of the determination the subject of this proceeding, they contained the following relevant provisions: "1. These principles may be cited as the Nursing Homes Fees Determination Principles 1984. 2. (1) 'In these principles, unless the contrary intention appears, words shall have the, same meaning as in the National Health Act 1953 and-... "Proprietor" means a proprietor as defined in the Act and an associate of a proprietor within the meaning of sub-principle (3) hereof... (3) Por the purposes of sub-principles (1) and (2) herein, the following persons are an associate of a proprietor, other than a proprietor which is a charitable or benevolent organisation: (g) where the proprietor is a corporation, any trustee of a trust of which a relative of any officer or member of the proprietor is a vested or contingent beneficiary; 8. Loadings for Income Lost or Gained (1) The Secretary shall, subject to sub-principles (2) to (6) inclusive herein, in ee ee determining a scale of fees, take into account as a loading, any income from fees which has been foregone or gained by a nursing home proprietor due to the period of delay between a cost being incurred or saved and the determination of a scale of fees in which the cost incurred or saved is taken into account. (10) Where, for the first time after a person has acquired the business or undertaking carried on at a nursing home, the Secretary is determining a scale of fees in relation to the nursing home, the Secretary shall take into account any loadings reflected in the scale of fees applying before acquisition." A determination of fees applicable to an approved nursing home is generally made on the application of the proprietor of that nursing home. Such an application is normally required to be in writing, in a form known as form NH19. Each year in July or August, copies of the form NH19 are distributed to the proprietors of approved nursing homes, with a request that those forms be completed and returned by the end of December in that year. A completed form will show details of expenditure incurred in the conduct of the particular nursing home during the preceding financial year. The applications are normally dealt with in the order in which they are received. Under s.42(1), an authorised person may inspect, make copies of, or take extracts from books, meee ee een one eon sein ee ye ' soe Fd rn er he wee tee pe cae es eg a Se tn ne er ete ee te ah an ae v te ort 7 , tr LS nS te ee ne documents or records on premises occupied by an approved nursing home that relate to the operation of those premises as a nursing home. Sometimes, this power is relied upon to verify the information given with respect to some items of expenditure in a form NH19. Generally, however, a determination of fees is made on the basis of the information provided in the form NH19, and any further information requested by officers of the department and supplied by the proprietor of the nursing home concerned. It is recognised that further determinations will be necessary from time to time, because of general increases in costs. Usually these increases result from changes in award rates of pay for nursing and other staff employed in the nursing homes. It is common for new determinations to be made, reflecting such general wage increases, without the examination of other items of expenditure which follows the submission of a form NH19. In cases where costs have increased, particularly those of wage increases which apply from particular dates, it is also recognised that a proprietor of a nursing home will have incurred costs greater than those allowed for in a previous determination, between the time of the wage increases becoming effective and the making of the next determination reflecting them. Such extra expenditure is taken unto account by way of positive loading in the new eee. sae a ? ome " ee my ee ee pone cee oe ge rae <== ee rt aa ne Ft BS determination. A calculation is made of the increased cost involved, and a decision is made as to the length of the period over which that increased cost should be recouped by the proprietor from the new fees determined. The new fees are therefore determined so as to allow the proprietor to recover the additional cost. When a form NH19 is submitted by a proprietor, it may reveal that certain items of expenditure estimated as appropriate in a previous determination of fees have been under-incurred by the proprietor. In other words, the proprietor may have spent less ona particular item of expenditure than was expected, and thus have made a gain by receiving the full fees determined, without spending all of the amounts which were estimated as appropriate in the calculation of those fees. In such cases, principle 8(1) of the principles determined by the Minister is applied in a subsequent determination of fees, by taking into account the notional cost savings from a previous period as a "negative loading". The total of all under-incurred expenses is established, and a decision is made as to the appropriate period over which the negative loading should be spread. The new fees are then determined, taking into account this calculation. In the present case, Naish Nominees Pty. Ltd. submitted a form NH19 showing its expenditure on the various seas . . ta ene a en ee eee . weet ' we - an wee ey een ope ee ee oe « . > a ~ arid ' v ¢ ras z . i" . 4 re ro . pew ene " 10. items required, in respect of the financial year 1984-1985. The form was forwarded on 3lst December 1985, and arrived in the Department of Community Services on 2nd January 1986. Because it was received later than the bulk of similar forms from other nursing homes, there was a considerable delay in dealing with this form NH1i9. In fact, 1t was not dealt with until the determination of 13th May 1987, the subject of this proceeding. This was after a series of letters of complaint from the applicant about the delay, and after the commencement of proceedings in this Court (in matter No. VG 106 of 1987) seeking an order of review in respect of the failure to make a determination. In the meantime, two determinations were made, taking into account known increases in wages. These determinations were made on 14th April 1986 and llth July 1986 respectively. Thus, when the applicant took over the business of Kenilworth on 15th July 1986, the fees which it was entitled to receive were those fixed by the determination of llth July 1986. The amount so fixed was $66.00 per day for ordinary care and $72.00 per day for extensive care. Neither the applicant nor Naish Nominees Pty. Ltd. submitted a form WNH19 in respect of the financial year 1985-86 prior to the end of 1986. At the time of the trial of this proceeding, such a form had still not been submitted. Instead, in March 1987, the applicant submitted a document entitled "Trading, Profit and Loss Statement as at 31 Dec. cE ee pe ne eee airhead ones we eee Se eaeaied Fre eee ee re ee 2 Fe "wo a tn a ae 1l. 86". Apparently this document purported to set out the results of the applicant's operation of Kenilworth over the period from 15th July 1986 to 3lst December 1986. In calculating the fees the subject of the determination of 13th May 1987, Mr. Tratt took into account both positive and negative loadings. The positive loadings resulted from award wage increases, and increases in certain other costs, most of which had occurred during the period of the applicant's conduct of business of Kenilworth. The negative loadings resulted at least for the greater part from under-incurrences of expenditure in the financial year 1984-85, as disclosed in the Form NH19 submitted by Naish Nominees on 3lst December 1985. The negative loadings were therefore calculated on the basis of under-incurrences occurring prior to the applicant's acquisition of the business. To a small extent, the positive loadings so arose. The negative loadings amounted to a sum substantially greater than the positive loadings. Mr. Tratt subtracted the positive loadings from the negative loadings, thereby arriving at an overall negative loading figure of $102,333.48. He determined that it was appropriate to spread this negative loading over a long period, so that it would expire on 26th June 1994, and therefore be written off at the rate of $39.36 per day. This figure was used in the calculation of fees for the nursing home, with a resultant determination that the fees should be $66.00 per day for ree cer wen ee ap ee roe ee ge eee ee ee ee 2 BT " ,45 ee or rire apt ne te ene et ee ee oi ar ae * - . 12. ordinary care and $72.00 per day for extensive care, the same figures as those which had applied previously. On two subsequent occasions, further determinations have been made to correct acknowledged errors in the determination of 13th May 1987. The first of these was a a determination of 15th June 1987, which amended the negative loading balance to $81,690.12, and altered the date by which it was to be fully recouped to 9th December 1991. The second was tendered at the trial of the proceeding, and made a further adjustment, reducing the balance of the negative loading to $70,846.82, to be spread over the period until 3rd dune 1991, Each of these subsequent determinations involved corrections in the calculations of the determination of 13th May 1987. Neither affected the rates at which fees were determined for the conduct of the nursing home business at Kenilworth. The application for an order of review contains a large number of grounds of attack upon the subject determination. Not all of these grounds were pursued. In the end, the applicant's case rests largely on two fundamental points. The first point involved the characterization of the process of calculating a negative loading as determining that a nursing home proprietor is liable to the Commonwealth woman: Raa ties eree , _ "oe 13. in a specified sum and taking steps to recoup that sum from the proprietor. It is said that such a process lies wholly outside the process of fixing fees for a nursing home. The second fundamental argument was that, whatever negative loadings might be applied to a nursing home proprietor on the basis of its past savings of expenditure, to determine the fees for a new proprietor by reference to the savings made by a previous proprietor is to introduce considerations foreign to the process of determining fees. Both of these arguments were relied on to attack the validity of the principles determined by the Minister, and to challenge the construction of the principles on which the determination was based. In addition, it was argued that the principles are so uncertain in relevant aspects as to be invalid. If all of these arguments were to fail the applicant contended on a number of grounds that the delegate of the Secretary acted so unreasonably in applying the principles to the particular facts that the determination of 13th May 1987 could not constitute a valid exercise of the power to make a determination. The first major question which arises is as to the validity of the principles determined by the Minister, a : T -- —— me et pees te ee = ee eee Fo en gp eee ees ro te — 14. pursuant to s.40AA(7) of the National Health Act 1953. Argument took place as to whether the Court is precluded by authority from determining this question in favour of the applicant. In Alexandra Private Geriatric Hospital Pty. Ltd. v. The Commonwealth (1987) 61 A.L.d.R. 171, the High Court dealt with a challenge to the validity of the scheme of fixing fees for approved nursing homes. The High Court decided several questions of constitutional power to legislate for such a scheme. It also dealt briefly with the question of the validity of the principles. At pp. 176-177, the Court said: "Finally, it was argued that even if the main attack on the legislation failed the principles ought to be struck down as ultra vires the statute. But enough has been said in the description of the scheme to show that the amending Act No. 35 of 1983 provided ample warrant for the principles that were subsequently made. We note that Smithers J. dismissed a similar argument in Schroeder. In the result the plaintiffs fail on all issues. Both the Act and the principles, in their general conception and in their essential provisions are within power and valid." The High Court judgment was delivered after a Full Court of this Court had reserved judgment in Octet Nominees Pty. Ltd. v. Grimes (No. VG 365 of 1986). The Full Court in that case received further submissions in writing on the effect of the High Court decision. In those submissions, it was apparently argued that the High Court had pronounced only upon the sept ee og ee pees sees tae sre spree er ee vee , A> a = operon op Ww a re a n 15. principles "in their general conception and in their essential provisions", and that this decision did not preclude a suggestion that a specific provision of the principles was ultra vires the Act. As to that argument, Northrop J. said, in Octet Nominees Pty. Ltd. v. Grimes (5th June 1987, not yet reported), at p. 4 of his Honour's reasons for judgment: "Having regard to the judgment of the High Court, the contentions made by counsel for Octet, who, incidentally, was one of the counsel appearing for the Alexandra Private Geriatric Hospital Pty. Ltd. in the High Court proceedings, that the Principles are ultra vires the Act, are rejected." In the same case, Sheppard J., at p.17 of his Honour's reasons for judgment in the same case, said: "In my opinion the decision of the High Court in the Alexandra Hospital case puts paid to the first two submissions. These challenge the validity of some of the principles which have been formulated." His Honour examined at some length the High Court judgment, and the judgment of Smithers J. in Schroeder Holdings Pty. Ltd. wv. Grimes (18th February 1986, unreported), which was approved by the High Court, and rejected an argument similar to that advanced in the present case, although relating to different provisions of the principles. In my view, the we ee eet ee . v4 ¢ ree ; 1 ~ cree erent oe a Lo . ~ a as me aumeicd ee ee te re Tee ET VE EE Re RT PTET NY et A TR TSE A De BPM YO RI AA TA CT I Da Te 16. decision of the High Court in the Alexandra case, and the decision of the Full Court of this Court in the Octet case, both of which are binding on me, preclude me from upholding the argument that the principles are ultra vires the Act. Both of the features complained of inthe present case, namely the determination of fees by taking into account as a loading gains or losses under previous determinations, and the inclusion within the definition of "proprietor" in principle 2(1) of a reference to an associate as defined, must be regarded as being within the "general conception" and "essential provisions" of the principles. Loadings are intended clearly to be an important element of the calculation of fees according to the principles. The definition of "proprietor" is applicable throughout' the principles, unless a contrary intention is shown. These features of the principles can hardly have escaped the attention of the High Court when it reviewed them. Even if I am wrong in concluding that authority requires me to hold that the principles are valid, an independent examination of them leads to the same conclusion, The arguments to the contrary may be dealt with briefly. Counsel for the applicant contended that, because the statutory definition of "proprietor" refers only to the person who owns the business or undertaking carried on at a nursing home at the present time, it does not lie within the Minister's power to adopt the expanded definition of eer ow woos Hy "oe on ee 17. "proprietor" which appears in the principles. Counsel was forced to concede that the fact that one definition is in broader terms than the other was not conclusive on this question. If the Minister could produce the same result in another form (for example by a separate provision that some aspect of the principles apply to any person falling within any of the categories which make up the definition of "associate" in principle 2(3)) then it was open to him to do so by means of an expanded definition. Nothing in the Acts Interpretation Act 1901 requires that terms used in a statutory instrument bear the same meaning as in the statute under which the instrument is made; s.46(a) of that Act allows for a contrary intention. The question must therefore be dealt with as one of substance, namely whether the Minister, in formulating the principles, can formulate them in such a way as to permit the various classes of persons who are associates to be treated as proprietors. This question requires an examination of the powers of the Minister in determining the principles. In the same way, the question whether the principles can permit the use of negative loadings in determining fees involves an examination of the Minister's power to determine principles. Mr. Monotti contended that the National Health Act 1953 provides only for the determination of fees appropriate at a particular time. His argument was that such a power precluded the reopening of ae ree ho. ap a wwe oes = a 2 rr rere ne Arend nr, 18. earlier determinations, the ascertainment of existing liabilities and the making of arrangements for the recoupment of those liabilities. It is unnecessary, however, to characterise the process of negative loadings in this fashion. Mr. Monotti conceded that, in determining a_ scale of fees, regard could be had to a comparison between the estimated expenditure on which a previous scale of fees was determined and the actual expenditure in the particular nursing home under that scale of fees. Once this concession is made, the question becomes one of the manner in which actual history is taken into account. On the one hand, it may be taken into account simply by adjusting estimates of expenditure items for the future in some imprecise manner, by reference to earlier actual figures. On the other hand, it can be taken into account in a precise manner by calculating the exact amount of expenditure under-incurred in a previous period, and by treating the proprietor of the nursing home as in possession of money which has been received by way of approved fees, but has not been expended as contemplated, and is therefore available for expenditure in addition to the fees the subject of the instant determination. Such a process involves no reopening of earlier determinations, in the sense of reducing the fees applicable under those, no calculation of liability (it being conceded by Mr. Downing that a nursing home proprietor is under no liability to repay to the Commonwealth expenses under incurred) and therefore no question of recoupment. Certainly, officers of the at ' = cr 19. department who gave evidence tended to use the language of recoupment. The reality, however, is that a nursing home proprietor who has failed to expend the estimated amounts allowed for in a previous determination of fees will be required to expend the unexpended amounts in conducting the business of the nursing home under a subsequent scale of fees. It has been recognised that a relevant factor in the determination of fees for an approved nursing home is the protection of the revenue against inflation of the level of fees; see the passage from Schroeder Holdings Pty. Ltd. Vv. Grimes (Smithers J, 18th February 1986, unreported), quoted in Alexandra Private Geriatric Hospital Pty. Ltd. v. The Commonwealth (1987) 61A.L.3.R. 171, at p. 176. The Act itself, in s.40AA(7B)(b) requires the Minister to have regard to the interests of patients in determining the principles. The scheme, of course, is a scheme designed to remunerate the proprietors of nursing homes. In determining a scale of fees, therefore, the Secretary or his delegate is attempting to strike an appropriate balance between the interests of the patients, the proprietor and the Commonwealth as the provider of funds through benefits which are paid to patients in approved nursing homes. Section 40AA(7B)(c) of the Act requires the Minister to have regard to any other matters which he m= 20. considers to be relevant, in formulating the principles. There can be little doubt that the Minister may properly consider to be relevant factors which bear upon the interests of the patients, the interests of proprietors, and the protection of the revenue. Mr. Monotti attempted to argue that the interests of patients in having high standards of patient care set and maintained are adequately protected under other provisions of the Act, particularly s.40AA(6)(d), and the other provisions earlier referred to concerning the revocation or suspension of approval of a nursing home. It was put that these provisions indicate that questions of standards of patient care are to be dealt with in ways other than by the fixing of fees, and that therefore they are not to be treated as relevant matters for the purposes of the formulation of the principles. It would be a drastic step indeed to hold that the Minister, in formulating principles, is bound to ignore questions of patient care. I do not think that the structure of the Act is such as to confine the Minister only toa consideration of the interests of the proprietor and the revenue and the financial interests of patients. Even if it were, the features of the principles complained of in the present case would still be valid. In formulating the principles, the Minister quite properly may consider that it is undesirable, in the interests of the revenue and of the patients, that a nursing home proprietor should receive fees determined on the basis " 7 TT ae) gee ne ep erty eae LNT POT ate eee al. of certain levels of estimated expenditure, and then should be entitled to expend less than those estimated levels and to retain the difference. Such a system would encourage nursing home proprietors to cut costs, and thereby to cut standards of care, as a means of improving profits. Further, if the actual expenditure of a past proprietor was required to be ignored, transfers of nursing home businesses would he encouraged, for the purpose of eliminating that very consideration. For instance, a proprietor could spend generously in one financial year, thereby pushing up the estimates of expenditure relied upon ' in the next determination of fees, and then save vigorously in the succeeding year, so as to retain the maximum possible amount of fees received. Before any further determination were made, a transfer to another proprietor could be effected, so as to remove from consideration the under-incurrences of expenditure by the first proprietor. If the two proprietors concerned were companies, controlled by the same persons, there would be much scope for abuse. It is open to the Minister, in formulating the principles, to consider that such occurrences are undesirable in the interests of the patients and the revenue, and therefore to formulate principles which would prevent such occurrences, by requiring the taking into account of negative loadings calculated in accordance with previous savings, and applying those negative loadings to a new proprietor which bears the necessary degree of relationship to an earlier proprietor. ld ceria ital eae nd ay . : ONE Pe ee ' oy ' ~ z - 22. Such an approach in no way removes the determination of fees from its essential function as a present determination of future fees. So to describe the process of determination does not answer the question whether and to what extent past factors may be taken into account in the determination. In my view, the formulation of the principles in their present form is fully justified by the provisions of the National Health Act 1953. Such a conclusion necessarily involves a finding that the provisions of principle 8(1)}, with respect to negative loadings, are sufficiently certain to be valid. Mr. Monotti based his argument in this respect on the use of the word "loading", the reference to "income...foregone or gained" and a comparison between that phrase and references to a "cost...incurred or saved". It is true that these terms lack precision. That is not to say that they are imprecise to the extent that they should be treated as uncertain and ignored. The concept of a "loading" is well capable of being understood and the terms of principle 8(1) make it sufficiently clear that such a loading may be either positive or negative, that is either in respect of an incurring of a cost or a saving of a cost. The descriptions of such an incurring or saving as income foregone or gained are puzzling; they tend to direct attention away from expenditure and towards income, whereas in fact income will ae Fr eee ees Hye Ok eo pre ad .o z <a : 4, os wa ee oe 23. have cemained in accordance with the approved fees, and it is expenditure which will have been increased or decreased by comparison with the estimates. Nevertheless, in the context of principle 8(1) the meaning is sufficiently clear. The correct approach to subordinate statutory instruments is not to treat uncertainty as a ground for striking them down but to view the question of cetainty as an aspect of the inquiry whether a particular instrument is ultra vires. See King Gee Clothing Co. Pty. Ltd. v. The Commonwealth (1945) 71 C.L.R. 184, at p. 195, per Dixon Jd. (as he then was) and Parry Vv. Osborn [19551 V.L.R. 152, at p. 154. I am therefore of the view that principle 8(1) is valid, whether relied upon to justify positive or negative loadings. Questions of construction of the principles then arose. In the first place, counsel for the applicant contended that principle 8(1) does not permit the under~incurrences of expenditure of a previous proprietor to be taken into account in determining the fees approved for an existing proprietor, because of the presence of principle 8(10). That principle, so he contended, is a complete provision as to the application of loadings to a new proprietor, and restricts that application to existing loadings already reflected in the scale of fees, and to the making of a first determination of fees after an existing proprietor has become a proprietor. He relied upon the maxim expressio unius, exclusio alterius. That maxim is a useful sapeen ee eee roe my 24. guide, but not an absolute rule. The duty of a court is to construe a document having regard to the entirety of its terms. If it is plain on the face of principle 8(1), having regard to the definition of "proprietor" in the principles, that the Minister intended the actual expenditure of a past "associate" proprietor to be taken into account as a_ loading in determining fees, the presence of a particular provision such as principle 8(10) should not be held to detract from the general provision. In any event, however, I am of the view that principle 8(10) does not touch upon the area covered by principle 8(1). Principle 8(10) is designed to carry forward existing loadings, which have already been calculated under principle 8(1). It says nothing as to the calculation of loadings. It therefore leaves untouched the power found in principle 8(1). Some argument took place as to whether the word "proprietor" in principle 8{(1) should be construed in accordance with the definition of "proprietor" in principle 2¢1). That definition is applicable "unless the contrary intention appears". The only words relied upon as disclosing a contrary intention are the words "nursing home" which precede "proprietor" in principle 8(1). It is somewhat difficult to understand why these words have been included. It is equally difficult to understand, however, how they can be taken to be evidence of a contrary intention, so as to exclude from the operation of principle 8(1) any reference to meee ae Oe eters ee Seer er eee ote an earn gree =. _ . gy 25. an associate of the existing proprietor. In my view, the words are mere surplusage, and do not indicate such a contrary intention. It was common ground that, by virtue of principle 2(3)(g), Naish Nominees Pty. Ltd. is to be regarded as an associate of the applicant. Some attempt was made to argue that, at the time of his determination, Mr. Tratt did not have before him sufficient evidence to warrant the application of principle 2(3)(g), because the evidence disclosed only that he was aware that Naish Nominees Pty. Ltd. held its units on trust for "the Naish family". In my view, the evidence sufficiently discloses that Mr. Tratt was aware that the Naish family concerned was that of Erica Naish, and therefore that her relatives were beneficiaries of the trust of which Naish Nominees Pty. Ltd. was the trustee. Since Erica Naish is, as was known to Mr. Tratt, a director of the applicant, the elements of principle 2(3)(g) are and were established. On its proper construction, therefore, principle 8(1), in conjunction with the definition of "proprietor" in principle 2(1) and the provisions of principle 2(3)(g), were sufficient to justify the inclusion in the determination of 13th May 1987 of both negative and positive loadings, based upon actual expenditure of both the applicant and Naish Nominees Pty. Ltd. prior to that date, compared with 26. estimated expenditure in previous determinations. The only matters remaining to be determined concern the question whether Mr. Tratt acted unreasonably in the manner in which he applied principle 8(1), to such an extent that he failed to perform his function of determining fees for the purposes of s.40AA(6)(c)(i) of the National Health Act 1953. The first ground of unreasonableness suggested was the alleged failure of Mr. Tratt to consider any alternative to deducting the positive loadings from the negative loadings and dealing with the balance. The particular alternative put forward was to treat the positive and negative loadings separately, absorbing the former over a relatively short period and the latter over a long period. It was said that such an approach would have led to an increase in fees, although no precise calculations were put before the Court. This contention may be disposed of simply. Even if Mr. Tratt were obliged to consider the suggested alternative, there is no evidence that he failed to consider it. He was not asked in cross-examination any direct question as to his consideration or failure to consider a short period of absorption for the positive loadings, and a longer period for the negative loadings. His evidence was that he did consider the question of separation, and took the view that the applicant derived the maximum benefit from setting off the positive loadings against the negative, as it received the full benefit of the positive loadings immediately. From this oe ~~ er, - ate oe 27. evidence, I draw the inference that Mr. Tratt did turn his mind to other ways in which the loadings might have been dealt with. His choice of a particular method of dealing with them cannot be reviewed. The second area of unreasonableness relied upon was the use by Mr. Tratt of figures from the 1985 Form NH19, without taking steps to update those figures. This argument carries with it an element of unreality. In the determination of 13th May 1987, was a paragraph which read: ""T have noted that you have not, as yet, submitted a Form WNH19 in respect of the 1985/86 financial year. Your urgent submission of this Form would be appreciated." That form had not in fact been submitted, although information necessary to prepare it was available to the applicant, because of its possession by Mr. Menere, who was the manager of Kenilworth at all relevant times. The applicant's failure to submit such a form deprived Mr. Tratt of the opportunity to ascertain the actual costs of running Kenilworth in the financial year 1985-86. Further, the determination does not adopt 1984-85 figures for expenditure without more. There is included an allowance at the rate of seven percent per annum, to cover inflation. This allowance is calculated from lst July 1986, to the date of the I tr aay re penne ene pee tee eee ooo 28. determination, and is allowed ona continuing basis. It cannot be assumed that all items of expenditure would have increased between successive financial years, nor can any assumption be made as to how much any increase would have been. It was therefore appropriate for Mr. Tratt to do as he did with respect to the 1984-85 expenses. There was evidence that, at the time when he made the determination, Mr. Tratt did not know that there was on the department's file the profit and loss statement for the period 15th duly to 31st December 1986. Lacking such knowledge, he did not take the figures in that statement into account. This was the third ground alleged of unreasonableness on the part of Mr. Tratt. In order to succeed on this point, the applicant must prove that Mr. Tratt was obliged to take into account the figures in that statement. In my view, no such obligation existed. Mr. Tratt gave evidence, which I accept, that figures in respect of any period less than a year may be misleading. An excellent example of the validity of this proposition is found in the evidence itself. The amount shown as expended on food for the period from 15th July to 31st December 1986 was $15,479.00. The amount expended on food for the period from 15th July 1986 to 30th June 1987 was $22,580.00. Simply to have doubled the figures in the profit and loss statement for the short period would have been to give a misleading picture of the actual costs of operation of Kenilworth. In oe ene es nr ernest relia ca ene diadicadiaca halteecammeet ridiemadtamndict deen teamenticataliiete 29. addition, the statement supplied was not in the form of a form NH19, and did not necessarily show figures for various items of expenditure broken down in the same manner as is required for a form WNH1i9. For these reasons, the statement could not be regarded as a reliable guide to the costs incurred in the operation of Kenilworth, and Mr. Tratt was not obliged to take it into account. The fact that limited information is relied on at times in the case of new proprietors or new nursing homes does not affect this conclusion when fees for an established nursing home are being considered. The fourth contention as to unreasonableness was the failure to allow the whole of an actual increase in the costs of contract laundry, shown in the 1985 form NH19. The determination of 13th May 1987 included the following: "Contract Laundry In accordance with Principle 3, 6 and 47 the amount claimed for this item has been disregarded and a reasonable allowance included in the fee structure. By letter dated 14 April 1986 you were advised that further consideration would be given to contract laundry expenditure for 1983/84 on submission of: i) invoices from the laundry company which actually does the work; and ii) information as to how Concord is cheaper compared to alternative contractors. meee, wee ee on en oe . a ge ——~- we we ee eee AO re tae ere ce ene We peters ee eT . > toe te aha 30. To date, this information has not been submitted to the Department. You are advised that further consideration will also be given to the amount claimed for 1984/85 on receipt of the above information." The actual amounts expended in respect of contract laundry were paid to Saitta Pty. Ltd., which conducts a contract laundry service for nursing homes under the name "Concord". In his evidence, Mr. Menere stated that this service is in the nature of a buying group service, enabling a number of nursing home proprietors to band together and obtain cheaper prices for laundry. Having regard to the connection between Saitta Pty. Ltd. and the applicant, it was reasonable for Mr. Tratt not to accept the assertion that a particular amount had been expended on contract laundry without further evidence of the kind sought. Mr. Menere responded to this in the witness box by saying, first, that the evidence sought was available in the office of Saitta Pty. Ltd. if officers of the department cared to exercise their right to inspect it, second that such officers had infact inspected the invoices concerned, and third that the information concerning costs of the contract laundry service had been made available to officers of the department on behalf of other nursing home proprietors. The failure of the applicant to make available the material requested is difficult to understand, even if all that Mr. Menere says is correct. On his evidence, invoices for contract laundry were monthly, so that only a dozen or thereabouts were involved. It would not have been a menves te § Relesitehcestiendlinoetanmiandy arcnenemmredemaeneatalieetacett et eter ye I 31. difficult for the applicant to obtain from Saitta Pty. Ltd. evidence of comparative costings of the laundry service. Tt is certainly not for officers of the department to seek out information upon which a determination of fees might be made; it is anursing home proprietor which applies for such a determination, and which must supply the information the subject of a reasonable request. It has not been shown that the request made with respect to contract laundry was unreasonable. The final matter raised was the question whether Mr. Tratt was obliged to take into account evidence that the applicant could not run Kenilworth otherwise than at a loss. An attempt was made to place such evidence before the Court, although it was recognised that figures to 30th dune 1987 were not available to Mr. Tratt at the time he made the determination. Even given this problem, however, the applicant is bound to fail on this point. The figures which were placed before the Court indicated that, if amounts expended as interest and other fees on borrowed capital were excluded, the applicant was trading at a profit with respect to Kenilworth. Mr. Menere did attempt to construct a loss by claiming to include certain provisions for long service leave and sick leave, which were not included in the actual figures. He conceded, however, that actual expenditure on long service leave and sick leave was taken into account when payments were made for these items. To allow a provision as 32. well would have amounted to double counting over a long term. Tam therefore satisfied that, aside from the cost of borrowing capital, the applicant is capable of trading at a profit within the fees fixed by the subject determination. The actual cost of borrowed capital is not allowed in the fixing of fees; instead, an allowance is made for reasonable profit, which is required to include interest and rent. No doubt because of the decisions in earlier authorities, no attempt was made to challenge this proposition in the present case. It is open to the applicant to seek a review of the determination by the Minister, and to urge the Minister to depart from the principles on such review. This is the proper course for the applicant to take if it wishes to have the cost of borrowing capital to acquire Kenilworth taken into account. For these reasons, the application must be dismissed with costs. Appearances Counsel for the applicant: Mr. B. Monotti Instructing solicitors: Lloyd & Lloyd. Counsel for the second and third respondents: Mr. R. Downing. Instructing solicitors: Australian Government Solicitor. — we epee ene arr a * 33. Dates of hearing: 20th, 21st, 24th, 25th August, 1987. I certify that this and the preceding thirty-two (32) pages are a true copy of the Reasons for Judgment of his Honour Justice Gray. Dated: JSMh Sepiauber 98+ Associate: Mend nog ,