Not care home fees, but tensions between Henry II and his archbishop led a character in TS Eliot’s Murder In The Cathedral to ask: ‘What peace can be found/To grow between the hammer and the anvil?’ But while a dispute over Newcastle City Council’s approach to care home fees has so far prompted no physical bloodshed, the council did recently find itself between hammer and anvil in the Administrative Court at the suit of Care North East – an unincorporated association representing care home providers in the council’s area. The decision in question was R (Care North East Newcastle) v Newcastle City Council [2012] EWHC 2655 (Admin), judgment in which was given by Judge Gosnell on 18 October.

Under the National Assistance Act 1948 and the National Health Service and Community Care Act 1990 relevant authorities have responsibilities for providing residential accommodation for adults who ‘by reason of age, illness, disability or any other circumstances are in need of care and attention… not otherwise available to them’. These responsibilities can be met by arrangements with external providers. Statutory guidance requires councils, when setting the usually expected costs of such accommodation, to have due regard (among other things) to the actual costs of providing care and other local factors. Non-statutory guidance indicates that ‘contract prices should not be set mechanistically but should have regard to providers’ costs and efficiencies, and planned outcomes for people using services’.

The claimants challenged the council’s decision to fix the rates payable to care home providers for 2012/13 and to require providers to sign a contract agreeing to these rates by a specified date in default of which no new residents would be placed with them. The claimants succeeded in each of the following contentions, namely that the council:

  • Failed to inform itself of the costs to care home providers of providing services before setting its rates and so acted contrary to the relevant guidance;
  • Acted irrationally and/or failed to take into account relevant considerations in reaching its decision;
  • Failed to comply with its duties of consultation; and
  • Imposed contractual discounts on providers at lower than the ‘usual rate’ and refused to place residents with any provider who refused to agree the discount, and in doing so acted unlawfully.

In essence the council had applied a costing model previously formulated by PricewaterhouseCoopers (PwC), but, as the judge put it, the council had ‘used the PwC report as the means to ascertain the actual cost of care but populated it in a misleading way by using figures for inflation which are inaccurate, by making a deduction for efficiency savings which was not justified and by completely stripping out or almost stripping out return on equity which would be bound to have implications for the sustainability of the care homes market’.

The judge did note that the council had to balance fairly its duties in providing the statutory services with its fiduciary duty not to waste public money. And the court should not generally be concerned with micromanagement. However, in the circumstances, in respect of grounds one and two, the court found that the council had (contrary to relevant guidance) failed to inform itself of the actual costs to contractors of providing care home services before setting its rates. The council had also acted either irrationally or in disregard of relevant considerations in stripping out return on equity and imposing a 2% efficiency saving.

There was also a failure by the council to consult properly (per ground three) as required at public law (see R v Brent London Borough Council, ex parte Gunning [1985] 84 LG4 168). The judge noted that the views of the consultees were not accurately reported to the decision-makers, they were asked only a limited number of questions and the basis for the decision-making was disclosed only after the decision had been made. Regarding ground four, the council had abused its dominant position in refusing to place new residents in any care where the discount sought by the council was not agreed.

While remedies on judicial review are discretionary, the court considered that, in circumstances where the council had made a procedurally unfair decision in the light of unfair consultation (and which in part had been enforced unfairly), ‘it would offend justice if there were no remedy’. The relevant decision was therefore quashed and there was a declaration that the council may not refuse to place residents with providers if the provider declines to accept placements at rates discounted from the usual ones without agreement. The council would also be ordered to reconsider its decision as to fixing rates.

Local authorities are clearly in an extremely difficult financial position and attempting fairly to achieve the squared circle of good quality services at an affordable but commercially sustainable rate is no easy feat. Whilst the council did seek leave to appeal it appears from north-east newspaper, The Journal, that this has now been refused, apparently leaving the council disappointed and considering its options.

According to the paper, Care North East said: ‘It is way past the time when the council should cease this pointless exercise of pretending that the costs of care are not what they are.’

What is ultra vires?

Clearly (by way of translation from the Latin) this means beyond an organisation’s powers. The problem though is that ultra vires can mean different things in different contexts. And the meaning can shift depending on whether the organisation and its relationships are governed by private or public law.

This came up for review in the Court of Appeal on 13 November in Charles Terence Estates Limited v Cornwall Council [2012] EWCA Civ 1439. Essentially, Cornwall Council was seeking to disengage from what it considered to be over-expensive private law leasing arrangements entered into by predecessor authorities under housing functions. Therefore, on the model of Credit Suisse v Allerdale Borough Council [1996] 4 All ER 129 (where the council had successfully pleaded its own absence of powers to escape a £6m guarantee liability to the Credit Suisse bank), Cornwall argued that it had (through the actions of its predecessors) breached its fiduciary (trustee) duty to the public purse. Consequently, the council contended that the leases in question were void at law. While this worked at first instance, it failed to cut it in the Court of Appeal. The court found no relevant substantiating market evidence, and in any event the facts had failed to reach the egregious threshold notable in leading cases in this area.

There was in any event a key distinction in the application of ultra vires in public and private sector contexts. In the private sector context a transaction has been held to be wholly void only when it is outside the company’s capacity. However, despite Anisminic Ltd v Foreign Compensation Commission [1969] 2 AC 147, which held that all categories of public authority ultra vires resulted in the decision being declared void, the public authority situation is in practice much more nuanced in its treatment. Therefore, since in the instant case Cornwall had not lacked capacity (per Credit Suisse), the lease arrangements should stand.

Cornwall Council was unhappy and sought leave to appeal to the Supreme Court to try and disentangle from lease liabilities of some £4.5m. However, the Supreme Court has just refused leave to appeal. Fairness can often be in the eye of the beholder. And what seemed unfair to the council no doubt appeared eminently fair to Charles Terence Estates, which had expended resources on concluding an open market bargain. So the uncertainty is now over and the leases in question remain lawful.

Dr Nicholas Dobson is a senior consultant with Pannone specialising in local and public law. He is also communications officer for the Association of Council Secretaries and Solicitors