Re Sean Investments Pty Limited v the Honourable Michael John Randal Mackellar, the Minister of Health of the Commonwealth of Australia [1982] FCA 139 (26 July 1982)

FEDERAL COURT OF AUSTRALIA

Re: SEAN INVESTMENTS PTY. LIMITED
And: THE HONOURABLE MICHAEL JOHN RANDAL MacKELLAR, THE MINISTER FOR STATE FOR
HEALTH OF THE COMMONWEALTH OF AUSTRALIA
No. G177 of 1981
Administrative Law

COURT

IN THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES DISTRICT REGISTRY
GENERAL DIVISION
Bowen C.J.
Fox J.
Franki J.

CATCHWORDS

Administrative Law - Judicial review - Exercise of Minister's powers - Determination of Scale of Fees applicable to approved nursing home - Regard to costs necessarily incurred - Width of discretion - Whether improper exercise of power.

National Health Act, 1953, ss.6, 40AA, 40AD, 40AE

Administrative Decisions (Judicial Review) Act, 1977, ss. 5, 13.

HEARING

SYDNEY
26:7:1982

ORDER

The appeal be dismissed with costs.

DECISION

This is an appeal from a decision of a judge of this Court (Deane J) (reported at (1982) 38 A.L.R. 363) in which he dismissed an application by the appellant under the Administrative Decisions (Judicial Review) Act, 1977. The application related to a decision by the respondent notified on 2 October 1980 and made under s.40AE of the National Health Act 1953 (the Act) in which he determined the maximum fees chargeable by the appellant for nursing home care for qualified nursing home patients in the approved nursing home conducted by it (see s.40AA(6)(c) of the Act). The home was called Rockdale Convalescent and Nursing Home, and in some of the relevant correspondence Mr. P. Pembroke (since deceased) is treated as its proprietor.

The application under the Judicial Review Act was made in respect of the scale of fees determined as operative from 1 December 1979, and was expressed in negative terms, as relating to the part of the application for fee increase which, in effect, but not in terms, the Minister disallowed:

"Application to Review the decision of the Respondent that the fee scale presently approved for the Rockdale Nursing Home for 1, 2 and 3 bed wards from 1 December, 1979 should not be increased by the amount of $0.23 per bed day."

The letter from the Minister notifying this determination also dealt with an application for the year commencing 1 December 1978. It is convenient to set out the whole letter:

"I refer to your appeals under section 40AE (2) of the National Health Act in respect of fees for Rockdale Nursing Home for the years commencing 1 December 1978 and 1 December 1979.
I have now recieved and considered the report of the Nursing Homes Fees Review Committee of Inquiry for New South Wales on the above appeals, and have decided that the fee scale presently approved for the Rockdale Nursing Home should be increased by the amount of 17 cents per bed day from 1 December 1978 for all wards, and by the further amount of 23 cents per bed day from 1 December 1979, for 4 bed wards only.
In making my decision, I have had regard to costs necessarily incurred in providing nursing home care and accommodation, as I am required to do under section 40AA(7) of the National Health Act. I have also had regard to the fact that had the 23 cents per bed day been applied to the 1, 2 and 3 bed wards, the resulting fee would have been unreasonably high.
I have instructed my Department to implement my decision as soon as possible. I have also written to Murphy and Moloney, Solicitors, regarding the continuation of loadings after 30 November 1980."

The applications to the Department were made because of increases in rental payable by the applicants under an escalation clause in the lease of the premises to them, the increases taking effect on the dates mentioned.

In order to explain the last paragraph of the letter of 2 October 1980, which we have set out, it is necessary to go back to a determination in respect of the year commencing 1 December 1977. An application for an increase in fees for that year had been refused (in whole or in part) because the rental increase was regarded as "unreasonable". This ground for refusal met with a successful application to the High Court for a writ of mandamus directed to the Minister (Re Hunt; ex parte Sean Investments Pty. Ltd. [1979] HCA 32; (1979) 53 A.L.J.R. 552). The High Court pointed out that s.40AA(7) required the Minister to "have regard to costs necessarily incurred in providing nursing home care in the nursing home" and that "reasonable" was not the same as "necessary"; a wrong test had been applied by the Minister. Thereafter, the Minister considered the matter further, and, in accordance with s.40AE(4) referred it to the Nursing Homes Fees Review Committee of Inquiry for New South Wales. The Committee only considered the rental aspect. On 18 January 1980 it recommended an increase be granted retrospectively to 1 December 1977. It added that "recovery of the arrears to the date of approval of the increase, to the extent that this has to be met by patient charges, be spread over the period of 3 years from that date". Apparently the Minister's decision was notified to the applicant on 12 March 1980, but the notification is not in evidence, and we do not know what it said. He seems to have allowed the increase of 44 cents, but it is not possible to see what final figure was arrived at for a "loading", as the retrospective adjustment has been called. It was apparently agreed, then or soon after, that the loading should be spread over 3 years from 1 April 1980, continuing beyond 30 November 1980, when the then current lease was to expire.

The Committee (constituted by the same members as before) conducted a later hearing in relation to the fees for the next two years. There had been successive rental increases for each of those years. The Committee again only considered the amount of rental; other adjustments, if any, were presumably taken into account separately, probably without reference to the Minister. In each case the Minister accepted the report of the Committee, and notified his decision in relation to both years in the letter of 2 October 1980 already set out.

Although the function of the Minister is to "confirm or vary the decision of the Permanent Head" (s.40AE(3)), we do not in relation to any year have a copy of a determination by the Permanent Head or his Delegate (see s.6(2) of the Act), or any knowledge of what it was.

As we have already noted, the challenge is in terms to the Minister's failure to allow 23 cents extra for 1, 2 and 3 bed wards. This form of presentation tends to be misleading; the proper subject of the intended challenge is the Minister's determination. In strictness, this should have stated a scale of fees (s.40AA(6)(c); s.40AD(1)(b)) although the resultant scale was apparently obvious to all concerned. What he did do, and all that he did, was to allow an increase of 23 cents for 4 bed wards. This is the determination which is said to be, or involve, a legally incorrect use of power.

The Committee had said in its recommendation:

"After considering all of the factors discussed above, the committee has come to the conclusion that it would be proper for the fees scale presently approved for the Rockdale Nursing Home to be increased in relation to all wards to absorb the additional rental of 17 cents per bed day incurred from 1 December 1978. With regard to the further addition to the rental of 23 cents per bed day from 1 December 1979, the committee had concluded that it would be proper to further increase the fee scale in relation to 4 bed wards to absorb this additional charge, but that to do so in relation to the fees for 1 and 2 & 3 bed wards would raise the fees to an unreasonably high level in comparison with the general climate of nursing home charges."

The Minister stated the increase without referring to base figures, and, as we have said, we do not know what the scale was. The lack of proper form in the decision has not been the subject of debate, and we believe we should not make an issue of it. One consequence, however, is that it is not possible to see how the loading for the first year was brought into account, and whether it might have affected (perhaps wrongly) the final figures. We refer to this matter again.

Pursuant to s.13 of the Judicial Review Act, the Minister supplied findings on material questions of fact, and reasons, and these included the following:

Findings on Material Questions of Fact "It is Government policy as applied in the annual review of nursing home benefit levels that most nursing home pensioner patients should be able to pay nursing home fees and still retain some of the pension for discretionary spending. The amount of pension allowed to be retained at the relevant time of review by patients required to pay the 'standard fee' was $7.95. The Committee reported that if the rental increase retained would have been reduced to $4.17 per week in the case of a 2 & 3 bed ward and to a minus figure in the case of a 1 bed ward."
. . .
Reasons for Decision
. . .
"In exercising his discretion in this matter, the Minister had regard to the increase in rental costs as a cost necessarily incurred. However in considering a possible resultant increase to the nursing home fees, the Minister was also conscious that:
. . .
fees of comparable nursing homes were, on the advice of the Committee, generally lower than those of Rockdale Nursing Home even without allowing the increase;
the lessee's agreement to the lease arrangements was seen by the Committee as insufficiently constrained by normal commercial considerations and the Minister considers that costs included in nursing home fees should not exceed levels determined by normal market place forces.
in the absence of normal market controls on fees in the nursing home industry, it was necessary to ensure that excessive costs were not built into fees. Should rent increases be seen by the industry as not subject to challenge, then an upsurge in rent claims could follow. The Minister considers rent should not be regarded by owners as an unchallengeable avenue to additional profit, which patients have to provide in fees and the Commonwealth subsidise in benefits. Leasing could become a device to enable proprietors to circumvent the fee control policy - and realise a total return on investment which is excessive by market standards;
The proposed fee increases would in the view of the Committee have adverse effects on the financial wellbeing of the patients."

As argued before us, the challenge to the Minister's decision was based on s.5(1)(e) and s.5(1)(h) of the Judicial Review Act. It is instructive to set out the terms of these paragraphs in full:

5(1)(e) - "that the making of the decision was an improper exercise of the power conferred by the enactment in pursuance of which it was purported to be made;"
5(1)(h) - "that there was no evidence or other material to justify the making of the decision;"

An improper exercise of power under s.5(1)(e) is, under sub-section (2), to be construed as including a reference to a number of separate matters and of these the argument seemed principally to relate to two:

"(a) taking an irrelevant consideration into account in the exercise of a power;
(b) failing to take a relevant consideration into account in the exercise of power;"

In accordance with ordinary principles, the provisions of s.5 which we have set out are to be understood and construed by reference to the common law, but it is important, we believe, in a case such as the present, to appreciate that what is being dealt with is the scope of power, and legal limitations on its exercise, see The Queen v Australian Broadcasting Tribunal; Ex parte 2HD Pty. Ltd. [1979] HCA 62; (1979) 144 C.L.R. 45 at p.49). We emphasise this consideration because it seems to us that to a very large extent the challenge has been to findings of fact which are properly the province of the Minister and to the way in which he exercised his undoubted discretion. In the present case, when inviting us to find that there were circumstances vitiating the exercise of power, the appellant has the special difficulty that the decision not allowing part of the increase was part of the decision allowing some of it (which it is desired to retain) and was made on the finding of a Committee which dealt with the whole, and the previous year as well, in the one sitting, and the one report.

We do not think it is doubted that the rental increase was treated as a cost "necessarily incurred" within the meaning of s.40AA(7) and that the Committee and the Minister "had regard" to it within the meaning of that sub-section. Rather is it said that having had regard to the rental increase, the Minister nevertheless decided against its full acceptance. The increased rental was not wholly reflected in the new scale of fees; only $1,343 of $5,344 was allowed. The reasons given by the Committee were considered by the Permanent Head and commented upon in a memorandum to the Minister, which the latter endorsed "agreed". Presumably, the determinations appealed from were those of a Delegate of the Permanent Head. The Permanent Head expressed reservations about one ground of the Committee's decision, namely, that which showed that a full increase would take fees for all but the 4 bed wards outside what is departmentally known as the "standard fee". This is no doubt one measure against which fee scales can be tested, but is a crude one which can operate unfairly in particular cases. The next ground mentioned by the Permanent Head was related to fees for comparable homes in the locality. This again, as it seems to us, is one way of testing a contemplated scale, although doubtless a crude one in many cases. How apt it is in a particular case is a matter for the appointed authorities. The next matter commented upon by the Permanent Head is that the surplus cash left out of an age pension would be very small if the increase was applied to 2 and 3 bed wards, and the pension would be insufficient in the case of 1 bed wards.

The correctness in law of this approach is to be determined by reference to the purpose of the legislature, as determined from the language used in the legislation. When considering the purposes of the Act, it is almost always easier to decide, negatively, and in relation to concrete cases what is inconsistent with those purposes than to propound them positively. While wise administration would probably suggest that each nursing home be kept viable, we are unable to construct a purpose of the Act to the effect that adequate profit must be allowed in every case. This is evident from what we have already said. Also, we are unable to conclude that the ability of patients, that is to say, uninsured patients, to pay cannot be a relevant factor. This view is unaffected by the consideration that in the case of pensioner patients their income is largely, and in some cases wholly, what the Government decides to provide out of its funds. A major purpose of the whole scheme must be to provide nursing home care for indigent patients, and one would expect that fees, and subsidies, will be determined with this in mind.

A matter commented upon by the Committee and the Permanent Head was what has been called the "bad deal" aspect. What the Committee said was as follows:

"As the committee indicated in its previous report, there is also the question in the present case of a 'bad deal' element on the part of the proprietor in the negotiation of the escalation provisions of the lease. On this score also, it may well be regarded as unfair that the patients should be required to carry the additional rental."

The observation theron of the Permanent Head was an follows:

"The question of a possible 'bad deal' was canvassed at length in the Committee's earlier report, (copy attached) following the High Court decision. The Committee noted at that time the severity of the lease conditions, being written all in the owner's favour since 'the market for nursing homes was restricted and the lessor was consequently able to sustain his own terms'. The Committee also noted that the lessee had not sought written advice from the Department before entering into the lease, as to the policy applying in respect of rent increases. The Committee on that occasion concluded however that the rent increase of $10,012 should be allowed to pass into fees, since the resulting fee scale was not unreasonably high. It warned however that future rent increases might face a more difficult test."

The reasons of the Minister, already set out, were more positive on this matter. It was submitted that there was no evidence upon which the Committee's comment could be based. This was however a matter of judgment, the Committee had its own experience and expertise, and had considered the matter at length in dealing with the increase for the year commencing 1 December 1977. In its report leading to that increase it had this to say:

"On the question of the provision for annual revision of the rental in accordance with increases in the C.P.I., Mr. Pembroke said that his enquiries at the time satisfied him that this was a normal type of provision and he accepted it on this footing. He was concerned at the size of the first increase in 1977 and approached Mr. Grunfeld in the matter. Mr. Grunfeld, as he was entitled to, stood firm on the requirement, but did agree to meet the cost of some $2,500 for a new gas range.
The committee noted the apparent severity of the lease arrangements in that no provision was made for arbitration of disputes, nor for any extension or compensation at the end of the 5 year period of the lease. These points were answered on the footing that the market for leased homes was restricted and that the lessor was consequently able to sustain his own terms.
Evidence was produced to the committee in the form of expert statements and legal practice notes to show that the use of the C.P.I. as a reference for the revision of rentals was a fairly common feature of commercial lease arrangements entered into over the period in question. It is the committee's understanding, however, that this would normally have been as the guideline for a negotiation provision rather than an automatic formula as in this case."

We do not suggest that if the observation could properly be regarded as one of fact made without evidence, this would necessarily satisfy the terms of s.5(1)(h). That sub-section refers to there being "no evidence or other material justifying the making of the decision", and this is a wider matter. The question may then arise as to the distinction between facta probantia and factum probandum (see Hayes v Federal Commissioner of Taxation [1956] HCA 21; (1956) 96 C.L.R. 47 at p.51). There are also to be considered the specific limitations set out in sub-section (3):

"(3) The ground specified in paragraph (1)(h) shall not be taken to be made out unless - (a) the person who made the decision was required by law to reach that decision only if a particular matter was established, and there was no evidence or other material (including facts of which he was entitled to take notice) from which he could reasonably be satisfied that the matter was established; or
(b) the person who made the decision based the decision on the existence of a particular fact, and that fact did not exist."

There are a number of other attacks on the decision of the Minister, but in our view they relate only to questions of fact or the exercise of his discretion, involving no consequences which could vitiate the decision.

In our view, the Minister's treatment of the facts, and the judgments based thereon were all within the proper purview of his authority.

We mentioned earlier the question of how the loading for the year commencing 1 December 1977 was treated and what effect it may have had on subsequent calculations. It appears from the correspondence that there were also to be loadings in respect of the subsequent years, but it is not possible from the evidence to work out what exactly was done or was to be done. The matter was not the subject of a ground of appeal, and although raised before the trial Judge, was apparently not pursued before him.

In our opinion no reason has been shown for displacing the learned Judge's conclusions. The appeal should be dismissed, with costs.

I agree, but not without some hesitation, that the appeal should be dismissed with costs. I also agree with the reasons of Bowen C.J. and Fox J. and with the orders they propose.

The reality of the position is that the Minister allowed an increase in fees for four bed wards, but, largely because of the position of pensioners, he declined to allow increases for fees in one, two and three bed wards. The position of pensioners who might occupy these beds appears to me to have been the determining factor which caused the Minister to reach his conclusion.

In my opinion five fundamental points arise from the judgments of the majority in Re Hunt; Ex parte Sean Investments Pty. Ltd. [1979] HCA 32; (1979) 53 A.L.J.R. 552. They are that:
(1) The maximum fees must be determined in relation to the provision of nursing care in the particular nursing home under consideration.
(2) All costs necessarily incurred by the proprietor in providing nursing home care in the nursing home must be taken into account and weight given to them as a fundamental element in the determination.
(3) An allowance for profit may be made.
(4) Account may be taken of other considerations which tend to show that a scale of fees arrived at by reference to costs necessarily incurred, with or without a profit factor, is excessive or unreasonable.
(5) Within the scope of (1) to (4) the Minister has a wide discretion.

A difficulty arises in considering from whose point of view the reasonableness of the fees may be examined. Must the fees be looked at in relation only to the costs of the particular nursing home? Murphy J., in the minority judgment, said at p.556 that "The purpose of providing a government subsidy is to lower costs to the public".

I think there is much to be said for the view that, although some account may be taken of factors relating to the position of occupants, the income of pensioners, who were not specifically referred to in the sections of the National Health Act 1953 dealing with nursing homes, should not be the determining factor in fixing maximum fees which, after due regard is paid to costs necessarily incurred in providing nursing care in the nursing home under consideration, are not otherwise thought to be unreasonable.

However, the Minister has a wide discretion. The construction of s.5(1)(e) of the Administrative Decisions (Judical Review) Act 1977 ("the Act") is dealt with in s.5(2). I do not consider that it is sufficient for an applicant to show that the Minister gave undue weight to a particular consideration if that consideration was one relevant for him to take into account at all. It would be different if this resulted in the power being exercised in a way which fell within s.5(2)(g) or (h) or was otherwise an improper exercise of the power within the words of s.5(1)(e).

On balance, I consider that the Minister was entitled to take into consideration the position of pensioners. I do not think that s.5 of the Act extends to a case where the only basis for attacking the decision under review is that undue weight was given to a consideration to which it was permissible to give some consideration.