Re Schroeder Holdings Pty Ltd and Extaris Giselle Nominees Pty Ltd (Trading As "Balmoral Lodge Private Nursing Home") v Donald James Grimes (Who Is Sued As the Commonwealth Minister of Community Services) and Michael Henry Codd (Who Is Su [1986] FCA 31 (18 February 1986)

FEDERAL COURT OF AUSTRALIA

Re: SCHROEDER HOLDINGS PTY. LTD. and EXTARIS GISELLE NOMINEES PTY. LTD.
(Trading as "Balmoral Lodge Private Nursing Home")
And: DONALD JAMES GRIMES (who is sued as the Commonwealth Minister of State
for Community Services) and MICHAEL HENRY CODD (who is sued as the Secretary
of the Commonwealth Department of Community Services)
No. VG 192 of 1985
Administrative Law

COURT

IN THE FEDERAL COURT OF AUSTRALIA
VICTORIA DISTRICT REGISTRY
GENERAL DIVISION
Smithers J.

CATCHWORDS

Administrative Law - Judicial Review - decision fixing nursing home fees - requirements of natural justice - application of principles formulated by the Minister - effect of amendments to the legislation - purpose of the legislation - exercise of discretion by the courts.

Administrative Decisions (Judicial Review) Act 1977 s. 5

National Health Act 1953 s. 40AA

HEARING

MELBOURNE
18:2:1986

ORDER

1. The application be dismissed.

2. The costs including reserved costs be paid by the applicants.

Note: Settlement and entry of orders is dealt with by Order 36 of the Federal Court Rules.

DECISION

This is an application for relief pursuant to s. 5 of the Administrative Decisions (Judicial Review) Act 1977.

2. On 12 July 1985 the delegate of the Secretary of the Department of Community Services purporting to exercise the authority conferred by s. 40AA(6)(c)(i) of the National Health Act (the Act) 1953 made a determination of the maximum fees to be charged in respect of nursing home care of qualified nursing home patients at Balmoral Lodge Private Nursing Home, a nursing home approved under s. 39A of the Act. The home is approved for sixty beds. The applicants have been the proprietors of the nursing home business carried on at Balmoral Lodge since 9 December 1983. They are the lessees of the business premises. The rent payable under the lease was at the rate of $9,222.00 per month.

3. It is contended by Mr. Paterson Q.C., on behalf of the applicants, on a number of grounds, that the determination should be set aside. It is said that:

(a) the maximum fees determined on 12 July 1985 are so low
that at the rates so fixed the business cannot be
carried on except at a loss. It is said that the fees
as determined are so low that having regard to the costs
of conducting the home no reasonable person exercising
his discretion reasonably under s. 40AA(6)(c)(i) of the
Act could have made the determination in question;

(b) by the determination the delegate effected a substantial
reduction in the level of fees from the level previously
established by the delegate and did so without affording
to the applicants an opportunity to make submissions on
the issues. Accordingly, the determination was made in
disregard of the requirements of natural justice;

(c) the determination was based upon or incorporated earlier
determinations made by reference to principles
formulated by the Minister but which at the date of
those determinations were not legally in force or
applicable;

(d) that despite the circumstances that the rent payable by
the applicants was a rent established on an "arms
length" basis, and was shown to be reasonable as a
rental reflecting commercial reality, the delegate in
his determination of 12 July 1985 and in making earlier
determinations failed to have regard to the amount of
rent actually payable by the applicants; and

(e) that in making the determination of 12 July 1985 the
delegate acted in error in adopting the principles
formulated by the Minister pursuant to s. 40AA(7) of the
areas amended by Act No. 35 of 1983.

The Home as a viable enterprise

4. As to (a) above, it was not established on a balance of probability that the nursing home could not be carried on profitably if the income of fees at the home was that provided by the scale of fees determined by the delegate under s. 40AA (6)(c)(i) on 12 July 1985.
Natural Justice

5. As to (b) above the relevant circumstances appear to be as follows. In December 1984 Mrs. Moore, one of two directors who control the applicants, was advised by the Department that the scale of fees then applying in accordance with a determination taking effect on 15 December 1984 included a loading of $261.92 per day for 115 days which would expire on 8 April 1985. This loading was included in the fee as determined as a temporary loading to recoup the proprietor of the home in respect of expenditure previously incurred in conducting the home and not allowed for in the approved fee then applicable. It was well understood by Mrs. Moore, that the loading would expire on 8 April 1985. By 8 April 1985 an NH 19 return in respect of the year 1983 to 1984 had been submitted to the Department by the applicants. The NH 19 return is a return, ordinarily made annually by a nursing home proprietor to the Department, containing information relevant to the determination under s. 40AA(6)(c)(i) of maximum fees payable by patients of the home for the ensuing period. Also, at that time, it was understood that the management agency of the applicants was preparing the salaries and wages information requested by the Department on 18 January 1985, namely,

"(i) A summary of total actual hours worked
at your nursing home for all categories
of staff for each pay fortnight for the
period 9 December 1983 to 24 June 1984,
including a dissection between hours
worked by nursing home staff and hours
worked by agency staff.

(ii) A summary of wages paid for both nursing
home staff and agency staff for each pay
fortnight for the period 9 December 1983
to 24 June 1984, including a dissection
detailing any payments for sick leave,
recreation leave and any other leave
payments;

(iii) Any other information relating to
payment made for salaries and wages.
On submission of the above information, together
with certification by the proprietor that the
hours included in the summary were worked at the
nursing home and the costs claimed were paid to
the staff members named in the wages records of
the nursing home, an appropriate adjustment
relating to the variance calculated above will be
made to the approved scale of fees." (PDT 32 Folio
51)

In a telephone conversation with Mrs. Moore shortly before 8 May 1985, Mrs. Moore was advised by Mr. Ward, acting on behalf of the delegate, that the loading would not be removed on 8 May and that the fee structure would be completely reviewed when the NH 19 was processed and the salaries and wages details requested on 18 January had been received from the proprietors or Nasah. Nasah was an entity engaged by the proprietors in a managerial capacity. It was felt that it would be unreasonable to remove the loading when it might well be allowed again in the new fee structure.

6. It is clear that Mrs. Moore understood that the determination of the new fee was awaiting the submission of the salaries and wages information sought on 18 January 1985. This is to be inferred from the evidence of Mr. Tratt and the record made by Mr. Ward at the time. It is clear also from the evidence of Mrs. Moore in these proceedings. The following passages are relevant:

"Well, now, you knew right from the start that
long before this business about the
validation, you knew the department wanted to
see your papers, did not you; wanted details
- I will put it that way - wanted details of
what you were spending it on. You knew that
did not you, is not that the substance of the
matter? --- I was unaware when I went into
the nursing home, not of that particular
fact, but of the methods that they were using
to intimidate proprietors and I became well
---

HIS HONOUR: Cook, would you answer the question?
Could we have it again?

MR BLACK: You knew, did not you, from the very
start that the department was wanting to see
your papers to work out your details - to
work out whom you were paying and what you
were paying them for? Now - cutting aside
all the refinements of language, that was the
substance was it? --- Yes, yes." (p. 257 T)

. . .

MR BLACK: Mrs. Moore, when the loading - you
know there was a $216 loading that this case
is substantially all about, that was to
expire in April this year? --- A loading yes.

Now when that was about to expire, the fact was
you still had not supplied the information,
had you? --- No.

And you spoke - the substance of the matter was,
you spoke to Mr. Moore - I am so sorry, Mr.
Ward - and you said to him: Look, leave it -
leave the loading there, did not you? ---
Yes.

And you said to him, in substance, did not you,
leave it there and you will get the
information. Is that right? --- Yes.

And you did not supply the information, did you?
--- Not at that time, no.

Well what are you complaining about? Forget the
law; you say you have been unfairly treated.
Now what was unfair about this, what Mr. Ward
did? --- Well ---

Let us get down to the tin-tacks, what was unfair
about it? --- Well I think, I believe it was
unfair; the extent of the work that he
required me to do relating to that
information in trying to split up all these
hours.

HIS HONOUR: That is nonsense. All he wanted was
--- ? --- The wages.

--- wheelbarrow full of documents? --- Yes.

No work at all.

MR BLACK: And the documents existed did not they?
--- Yes.

And you could put them in a big box and send a
truck around to Mr. Ward and say: well,
there you are, Mr. Ward. Happy Christmas.
Now can I have my loading back.

HIS HONOUR: It is a computer.

MR. BLACK: I need a few computer discs as well.
Now you could have done that? --- Yes, I ---

Either politely or with your nose stuck in the
air, whichever way you chose, and you did not
do it did you? --- No.

And you are complaining about Mr. Ward for
removing the loading, now that is what you
are really cross about, is not it? --- I am
complaining about the general fee being so
low, in addition to that.

After Mr. Ward and you had talked about this
extension of the loading - he was a very
polite man, was not he? Perfectly nice to you
about it? --- Yes.

And after that, a couple of months after that, you
wrote a note to the department, did not you,
and you signed it, saying in substance that
all the information I have given you
previously in NH19s is suspect. I will read
you what you said, if you do not remember it,
but that is the substance of it. It might be
misleading or wrong - did not you? --- Yes.
I was advised that the material was
voluminous amount and my advisers wanted to
take away - take it away and examine it
because of what had happened to me." (pp. 262
and 263 T)

But a further difficulty ensued in that the NH 19 form which had been submitted on 15 February 1985 was withdrawn by the applicants on 14 June 1985. And the withdrawal was in terms calculated to raise questions as to the general reliability of the applicants assertions as to their expenditure. The withdrawal was in very formal terms, namely, that the applicants and Mrs. Moore "wholly retract and withdraw the application for fee variation" delivered on 15 February 1985 with respect to the year 1983 - 1984 together with all applications made to the department since 9 December 1983 as the same may be deficient, misleading or incorrect in some particulars or some particulars in the application and supporting statements may be deficient, misleading or incorrect to afford an opportunity to the said proprietors and Sister Louisa Moore to correct the same and the said proprietors and Sister Louisa Moore request you to treat the same as a nullity meanwhile". Clearly, the proprietors and Sister Moore desired to move as far as possible from the existing NH 19. It is to be inferred that this was a consequence of activity of the Federal Police who had seized documents and records connected with the accounts of the nursing home.

7. The withdrawal of the NH 19 and all existing applications for fee determination and the non-delivery by Nasah of the salary and wages records left the Department with a fee structure including a loading which there was no information to support and created a general state of uncertainty as to the true state of expenditure of the applicants in connection with the home. By 12 July 1985 the NH 19 had not been re-submitted and no information as to salaries or wages had been submitted by the proprietors or Nasah.

8. The Department is responsible for the administration of the National Health Act 1953 and the expenditure thereunder in connection with the conduct of nursing homes. It has a duty to protect the revenue. The Permanent Head has a duty to determine the level of fees which might be charged. As at July 1985 the NH 19 return which had been submitted to the Department in support of an application for a new determination had been withdrawn in terms calculated to raise questions of a serious kind as to the financial management and correctness of records of the applicants. Its somewhat dramatic terms suggested something quite serious had been discovered in the accounts of the nursing home. There was by 12 July no indication as to when a new NH 19 would be submitted or when the information as to the expenditure relating to the 1983-84 period would be forthcoming. On the information in the possession of the Department the continuation of the loading was not justified. Having regard to the duty on the Department to protect the revenue and patients the delegate decided to determine fees at the pre-existing level omitting however the loading. He did this without further notice to the applicants. It is said that in doing this he failed to observe the requirements of natural justice. It is relevant that the determination was made in circumstances in which the applicants knew that the Secretary of the Department was willing to act in accordance with all relevant information submitted to it. By s. 40AD(1)(1B) of the Act the applicants were entitled to seek a new determination at any time. They might have sought a new determination substituting a new scale of fees for the home as soon as they were able to submit relevant information, even on the day after the determination was made, if the information was then available. It was of the nature of the determination that it remained operative for no fixed period. It operated until reviewed in the light of new facts or superseded in accordance with normal procedure.

9. It was within the authority of the Secretary to include in a substituted scale of fees a loading in respect of previous expenditure by the home not recouped under the scale of fees previously applicable. The opportunity of the applicants to obtain a determination covering all proper expenditure and recouping any past deficiencies suffered by them was not annulled or diminished by the determination of 12 July 1985. In addition that determination was subject to appeal to the Minister. See s. 40AE(2) and (3) of the Act.

10. The removal of the existing loading would cause no loss to the applicants if they established, thereafter, that its continuation was justified. As indicated above there was ample authority in the Secretary to grant loadings if for some reason a determination has erroneously omitted to allow for items of genuine expenditure. The determination of 12 July 1985 determined nothing in a final way, and the desirability, in the circumstances, of crystalising the situation in relation to the fee structure at the home in the light of such information as was before the Department was clear. It should not, in my opinion be held that according to the principles of natural justice it was a condition of the making of the determination that notice of intention to make it be given to the applicants. At and about the time of the making of the determination the requirements of natural justice were in substance, in operation. The Secretary was ready and willing to accept any submission on the part of the applicants and was in a position as an administrator to redress any short fall in the determination he had made. The applicants were well equipped with legal and accounting advice. It is impossible to believe that the applicants did not know that the determination was subject to review and appeal. And it is not easy to see why they did not supply the information sought by the department in January 1985 and seek a review of the determination of 12 July 1985.

11. There are three possible reasons. First, as far back as 5 September 1984 the solicitors for the applicants had written a letter in the following terms:

"The Regional Director,
Commonwealth Department of Health,
Commonwealth Centre,
Corner Spring and Latrobe Streets,
MELBOURNE, 300.

Dear Sir,

BALMORAL LODGE PRIVATE NURSING HOME - APPROVAL
NUMBER 4308

We act for the proprietor of the abovenamed
nursing home and for The Private Geriatric
Hospitals Association of Victoria.

We are instructed that your departmental officer,
Miss K. Ramadan, has contacted both the proprietor
of the nursing home and its Manager, Manatta
Management Services Pty. Limited, demanding to
inspect the wages records of the nursing home,
apparently for the purpose of 'validating' the
expenditure on salaries and wages, and also to
inspect the nursing home premises.

The right of a person authorised in writing by
the minister to act under Section 42 of the
National Health Act 1953 to enter and inspect the
nursing home premises is admitted.

However, your right to inspect the financial
statements and accounts, including the wages
records, of an approved nursing home, is denied.

If you have any purported authority under the
National Health Act 1953 to inspect, make copies
of, or take extracts from the financial statements
and accounts, including the wages records, of an
approved nursing home, all of which are
specifically denied, such purported authority is
beyond the legislative power of the Commonwealth
of Australia conferred by paragraph (xxiiA) or
(xxxix) of Section 51 of the Australian
Constitution.

We have been instructed by The Private Geriatric
Hospitals Association of Victoria and its member
nursing homes to issue a Writ in the High Court of
Australia to challenge these actions of your
Department and that Writ will be issued shortly.

Further action will be contemplated should your
officers persist in demanding production of
financial statements and accounts, including wages
records, of approved nursing homes.

Meanwhile, without prejudice to the above action
and with a full reservation of the rights of
Balmoral Lodge Private Nursing Home in relation to
that action, we deliver herewith a copy of the
entire wages records of Balmoral Lodge Private
Nursing Home, being a computer print-out prepared
by Nasah Management Services, for the period from
the 1st December, 1983 to the 22nd October, 1984,
to assist you in verifying claims made by our
client with respect to salaries and wages.

Should you wish to communicate with our client, or
Manatta Management Services Pty. Limited, further
concerning these matters, and in the light of the
pending action, you are requested to direct all
such communications to this office.

Yours faithfully,

LLOYD & LLOYD." (PDT 23 p. 128/9)

Secondly, there were errors in the roster submitted by the applicants, in which quite false statements were made that certain persons, three in number, had worked in the nursing home and received substantial remuneration for their services. Third, there were genuine mistakes in the roster which the applicants were embarrassed in correcting.

12. As to the first of these the evidence suggests that the Private Geriatric Hospitals Association of Victoria had decided to oppose all process of validation by the Department of salaries and wages said by proprietors of nursing homes to have been incurred in conducting their nursing homes. Such a notion could hardly be taken seriously. But there is ground for thinking that the Association took a different view and that the applicants' nursing home was in the front line in the inevitable confrontation. Mrs. Moore now appears to regret this.

13. It is unnecessary to examine the reasons for the appearance of the false information as to the three persons appearing in the roster as workers in the nursing home. Suffice it to say that their appearance therein together with the non-delivery of the information required in January 1985 would tend to raise doubts as to the entitlement of the applicants to the continuation of the loading after 8 April 1985.

14. In the circumstances the proper inference is that it was a proper exercise of the administrative duty of the delegate of the Secretary of the Department on 12 July 1985 to crystalise the fee level of the nursing home by making the determination he did in the manner that he did. The situation is to be classified therefore as one in which, with respect to that determination, there was in the circumstances no obligation to extend to the applicants an opportunity to be heard prior to the making thereof. The circumstances were unusual and the requirements of natural justice are flexible and responsive to circumstances. As was observed by Kitto J. in Mobil Oil Australia Pty. Ltd. v. Federal Commissioner of Taxation [1963] HCA 41; (1962-1963) 113 CLR 475 at 503 and 504:

"I do not think it is necessary to decide the
point. Even if the Board is bound in law to act
'in the spirit and with the sense of
responsibility of a tribunal whose duty is to mete
out justice' (to quote Lord Haldane's words in
Local Government Board v. Arlidge (1915) AC 120,
at p 132 it does not follow (and his Lordship
proceeded immediately to say so) that the
procedure of each such tribunal must be the same:
'what that procedure is to be in detail must
depend on the nature of the tribunal'. And
notwithstanding what Lord Loreburn said in Board
of Education v. Rice (1911) AC 179 about 'always
giving a fair opportunity to those who were
parties in the controversy to correct or
contradict any relevant statement prejudicial to
their view, the books are full of cases which
illustrate both the impossibility of laying down a
universally valid test by which to ascertain what
may constitute such an opportunity in the infinite
variety of circumstances that may exist, and the
necessity of allowing full effect in every case to
the particular statutory framework within which
the proceeding takes place. By the statutory
framework I mean the express and implied
provisions of the relevant Act and the inferences
of legislative intention to be drawn from the
circumstances to which the Act was directed and
from its subject-matter: cf. Ridge v. Baldwin
(1963) 2 WLR 935 at p 947. As Tucker LJ said in
Russell v. Duke of Norfolk (1949) 1 A11 ER 109, in
a passage approved by the Privy Council in
University of Ceylon v. Fernando (1960) 1 A11 ER
631, at p 637, there are no words which are of
universal application to every kind of inquiry and
every kind of tribunal: 'the requirements of
natural justice must depend on the circumstances
of the case, the nature of the inquiry, the rules
under which the tribunal is acting, the subject
matter that is being dealt with, and so forth'
(1949) 1 A11 ER at p. 118. What the law requires
in the discharge of quasi-judicial function is
judicial fairness. That is not a label for any
fixed body of rules. What is fair in a given
situation depends upon the circumstances. And it
is not a one-sided business. What is a fair
opportunity to allow the taxpayer in a given case
is a question which by its very nature forbids an
answer in disregard of the interests of other
people. This is particularly true where, as here,
the statute giving rise to the duty of decision
expressly recognizes and aims to protect the
interests of others which may come into
competition with those of the taxpayer. For this
reason the proposition cannot be maintained that
even assuming that the board is legally bound to
determine the reference in a case under s. 136 in
accordance with the substantial requirements of
justice it must disclose all that it has learned
about the affairs of other companies. How much it
should disclose is a question which this Court
ought not to attempt to answer in the abstract.
On the opposite hypothesis, that the Board is not
bound legally to act in a quasi-judicial manner,
all questions as to disclosing information to the
taxpayer are questions of pure discretion; but the
Board's sense of fairness and responsibility will
no doubt make the decision as to how the
discretion should be exercised practically
indistinguishable from that which it would have to
make if faced with a legal necessity to conform to
natural justice."

If the maximum fees determined by the delegate on 12 July 1985 were at a level lower than that which it would have been determined had the applicants made submissions supported by accurate information as to the expenditure in conducting the establishment, that would have been because the applicants failed to make submissions supported by evidence in support of a higher level before or within a reasonable time after 12 July 1985. In any event having regard to the circumstances I would not regard the application as one which, as a matter of discretion, should be granted.
The adoption, for the purpose of determinations, of principles formulated by the Minister, prior to such principles acquiring the force of law under s. 40AA(7) of the Act as amended in 1983

15. This is the matter referred to in item (c) above. It is clear that when the Act was amended in 1983 by, inter alia, removing therefrom s. 40AA(7), the delegate felt free to act in accordance with principles thereafter formulated by the Minister although those principles had not acquired legal status. Those principles reflected, in substance, policy which the Department had desired to implement even before their formulation by the Minister, but which, particularly in the presence of s. 40AA(7) as previously in force, it had found difficulty in doing.

16. It is said by Mr. Paterson that during the period between the removal in 1983 of s. 40AA(7) from the Act and the coming into operation in May 1985 of principles formulated by the Minister the delegate was bound to determine levels of fees as if s. 40AA(7) were still in force. I cannot accept this submission. On the removal of s. 40AA(7) in 1983 the discretion of the delegate under s. 40AA(6)(c)(i) was freed from the requirements of s. 40AA(7) as previously in force. It became unfettered save by implications arising from the purposes of the Act as discerned in its operative provisions. I am not persuaded that the principles as formulated by the Minister before becoming legally operative under s. 40AA(7) of the Act and by reference to which the delegate made his determinations prior to that of 12 July 1985 were incompatible with the purposes of the Act. Of course when the determination of 12 July 1985 was made the principles had become legally operative and binding and the delegate was required to act by reference thereto. But Mr. Paterson contended that in making the determination of 12 July 1985, save so far as he eliminated a loading, the delegate merely adopted a level of fees previously made but invalidly arrived at by the delegate acting on the principles formulated by the Minister but not yet in force.

17. I do not think this is a correct analysis of what occurred on 12 July 1985. Even if there were any irregularity in the delegate acting by reference to the Minister's principles before they became legally operative as such, which I very much doubt, the determination of 12 July 1985 was a complete and separate operation on the part of the delegate. It stood on its own feet and represented the decision of the delegate by reference to the principles by which at that stage he was bound. That he may have obtained assistance from the circumstance that he had earlier gone through the intellectual exercise of applying the same principles to the conditions of the Balmoral Nursing Home at an earlier date, is beside the point. He applied them on 12 July 1985.
Disregard of rent actually payable

18. As indicated in item (d) above the applicants submitted that in determining the level of fees payable by patients of the Balmoral Home on 12 July 1985 the delegate did not have regard to the amount of rent payable with respect to the initial period of the applicants tenancy in accordance with the terms of their lease. There is no question of disregarding any increase in that rental payable in respect of any later period.

19. It was conceded that there was included in the fee structure an allowance of $84,240 annually for rent. But this was $21,760 less than the actual rent initially payable by the applicants. It was contended that the failure to include an allowance reflecting the actual rent payable was contrary to the delegate's duty under Part V of the Act, in particular s. 40AA(6)(c)(i). In this respect the principles formulated by the Minister are directly in point. Section 40AA(7), (7A) and (7B) of the principal Act which were inserted by s. 3 of the National Health Amendment Act 1983 (No. 35 of 1983) provides:

"(7) The Minister may, by writing under his hand,
formulate principles in accordance with which
scales of fees are to be determined for the
purposes of sub-paragraph (i) of paragraph (c) of
sub-section (6) in relation to nursing homes
generally or in relation to nursing homes included
in specified classes of nursing homes.

(7A) Without limiting the generality of
sub-section (7), principles formulated under that
sub-section may

(a) specify matters of a kind that are, in the
case of each nursing home or of each nursing
home 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.

(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."

The principles as formulated by the Minister came into force on 15 May 1985 (see Commonwealth Government Gazette No. S162 of 15 May 1985). These principles are called "principles in accordance with which scales of fees are to be determined by the Permanent Head for the purposes of s. 40AA(6)(c)(i) of the National Health Act 1953.

20. On the subject of rent principle 10(1) provides that:

"where the premises occupied by a nursing home are,
or were at any time after they were approved as an
approved nursing home, leased to the person who
is, or was at that time, the proprietor of the
nursing home, the Secretary shall, in determining
the return on investment in respect of the nursing
home:

(a) take into account all reasonable increases
and subject to sub-principle 2 all
reductions in the rent payable in respect
of the premises during the period or
periods during which the premises were so
leased; and

(b) disregard all other expenditure incurred on
rent in respect of the premises."

However, provision is made in principle 9(1) in respect of return on land, buildings, furniture and other items, that,

"9(1) The Secretary shall subject to sub-principles
2 and 4 to 8 inclusive and principle 12A, in
determining the return on investment in relation
to a nursing home take into account a return on
the land and buildings used as a nursing home
being the fair market rental when the nursing home
was first approved . . . as determined by a valuer
from the Valuation Branch of the Australian
Taxation Office".

Balmoral Lodge was approved as a nursing home under the Act in 1980. The rental value of the land and buildings at that date would have been substantially less than it was in 1985.

21. It is said by Mr. Paterson for the applicants that a principle in accordance with which actual current rent payable in respect of a nursing home at an arms length commercial rate is to be ignored, contravened the implied provisions of the Act, namely, that allowance be made for all expenditure necessarily incurrred in conducting the home. This provision is said to arise from the general structure of the Act and its purposes as disclosed therein. They depend on the validity of observations such as those made by me in Howells & Anor v. Nagrad Nominees Pty. Ltd (1982) 43 ALR 283 at 290 and 291 in relation to the Act as it stood at that date. Those observations were:

"The duty of the Permanent Head under s. 40AA of the
Act in relation to the determination of scale of
fees is to be ascertained from the statutory
framework set out above. It is manifest that
Parliament's intention is that there will be as
many nursing homes as are considered reasonably
desirable for providing the nursing home needs of
the qualified patients needing such care. People
have to be encouraged to provide the services. It
is an important objective and depends upon people
of the right kind being willing to undertake the
work and risk involved in providing that care. It
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. The scale of fees determined
by the Permanent head as maximum fees will ensure
this."

But since those observations were made the Act has been amended by Act No. 35 of 1983. These amendments are most significant. They are not in conflict with the notion that objects of the Act are those set out above, but they certainly proceed expressly on the basis that those purposes of Parliament can be achieved notwithstanding that in the exercise of his function under s. 40AA(6)(c)(i) the delegate may disregard particular expenditure actually incurred in the conduct of a nursing home. He is to do this where the principles formulated by the Minister so require. Sub-section 40AA(7) of the Act as originally enacted 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."

Section 3 of Act No. 35 of 1983 repealed that paragraph, and enacted a new provision Sub-s. 40AA(7) as follows:

"(7) The Minister may, by writing under his hand,
formulate principles in accordance with which
scales of fees are to be determined for the
purposes of sub-paragraph (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.

And there was inserted into the Act sub-s. 40AA(7A) as set out above.

22. No doubt in enacting sub-s. (7A) Parliament proceeded on the basis that the principles formulated by the Minister would be such that fees fixed by the Secretary in accordance therewith in relation to each nursing home would be at a level at which the business might be profitably carried on. Of course, a proprietor might undertake such obligations as he saw fit in relation to the acquisition and conduct of his home, and it was not the intention that whatever obligations were undertaken the level of fees would be adequate to provide therefor. But it was the intention that administration in accordance with the principles should provide for the profitable conduct of homes where the obligations undertaken were within acceptable limits. The difficulty was to devise principles which would result in a level of approved fees which would achieve both the containment of the level of obligations undertaken by proprietors within what could be regarded as acceptable limits and the viability of the proprietor's business. The latter was reflected in principle 2(4)(a) set out below. The former was provided in those principles which state that certain expenditure shall be disregarded. The main items of such expenditure are referred to below. The concept would appear to be that if obligations are undertaken with knowledge of the content of the principles the risk that a home operating at a level of fees fixed in accordance therewith will be avoided or at least made remote. As indicated below, with respect to obligations undertaken before the principles came into effect, principle 9(d) provides that in making a determination of fees the Secretary shall take into account the return on investment already reflected in the scale of fees as at the date when the principles came into effect.

23. It is consistent with the purposes to be discerned in the Act as amended in 1983 that there be a level of fees so determined as to tend to control the level of expenditure undertaken by proprietors, particularly expenditure which encourages the assessment of the value of goodwill at high levels. It has been a feature of the industry that the level of fees fixed in accordance with the requirements of sub-s. 40AA(7) of the Act as in force prior to Act No. 35 of 1983 created a situation in which commercially accepted levels of goodwill were higher and accelerated upwards more swiftly than was regarded as appropriate for a protected industry supported by government subsidy. Those levels of goodwill translated into capital costs when nursing homes changed hands provided a basis for claims for high levels of permitted fees. This situation was regarded as contrary to the public interest. Rental expenditure at levels arrived at by agreement between parties was also a significant factor. It was to introduce a measure of control that s. 40AA(7) of the Act was repealed by Act No. 35 of 1983 and re-enacted in terms set out above. Section 40AA(7A) was enacted at the same time.

24. It is certainly compatible with the purposes of the Act that appropriate action be taken to protect the revenue against inflation of the level of fees by expenditure in the conduct of a home that is incurred at a level higher than that which would obtain if strict scrutiny were applied to the relevant transactions on behalf of the taxpayer and patients. It is clear for instance that over award payments to staff are not compatible with a level of expenditure strictly scrutinized. It is not practicable for scrutiny of the level of obligations incurred by a proprietor to be applied by any departmental agency. But if principles which the Secretary must apply in assessing the level of fees under the Act are known, and they have restrictive provisions in them, the probability that appropriate voluntary discipline will operate is high. In such cases the possibility that the nursing home industry will fade away so that there will not be as many approved homes as are considered reasonably necessary for providing for the nursing home needs of qualified patients needing such care, is remote.

25. It is the effect of the Act as amended and the procedures under s. 48 of the Acts Interpretation Act 1901 whereby the principles were laid before Parliament and not disallowed, that the principles formulated by the Minister are as much part of the law as the provisions of the Act itself. The notion that the legitimate authorisation of the formulation of principles by the Minister which form part of the law of Australia might be a form of delegated legislation not constitutionally valid was mentioned only to be rejected by the parties.

26. Accordingly, the implications that might otherwise have arisen from the Act are subject to such qualification as arises from the express provisions of s. 40AA(7) as amplified by s. 40AA(7A). The provisions of sub-s. (7A) that in the principles the Minister may specify matters of a kind that are to be disregarded in determining a scale of fees for the purpose of sub-para. (i) of para. (c) of sub-s. (6) of s. 40AA of the Act clearly contemplates that certain expenditure actually incurred may be disregarded. It follows that theoretically, the level of fees determined under s. 40 AA(6)(c)(i) in accordance with the principles might possibly fall below the level of actual expenditure and to that extent the viability of a home might be in peril. But if so that is the effect of the law. It is clear, however, that the principles are designed to provide a framework which intending proprietors will have in mind when undertaking obligations as such. And despite the limitations imposed on the Secretary the principles as formulated to reflect an intention to provide for and preserve the viability of approved nursing homes as business enterprises. Thus principle 2(4)(a) provides:

"2.(4) The Secretary shall, in exercising any
discretion permitted in these principles in
determining a scale of fees, have regard to:

(a) the desirability of ensuring the financial
viability of nursing homes generally;"

The scheme which the principles implement is comprehensive and intricate. In general it authorises the Secretary in performing the function of determining fees under s. 40AA (6)(c)(i) to take into account matters including the following:

(a) a return on investment taking into account:

(i) the fair market value rental of the land
and buildings at the date when the home was
first approved and all reasonable increases
in rent, but disregarding all other
expenditure in relation to rent;

(ii) a return on the investment in the home and
in the business undertaking carried on
thereat including a return on the cost of
furniture, fittings, plant, equipment and
chattels used therein and certain

establishment costs at the rate of return
on Australian Savings Bonds when the
nursing home was first approved;

(b) in the case of homes first approved before the
principles came into effect the returns on the matters
aforesaid reflected in the scale of fees as at the date
when the principles came into effect;

(c) reasonable increases in interest on money borrowed to
acquire the premises occupied by the home, disregarding,
however, all other interest payments made by the
proprietor;

(d) expenditure on salaries, wages and allowances by
approved staff at award rates disregarding however any
salaries, wages or allowances paid in excess of the
relevant award rates; and

(e) upon request of the proprietor of a home to allow an
additional return on investment, in the case where the
yearly return from fees as determined does not exceed
$1,100 per bed according to the formula set forth in
principle 12D(1)(a), and where the yearly return from
such fees exceeds $1,400 but does not exceed $2,600 per
bed, according to the formula set forth in principle
12D(1)(b), as a result of which in the circumstances
referred to minimum returns per bed up to $1,400 and
$2,600 per bed respectively may be provided.

27. In Alexandra Private Geriatric Hospital Pty. Ltd. v. Blewett & Anor (1984) 56 ALR 265 Woodward J. at p 278 expressed the opinion that the 1983 amendments made little if any difference to the underlying policy of the Act as a result of which the following principles remained applicable, namely:

"1. The costs necessarily incurred by the
proprietor of a nursing home in providing
nursing home care remained a 'fundamental
matter for consideration' by the delegate (to
quote Mason J. in R v. Hunt ex p Sean
Investments).

2. Fees should have been fixed in accordance
with principles which presupposed 'the
existence and continuation of private nursing
homes' (Northrop J. in Nagrad). In other
words, nursing homes generally, though not
necessarily a particular nursing homes (Bowen
CJ and Fox J in Sean investments), should be
commercially viable when efficiently run.

3. Commercial viability requires some reasonable
return on investments - a reasonable level of
profit. 'People have to be encouraged to
provide the services', (Smithers J. in
Howells v. Nagrad).

4. The scale of fees suggested by principles 1-3
above must not be excessive or unreasonable
for patients, including indigent patients
(Bowen CJ and Fox J in Sean Investments).

5. The fees finally determined must be
appropriate for the particular nursing home
and its patients (Murphy J. in R. v. Hunt,
adopted by Deane J. in Sean Investments;
Franki J. in Sean Investments.)"

And it was urged by the applicants that if the principles as formulated by the Minister and which came into operation in May 1985 contravene these principles they are unlawful. This was a difficult submission in view of the unambiguous and specific authority conferred on the Minister to specify classes of expenditure which the Secretary must disregard. But although the principles do specify certain classes of expenditure which the Secretary is to disregard, it is no doubt still true that the underlying policy of the Act as discerned therefrom remains substantially unaffected by the amendments of 1983. There are different approaches which may be pursued to achieve those fundamental purposes. One of those purposes was, as his Honour pointed out, that the scale of fees must not be excessive. And it is clear that to achieve that result, a level of fees reflecting actual expenditure undertaken voluntarily at a level chosen by proprietors, could not, be accepted unconditionally. And over time it has become necessary to adopt a method of administration providing a measure of discipline in the level of expenditure actually incurred by intending proprietors. As indicated above the principles are designed to achieve this and at the same time to preserve the existence and continuity of viable private nursing homes. The method adopted in the principles has been before Parliament and not disapproved. It has not been shown that administration of the Act in accordance with the principles will subject any proprietor to greater financial burdens than are tolerable in his case. I do not have to consider principles so formulated as to bring the nursing home industry to an end or seriously threaten it. On the contrary it is manifest that the principles in question have been formulated with careful thought in an endeavour to achieve the continued existence of the industry in conditions which provide justice to proprietors in a climate in which the costs of the provision of nursing care is in the words of s. 40AA(7B)(b) not excessive or unreasonable.

28. In the light of the foregoing I am not satisfied that the applicants have established a case for relief under the Administrative Decisions (Judicial Review) Act 1977. I observe also that the exercise of the Court's jurisdiction pursuant to s. 16 thereof is to grant relief "in its discretion". Having regard to the circumstances discussed above, I would not consider this application to be one in respect of which the discretion of the Court should be exercised in favour of the applicants.

29. In the result the application is dismissed the applicants to pay the costs including reserved costs.