The High Court recently quashed South Tyneside council's setting of the level of fees payable to care homes in a critical and comprehensive decision. Judgment was given in favour of the claimant care homes on the basis that the decision was unlawful, procedurally unfair and unreasonable following a catalogue of errors in the decision making process.

R (South Tyneside Care Home Owners Association & Ors) v South Tyneside Council [2013] EWHC 1827 (Admin)

Key Points

  • A decision to implement a new fee structure for payments to care homes was quashed due to a range of errors across consultation procedures, analytical processes and impact assessments.
  • A failure in one area of the decision-making process can detrimentally affect the fulfilment of the public authority's obligations elsewhere in the process.
  • A suite of errors is more likely to result in substantive relief than a single contained failure on the part of the public authority.
  • However, discretion is still given to public authorities provided the decision is taken properly, especially on budgeting matters in the current economic climate. 

Background

South Tyneside council (the 'Council') commenced a cost-saving exercise in 2010, aiming to reduce nursing and residential home fees by 10%. The Council put forward a plan to alter the fee structure of payments to such homes; fee levels based on buildings quality alone would be replaced by fees based on overall quality levels, including quality of care.

An early form of the new contract was sent to care home providers in January 2012, nine of whom responded with data. The Council met with the providers in February 2012, who raised concerns regarding fee levels, absence of review procedures and the threat to the survival of the homes under financial pressures of the new scheme. In a letter before claim, the care home providers requested information from the Council as to the process by which the scheme had been decided. The request was refused on grounds of commercial confidentiality.

The final version of the contract (issued on 31 May 2012) implemented a scheme which set new fees. 75% of the relevant fees were calculated based on quality of care and 10% on quality of buildings. Under the contract, care homes were allocated one of four quality bands which in turn received a specified fee payment. A sum of £10 extra was paid for each elderly mentally infirm ('EMI') service user.

Grounds of claim

  1. The Council failed to take into account return of capital as a relevant cost of care. It was also erroneous to choose and execute calculations based on profit rather than cost.

The Council decided to use a mathematical mechanism by which to set fee levels and contended that it had considered return on capital within this mechanism. The question was therefore whether this had been done properly. Certain consultation respondents had notified the Council that the information was incomplete and did not include return on capital. Despite this, the Council disregarded the cost. As such, the court found that the Council had not had due regard to the actual costs of care because they did not properly consider a relevant cost, namely return on capital.

  1. The actual costs of care were not given due regard in the setting of fees on a 'bands' basis.

The second ground was also successful as the evidence before the court did not show why certain percentage figures used in the quality band scoring were selected.

  1. The £10 uplift for EMI service users was set without due regard to the costs of their care.

Needs of EMI residents were not properly considered in setting the uplift figure. There was relevant social services governmental guidance on this point. A local authority has the discretion to depart from governmental guidance, but only if there is a properly reasoned explanation for doing so. In this case, this threshold was not met as there was no evidence of any such proper reason.

  1. Proper consultation was not carried out before deciding the fee structure.

    There is a duty to disclose sufficient information during the consultation process to allow respondents to make a proper and informed response, which does not involve simply responding to requests for information. This duty of selecting adequate information to be disclosed was not fulfilled by the Council. The requests for information made by the claimants were also not satisfied which, the court held, also breached fair consultation obligations as the information could easily have been provided in anonymised form to avoid confidentiality issues. These two failures resulted in inadequate responses and so a fair consultation was not achieved.

  2. The Council's financial analysis was undermined by several identifiable errors.

    The errors of approach alleged under this ground were numerous and the claimants argued that they were sufficiently significant (either individually or as a whole) to render the Council's decision unlawful or irrational. The court criticised one error in particular. The Council had failed to realise in its analysis that the figures for costs were too low because they had not accounted for inflation. The court found it astonishing that the defendant's entire decision-making process was based on an analysis which had not considered inflation. Due to this "very significant" error, the whole basis for the Council's approach was undermined and rendered the decision unlawful and / or irrational.

  3. The Council breached its public sector equality duty ('PSED') under section 149 of the Equality Act 2010.

    The defendant argued that its Equality Impact Assessment ('EIA') was sufficient to discharge its PSED, especially as it was dealt with by experienced officers and kept under review. The EIA undertaken by the Council was attacked by the claimants on several grounds, including first, that the risk assessment was inadequate and secondly, that EMI needs were not considered. The court found that the EIA addressed issues in the context of the flaws established in grounds 1 – 5 and therefore inevitably failed to identify significant risks. These risks would otherwise have been identified if the overarching process had been properly conducted.

Relief

The courts will usually be reluctant to interfere substantively with a public body's decisions, especially given the discretion afforded to local authorities with regard to their budgets and the current pressures of the economic climate. However, the claimants were successful on all six grounds and the Council's decision to issue the contract was quashed, despite Belcher J recognising the inconvenience and budgetary implications for the Council of re-taking the decision.

Comment

This case is a rare but notable example of a public authority's decision being found to be irrational. Proving irrationality grounds against a public body, especially considering their discretion and the economic factors surrounding cost-cutting, is notoriously difficult to achieve. However, the suite of errors made by the public authority in this case surmounted this irrationality threshold.

The catalogue of failures here is wide-ranging and, in some cases, interlinked. There are "secondary" breaches stemming from other errors. For example, the EIA was automatically insufficient as it was made against the backdrop of several failures. Primary errors in this case included failure to have proper regard to the results of a consultation, failure to take relevant factors into account, significant analytical errors and lack of evidence of proper reasoning. Importantly, in the mechanisms leading to a decision, particularly mathematical mechanisms, public bodies should be wary of arbitrarily choosing figures which will have knock-on consequences not only for that calculation, but in related breaches elsewhere in the decision-making process.

In a climate of pressure to reduce budgets and make cost savings, challenges to such public decisions are more likely to occur. From the public bodies' perspective the case illustrates the importance of working to ensure that decisions are made in the proper manner the first time around to avoid the potential financial, time-related and reputational damage of having to substantively re-take important decisions, as well as to minimise the risk of challenge at the outset.