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	England and Wales High Court (Administrative Court) Decisions
You are here: BAILII >> Databases >> England and Wales High Court (Administrative Court) Decisions >> Mavalon Care Ltd & Ors, R (on the application of) v Pembrokeshire County Council [2011] EWHC 3371 (Admin) (16 December 2011) URL: http://www.bailii.org/ew/cases/EWHC/Admin/2011/3371.html Cite as: [2011] EWHC 3371 (Admin)

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IN THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
ADMINISTRATIVE COURT IN CARDIFF

		Cardiff Civil Justice Centre 2 Park Street, Cardiff, CF10 1ET
		16/12/2011

Mr Justice Beatson :

1. The claimants are seven companies operating care and nursing homes in Pembrokeshire. Some 22.4% of all beds in such homes in Pembrokeshire are in homes run by them. The residents are typically very elderly and frail. Many have dementia. The defendant, Pembrokeshire County Council ("the Council"), pays a weekly fee in respect of about 40% of the beds in homes in Pembrokeshire. These proceedings, launched on 28 April 2011, follow closely on the success of the first three claimants (which are related companies) in a judicial review, R (Forest Care Homes) v Pembrokeshire CC [2010] EWHC 3514 (Admin) ("the Forest Care Homes" case). In that case Hickinbottom J held that the Council's decision to set a weekly rate of £390 per resident for care homes for 2010-11 was unlawful. In these proceedings, the claimants maintain the defendant's re-determination of the rate at £464 per resident is also unlawful.
2. In arriving at its original decision the Council set the rate using an economic model, "the toolkit", developed by Laing and Buisson, a healthcare consultancy. The model is in a 2002 report (updated in 2004 and 2008) by William Laing for the Joseph Rowntree Foundation, Calculating a Fair Price for Care: A Toolkit for Residential and Nursing Care Costs. The introduction to the 2008 edition states that the spreadsheet in it "allows users to vary the data according to local circumstances". Laing and Buisson also prepared a report, A Fair Price for Care: Wales, in 2004 for the Welsh Local Government Association ("the toolkit for Wales"). The Council decided to use the "toolkit" in December 2008. Prior to that it had used an historical rate to determine the rate.
3. The "toolkit" applied a figure of 12% to base figures for the assumed capital cost of land and buildings to calculate the rate of return on capital. The rate was set by reference to the opportunity cost of not utilising the capital in other ways, measured by what one could reasonably expect by selling out. It was common ground at the time of the original decision and the first judicial review that 12% was the appropriate rate of return. At that time the "toolkit" was "populated" with data by the defendant's then consultants, RSM Bentley Jennison, now RSM Tenon.
4. The primary ground of challenge in the first judicial review was that the methodology and data used by the Council erred in the way the "capital costs adjustment factor" in respect of homes meeting pre-2002 standards but not post-2002 standards was to be made. RMS Tenon had deducted £73, a figure which was more than 50% of the capital return figure, instead of £55, and had deducted a further £25 as an incentive for meeting standards. This was because RSM Tenon considered it was wrong to include capital costs in the fee calculation if the Council's aim was to maintain existing stock and raise standards rather than to encourage new building. The claimants in those proceedings successfully submitted that this was an error. There were also a number of other grounds alleging errors in relation to other inputs such as local staffing data and relating to top-up contributions.
5. During the hearing the Council accepted that it had made a number of errors, including in relation to the capital cost adjustment factor because inter alia (see [112]) the methodology in the "toolkit" applied whether the defendant's aim was to encourage new building or to maintain existing stock. No issue was taken by the Council as to the amenability of a decision to fix the level of fees to providers of residential care to judicial review. In his judgment given on 21 December 2010 Hickinbottom J ordered the Council to "remake the decision lawfully by 31 January 2011". The reason for the tightness of the timetable was what the claimants in that case had said about their financial position. The Council had agreed that it would be able to complete the task by that date and it did so.
6. Since the Council conceded that the decision was unlawful on at least one ground (see Hickinbottom J at [50]), on 20 December, in anticipation of the judgment, it wrote to the claimants' solicitor requesting details of any "factors which the claimants consider to be relevant" and which they "consider should be taken into consideration" in re-determining the rate. Ms Castrey responded to this request in a letter dated 7 January. This letter asked the Council to consider nine issues when re-determining the rate. One of these was the impact of the rate on sustainability in the light of what the claimants alleged was an accumulated deficit suffered by the providers as a result of the rate being too low in the past.
7. On 31 January, in its new decision, the Council set the rate payable to care homes for the 2010-2011 year at £448 per resident per week, back-dated to April 2010. The decision was communicated in a letter to Mr Davies, a director of the first three claimants and chairman of the Pembrokeshire Care Homes Association. The letter was from Jonathan Skone, who has been the Council's Director of Social Services for over ten years and before that had many years' experience in the sector. The rate was set inter alia on the basis of the Council's conclusion that the appropriate rate of return on capital was not the 12% hitherto used, but 6%. The claimants' letter before claim included a reference to what was said to be an arithmetical error concerning staffing in a report by PriceWaterhouseCoopers LLP (see [28] – [32]) which had been relied on by the Council in setting the rate. The Council accepted this and, as a result, on 5 April agreed to raise the rate to £464 per resident per week. In these proceedings, the claimants challenge the new decision, and primarily the conclusion that the appropriate rate of return on capital was 6% rather than the 12% used since 2008. On 2 June HH Judge Bidder QC gave permission on the papers.
8. It is submitted on behalf of the claimants that the Council is in breach of its statutory duty under section 21 of the National Assistance Act 1948 ("the 1948 Act"). Their case is that the methodology it adopted in arriving at the 6% rate for return on capital, which resulted in a fee of some £52 per resident per week lower than it would otherwise be, lacked any rational foundation, failed to take account of its legitimate current and future costs, did not consider what they needed in order to be viable, and gave no incentive for care home providers in Pembrokeshire to improve their facilities. An important part of the Council's reasoning is said to proceed on its error (in fact identified in the Forest Care Homes case at [112]) in considering that the rate of return to be allowed in cases where the aim is to maintain the sector differs from the rate to be allowed where the aim is to encourage new building.
9. The new decision is also challenged on three other grounds. The first is that the Council failed to consider and to take into account whether, in particular in the light of Hickinbottom J's judgment in the Forest Care Homes case, underpayment of fees by the Council in the past has left an accumulated deficit in the claimants' capital reserves which needed to be addressed because of its impact on the sustainability of their homes. The second is that the Council failed to consider the interests of residents and the impact of the lower rate on them. Thirdly, it is submitted that the Council has failed to take account of relevant guidance by the UK government and the Welsh Ministers.
10. In its summary grounds of defence, the Council maintained that its approach was not mechanistic. It had concluded that the 12% rate used in the toolkit was not appropriate for Pembrokeshire, and, in determining the figure of 6%, it had taken account of the matters raised by the claimants. The result was a 19% increase over and above the fees paid for the year 2009 – 2010, which was in compliance with its duties under the 1948 Act. On the "incentive point", the Council maintained that its decision not to incentivise those with relatively poor standards to improve them was lawful, that no local authority had a system for doing this, and the fact that homes compete with each other is itself an incentive. In the time between Hickinbottom J's decision and 31 January, it had not been possible to devise, consult upon, agree and implement an incentive scheme with all the necessary safeguards. As for the "accumulated deficit" issue, the Council did not accept there was such a deficit, and also submitted that this was not challenged in the Forest Care Homes case, and that it was now too late to challenge the lawfulness of the Council's decision for the year 2009 – 2010 or any preceding year. It was stated that if any provider in fact had an accumulated deficit as a result of any act or omission by the Council, that was a matter that could be considered on a case-by-case basis.
11. By the time of the hearing the Council's position had changed. Mr David Phillips QC, on its behalf, maintained that the decision not to make provision for a "quality" payment was not flawed because it had assumed all the homes fully met the standards required. He submitted that the claim that past underpayments had resulted in an accumulated deficit was a device to challenge fee levels for 2009/10 which had not been challenged in the Forest Care Homes case, and that it was too late to do so now.
12. Mr Phillips, however, accepted that, insofar as the decision concerned the rate of return on capital, it "was not communicated with sufficient transparency, and that the decision letter did not provide compelling reasons for departing from the Laing criteria that had been accepted by [the defendant] at the time of the first decision": skeleton argument, paragraph 5. His references to "sufficient transparency", and the "absence of compelling reasons" for departing from the Laing criteria appear to reflect a recognition of what a local authority must show in relation to the process of decision-making and departures from the relevant guidance in the light inter alia of R v Islington LBC, ex p. Rixon [1997] ELR 66, at 71, the Welsh Assembly Government's 2010 Commissioning Guidance, the relevant parts of which are set out at [25], and Hickinbottom J's judgment at [79]. At the hearing Mr Phillips' submissions principally concerned whether, notwithstanding the accepted failings about the treatment of return on capital in the decision letter, the application should be dismissed or no relief be given because "the figure arrived at is one that it was open to [the Council] to reach: it is a figure that secures the proper discharge of [the defendant's] statutory duty".
13. The evidence on behalf of the claimants consists of three statements of Michael Davies (as to whom see [7]), dated 27 April, 22 August and 7 November 2011, and statements by Sanjiv Joshi, Howard Crackle (two statements), David Van Dyk, Tudur Williams, Jane Lawrence-George, and Susan Mason. Ms Mason is a director of the third claimant, and the registered manager of Pen-Coed Care Home, operated by the second claimant. Messrs Joshi, Crackle, Van Dyk, and Williams, and Ms Lawrence-George are directors of the fourth to seventh claimants. Their statements are dated 22 August, and Mr Crackle's second statement is dated 25 October 2011. There are also two statements of the claimants' solicitor, Alison Castrey, dated 25 October and 7 November 2011.
14. The expert evidence on behalf of the claimants consists of reports of William Laing, dated 16 March and 16 August 2011, and of Andrew Brookes, dated 4 November 2011. Mr Laing is one of the principals in Laing and Buisson, the author of the "toolkit". Mr Brookes is a partner of Hazelwoods LLP, a firm of chartered accountants. Additionally, the evidence on behalf of the claimants in the Forest Care Homes case was before me.
15. The principal evidence on behalf of the Council consists of two statements, dated 13 July and 11 October, of Jonathan Skone (as to whom, see [7]). There is also a statement dated 13 October 2011, of Mark Lewis, who is the defendant's Director of Finance and Leisure and Chief Financial Officer, and an expert report, dated 14 October 2011, by Graham Lovell. Mr Lovell is now a healthcare specialist employed by Rockhaven Healthcare Consultancy Ltd., and was previously with PriceWaterhouseCoopers LLP (hereafter "PwC").

The law

16. It was common ground at the hearing that Hickinbottom J's summary of the statutory provision and guidance by the UK Government and, in respect of devolved functions, the Welsh Ministers, in paragraphs [20] – [22] and [28] – [44] of his judgment in the Forest Care Homes case, and his summary at [46] of the propositions derived from the legislation, guidance and caselaw accurately set out the position. It was also common ground that those summaries are applicable to the present proceedings. After the hearing, on 21 November, in the light of a submission by Neath Port Talbot County Borough Council, the defendant in CO/5985/2011, another challenge to a decision fixing the level of fees to be paid to providers of residential care, that such decisions are matters of private law and not amenable to judicial review, or only amenable on limited grounds, I invited Pembrokeshire to consider whether it wished to make submissions on this point. Mr Phillips informed me that Pembrokeshire did not wish to adopt the argument advanced by Neath Port Talbot. He was right not to do so. Significant parts of the relationship between the parties are contractual but, in the particular circumstances of this case, in the light of the positions taken by Pembrokeshire and the relevant guidance (see [25]), the relationship has sufficient public law "underpinning" to bring it within the supervisory jurisdiction by way of judicial review.

The 1948 Act

17. The overarching statutory provision is section 21 of the National Assistance Act 1948, as amended ("the 1948 Act"). This provides:

"(1) Subject to and in accordance with the provisions in this part of this Act, a local authority may, with the approval of the Secretary of State, and to such extent as he may direct shall, make arrangements for providing –

(a) residential accommodation for persons aged 18 or over who, by reason of age, illness, disability or any other circumstances are in need of care and attention which is not otherwise available to them…

(2) In making any such arrangements a local authority shall have regard to the welfare of all persons for whom accommodation is provided, and in particular to the need for providing accommodation of different descriptions suited to different descriptions of such persons as are mentioned in the last foregoing subsection…

…

(4) Subject to the provisions of section 26 of this Act, accommodation provided by a local authority in the exercise of their functions under this section shall be provided in premises managed by the authority…".

18. In the Forest Care Homes case Hickinbottom J stated (at [46]) that:

"(2) In deciding whether a person is in need of care and accommodation, an authority is entitled to have regard to its own limited financial resources. However, having set that threshold and found that a particular person surpasses it, an authority is under an obligation to provide care and accommodation in fulfilment of its section 21 obligations, which is a specific duty on the authority owed to an individual, not a target duty: lack of resources is no excuse for non-fulfilment of that obligation (R v London Borough of Islington ex parte McMillan [1995] 30 BMLR 20 at page 30; and R v Sefton Metropolitan Borough Council ex parte Help the Aged [1997] 4 All ER 532).

However, (see the Forest Care Homes case at [46(3)]) provided a local authority meets the minimum requirement under section 21 in some form, it has a wide discretion, both with regard to the nature of the accommodation and care, and its precise standard.

19. In the case of Wales, by section 26(1) and (1A), accommodation under section 21 of the 1948 Act may be provided by a private organisation that manages premises for reward. This may be done provided the premises are a care home, and the manager of the home is registered under the Care Standards Act 2000. The Care Standards Act empowers the Welsh Assembly Government to set standards for care homes generally in Wales and to set conditions for individual registrations.
20. Section 26(2) of the 1948 Act provides:

"Any arrangements made by virtue of this section shall provide for the making by the local authority to the other party thereto of payments in respect of the accommodation provided at such rates as may be determined by or under the arrangements…".

Government guidance

21. The wide discretion a local authority has in fulfilling its obligations under section 21 of the 1948 Act is now tempered by relevant government guidance. In the present case there is important background in the National Assistance Act 1948 (Choice of Accommodation) Directions 1993 ("the Choice Guidance"), but it is the Welsh Assembly Government's August 2010 Fulfilled Lives, Supportive Communities: Commissioning Framework, Guidance and Good Practice ("the Commissioning Guidance"), which replaced earlier guidance issued in 2003 which is of central importance.
22. Section 7 of the Local Authority Social Services Act 1970 provides that, in performing its functions, a Council must "act under" the general guidance of the relevant Minister, and in the case of a devolved function, the Welsh Ministers. It is clear on the authorities that while guidance is not mandatory, it should be given great weight and an authority can only depart from it for cogent reasons: see R v Islington LBC, ex p. Rixon [1997] ELR 66 at 71; R (Munjaz) v Mersey Care NHS Trust [2005] UKHL 58 at [21] and [68] – [69]; R (Forest Care Homes Ltd) v Pembrokeshire County Council [2010] EWHC 3514 (Admin) at [28].
23. Paragraph 2.2 of the Choice Guidance provides that if an individual assessed in need expresses a preference for particular accommodation the local authority must arrange for care in that accommodation provided the accommodation is suitable in relation to the assessed needs, "to do so would not cost the local authority more than it would usually expect to pay for accommodation for somebody with the individual's assessed needs", the accommodation is available and the person in charge of it is willing to provide accommodation subject to the local authority's usual terms and conditions. By paragraph 2.3 "on request, local authorities must arrange placements for individuals where third party funding is in place to cover costs exceeding those which local authorities would normally pay for that level of need". However, by paragraph 3.9 "individual residents should not be asked to pay more towards their accommodation unless they have specifically expressed a preference for more expensive accommodation than an authority would usually expect to pay".
24. Paragraph 4.3 of the Choice Guidance provides that, "when setting its usual cost(s) an authority must be able to demonstrate that this cost is sufficient to provide most residents with a level of care services that they could reasonably expect to receive if the option for resident and third party contributions did not exist".
25. The Welsh Assembly Government's 2010 Commissioning Guidance provides an enabling framework. It was issued at a time when there was widespread awareness of the difficult financial climate for public authorities, and limited public funds. The framework is intended to help local authorities improve the quality of commissioning practice "and hence the quality and coherence of services for the people of Wales": part 1, paragraph 1. The material provisions are standards 1, 2, 4, 7, and 10. They provide:

"Standard 1

Social services can demonstrate how commissioning plans have translated their commitments to local strategic plans into consistent high-quality linked or seamless services to meet the needs of local citizens

…

…

Commissioning plans are also essential to enable local providers to develop their business plans. They should be public documents and should contain sufficient detail to signal the authorities intention to potential service providers.

…

Standard 2

Commissioning plans have been based upon sound evidence and reflect national policy and guidance, local strategic plans, research and best practice. They include comprehensive population needs, service, market and resource analyses.

Commissioners need to have a rationale for their commissioning plans, and need to be able to explain to service users, carers, councillors, taxpayers, providers and inspectors, how they arrive at their commissioning decisions.

…

Representatives of service providers need to be engaged at each stage of the analysis process as they can make valuable contributions towards identifying changes in need and with regard to the existing capacity to deliver services and options for future developments.

…

Standard 4

Commissioning plans have been developed with partners and have involved all key stakeholders including users, carers, citizens and service providers in the statutory, private and third sector.

…

It is essential that users are able, with assistance if necessary, to contribute their views…

…

Arrangements should ensure that care providers can participate fully in planning activities without conflicts of interest, this may be best facilitated through representative bodies…".

….

Standard 7

"The local authority has ensured that its Financial and Contract Standing Orders allow social are commissioners to be efficient and effective in developing the local social care market.

Local authorities should keep their Financial and Contract Standing Orders under review to ensure that they are fit for purpose to secure social care services of the quality required.

…

In developing services that are responsive to citizens' needs, it is important for local authorities to have financial regulations which allow them to support the development of a sustainable economy of care across the public, private and third sectors.

Sustainable means that short term considerations should not threaten medium to long term service delivery. Unrealistic fees, for example, may ease the pressure on the budget of the commissioner this year but if the service ceases to operate due to financial difficulties the savings will prove self defeating. Equally, the continued investment in services which may undermine independence or fail to promote independence may prove to be unsustainable both in financial and workforce terms."

…

Standard 10

"Commissioners have understood the costs of directly provided and contracted social care services and have acted in a way to promote service sustainability.

Commissioners will have to take into account the full range of demands on them and their strategic priorities, as well as the resources they have at their disposal in developing their commissioning strategies. As stated earlier the financial outlook is going to be very challenging for some time to come. This makes the commissioning framework more important.

In seeking long term value for money and determining the budget available for specific social care services it is necessary for commissioners to take into consideration a whole range of factors, for example:

The national or local economic environment may be making it difficult for some provider organisations to remain financially viable.

A requirement to improve the quality of services may put a short-term strain on resources.

The move to an outcomes-based approach may pose serious cultural as well as financial challenges.

Recognition of the need for service providers to be able to recruit employees with the skills and aptitudes necessary to deliver good quality care, to provide them with the training they require to obtain qualifications relevant to their duties and to facilitate continuing professional development to extend their abilities.

The need to re-train the workforce to respond to more up-to-date practices may have transition cost and service implications.

Thus, it will be important for commissioners, in contract, fee and service level negotiations, to recognise the financial and service challenges that are having an effect on providers, and consider both short and longer term scenarios.

Local authorities need to have mechanism in place to discuss costs and performance with providers. Fee setting must take into account the legitimate current and future costs faced by providers as well as the factors that affect those costs, and the potential for improved performance and more cost-effective ways of working. The fees need to be adequate to enable providers to meet the specifications set by the commissioners together with regulatory requirements.

Registered providers also have an obligation to ensure that the income which they receive for providing the service is sufficient to meet the cost of delivering a service which complies with all statutory requirements, contractual conditions and specified service standards.

Commissioners should have a rationale to explain their approach to fee setting. The primary concern is that services operate safely and effectively to promote the welfare of service users and carer and meet regulatory requirements."

26. The references to the "financial and service challenges" and "more cost-effective ways of working" are concerned with what Standard 9 describes as the need for "value for money" and "fit[ness] for purpose". Value for money, under Standard 9 "balances quality, cost and effectiveness, taking account of available resources".
27. In the Forest Care Homes case Hickinbottom J stated (at [46]) that:

"(4) … The 2010 Guidance associates better decision-making process with better outcomes, emphasising the crucial nature of the former. It requires good decision-making process, and identifies how that is to be achieved. In times of public financial constraint, the importance of proper process is compounded. Unless an authority has compelling reasons for departing from that Guidance, it is bound to follow it. The greater the departure from the Guidance, the more compelling the reasons for the departure must be.

(5) The Guidance requires the authority to plan commissioning, strategically and transparently, over at least the medium term: and to make individual decisions (i.e. all decisions other than those I have described as "strategic") in the light of both the Guidance and that plan. It must not make short-term individual decisions which might adversely impact upon its longer term strategic plan, without proper consideration and compelling explanation."

(6) In making strategic or individual decisions, an authority must have proper regard to the consequences such decisions will or may have on both providers and, especially, the residents of care homes. As with any such assessment, the authority must have regard to both the nature of potential adverse consequences, and the chance of such consequences coming about. A potential, or even actual, adverse consequence for providers or residents or both will not necessarily be determinative of a decision – an authority does not have to guarantee that its decision will not have adverse consequences for some interested party – however, an authority cannot make a decision that may have such consequences without proper consideration and compelling reasons. That requires an authority to identify any relevant risks, and then assess those risks in terms of the chances of the adverse event occurring and the seriousness of the potential consequences if it does.

….

(7) The 2010 Guidance requires strategic plans to be publicly available. Without placing a disproportionate burden on authorities, the essential reasoning of individual decisions should also be recorded in writing, and given to interested parties including, where appropriate, providers. The 2010 Guidance has transparency as a hallmark. It requires a commissioning authority to work "in partnership" with providers (as did the 2003 Guidance), and that can only be achieved if providers are aware of the reasoning behind commissioning decisions important for them. Providers also need to know to reasons for a decision affecting them to enable them to consider the legality of the decision, and to challenge it if they consider it to be unlawful and they wish to pursue that course."

The new decision

PriceWaterhouseCoopers' report

28. When reconsidering its decision in the light of the decision in the Forest Care Homes case the Council employed PwC to review and update the inputs from the Laing and Buisson model. Mr Lovell led the work. The result, a draft report, "Pembrokeshire County Council: Cost of Care Analysis 2010/2011", is dated 26 January 2011.
29. The report stated that what was conducted was a desktop analysis in which "to facilitate methodology, continuity reliance [was] placed on the integrity of the data supplied" by the six chosen operators together with a number of generally accepted inflationary indices. This was done although PwC stated it had identified certain anomalies where data was either missing or amounts appeared to be generous. The second part of the analysis section deals with a report by Christie & Co, a specialist care home agent, on a number of factors in the wake of the credit crunch which affected care home values. Christie & Co's conclusion was that the impact of those factors was a market value fall of 25% in the 12 months before January 2011. This section of the analysis does not, however, deal with the implications, if any, of that fall for the rate for capital return in the sector.
30. It is one of the claimants' criticisms that both the PwC report and the defendant's decision erroneously assume that the fall in market value means a lower rate of return on capital should be used. They rely on a letter dated 14 February 2011 from Christie & Co to Mr Joshi, who asked for an updated opinion on the current benchmark for the required return on investment. Christie & Co inter alia stated it was of the opinion that care homes for the elderly "currently achieve a YP in the region of 6 – 8, depending on location, quality, size, compliance and other factors. These YP levels reflect a return on investment in the range of 12.5 to 16.6%".
31. The section in the PwC report on return on capital stated:

"[W]ith funded demand across the residential care sector falling broadly between 6 – 8% in recent years…there is a surfeit of capacity. Consequently, in today's market it could be argued that it is more appropriate to consider the cost of sustaining the current portfolio, rather than seeking to expand or replace it".

It also referred to the inclusion in Laing and Buisson's "toolkit" of an element to facilitate upgrading the physical environment. However, it stated that "to gauge the relevance of this within [Pembrokeshire's] independent sector portfolio would require a series of site visits together with an understanding of how the improvements were to be funded and the apportioned annual cost", and "to understand the true cost structure of the Pembrokeshire portfolio would require access to the funding (interest and capital repayment) arrangements of the individual operators", but this information is not available. Accordingly, "it is therefore not possible to positively assess to what degree the notional rate of return of 12%, hitherto incorporated in the RSM [Tenon] adaptation model, truly reflects the cost of sustaining the current portfolio over and above a rate needed to encourage further market growth".

32. This section of the PwC report also referred to the reduction in land prices identified by the Council's valuation department, and the view of the care home agents, Christie & Co, that there had been a slippage in market values of approximately 25%. The report stated that, for those reasons, it included a range of rates of return to assist in making "what is inevitably a matter of judgement". The rates chosen ranged from the 12% hitherto used to 6%. The report stated that the varying rates of return were included for "illustrative purposes", and "for the avoidance of doubt it should not be implied that these represent PwC's view on what rates of return/margin should be applied". The reason for this is stated to be that "such a commentary is beyond the scope of this review".

The decision letter

33. The decision letter signed by Mr Skone and written in the first person is a substantial document running to just over 9 pages of single-spaced type. It stated that the Laing and Buisson toolkit for Wales was generally used as the "primary model" supplemented where appropriate by Mr Laing's subsequent 2008 report to assist in reaching "an initial 'guide' price". Mr Skone stated that he would then consider this in the light of; (a) his obligations under the 1948 Act, (b) the Welsh Assembly Government's August 2010 Fulfilled Lives, Supportive Communities: Commissioning Framework, Guidance and Good Practice, (c) Hickinbottom J's judgment; (d) what Mr Skone described as "the helpful observation of the court that the model is the servant of the decision-maker in setting a rate, not his master", (e) "the requirement to consider the overall improvement in commissioning of services", (f) and the needs of current residents, the care home sector, other residents in Pembrokeshire and other service sectors within the county. The letter also stated that, due to the time constraint, Mr Skone (like PwC) relied on the data provided by the six homes used in the original calculation, although he had not been able to establish the reliability of the sources of information or to verify the information.
34. Page 2 of the letter stated that there was potential for significant efficiency savings in wage rates and food and consumables, and (page 3) that Mr Skone had assumed the occupancy level was as that set by the previous consultants, RSM Tenon, and the operators at 91.73%.
35. The section on capital costs and return on capital stated:

"I accept that an adequate return on capital for care home operators is key to achieving a stable independent sector of sufficient size and appropriate quality to meet the Council's commissioning needs together with those of our NHS partner."

The letter then set out the assumptions upon which the Laing and Buisson toolkit was based. It stated:

"The toolkit is based on the assumption that new or replacement care home capacity is required, and that Councils need to set fee rates so as to; (a) incentivise existing operators to continue to offer services and to upgrade their physical assets where they are below national minimum standards for newly registered homes, attract investment in new care home capacity to replace that which is being lost, and compete with private payers and residents funded by other public sector agencies for available care home places."

It also referred to Mr Laing's 2008 statement that "Councils should ideally set 'spot-purchase' fees at levels sufficient to offer providers a return on capital of 12%.

36. The letter set out paragraph 4.41 of the Council's Community Care Commissioning Plan 2007 – 2010. In particular, this stated the defendant had aimed to achieve a 3% annual reduction in residential beds purchased from the private sector between 2007/8 and 2011/12, but this had not been achieved, although there had been an increase in purchases from public bodies in nursing homes.
37. At pages 8 – 9 Mr Skone stated:

"I do accept the need to incentivise a proportion of existing operators to continue to offer services. I also accept the need to upgrade physical assets.

I also accept a limited requirement for investment to prevent certain homes closing. However, I do not accept the need to attract investment in new care home capacity, and I do not accept that fees need to reflect the Council's ability to compete with private payers as we currently purchase less than 50% of current capacity.

I do accept that independent operators are the dominant source of care home supply in Pembrokeshire and are likely to remain so for the foreseeable future…However, at 91.73% occupancy there is capacity within the sector.

[The] PCHA submission is predicated on a target return of capital of 12% (Laing, 2008). However, this represents Laing's quite reasonable attempt to produce one simple formula for return on capital, which can be applied regardless of the capital structure of the home, and enable Councils to achieve the three outcomes detailed above.

I have concluded that if PCC accepts the 12% return on capital it is accepting the three principles, and is incentivising the sector for developments it does not strategically wish to commission. This does, however, need to be balanced with the need to ensure reasonable returns and maintain market stability.

…

Land values in Pembrokeshire have fallen by a third since 2009…I am also mindful that homes in Pembrokeshire are generally significantly smaller than 50 beds so the land requirement is reduced. I am also aware that as a result of the work of PriceWaterhouse Coopers LLP, that Christie & Co, the specialist care home agent, has recorded a fall of 25% in market values in the last 18 months.

With funded demand across the residential care sector falling broadly between 6 – 8% in recent years, due primarily to increased usage of domiciliary care solutions, there is a surfeit of capacity as illustrated by the fact that the Council purchases less than 50% of current capacity.

Consequently, in today's market it could be argued that it is more appropriate to consider the cost of sustaining the current portfolio rather than seeking to expand or replace it.

It is my considered view that a 12% return on capital is likely to be very generous.

For the reasons set out above, I have concluded that a reasonable target return on capital should be 6%. This results in a total capital cost of £52 per resident per week, and a maximum capital cost adjustment factors for homes not meeting physical standards for new homes of £32."

38. The remainder of the letter deals with the capital cost adjustment factor and impact. It states inter alia:

"I have concluded that the most appropriate way to proceed is to assume that in the intervening years, all homes within Pembrokeshire meet the physical standards required, and as a result the capital cost adjustment factor will not be applied. I have concluded that this return of £52 per resident per week (6%) provides a reasonable rate of return at current prices and economic environment. I am also of the view that there is scope for operators to increase their rate of return by adopting more efficient operating practice.

…

I now need to consider whether this will impact on the quality of life of current residents, sustainability of the care home sector, quality of life of other residents of Pembrokeshire, and the sustainability of other service sectors within the county.

The key issue for current residents and their families is whether or not this fee provides stability within the market. Data available on those businesses which are limited companies from the website www1.checkkit.co.uk suggests that at the current fee of £390 prw 8 of the 9 businesses generate a profit after tax and other appropriations. They also appear to have positive profit and loss reserves.

The data available on www.carehome.co.uk, which provides the fees charged by homes, indicates, within a wide range which means that the data may be relevant but not necessarily statistically reliable, that a fee level of circa £430 per resident per week for nursing and £410/£415 per resident per week for residential is reasonable. It should be noted that data from all homes in Pembrokeshire, irrespective of size, were considered.

There is no evidence available to me to suggest that this guide fee rate would destabilise the sector, and therefore it would not create a negative impact upon the quality of life of current residents."

Discussion

39. At the outset two matters should be noted. First, notwithstanding the constrained financial circumstances of many public authorities this is not a case in which the Council relied on a lack of resources. Mr Skone did not (statement, paragraph 19) take into account the Council's resources when making the decision. Secondly, as in the Forest Care Homes case (see [43]), the claimants and the Council are sensitive to the needs of the elderly people accommodated and cared for in the claimants' homes.
40. A significant part of the material before the court concerned the requirements of the economic model that is the toolkit, detailed information about the position in Pembrokeshire, and detailed information about projections as to future requirements for beds in the different types of home. The very detailed nature of the evidence and the submissions on behalf of the claimants appeared to be inviting the court to engage with the merits of the decision. Hickinbottom J had the same understanding of the claimants' evidence in the Forest Care Homes case: see [50]. But it is not the function of this court to engage with the merits of the Council's decision. A judicial review court is not concerned with the weight to be attributed to various factors and will be circumspect in engaging with the conclusions of the primary decision-maker, particularly in relation to complex economic and technical questions: see, for example, Upjohn Ltd v Licensing Authority [1999] 1 WLR 927 at [34] and (in the context of proportionality) R (British Telecommunications plc and others) v Secretary of State for Business, Innovation and Skills [2011] EWHC 1021 (Admin) at [213] – [214], per Kenneth Parker J. However, in the present case it is possible to reach a decision without entering into that difficult territory. This is because the Council has said that it would apply the Laing and Buisson toolkit model for determining the rate for 2010/2011, and that model involved a 12% rate of return on capital. In the light of that the toolkit is more than just a relevant consideration. That factor and the terms of the Welsh Assembly Government's Commissioning Guidance (see [25]) mean that, as accepted by the Council, (see [12]), the starting point was not a clean sheet.
41. Mr Skone's evidence is that he had the Commissioning Guidance at the forefront of his approach. The relevant provisions in it are Standards 4, 7 and 10. Standard 4 refers to the need for users and care providers to participate in the process, Standard 10 for local authorities to have a mechanism in place to discuss costs and performance with providers, and a rationale to explain their approach to fee setting. Standard 7 emphasises the importance of supporting the development of a sustainable economy of care, i.e. that short-term considerations should not threaten medium to long-term service delivery. Paragraph 4.3 of the Choice Guidance requires an authority to demonstrate that the fees are sufficient to provide most residents with the level of care services that they can reasonably expect to receive.
42. It is accepted on behalf of the defendant that, in the light of the guidance, when setting a fee it was under an obligation to do so in a way that sought to ensure the requisite quality of the service provided and the sustainability of the providers. Miss Robertson submitted that the guidelines also mean that the Council needed to provide a rationale to explain its approach to fee setting because that is important for providers in order to plan and in that sense it is important for the sustainability to which Standard 7 refers. I accept that the goals identified in the Standards include this as one of the aims of the process and the desirability of such a rationale is a factor to be taken into account.
43. It was also common ground that having agreed to use the Laing and Buisson toolkit to set the fee rate for 2010-2011, the defendant could not deviate from the model without a rational justification which it shared with providers. Mr Skone appears to have fastened on Hickinbottom J's statement in the Forest Care Homes case at [79] that "the model is the servant of the decision-maker in setting a rate, not his master". He stated that he took Mr Laing's 12% rate of return into account, but (statement, paragraph 28) it had no status save as Mr Laing's opinion at the time it was written. He noted that Mr Laing had reduced the figure in the revisions of the toolkit since 2002.
44. In taking this approach, Mr Skone either lost sight of or had insufficient regard to the guidance given by Hickinbottom J in the later part of paragraph [79]. He also stated that "given the nature of the model and the Council's policy decision to use it, any departure would have to be for compelling reasons…any criteria used must be capable of rational justification by the decision-maker…". Moreover, he stated that it was "important that the authority makes a rational and reasoned decision to use a particular criterion in the context of the model it has adopted, and is able and willing to share that reasoning with interested persons, including of course providers".
45. In the present case, the reasoning in the decision, and indeed in Mr Skone's witness statement, is not defended, but it is said that, on the basis of his undoubted considerable experience in the sector, the conclusion he reached as to rate of return was a lawful one. This, it is said, is because he was entitled to take the view that a departure from the 12% rate of return on capital in the model was justified in the light of his knowledge of and experience of the rural setting of Pembrokeshire: (statement, paragraph 37). Relying on Hickinbottom J's statement at [46(3)] of the Forest Care Homes case that so long as a local authority provides the minimum required under section 21 of the 1948 Act in some form, "it has a wide discretion, both with regard to the nature of the accommodation and care, and its precise standard", Mr Phillips submitted (skeleton argument, paragraph 10) that "provided the relevant minimum standards are achieved on a sustainable basis [Pembrokeshire County Council] will have discharged its statutory duty".
46. Although Mr Phillips distanced himself from the reasoning in the decision letter, he did refer to Mr Skone's approach to show that it does not necessarily follow from the fact that the methodology may have been flawed that the fee level that was set is wrong. He referred to the statements in the decision letter that the reasoning was tested by reference to impact on the quality of life of residents and the sustainability of the care home sector, and that cross-checking was done by considering the data on two websites, "checkit.co.uk" and "carehome.co.uk". Mr Phillips submitted that this showed that it was clear that Mr Skone addressed the key issues of quality and sustainability of a service that achieved at least the minimum standards. He also relied on Mr Skone's view that return on capital was not a major issue in Pembrokeshire (statement, paragraph 29), his conclusion that the claimants had shown "proven deficits" because the figures provided and used by RSM Tenon and then by PwC had not been verified (statement, paragraph 20(b)), and the limitations of the data available: see to Mr Skone's statement, paragraphs 20(b), (c) and (i), and 23.
47. There is, however, undoubtedly considerable tension between the submission that what is relevant is the figure fixed, and the reliance in the submissions to the factors in Mr Skone's reasoning process. I have referred (see [39]) to the functions of a court exercising the supervisory jurisdiction. It is important not to lose sight of the fact that its principal task is not to reconsider the merits of the decision but to examine the process by which the primary decision-maker (here the Council) reached its decision: see in the context of a commissioning decision: R (P) v Essex County Council [2004] EWHC 2027 (Admin) at [30]. Mr Phillips was in effect submitting that the court should put aside the process and consider the merits of the decision made by the Council.
48. The circumstances in which merits might be considered in a judicial review are generally situations where the decision-maker has complied with the public law criteria of purpose and relevance but the outcome is so outside the range of reasonable decisions that it can be said that that no reasonable authority could have reached it. Such decisions are known as Wednesbury unreasonable or "irrational" in the technical sense of that word used by Lord Diplock in the GCHQ case [1985] AC 374, 410 (although note the criticism of the use of "irrational" in R v Devon CC ex parte G [1989] AC 573, 577). There may be cases in which the presence of irrelevant considerations, impropriety of purpose, or another public law error is not fatal and the court withholds a remedy normally on the ground that absent the error there would be "no difference in the decision". So, in the classic case of Roberts v Hopwood [1925] AC 578, which concerned a decision of the Poplar Council to fix wage levels on the basis of what Lord Atkinson described as "some eccentric principles of socialist philanthropy" or "a feminist ambition to secure the equality of the sexes in the matter of wages", Lord Sumner (at 604) stated that if it was found that the councillors' "evil minds had missed their mark, and the expenditure itself was right, then the expenditure itself would not be contrary to law".
49. Roberts v Hopwood was a case in which the duty was unconstrained by factors such as those in the Commissioning Guidance. Moreover, the circumstances in which it may be appropriate to look to the result rather than the process need to be tightly circumscribed lest the distinction between review and appeal be inappropriately eroded. This has (see [58]) been particularly recognised in the context of procedural fairness. Similar considerations, however, apply in other contexts, for example where the decision-maker was mistaken but might well make the same decision if required to reconsider (Simplex v Secretary of State for the Environment (1988) 3 PLR 25) or the exercise of discretionary power: see R v DPP ex parte C [1995] 1 Cr. App. Rep. 136 at 144; the discussion of the Pergau Dam case in Wade and Forsyth's Administrative Law, 10^th ed. 325; R v Inner West London Coroner, ex parte Dallaglio [1994] 4 All E.R. 139, 154, 164, and the cases digested in Fordham's Judicial Review Handbook 5^th ed. 42.2.5. The court must be sure that any process errors have not affected the decision in more than an insubstantial or insignificant way.
50. Since the court is not the primary decision-maker, the approach urged on it by Mr Phillips is to infer the legality of what was done from the size of the percentage increase in the rate and Mr Skone's expertise. However, notwithstanding the size of that increase and the undoubted considerable expertise and bona fides of Mr Skone, it is not possible to ignore the fact that the reasoning in the decision letter contains two errors. The first was in treating the fact that the Council did not want to incentivise new building as a reason for paying less by way of capital return, even though Hickinbottom J in the Forest Care Homes case had expressly stated (see [112] of the judgment) that this was wrong. Secondly, it would appear that the Council considered that the 25% fall in the market value of care homes identified by Christie & Co justified lowering the rate of return, although there was no inquiry by PwC or anyone else as to whether there is a link between the fall in market value and the rate of return. This could have been done, for example, by asking Christie & Co, as Mr Joshi later did.
51. It may well be that both the fact that the Council did not want to incentivise new buildings and the 25% fall in market value of care homes assumed the significance it has in the Council's approach as a result of the contents of the PwC report. It appears, from Mr Lovell's evidence (statement, paragraphs 6.2, 6.4 and 7.9) that he considered the fact that the Council did not want to incentivise new buildings was a reason to give a lower rate for return on capital. He, after all, led the work which resulted in the PwC report, and it was that report which gave a significance to the 25% fall in market value of care homes, even though it carefully refrained from endorsing any particular rate of return. Mr Skone, who is neither a lawyer nor an economist, may well have relied on the PwC report. The problem in his doing so was, to borrow terminology used by Mr Lovell in his statement, that the PwC report lacked "granularity" (i.e. detail) and analysis on the significance of the fall in market values and (in the light of Hickinbottom J's judgment) of the fact the Council did not wish to incentivise new building.
52. Whatever the cause of the problem, the result is that an important component of Hickinbottom J's judgment in the Forest Care Homes case was lost sight of. Also, as far as the link between the fall in market value and rate of return, Mr Skone, or probably the consultants who were advising the Council, failed to take reasonable steps to acquaint themselves with the relevant information as to the significance of the fall in market value. In that sense, the Council fell into public law error. That error can be analysed in one of two ways. The first is that, in the language used in Secretary of State for Education and Science v Tameside [1977] AC 104 at 1065, the Council failed to ask itself the right questions. The second is (see Simplex v Secretary of State for the Environment (1988) 3 PLR 25 and R v Secretary of State for Education, ex p. E [1996] ELR 312) that the decision was based in part on irrelevant factors which the Council took into account as the result of a mistaken appreciation of the position. In relation to both the significance of the fall in market values, and whether the fact the Council did not wish to incentivise new building was a reason for departing from the 12% rate, the decision was based on assumptions which are mistaken. It is, as McCowan LJ stated in Horsham DC v Secretary of State for the Environment [1992] IPLR 81, 92, not enough for a decision-maker merely to have regard to a relevant consideration (in that case the plan) if he misinterprets it.
53. It is, in this context, also to be noted that there is no positive external support; either contemporaneous to the decision, for example in the PwC report, or subsequent to it, for example in Mr Lovell's evidence, for the adoption of 6% as the appropriate rate of return of capital. Mr Lovell's evidence does not comment on the contents of Christie & Co's letter to Mr Joshi, which states that its view is that the range is from approximately 12 to 16%.
54. As to the reasons given in Mr Skone's statement, leaving aside the caution which must be applied to ex post facto reasons (see R (Nash) v Chelsea College of Art and Design [2001] EWHC 1358 (Admin) at [26] – [29] and R v Westminster CC, ex p Ermakov [1996] 2 All ER 302), these in part reflect the errors to which I have referred (see [46]), but are also problematic in other ways. They contain arithmetical errors. The deduction of 1% per annum for the two years since the 2008 edition of the "toolkit" to get to a starting figure of 10% was made on the basis that Mr Laing had previously done this (statement, paragraph 28) but this is an over-deduction: Mr Laing's rate had been reduced by 4% over 6 years. Also, although this is only expressly stated in the context of a deduction from 7% (as to which see below), Mr Skone appears to have considered (statement, paragraph 34) that the deductions of 1% return on capital which he made equated to about £3.50 per resident per week. But the calculation in PwC's report was that 12% return on capital equated to £105 per resident per week, producing a figure for a 1% return of £8.75 per resident per week. The 7% was arrived at after (statement, paragraph 33) making other 1 % deductions for three factors Mr Skone considered did not apply. One of these discarded factors was incentivising operators to continue offering services and to upgrade their homes. The view that factor did not apply appears, however, inconsistent with the decision letter and standards 7 and 10 of the Commissioning Guidance, and needs to be justified. It was not.
55. Miss Robertson accepted that the Laing and Buisson toolkit was not the only way of determining the rate of return. But she argued that the alternative to an accepted model was to investigate actual capital structures to ascertain what would be adequate for a particular home or range of homes in a particular area. The Council departed from elements of the widely used toolkit formula which it had stated it would apply and which determined the rate by reference to the opportunity cost of not employing the capital elsewhere measured by what one could reasonably expect to realise by selling a care home. But it did not seek to investigate actual capital structures. Given the limited time available between Hickinbottom J's judgment and the deadline, it would not have been possible to do a full investigation and analysis. But although, in his statement, Mr Skone states he took into account the information provided by the claimants about their costs, there is no indication from the decision letter that he did so. There is also no indication from the decision letter that he took account of the information about costs in the evidence adduced in the Forest Care Homes case, or in any discussion with providers. The Commissioning Guidance required this to be done: see, in particular, Standard 10, but also Standard 7.
56. The claimants also submitted the decision should be remitted because it failed to make an allowance for quality. Mr Skone's evidence was that since the majority of providers now meet minimum physical standards, there is no need to reward those who reach the highest standards. Miss Robertson submitted this is inconsistent with the Commissioning Guidance. Mr Skone also relied on the absence of an agreed accreditation system and the impossibility for him to have produced a satisfactory method for within the tight timetable. While accepting that there are a number of ways in which quality may be recognised, Miss Robertson maintained that, since there was a method of allowing for quality in Laing and Buisson's toolkit, the absence of a different method with different standards is not a reason for abandoning that – the £25 top-up method – until new standards and a new method are devised. I accept this submission largely for two reasons. The first is that, in this case, the Council had agreed to use the Laing and Buisson toolkit and did so in its original decision. Secondly, it was common ground that departures from the toolkit should not take place absent good reason. The abandonment of the quality incentive on the ground that all providers met the minimum standards and no satisfactory way existed to incentivise further improvements, is to abandon the toolkit without being able to address what is seen to be a legitimate part of the incentive process. The effect of removing a reward for quality is to reward those who do not invest in quality at the same level as those who have done so. Both the Laing and Buisson report and the Forest Care Homes case at [109] refer to the need for a reward for quality and its purpose.
57. I have referred (see [40]) to the very detailed nature of the claimants' evidence and submissions. It has not been necessary for me consider every matter relied on in support of the argument that the new rate is unlawful. For instance, I have not dealt with the argument that the Council wrongfully relied on an unpublished draft Commissioning Plan. But the clear message of Hickinbottom J's judgment in the Forest Care Homes case is that a decision-maker who agrees to use a model, but then wishes to depart from it, needs to take great care lest the departure is an inappropriate one. I have also referred (see [43] – [44]) to the general approach taken by the Council to the toolkit and its figure of a 12% rate of return. It is now said that, notwithstanding the problems I have identified with the methodology and reasons, Mr Skone arrived at a lawful result. It is, however, not possible to divorce the end result from the errors I have identified in the methodology and reasoning in the decision and the subsequent explanation given for it.
58. It is not possible to assume that, if Mr Skone and the Council had properly understood that the return on capital should be the same whether or not the Council was seeking to incentivise new buildings, his decision as to the appropriate fee would have been the same. There are also indications (albeit primarily in the detailed grounds and skeleton argument) that the Council regarded "return on capital" as "profit", when that was not so, and a far more nuanced concept was required: see the Forest Care Homes case at [94] and [112]. For these reasons, I am unable to conclude that the Council would not have reached a different decision if it had regard to the guidance about sustainability, what was stated in the Forest Care Homes case on the application of the 12% rate of return in Laing and Buisson's toolkit, and the way in which, given the initial decision to use the toolkit, a departure from it had to be justified. It follows that the decision must be set aside and remitted to the Council for the redetermination of the rate for 2010/2011.
59. In reaching this conclusion I have not referred to three matters relied on by Miss Robertson, two of which support it. The first (see supplementary skeleton argument, paragraph 8(d)) is the fact that no opportunity was given to the claimants to comment on the fact that the Council was proposing to depart from the 12% figure which had previously been common ground. The second is the need under the Commissioning Guidance for a rationale for an authority's approach to fee setting to assist providers in planning. The third is the "accumulated deficit issue". I turn to those.
60. Although the Council had the raw data it used in its original determination of the weekly rate, there was undoubtedly a very short time, given the Christmas holiday, for it to re-determine the rate in the light of Hickinbottom J's judgment, by 31 January. An approved version of that judgment was not available until 14 January, and there was little time for consultation with service providers. But, given the acceptance of the 12% rate by all at the time of the original decision and the first judicial review, once Mr Skone realised that he was contemplating a departure from it, the service providers should have been alerted to the fact that that was under consideration. No doubt, given the time constraints, all that was possible in that time would have been a broad indication and a request for comment within a very short period.
61. The second matter concerns the Council's submission that the fee rate is lawful because it is a 19% increase on the previous year's fee, and was set in the light of consideration by a very experienced public official. The approach taken at the hearing in effect stated that the rate would have been the same even if the Council had not erroneously concluded that the 12% rate related only to new building costs, or rejected such evidence as it had about the financial position of the claimants. Similarly, the Council is in effect stating that there would have been no difference whatever the claimants or their representative organisations had said in response to an indication by it that it was contemplating departing from the 12% rate. For the reasons given by Megarry J in John v Rees [1970] Ch 345 at 402, and Lord Steyn in R (Amin) v Home Secretary [2004] 1 AC 653 at [52] courts exercise considerable caution before accepting such submissions. This is so whether the matter is treated as one of procedural fairness or (see [48] – [49]) the substantive legality of the decisions. The court does not ask whether the decision-maker would, or probably would, have come to a different conclusion. It only has to exclude the contrary contention, that the decision-maker necessarily would still have made the same decision.
62. In explaining why it is not possible to conclude that, absent the two errors, the Council would still have made the decision it did, I have also not referred to the need in the light of the Commissioning Guidance, and in particular Standard 7, for a rationale for the defendant's approach to fee setting. The only rationale that can be drawn from the way the Council's case has been put is Mr Skone's considerable experience and the particular position in Pembrokeshire. But that is such a general and conclusory rationale that it does not enable providers to plan and thus to promote or assist sustainability. The generality and the instinctive basis of the approach is said to be explained by the tightness of the timetable for re-determining the rate. It may be that the tightness of the timetable is a reason for some departure from the Guidance, but, once it is accepted (see [12]) that the decision on rate of return "was not communicated with sufficient transparency" and "the decision letter did not provide compelling reasons for departing from the Laing criteria" the decision does not meet the Rixon test (see [22]) that an authority can only depart from guidance for good reason.
63. I turn to the accumulated deficit issue. The decision-letter does not consider whether the providers have an accumulated deficit. This was a factor the claimants' solicitor had expressly asked to be considered in her letter dated 7 January 2011. The defendant could have considered this by reference to the evidence in the Forest Care Homes case and submissions collected from providers. The decision letter appears to test sustainability and impact on quality of life of current residents by asking only whether the fee proposed "provides stability within the market". This was checked by reference to the two websites, the data on which suggested that eight out of the nine businesses generated a profit at the previous fee of £390 per resident per week. The decision states "there is no evidence available to me that would suggest that this guide fee rate would destabilise the sector". Mr Skone's witness statement explains this omission by stating that the defendant had not been given details of an accumulated deficit, and that the material available did not "prove" a deficit. What the Commissioning Guidance required, however, was consideration of sustainability. The material before the defendant about financial difficulties which the claimants said they faced does not appear to have been considered. In the defendant's skeleton argument it is suggested that the absence of failures in the sector shows that there is such sustainability, but this is not what is envisaged by the Commissioning Guidance, in particular, given the reference in standard 7 to "medium to long term service delivery" and in standard 10 to the need for local authorities "to recognise the financial and service challenges that are having an effect on providers, and consider both short and longer term scenarios".
64. Notwithstanding the force of the criticisms that can be made of the defendant's treatment of this, particularly in the light of the express request by the claimants' solicitor, on this issue I accept Mr Phillips' submissions. The importance of finality in public law decision-making is well established. While it is true that the defendant had material in the form of evidence in the Forest Care Homes case and other submissions from providers stating there was such a deficit, that was not the basis of the challenge in the Forest Care Homes case: see the summary of the grounds at [5] – [16] of the judgment. In those circumstances, it was not incumbent on the defendant to raise this issue of its own motion when re-determining the rate. It is unfortunate that the defendant did not respond to the request by the solicitor. But, since this issue was not a ground of challenge and was not raised in the first judicial review, the request did not mean the defendant was obliged to deal with it, particularly given the tight deadline. It is simply too late to raise this now.
65. For the other reasons I have given, however, this matter must be remitted to the defendant for further consideration and the re-determination of the rate.