Case No: CO/9191/2012
Neutral Citation Number: [2013] EWHC 1827 (Admin)
IN THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
ADMINISTRATIVE COURT
LEEDS DISTRICT REGISTRY
The Combined Court Centre 
Oxford Row, Leeds

Date: 28/06/2013

Before :

HER HONOUR JUDGE BELCHER
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Between :

	THE QUEEN (on the application of (1) South Tyneside Care Home Owners Association (2) Helen McArdle Care Limited (3) Executive Care Group)	Claimants	
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	South Tyneside Council	Defendant	

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Mr Mathew Purchase (instructed by David Collins Solicitors) for the Claimants
Mr Philip Engelman (instructed by South Tyneside Council Legal Services) for the Defendant

Hearing dates: 2 and 3 May 2013
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Judgment
Her Honour Judge Belcher : 
1.	The First Claimant was formed prior to 2004 and represents the interests of 12 care home operators within South Tyneside.  The Second and Third Claimants are each owners or operators of care homes within South Tyneside.  Residents in care homes can pay their fees personally, or through relatives, or they can have their fees wholly or partly funded either by their Primary Care Trust if they are primarily in need of nursing care, or by the Local Authority if they are not. This dispute concerns the decision of South Tyneside Council (“the Council”) in respect of the fees it will pay to care homes in which it places elderly and/or disabled residents (“the Fees”), as set out in its “Agreement for the Provision of 24 Hour Residential Care Home Services or Nursing Care Home Services” (“the Contract”) issued on 31 May 2012.   The Claimants’ case is that, in various respects, the Defendant’s decision was unlawful, procedurally unfair and/or Wednesbury unreasonable.  The Defendant denies this.
2.	These proceedings were issued on 29 August 2012, just within the 3 month time limit.  In Section 7 of the claim form there was a request that this case be dealt with in the same way as four similar, but not identical, judicial review cases in which HHJ Richardson QC had granted permission and had ordered that the case against Newcastle City Council (R (on the application of CNEN) v Newcastle City Council CO/6620/2012), should be expedited with the other three cases being listed afterwards.  The Claimant sought an order that this case be listed for hearing after the case against Newcastle City Council in the same way as for the other three cases.  In effect the Claimant sought to join with the expedition in the other care home cases. In response to that, on 12 September 2012 the Council applied for these proceedings to be stayed.  On 17 September 2012 HHJ Gosnell stayed these proceedings until 28 days after judgment was given in the case against Newcastle City Council.  The hearing in the case against Newcastle City Council took place on 24 and 25 September 2012 and that Judgment was handed down on 18 October 2012.  On 6 December 2012, permission in this case was granted on the papers by HHJ Behrens on the 4 grounds of challenge originally pleaded.  On 27 March 2013, HHJ Gosnell granted the Claimants permission to amend the claim by the addition of two further grounds, Grounds 5 and 6.  
3.	The 6 Grounds of Challenge in summary are 
i)	In deciding on the level of the Fees, the Council failed to take into account return on capital/return on equity as a cost of care, and took a flawed approach to the concept of profit.
ii)	In setting the Fees on the basis of “bands” the Council failed to pay due regard to the actual costs of care.
iii)	In providing an uplift to the Fees for elderly mentally infirm (“EMI”) residents, the Council failed to pay due regard to the actual costs of care.
iv)	The Council failed to properly consult before reaching the Fees decision.
v)	The financial analysis undertaken by the Council for the purpose of determining the Fees is vitiated by a number of identifiable errors.
vi)	The Council failed to comply with its “public sector equality duty” pursuant to Section 149 Equality Act 2010.
References to the trial Bundles will be by capital letter A, B or C, Tab number where appropriate, and page number.  References to the bundles of authorities   will be AB and SAB to denote respectively the authorities bundles and the supplementary authorities bundle, followed by Tab and page number. 
The Law
The National Assistance Act 1948
4.	Section 21(1) of the National Assistance Act 1948 (“the 1948 Act”), as amended, gives local authorities the power to provide 
“…residential accommodation for persons aged 18 or over who by reason of age, illness, disability or other circumstances are in need of care and attention which is not otherwise available to them.” [AB, Tab 1, page 1]
In March 1993 that power was converted into a duty by Paragraph 2(1)(b) of Circular LAC (93)(10) [AB, Tab 6].  By Section 26 (1) of the 1948 Act, local authorities may make arrangements for the provision of residential accommodation with external providers and Section 26(2) provides that the local authority shall make payments for such provision [AB, Tab 1, page 4].
The Local Authority Social Services Act 1970
5.	By virtue of Sections 7 and 7A of The Local Authority Social Services Act 1970 (“the 1970 Act”), in undertaking its social services functions, the local authority is required to act under the general guidance of the Secretary of State (Section 7), and in accordance with written directions given by the Secretary of State (Section 7A) [AB, Tab 2, pages 1 and 2].   Directions given under Section 7A of the 1970 Act are plainly mandatory.  Statutory guidance under Section 7 is not mandatory, but an authority can depart from it only for good reason and following a considered and properly reasoned decision.   In R v London Borough of Islington ex parte Rixon [1997] ELR 66, Mr Justice Sedley (as he then was) said at page 71:
“…while “guidance” does not compel any particular decision….especially when prefaced by the word “general”, in my view Parliament by section 7(1) has required local authorities to follow the path charted by the Secretary of State’s guidance, with liberty to deviate from it where the local authority judges on admissible grounds that there is good reason to do so, but without freedom to take a substantially different course.”  [AB, Tab 16, page 71]
The National Assistance Act 1948 (Choice of Accommodation) Directions
6.	The National Assistance Act 1948 (Choice of Accommodation) Directions 1992, which were made under Section 7A of the 1970 Act, provide that a person entitled to accommodation under Section 21 of the 1948 Act should be accommodated at the place of his choice (the “preferred accommodation”), subject to paragraph 3 which, so far as relevant, provides as follows:
“3…the local authority shall only be required to make or continue to make arrangements for a person to be accommodated in his preferred accommodation if –
(a) the preferred accommodation appears to the authority to be suitable in relation to his needs as assessed by them;
(b) the cost of making the arrangements for him at his preferred accommodation would not require the authority to pay more than they would usually expect to pay having regard to his assessed needs;
(c) the preferred accommodation is available;
(d) the persons in charge of the preferred accommodation provide it subject to the authority’s terms and conditions, having regard to the nature of the accommodation, for providing accommodation for such a person under Part III of the National Assistance Act 1948.” [AB, Tab 5]
The cost referred to in paragraph 3(b) of these Directions is generally known as the “usual cost”.  It is the basis on which local authorities set the fees they will normally be prepared to pay to care homes.
Circular LAC (2004) 20
7.	Circular LAC (2004) 20 (“the Circular”) is Governmental guidance by which local authorities are bound under Section 7 of the 1970 Act.  The relevant parts of the Circular for the purposes of this case are as follows:
“2.5.4…[The usual cost] should be set by councils at the start of a financial or other planning period, or in response to significant changes in the cost of providing care, to be sufficient to meet the assessed care needs of supported residents in residential accommodation…In setting and reviewing their costs, councils should have due regard to the actual costs of providing care and other local factors.  Councils should also have regard to Best Value requirements under the Local Government Act 1990.
2.5.7 Councils should not set arbitrary ceilings on the amount they expect to pay for an individual’s residential care.  Residents and third parties should not routinely be required to make up the difference between what the council will pay and the actual fees of the home.  Councils have a statutory duty to provide residents with the level of service they could expect if the possibility of resident and third party contributions did not exist. 
3.3  When setting its usual cost(s) a council should be able to demonstrate that the cost is sufficient to allow it to meet assessed care needs and to provide residents with the level of care services that they could reasonably expect to receive if the possibility of resident and third party contributions did not exist.” [AB, Tab 8]

The Building Capacity and Partnership in Care Agreement
8.	In addition there is non statutory guidance, (that is guidance not issued under Section 7 of the 1970 Act), in The Building Capacity and Partnership in Care Agreement (“the BCPCA”) issued by the Department of Health. The BCPCA was considered by HHJ Raynor QC in R(Sefton Care Association) v Sefton Council [2011] EWCH 2676 (Admin).  HHJ Raynor QC decided that it made little difference that the BCPCA was not statutory guidance and that the council would have to justify departure from it. [AB, Tab 21, paragraph 19]
9.	Section 1 of the BCPCA is the “Introduction” and sets out the reasons for and purposes of the launch of the BCPCA.  Paragraph 1.7 provides as follows:
“This Agreement provides a framework for future working relationships between providers and commissioners locally, geared to delivering the services that people need and expect.  Its aim is to promote the establishment of close and harmonious working relationships, good communication and to foster constructive co-operation between all parties involved in providing care and support services for adults” [AB, Tab 7, page 5]
10.	Section 4 of the BCPCA is entitled “Information for Good Commissioning”.  Paragraph 4.4 refers to the policy of Best Value, which requires councils to balance cost and quality, and continues:
“This means that commissioners must have up-to-date information about prices (to them) and costs (to the provider) of services to ensure that the demands of best value are met.” [AB, Tab 7, page 10]
11.	Paragraph 5.9 of the BCPCA provides that commissioners should ensure they have in place, amongst other things, “Clear systems for consultation with all (and potential) providers”. [AB, Tab 7, page14]
12.	Paragraph 6.2 of the BCPCA provides as follows:
“Providers have become increasingly concerned that some commissioners have used their dominant position to drive down or hold down fees to a level that recognises neither the costs to the providers nor the inevitable reduction in quality of service provision that follows.  This is short-sighted and may put individuals at risk.  It is in conflict with the Government’s Best Value policy.  And it can destabilise the system causing unplanned exits from the market.  Fee setting must take into account the legitimate current and future costs faced by providers as well as factors that affect those costs, and the potential for improved performance and more cost effective ways of working.  Contract prices should not be set mechanistically but should have regard to providers’ costs and efficiencies, and planned outcomes for people using services, including patients.” [AB, Tab 7, page 16]
13.	Paragraph 6.7 provides a list of matters that commissioners should ensure they have in place, including “Fee negotiation arrangements that recognise providers’ costs and what factors affect them (as well as any scope for improved performance) and ensure that appropriate fess are paid”.  Paragraph 6.8 provides a similar list of things that providers should ensure, including that they “Are able to provide a full breakdown of the costs of services provided”. [AB, Tab7, page17]
14.	Thus far the law is not in dispute.  How it is to be applied to the facts of this case and in the light of previously decided cases is in dispute.  In those circumstances I consider it more convenient to deal with the facts and then to address the points of dispute against the relevant factual matrix.
The Facts
15.	On 31 May 2012 the Council issued its new form Contract which introduced new levels of Fees and changed the way in which the Council would set the Fees going forward.  The contract commenced on 1 July 2012 with the new Fees becoming payable from 8 October 2012 [B2, page 427].  Clause 4.1 provides that the Contract is for a period of 2 years [B2, page 296].  The Contract will run, therefore, until 30 June 2014.  There is an option in Clause 4.2 to extend the Contract by mutual agreement for a period of up to 24 months beyond that date [B2, page 296], so the Contract may in fact run until July 2016 with some or all of the providers.  There is provision for increased Fees from 1 July 2013 to 30 June 2014 [B2, page 427], an increase, I was told, to reflect inflation.  
16.	Up to 2008 the Council used a model suggested by Price Waterhouse Cooper (“PWC”) in a report dated 30 September 2005 prepared by PWC for the Council and entitled “Cost of residential and nursing care for older people in South Tyneside” [B2, pages 571-607].  Mr Purchase accepts, as indeed he must, that the Council does not have to use the PWC model or indeed anything like it.  The function of this court is one of review which is addressed to the decision making process and not the outcome.  However Mr Purchase submitted that it is instructive to look at the PWC model when considering the issues in this case and the decision making process adopted by the Council in setting the 2012/2013 Fees.
17.	Under the PWC model, fees were banded by reference to the standard of buildings in order to reflect the differing capital values per bed.  The PWC model expressly took account of management and administration costs, debt financing costs, taxation and return on equity/owner funds [B2, page 590].  The PWC model estimated return on equity at 15%. [B2, page 589]. The Contract issued on 31 May 2012 contains a Quality Assessment Tool for assessing the bands of fees.  Prior to this fees were payable to residential homes according to their Building Valuation Grading 1-4, with 1 being “excellent”, 2 being “good”, 3 being “adequate”,  and 4 “poor”, an approach based on the PWC model and which, therefore, reflected as an element of cost, the return on equity. [Witness Statement of Keith Gray: A, Tab 9, page 145-146].  The Claimant’s case is that the new approach to Fees fails to properly recognise return on equity as an actual cost to the provider.
18.	In his second Witness Statement, Keith Gray explains what is meant by return on equity, a term which is interchangeable with return on capital. Return on equity is effectively the surplus which, after all expenses are paid, is available to make the business viable and sustainable in the medium to long term.  A return on equity is needed to fund repayment of the capital element of debt, to provide funds for re-investment in the business and to compensate the owner for hard work, risk and enterprise.  The element compensating the owner for hard work, risk and enterprise is profit.  The other elements are necessary to sustain the business as a viable enterprise going forward. (Keith Gray, Second Witness Statement: A, Tab 10, page 173).
19.	In 2010 the Council commenced an exercise designed to achieve reductions in residential and nursing home fees of 10% across the board. At a meeting on 15 November 2010 the Council advised attendees, including Keith Gray of STCHOA, that it was going to make a 10% reduction in fees and then help providers to recoup the 10% reduction by assisting them to make efficiencies.  There is no dispute in these proceedings that this was the Council’s approach, at least at the outset, as acknowledged in Joanne Moore’s First Witness Statement of 22 January 2013 [A, Tab 12, page 221, paragraphs 47 and 48].  Joanne Moore is the Council’s Corporate Lead Officer: Commissioning; Children, Adults and Families and has primary responsibility for the commissioning of residential care services for the elderly by the Council.  Nowhere in that Witness Statement does Joanne Moore suggest that approach was anything other than a proper approach.  In her Second Witness Statement dated 16 April 2013 her stated position is rather different:
“Whilst the Council did initially set out to reduce spending on social care along with many other areas I would note that when I became involved with the process upon joining the Council in September 2010 I clearly advised that there was a duty to take into account the true costs of care in setting fee levels and that it was not possible or legal to take [the initial] approach….As a result I instructed that the fee levels pay proper regard to the information collected from the operators and was involved in the proper assessment of those fees right up to the final offer which was made in relation to the new contract which has been in use for most operators since July 2012.” [C, Tab 6, page 113, Paragraph 25]
20.	I have to say I find that evidence somewhat surprising in the light of Miss Moore’s earlier Witness Statement and in the light of her e-mail of 3 December 2010 to Keith Gray which confirms “…that in view of the Council’s current financial position, targeted savings of between 10% to 15% ..are being sought…While we cannot guarantee for individual providers that cost savings can be found, a reduction in council spend needs to occur in this area nonetheless” [B1, page 71].   Mr Purchase was willing to accept the evidence at face value although he pointed out that any change in approach such as that suggested by Miss Moore was never communicated to the Claimants. That is most unfortunate since they were left with the impression that the Council’s sole purpose was to cut costs.  A number of criticisms are made by the Council of a failure by these Claimants to participate in the consultation process by filling in the spreadsheets despite apparently agreeing to do so in October 2010 and again in November 2011.  I shall come to the consultation issues in more detail in due course.  
21.	As part of the process providers were asked to complete a spreadsheet of information.  At that time only 6 providers completed the spreadsheet and of those, only 3 were usable.  
22.	The Council’s settlement from the Government was significantly reduced in 2011 and the Council had to make savings of £35M from the next year’s budget [Joanne Moore: A, Tab 12, page 211].  The financial constraints on local authorities are well known and very real. They can, indeed must, be taken into account by local authorities in informing their decision making processes provided that the process is proper in all respects.  As the Council concedes, the financial constraints cannot be used in isolation to justify cuts in the fees in this case.
23.	In addition to cutting costs, the Council was keen to move from a fee structure based solely on buildings quality, to a structure based on an overall quality standard addressing both the quality of care delivered and buildings quality.  [Joanne Moore: A, Tab 12, page 211, paragraph 26].  That was plainly a decision the Council was entitled to make.  Mr Purchase conceded that his clients could not challenge the decision to move to a different structure in assessing the Fees, but he challenges the process by which the base fees within that structure have been calculated, including, in particular, the failure to recognise return on equity as a relevant cost.  He accepted the Council was entitled to move away from a model based on building cost (the PWC model) provided the actual cost was duly taken into account.  He submits it was not.  
24.	In 2011 the Council issued the same spreadsheet as was issued in 2010 and asked providers to complete it. Some additional providers did complete it and by early 2012 the Council had a total of 9 completed spreadsheets.    A copy of the blank spreadsheet and guidance notes to assist its completion is at B2, pages 526 – 566.  The notes state that the objective of the workbook is to analyse the costs of all South Tyneside (Older Persons) Residential/Nursing related services to help with the development of the new contract.  The spreadsheet sought information in relation to income sources, establishment costs, central costs, care types, occupancy, property costs and any other relevant costs from providers.  
25.	Having received a total of 9 spreadsheets, the Council used those to carry out a sensitivity analysis.  This analysis was undertaken by Neil Mathieson of the Consultancy Company.  In his Witness Statement he confirms that his initial brief was to seek to review the Council’s Social Care expenditure and to look for opportunities to reduce its costs where possible.   However, Joanne Moore advised that approach was potentially illegal given the Council’s duty to take into account the true costs of care in reaching agreement with the operators.  He goes on to say that an approach based on the true cost informed the data collection and analysis that he undertook, which itself informed the form of the contract [Neil Mathieson: C, Tab 7, pages 124 -125, paragraphs 6 – 8]. 
26.	Mr Mathieson later deals with the issue of return on capital.  He states that providers were given the opportunity to specify any costs other than those specifically specified in the spreadsheet.  He states that, to the extent that providers did not provide those costs, they had the opportunity to do so and the model could not take into account information not provided.  Notwithstanding his evidence set out in Paragraph 25 above that his approach was informed by the true cost of care, at paragraph 31 he states “ We did not seek to build a model to assess costs but to recover actual costs information and then to do a sensitivity analysis of that data” [C, Tab 7, page 130].  At paragraphs 12 - 15, Mr Mathieson points out that there was only limited success in obtaining relevant data from the homes as to their costs.  The data obtained was used for modelling potential scenarios, a “sensitivity analysis” to assess potential implications of any changes undertaken.  As part of the analysis he did estimate the profit or loss that would result were a particular fee rate agreed to.  He accepts that return on equity is not included in the calculations for the simple reason that no owner included this as an item of cost.
27.	The Claimants challenge this approach.  Mr Purchase submitted that the cost of providing care is not the same as working out a profit.  He pointed out that there are matters which may affect profit which are irrelevant to the actual cost of providing care, such as the higher fee rates paid by privately funded residents.   Further, if contrary to his submissions, this was a valid approach, then he submitted it was incumbent on the Council to calculate profits levels properly which he submits they have not.  I shall return to these matters in more detail later in my judgment.
28.	On 9 January 2012 an earlier version of the draft new contract was circulated to providers and consulted on.  There were 2 changes from previous drafts: (i) a brand new scheme for banding based on 75% for the quality of care and 10% for the quality of the buildings themselves, and (ii) new fee levels were proposed.  At a meeting on 24 February 2012 arranged by STCHOA and attended by the Council and all providers, the providers raised a number of issues including what they said were the unreasonable fee levels, the lack of any fee review mechanism and the fear that most providers would be downgraded through the new quality scheme [Keith Gray: A, Tab 9, page 149, paragraph 32]. A revised draft contract was issued on 13 March 2012.  A series of letter and e-mail exchanges followed.  The Claimants assert that the issues raised in the February meeting had not been addressed.  The fees proposed in all but “grade 1” homes were lower than those being paid at the time; no provision was made for inflationary increases; in the view of providers the proposed rates were so low as to threaten sustainability of the care homes, and the contract appeared designed to push homes into lower grades, thereby further reducing the applicable rates. [Keith Gray: A, Tab 9, page 149-150, paragraph 33].
29.	STCHOA instructed Eversheds to write a letter before action to the Council.  That letter is dated 12 April 2012 and is at B1, pages 234-236.  That letter challenged the proposed fees on the basis that they do not take into account costs, and raised concerns that the use of the quality grading scheme was simply a mechanism to drive down the fees payable to providers.  Eversheds requested detailed information with supporting documentation to enable STCHOA to consult further with the Council.  The letter makes clear that STCHOA does not feel it knows enough about the basis on which the proposed fees have been set and that it needs to know more in order to respond.
30.	The Council’s response dated 27 April 2012 is at B2, page 238-240. The Council disputed that the move to a quality based model was a mechanism to drive down fees, asserting that it was a means to drive up quality.  The letter continues as follows:
“In determining the fees to be offered, the Council has sought to achieve a level of fees that will enable the homes to continue to be viable, enable the Council to continue to fulfil its duty in relation to the provision of residential accommodation and will not put too great a strain on the council’s already stretched budget.
The Council’s approach to this was to endeavour to understand the financial position of each of the homes, and the effect any proposed new fees may have upon them.  
The process adopted was….
•	The Council requested details of income sources, establishment costs, central costs, care types, occupancy and other relevant factors from all providers on multiple occasions the latest occurring in October 2011. A significant proportion of providers returned this data.
•	These details were then used by the Council to perform an analysis to determine the potential effects on the profitability and viability on the homes with them being on any of the bands proposed in respect of the proposed fees in the draft contract to ensure that no home would be subject to the threat of long term non-viability.
•	The analysis was carried out as detailed below:
o	Based on the income and cost data supplied by the homes, the profit for each home was calculated.
o	Using the occupancy figures supplied by the homes for Council residents, and the proposed rates, the income from the Council at the proposed rates was estimated.
o	To this was added the data supplied by the homes for income from private residents and other Local Authorities
o	Using this total income and the data on costs supplied by the homes, the revised profit was estimated.
o	The changes in profit were analysed to check that the revised profit was not reduced to an unacceptable level.”
31.	Mr Purchase attacked this letter in a number of respects.  Firstly he pointed out that whilst the Council’s analysis was apparently linked to whether any change in profit was reduced to an “unacceptable level”, nowhere does the Council say what an “unacceptable level” is, or what it considers is an acceptable level of profit to ensure a viable care home. He further submitted that the information provided in this letter was misleading in two respects and would have given more comfort to home owners than it ought.  Firstly, the Council’s letter asserts that the analysis looked at profitability and viability on all of the proposed fees bands whereas profits were in fact checked against the proposed band 2 fee only. Secondly, the Council’s letter states that “changes in profit were analysed to check that the revised profit was not reduced to an unacceptable level”, the inference being that the results showed some profit in each case.  In fact the analysis undertaken showed that four out of the nine homes analysed were anticipated to make a loss at band 2.  Mr Purchase submitted that this letter gave a misleading impression to care home owners as to what analysis was in fact done.  I shall return to these submissions later in this Judgement.
32.	By e-mail dated 9 May 2012 Keith Gray asked the Council to provide a copy of its financial model [B2, page 243]. On 10 May 2012 there was a meeting between Keith Gray and Mark McArdle of STCHOA and Joanne Moore and Lenny Sohota of the Council.  Mr Gray and Mr McArdle sought information as to the reasoning underlying the new proposed fee rates including the Council’s view of what an “acceptable” profit was.  The Council declined on the basis that the figures provided by providers were confidential information which the Council could not disclose.  Mr Gray indicated that they did not need to see any individual provider information as distinct from the detail of the analysis undertaken, including details of the calculation of capital costs per bed per week.  The Council asked Mr Gray to put his request for further information in writing.  [Keith Gray: A, Tab 9, page 152, paragraph 40].  Mr Gray put his request in writing by letter dated 17 May 2012 [B2, page 245]. In particular that letter asks the Council to define what it believes is “Acceptable Profit/Unacceptable Profit” and to explain how it has taken into account the cost of capital, and how this has impacted on the fee model.  The letter also enclosed a capital cost example drawn up by Mark McArdle [B2, pages 246-247].
33.	Joanne Moore of the Council replied by letter dated 29 May 2012 [B2, pages 252-253]. She confirmed that the Council could not provide the cost information from the homes as this was confidential information.  She states that information was provided by 10 care homes and “A projection was then carried out to determine the effects on profits that would occur should the homes fall into a lower banding”.   There is no dispute that in fact only 9 homes had provided information.  In my judgement nothing of significance attaches to that error for present purposes, but it does seem to typify a general lack of accuracy or inattention to detail in the Council’s correspondence in this case.
34.	More significantly, and apparently in complete contradiction of the Council’s letter of 27 April 2012,  the letter of 29 May 2012 asserts as follows:
“The council did not apply any judgment on “acceptable profitability” as it believes that is a matter for the individual owners to decide on the level of acceptable profitability, and accept or reject the fees offered on that basis.
In its analysis the council was keen simply to ensure that based on the home’s own figures, the projected income even at the Band 2 level did not place the homes in a position that would be unsustainable.”
    The letter then addresses cost of capital in the following terms;
“The council did not consider the “cost of capital” as a separate item, as this was included in the costing information requested and provided.”
35.	The final version of the Contract was issued on 31 May 2012 and is at B2, pages 285 - 454.   Under the Contract, Fees are paid according to which of four Quality Bands a care home falls into, with the highest fees paid for homes in Quality Band 1, and the lowest to those in Quality Band 4 [B2, page 427].   On the assumption that all homes will achieve or want to achieve a standard of quality acceptable to the Council (i.e. Band 1) and in the interests of encouraging homes to achieve this, the Fees for Band 1 were set at a rate that is an increase over the fees which were then being paid the Grade 1 homes, the top rate under the previous system.  The figure for Band 1 was set at £451 per resident per week. [Joanne Moore; A, Tab 12 page 230, paragraph 86].  The Grade 1 figure from October 2011 was £443.94.
36.	Bands 2, 3 and 4 were to reflect a small reduction in fees.  However, following the issue of the draft Contract, the Council agreed that the originally proposed Band 2 fee level should be increased to that of the then current Grade 2 level of £435.94 per week.  The new Bands 3 and 4 were £406.83 and £394.95 respectively as against figures for Grades 3 and 4 as at October 2011 of £410.94 and £398.94 respectively. [Joanne Moore; A, Tab 12 page 230, paragraph 87-88].  
37.	 For EMI Service Users the Council pays an additional sum of £10 per week [B2, page 427].  The Claimant’s case is that this is a wholly arbitrary figure and in no way reflects an assessment of the additional cost of caring for EMI residents.  In her First Witness Statement, Joanne’s Moore’s response to this is as follows:
“I can only assume that this is intended to indicate that Providers will be unable to continue to provide care to EMI residents at the contracted rates…. I can only continue to say that the Council regards the EMI uplift on the globally calculated fee as being sufficient to provide care to such clients.”  [Joanne Moore, A, Tab 12, page 238, paragraph 108]
   No basis is offered to support the latter part of that statement.  
38.	In her Second Witness Statement Joanne Moore’s evidence on this is rather different.  She identifies that the £10 EMI supplement is paid in cases where a resident has demonstrable EMI needs.  She adds that in reality all of the homes in the Borough have residents with a mix of needs and the Council takes the view that homes are able to operate and to meet those needs having been paid what is effectively a blended rate for all residents.  In other words, she says, the fees paid are intended to meet the reasonable costs of care of all residents.  The nursing care supplement paid by the PCT will meet specific nursing needs.  The £10 supplement is an historical anomaly introduced to reflect the additional skills required by carers in dealing with dementia sufferers.  As a result of improved standards of training, Joanne Moore states that all carers now reach the standards the payment was intended to reflect.  She points out there is no nationally prescribed staffing level for residents with EMI needs  and asserts, therefore, that any additional staffing needs thought necessary by individual operators would have been incorporated in the Council’s analysis.  She concludes this part of her evidence as follows: “As I have said the £10 payment is an historical anomaly continued as part of a local convention but has been emptied of its meaning or link to costs many years ago”. [Joanne Moore: C, Tab 6, pages 111-113, paragraphs 21-24].   I find it hard to reconcile those 2 different statements.  The first appears to suggest the £10 is sufficient to meet the cost of EMI care.  The second expressly denies any link to cost of that care.  
39.	Later in her Second Witness Statement Joanne Moore appears to say something different again.  Having set out in paragraph 21 and 22 that the Fees are effectively a blended rate for all residents with the £10 supplement simply representing an historical anomaly, at paragraph 36, after acknowledging that good practice would dictate the need for additional staffing for residents with dementia, she says “I believe that these costs are met through the blended rate offered by the Council and by the EMI supplement” [C, Tab 6, page 119].   I shall return to this evidence when considering Ground 3.
40.	Schedule 4 to the Contract contains the Quality Standards Framework Guidance.  As part of the scoring system which determines which Quality Band a care home will fall into, 25% of the score is based on “GLP” grading.  Each care home has a GLP grading which is a grading reflecting the property’s compliance with National Minimum Standards for new build care homes.  In calculating the Quality Band, the scores from 3 elements will be used and will be weighted as to 70% on the Quality Assessment Tool Outcome, 25% on “GLP” grading, and 5% on Service User and Family Satisfaction Survey Outcome.  There are 3 bands of GLP grading which will be scored as Grade 1: 100%, Grade 2: 75% and Grade 3: 55%.  [B2, pages 434 and 435, Paragraph 1.10 and 1.12].  Thus a care home with Grade 1 GLP will score 100% of that weighted element which translates to 25% of the Quality Band score.  Lower grades of GLP will score the reduced percentage of the 25% attributable to GLP scoring in the Quality Band score.  The Claimants argue that the weighted 25% ascribed to GLP in the Quality Bands is wholly arbitrary and certainly not on the basis of any analysis of the actual costs associated with providing and maintaining buildings of different standards.
41.	On 31 July 2012 Joanne Moore issued a Briefing Note to STCHOA in relation to the Fee Setting process [B2, page 473 – 475].  This document confirms that the Council used the financial information provided by care homes to “….perform an analysis to determine the potential effects on the profitability and viability on the homes with them being on any of the bands proposed in respect of the proposed fees in the draft contract to ensure that no home would be subject to the threat of long term viability”.  The document goes on to confirm how the analysis was undertaken and is in terms very similar to those set out in the letter of 27 April 2012 and set out in paragraph 30 above.
42.	In her First Witness Statement, Joanne Moore confirms that the financial data collected from the care homes was used to analyse the potential effects on the viability of homes in relation to each of the proposed fee bands and that it was the Council’s intention that the proposed fee structure should ensure that all Homes were financially viable provided they were fully occupied [A, Tab 12, page 228, paragraph 82].
43.	She confirms the analysis was carried out by Neil Mathieson using the methodology of calculating the profit for each home; estimating the income to each home based on occupancy figures provided and the proposed fee rates; adding the data for income from private residents and other Local Authorities; using this total income to estimate a revised profit; analysing the profit “….to check that a profit still existed” [A, Tab 12, page 228-229, paragraph 83].  At paragraph 104 of her First Witness Statement she states that the Council has satisfied itself that homes will not be placed in financial jeopardy by the [proposed] fee levels.  She also asserts that the template used to gather information did not prevent any operator from having all costs taken into account including those relating to rent, mortgage interest and return on equity.  “The Council was at all times anxious to gather as much information as possible to get the best possible analysis undertaken to lead to fair levels of fee”. [A, Tab 12, page 236-237).  
44.	In her Second Witness Statement, Joanne Moore deals with the issue of return on capital at paragraph 42 [C, Tab 6, page 121].  She points out that the formulation of the concept of return on capital relied upon by the Claimants is drawn exclusively from the PWC model which the Council has abandoned in favour of a system reflecting quality of care rather than quality of building standard.  She further states that the Council does not accept the Claimants’ definitions but that this is irrelevant because the Council was concerned to ascertain the costs of care and whether individual providers were operating sustainable homes.  She states 
“We did not make a decision that we would not take into account a return on capital funds invested by providers themselves.  We left it to individual providers to specify any further cost of care that they felt was relevant. In the event none of those who returned the spreadsheets did so identify.  None of the claimants provided any financial information which could have led us to a different conclusion.”
The Grounds
45.	Before turning to the detail in the Grounds, some general observations on the role of the Court are appropriate.  In his skeleton Mr Engelman set out the following propositions which are not in dispute between the parties:
i)	Negotiations between a local authority and providers are commercial in character and should be viewed as such.
ii)	The Council’s duty is to “pay due regard” to the actual costs of care, but the court is not to prescribe how that exercise is to be undertaken.
iii)	Where a local authority has paid due regard to the actual costs of care, then the decision as to what fees it will pay to providers is a matter for it and it may take into account its financial circumstances in coming to that decision.
iv)	Provided a local authority has taken into account all relevant matters, the weight it attaches to each is a matter for it and not the Court.
v)	The Court should be astute to avoid becoming involved in financial debates and/or micromanagement.
Ground 1
46.	The challenge in Ground 1 is a two pronged attack on the basis (i) that return on equity is an actual cost which the Council has not taken into account and (ii) that the Council’s approach in calculating profit rather than cost was wrong in law, and the way in which it calculated profit was also wrong.
Is return on equity/return on capital an actual cost of providing care?
47.	I shall consider first the issue of whether return on equity is an actual cost.  Mr Purchase submitted it is.  Mr Engelman submitted that return on equity is not necessarily an element of actual cost.   I suggested to Mr Engelman that as his client’s case is that it did in fact consider return on equity, then the issue must be whether it did so properly, rather than whether return on equity is in fact a relevant cost.  Mr Engelman agreed with this but submitted that the issue as to whether return on equity is an element of actual cost may have some bearing on relief.  In those circumstances it seems to be an issue which I must decide.
48.	Mr Purchase submitted that the authorities make clear that return on equity is an element of actual cost.  He referred me to the Judgment of Stanley Burton J (as he then was) in R(Birmingham Care Consortium and others) v Birmingham City Council [2002] EWHC 2188 (Admin) (“the Birmingham case”), at paragraph 18 where he says as follows:
“The more complex issue is whether the rates offered in the letter of 19 June represent the fair cost of the provision of accommodation.  The determination of a fair cost is by no means straightforward.  Assumptions have to be made as to occupancy rates and returns on capital.  …..Where there is no finance charge incurred by the home, the fair return on the value of the property itself may be controversial, given that in current economic conditions its capital growth may provide a substantial return of itself.”
 Mr Purchase submitted that Stanley Burton J clearly accepted that return on   capital is an element of cost.  He submitted that any debate is as to how much the capital cost is, but that there is no doubt it is a cost.  He submitted that it is a cost which may be met by capital growth but that it would still need to be considered.  A rational decision would be needed to exclude it from any calculation of costs on the basis that it is met by capital growth, but it is something that due regard must be paid to.  This highlights, he submitted, the difference between whether return on capital was taken into account (i.e. the proper decision making process with which the court is concerned) as opposed to how such a cost was taken into account which would go to the fee structure and would properly be a decision for the Council.
49.	Mr Purchase also referred me to the decision of Hickinbottom J in R(Forest Care Home Limited and Others) v Pembrokeshire County Council [2010] EWHC 3514 (Admin) (“the Forest Care Home case”).  In that case the Defendant Council conceded that the manner in which it had dealt with providers’ capital costs to arrive at its fee rate was wrong and unlawful.  However, the Claimants’ challenge in that case to the methodology in relation to capital costs went further than the Defendant’s concession and Hickinbottom J, therefore, addressed this issue in his judgment.  It follows that there was no dispute before Hickinbottom J that capital costs were relevant, the issue was whether they had been properly taken into account.  Hickinbottom J dealt with the capital costs issue at paragraphs 93 -119 of his Judgement.  Mr Purchase referred me to paragraphs 94, 112 and 114.  He submitted that paragraphs 94 and 112 recognise return on capital as an actual cost and he further submitted that paragraph 114 illustrates the need for a proper understanding that building costs do give rise to capital costs.
50.	At paragraph 94 Hickinbottom J discussed a particular model, the Laing model, which includes a rate of return on capital.  I do not read that paragraph, taken in isolation, as an indication by Hickinbottom J that he (as opposed to the Laing model) recognises return on capital as an actual cost.  However at paragraph 112, Hickinbottom does, in my judgment, recognises that capital costs are a real and actual cost when he stated as follows:
“Although the valuation of capital costs is based on business set up or acquisition, as I have explained, the inclusion of “capital costs” in the assessment of a provider’s costs is to ensure that a return on capital is properly reflected.  The better the PE [physical environment] standards (whether as a result of new build, or older homes that in fact comply with the new standards), the higher the assumed capital costs should be.  Such costs are real, if only because, if money was not invested in care homes, it could be invested elsewhere.”
   At paragraph 114, Hickinbottom J found that the approach of the council in       that case was based on a misunderstanding of capital costs and consequently it lacked rationality.
51.	Mr Purchase also referred me to the Judgment of  Beatson J (as he then was) in R(Mavalon Care Limited and Others) v Pembrokeshire County Council [2011] EWHC 3371 (Admin), (“the Mavalon Care case”).  The Mavalon Care case in fact relates to the decision taken by Pembrokeshire County Council after its original decision was found to be unlawful in the Forest Care Home case.  Unsurprisingly, therefore, there was again no dispute that capital costs and a return on capital were relevant costs in relation to the process of setting fees for the care homes.  In the Mavalon Care case it was common ground that having agreed to use the Laing and Buisson toolkit to set the fee rate in question, the council could not deviate from the model without a rational justification which it shared with providers (Paragraph 43 of the Judgment).  Beatson J found that the council’s reasons for departing from the 12% rate of return on capital in the Laing and Buisson model were based on mistaken assumptions.  I do not find any express statement in the Judgement of Beatson J to the effect that capital costs are an actual cost of care home providers.   Undoubtedly that was the basis on which he reached his decision, but there was no dispute in that case as regards that issue.
52.	Mr Purchase next referred me to the decision of HHJ Gosnell in R(Members of the Committee of Care North East Newcastle) v Newcastle City Council [2012] EWHC 2655 (Admin), (“the Newcastle case”) at paragraph 45 where he defines return on equity and states that whilst part of it is profit, it would not be correct to equate it with profit, citing in support dicta of Beatson J in the Mavalon Care case.  At Paragraphs 49 and 50 of his Judgment, HHJ Gosnell found that the council had acted irrationally or failed to take into account relevant considerations in, amongst other things, completely stripping out, or almost stripping out return on equity which would be bound to have implications for the sustainability of the care homes market.  He considered the council had failed to inform itself of the actual costs to care home providers of providing services. 
53.	Mr Engelman submitted that the Forest Care Home and Mavalon Care cases are unusual because the relevant Welsh guidance mandated the use of the Laing and Buisson model.  He submitted that the court in those cases was concerned with return on equity because that was the basis of the contract between the parties.  I am not persuaded that paragraph 2 of the Judgment in the Mavalon Care case supports Mr Engelman’s argument that the Laing and Buisson model was mandated, but as I have made clear above,  the model was certainly adopted for use by the council in those cases and there was no dispute that return on capital was, therefore, relevant.
54.	Mr Engelman submitted that the Newcastle case also does not assist me on this issue since although there was no agreement to use the PWC model in that case, the court took the view that the Council was obliged to carefully consider what alterations it made to the PWC model when the result of such modelling was to form such an important part of the information which led to the decision made. (See paragraph 41 of HHJ Gosnell’s Judgment).  Mr Engelman submitted that the only case in which return on equity/return on capital is mentioned independently of whether it was part of a model which the relevant council had decided to use, is the Birmingham case.  He pointed to the final sentence quoted in paragraph 47 above to suggest that the concept of return on capital is controversial and may be satisfied by capital growth.
55.	Me Engelman further submitted that there is no evidence as to when the various homes in this case were built or purchased.  He submitted there was substantial capital growth before 2008, scarcely any capital growth in the last 5 years, and that it is to be hoped there will be capital growth again in the future.  He submitted that position in relation to capital growth may be sufficient to satisfy return on equity without a local authority having to have regard to it at all.
56.	I reject Mr Engelman’s submissions on this issue.  As set out in paragraph 50 above, I do consider that there is support in the Judgment of Hickinbottom J in the Forest Care Home case for return on capital being a real cost of providing care.  Further, in my Judgment, the Birmingham case also recognises return on capital as a real cost.  The case does not say this may be met in all cases by capital growth.  On the contrary, it suggests that capital growth may provide a substantial return on capital where there is no finance charge incurred by the home.  It does not address at all cases involving financing charges whether by way of mortgage payments or other financing costs such as rental payments.  In my Judgment return on capital is a real cost for care homes and, therefore, is a cost which the Council must have due regard to under Paragraph 2.5.4 of the Circular.  I agree with Mr Purchase that the Birmingham case makes it clear that return on capital is an actual cost and that the real debate is how much that cost is.  Whilst there may be cases where the local authority can  properly conclude on the facts that capital cost is properly met by capital growth, that question of capital cost must be considered and due regard paid to it.
Has the Council paid due regard to return on capital in this case?
57.	I now turn to consider whether the Council has had due regard to return on capital in reaching its Fees decision in this case.  Mr Purchase submitted the Council has not had due regard to return on capital.   Mr Engelman submitted that the duty of the Council is to pay regard to actual costs of care which requires them to bear in mind, amongst other matters, that the providers need to recover their costs.  He further submitted that the Council has complied with this duty by undertaking an exercise (sending out spreadsheets/templates) designed to capture the costs of operating the care homes, and then carrying out a financial analysis in order to ascertain the viability of the care homes/individual providers, and they need do no more.  He pointed out that the Claimants were given the opportunity to set out any element of their costs which they considered relevant, but they chose not to do so. 
58.	Mr Purchase accepts that it is no part of my function to interfere with any balancing act or weighting of various factors by the Council.  He submitted that this case does not get that far precisely because the Council never found out what the actual cost of care was and, therefore, cannot have had regard to it.  He referred me to the judgment of HHJ Langan in R(East Midlands Care Limited) v Leicestershire County Council [2011] EWHC 3096 (Admin) (“the Leicestershire case”).  At paragraph 54, HHJ Langan pointed out that once the gap between the actual cost of providing care and the council’s banded rates had been pointed out to the council in that case, it was incumbent on the council to ascertain what the actual cost of care was.  He added that so long as the council remained in ignorance of the cost, it could not possibly pay due regard to it. 
59.	Mr Purchase recognised that a rather different approach was taken by Supperstone J in R(Members of the Committee of Care North East Northumberland) v Northumberland County Council [2013] EWHC 234 (Admin) (“the Northumberland case”), a case which is relied upon by Mr Engelman.   In that case Supperstone J  referred to Paragraph 2.5.4 of the Circular and said this:
“That sentence must be read in context.  Mr Giffin submits, and I agree, that as such it means no more than that, when determining what they are usually prepared to pay for residential care, authorities should bear in mind, amongst other matters, the providers’ need to recover their costs.  Usual fee rates should not be set by authorities without any consideration being had to the question of whether it is viable to provide care at those rates.  However, even if “having due regard to the actual costs of providing care” should be understood as requiring a more specific consideration of actual costs, the Circular does not require authorities to calculate or ascertain the actual cost of care.”
60.	Mr Purchase submitted that Supperstone J was not saying that it was legitimate for a local authority to leave out a component of actual cost.  He submitted that all that Supperstone J was saying is that an actual calculation is not required (contrary to HHJ Langan in the Leicestershire case and to HHJ Gosnell in the Newcastle case).  Supperstone J found that the council had taken account of the actual care costs, not by an exercise in precise quantification, but by exercising its judgment and experience in the light of how the market was functioning in practice, and what it knew about fees being paid and costs incurred elsewhere.  Mr Purchase submitted that for the purposes of the Circular, a Council must have regard to the actual costs in one way or another, whether by arithmetical calculation or by exercising its judgment and experience.  I agree with that submission.
61.	Turning to the facts of this case, the Council did not purport to rely on its own judgment and experience in these matters.  In the Northumberland case, there was substantial evidence before Supperstone J to support the contention that there was sufficient information and experience to support a decision based on judgement and experience.  There is no similar evidence before me.  On the contrary, the evidence before me is that what the Council undertook in the first instance was an arithmetical exercise.  I did not understand Mr Engelman to suggest there was any evidence that there was sufficient information and experience to support a decision based on judgement and experience.  The only evidence to come close to that is Joanne’s Moore’s evidence at C, Tab 6, page 108, paragraphs 15 and 16.  I do not read that evidence as addressing this issue, but if it does, then I consider it wholly inadequate by reason of the generality of the statements made.  In my judgment, therefore, the issue in this case is whether the arithmetical approach adopted by the Council was properly conducted such that it paid due regard to the actual costs of care.
62.	In relation to the BCPCA, Mr Engelman submitted that it envisaged and was dependent upon the government providing significant additional resources to social services. [AB, Tab 7, Paragraph 1.6]  He further submitted that since central government funding is no longer forthcoming, the BCPCA, which is not statutory guidance, is emptied of any effect.  That was the view of the Director in the Northumberland case, and Mr Engelman further submitted that Supperstone J accepted that and held that the BCPCA had no bearing on any of the issues in the case.  In my judgment that final submission goes too far.  At paragraph 53 of his judgment Supperstone J held that the Council had taken the guidance in the BCPCA into account but had given clear and plainly rational reasons for departing from it.  There was substantial documentary evidence before Supperstone J from which he was able to reach that conclusion.  He did not hold that the BCPCA had no bearing on any of the issues in the case.  In this case there is no evidence to support any suggestion that the Council considered the BCPCA and considered, rationally or at all, whether there were grounds for departing from it.  In my judgment the BCPCA applied to this Council’s decision making process.  
63.	Before turning to the actual spreadsheets/ templates sent to providers, I should deal with the Council’s argument that, having chosen not to co-operate by refusing to complete the spreadsheets, it does not lie in the mouth of these Claimants to complain about the exercise undertaken by the Council.  There is no dispute that the Claimants did not complete the spreadsheets despite apparently having agreed to do so on two separate occasions.   In response to a question from me, Mr Purchase accepted that if none of the providers had completed spreadsheets, that might be a good and justifiable reason for the Council to depart from the an approach based on those spreadsheets and/or to depart from the guidance.  In his submissions Mr Engelman sought to turn this into an acceptance by Mr Purchase that the Council was entitled to depart from the Circular in circumstances where the Claimants (as opposed to all providers) failed to provide the information sought in the spreadsheets.  Mr Purchase did not go that far.  Further, in reply, Mr Purchase made the point that if the failure to provide information was to be used as a reason to justify departure from the guidance, it has to be considered as such at the time and properly articulated at the time.  The Council, he submitted, cannot look at the position after the decision was made and then claim that is was all right to depart from the guidance.  Mr Purchase relied on dicta of Sedley J in R v London Borough of Islington ex parte Rixon [1997] ELR 66 at page 79.   He submitted there is no evidence that the Council considered, rationally or at all, whether the Claimants’ failure to provide information justified a departure from the guidance.
64.	There is also the point set out in Paragraph 20 above that at no time did the Council communicate to the Claimants or other providers that it recognised that its approach based simply on achieving savings of between 10% and 15% was wrong, and that it wanted to take into account the true costs of care.  I consider the criticism of the Claimants in failing to respond to the spreadsheets is misplaced in circumstances where the publicly expressed objective of the exercise was to cut cost, an objective now acknowledged not to be lawful.  It is hard for the Council to criticise the Claimants legitimately for declining to cooperate in a process which was unlawful on its face.  
65.	A further point made by Mr Purchase is that, notwithstanding they did not complete the spreadsheets, the Claimants clearly put the Council on notice that the spreadsheet was not capable of capturing information on return of capital.  He submitted that the Council could and should have written to providers at that point to see if there were other capital costs which they had not included on the spreadsheet.  He submitted this was so even if the Council thought the spreadsheet was adequate to capture the information, since three of the spreadsheets returned to the Council contained no financing or other capital costs at all (References 3, 5 and 7 at B2, pages 539, 547, and 559).   It was not in providers’ interest to exclude such information and Mr Purchase submitted this supports the Claimants’ arguments that the providers cannot have understood that capital cost information was being sought.  Taken with the Claimants’ complaints that the spreadsheets would not capture such costs, the Council was, submitted Mr Purchase, plainly on notice that the spreadsheet was, or might be, inadequate and a reasonable council would have checked the position. They could have written to check whether providers had put cost of capital in the spreadsheets and if so, what capital cost it was, and if not, to get such information.
66.	So far as the spreadsheets themselves are concerned, Mr Purchase submitted they were inadequate to capture capital cost.  The Council’s case is that any such costs could have been entered as “Other” costs in the appropriate places on the spreadsheets.  Mr Purchase’s response to that was twofold.  Firstly, that even if that was right, the Council was clearly being told that providers did not understand the spreadsheet in that way and that the Claimants did not think that providers were giving that information. 
67.	Secondly, Mr Purchase submitted that it is understandable, from looking at the spreadsheet, why providers have not provided the right kind of information. He took me to a blank spreadsheet at B2, page 526.  The first point he made was that all information sought on the spreadsheet is for “….the latest 12 month period”.  He submitted that front loaded large expenditure early on (such as buildings purchase or other capital equipment expenses) impacts the business over many years.  He submitted it is not expenditure in a particular year (other than when in fact spent) but is an ongoing cost which has to be recouped through fees over a number of years.  He pointed to the description of “Overheads” at the bottom of B2, page 526 as the “costs related to running the service” which he submitted would not obviously include return on capital.
68.	“Central costs”, on the same page, are described as “costs….which are not directly linked to delivering the care support but are those an organisation need to contribute to the costs of, for example, HR support, IT support and accountancy”.  There is an express instruction not to include an overall cost or percentage.  Mr Purchase submitted that the way a return on capital is generally assessed is on a percentage basis and that this instruction effectively excludes a figure for return on capital.  He further submitted that for a cost which is both as significant and as nuanced as return on capital, many providers would not appreciate it as something to be “slipped in” under a category of “other” expense.   In any event, he submitted, once the Council was on notice of these problems, to effectively close its eyes and say “Well I’m sorry you haven’t given us that information” is not a legitimate response.  This is a public law duty on the Council which he submitted they cannot avoid by simply complaining that the Claimants’ response was not the response they wanted.
69.	I accept Mr Purchases’ submissions that having decided to approach matters arithmetically by seeking data as to actual cost, it was incumbent on the Council to do this properly.  If the Claimants in this case had refused to provide information in circumstances where a sufficient number of other providers had provided full and relevant information such as to enable the Council to make a proper assessment of actual costs, I would have had considerable sympathy for the Council’s argument that the Claimants cannot refuse to co-operate and then seek to rely on a failure to obtain the very information which they refused to provide.  Claimants who simply refuse to cooperate with the Council do so at their own peril.  However, that is not the position here.  In my judgment the Council was clearly on notice that it did not have full and complete information (even from those providers who did complete the spreadsheets) on a relevant cost, namely return on capital, and it chose to proceed to set the Fees by a process disregarding that cost.  In my judgment the Council failed thereby to have due regard to the actual costs of care by failing to take steps to properly identify and include the capital cost element of return on equity.  
The Profit Approach.
70.	Mr Purchase submitted that the Council’s approach of focussing in its analysis on the providers profit, is an approach which in itself fails to pay due regard to the actual costs of care.  He challenged the approach in 3 separate ways which I shall consider in turn. Firstly, he submitted that the analysis “simply throws everything into the mix and comes out with a number on the other side”.   He relies on the guidance in the Circular at paragraphs 2.5.7 and 3.3 (set out in full in Paragraph 7 above), both of which refer to the need to provide residents with the level of service they could expect if the possibility of resident and third party contributions did not exist.
71.	Mr Purchase submitted that the Circular is quite clear that the fees must be sufficient in themselves to provide for the cost of care. In this case the analysis undertaken by Mr Mathieson in calculating profit for the homes involved a calculation of the costs from the data provided to which was added the income received from private paying residents and income received from other local authorities.  There is no dispute that private residents usually pay higher rates than local authority residents.  Mr Purchase submitted that the approach adopted in the analysis is contrary to the guidance in the Circular as the figures are supplemented by other forms of income and do not therefore reflect actual costs of care.  In effect the costs are being subsidised by privately paying residents. 
72.	Mr Purchase pointed out that approach, allowing for subsidy by privately paying residents, means that those homes with 100% local authority residents would necessarily be making a loss as they would have no subsidy in fact.  This, he submitted, illustrates the point that the calculation does not properly reflect actual costs of care.  He further illustrated this by reference to the information provided by certain homes to the Council and used by the Council to calculate the financial impact on providers at B2, pages 567 – 568.  The information provided has been anonymised and each home simply given a reference number.  Mr Purchase first referred me to B2, page 563 which is the spreadsheet completed by Ref 8.  That discloses that private clients paid a weekly rate of £680.95 in 2010.  The Council’s Band 2 rate under the Contract is £435.94, some £245.00 less than the private client rate for 2010.  Ref 8 had over 16,000 Bed nights for Council paid residents and 1825 bed nights for private residents.   By adding in the extra income from private residents, Mr Purchase submitted that the Council did not calculate what it costs to provide care, but rather whether the home was making a profit.  
73.	Home Ref 1 had a 100% Council paid resident occupation in 2011 (See B2, page 530).  The Council’s analysis at B2, page 568, shows that home running at a loss of £126,636 on the Proposed Band 2 rate of £435.94.  This, Mr Purchase submitted, is the inevitable result of factoring in income from private paying clients to increase the profits, thereby effectively subsidising the Council paid residents and failing to give the true picture as to actual cost.  The proper arithmetical approach, he submitted, would have been to add up the costs on the spreadsheets and divide it by the number of residents, a very easy calculation to undertake. 
74.	Mr Engelman submitted that there is nothing in the Circular to preclude the method of analysis undertaken.  He submitted the Circular is about service users, not providers, and is not concerned with subsidisation which he pointed out is not mentioned.   Mr Purchase accepted that the Circular is directed towards what local authorities have to do for individuals in residential care and is not about the relationship between authorities and care home providers.   In those circumstances, Mr Engelman sought to suggest that the Circular is of no relevance to the issues before me.  I reject that submission.  The Circular requires local authorities to have due regard to the actual costs of providing care in setting and reviewing their usual costs.  In setting their usual costs they have to consult with providers and in many cases, including this one, seek information from providers as to actual costs.  This is to ensure that their obligation to service users is properly carried out within the context of setting and reviewing costs.  The providers plainly have an interest in the outcome and locus to challenge the Fees, notwithstanding the Circular is directed toward the relationship between local authorities and residents.   Indeed the point is illustrated by Mr Purchase’s example of 100% occupancy by local authority residents.  If fees are set otherwise than with due regard to the actual costs, the fees for homes with 100% Council funded occupancy may be insufficient to meet actual costs, as indeed Mr Purchase submits is the case here.
75.	Whilst Paragraph 3.3 of the Circular does not expressly mention “subsidisation”, in my judgment it quite clearly requires a calculation to be done on the basis that the possibility of resident and third party contributions should be excluded.  In my judgment on the facts of this case, where privately paying clients pay significantly more that the Council rate, taking those fees into account on a profit analysis is contrary to the guidance in the Circular, and results in a skewed calculation which does not pay due regard to actual costs.  It follows in my judgment that this is a further significant error in the decision making process, the failure properly to pay due regard to actual costs and to disregard the effect of any payments from other sources such as privately paying residents.
76.	More generally Mr Engelman submitted that a profits based analysis carried out to ensure viability of the homes could not be criticised since profit could only be determined once costs had been determined.  In my judgment that submission fails to address the fact that the actual costs were not determined in the first place and it also ignores the impact of the Paragraphs 2.5.7 and 3.3 of the Circular.
77.	Mr Purchase’s second point of attack on the profits based analysis is that the Council’s case (as set out in the Grounds of Resistance at A, Tab 4, page 59, paragraph 73 and in Joanne Moore’s Witness Statement at A, Tab 12, page 236, paragraph 104) that the analysis showed that there was no evidence of a risk of closure to any home and that no homes would be placed in financial jeopardy is simply irrational.  He points to the Council’s own analysis at B2, pages 567 -568 which shows that on the basis of the Proposed Band 2 rate of £435.94 per week, 4 homes would be running at a loss.  In the “Commentary” on that page this is addressed by indicating that if a 95% occupancy rate is assumed, this will bring all but 1 home into profit.  The occupancy rates for the homes are set out in the table on pages 578-568.  Only 3 homes have occupancy rates exceeding 95% and the lowest occupancy rate is 47.33%. Mr Purchase submitted that the only way the Council can make good its suggestion that no home is placed in financial jeopardy is by assuming a significantly higher occupancy rate that the homes in fact have.  
78.	In response to this Mr Engelman suggested the rate of occupancy assumed by the Council was consistent with the PWC model.  This is incorrect.  The PWC model assumes an average target occupancy of 90%, with 95% only for Nursing Continuous Care residents, but with blended overall figures of 90% for all types of registered beds. (B2, page 578).  This rather undermined his points on this issue.  Mr Purchase responded by pointing out that the Council cannot pick and choose bits of the model to take up and bits to disregard since the model is intended to be an internally coherent approach dependent on all internal matters.  In any event, the Council’s case is predicated on its decision to abandon the PWC model.  
79.	Mr Purchase submitted that it cannot be rational or lawful to pretend, in effect, that the care homes have more residents than they do in the context of the particular exercise being carried out, namely the assessment of whether the viability of any care homes would be affected.  In my judgment, that is plainly right.  I do consider the Council was entitled to look at efficiencies in the sense of occupancy rates that might reasonably be expected to be obtained by any under occupied homes, but there is, in my judgment, no rational basis at all for assuming 95% occupancy as a way of justifying the conclusion that there was no risk of closure or of any home being placed in financial jeopardy. 
80.	Finally on this issue, Mr Purchase submitted that if, contrary to his submissions, a profits based approach was legitimate, then at the very least it was necessary for the Council to decide what kind of profit is necessary to make a home viable or sustainable.  He submitted that there is no evidence that the Council directed its mind to that question.  I agree there is no such evidence.  However, I do not consider it necessary to address this issue further given my findings that the profits based analysis was indeed flawed for the reasons set out above.
81.	Before leaving Ground 1, I should deal with the point made by Mr Engelman that the Council was in receipt of Mr McArdle’s document as to the costs of capital and that the Council chose to reject if for valid reasons given in the contract log at B1, page 101.  What the log records is the decision to move away from the PWC model and towards a quality based assessment, a decision which the claimants do not and cannot attack.  The Council appears to have considered the issue to be “PWC model/ no PWC model” rather than addressing the issue raised as to how the return on capital would be reflected as an actual cost when setting the Fees.  The log does not address the issue of the actual cost of return on capital at all.
Ground 2
82.	Ground 2 can be dealt with much more shortly since there is significant overlap with issues arising in Ground 1.  In essence the complaint in Ground 2 relates to the role of building costs in the Quality Assessment Tool in the Contract.  
83.	Mr Purchase submitted that it follows from the Council’s failure to properly identify costs, including return on capital, that the 25% in the Quality Band scoring (which reflects the GLP grading) is a wholly arbitrary figure.  He accepts that the Council is entitled to move away from a model based on building costs provided that actual costs, including return on capital, are taken into account.  He submits they have not been.  He acknowledged that working out the percentage of return on equity which reflects capital costs and excludes any profit element is not an easy job.  This, he submitted, is why certain local authorities use experts to do this.  However, he submitted, the difficulty in calculating return on capital does not provide the Council with an excuse for excluding it.  He further submitted that the Council does not really dispute that they have not taken return on capital into account.  
84.	Mr Engelman submitted that the Council has acted lawfully in deciding to institute the new scheme based on quality, a point Mr Purchase repeatedly made clear he did not challenge.  Mr Engelman’s only other point on this issue was that the Claimants failed to provide the figures sought in the spreadsheets.  He submitted the Council did the best it could on the material available which led to the selection of 25% in the exercise of their discretion.   The difficulty I have with that submission is that there is nothing at all in the papers to show how the 25% figure was arrived at.  There is nothing to support or explain the exercise of the council’s discretion.  No explanation is offered as to why that apparently arbitrary figure jumped from the 10% figure in the draft contract issued in January 2012 to the 25% figure in the Contract in May 2012.  There is no basis offered as to how that figure relates to a fee based on any calculation as to what it costs providers to have, for example, a GLP Grade 1 building which will achieve the full 25% scoring.  There is no evidence that the actual cost of having such a building is in any way factored into the Fees
85.	In my judgment it follows from my findings that due regard has not been paid to actual costs including return on capital, that there is no rational basis for assigning 25% to the GLP grading as part of the Quality Band scoring.   In my judgment Ground 2 is made out.
Ground 3
86.	Ground 3 relates to the EMI uplift of £10 per week.  The Claimants’ case is that this a breach of guidance in both the Circular and the BCPCA in a number of respects, some of which are subsumed within the matters already covered under Ground 1.  The principal focus of this challenge is that the Council has failed to pay proper attention to the particular needs of EMI residents, has failed as a result to have due regard to the costs of providing care to those residents, and has thereby put itself in a position where it is unable to demonstrate, still less determine, Fees based on the “usual cost” for such residents.  
87.	Mr Purchase referred me to Paragraph 2.5.4 of the Circular which states that a Council should set more than one usual cost where the cost of providing residential accommodation to specific groups is different.  Mr Engelman accepted this and accepted that EMI residents fall into that description.
88.	I set out the Council’s evidence in relation to the EMI supplement at Paragraphs 37-39 above, noting the obvious inconsistency between Joanne Moore’s two Witness Statements, an inconsistency that Mr Engelman rightly acknowledged.  Mr Purchase submitted that the effect of Joanne Moore’s evidence is that it finally suggests that both the Fees and £10 supplement taken together meet the usual cost of EMI patients, even though earlier in the same statement she stated that the supplement had been emptied of meaning or link to costs many years ago.  Mr Purchase submitted the evidence is indicative of a fudge and that it is quite clear that due regard was not had to the particular needs of EMI residents, and the particular costs those needs entail.
89.	Mr Purchase further submitted that even if I were to accept that the Council had paid due regard to the actual costs by way of a blended rate, that would not be compatible with the guidance in the Circular which directs different usual costs for different groups of residents with different needs
90.	In the further alternative, Mr Purchase submitted that even if the guidance did not forbid a blended rate, it could not be rational to produce a single rate which covers both of these blended together.   He supported this submission by reference to the spreadsheets to illustrate the impact of EMI funding.  He pointed to the fact that different care homes have different proportions of EMI residents ranging from 12.4% for Ref 1, through 51.7% for Ref 4 to 73.1% for Reference 8.  Given that the Council accepts in Joanne Moore’s evidence that EMI residents require higher staffing ratios as a matter of good practice [C, Tab 6, page 119, Paragraph 36], that attracts a higher cost which Mr Purchase submitted cannot rationally be met by a blended rate given that different homes necessarily have different proportions of EMI residents.
91.	In response, Mr Engelman submitted that the Council had properly analysed the cost of care of all residents, including those with dementia and EMI needs.  He pointed to the fact that the spreadsheets list the number of bed night hours specifically by reference to separate categories, including EMI residential and EMI Nursing residents.  He submitted that the analysis of costs undertaken therefrom is such that the costs for those patients were properly analysed.  He submitted that the £10 uplift is an historical anomaly and the fact that it is still given is a bonus but does not destroy the central point that the duty is to analyse costs of care, which he submitted the Council has done.
92.	So far as the guidance is concerned, Mr Engelman submitted that the guidance may be departed from if there is good reason (per Sedley J in Ex parte Rixon quoted at Paragraph 5 above).  He submitted that paragraphs 22-24 of Joanne Moore’s Second Witness Statement [C, Tab 6, page 112] explain why a different approach was taken and he submitted this is sufficient to allow the Council to depart from the guidance in this case.
93.	I am not persuaded by Mr Engelman’s valiant attempt to make some sense of Miss Moore’s evidence.  Whilst I accept that the Council could depart from the guidance if there is a properly reasoned reason for doing so, there is no evidence at all to suggest that this was a reasoned approach taken at the time of setting the Fees.  Nowhere in the documents before me is there anything which suggests that any specific consideration was given to the needs of and/or usual cost of EMI residents, or as to whether a blended rate might be appropriate to meet the usual cost and care needs of EMI residents.  Given the significant inconsistencies in her evidence on this issue, and the absence of any documents which suggest otherwise, I am forced to conclude that the explanation in Joanne Moore’s Second Witness Statement is an attempt to retrospectively justify what I consider is a complete failure to consider the usual cost of care provision for EMI residents.  I accept Mr Purchase’s submissions on this issue.  I am satisfied that no due regard was had to the usual cost of care for EMI residents.  Even if the Council had decided to use a blended rate (which I am not persuaded was the case), I agree with Mr Purchase that such a blended rate could not be rational in circumstances where the homes have different proportions of EMI residents, such that the higher cost for EMI residents cannot properly or rationally be met by a blended rate. It follows, in my judgment, that Ground 3 is made out.
Ground 4
94.	Ground 4 alleges that there was inadequate consultation by the Council with providers.  There are two aspects to this challenge.  The first is that the financial analysis undertaken by the Council should have been disclosed in full or at least in part.  The second is that the consultation was flawed because information provided by the Council was misleading.  I shall deal with each in turn.
95.	The BCPCA requires local authorities to enter into consultation with care home providers and/or their representatives before deciding on the usual cost.  There is no dispute in this case that proper consultation should take place.  The dispute is whether it did.  Mr Purchase referred me to the decision of the Court of Appeal in R v North East Devon Health Authority, ex parte Coughlan [2001] QB 213.  Giving the Judgment of the Court, at Paragraph 108,  Lord Woolf MR (as he then was) stated as follows:
“…whether or not consultation of interested parties and the public is a legal requirement, if it is embarked upon it must be carried out properly.  To be proper, consultation must be undertaken at a time when proposals are still at a formative stage; it must include sufficient reasons for particular proposals to allow those consulted to give intelligent consideration and an intelligent response…”
96.	Mr Purchase also referred me to the decision of the Court of Appeal in R(Eisai) v National Institute for Health and Clinical Excellence [2008] EWCA Civ 438 (the “Eisai” case) which considered the requirement to provide “sufficient reasons for particular proposals” as part of the consultation process.  That case concerned a decision of NICE not to authorise the use of a particular drug for reasons of cost-effectiveness.  The Claimant in that case argued that NICE ought to have disclosed a fully executable version of the model it had used to assess cost effectiveness, rather than the read only version they had been given.  In accepting that argument, Richards LJ made a number of points:  
i)	The mere fact that information is “significant” does not mean fairness necessarily requires its disclosure to consultees.
ii)	Nevertheless the degree of significance of the undisclosed material is obviously a highly material factor.
iii)	What fairness requires depends on the context and the particular circumstances
iv)	By reference to the speech of Lord Diplock in Bushell v Secretary of State for the Environment [1981] AC 75 at page 96, that “…“fairness” also requires that the objectors should be given sufficient information about the reasons relied on….as justifying the draft scheme to enable them to challenge the accuracy of any facts and the validity of any arguments upon which the ….reasons are based….” and at page 95 “….what is a fair procedure is to be judged in the light of the practical realities as to the way in which administrative decisions involving forming judgments based on technical considerations are reached””.  [Paragraphs 26-28 of the Judgment of Richards LJ]
97.	The dispute in this case concerns the Council’s refusal to disclose financial data when requested to do so to support their calculations as to “profit” or “acceptable profit”.  The reason given by the Council was that the information was confidential to the providers concerned (see Paragraphs 28-30 and 32-34 above).  Mr Purchase submitted that the Council could plainly have provided anonymised information, as it now has done by way of disclosure in these proceedings.  He submitted that without the detailed information as to the Council’s analysis and methodology, the First Claimant was unable to contribute in a meaningful way to the consultation on whether the proposed fees were appropriate.  The Claimants were thereby deprived, he submitted, of making further meaningful contributions, not least of undertaking the type of arithmetical calculations which were undertaken by Mr Purchase in his submissions before me.  Mr Purchase submitted that the 2 page analysis at B2 pages 567-568 should have been disclosed (with the homes suitably anonymised) which would have enabled the Claimants to make meaningful contributions to the consultation based on the information in that document.  For example, disclosure would have shown, contrary to the Council’s stated position, (i) that 4 homes would be making a loss at the proposed Band 2 rates, (ii) that calculations as to profitability and viability had not been done at all proposed Fees Band rates, (iii) that 95% occupancy was assumed in order to bring the homes into profit rather than looking at the actual occupancy rates (iv) that no separate analysis was done for EMI residents and their usual costs, all matters which Mr Purchase submitted are important matters and matters on which the Claimants could have made significant contributions as part of the consultation process. 
98.	In response to this, Mr Engelman acknowledged that public interest can trump the issue of confidentiality.  However he submitted that in the circumstances of this case the Council was entitled to withhold the information on the basis of the confidential/commercially sensitive nature of the information.  He pointed to the fact that STCHOA itself withheld information and sought assurances that any information disclosed would be treated as confidential (See: E-mail Keith Gray to Joanne Moore of 1 December 2010: B1, page 72; and First Witness Statement of Joanne Moore: A, Tab 12, page 225, paragraph 69). Mr Engelman submitted that the Claimant should not be entitled to withhold information from its own members, but seek to comment on that provided by others.  That submission, it seems to me, fails to address that what was sought was information as to the Council’s methodology and analysis. Whilst that would necessarily involve some financial information, the spreadsheets themselves were not being sought.  
99.	Mr Engelman also submitted that the information was being sought for a limited purpose and it was, he submitted, hard to see how disclosure could have helped the Claimants.  He referred me to Keith Gray’s First Witness Statement at A, Tab 9, page 157, Paragraph 51 as expressing the Claimants’ limited purpose in seeking the information.  That paragraph states as follows
“As mentioned numerous times before, we were not looking to see individual homes’ financial figures, just total average results and how they were arrived at.  No detailed information was given to us about how the Council determined the extent to which downgrading of homes would affect “profits” or, for that matter, what they calculated that the original “profit” figures were. The Council’s projection doesn’t mean anything without information as to the starting point.”
100.	Mr Engelman also referred me to the Claimants’ letter to the Council of 17 May 2012 and the information requested in it [B2, page 245, and see Paragraph 32 above].  Mr Engelman submitted that what was being sought was just bottom line figures and these would not have helped the Claimant.  He suggested that in response to that letter all Mr Gray would have received would have been the table (and not the commentary) at B2, pages 567-568, and that this would not have helped the Claimants.  
101.	I cannot accept that submission for a number of reasons.  Firstly, I do not accept that the table on B2, pages 567-568, in isolation and without the commentary would have been of no use to the Claimants. In my judgment it would undoubtedly have led to them asking a significant number of questions and requesting more information as to the methodology and analysis.
102.	Secondly, and more importantly, in my judgment, it does not lie in the Council’s mouth to say it should only disclose exactly what is asked for.  The Council has a duty to consult.  The Claimants and other providers cannot know exactly what documents the Council has or may have created, such as the analysis at B2, pages 257 -258. It is incumbent, in my judgment, upon the Council to decide what needs to be disclosed as part of a proper and fair consultation process and not to merely respond to requests by the Claimants and other providers.  Further, if proper but generalised requests for information are received (generalised by very reason of the providers lack of knowledge of what documents the Council has and/or has created), the Council has the same duty, namely to decide what needs to be disclosed as part of a proper and fair consultation process.  
103.	In my judgment the issue here is whether the Council has conducted a full fair and proper consultation notwithstanding its refusal to disclose documents supporting its methodology and analysis of financial information.  In my judgment it has not.  Disclosure of the document at B2, pages 567 -568 would, in my judgment, have enabled the Claimants and other providers to challenge errors on the face of the document (such as the 95% assumed occupancy rate), to do their own calculations to show that the Council’s statement that profitability and viability of homes would be unaffected was incorrect, and to point to the failure to address EMI costs as a separate issue.   It follows that Ground 4 is made out.
  Ground 5
104.	Ground 5 challenges a number of alleged errors of fact or errors of approach which it is alleged are sufficiently significant (individually or as a whole) to render the Council’s decision as to the level of Fees unlawful or irrational.  The first 2 errors alleged are both subsumed within Ground 1 which I have already held is made out, and I do not propose to repeat them here.  The third is that the Council proceeded on the basis that 10 homes were the subject of analysis when in fact only 9 submitted data by way of spreadsheets (See B2, page 567).  I regard this as a wholly minor matter having no real impact in this case.  
105.	Much more significant is the fourth alleged failure, namely the failure by the Council to factor into its analysis that the figures for costs were far too low because no increase had been allowed for inflation.  The Council undertook an analysis of the providers’ annual profits based on the cost information provided in the 9 spreadsheets.  It is clear from the spreadsheets that the costs data provided was not up to date in some cases.  For example Ref 6 provided data for the period 1 May 2009 – 30 April 2010, Ref 7 for the period 1 November 2009 – 31 October 2010, reference 8 for the period 1 January 2010 to 31 December 2010.    Some providers give no dates for the figures provided, others have provided figures for 2011.  The Fees were being set for 2012.   No inflationary allowance was made for any of the figures in calculating the profits.  Mr Purchase submitted this would result in an overestimate of profits since the calculation does not reflect the inevitable increases in cost.
106.	Mr Engelman appeared to accept he was in some difficulty in relation to this particular matter. He referred me to Mr Mathieson’s Witness Statement as providing the Council’s answer to this issue.   At paragraph 19 of his Witness Statement [C, Tab 7, page 127] Mr Mathieson says this:
“I accept that the analysis did not take inflation into account but it was unnecessary to do so.  The work undertaken did not directly lead to a computation of fees but sought to set a base line for the same.  In reality the final offer made included inflationary increase and this is borne out by the increases demonstrated in the table of rates set out in Joanne Moore’s witness statement”
107.	I have to say I struggle to understand that paragraph.  The work undertaken is the whole basis for the table and comments at B2, page 567 -568.  It informed the conclusion that the financial viability of no home would be affected by the proposed rates.  It informed “the baseline” as Mr Mathieson would have it.  Insofar as Joanne Moore refers to inflationary increases, that relates to the inflationary increases reflected in the Fees from July 2013 [C, Tab 6, page 114, paragraph 27].  The Council’s whole case is predicated on the profit analysis undertaken by Mr Mathieson and I find it astonishing that he should suggest it was unnecessary to take into account inflation.  It would have been very simple to apply an inflationary index to the costs figures provided on the spreadsheets in order to calculate a sensible and more accurate profit figure.  I consider this is a very significant error in approach which undermines the whole basis for the Council’s approach and inevitably renders the decision unlawful and/or irrational. 
108.	Further alleged errors include arithmetical miscalculation of the occupancy rate for Ref 4 (calculated by the council as 53.56% on B2, page 568, but in fact 76% calculated by using the figures provided by Ref 4 on its spreadsheet at B2, page 544), a failure to recognise obvious errors in spreadsheets such as Ref 3 recording 41 beds had been occupied when it only has 40 beds, and a failure to take into account certain staffing costs such as cover for sick pay, training, holidays, maternity pay and insurance costs.  Given the fundamental errors made out in Grounds 1-4 and the inflation issue made out for Ground 5, I do not consider it necessary to explore these somewhat peripheral matters in any detail.  
109.	The final error alleged in Ground 5 relates to EMI residents and is subsumed within Ground 3 which I have already held is made out.
Ground 6
110.	As originally drafted this Ground alleged that the Council had failed to comply with its statutory duty under Section 149 Equality Act 2010 (the 2010Act”), there being no evidence to support that it had.  In response to that allegation evidence was adduced by the Council on this issue and a copy of a completed Equality Impact Assessment (“EIA”) was disclosed [C, Tab1, pages 1-13].  Mr Purchase focussed on what he submitted were two failures in the EIA, firstly an inadequate risk assessment and secondly, the failure to consider EMI needs.  
111.	So far as relevant, Section 149 of the 2010 Act provides as follows:
“(1)  A public authority must, in the exercise of its functions, have due regard to the need to-
     (a) eliminate discrimination, harassment, victimisation and any other conduct that is prohibited by or under this Act;
     (b) advance equality of opportunity between persons who share a relevant protected characteristic and persons who do not share it;
     (c) foster good relations between persons who share a relevant protected characteristic and persons who do not share it.
(3)  Having due regard to the need to advance equality of opportunity between persons who share a relevant protected characteristic and persons who do not share it involves having due regard, in particular, to the need to –
     (a) remove or minimise disadvantages suffered by persons who share a relevant protected characteristic that are connected to that characteristic;
     (b) take steps to meet the needs of persons who share a relevant protected characteristic that are different from the needs of persons who do not share it;
     (c) encourage persons who share a relevant protected characteristic to participate in public life or in any other activity in which participation by such persons is proportionately low.
(7) The relevant protected characteristics are age; disability;…..”
112.	There is no dispute that the duty applied in this case.  Counsel agree that the Court must look at the substance of the EIA and not just the form (per Lord Brown in R(McDonald) v Kensington and Chelsea Royal London Borough [2011] PTSR 1266, at page 1279, Paragraph 24).  Mr Engelman reminded me that there is no need for a local authority to mention the statutory duty or to carry out that duty in a particular way.  The issue is one of substance, not of form. 
113.	Mr Purchase submitted that the EIA failed to meet the duty threshold in 4 respects.  Firstly he submitted that the EIA does not address any of the concerns raised by the Claimants to the effect that fees proposed are insufficient. 
114.	Secondly, at stage 6 in the EIA [C, Tab, pages 3 – 9], Mr Purchase submitted that the only risk identified is that care home providers may decline to contract with the Council if Fees are set at the level proposed.  He submitted there was no assessment of the risks (i) that the Fees may be insufficient to meet costs as raised by the Claimants, (ii) of the potential impact of the care homes moving between the different Fees Bands in the new Contract, and (iii) of the potential impact on standards of care provision and on residents if any homes are forced to close.  Mr Purchase submitted the latter is particularly surprising given the Council’s analysis that 4 homes would be running at a loss on the new Band 2 Fees.
115.	Thirdly, Mr Purchase pointed to the absence of any mention of EMI residents or residents with dementia.   Fourthly, he attacked the Action Plan at C, Tab 1, pages 10 -14, as being extremely vague as to what would be done if any of the risks should come about.  Mr Purchase submitted that the EIA was not a sufficiently robust analysis in substance.  
116.	Mr Engelman submitted that the EIA analysis was more than sufficient to discharge the duty under Section 149 of the 2010 Act. He submitted that the document deals with the issues as seen by experienced officers and was kept under review as is clear from the updates in Section 6.  He reminded me it is not the court’s function to micro-manage matters.  The difficulty facing Mr Engelman is the findings I have already made in relation to Grounds 1-5.  I have identified a number of areas where the decision making process was flawed.  The EIA addressed matters in the context of that flawed decision making process and inevitably, therefore, failed to recognise what may well be relevant risks which would have been identified if the decision making process had been undertaken properly.  The obvious ones are those identified by Mr Purchase.   In my judgment Ground 6 is also made out.
Relief
117.	I now turn to consider what relief should be granted in this case.  Mr Purchase submitted the decision should be quashed.   Mr Engelman relies on the imperative of good administration and delay on the part of the Claimants to seek to persuade me that there should be no substantive relief.  Mr Purchase referred me to the judgement of  Lord Hoffman in R(Edwards) v Environment Agency [2009] 1 All ER 57 at page 75, paragraph 63 where he said as follows
“It is well settled that “the grant or refusal of the remedy sought by way of judicial review is, in the ultimate analysis, discretionary”….But the discretion must be exercised judicially and in most cases in which a decision has been found to be flawed, it would not be a proper exercise of discretion to refuse to quash it.”
118.	Mr Purchase also very properly took me to the decision of Singh J in R (South West Care Homes Limited) v Devon County Council [2012] EWHC 1867 (Admin) (“the South West Care Homes case”) where in the exercise of his discretion he declined to grant substantive relief.  However, in that case the decision under challenge was about fees for a 1 year period which had expired by the time the matter got to a substantive hearing.  Further the case was very stale, a matter the Judge found was entirely of the Claimant’s making.
119.	Mr Engelman submitted that I should not grant any substantive relief on the basis of 4 points: (i) that this application was not made promptly; (ii) that there will necessarily be a disruption in the Council’s budget; (iii) that 13 out of 18 providers have signed the Contract which has been running successfully for a year and the status quo should be preserved; (iv) there has not been any application for expedition or to set aside the stay.
120.	In response to those points Mr Purchase submitted that although the Claim was issued at the end of the 3 month period, there is no dispute that during that 3 month period the parties were making efforts to resolve the dispute (Meetings in May and July 2012 for that purpose are referred to at Paragraph 15 of Mr Engelman’s skeleton).  Mr Purchase referred me to the Court of Appeal decision in R(Cowl and others) v Plymouth City Council [2002] 1 WLR 803 in which the Court made it clear that Claimants should not rush to the Administrative Court but should make efforts to resolve the dispute with the minimum involvement of the court.  Litigation should be resorted to only if it is unavoidable. (See paragraphs 1, 2, 14 and 27 of that Judgment).
121.	Mr Purchase submitted that most of the delay in this case is because the Council applied for a stay to await the Judgment in the other cases.  As set out in paragraph 2 hereof the Claimants did, in effect, seek expedition in the first instance.  I recognise they did not seek to set aside the stay.
122.	Mr Purchase submitted that the Council has not produced a shred of evidence to support the contention that there would be any significant damage to good administration, let alone the extent of that damage.  He reminded me that in practical terms the time gap from the decision taking operative effect (i.e. October 2012 when the new Fees started to be paid) and the hearing in early May 2013 was relatively short, being some 7 months.  He reminded me this is a 2 year contract lasting until at least July 2014 with the option to extend beyond that for a further 2 years by mutual agreement.  The inflationary increases for any extension of the Contract do not, he submitted, address matters if the Fees were wrong in the first place.   He submitted this case is very different form the South West Care Homes case.
123.	So far as the fact that 13 providers have signed the contract, Mr Purchase submitted that there is no evidence as to whether they did so willingly or reluctantly. He also pointed out that on the Council’s own figures, 7 out of 25 homes have not signed the new Contract, which is more than 25% of the homes.  
124.	Finally he submitted that if the Fees are set too low, as a matter of logic that will have a serious impact, and could carry a real and serious risk of closures with the serious risk of impacting residents, as well as staff and the businesses in question.  Mr Engelman pointed out that there is no evidence to support this submission.
125.	Looking at the position in the round I am not persuaded that it would be a proper exercise of my discretion on the facts of this case to refuse the Claimants substantive relief.  I recognise the inconvenience to the Council in having to go through this process again and the disruption to, and indeed, impact on the Council’s budget.  I fully recognise the financial constraints under which local authorities are carrying out their duties.  However, the extent of the errors in the process in this case, going as they do to the very heart of the decision making process are such that it would, in my judgment, be quite wrong to refuse substantive relief.  Accordingly I shall make an Order quashing the Council’s decision to issue the Contract and to adopt the Fees bands contained in it.
126.	I invite Counsel to agree an appropriate Order if possible.