R (South Tyneside Care Home Owners Association and Others) v South Tyneside Council

The court allowed the claim and quashed the Council's decision to issue the Contract and adopt the Fees bands. The judge found multiple flaws in the decision-making process: the Council failed to have due regard to the actual costs of care (in particular to return on capital/return on equity), adopted an unlawful profits-based methodology that relied on subsidy from privately-paying residents, used an arbitrary weighting for building/GLP scores in the banding scheme, failed to assess properly the additional "EMI" uplift/costs for elderly mentally infirm residents, and conducted an inadequate consultation including withholding supportive financial analysis. The Equality Act 2010 public sector equality duty assessment was also inadequate in substance.

Background and nature of the claim: The claimants (a local association of care-home owners and individual care-home operators) sought judicial review of South Tyneside Council's decision to publish its "Agreement for the Provision of 24 Hour Residential Care Home Services or Nursing Care Home Services" dated 31 May 2012 and the fees (the "Fees") payable under that Contract. They alleged unlawfulness, procedural unfairness and Wednesbury irrationality on six grounds and sought quashing of the Contract/fee decision.

Procedural posture: Permission was granted and the matter proceeded as a first instance judicial review hearing in the Administrative Court. The claim followed and was stayed briefly pending a related case; amendments added Grounds 5 and 6.

Issues before the court:

• whether return on capital/return on equity is an "actual cost" of providing care and whether the Council had due regard to it (Ground 1);
• whether the banding system and the 25% weighting for GLP/building standards was rational and based on cost (Ground 2);
• whether the £10 per week EMI uplift properly reflected additional costs of EMI residents or whether the Council failed to assess usual costs for that cohort (Ground 3);
• whether consultation was adequate, including whether the Council should have disclosed financial analysis and methodology (Ground 4);
• whether the public sector equality duty under section 149 Equality Act 2010 was discharged in substance (Ground 6).

Court's reasoning and conclusion: The judge concluded that return on capital is a real element of cost which the Council was required to have due regard to under Circular LAC (2004)20. The Council's reliance on inadequately completed provider spreadsheets, its decision to calculate a profit position that relied on higher private-pay income rather than assessing the "usual cost" of care, its unexplained/arbitrary 25% GLP weighting, and its inconsistent and inadequate treatment of the EMI uplift all demonstrated failures in the decision-making process. Consultation was defective because the Council declined to disclose analysis that would have permitted meaningful responses and failed to correct or explain analytical errors (for example, assuming unrealistically high occupancy and not indexing older cost data for inflation). The Equality Act 2010 assessment was materially deficient in substance. Because these defects went to the heart of the decision, the judge quashed the Contract/fee decision and invited parties to agree an appropriate order.

The claim is allowed and the Council's decision to issue the Contract and adopt the Fees bands is quashed. Rationale: the Council failed to pay due regard to the actual costs of care (notably return on capital), adopted an unlawful profits-based approach that improperly allowed subsidy from private payers, used an arbitrary GLP weighting without evidential foundation, failed properly to assess and justify the EMI uplift, conducted inadequate consultation and disclosure, and produced an Equality Impact Assessment that was insufficient in substance. These errors rendered the decision unlawful and irrational and required quashing.