How is Judicial Review relevant to public authority contracts? Some guidance from the High Court

In R (Care North East Northumberland) v Northumberland County Council [2024] EWHC 1370 (Admin), the High Court considered the role of judicial review in the context of contractual arrangements between a public authority and private organisations. 

Key points:

• Conventional judicial review grounds may apply to situations involving contractual arrangements where statutory duties and public functions come into play e.g. where contractual arrangements are an important means of implementing and discharging statutory duties.
• The contextual application of judicial review grounds should be informed by the contents of the contract.
• This means the judicial review court may need to ensure that it should neither exceed nor fall short of express provisions for the decision-making process. 

Background

The case concerned the weekly fees paid by a local authority to care home operators.

The claim was brought by Care North East Northumberland (''CNEN''), an unincorporated association representing 24 of Northumberland's 70 care home operators, against Northumberland County Council (''NCC''). The case revolved around an agreement signed in 2021 (the ''2021 Agreement'') between NCC and each relevant care home operator.

The 2021 Agreement governed a three-year relationship and included an annual fee revision for the second and third years. The weekly fees had a basic contractual mechanism for their annual revision. The 2021 Agreement also allowed for an additional banding rate uplift. Clause 17.4 required NCC to evaluate whether the existing rates were sufficient to sustain the care home market and to send a letter to the relevant provider (the ''Annual Fee Review Letter''). If NCC determined that the banding rates would not be sufficient, it was required to propose adjustments to increase some or all of the banding rates.

On 31 January 2023, NCC sent their Annual Fee Review Letter to all care home providers, outlining their plans for care home fees in 2023/2024. On 22 March 2023, NCC communicated details of the specific fees for 2023/2024 and decided not to add any further banding rate uplift.

NCC was subject to various relevant statutory duties, including promoting the efficient and effective operation of the care home market and having regard to the importance of ensuring the sustainability of the market. There was also statutory guidance recognising that contractual arrangements local authorities make with service providers should not negatively impact key factors such as the sustainability and sufficiency of the market. These duties were closely linked to the wording of clause 17.4 of the 2021 Agreement.

CNEN argued that NCC's decision to apply the basic contractual mechanism for Year 3 without any additional uplift was unlawful and asked the court to quash the decision, or alternatively declare it unlawful, on grounds including:

• Ground 1: NCC had failed to ask and answer the question in clause 17.4 of the 2021 Agreement;
• Ground 2: NCC failed to undertake a legally sufficient inquiry into the scale of inflationary pressures faced by care providers; and
• Ground 3: NCC failed to give legally adequate reasons for its decisions.

Judgment

Applicability of judicial review

NCC submitted that only the first ground was susceptible to judicial review because of the close link between clause 17.4 and the statutory duties, arguing that the other grounds described above would involve imposing public law duties which have the effect of diluting or altering freely concluded contractual terms. In any event NCC argued that the court should apply a "light-touch" review in a contractual context.

Fordham J examined the relevant authorities before articulating a principle that conventional grounds for judicial review apply to decisions relevant to sustaining an efficient and effective care home market, as that is a public function. The contractual arrangements are an important means of implementing and discharging statutory duties, as recognised by the statutory guidance. In this situation clause 17 was key as it made provision about the decision-making approach, both in terms of procedure and substance, relating to the application of important statutory duties.

In considering how the 2021 Agreement aligned with grounds for judicial review, the court concluded that the contextual application of judicial review grounds should be informed by the contents of the contract i.e. the judicial review court may need to ensure that they neither exceed nor fall short of an express provision for the local authority's decision-making process. The judicial review court may need to be cautious so as not to cut across the contract.

The court considered the link with legitimate expectations, noting that if a public authority gives representations about what it will do that can give rise to conventional grounds of judicial review. Whilst Fordham J accepted that when a clear promise crosses a line to become a concluded contract, that brings into play remedies and enforcement mechanisms of private law, he did not accept that, in crossing that line, the clear promise necessarily and immediately loses any traction in informing the content of conventional grounds for judicial review. Fordham J considered that it would be odd and unsatisfactory if the operators' position as to public law protection was stronger through the contents of clear promises and representations under a policy or letter, but then suddenly vanished by signing on the dotted line.

Ground 1

The court referred to the Tameside principle, which requires a decision-maker to ask themselves the correct question. CNEN argued that NCC's Annual Fee Review Letter did not contain a statement that asked and answered the question required by clause 17.4 i.e. whether the basic contractual mechanism would be sufficient to sustain the efficient and effective operation of a care home market without an additional uplift.

Fordham J acknowledged that it would have been better if the decision letter had directly and explicitly answered the question. However, looking at all the evidence in the round the court concluded that the question was being asked and answered in substance.

Ground 2

This ground again relied on the Tameside principle which requires a decision maker to ask the correct question and take reasonable steps to gather relevant information to answer it accurately.

CNEN argued that NCC failed to conduct a sufficient inquiry into the impact of increased food and energy costs on the entire care sector. However, the court ruled that the inquiry was not legally insufficient. The court noted that CNEN had provided information on inflationary pressures, which was available to the decision maker. NCC also had its own survey evidence and cost of care report, which involved analysis. Further analysis was done for the decision letter, including considering how food price increases accounted for a larger share of care home expenditure. Fordham J concluded that NCC had taken reasonable steps to acquaint itself with the relevant information to answer the relevant question.

Ground 3

CNEN argued that the Annual Fee Review Letter needed to provide legally adequate reasons, which were proper, adequate, and intelligible, as to whether and why the basic contractual mechanism, without an additional uplift, would be sufficient to maintain the efficient and effective operation of a care home market.

Fordham J did not agree that the reasons in the Annual Fee Review Letter were legally inadequate. He pointed out the starting point was clause 17.4 itself in which NCC's express duties were clearly outlined, and the court must be cautious in allowing public law standards to cut across the content of the contract. The court stated that NCC did communicate its answer and its reasoning was not below the contextually applicable standards of clarity, sufficiency or intelligibility.

Timing and Relief

Fordham J emphasised that a judicial review claim that asks the court to overturn a local authority fee decision should be challenged swiftly and with a request for substantial expedition due to the allocation of local authority resources in the new financial year's budget decision. Fordham J outlined that he would not have granted a quashing order in any event as CNEN waited three months to start proceedings.

However, without such a delay he would not have been persuaded by arguments about detriment to good administration. Judicial review remedies are a matter of judgment and discretion. There is a narrow band within which detriment to good administration could justify the refusal of a remedy even where a claimant has acted promptly. Where a claimant has done all that could have been expected, and can show unlawfulness, the court will be extremely circumspect about the blanket denial of any remedy.

Ultimately the court granted permission in relation to the claim for a declaration (but not in relation to the claim for a quashing order), and then dismissed the substantive claim since none of the grounds succeeded.

Comment

Although set in the care context, the High Court's examination of the relationship between statutory duties and contractual obligations in this judgment is of broader interest given the number of sectors where public functions and statutory duties are implemented through some form of contractual arrangement. It was particularly interesting to see how this contractual context, and the content of express agreed duties and obligations, impacted relevant public law obligations such as providing legally adequate reasons.

Early indications suggest that the new Government's approach may increase the use of private sector arrangements to achieve public interest outcomes, and in that context this case neatly highlights the complexities of balancing contractual mechanisms with statutory responsibilities.