Judge orders council to compensate provider for failing to provide ‘reasonable’ care home fee

A judge has taken the unusual step of setting the fee that a local authority should have paid a care home provider after finding that it breached contract by not paying a “reasonable price” from 2010-12.

Mr Justice Norris told Newcastle City Council to raise the amount it had paid the local branch of care home provider Abbeyfield between April 2010 and March 2012.

In a judgement published last week after hearings in December, the judge said that the rate should rise to £450 per resident per week for April 2010 to March 2011 and to £460 for April 2011 to March 2012.

The council had originally paid Abbeyfield £436 for both years, in line with a two-year price freeze it initiated in 2010 for publicly-funded care home clients. But, on the eve of proceedings in December 2013, the council agreed it should have paid Abbeyfield £455, from October 2011 to April 2012.

A spokesperson for Newcastle City Council said he did not yet know how much the judgement would cost the authority.

Breach of contract

The judge accepted Abbeyfield’s case that the council had breached an implied contractual term by not paying the charitable provider the “reasonable cost” for its services at its two homes in the city.

Abbeyfield’s overarching contract with the council – known as the pre-placement agreement (PPA) – had expired in April 2010, and the provider had refused to sign up to the council’s proposed new terms to fix the fee at 2009-10 levels (£436 per week) for three years. The price freeze was later revised down to two years’ duration and 29 providers signed up to it in June 2010.

However, Abbeyfield continued to support council-funded residents from April 2010 onwards under individual “user agreements”, a three-way contract between the council, provider and service user that continued for the life of the resident unless terminated, with the fee set in accordance with the PPA.

The council continued to pay £436 a week for these placements; however, the judge concluded that without the PPA being in place between the authority and Abbeyfield, an implied term of the user agreements was that a “reasonable price” should be paid.

He rejected the council’s view that the reasonable price was the same as the “market price”, which was determined by the fact that 51 other providers (as from October 2011) had accepted the council’s rate.

‘Unlawful threats’

Mr Justice Norris said: “There is no true “market”. There is a dominant purchaser which, by virtue of its purchasing power and its ability to make unlawful threats (to “blacklist” dissentient providers) which individual providers cannot counter, is able to secure for itself particular prices which are lower than “the market” (comprising all purchasers of care homes services) is willing to pay.”

The judge concluded that the council had not set a reasonable price because:

• The PPA obliged the council to participate in and take account of a price review requested within six months of the PPA expiring; however it did not do this when Abbeyfield invoked the price review clause three months before the end of the PPA.
• At no point did the council demonstrate that it either knew or had taken account of the actual costs of care, as required by statutory guidance issued in 2004.

He added: “The council has singularly failed to show that its method of assessment was sufficient to inform itself as to the actual costs of care so that it could then have due regard to them.”

Previous ruling against council

Newcastle council had previously been told to recalculate its care home fees for the subsequent period, 2012-13, in a judicial review bought by a care home association, Care North East, in March 2012. In that case Judge Gosnell said the council’s decision to fix rates to providers for 2012-13 was unlawful and told the council to rethink it. The council then raised the rate for April 2012 to April 2013 from £455 to £473.20, and rate from April 2013 was set at £482.66.

Mr Justice Norris set the rates the council should have used from 2010-12 by extrapolating back from the rates for 2012-13 and 2013-14, to that applying under the PPA in 2009-10, £436 a week.

A Newcastle City Council spokesperson said: “We can confirm that we’ve received a judgement from the High Court. We do not, as yet, have a final figure as we are still in the process of agreeing costs with Abbeyfield.

‘Budget under strain’

“Naturally we’re disappointed in the judgement, particularly at a time when our budget is under strain and we need to concentrate our limited resources on caring for some of the city’s most vulnerable people.”

Natasha Singarayer, chief executive of the Abbeyfield Society, estimated that councils across England and Wales were “short-funding Abbeyfield by at least 10 per cent” and called on central and local government to take a “realistic approach” to financing of care.

She said: “The Newcastle judgement brings the care funding issue into sharp focus. From now on local authorities will find it much harder to get away with short-funding care beds. As a charity, our prime aim isn’t making profit out of care and we are determined to continue charging fair fees. But to remain viable, we have to cover our costs and in recent years too many local authorities up and down the UK have been short-funding the care we provide to older people who don’t have enough money to pay for their own residential care.”