RWK Goodman: Judicial review win for care providers – important lessons from a thoughtful decision

On 27 January 2025, a new judicial review decision about the setting of elderly care home fees was published. The case of SARCP, R (On the Application Of) v Stoke-On-Trent City Council [2025] EWHC 18 (Admin) (27 January 2025) is a thoughtful analysis about the local authority fee setting process and provides a clear roadmap through the legal evaluation of a judicial review case. However, it also reminds us that the situation is more than just providers vs. commissioners. The problem with social care fee rates is part of a bigger picture involving Government evisceration of local authority budgets and commissioners having their backs to the wall.

Although local authorities are having to do more with less, this decision shows that commissioners cannot just go through the motions and provide decisions that are not carefully considered or explained. They must undertake a proper analysis, consult meaningfully with providers (where there is a legal obligation to do so), examine the impact of their decision on people using services, and explain their decisions clearly.

The legal framework

This case is important because it clarifies the state of the law today, providing a link between the series of judicial review cases brought in the early 2010s and the current legal framework and guidance under the Care Act 2014. This case helpfully shows that previous cases in which providers succeeded in judicial review claims, such as R (South West Care Homes) v. Devon CC [2012] ACD 108 and R (South West Care Homes) v. Devon CC [2012] EWCH 2967, in which I was involved, still provide meaningful precedent despite the changes in the law brought about under the Care Act.

So what does the case teach us?

1.      Care associations and providers can attack local authority fee setting decisions via judicial review. They are not limited to contractual remedies.

The claimant in the case was a local care association, rather than individual care providers. This was important because Stoke-On-Trent City Council (the “Council”) argued that care providers had a contract and should be limited to asserting a contract claim (an issue of private law) and could not use judicial review (a public law process) to attack the Council’s fee decision. As the care association didn’t itself have a contract to provide care to people funded by the Council (the contract was between the Council and individual providers), the Court found that SARCP did have standing to bring the judicial review case.

This public law/private law argument is not a new. Councils made this argument to block judicial reviews over a decade ago. It didn’t work then, and it hasn’t worked now. Judicial review has been reconfirmed as an appropriate route for attacking fee decisions.

2.      Where there is a legal basis for doing so, local authorities must undertake a meaningful consultation and conscientiously consider the outputs of the consultation when making their decision.

The Court stated that the care association needed to establish: (a) a right to consultation at common law (rather than under a contract); (b) that the consultation was not adequate; and (c) that the inadequate consultation required a public law remedy.

In order to prove that they had a right to consultation, the care association needed to show that there was a “clear and unambiguous promise” to consult. In this case, the Council had promised in writing to consult properly with providers. A right to consultation can also be established where there is a prior practice that creates a “legitimate expectation” that there will be a consultation.

To be fair, a consultation must meet four principles called the “Gunning principles”:

a.      The consultation must be at a time when proposals are still at a formative stage.

b.      The proposer must give sufficient reasons for any proposal to permit of intelligent consideration and response.

c.      Adequate time must be given for consideration and response.

d.      The product of consultation must be conscientiously taken into account in finalising a proposal.

Here, the Court found that the fourth principle was breached because the Council failed to engage with the Claimants about their concerns, including the contention the basic fee was set at a level “far below the price necessary to allow a viable sector” and at a rate that didn’t reflect the actual costs of providing care. There was no evidence that the claimants’ views and concerns were taken into account by the Council.

In relation to decisions about fee rates, we see a lot of councils dodging these issues. A provider sets out a series of well-explained, reasonable concerns, to which the commissioner simply provides a short “computer says no” type of answer. This case shows this is simply not good enough.

3.      Local authorities must follow guidance and consider relevant statutory factors, such as the fair cost of care.

The case draws a clear line between the “old” guidance under LAC (2004)20 and the current guidance under Annex A of the Care Act. Both indicate that fee decisions must “have regard to the actual cost of good quality care” and “not set arbitrary ceilings not reflecting the fair cost of care”.

In this case, there were a surprising five separate failures to follow this guidance:

a.      The decision didn’t have regard to the actual cost of good quality care or explain how that was outweighed by other factors such as over-capacity in the residential care home market or the Council’s budgetary constraints.

b.      The 1.4% minimum uplift in providers’ contract was as an “arbitrary ceiling” on the decision rather than a “contractual floor” because it reflected a lower/out of date inflation rate of 1.4%  - the Council did not have regard to “the actual cost of good quality care”.

c.      The Decision focused exclusively on the percentage uplift set out in the contract rather than on the Council’s duty under s.78 of the Care Act to have regard to the statutory guidance.

d.      The Council failed to acknowledge that a reasonable fee level allowed for a reasonable rate of return to allow efficient operators to remain sustainable in the long-term or at least explain why that factor was outweighed by others, such as limits to the Council’s budget.

e.      The decision acknowledged the risk of loss of provision, i.e., that the sustainability of the market was at risk. However, it failed to recognise that the decision to limit fee uplifts was itself a threat to market sustainability and didn’t explain how this was outweighed by countervailing factors like budget.

4.      Councils must take into account their market shaping duties under section 5 of the Care Act 2014.

Arguments about councils’ market shaping duties have been made before and not upheld by courts in recent judicial review cases. The argument is based on section 5 of the Care Act. Here, the tide turned, with the Court finding that the Council failed to have due regard to implicit statutory factors, including:

a.      the duty to promote the efficient and effective operation of a market;

b.      ensuring that the market remained sustainable;

c.      the importance of fostering continuous improvement in the quality of care services and the ability of providers to comply with CQC standards and improve quality;

d.      fostering a workforce able to deliver high-quality care when fee increases were substantially below the increase in National Living Wage costs;

e.      the promotion of well-being of care home residents due to the indirect impact on them of the Council not providing the actual costs of care, which would inhibit providers’ abilities to meet their needs or result in higher top-ups being charged.

5.      Councils must comply with the Public Sector Equality Duty by considering the impact of their decision on protected groups.

The Court quoted the second South West Care Homes case and explained that even if there was a proper consultation, a decision could be unlawful if it breached the Public Sector Equality Duty (PSED) under section 149 of the Equality Act 2010. When exercising their public functions, councils need to remove or minimise disadvantages to people with a relevant protected characteristic (such as a disability). In this case, the Council failed to consider the impact of its decision on the people using services. This could prevent providers from being able to meet their needs or cause them to be charged higher top ups. The Council had lost sight of the need to consider the impact of its decision on the people it affected and this was unlawful.

6.      Decisions can be irrational (but this is very rare).

There is a very high bar to a court finding that a decision is “irrational”.  A decision is only irrational if it is “so unreasonable that no reasonable person acting reasonably could have made it”. Here, the Court said that this was a “very clear case of irrationality” due to the lack of evidence to justify the Council’s decision and the inadequacy of its reasons for the decision.

7.      A judicial review win is great but may not fix the problem.

Judicial review gives a court a flexible set of remedies that it may impose, but the usual remedy will be to “quash” (or nullify) the decision made and order the Council to make the decision again, having due regard to all of the relevant factors. In this case, the Judge ordered that the Decision would be quashed and re-taken within 28 days.

Although this was a big victory for the care association, even when a decision is found unlawful, the remedy for providers is very blunt. When a decision is quashed, it is possible that a council may go back to the drawing board and paper over the cracks in their decision-trail with new reasons for the decision. While this decision has given providers a moral victory and some bargaining leverage, there is also no guarantee of a higher uplift when the decision is re-taken at the end of February.

It’s also worth highlighting that the Judge was only being asked to decide whether a specific decision was lawful.  However, he took the time to consider the bigger picture, including the fact that this local authority’s budget had shrunk by almost £100 million, an almost 30% cut in real terms. Since council tax receipts could not make up the shortfall in the Council’s plummeting revenue support grant, the Council had to consider declaring a s. 114. To avoid this, they borrowed £44.7 million from central government (repayable with interest). This was against the background of increasing demand for adult and children’s social care and a very large anticipated deficit. The Judge criticised providers for not taking the larger picture into account, though in my view, one could be forgiven for wanting to ensure that their business remained viable and the market stable. We are faced with an existential crisis but getting the Government’s attention seems futile. Judicial review is expensive and risky but until there is a reasonable reform of funding by Government, it is one of the few legal tools that we have at our disposal. In this case, the care association has used it to good effect.

Lastly, I would caution against the use of cookie cutter templates to try to push councils into increasing fees. This decision was made in providers’ favour on the back of a very specific set of facts. While the decision is informative for providers, it is also informative for councils. Therefore, every individual circumstance must be analysed and challenged on its own set of facts. These cases are complex and require specialist legal expertise to win.

Mei-Ling Huang, Partner, leads the contentious and regulatory arm of the Health and Social Care Team at RWK Goodman. She's experienced in bringing successful judicial review challenges against local authority care fee decisions.