Landmark Judgment in High Court


 

TIDMPHP 
 
RNS Number : 7877P 
Primary Health Properties PLC 
31 March 2009 
 

Primary Health Properties PLC 
 
 
('Primary Health Properties' or 'PHP' or the 'Company') 
 
 
PHP wins landmark judgment in High Court 
 
 
 
 
Primary Health Properties, one of the UK's largest providers of modern primary 
healthcare facilities, announces it has made a successful test case challenge to 
the dispute resolution procedures to be followed when determining the level of 
rent to be reimbursed by the Department of Health for GP's leasehold premises. 
 
 
In a landmark judgment in the High Court, Mr Justice McCombe ruled in favour of 
PHP, one of PHP's subsidiaries, and the GP tenants of a PHP leasehold premises 
("the Claimants") in their application against the National Health Service 
Litigation Authority Family Health Services Appeal Unit ("the NHSLA") and the 
Secretary of State for Health. 
 
 
The Claimants challenged the NHSLA's decision to consult with the Chief 
Executive Officer of the Valuation Office Agency ("VOA") when determining a 
dispute as to the level of rent that should be reimbursed to the GP tenants. The 
Claimants argued that it was not appropriate for the Chief Executive Officer of 
the VOA to be involved in reviewing an assessment of the level of rent that had 
originally been made by the District Valuer on behalf of the relevant Primary 
Care Trust. Instead, the Claimants' submitted that a truly independent third 
party surveyor should assist in determining the appropriate level of rent at the 
appeal stage. 
 
 
In his judgment Mr Justice McCombe agreed with the Claimants' challenge. He 
decided that the connections between the District Valuer, (acting for the PCT at 
the initial stage), and the Chief Executive Officer of the VOA (advising the 
NHSLA at the appeal stage) were too close for justice to be "seen to be done" 
and gave rise to apparent bias. 
 
 
PHP hope that if the judgment is properly acted upon by the NHSLA a fairer, more 
robust and more transparent system for reviewing rent will be implemented with 
the effect that, at least in some cases, the rent determined on appeal may be 
higher than would otherwise have been the case under the previous system. An 
improvement in the level of reimbursed rent, even on a small number of 
properties, could have significant revenue implications for PHP 
 
 
Commenting on the successful application, Harry Hyman, Managing Director of PHP, 
said: 
 
"We are delighted with the judgment and we hope that the appeal system will now 
be altered to remedy the deficiencies we have identified.  We continue to 
maintain that the involvement of an independent surveyor at the appeal stage 
(either as the adjudicator or as an advisor to the Chief Officer of the 
NHSLA) will help to ensure that all future valuations are seen to be fair and 
impartial." 
 
 
"PHP has a strong track record in providing modern healthcare facilities for the 
primary healthcare sector and is committed to increasing its portfolio of 
properties across the UK. PHP supports the NHS initiatives and ongoing 
commitment to renewing the UK's current primary healthcare estate and ensuring 
that primary care is delivered out of modern, purpose-built accommodation." 
 
 
 
 
- ends - 
 
 
For further information please contact: 
 
 
Bell Pottinger Corporate and Financial     Tel: 020 7861 3232 
David Rydell / Victoria Geoghegan 
 
 
Primary Health Properties PLC           Tel: 020 7451 7050 
Harry Hyman 
Managing Director 
 
 
KBC Peel Hunt Ltd    Tel: 0207 418 8900 
Garry Levin 
Nicholas Marren 
 
 
Notes and Background 
 
 
Application for judicial review 
 
 A judicial review application was made on 
behalf of (i) Primary Health Investment Properties Limited (ii) Primary Health 
Properties PLC and (iii) the doctor tenants at a medical centre in Bourne. The 
Defendants to the action were (i) The Secretary of State for Health and (ii) the 
NHS Litigation Authority Family Health Services Appeal Unit 
("NHSLA"). 
 
 The judicial review proceedings challenged the dispute 
resolution procedures which the NHSLA adopts in respect of disputes about the 
level of "current market rent" to be reimbursed to doctor tenants (and therefore 
paid on to PHP as landlord of primary health properties). 
 
Background to the 
application 
 
 The Department of Health provides reimbursement to doctors 
supplying general medical services to the NHS for the rent they pay for 
leasehold premises. The relevant statutory framework governing the reimbursement 
of rent in respect of leasehold premises is the NHS (General Medical Services - 
Premises Costs) (England) Directions 2004 ("the 2004 Directions"). 
 
 Under 
the 2004 Directions, where there is to be reimbursement of rent for leasehold 
premises, this is to be the lower of either (i) the actual lease rent or (ii) 
the "current market rent" ("CMR") as calculated in accordance with the 2004 
Directions. 
 
In practice, primary healthcare landlords such as PHP, are 
likely to receive rent from GP tenants at the level of CMR as reimbursed by the 
Department of Health. In many cases, the GP tenants will also have an interest 
in ensuring that the level of CMR is fair as it can impact on the level of 
contribution made to repair costs. It is therefore essential that the level of 
CMR is determined in a fair and robust manner. 
 
 
Under the relevant statutory framework, the determination of CMR involves a two 
stage process: 
 
 
1. Negotiations with the relevant Primary Care Trust ("PCT") 
 
 
The landlord serves a notice for a rent review and sets out the revised level of 
rent sought. The PCT then usually instructs the District Valuer to advise it as 
to the appropriate level of CMR. The PCT proposes a level of CMR based on the 
District Valuer's recommendation. The landlord's agent and the District Valuer 
(as agent for the PCT) attempt to negotiate and agree the level of CMR. 
 
 
2. Dispute Resolution Procedure for Appeal 
 
 
If the level of CMR cannot be agreed between the parties, the dispute is 
ultimately resolved by the Chief Officer of the NHSLA (or an adjudicator he 
appoints to decide the matter on his behalf). In reaching a decision, the Chief 
Officer of the NHSLA is entitled to seek advice from a third party. 
Historically, the Chief Officer of the NHSLA has determined disputes as to the 
level of CMR himself and in doing so usually takes expert advice from the Chief 
Officer of the Valuation Office Agency ("VOA"). 
 
 
PHP strongly believes that the involvement of the District Valuer as the 
representative of the PCT at the initial stage and the subsequent involvement of 
the Chief Officer of the VOA at the appeal stage is unfair. In PHP's view, the 
Chief Officer of the NHSLA should exercise his discretion to refer the appeal to 
a truly independent third party adjudicator (such as a chartered surveyor) or 
should take advice from such an independent third party when reaching his own 
decision. 
 
 
The NHSLA dismissed the above submissions in correspondence. As a result, the 
Claimants took their case to the High Court to challenge the involvement of the 
Chief Officer of the VOA at the appeal stage. 
 
 
The judgment 
 
The Claimants challenged the dispute resolution 
procedure adopted by the NHSLA on the basis that (i) it failed to comply with 
Article 6 of the European Convention on Human Rights (the right to a fair and 
independent tribunal established by law) and (ii) it was unfair as it gives rise 
to the appearance of bias. 
 
 
Mr Justice McCombe found that Article 6 of the ECHR was not engaged on the facts 
of the case (but if it had been there would have been a breach). 
 
 The 
Claimants' claim for judicial review succeeded on the grounds of apparent bias. 
The part of the judgment which deals with apparent bias starts at paragraph 105. 
The issue in question is set out in that paragraph: whether the NHSLA was wrong 
to make a decision to continue with the appointment of the CEO VOA to assist it 
because it would appear to the fair minded observer that there is a real risk 
that the VOA would be biased. Whether any actual bias is proved is irrelevant 
for the purposes of this basis for challenging a public body's 
decision. 
 
 As set out in paragraph 107 of the judgment, a decision may be 
tainted with bias if the decision maker has consulted or was permitted to 
consult a person who was tainted with apparent bias. 
 
 McCombe J found that 
the District Valuer was acting on behalf of the PCT in giving a valuation (see, 
in particular, paragraphs 111, 114 and 115). The DV also represented the PCT in 
presenting its case to the NHSLA. 
 
 Paragraph 117 of the judgment deals 
with the fact that the DV's case file was made available under the standard 
procedure to the CEO VOA who advised the NHSLA in making its decision. By 
analogy to usual litigious procedures, McCombe J stated that it "would be 
unheard of in such matters for the judge, arbitrator or independent expert (or 
anyone advising him) to see the case file of the expert who has acted on behalf 
of one of the parties". 
 
 Paragraph 122 of the judgment notes that the 
decision maker relied upon a review made by someone within the same organisation 
as the person whose decision was being reviewed. The guidance sent out to DVs in 
September 2005 (see para 114) stated that the process to be undertaken by the 
NHSLA was a review of the DV decision, rather than a revaluation of the dispute 
"in the light of [and] upon all the materials submitted, including the evidence 
and opinions submitted by the doctors and their expert". 
 
 In paragraphs 
123 and 124, the Judge accepted Leading Counsel for the Claimants' analogy that 
a solicitor could not act as a legal assessor to an arbitrator in a case where 
one of the parties had been advised by another solicitor in his firm. McCombe 
J's qualification in paragraph 124 is that the situation may differ from that 
analogy due to the public nature of the NHSLA and the CEO VOA, but in the same 
paragraph it is stated that in setting the current market rent under PMS 
agreements neither the DV nor the CEO VOA is performing a public statutory 
function and, as set out in the paragraphs that follow, the VOA is positively 
encouraged to act like a commercial organisation. 
 
 Paragraph 130 sets out 
the conclusion that the fair minded observer would perceive that the DV advising 
the PCT and the CEO advising the NHSLA were no different from any other expert 
surveyor advising his client (and therefore in accordance with paragraphs 123 
and 124 that it would be unacceptable for advisers from the same organisation to 
act for one of the parties and the decision maker). 
 
 The court found that 
the decision maker (the NHSLA) was basing its decision upon consultation with 
the CEO VOA, which was not sufficiently independent from the DV, which acted for 
one of the parties to the dispute, the PCT. 
 
 In conclusion, at paragraph 
141, the Judge stated that the connections between the DV (acting for the PCT) 
and the CEO VOA (advising the NHSLA) were too close for justice to be seen to be 
done and the challenge to the procedure on the basis of apparent bias should 
succeed. 
 
Potential consequences of the judgment 
 
As a result of this 
judgment, the NHSLA is likely to have to alter the way in which it determines 
appeals relating to the level of CMR in circumstances where the District Valuer 
is engaged by the PCT to represent the PCT at the initial stage. In such 
circumstances, the NHSLA will not be able to involve the Chief Officer of the 
VOA at the appeal stage. 
 
 
The Claimants to the application have always maintained that the NHSLA should 
involve an independent qualified surveyor (as is more common in other commercial 
rent review disputes) either as the appeal adjudicator or as an advisor to the 
NHSLA. 
 
 Whilst there can be no guarantees as to how this change will 
impact on the determination of CMR under the 2004 Directions, PHP believes that 
if the judgment is properly acted upon by the NHSLA a fairer, more robust and 
more transparent system for reviewing CMR will be implemented with the effect 
that, at least in some cases, the CMR determined on appeal may be higher than 
would otherwise be the case if determined following a review of the CMR by the 
Chief Officer of the VOA. An improvement in CMR, even on a small number of 
properties, could have significant revenue implications for PHP. 
 
 
The Claimants were represented by Nabarro LLP, who instructed Jonathan Karas QC 
(of Wilberforce Chambers) and James Maurici (of Landmark Chambers). 
 
 
This information is provided by RNS 
            The company news service from the London Stock Exchange 
   END 
 
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