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Cite as: [2005] EWCA Civ 556

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Neutral Citation Number: [2005] EWCA Civ 556
Case No: C1/2005/0388

IN THE SUPREME COURT OF JUDICATURE
COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE QUEEN'S BENCH DIVISION
Mr Justice Walker
CO6415/2004

Royal Courts of Justice
Strand, London, WC2A 2LL
16 May 2005

B e f o r e :

LORD PHILLIPS OF WORTH MATRAVERS, MR
LORD JUSTICE LATHAM
and
LORD JUSTICE KEENE

____________________

Between:
The Audit Commission for England and Wales
Appellant
- and -

Ealing London Borough Council
Respondent

____________________

(Transcript of the Handed Down Judgment of
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____________________

Richard Gordon QC & Maya Lester (instructed by Messrs Clifford Chance) for the appellant
Andrew Arden QC & Jonathan Manning (instructed by Messrs Eversheds) for the respondent

____________________

HTML VERSION OF JUDGMENT
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Crown Copyright ©

    Lord Justice Keene:

  1. This is the judgment of the court.
  2. This appeal concerns the way in which the Audit Commission for Local Authorities and the National Health Service in England and Wales ("the Audit Commission") exercises its powers under section 99 of the Local Government Act 2003 ("the 2003 Act") to categorise the performance of local authorities. Section 99 provides:
  3. "(1) The Audit Commission must from time to time produce a report on its findings in relation to the performance of English local authorities in exercising their functions.
    (2) A report under sub-section (1) must (in particular) categorise each English local authority to which the report relates according to how the authority has performed in exercising its functions."
  4. The respondent is an English local authority, Ealing London Borough Council ("Ealing"). On 13 December 2004 the Audit Commission notified Ealing that it had characterised Ealing's performance as "weak", on a scale which has five categories: excellent, good, fair, weak and poor. Ealing challenged that characterisation by bringing a claim in judicial review and succeeded before Walker J. He held that the Audit Commission had acted unlawfully by adopting a rule which automatically downgraded a local authority which had received a zero rating from another statutory body, the Commission for Social Care Inspection ("CSCI"), in respect of its social services performance. It had thereby refused to apply its own mind to the reasons why CSCI gave that star rating and whether those reasons warranted downgrading. From that decision the Audit Commission now appeals and Ealing cross-appeals.
  5. The Audit Commission is a statutory body set up originally by the Local Government Finance Act 1982 and now largely governed by the Audit Commission Act 1998. Amongst other things it is responsible for making recommendations for improving economy, efficiency and effectiveness in local government and certain other parts of the public sector. Even before the 2003 Act, the Audit Commission had been using a Comprehensive Performance Assessment ("CPA") in order to assess the performance of local authorities. In 2003 Ealing had been categorised as a result of this process as being "fair".
  6. In 2004 the Audit Commission, after extensive consultation, published a document entitled "Comprehensive Performance Assessment Framework 2004". The background to this document, in terms of government policy as set out in a White Paper in 2001 and of consultation with local authorities and their representatives, is described in Walker J's judgment in the proceedings below [2005] EWHC 195 (Admin) at paragraphs 4 and 5, and we do not repeat those passages here. The 2004 Framework document spelt out the methodology which the Audit Commission would adopt in performing its duties under section 99 of the 2003 Act. In its most relevant passages, it stated as follows:
  7. "10. The CPA framework brings together judgments about:
    …
    12. Each of the individual service judgements and the use of resources judgement are awarded a score of 1 to 4, with 1 being the lowest score and 4 being the highest. These are then combined into an overall core service performance score of 1 to 4.
    13. Each of the themes scored within the corporate assessment (ambition, prioritisation, focus, capacity, performance management, achievement of improvement, investment, learning and future plans) are also awarded score of 1 to 4. These are then combined to reach an overall council ability score ranging from 1 to 4.
    14. The overall CPA category ('excellent', 'good', 'fair', 'weak' and 'poor') is reached by combining the overall core service performance and council ability scores in the form of a matrix (see below). Where a council has not yet achieved a specified level of performance on education, social care or financial management (or scores a 1 on any other service), rules apply which limit a council's overall category, see paragraphs 29 -30.
    CORE SERVICE PERFORMANCE
    Scores   1 2 3 4
    COUNCIL 1 poor poor weak fair
    ABILITY 2 poor weak fair good
      3 weak fair good excellent
      4 fair good excellent excellent

    …
    Rules
    29. Rules limit a council's overall CPA category where a council's score falls below a specified level on education, social care or financial standing, or scores a 1 on any other service.
    30. The rules are as follows:
  8. What happened in the case of Ealing is that it achieved for 2004 scores of 3 on each of core service performance and council ability. Consequently, applying the approach set out at paragraph 14 of the CPA Framework it would have been categorised as "good", if the matter had stopped at that point. However, Ealing had received a zero star rating from the CSCI, with the result that under Rule 2 Ealing could not be categorised as better overall than "weak", which indeed is how it was categorised. As the judge below pointed out, this meant in effect that Ealing dropped two categories.
  9. Although Rule 2 does not expressly refer to the source of the star rating in respect of social services, paragraph 112 of the 2004 CPA Framework does make it clear that this is a reference to star ratings produced by the CSCI. That paragraph states:
  10. "112. CSCI also produce overall star ratings, given as 0* to 3*, with 3* being the highest. The overall star ratings are not used in the CPA social care core service score but will be used to determine whether a council will be held back by a rule limiting the CPA category they can achieve. (see paragraphs 29 – 30 in section one of this document for further details on rules)."
  11. CSCI is a statutory body established by section 42 of the Health and Social Care (Community Health Standards) Act 2003. It is required by section 79(1) of that Act to conduct a review in each financial year of the social services provided by each local authority in England. In this respect it performs functions previously mainly performed by the Social Services Inspectorate ("SSI"). Section 79(2) provides that after conducting such review the CSCI "must award a performance rating to that authority".
  12. In practice the CSCI arrives at its star ratings by combining two judgments in respect of services for children and two judgments in respect of services for adults. Those two judgments for each category and the way in which they are used was helpfully summarised by the judge below at paragraph 10 of his judgment, as follows:
  13. "…the first is as to whether the authority is serving people well (no/some/most/yes), and the second is as to capacity for improvement (poor/uncertain/promising/excellent). It will be seen that an authority's capacity for improvement has an important effect on the star rating"
  14. This process is set out in an SSI/CSCI document entitled "SSI Performance Assessment 2004 Operating Policies" and dated 13 January 2004, paragraph 5.6 of which states:
  15. "5.6 This results in a total of four judgments underpinning the overall rating, as shown in the table of examples below. Once the judgments have been reached, a set of rules is used to combine them with the weightings to produce a final star rating. The rules are detailed in the SSI Chief Inspector's Letter C1 (2002)4, and are also available electronically at htt://www.doh.gov.uk/pssratings/guidance
    Diagram 1

    A comprehensive matrix for translating the four judgments into a star rating is provided by Annex 1 to that SSI/CSCI document. It is of importance, given the issues in this appeal, and we therefore attach a copy of it (as did Walker J.) to this judgment as an appendix. It will be seen that the judgments on a local authority's performance in respect of adults and children are set out as horizontal and vertical axes, so that once those judgments have been arrived at, one can read off the resulting star rating for that authority.

  16. That methodology does not appear to have been new in 2004. It seems that the SSI used a similar approach before the creation of the CSCI, since an SSI publication entitled "A guide to social services performance 'star' ratings" and bearing the date April 2002 describes in paragraph 32 performance indicators being translated into star ratings "using a set of rules" set out in look-up tables annexed to the document.
  17. By a letter dated 15 November 2004 from the Regional Director of CSCI, Ealing was told of the conclusions reached by CSCI in respect of its social services. Insofar as material for present purposes, the letter stated:
  18. "I am writing to inform you of the latest performance ratings for your Council's Social Services. This rating constitutes the social services component of the comprehensive performance assessment for all local government services.
    The judgments and rating for your council are as follows:
    Services for Children: Serving people well: most. Capacity for improvement: uncertain.
    Services for adults: Serving people well: Capacity for improvement: poor.
    Star ratings: your social services performance rating is Zero star.
    …
    The final decisions on star ratings were made by the Chief Inspector.
    …"
  19. Ealing did not challenge the zero star rating made by CSCI, and indeed that rating accords with the matrix included within the published CSCI policies. Ealing did, however, challenge the use made by the Audit Commission of the star rating under Rule 2 and after some unproductive correspondence between the parties these proceedings were issued as a matter of urgency.
  20. The principal ground of challenge was that the Audit Commission had fettered its powers and accepted dictation from an outside body in applying a pre-determined rule, without allowing for the possibility of exceptions to that rule. As a result, the Audit Commission acted ultra vires, since the power to categorise a local authority's performance was one vested by Parliament in the Audit Commission. It is important to note that it was the use made of the star rating to which Ealing objected, not the CSCI conclusions as to an authority's performance which underlay the star rating. As recorded in Walker J's judgment at paragraph 23,
  21. "Thus Ealing's position was that the Audit Commission could adopt the "findings" of CSCI because they were objective findings, but the CSCI rating was different in that it was a value judgment. Ealing did not say that CSCI could not assist the Audit Commission: the latter could use the product of CSCI's investigative work in the same way as it could use the product of its own employees' investigative work."

    But to have a rule that a star rating could determine the outcome of an Audit Commission CPA categorisation process meant that that Commission had subordinated its own decision-making function to that of the CSCI.

  22. These arguments found favour with the judge. He held that, because the operation of rule 2 was automatic, the Audit Commission had refused to apply its own mind to the reasons why CSCI gave a zero star rating to Ealing and whether those reasons warranted such a dramatic downgrading. Referring to the decision of Willis J in Lavender v. Minister of Housing and Local Government [1970] 1 WLR 1231, Walker J said at paragraph 45:
  23. "Where a statute permits a body to make a finding, judgment or discretionary decision ordinary principles of statutory construction suggested that in the normal course this must be done by the body itself applying its own mind to determinative questions. The same is true where a statute requires a body to make a finding or judgment, or to reach a decision which contains an element of discretion. Parliament has chosen the particular body to carry out the function in question. It is to be inferred that Parliament wished that body to make up its own mind on the point. In this way it will ordinarily be unlawful for the body to refuse to apply its own mind to such questions. Sometime, as in the Lavender case, the statutory purpose will be infringed because the body has decided on a policy of doing what X wants. It seems that there is no difference in principle if the body decides on a policy of altering what it would otherwise do whenever X has reached a particular conclusion. The vitiating element in each case is that the body has refused to apply its own mind to a determinative question."

    He concluded as follows, at paragraph 53:

    "In the light of my analysis of the arguments and evidence, I conclude that section 99 does not depart from the norm. It does not permit the Audit Commission to adopt a rule automatically downgrading an authority which received a zero rating from CSCI, and entailing a refusal to apply its own mind to the reasons why CSCI gave that star rating and whether those reasons warranted downgrading. This means that the approach taken by the Audit Commission in the present case was unlawful."
  24. The judge rejected arguments that the Audit Commission's work would be hindered by such a conclusion since it did not have the expertise itself to carry out the investigations and analyses done by specialist bodies like the CSCI. He said:
  25. "It does not follow that the Audit Commission's function of making findings and classifying into categories becomes unworkable. The law does not inhibit the Audit Commission from adopting the findings of specialist bodies in cases where local authorities make no representations to the contrary. Thus there is no requirement to take an "all or nothing" approach. In the vast majority of cases any concerns about the conclusions of specialist bodies will not be determinative of the Audit Commission's own findings nor of categorisation, and in such cases any representations can be given short shrift. What the law requires is that in a case where a finding may be determinative the Audit Commission must be prepared to apply its own mind to the matter. This does not mean it has to start from scratch to develop its own expertise. It can require any authority that is minded to object to provide written representations within a matter of days explaining the discussion it has had with the specialist body on the point and showing good reason why the specialist body's conclusion should not be adopted, or if adopted should not lead to down-grading of the finding or categorisation which the Audit Commission would otherwise make. On receipt of any such representation the Audit Commission should be able to decide speedily whether it has merit or not." (paragraph 51)
  26. The Audit Commission now appeals against that judgment. On its behalf, Mr Gordon QC points out that Ealing accepts that the Audit Commission can have absolute or binding rules. Its case, as encapsulated in paragraph 17 of its written argument, is that
  27. "while there can be absolute or binding rules, the Appellant cannot have an absolute or binding rule that binds the discharge of its own duty to the decision of another body."
  28. It is submitted on behalf of the Audit Commission that, where a rule reflects a prior judgment by the Commission, there is nothing unlawful about having such a rule in absolute terms, so long as it is a rational one. In the present case, rule 2 reflects the Audit Commission's own judgment on how to categorise local authorities. The purpose of that rule would be eroded if the Commission had to consider representations from local authorities as to whether it should be applied in any individual case.
  29. Mr Gordon emphasises that Ealing accept that the Audit Commission can make use of the underlying "scores" arrived at by specialist inspectorates like CSCI. These correlate with the descriptive terms used on the two axes in the CSCI matrix. Although these are described by Ealing as "scored findings", Mr Gordon submits that they involve judgments by the CSCI as much as do the star ratings. The judge below did not seek to distinguish between such scores and star ratings: indeed, he simply refers to "the findings of specialist bodies" at paragraph 51 and seems to require the Audit Commission to consider representations from local authorities about both the underlying scores and the star ratings. Since it is the CSCI which is the specialist body on social services and not the Audit Commission, the end result would be an unworkable system.
  30. It is contended on behalf of the Audit Commission that its statutory task is different from that which existed in Lavender, a case which was concerned with applications for planning permission. The task of the Audit Commission is to devise an overall system of categorisation, which it has done, using to a considerable extent the work of more specialist bodies but making its own decision as to how such work should feed in to producing the final result. Reliance is placed on the Divisional Court decision in R. v. Secretary of State for the Environment ex parte North Tyneside Borough Council [1990] C.O.D. 195, where it was held that the Secretary of State was entitled in his rate support grant each year to adopt for the population of an area the figure estimated by the Registrar General, rather than determining the figure itself. That was not regarded by the court as an unlawful delegation of part of the Secretary of State's statutory task.
  31. On behalf of Ealing, Mr Arden, QC., confirms that the respondent raises no objection to the Audit Commission using the CSCI judgments reflected in the horizontal and vertical axes of the matrix, the "scores" for short. But he contends that some delicate judgments by the CSCI have gone into the weightings then applied to those scores so as to arrive at the star ratings. As a result, those star ratings reflect the CSCI's view of relative priorities and significance as between different aspects of social service provision. That view is then treated by the Audit Commission as binding on it, whereas the Commission should under section 99 be making its own judgments and its own categorisation of a local authority's performance. It is submitted that the Audit Commission cannot decide to have a rule, the effect of which is to permit another body to dictate the categorisation of a local authority. The duty to categorise is that of the Audit Commission and cannot be delegated. The Commission is given an express power to delegate by the Audit Commission Act 1998, Schedule 1, paragraph 11A: that power is confined to delegating to its own committees and officers.
  32. Mr Arden emphasises the importance given by Parliament to the categorisation by the Audit Commission. Once arrived at, even the Secretary of State is only permitted to depart from it for the purpose of correcting clerical or typographical errors when he embodies the categorisation in a statutory order: see section 99(5) of the 2003 Act. The respondent relies on the decision in Lavender and on a passage from Wade and Forsyth, Administrative Law, 9th edition, page 322, which states:
  33. "The proper authority may share its power with someone else, or may allow someone else to dictate to it by declining to act without their consent or by submitting to their wishes or instructions. The effect then is that the discretion conferred by Parliament is exercised, at least in part, by the wrong authority, and the resulting decision is ultra vires and void. So strict are the courts in applying this principle that they condemn some administrative arrangements which must seem quite natural and proper to those who make them. …"

    Mr Arden submits that rule 2 is a clear act of subordination of the Audit Commission's decision to the star rating decision of the CSCI and is therefore unlawful. Unlike the "scores", which reflect purely professional judgments of the CSCI, the star rating reflects a value judgment by that body.

  34. We were initially attracted by Mr Arden's argument. The principle that a body given a statutory power by Parliament must exercise that power itself and not delegate its exercise to another is well-established in administrative law. The case of Lavender is a vivid illustration of the principle. There, the Minister of Housing and Local Government had adopted a policy under which he would not exercise his statutory power to grant planning permission for mineral working "unless the Minister of Agriculture is not opposed to working." As the agricultural objection had not been waived, the Minister of Housing and Local Government decided to refuse planning permission. That decision was quashed by Willis J., who found that the decision was solely in pursuance of a policy not to grant permission in such cases unless the Minister of Agriculture was not opposed. The judge commented at page 1240H to 1241C:
  35. "I do not think that the Minister after the inquiry can be said in any real sense to have given genuine consideration whether on planning (including agriculture) grounds this land could be worked. It seems to me that by adopting and applying his stated policy he has in effect inhibited himself from exercising a proper discretion (which would of course be guided by policy considerations) in any case where the Minister of Agriculture has made and maintained an objection to mineral working in an agricultural reservation. Everything else might point to the desirability of granting permission, but by applying and acting on his stated policy I think the Minister has fettered himself in such a way that in this case it was not he who made the decision for which Parliament made him responsible. It was the decision of the Minister of Agriculture not to waive his objection which was decisive in this case, and while that might properly prove to be the decisive factor for the Minister when taking into account all material considerations, it seems to me quite wrong for a policy to be applied which in reality eliminates all the material considerations save only the consideration, when that is the case, that the Minister of Agriculture objects. That means, as I think, that the Minister has by his stated policy delegated to the Minister of Agriculture the effective decision on any appeal within the agricultural reservations where the latter objects to the working."
  36. There is no doubting the principle, which is supported by other authority. The real issue is whether the Audit Commission's approach as set out in rule 2 offends against the principle. It is conceded by Ealing that the Audit Commission is entitled to adopt the professional judgments of the CSCI, as embodied in the assessments on the vertical and horizontal axes of the annexed matrix, as its own. That is an understandable concession, since the CSCI is the inspectorate specialising in the assessment of local authorities' social care performance. It would be absurd for the Audit Commission to have to re-assess all those findings itself, and that cannot have been Parliament's intention.
  37. But Mr Arden is right that the star ratings then derived from those so-called "scores" reflect certain weightings arrived at by the CSCI, in particular as between current performance and the capacity for improvement. Those weightings must reflect a view taken by the CSCI about the relative importance of current performance and the capacity for improvement in each aspect being assessed. Rule 2 undoubtedly gives to the star ratings a powerful role in the Audit Commission's overall CPA categorisation of an authority. It means that, however well an authority performs in its core services, it cannot be categorised as anything other than "poor" or "weak" if it gets a zero star rating for its social services. That in turn has significant practical implications for the authority.
  38. Does this mean that the Audit Commission has unlawfully delegated its section 99 decision to the CSCI? On reflection we have concluded that it does not. The matrix which embodied these weightings or trade-offs was publicly available in the SSI/CSCI Operating Policies document and it must be the case that the Audit Commission was familiar with it and with the weightings attached to the various "scores" on the two axes. The Audit Commission must be taken to have been content with those weightings and to have adopted them. This is not a case where the CSCI made its own separate judgments from time to time about the star rating of an individual authority. The star ratings follow automatically from the "scores", to which Ealing takes no objection. It is a mechanical exercise, once one has the scores and the matrix. As the witness statement of Joanna Elizabeth Killion, Director of Performance and Improvement at the Audit Commission, puts it at paragraph 4(c):
  39. "… the social services star rating is not based on the subjective judgment of the Chief Inspector, but is arrived at by the application of a set of transparent and objective rules to those judgments. There is no discretion involved in translating those judgments into a star rating."
  40. This is, therefore, a very different case from Lavender. There the relevant Minister's policy was to allow his decision to be dictated by what another Minister decided in any individual case. Here the Audit Commission has in effect adopted as its own a series of weightings, produced by the CSCI, which result in a star rating in an entirely predictable way. In our view it is entitled to do that. It is not delegating its decision in any individual case to the CSCI, since the CSCI does not make any such individual decision once it has arrived at the "scores". It is simply that the Audit Commission has itself decided to adopt certain principles for achieving its categorisation.
  41. It cannot be said that this results in any real prejudice to a local authority. Any authority can seek to challenge the CSCI's decisions about the individual scores and in such a way to challenge its star rating. In the present case, Ealing chose not to do that.
  42. The judge put much emphasis on the lack of flexibility in the Audit Commission's rule 2. Yet Ealing does not contend that the Audit Commission cannot have an inflexible rule. Its arguments relate to the content of that rule, contending that it involved an improper delegation of decision-making. Once that contention has been rejected, there is no basis for concluding that the Audit Commission ought to allow local authorities an opportunity to make representations about their star rating. In any event, it is difficult to see how the Audit Commission would be in any position to judge whether representations about exceptional circumstances merited a departure from the "scores" or the resultant star rating accorded to the authority in question. It could only do so if it were able to investigate the basis of those scores arrived at by the specialist inspectorate and that, it seems to us, the Audit Commission is in no position to do.
  43. We conclude, therefore, that the Audit Commission's policy embodied in rule 2 did not constitute any unlawful delegation of its decision-making power under section 99 of the 2003 Act. That being so, we allow the appeal. The cross- appeal by the respondent concerned the form of relief to be granted in the event that Ealing was successful in its challenge to rule 2. In the light of our conclusion as to that challenge, the question of what relief would be appropriate does not arise and the cross-appeal is dismissed.
  44. ORDER:

    1. Appeal allowed and cross appeal dismissed.

    2. The respondent to pay the appellant's costs of the appeal and the costs below, to be subject to detailed assessment if not agreed.

    3. Application by the respondent for permission to appeal to the House of Lords and application by the appellant for an interim payment on account of costs to be dealt with in writing.

    (Order does not form part of approved judgment)
    Annex 1: Look up table: translating judgements to performance ratings
            Adults                                          
            No
    Poor
    No
    Uncertain
    No
    Promising
    No
    Excellent
    Some
    Poor
    Some
    Uncertain
    Some
    Promising
    Some
    Excellent
    Most
    Poor
    Most
    Uncertain
    Most
    Promising
    Most
    Excellent
    Yes
    Poor
    Yes
    Uncertain
    Yes
    Promising
    Yes
    Excellent
               
            A1 A2 A3 A4 B1 B2 B3 B4 C1 C2 C3 C4 D1 D2 D3 D4            
            1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16            
    Children No
    Poor
    A1 1 - - - - - - - - - - - - - - - -            
      No
    Uncertain
    A2 2 - - - - - - - - - - - - - - - -            
      No
    Promising
    A3 3 - - - - - - - - - - - - - - - -            
      No
    Excellent
    A4 4 - - - - - - - * - * * * * * * * *            
      Some
    Poor
    B1 5 - - - - - - - - - - - - - - - -            
      Some
    Uncertain
    B2 6 - - - - - * * * * * * * * * * * * * * *            
      Some
    Promising
    B3 7 - - - - - * * * * * * * * * * * * * * * *            
      Some
    Excellent
    B4 8 - - - * - * * * * * * * * * * * * * * * * * * *            
      Most
    Poor
    C1 9 - - - - - * * * * * * * * * * * * * * * *            
      Most
    Uncertain
    C2 10 - - - * - * * * * * * * * * * * * * * * * * * * *            
      Most
    Promising
    C3 11 - - - * - * * * * * * * * * * * * * * * * * * * * * * *            
      Most
    Excellent
    C4 12 - - - * - * * * * * * * * * * * * * * * * * * * * * * * * * *            
      Yes
    Poor
    D1 13 - - - * - * * * * * * * * * * * * * * * * * * * *            
      Yes
    Uncertain
    D2 14 - - - * - * * * * * * * * * * * * * * * * * * * * * * * * * *            
      Yes
    Promising
    D3 15 - - - * - * * * * * * * * * * * * * * * * * * * * * * * * * * *            
      Yes
    Excellent
    D4 16 - - - * * - * * * * * * * * * * * * * * * * * * * * * * * * * * * * *            


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