Central Liverpool Primary Care Trust v Charles S Bullen Stomacare Ltd.

The claimant (Footnote: ¹) (whom I will call Bullen, and who is the present respondent) supplies prescribed medical and surgical appliances to National Health Service patients, principally in the Liverpool area. A supplier is paid for this service out of public funds by the local Primary Care Trust (PCT) at a rate fixed under statutory powers. The rate diminishes after the first 505 appliances supplied in any month from any registered premises. It therefore pays the supplier to have multiple premises each supplying fewer than 506 appliances a month, but it costs the NHS correspondingly more.

The appellant PCTs became aware that this was how Bullen was organising its business. They concluded that it was an artifice designed simply to enhance Bullen’s income from them. In response, in October 2001, they withheld payment of £380,057.11 for supplies that Bullen had made in July 2001, and when sued in these proceedings asserted a defence or set-off reflecting overpayments of £10,840,831.22 made from June 1995 to September 2001. The counterclaim was restricted to £800.000, enough to extinguish the debt, and quite possibly Bullen’s business too.

The artifice giving rise to overpayment was said to have taken two related forms: pretending that a single warehouse and office building was two separate premises, and using other premises simply as staging posts. Bullen was thereby able to claim that what was in reality a supply from a single source, subject because of its volume to tapered payments, was a supply from multiple sources, none of them sufficient in volume to attract the taper.

The PCTs were sufficiently exercised to take the view, evidently endorsed by counsel, that this was a fraudulent enterprise. Their counterclaim was consequently pleaded principally in deceit. In the alternative they sought restitution of the overpayments. At trial in the High Court sitting in Liverpool, Judge Kershaw QC dismissed the allegation of fraud, a decision which the PCTs have accepted and not sought to appeal. Possibly because of the shadow which this aspect of the case cast over the remaining issues, they are not as fully dealt with in Judge Kershaw’s judgment. The outcome of the trial, however, was that Bullen succeeded in its claim for unpaid remuneration. The PCTs were denied a set-off because, although they were not estopped by their own official listing of Bullen’s multiple premises, nor by Bullen’s success in resisting de-listing in quasi-judicial proceedings, Bullen owed them no material duty of care (this too is not now contested), and any claim in restitution was, the judge held, blocked by a regulation which required the PCTs to use statutory machinery to establish the fact and amount of any overpayment it wanted to recover by action.

The issues which come before this court by permission of Longmore LJ are – in logical order -

The National Health Service (Pharmaceutical Services) Regulations 1992 are made under a variety of statutory powers, set out in their first schedule, to which it will be necessary to return. Regulation 24, as it stood amended at the material time, provided:

It is contended by James Dingemans QC for Bullen that the purpose and effect of this regulation is to require a PCT which considers that it has overpaid a supplier of appliances to do one of two things: either apply to the Secretary of State for a dispensation (for example where it is necessary to apply to a court without notice for a freezing order) or to bring the matter to the supplier’s attention and, if the overpayment is not then admitted, to refer the question for decision under what I will call the Service Committees Regulations. In the latter event, a decision that there has been an overpayment enables the PCT to recover the amount either by deduction or by action, in which case – as Mr Dingemans accepts – the committee’s decision furnishes a complete cause of action or, as appropriate, defence. If the committee decides there has been no overpayment, by parity of reasoning the PCT has no claim and no defence.

Andrew Edis QC for the PCT submits that there is no warrant for giving Reg. 24 this exclusive force. To do so, he contends, is to depart from the fundamental rule spelt out by the House of Lords in Pyx Granite Co Ltd v Ministry of Housing [1960] AC 260, 286, per Viscount Simonds:

“It is a principle not by any means to be whittled down that the subject’s recourse to Her Majesty’s courts for the determination of his rights is not to be excluded except by clear words.”

Mr Edis points out that the legislation contains no express power to make regulations with the drastic effect for which Mr Dingemans contends. Section 42 of the principal Act of 1977 sets out a large number of matters which are to be, and a large number of other matters which may be, governed by regulations, but none of them concerns the ascertainment of overpaid remuneration. A duty to make regulations “as to the remuneration to be paid to persons who provide ... pharmaceutical services” was added prospectively by section 43A, which was inserted by s.7(1) of the Health and Social Security Act 1984; but it appears never to have been brought into effect, is not scheduled to the 1992 regulations, and was replaced (as from a day to be appointed) by s.10 of the Health Act 1999 by a provision which placed remuneration directly in the hands of ‘determining authorities’. It would therefore not be worth mentioning but for the remarkable enactment in s.7 of the Health and Social Services Act 1984, shoulder-noted “Professional remuneration in the National Health Service”, of the following subsection:

Among the provisions inserted by s.7 of the 1984 Act was s.43A. It follows from s.7(4) that a determination under Reg.24 is deemed to have been validly made if regulations authorising it could have been made under s.43A had that section been in force. The dormant sections have been described by Jowitt J (Footnote: ²), as “something like a child in utero: not yet a person in its own right but still a force to be reckoned with.” It is difficult to think of a more roundabout way of conferring statutory authority, but the evident purpose of s.7 was to ensure that any remuneration regulations did not fail for want of power. This being so, there is probably no need to fall back on the residual power in s.126 of the 1977 Act, which (as amended in 1999 and 2001) swept into s.42 “power to make such supplementary, incidental, consequential, transitory, transitional or saving provision in the … regulations … as the persons making or giving them consider appropriate”.

It has not in any event been Mr Edis’s case that Reg 24 is ultra vires. What he submits is that absent any express power to create an alternative means of recovery which will exclude the courts, the regulation should on principle be read as creating simply an elective method which leaves recourse to the courts open to PCTs at any stage. This submission, however, loses much of its force once it emerges that the authority for Reg. 24 is not merely a power to make ancillary provision but an express obligation to make provision as to remuneration for pharmaceutical services. It loses yet more of its force when it is appreciated that the regulation does not by any means bar all recourse to the courts. It provides a mechanism by which the existence and amount of overpayments will (absent a direction to the contrary) be determined by a specialist body and, having been determined, can be either recovered by deduction or pleaded whether as a cause of action or a defence – for I accept that “recoverable … in some other manner” is large enough to encompass a defence as well as a cause of action. It also contains provision for the Secretary of State to waive or modify its requirements where a PCT asks him or her – on good grounds, of course – to do so. No such application was made in the present case.

The specialist body in question is a committee constituted under the National Health Service (Service Committees and Tribunal) Regulations 1992 (Footnote: ³). By Sch 2, the committees are composed of up to three lay members and up to three professional nominees, with a lawyer in the chair. By Regs. 4 and 5 a PCT must refer a potential breach of a practitioner’s terms of service to another PCT for investigation by its appropriate discipline committee – here a pharmaceutical discipline committee. There is no time limit upon such a referral: Reg. 7(3). Sch 4 lays down a procedure, to be conducted in private and including (by §8(3)) a ban on lawyers except as advisers. By reg.8 the committee’s findings bind the referring PCT when it comes to decide what, if anything, it should do.

Mr Edis contends that this falls short of a surrogate system of adjudication. While it provides for the production of documents in evidence, it makes no provision for disclosure generally, and by excluding qualified advocates it denies practitioners an advantage to which they are ordinarily entitled. Neither of these seems to me a particular reproach to the Regulations: it is in each instance a defensible attempt to keep proceedings within sensible bounds. There is nothing to stop a committee calling for documents, or even for classes of document, which it considers it needs to see. Each side has a complete right to put its case and to challenge the contrary case, if need be with the benefit of on-the-spot legal advice. The one thing that does assist Mr Edis’s critique is that a decision by a committee that there has been no overpayment will be final, unless the decision is vulnerable by judicial review. To that extent alone, an extent dependent upon outcome, Reg 24 of the Pharmaceutical Services Regulations, by virtue of Reg.8 of the Service Committees Regulations, would indeed bar recourse to the ordinary courts for the determination of a PCT’s right to recover what it believes to be overpayments.

There is also a problem where, as here, fraud is alleged against a pharmacist. I have little doubt that in such a case there continues to be recourse to the ordinary courts, which are equipped, as local discipline committees are not, to try such issues. But if the civil fraud claim fails, as it did here, the PCT is left with a claim for overpayment which, though perfectly viable, the court cannot proceed to adjudicate on if Reg.24 is exclusive. I do not think, however, that this creates an anomaly. The anomaly lay in the use of a claim in deceit to answer a claim in debt. If there is evidence capable of proving fraud to the high standard necessary, it can and arguably ought to go before a court of criminal jurisdiction. There is ordinarily no need for it in resisting a claim for fees on the ground of earlier overpayments. If too much money has been claimed and paid, it is recoverable – provided the correct process is used – whether it was obtained fraudulently or innocently. If, however, a civil claim in deceit is considered appropriate, the Secretary of State has express power under Reg.24(2) to direct that its provisions shall not apply, leaving the PCT’s path to the courts clear.

I do not therefore consider either the inability to sue for amounts disallowed by a discipline committee or the need for fraud claims to be tried by courts of competent jurisdiction to be sufficient to displace what is otherwise the ineluctable effect of Reg. 24: that a PCT wishing to recover unadmitted overpayments from a pharmaceutical supplier must either secure a dispensation or take the issue to a discipline committee, whose decision will be binding. Against the fact that a negative decision of the committee will bar recovery one must balance the fact that a positive decision will permit recovery without more. This is of real significance in a case such as the present, where the PCT’s attempts at recovery in deceit and negligence have foundered, and where its remaining cause of action in restitution faces, among other things, a defence of change of position. Had it gone by what I would hold to be the correct route and secured a discipline committee’s decision that it had overpaid Bullen, its cause of action for recovery of the amount of overpayment as a debt, or alternatively its defence to a claim for an equivalent amount, would be complete. As Lord Bridge said in Thrasyvoulou v Secretary of State for the Environment [1990] 2 AC 273, unless a contrary intention can be inferred, there is a presumption that

“where the statute has created a specific jurisdiction for the determination of any issue which establishes the existence of a legal right, the principle of res judicata applies”

The outcome of the statutory procedure, in other words, would bind Bullen as fully as it bound the PCT.

All of this is accepted by Mr Dingemans as the price of succeeding on his plea in bar. In my judgment the plea succeeds. It follows that, absent a finding of overpayment by a discipline committee, the PCT had no defence to the claim which came before the High Court, so that Bullen were entitled to judgment on it.

Judge Kershaw, had he taken this issue first, might have halted here. But he had approached the case from the factual end, and although he failed to reach conclusions on certain critical issues, he set out in helpful detail the facts from which those conclusions would follow. These have been fully canvassed before us, and since in this or another case a service committee may well have to decide such issues, I will consider them. I will deal first, however, with an alternative plea advanced by Bullen in bar of the PCT’s counterclaim.

Estoppel.

The argument under this head, which Judge Kershaw in my view rightly rejected, was twofold. First Mr Dingemans argued that the PCT, by including each of Bullen’s premises separately on its official list, had put it beyond its power to contend that these were not separate premises. In the alternative he argued that the decision of the Family Health Service Appeal Authority in Bullen’s favour on their appeal against the removal of their name from the list had created an estoppel by judgment against the PCT.

The list in question is maintained under Reg 4 of the Pharmaceutical Services Regulations. It includes persons who “undertake to provide pharmaceutical services from premises in the [PCT’s] locality by way of the provision of appliances”. The list is to contain “the addresses in the [PCT’s] locality from which those services are provided” (Reg. 4(1)). Apart from minor relocations of already listed premises (Reg. 4(3)), premises may be included only if the PCT is satisfied that to do so is necessary or desirable in order to secure adequate local provision of the services offered by the applicant (Reg 4(4)).

Inclusion on the list constitutes no admission of anything material by the PCT. It reflects simply the fact that an application has been made to them in the prescribed form (set out in Sch.3) and that they are satisfied that the criteria to which I have alluded and other prescribed requirements are met. These do not touch the layout or eventual use of the premises, which are (as will be seen) the matters to which the asserted estoppel relates. These matters fall to be determined if and when the PCT seeks to reclaim an overpayment.

Reg 17 makes provision for the removal of names from the list. Para.(3) provides:

“Where [a PCT] determines that a chemist, whose name has been included for the preceding six months in a pharmaceutical list, has not during that period provided pharmaceutical services, it may remove the chemist’s name from that list.”

The PCT sought to remove Bullen from its list on the ground that some of Bullen’s listed premises – for reasons I will come to under the next head – were not in reality being used for supply purposes. It is unsurprising that the appellate authority concluded that Reg 17 was not an appropriate provision for dealing with this question. Its conclusion that the issue required “a determination which is likely to lie elsewhere” was right: for reasons to which I now turn, it lay with a discipline panel under Reg 24.

Did Bullen supply goods from all their listed premises?

Although this was the underlying issue before the court, the judgment below does not resolve it. If, as I have held, the High Court had no power to entertain it, a judgment of this court on the issue might be thought not only unnecessary but a usurpation of the role of the body which was and still is empowered to entertain it. But this court, having heard full argument, is in a position to indicate to local discipline committees and others what the applicable law is. It is also able, in my view, to spell out in the present case certain conclusions which flow inexorably from the uncontested evidence and the judge’s primary findings.

It is a requirement for inclusion in the pharmaceutical list under Reg. 4 that the applicant undertakes “to provide pharmaceutical services from” the listed premises. Reg.8(2) then provided that the PCT “shall make payments, calculated in the manner provided by the Drug Tariff” for appliances. The Tariff in force at the material time by §6B laid down that:

“Payment for services provided by appliance contractors … at each separate place of business shall comprise:-

i)

The total of the prices of the appliances, calculated in accordance with Part IXA/B/C

PLUS

ii)

An amount based on the number of prescriptions against which supply is made each month, calculated from the Table at part VIB (“Oncost Allowance” scale) and applied to the total of prices at (i) above.

PROVIDED THAT

…………

(c)

Where a contractor’s name is entered on the Pharmaceutical List in respect of the provision of services at more than one place of business, the calculation as at (ii) above shall be made separately in relation to the total of the prices calculated in accordance with (ii) above in respect of prescriptions received in respect of the service provided at each place of business.”

The oncost allowance scale gave an oncost of 25% for the first 505 prescriptions dispensed from each place of business each month. Thereafter the allowance diminished by 0.1% for every so many prescriptions, until at 2426-2500 it reached 15.8%. The evident purpose was to recoup for the NHS some of the economies of scale achieved by larger suppliers. But the provision meant that a supplier benefited by dispensing fewer than 506 prescriptions from each of its listed premises, and this in turn made it advantageous for a supplier to have as many listed premises as possible. All of this was known to the NHS and, subject to its legal limits, accepted. The present question is what those legal limits were.

The answer turns not upon the Regulations but upon the Tariff. It is necessary, however, to qualify the word “at” where it appears in §6B of the Tariff (quoted above). The preposition is a hangover from an earlier version. It is common ground that the correct preposition, reflecting Reg. 4(1)(b), should be “from”. This was the word agreed upon and introduced into the Regulations in order to include mail order supplies. The word “at” in the Tariff needs to be read accordingly. We are thus concerned with whether Bullen are entitled to an oncost calculated according to the monthly quantum of supplies from each of the four separate places of business in respect of which they were named in the Pharmaceutical List, or whether – as the PCT alleges – there was in reality and in law only one.

This question falls into two parts. The first relates to the physical character of Bullen’s warehouse and offices in Liverpool: were they two places of business or one? The second relates to three separate buildings, two elsewhere in Liverpool and one in York: were any appliances meaningfully supplied from them, or were they simply a device for splitting up Bullen’s throughput so as to maximise their oncost returns? The answers have to be arrived at with full recognition that Mr Bullen personally, whose company this was, was cleared by the judge of the accusation of deceit. What remains is the question whether his arrangements, albeit made in good faith and for intelligible business reasons, failed to achieve their object and resulted in overpayments.

The warehouse and offices were located in adjacent buildings. Their postal addresses were respectively 3-7 Moss Street and 9-11 Finch Place. They happened to have been allocated different postcodes but, as their sequential odd numbers suggest, both buildings fronted on Moss Street and both backed on to Finch Place. While access to 3-7 was from the front, access to 9-11 was from the rear. A narrow alley ran between them at ground level but they intercommunicated at first floor level. A single fascia board ran across their entire street frontage. The judge visited the premises and his judgment contains a full description of them. He failed to make a finding as to whether they were in reality two places of business, but there was on his primary findings no relevant physical or operational separation between the two: the business was conducted within them as from a single site. At one point of his cross-examination, in fact, Mr Bullen said as much. In my judgment no tribunal of fact could rationally find otherwise.

The other premises from which Bullen claimed to have supplied appliances were

A good deal of evidence was given to Judge Kershaw about the use made of each of these. Bullen’s case was that appliances were not just (in Mr Edis’s phrase) walked through the premises in order to be able to say that this was where the goods had been supplied from, but that the premises – or at least Madame Foner’s - were used by the professional advisers who helped patients with the often embarrassing business of obtaining their supplies of stoma bags discreetly. The judge, however, adopted a solution as simple as it was, in my respectful judgment, wrong. He held that it was sufficient to meet the requirement that a prescribed appliance should have been supplied “from” named premises

“if the last place in which it was before being supplied to or put in transit to the patient was listed in the name of the supplier making the claim, even though it may do no more than briefly cross the threshold.”

I do not want to substitute my own words for those of the Regulations and Tariff (save to the extent that I have already explained them), since they are simple words whose context will be well understood by the committee which has to apply them; but it is quite clear, as a matter of law, that more is required by them than transient presence in a building. They require, as Mr Edis submits, the making there of some material contribution to the process of supply – for example some modification or preparation of the appliances which it was reasonable not to make at source, or some significant measure of availability not offered by the warehouse. Put another way, “from” is not the same as “through”.

It was accepted at trial that until July 2001 most of the goods purportedly supplied from the Gillygate premises in York did not cross the threshold at all. For the rest, it was Bullen’s case that the premises at Madame Foner’s, Mount Street and Gillygate had each been used, essentially for purposes connected with the intervention of the local stoma-care adviser, at a level above the token level adopted by the judge. I have indicated what, in my judgment, the minimum level of use of premises must be for the statutory purpose. Mr Dingemans contends that, apart from the non-use of Gillygate before July 2001, Bullen’s use of the premises meets this standard. Mr Edis submits firmly that it does not.

If my conclusion on jurisdiction is correct, this was and still is an issue not for the High Court but for a discipline committee. I do not think that, apart from noting the concession on Gillygate, it is appropriate for this court to adjudicate on it. It is a question for a local discipline committee, if and when it comes before them, to decide on the evidence in accordance with the judgment of this court.

Has the claim in restitution been abandoned?

It follows from what I have held in relation to the first issue that there was no need for the PCTs’ defence and counterclaim to be cast in restitution any more than in deceit. Their case, if they had one, was a sui generis case of overpayment which they were authorised by law to recover in proceedings, whether those brought against them by Bullen or, absent these, an action brought by the PCTs themselves. But it was a condition of either that they must first have a decision of a discipline committee in their favour, and this the PCTs still lack.

In these circumstances Mr Dingemans’ claim that the PCTs had abandoned their restitution claim is academic. It makes it unnecessary to analyse the largely equivocal events and exchanges on which the submission is founded, or to do more than say that if this were all the case turned on I would reject the submission. In the event it does not matter.

I would dismiss this appeal on the ground that in the absence of a statutory adjudication the PCTs had no admissible defence or counterclaim based on overpayment.

I agree with the judgment of Lord Justice Sedley.

I agree with the disposal of this appeal proposed by Sedley LJ; but since I have found the central, regulation 24, issue somewhat less easy of solution than have my Lords I add some short words of my own.

This issue was originally argued on behalf of the PCT in abstract, and extreme, terms, principally relying on the well-known statement from Pyx Granite that is set out in Sedley LJ’s §8. That observation is as little applied as it is much quoted, for the reason given in De Smith, 5^th edition, § 3-079, that the issue in that case was whether recourse to the court was available even by means of judicial review. Under modern assumptions such a limitation will only be rarely asserted; and in any event that is not this case, because judicial review is not excluded.

There is, however, no doubt that on facts such as the present regulation 24 does exclude the normal role of the court in a significant respect. As Sedley LJ points out in his §§ 15-16, a determination under regulation 24 fixes the amount owing, which is not thereafter contestable in any proceedings: so although (because of the need for recourse to the court in order to recover the amount found) the jurisdiction of the court is not excluded, at the same time the typical function of the court, in deciding what has been paid and whether and how it should be recovered, is excluded.

That consideration is underlined by reflection on the practical effects of the regulation 24 regime in a case such as the present. Once it is shorn of the allegations of fraud that made the case so difficult for the judge, this case is simply about the construction of commercial documents, and the application to that construction of facts found about the way in which Bullens conducted their business. It takes no special quality from, and poses no special problems by reason of, the fact that Bullens are pharmaceutical chemists rather than ironmongers. The issues are thus of a sort that the courts, rather than a specialist or domestic tribunal, are best qualified to decide. As Romer LJ put it in the context of a domestic tribunal in Lee v Showmans Guild [1952] 2 QB 329 at p 354:

“The proper tribunals for the determination of legal disputes in this country are the courts, and they are the only tribunals which, by training and experience, and assisted by properly qualified advocates, are fitted for the task”

But regulation 24 envisages that these issues should be decided by what is described as a specialist, disciplinary, tribunal. Its specialism is in pharmaceutical practice, just as the specialisms of the other disciplinary committees constituted by the 1992 Tribunal Regulations are respectively in medical, dental and ophthalmological practice. And the whole thrust of those Regulations makes it clear that they are indeed directed at disciplinary matters: complaints of misconduct or underperformance by the respective professionals. Such committees are by no means clearly better qualified than would be a court to consider a case such as the present, which now does not involve any allegation of professional misconduct by Bullens, but simply requires determination of the respective contractual rights of Bullens and of the PCT.

What would appear to have happened is that, the authors of the Pharmaceutical Regulations having decided that they should contain a complete code for the control of and remuneration for pharmaceutical services, the only easily available body for the determination of claims of overpayment, short of the courts, was the disciplinary committee, and the task was therefore conferred there without any specific decision that it was uniquely suited for the task laid upon it. I have however concluded that these reflections merely express concern about the effect of the policy implemented by regulation 24 in a case such as the present. No doubt, there will be cases, perhaps the majority of cases, of alleged overpayment where the allegation does turn on complaints about inadequate or inappropriate performance of services. Then, I quite agree, the disciplinary committee is an appropriate body to address the case. That it is not such in every case that falls under the ambit of section 24 cannot therefore be allowed to cast doubt on what Sedley LJ characterises as the ineluctable effect of regulation 24, that the PCT must first take an issue of overpayment to a disciplinary committee.

On the other issues in the appeal I respectfully agree with my Lord, and do not wish to add anything.

I regret to have to finish with a serious criticism of the way in which the appeal was prepared. We were provided with a bundle of authorities, three appeal bundles, and a bundle of “core transcripts”. These together more than amply contained the necessary material for the hearing. There was then added a further appeal bundle, apparently largely repetitious of what we already had, and five further folders which appeared to copy the entire trial papers, extending to some 2200 sheets of paper. This was copied three times over for the members of the court, and no doubt several times again for other persons engaged in the case. I think that I am right in saying that none of the material in any of these bundles was referred to from those bundles in the course of the hearing. When we asked Mr Edis why the bundles had been produced he said (no doubt not having been consulted before this orgy of copying was put in hand) that the fear was that reference might be made to documents that had been at the trial but not identified in advance as needing to be copied for the appeal. That eventuality can be met by one set of original trial bundles being brought to court. In the event of a relevant document having escaped the judgement of the solicitor who gave instructions for the make-up of the appeal bundles it can be rapidly copied in the course of the hearing.

The court has made strenuous efforts, not least in CPR PD 52.5.6A, to limit the expense not merely of copying but also of physical handling. Those provisions really do need to be taken seriously by those appearing before it. It is not likely in this appeal that a costs order will be made in favour of the PCT. If any such order had arisen I would have had no hesitation of disallowing within it the cost of copying the trial bundles. In overall financial terms that probably would not have been a very severe penalty, but one trusts that the making of a special order would serve to demonstrate that the lapse could not be passed over in silence.