The foundation trust regulator Monitor has revealed it will take action in response to the threat of a judicial review over its guidance to trusts on expanding private patient work.

The regulator was expected to either defend its current interpretation of the rules in court or amend the guidance, which allows trusts to discount private income that is channelled through arm's-length bodies.

But instead, executive chair Bill Moyes today said the regulator's board had decided to launch a three-month consultation on all the possible interpretations of the 2003 Health and Social Care Act, which first introduced the cap.

Mr Moyes said: "There isn't an agreed interpretation of the law. Unison thinks there is a loophole and we take that seriously. We have decided to expose all the possible interpretations to consultation. We think our current interpretation is largely secure and fairly reasonable but it's clear not everyone agrees with that. Unison and GMB have both said they would judicially review us."

Mr Moyes said the board had decided to opt for a consultation after communications from foundation trusts and the Department of Health revealed "significant divergence" on the matter.

Although Unison was last week given leave by the High Court to take a judicial review against Monitor, Mr Moyes told HSJ he doubted that the court would agree to begin proceedings once it heard of the regulator's intention to consult on the matter. But the consultation would not rule out future court action if the outcome went against Unison, he said.

The consultation is not expected to begin until the end of March and will run for three months. Mr Moyes said a consultation document would invite interested parties to set out contending interpretations of the cap and the implications each would have on trust finances and NHS patients.

The 2003 Health and Social Care Act, which established foundation trusts, introduced a cap on the percentage of their total income they could gain from private patients. This was to appease MPs who were concerned that the more market-orientated trusts would prioritise profit-generating private patients over NHS patients. But after becoming aware that a number of trusts were exploiting a "loophole" to get around the cap, Unison and the GMB union accused Monitor of having too lenient a definition of private patient income.