Gheko Holdings Pty Ltd (administrator appointed) v Chief Executive Medicare

REASONS FOR JUDGMENT 1 On 17 July 2012, a search warrant was executed at the premises of the applicant. The search warrant was issued under s 8Y of the Human Services (Medicare) Act 1973 (Cth) ("the Medicare Act"). The search warrant authorised a search for material that might afford evidence as to the commission of offences or civil contraventions under provisions of Pt IIBA (ss 23DZZIA to 23DZZIU) of the Health Insurance Act 1973 (Cth) ("the Health Insurance Act"). 2 The applicant trades as Intelligent Chiropractic Supplies (ICS). It has contract arrangements with chiropractors. Under those arrangements, chiropractors request radiology reports from ICS which then, apparently, obtains them from Radiology Reporting Services Australia Pty Limited ("RRSA"). Medicare payments are generated as a result. 3 The second respondent is the Assistant Director and Investigation/Compliance Officer in the Prohibited Practice Taskforce of the Commonwealth Department of Human Services, which is responsible for the administration of the Medicare system. The second respondent is an "authorised officer" under s 8M of the Medicare Act. It was the second respondent who sought the issue of the search warrant and executed it. 4 Part IIBA of the Health Insurance Act is entitled "Prohibited practices in relation to pathology services and diagnostic imaging services". Section 23DZZIF identifies certain benefits which are a "permitted benefit". The significance of identification of a permitted benefit is that in certain circumstances it is contrary to the Health Insurance Act to ask for, accept or provide a benefit which is not a permitted benefit. In places, such a benefit is referred to as "prohibited benefit". Section 23DZZIF(7)(a) and (8) exclude certain benefits from the permitted benefits identified elsewhere in s 23DZZIF. They provide: (7) However, the benefit is not a permitted benefit if: (a) the benefit is related to the number, kind or value of requests for pathology services or diagnostic imaging services made by the requester; … (8) To avoid doubt, a benefit is related to the number of requests for pathology services or diagnostic imaging services made by a requester if the provision of the benefit is dependent on the requester requesting all, or a proportion of, the requests for one or more kinds of services that the requester makes from a particular provider. 5 Part IIBA of the Health Insurance Act makes a distinction between contravention of civil penalty provisions (ss 23DZZIK, 23DZZIL, 23DZZIM and 23DZZIN) and commission of offences (ss 23DZZIQ, 23DZZIR, 23DZZIS and 23DZZIT) but, speaking generally, civil contraventions and offences may be committed by persons (including corporations) which request a service, provide a service or intend to induce a request for services from a particular provider. 6 The terms of the search warrant were required to comply with the provisions of Pt IID Div 4 (ss 8X to 8ZA) of the Medicare Act. Section 8Y(5)(a) and (c) provide: (5) There must be stated in the warrant: (a) the purpose for which the warrant is issued, and the nature of the relevant offence or relevant civil contravention in relation to which the entry and search are authorised; and … (c) a description of the kind of evidential material to be seized; … 7 The search warrant obtained by the second respondent was not confined in its purpose or effect to an investigation of the conduct only of the applicant, although it is the applicant which brought the challenge to the warrant which initiated the procedural course of events leading to the matters with which this judgment deals. The search warrant authorised a search for evidential material which satisfied three conditions. The first and third conditions (so far as here relevant) were: FIRST CONDITION things which are: a) Computer systems, programs and data used in the compilation and/or production and/or management of Medicare benefits; b) Including any electronic device used for storing electronic and/or digital information which contains any of or any reference to the above things; ... d) Documents relating to Service Agreements between Gheko Holdings Pty Ltd Trading as (T/a) Intelligent Chiropractic Supplies Pty Ltd and Chiropractic practitioners; e) Documents relating to Service Agreements between Gheko Holdings Pty Ltd T/a Intelligent Chiropractic Supplies Pty Ltd and Radiology Reporting Services Australasia Pty Ltd; f) Documents relating to Service Agreements between ICS Imaging and Radiology Reporting Services Australasia Pty Ltd; g) Financial records/accounts relating to the operation of Gheko Holdings Pty Ltd T/a Intelligent Chiropractic Supplies Pty Ltd and Chiropractic practitioners; h) Financial records/accounts relating to the operation of Gheko Holdings Pty Ltd T/a Intelligent Chiropractic Supplies Pty Ltd and Radiology Reporting Services Australasia Pty Ltd; i) Details of all persons employed by Gheko Holdings Pty Ltd Trading as (T/a) Intelligent Chiropractic Supplies Pty Ltd; … m) Emails/written correspondence between Intelligent Chiropractic Supplies Pty Ltd and Chiropractic practitioners; n) Emails/written correspondence between Intelligent Chiropractic Supplies Pty Ltd and Radiology Reporting Services Pty Ltd. … THIRD CONDITION Things as to which there are reasonable grounds for suspecting that they will afford evidence as to the commission of the following offence(s), or civil contravention(s), which is a relevant offence or relevant civil contravention within the meaning of Human Services (Medicare) Act 1973; The allegations are that from the 1st March 2008 chiropractor initiated diagnostic imaging referrals are linked to the payment of non permitted benefits to the chiropractor by Intelligent Chiropractic Supplies (ICS) and it is further alleged that the non permitted benefit is linked to the number, kind and value of the referred services, which is a prohibited benefit as described in Section 23DZZIF (7) (a) and (8) of the Health Insurance Amendment Act 2007. Medicare provider benefits are then redirected from Radiology Reporting Services Australia (RRSA) to Intelligent Chiropractic Supplies (ICS) to chiropractic entities that have entered into service agreements between themselves and ICS. Part IIBA Section 23DZZIJ of the Health Insurance Amendment Act 1973 details the circumstances that a referrer/provider or a connected person (in this instance ICS) can breach the prohibited practice legislation. Section 23DZZIR is the offence provision in relation to the offering or providing of prohibited benefits. 8 The material seized included electronic records held on two servers which were copied before the servers were returned to the premises of the applicant on 18 July 2012. Other records were also taken, including copies of agreements for the provision of diagnostic imaging support. 9 On 18 December 2012, the applicant commenced proceedings in this Court challenging the validity of the search warrant, decisions in connection with the investigation being carried out under the overall control of the first respondent (who manages Medicare) and the appointment of the second respondent as an authorised officer. It is only the challenge to the validity of the search warrant which is presently relevant. On 6 March 2013, Jagot J dismissed the applicant's challenges (Gheko Holdings Pty Limited v The Chief Executive Medicare [2013] FCA 164). In particular, her Honour dismissed challenges that the terms of the search warrant were unauthorised (at [27]-[43]). 10 The applicant has appealed against that judgment. The notice of appeal was filed on 13 March 2013. The notice of appeal foreshadowed an application for the following order: An injunction directed to the first and second respondents to prevent their inspection or use of the material seized under colour of the authority of the Search Warrant until further order of the court. 11 On 21 March 2013, the applicant made a specific application for the following interlocutory orders: 1. An injunction directed at the first and second respondents to prevent their inspection or use of the material seized under colour of the authority of the Search Warrant until further order of the court. 2. Such further or other orders as the court thinks fit. 3. Costs. 12 For an extended period of time, prior to the appeal being initiated, arrangements were in place pursuant to which the second respondent refrained from inspecting the seized material. Pending hearing and determination of the application for an interlocutory injunction, it has also been accepted that the seized material will not be inspected. However, the respondents no longer agree that the material should be withheld from inspection and oppose the application for interlocutory orders. 13 The applicant maintains its innocence of any offence or civil contravention. At this stage, none has been specifically alleged against it. The applicant's protest is, however, that it is entitled to be protected against the use of an invalid search warrant in the investigation being conducted by the second respondent. The applicant's central contention is that the terms of the search warrant were impermissibly wide. At the heart of the argument for an interlocutory injunction lies the premise that the applicant will be prejudiced if the seized material is inspected and the appeal is successful, and also that the appeal will be rendered nugatory if inspection occurs. If the applicant's appeal is unsuccessful, of course, no complaint may be maintained. It is against the possibility that the appeal might succeed that the allegation of prejudice must be examined. 14 Not unsurprisingly perhaps, the applicant's counsel showed some diffidence in clearly articulating where the prejudice to the applicant might lie if the second respondent inspected its business records, as the applicant maintains that an examination of its methods of operation will disclose that it has committed no offence or civil contravention of the Health Insurance Act. When pressed, counsel for the applicant suggested that the applicant was entitled to have a "sense of violation" arising from the execution of a search warrant in impermissible terms. The submission is not easy to reconcile with the corporate character of the applicant. 15 At the time this submission was made, and until submissions were made by the respondents, it was not disclosed to the Court that the applicant had been placed into voluntary administration on Monday 25 March 2013, just two business days after the interlocutory application was filed, but before the hearing took place. Although the administrator has consented to the appeal being prosecuted, the fact that the applicant was placed into voluntary administration (presumably out of concern about its present or future solvency) makes it unlikely that any real suggestion of prejudice to the applicant can be given much credence or is based on instructions from any person who, at the time the interlocutory application was heard, was permitted to take decisions on behalf of the applicant. In any event, as will appear, I am not satisfied that any ultimate prejudice to the applicant can be identified. 16 The director, secretary and sole shareholder of RRSA is Mr Hakan Bilal. Mr Bilal was formally the director, secretary and sole shareholder of the applicant. The sole shareholder of the applicant is now Innate Growth Fund Pty Limited ("Innate Growth"). The director, secretary and sole shareholder of Innate Growth is Mrs Gulsun Bilal, Mr Bilal's wife. If any prejudice to the interest of any of those other persons or corporate entities is thought to be involved if the documents and records seized from the applicant's premises are now inspected, none has been claimed. 17 The principal suggestion of prejudice relied on by the applicant was that its appeal would be rendered nugatory if inspection of the documents was permitted and the appeal succeeded. The argument in the applicant's written outline of submissions was as follows: 14. If the appeal is allowed, it means that the respondents are, and were, not entitled to seize what they seized, or to inspect it. The consequential orders on the appeal would include the return of the items seized. 15. All of that will be pointless if the respondents are allowed to inspect the seized items in the mean time. The respondents will not be able to slough off any knowledge or opinions gained from their inspection. … 18. If inspection is allowed, the [applicant] is denied any effective remedy. 19. There is clear potential for prejudice to the [applicant] if the respondents have access to information and material, to which they are not entitled. The purpose of the search is to find "evidential material" against the [applicant]. 20. It is not appropriate to speculate in any detail on - (a) what the respondents might learn, or what views they may form, from inspecting the seized items, or (b) how any such learning or opinion-forming may affect the [applicant]. 18 The suggestion that rejection of the application for an injunction to restrain inspection will deal finally with the applicant's rights invites particular attention to the apparent strength of the appeal which has been filed, as well as to the balance of convenience (see Samsung Electronics Co Limited v Apple Inc (2011) 286 ALR 257 at [44]-[97]). 19 The applicant's written submissions put the foundation for the challenge to the validity of the search warrant, which is to be the subject of the appeal, in these terms: 6. The nature of the appeal is a challenge [to] the primary judge's ruling on the validity of a search warrant. 7. In summary, the warrant was challenged on the ground that it failed to state, with the particularity required by law, the nature of the offence to which the search related. 20 In that connection, in submissions on the present application some reliance was placed on the judgment of the Supreme Court of the Australian Capital Territory in R v Tillett (1969) 14 FLR 101 per Fox J at 112-113: What s. 10 authorizes to be seized is therefore any "thing" which is, in the way required by the section, related to a particular offence. The warrant cannot authorize the seizure of things in general or things which are related to offences in general. In my opinion the warrant should refer to a particular offence and authorise seizure by reference to that offence. It follows that in my opinion the warrant is bad in this respect also. 21 The terms of the third condition in the search warrant are said to be defective because the test stated by Fox J in R v Tillett has not been met. However, as pointed out by Burchett J in Beneficial Finance Corporation v Commissioner of Australian Federal Police (1991) 31 FCR 523 ("Beneficial Finance") at 537, quoting Beaumont J in Brewer v Castles (1984) 1 FCR 55 (at 62): …"the principal warrant [in R v Tillett] made no reference to any offence in its operative words" and in its recital referred only to "an offence against the Crimes Act", without specifying the nature of that offence. 22 In Beneficial Finance, Burchett J (with whom Sheppard J agreed) said (at 533): … The authorities make it clear that the statement of the offence in a search warrant need not be made with the precision of an indictment. That would be impossible, and indeed to attempt it would be irrational, bearing in mind the stage of the investigation at which a search warrant may issue. The purpose of the statement of the offence in the warrant is not to define the issues for trial; but to set bounds to the area of search which the execution of the warrant will involve, as part of an investigation into a suspected crime. The appropriate contrast is not with the sort of error which might vitiate an indictment, but with the failure to focus the statutory suspicion and belief upon any particular crime, with the result that a condition of the issue of the warrant is not fulfilled, and it purports to be a general warrant of the kind the law decisively rejected in the 18th century. and at (543): I have discussed the authorities dealing with the true test, for the sufficiency of the statement of the offence in a search warrant, at considerable length, because of the importance of the principle, and the difficulty which has arisen from the conflicting statements of it. In my opinion, the conclusion emerges clearly that there is no justification for an "exact object" test. The matter should be viewed broadly, having regard to the terms of the warrant in the circumstances of each case. The question should not be answered by the bare application of verbal formula, but in accordance with the principle that the warrant should disclose the nature of the offence so as to indicate the area of search. The precision required in a given case, in any particular respect, may vary with the nature of the offence, the other circumstances revealed, the particularity achieved in other respects, and what is disclosed by the warrant, read as a whole, and taking account of its recitals. … 23 This approach was approved by Callinan and Crennan JJ (with whom Gleeson CJ and Gummow J each agreed) in New South Wales v Corbett (2007) 230 CLR 606 (see [99] and [103]). Furthermore, as pointed out earlier, s 8Y(5)(a) of the Medicare Act only requires identification of the nature of the potential offence or civil contravention in respect of which the investigation is being conducted. That requirement, in my view, is in accord with the weight of the authorities. It does not reflect the position submitted by the applicant to arise from R v Tillett. 24 I do not wish to embarrass the conduct of the appeal, and my own analysis is made only for the purpose of the present application. However, the warrant does not appear to me on its face to be in impermissible terms. As the applicant has claimed an irremediable prejudice if an interlocutory injunction is not granted, I am bound to say that the apparent prospects of success of the appeal seem to me to be so slight that this suggestion can be given little weight. 25 The balance of convenience does not weigh in favour of the grant of an injunction either. The applicant suggested that if its appeal was upheld it might nevertheless be met with evidence that had been unlawfully obtained, but there are at least two reasons (apart from my views about the weak prospects for success on the appeal) why this argument does not advance the applicant's position very far. 26 First, if the appeal succeeds the applicant would retain any relevant right to object to use of the seized material in any proceedings commenced against it, if in fact such proceedings were commenced. Although it is no doubt true to say, as the applicant argues, that the material would not be necessarily inadmissible, it is equally true that the Court retains important discretions to relieve against prejudice (see e.g. ss 135 to 138 of the Evidence Act 1995 (Cth)). On the other hand, it cannot be assumed that the relevance of the seized material (if it is relevant at all) would be confined to the applicant. It may be relevant to other entities or open up lines of legitimate enquiry which the applicant could have no interest in frustrating. As I pointed out earlier, no specific prejudice to the applicant of any possible use of, or reference to, the seized material has been identified and no specific prejudice has been claimed on behalf of any other person or entity. 27 Secondly, I can think of no reason, and none was able to be suggested, why any identified drafting defect in the terms of the search warrant could not be remedied so that the same material could be legitimately seized in any event. There is no reason at the moment for the search warrant to be redrafted. The challenge to its validity has been rejected. If a defect is identified on appeal that would doubtless provide guidance on how to draft it successfully. 28 Moreover, consideration of the balance of convenience should not be confined to the interests of the applicant or those associated with the applicant. A persuasive case was made out by the respondents that the public interest would be served by permitting the investigation to continue without further delay. In part, such considerations concern the usual difficulties which may emerge with the passage of time after particular events and transactions. In part, they concern the fact that the practices under consideration generate a considerable call on the public purse and, if not legitimate, the monies paid by way of unjustified benefits may not be straightforward to recover. In those circumstances there is a legitimate public interest in an early assessment about whether the practices followed by the applicant, and those associated with it, are legitimate. The voluntary administration of the applicant also reveals that concern about the capacity of the applicant to meet any call on its own resources, whether by way of repayment, fine, penalty or costs, is now under serious question. That is another factor against unnecessary prolongation of the investigation phase, of which issue of the search warrant is only a part. 29 The balance of convenience, therefore, is against granting the interlocutory injunction sought. 30 The applicant has failed each element of the tests imposed by the authorities. The application will be dismissed with costs. I certify that the preceding thirty (30) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Buchanan.