Kelly v Daniel

CELIA SKLOVSKY (in her capacity as a member of Professional Services Review Committee No. 324)

JOHN TURNBULL (in his capacity as a member of Professional Services Review Committee No. 324)

THE COURT 1 This is an appeal from the judgment of a judge of the Court ("the primary judge") in which his Honour allowed an application for judicial review of two decisions made under the Health Insurance Act 1973 (Cth)("the Act"). 2 The decisions were made under the peer review-based Professional Services Review Scheme ('the scheme') established under Pt VAA of the Act. The scheme focuses on the conduct of medical practitioners and other health care providers in connection with the rendering and initiation of services that attract Medicare or Pharmaceutical Benefits. 3 The primary judge referred to the first of those decisions as "the investigative referral decision", which he described as: "…the decision of the Health Insurance Commission ("the Commission") to refer certain conduct of [the respondent] for investigation to the Commission's Director of Professional Services ("the Director"). This investigative referral was purportedly made pursuant to s86 of the Act. The conduct alleged against [the respondent] was that he had engaged in inappropriate practice in relation to the provision of services between 13 August 2000 and 7 January 2001 ("the referral period")." 4 The second decision, referred to as "the adjudicative referral decision", is described by the primary judge as one: "… made by the Acting Director to refer the question of [the respondent's] conduct during the referral period for adjudication and to establish, ad hoc, Professional Services Review Committee No 324 ("the Committee") to deal with that adjudicative referral."

Factual background 5 The respondent, Dr Steven Daniel, has been a registered medical practitioner since 1995. He worked as a trainee physician for six years at the Alfred Hospital. During the calendar year January to December 2000 he was engaged in general practice at various locations in the western and inner suburbs of Melbourne. 6 Dr Daniel received a letter from the Health Insurance Commission ("the Commission"), dated 8 May 2001, informing him that it had reviewed his "practice profile" and that his "servicing pattern appears to have reached the prescribed level which may result in automatic referral to the Director of Professional Services Review." 7 In response to the correspondence, Dr Daniel telephoned the Commission. He spoke to Dr Raymond Mak, who was a medical practitioner employed by the Commission as a "Medical Adviser". As an adviser, Dr Mak interviewed practitioners selected by the State Office of the Commission on the basis of an atypical "service profile" in comparison to other medical practitioners. In September Dr Mak telephoned Dr Daniel and told him that he would be counselled in the course of a meeting where the two gentlemen would "go through the issues". 8 The counselling meeting took place on 21 September 2001. Dr Mak informed Dr Daniel that statistics kept by the Commission showed that Dr Daniel's practice had a high volume of services compared with other practices. He said that there were 12 days with more than 100 services and many days where there were more than 80 services. Most of the relevant days were between August 2000 and January 2001. 9 Dr Mak informed Dr Daniel that his practice would be reviewed in three to six months and his statistics examined. Dr Daniel was told that if, on review, his "practice profile" did not change he may be referred to the Director of Professional Services Review ("the Director"). 10 On 22 October 2001, Mr David Willson (Manager, Professional Services Review, Victorian Branch of the Commission) wrote to Dr Daniel and advised him that his "practice profile" would be reviewed in about six months. 11 However, entirely independent of this review process, the General Manager, Professional Review Division, of the National Office of the Commission, Dr J Mould, sent Dr Daniel a letter dated 19 December 2001, stating that Dr Daniel's conduct in the "referral period" (13 August 2000 to 7 January 2001) had been referred to the Director. The "investigative referral", referred to at [3] above, was attached to the letter. 12 On 20 December 2001, the Director wrote to Dr Daniel informing him that he had received an investigative referral from the Commission and that he was required to conduct an investigation. The Director invited Dr Daniel to make written submissions within 14 days, as to why the investigative referral should be dismissed. 13 On 9 January 2002, Dr Daniel faxed a one page submission to the Director stating "he believed the referral could be dismissed" and made reference to the various endeavours he had made following the counselling meeting with Dr Mak to keep his practice profile within acceptable limits. These included ceasing to work at the busiest of his practice locations, Wyndham Vale Health Care. 14 On 14 February 2002, Dr Bernard Kelly ("the Acting Director"), performing the role of the Director between 25 January 2002 and 1 March 2002, established the Professional Services Review Committee No 324 ("the Committee") and made an adjudicative referral in respect of Dr Daniel's conduct of his medical practice during the period 13 August 2000 to 7 January 2001. The Acting Director wrote to Dr Daniel on 21 February 2002 informing him of the fact that an adjudicative referral had been made. 15 The role of the Committee was to inquire into whether the conduct by Dr Daniel, in connection with rendering services specified in the adjudicative referral, constituted engaging in "inappropriate practice" within the meaning of s 82 of the Act. The Committee was scheduled to meet on 5 June 2002 but delayed its meeting because Dr Daniel was absent from Australia between March 2002 and September 2002. 16 In the meantime, on 6 June 2002, Mr Willson, of the Commission's Victorian Office, possibly unaware of what the Commission's National Office was doing, wrote to Dr Daniel advising him that the Commission had reviewed his "practice profile". Apparently Dr Mak was satisfied that Dr Daniel was no longer engaging in a pattern of services that raised concerns. Dr Daniel was told that no further action would be taken "at this time" concerning the Professional Services Review. 17 In early October 2002, Dr Daniel was contacted by Ms Lynne Benson-Evans, Secretary to the Committee, to arrange a meeting with the Committee. Dr Daniel referred to the advice he had received from Mr Willson. However, Ms Benson-Evans said that the correspondence from Mr Willson was part of a different process to the one that led to the establishment of the Committee. She told him that his meeting with the Committee would take place on 3 December 2002. 18 The inconsistent signals from the Commission's Victorian office on the one hand and its National Office on the other left Dr Daniel understandably perplexed. This resulted from the Commission's bifurcated process in dealing with practitioners suspected of over-servicing. Further, there did not appear to be any communication between the National and Victorian offices regarding what each of them was doing with respect to Dr Daniel. 19 Dr Mak attempted to provide an explanation of the bifurcated process in his affidavit. He said that while the State Offices of the Commission identify and provide on-going monitoring of practitioners for review by comparing their servicing profiles. In his affidavit, Dr Mak said: "it is not their role to identify medical practitioners whose Medicare servicing profiles conform with patterns which have been prescribed as inappropriate under section 106KA of [the Act] and associated Regulations ('prescribed pattern'). The role in relation to identifying a prescribed pattern of services is undertaken by the [Commission] National Office in Canberra". 20 Further, Dr Mak said that where: "…a medical practitioner is identified by the [Commission's] National Office in Canberra because his or her Medicare servicing profile conforms with the prescribed pattern, the process undertaken by the [Commission] is different to that implemented by State offices where a medical practitioner's statistics appear to deviate significantly from those of his or her peers. In such instances … there is no interview with a Medical Adviser". Notwithstanding this explanation, the approach taken by the Commission is peculiar. 21 On 19 November 2002, Dr Daniel commenced a proceeding in the Court, seeking judicial review of the investigative referral and adjudicative referral decisions pursuant to s 39B of the Judiciary Act 1903 (Cth) and s 5 of the Administrative Decisions (Judicial Review) Act 1977 (Cth) ("the ADJR Act").

The Statutory Context 22 The Professional Services Review Scheme created by Pt VAA the Act was introduced in 1994 and amended in 1997, 1999 and 2002. It is the 1999 version of the scheme that is relevant to the issues raised by this appeal. 23 At all material times the relevant part of the Act was Pt VAA, of which s 80(1) provided that: "This Part creates a scheme under which a person's conduct can be examined to ascertain whether inappropriate practice (see section 82) is involved. It also provides for action that can be taken in response to inappropriate practice." Definitions 24 Under s 81 terms are given the following definitions unless the contrary intention appears: "adjudicative referral means a referral made by the Director under section 93. Director means the Director of Professional Services Review appointed under section 83. investigative referral means: (a) a referral made by the Commission to the Director under subsection 86(1); or (b) a referral made by a Committee to the Director under sub-section 106H(2). referral period means the period applicable under subsection 86(2) or (3), as the case may be. referred services means: (a) in relation to an investigative referral - the services particulars of which are contained in the referral in accordance with paragraph 86(4)(a); or (b) in relation to: (i) an adjudicative referral; or (ii) the consideration by the Determining Authority of a report of a Committee on an adjudicative referral; the services to which the referral relates. service means: (a) a service for which, at the time it was rendered or initiated, medicare benefit was payable; …" 25 Inappropriate practice is defined in s 82 as follows: "(1) A practitioner engages in inappropriate practice if the practitioner's conduct in connection with rendering or initiating services is such that a Committee could reasonably conclude that: (a) if the practitioner rendered or initiated the referred services as a general practitioner - the conduct would be unacceptable to the general body of general practitioners; …" Investigative referrals 26 The initiation of investigative referrals, their content and the procedure for their notification is dealt with by ss 86 to 88 of the Act. Section 86 provides: "Commission may refer matters to the Director (1) The Commission may, in writing, refer to the Director the conduct of a person relating to one or both of the following: (a) whether the person has engaged in inappropriate practice in connection with rendering of services; (b) whether the person has engaged in inappropriate practice in connection with initiation of services. (2) An investigative referral in relation to the rendering of services may only relate to services rendered during the 2 year period immediately preceding the referral, whether or not any or all of the services were initiated before the start of that period. (3) An investigative referral in relation to the initiation of services may only relate to services initiated during the 2 year period immediately preceding the referral. (4) An investigative referral must: (a) contain particulars of all services rendered or initiated during the referral period by: (i) the person under review; or (ii) a practitioner employed by the person under review; or (iii) a practitioner employed by a body corporate of which the person under review is an officer; and (b) set out the reasons why the Commission considers the person under review may have engaged in inappropriate practice. (4A) After the Commission has made an investigative referral, the Director may request the Commission to give him or her further information relating to any services particulars of which are contained in the referral whether or not the services to which the request relates are dealt with in reasons given by the Commission under para (4)(b)…" 27 In addition to the requirements of an investigative referral set out in s 86(4), ss 87 and 88 further provide: "87 Content and form of investigative referrals (1) An investigative referral must specify whether it relates to one or both of the following: (a) specified services; (b) services rendered or initiated by a practitioner that are one or more of the following: (i) services of a specified class; (ii) services provided to a specified class of persons; (iii) services provided within a specified location; (iv) services provided within a specified period… 88 Procedure for notifying investigative referrals (1) The Commission must send a copy of the investigative referral to the person under review within 48 hours of sending the investigative referral to the Director. (2) The copy must be accompanied by a notice inviting the person under review to make written submissions to the Director, within 14 days, stating why the Director should dismiss the referral without setting up a Committee. (3) Within the 14 day period commencing on the day on which the person under review is sent the copy and notice, he or she may make such written submissions to the Director." 28 Pursuant s 89(1) of the Act, after the making of an investigative referral: "…the Director must conduct an investigation, in such manner as he or she thinks appropriate, into the referred services, including services not dealt with in reasons given by the Commission under paragraph 86(4)(b)." Adjudicative referrals

29 Pursuant to s 93(1), the Director may establish a Committee and make an adjudicative referral to it to consider whether the conduct of the practitioner constituted "inappropriate practice". A written report in respect of the services to which the referral relates must accompany the adjudicative referral.

30 Under s 106H a Committee is to make findings only in respect of the services which are specified in the adjudicative referral. Section 106K(1) provides that: "The Committee may, in respect of conduct in connection with rendering or initiating services included in a particular class of referred services, have regard only to a sample of the services included in the class." 31 Section 106KA is an important provision in the context of this appeal. It provides: "106KA Patterns of services

(1) Subject to subsections (2) and (2A), if, during a particular period (the relevant period), the circumstances in which some or all of the referred services were rendered or initiated constituted a prescribed pattern of services, the conduct of the person under review in connection with rendering or initiating services during that period in those circumstances is taken, for the purposes of this Part, to have constituted engaging in inappropriate practice. (2) If the person under review satisfies the Committee that, on a particular day or particular days during the relevant period, exceptional circumstances existed that affected the rendering or initiating of services provided by the person, the person's conduct in connection with rendering or initiating services on that day or those days is not taken by subsection (1) to have constituted engaging in inappropriate practice. (2A) However, subsection (2) does not affect the operation of subsection (1) in respect of the remaining day or days during the relevant period on which the person rendered or initiated referred services even if the circumstances in which the referred services were rendered or initiated on that day or those days would not, if considered alone, have constituted a prescribed pattern of services. (3) The regulations may prescribe, in relation to:

(b) an identified group or groups of practitioners in a particular profession;

circumstances in which services of a particular kind or description that are rendered or initiated constitute, or do not constitute, a prescribed pattern of services for the purposes of subsection (1). (4) The circumstances that may be prescribed under subsection (3) as circumstances in which services that are rendered or initiated constitute a prescribed pattern of services include, but are not limited to, the rendering or initiation of more than a specified number of services, or more than a specified number of services of a particular kind, on each of more than a specified number of days during a period of a specified duration. (5) The circumstances that constitute exceptional circumstances for the purposes of subsection (2) include, but are not limited to, circumstances that are declared by the regulations to be exceptional circumstances. (6) This section only applies to services rendered or initiated after the commencement of this section. (7) This section does not preclude the Committee from making a finding under this Subdivision (other than section 106KB) in relation to conduct during a particular period in connection with rendering or initiating services without considering whether or not the circumstances in which the services were rendered or initiated constituted a prescribed pattern of services."

32 Allied to s 106KA are regs 10 and 11 of the Health Insurance (Professional Services Review) Regulations 1999("the Regulations"). They provide that: "10. The circumstance in which services that are professional attendances constitute a prescribed pattern of services is that 80 or more such services are rendered on each of 20 or more days in a 12 month period. 11 Exceptional circumstances

For subsection 106KA(5) of the Act, the following circumstances are declared as constituting exceptional circumstances:

(a) an unusual occurrence causing an unusual level of need for professional attendances;

(b) an absence of other medical services, for patients of the person under review during the relevant period, having regard to:

(i) the location of the practice of the person under review; and

(ii) characteristics of the patients of the person under review.

Note For relevant period, see s 106KA of the Act." 33 As the primary judge said at [8]: "Regulation 10 thus gives rise to what is referred to as the "80/20" rule, that rendering 80 or more services on each of 20 or more days in any given 12 month period will constitute a prescribed pattern of services within the meaning of s 106KA(1)." 34 The "80/20 rule" is of considerable significance to the outcome of this appeal. We shall return to consider the operation of this rule later in these reasons for judgment. The scope of the 1999 amendments 35 The amendments to the 1997 scheme followed a comprehensive review of procedural and evidentiary difficulties identified by the Full Court in Adams v Yung (1998) 83 FCR 248: see the Explanatory Memorandum to the Health Insurance Amendment (Professional Services Review) Bill 1999 and Report of the Review Committee of the Professional Services Review Scheme - March 1999. 36 An important change was to re-define the process of referral, in terms of progressive action, comprising several discrete stages, including an expanded role for the Director by "increasing the investigation, case preparation and negotiation power of the Director". 37 The Explanatory Memorandum describes the insertion of new subsection 86(4A) as an important change to enable the Director to undertake subsequent investigations "not limited to the scope of the matters set out in the investigative referral". 38 The Explanatory Memorandum states that the effect of powers conferred on the Director, by insertion of subsection 89(1), "may mean a subsequent referral to a Committee becomes unnecessary. Alternatively, it will provide a Committee with sufficient information for a more comprehensive hearing, and maximise the use of their time and resources". 39 Also relevant for the issues in this appeal are new ss 91 and 92 concerning the powers of the Director. Section 91 provides for the Director to dismiss an investigative referral: "…if he or she is satisfied there are insufficient grounds on which a Committee could reasonably find that the person under review has engaged in inappropriate practice in connection with rendering or initiating the referred services". 40 Section 92 provides for entry into agreement with the person under review, and inter alia for the investigative referral to be dismissed. Section 92 provides: "92 Agreement entered into between Director and person under review

(1) If the person under review is a practitioner, the Director and the person may enter into a written agreement in respect of the matters referred under subsection 86(1) under which:

(a) the person acknowledges that conduct during the referral period by the person in connection with rendering or initiating specified services constituted engaging in inappropriate practice; and

(b) specified action in relation to the person (being action of a kind mentioned in subsection (2)) is to take effect; and

(2) The action that may be specified under paragraph (1)(b) in the agreement includes any one or more of the following:

(a) that the Director, or the Director´s nominee, is to reprimand the person;

(b) if any medicare benefit has been paid (whether or not to the person) for services referred to in paragraph (1)(a)-that the person is to repay to the Commonwealth an amount equal to the whole or a specified part of that medicare benefit;

(c) that any medicare benefit that would otherwise be payable for services referred to in paragraph (1)(a) is to cease to be payable;

(d) if the person is a participating optometrist-that the Minister´s acceptance of the undertaking by the participating optometrist under section 23B is to be taken to be revoked, either wholly or in so far as the undertaking covers particular premises;

(e) if the person is a medical practitioner or a dental practitioner in respect of whom a Part VII authority is in force and a service referred to in that paragraph involves prescribing or dispensing a pharmaceutical benefit-that the Part VII authority is to be taken, for the purposes of the National Health Act 1953, to be revoked or suspended;

(f) that the person is to be disqualified, for a specified period of not more than 3 years starting when the agreement takes effect, in respect of one or more of the following:

(i) provision of specified services, or provision of services other than specified services;

(ii) provision of services to a specified class of persons, or provision of services to persons other than persons included in a specified class of persons;

(iii) provision of services within a specified location, or provision of services otherwise than in a specified location;

(g) that the person is to be fully disqualified for a specified period of not more than 3 years starting when the agreement takes effect…."

41 The issues raised on the appeal included the following:

· was the Commission entitled to make the investigative referral decision under s 86 in reliance on s 106KA(1) alone?

· was the Commission required to provide particulars of all services rendered by Dr Daniel in the two-year period prior to the making of the investigative referral, rather than particulars of only those services rendered between 13 August 2000 and 7 January 2001?

· was the Director entitled to make the adjudicative referral decision, and to establish the Committee under s 93, in reliance on s 106KA(1) alone?

· was the Director under an obligation to consider, as part of the investigation, the options of dismissing the investigative referral, pursuant to s 91, or entering into an agreement with Dr Daniel, pursuant to s 92?

The reasoning of the primary judge 42 The primary judge gave separate consideration to the investigative referral decision and the adjudicative referral decision. 43 His Honour noted in relation to the investigative referral decision that the Commission submitted that it had been entitled to make an investigative referral under s 86 on the basis of s 106KA(1) alone. It did not contest the fact that it had done so. It contended that its referral was not made in the exercise of any discretion, or as a result of a policy. The Commission contended that the referral was simply "a result of the operation of those two statutory provisions". Indeed, it contended that once a breach of the 80/20 rule had been identified, it was obliged to make an investigative referral. 44 His Honour noted that the Commission's submission entailed that the Act created two distinct processes of professional review for inappropriate practice. One applied to suspected inappropriate practice under the "general definition" provided in s 82, and the other attached to 80/20 inappropriate practice. Counsel for the Commission focused on the phrase "for the purposes of this Part" in s 106KA(1), contending that those words made the presumption created by that subsection applicable to the whole of Pt VAA. As a result, so the argument went, a number of considerations that might otherwise be relevant to a decision whether or not to make an investigative or adjudicative referral evaporated once a breach of the 80/20 rule had been identified. 45 The primary judge was not persuaded to accept that construction, at least not without significant qualification. His Honour concluded that the structure of the Act suggested that s 106KA(1) was not referable to any power exercisable by the Commission. His Honour said at [13]: "The Act proceeds in sequence, identifying, in turn, the initiation of an investigation, the conduct of the investigation and any subsequent adjudication. That tends to suggest that s 106KA(1) is closely, and intrinsically, related to the facility allowed to the Committee by s 106K(1)…" 46 In other words, his Honour concluded that s 106KA(1), upon its proper construction, applied only to the Committee, and not to the Commission. He was fortified in that conclusion by noting that although s 106KA(1) did not refer in terms to the Committee, the next provision, s 106KA(2), did. 47 His Honour qualified this conclusion by observing at [14]: "It is, however, certainly true that the legislation confers on the Commission a broad discretion as to the basis upon which it may make investigative referrals. It may, as a matter of policy, decide to monitor an individual practitioner's statistics by identifying [a breach of the 80/20 rule] … The Commission, it seems to me, is free to refer all such cases to the Director. It is then a question of discerning the duties which the Act imposes on the Director." 48 His Honour then turned to the adjudicative referral. He said that it followed from the interpretation of the relevant provisions that he considered to be derived from the structure of the Act, that the Director was not entitled to rely upon the 80/20 rule, without more, to make, immediately, an adjudicative referral. The Director's clear duty was to undertake a review, and not to make automatic referrals. His obligation was, at the relevant time, set out in s 89 which required him to conduct an investigation into "the referred services". 49 The primary judge noted that counsel for Dr Daniel contended that, amongst other errors, the Director had mistakenly failed to have regard to the entirety of his conduct in the two years preceding the referral. That argument derived essentially from the comments of Finn J in Pradhan v Holmes [2001] FCA 1560, (2001) 125 FCR 280 at [15] - [19] where his Honour considered the obligations imposed by the Act on the Director in conducting an investigation. Among those obligations was the need to consider the "referred services" as defined in s 81. Section 86(4)(a) encompassed all services rendered or initiated during the "referral period", which Finn J noted in passing was defined in s 81 "to be the applicable two year period specified in s 86(2) and (3)". 50 The primary judge relied upon Finn J's "note in passing". He said at [17]: "Under s 89(1), a director must "conduct an investigation, in such manner as he or she thinks appropriate, into the referred services", and "referred services" is defined to mean "the services particulars of which are contained in the referral in accordance with paragraph 86(4)(a)". Section 86(4)(a) requires that an investigative referral must contain particulars of all services rendered or initiated during the referral period by the person under review. "Referral period" is itself defined by s 81, in conjunction with subss 86(2) or (3), to mean the two years before the date of the referral. This somewhat tortuous reconciliation of definitions has the result that the Director must investigate, as he or she thinks appropriate, the referred services - being all services rendered or initiated during the referral period, meaning the two years up to the date of the referral. This construction is supported by the express words of the statute without recourse to extrinsic material like the Explanatory Memorandum. It is also reinforced by the presence, in s 89 (1), of the words "including services not dealt with in reasons given by the Commission under paragraph 86 (4)(b)". As his Honour observed, this does sit oddly with s87(1), but the alternative construction involves ignoring the plain definitions of the Act." 51 His Honour noted that Pradhan had been disapproved by a Full Court in Health Insurance Commission v Grey [2002] FCAFC 130; (2002) 120 FCR 470, but observed that in that case the Court made no reference to the particular aspect of Finn J's reasoning set out above. Moreover, in Grey no issue was taken with either the investigation conducted by the Director or the exercise of the respective discretions of the Commission and the Director to make a referral. 52 The primary judge noted that counsel for Commission had pointed to the use of the words "only" and "during" in s 86(2) as indicating that the period to be considered by the Director could be less than the whole of two years. However, his Honour rejected that contention. He said that it did not overcome the difficulty that "referred services" as used in s 89(1) was a defined term, and that it was not open to the Court to read it as meaning "the services specified within the Commission's referral". That led to the curious position, identified by Finn J, that there might be a disjunction between the services referred to the Director for consideration and the material to which he was, in fact, required to have regard. However, in his Honour's view, that was the intention of the Act, discernible from its drafting. 53 The primary judge concluded this aspect of his reasons for judgment by observing that, although a Director should have regard to the whole of the referred services in the relevant two-year period, a failure to do so would not, on that ground alone, invalidate an adjudicative referral. 54 His Honour's reasons for requiring the entire two-year period to be taken into account were complex, but in substance, he considered that the additional services initiated or carried out, apart from those specified in relation to the breach, might be relevant to the exercise of the Director's discretion to enter an agreement under s 92. His main reason for holding that a failure to have regard to the whole of the referred services in the relevant period would not, on that ground alone, invalidate an adjudicative referral was essentially based upon policy considerations. To impose "a prescriptive and laborious duty" upon a Director to consider, in every case, two years of material would detract from the broad discretion vested in him to conduct an investigation "in such manner as he or she thinks appropriate". It would potentially compel unnecessary or excessive expenditure of public funds in implementing legislation framed to protect the public and the general revenue. 55 Although his Honour rejected the contention that a failure to have regard to all of the services rendered in what he considered to be the two-year "referral period" would necessarily result in invalidity, he accepted that such a consequence could result from a failure to take into account relevant considerations. That led him to the final stage of his reasoning. Did the Commission fail to take into account relevant considerations when making the investigative referral? And did the Director fail to take into account relevant considerations when making the adjudicative referral? 56 The primary judge noted that Dr Daniel's principal complaint against the Commission was that it could be inferred that it had a policy of "automatic referral", which was applied without consideration of the merits of an individual case. An alternative formulation of that argument was that the Commission had failed to take into account the fact that Dr Daniel's conduct in the period from August 2000 to January 2001 had already been the subject of counselling by Dr Mak and review by Mr Willson, resulting in a decision to take no action at that time. Counsel for Dr Daniel submitted that these matters were plainly relevant to any decision to investigate Dr Daniel again for the same conduct. 57 Counsel for the Commission contended that these matters were irrelevant. She submitted that the referral was an automatic consequence of the Act, a contention that the primary judge noted he had already rejected. As his Honour observed, if that had been the view taken by the Commission when it made the investigative referral, it was founded on an error of law. 58 His Honour set out in detail the relevant terms of the Commission's investigative referral. He concluded that either as a matter of policy, or stemming from what he had held to be an erroneous construction of the Act, the Commission had not looked beyond the application of the 80/20 rule. He said at [26]: "In disregarding the fact that the same conduct had already been examined by at least one Commission officer and had been the subject of counselling by another, the Commission failed to take into account a relevant consideration. Whatever constraints there are on the matters which the Commission may consider have to be gathered from the terms and scheme of the Act as a whole. It is inconsistent with those terms and that scheme to say that a prima facie case of a prescribed pattern of services reduces the relevant considerations solely to whether there have been "exceptional circumstances" within s 106KA(2). The entire review process under the Act is designed to narrow the relevant field of inquiry which may ultimately be required by an adjudicative referral. I have been unable to discern in the authorities, or the terms or structure of the Act, any suggestion that the deliberations of the Commission or the Director are to be so constrained by s 106KA(1). While there is clear authority that a Committee´s inquiries should not be into "conduct at large" but "specified conduct", no authority suggests that same restriction applies to the investigative powers and responsibilities of the Commission and the Director: Adams v Yung (1998) 83 FCR 248 per Burchett and Hill JJ at 298; as quoted by the Full Court in Grey (supra) at [128]. Section 106KA(1) is a mechanism available to, and binding upon, a Committee. It does not absolve the Commission and Director of their respective obligations to inquire into whether the practitioner´s "conduct would be unacceptable to the general body of general practitioners" under s 82(1)(a) - a substantially broader and more qualitative inquiry than that required for the application of s 106KA(1) - and to consider the exercise of their respective discretions. I am persuaded that, on this ground alone, the application should succeed under s 5(1)(f) of the AD(JR) Act as there has been an error of law in giving effect to s 106KA(1) of the Act, or under s 5(1)(e) of the AD(JR) Act by reason of a failure to take into account a relevant consideration, as stipulated in s 5(2)(b) of that Act." 59 His Honour's conclusion that the investigative referral was invalid was sufficient to determine the outcome of the application in Dr Daniel's favour. 60 However, his Honour went on to say that he would also consider the validity of the adjudicative referral, in case he had erred in holding that the investigative referral was invalid. He noted that it was common ground that the Director had an obligation to accord procedural fairness before making an adjudicative referral. That obligation existed not merely because it had not been expressly excluded by the Act, but from positive implications in ss 88(2) and (3), which provided for notice to be given of the investigative referral, and for the practitioner to be invited to furnish submissions within fourteen days as to why the Director should dismiss the referral without setting up a Committee. 61 His Honour observed that the Director had a discretion to enter a s 92 agreement, and a duty to consider whether to exercise that discretion in an appropriate case. The Acting Director had given evidence on this point in an affidavit filed by leave after the conclusion of oral argument. The affidavit made it clear that he had considered whether this might be an appropriate case for a s 92 agreement, but concluded that it was not. At no stage had he received any indication that Dr Daniel wished to enter into such an agreement. Dr Daniel made no submissions in that respect. The Acting Director concluded: "It is a precondition of a s 92 agreement that the person under review acknowledge his or her conduct constitutes inappropriate practice. I received no indication that Dr Daniel was prepared to make such an admission." 62 The primary judge found as a fact that the Acting Director regarded it as a prerequisite for the exercise of his discretion for the person under investigation to be prepared to concede guilt of inappropriate practice or otherwise invite the Director to resort to s 92. That construction of the section found no support in the statute. A s 92 agreement, logically, had to be considered before the Director made a referral to the Committee. The willingness of a practitioner to enter such an agreement might legitimately inform that decision. However, nothing in Dr Daniel's submission to the Acting Director indicated a refusal to acknowledge inappropriate practice, or that it would have made it pointless to consider a s 92 agreement. Rather, the submission suggested that Dr Daniel had seen the error of his ways and had accepted the need for counselling and further professional education in relation to the future conduct of his practice. 63 His Honour went on to say that had the Acting Director thought that a refusal by Dr Daniel to make an admission would preclude entry into a s 92 agreement, that matter should, as a matter of procedural fairness, have been put to him to allow him to comment upon it. Similarly, if the Acting Director had proposed to treat as relevant the fact that Dr Daniel had not himself suggested a s 92 agreement, he should have afforded him an opportunity to explain his silence on the point. His Honour referred to Kioa v West (1985) 159 CLR 550. It did not appear to have been put to Dr Daniel that a failure to show contrition, or specifically invite recourse to s 92, would exclude him from an agreement under that section. His Honour found, accordingly, that Dr Daniel was denied procedural fairness in relation to the exercise of the Director's discretion under s 92. 64 His Honour then set out relevant extracts from the adjudicative referral. He noted that the instrument was described as "a referral under s 106KA" and observed that this only tended to reinforce the conclusion that nothing more than cursory consideration was given to any issue beyond the 80/20 rule. This was despite the fact that Dr Daniel might have had a legitimate claim to an offer of a s 92 agreement, or some other favourable exercise of the Acting Director's discretion. 65 The final matter considered by his Honour was whether the Director had a discretion to confine his investigation solely to the 80/20 rule issue. Counsel for the Commission submitted that the expression "in such manner as he or she thinks appropriate" in s 89(1) conferred upon the Director the widest possible powers in the conduct of an investigation. Accordingly, it was submitted that the Director was at liberty to look at nothing more than the services specified in the Commission's referral, and its reasons for making that referral. 66 His Honour rejected that contention. He said it would have been persuasive if "referred services" could be regarded as services contained in the referral, and had not been a defined term. In truth the referred services were the services rendered or initiated during the referral period of two years before the date of referral, in accordance with the definition of "referral period" in s 81. The submission would have had further support if s 106KA had been framed to embody a second, independent definition of "inappropriate practice" within the Part, rather than being a deeming provision designed to facilitate the fact-finding task entrusted to a Committee. However, for the reasons given earlier, he concluded that the Director was obliged to consider "as he or she thinks appropriate and unconstrained by s 106KA, how an investigation should be conducted into the services rendered in the two years before the referral". 67 The primary judge noted that it was admitted in the present case that what was before the Acting Director was only material that related to services rendered in the period of five months identified by the Commission in its referral. Accordingly, because he did not have information relating to the full period of two years made relevant by the Act, the Acting Director could not properly have exercised the discretion entrusted to him. As explained earlier, his Honour found that consideration of particulars of all services rendered during the referral period might have resulted in a different exercise of, for example the s 92 discretion. 68 His Honour concluded that the Commission, in making the investigative referral, failed to take into account relevant considerations. That decision was therefore set aside. As a consequence the decisions of the Acting Director to establish a Committee, and make an adjudicative referral to that Committee were also invalid.

The competing contentions on Appeal 69 In substance, the issues raised on the appeal were essentially the same as those raised before the primary judge. Mrs Hampel SC, senior counsel for the appellants, submitted that the primary judge had erred in concluding that the investigative referral decision was invalid because of a failure on the part of the Commission to take into account relevant considerations. She contended that the Commission was required, under the Act, to refer a breach of the 80/20 rule to the Director, without taking into account any of the matters identified by his Honour as matters that had to be considered. 70 Mrs Hampel went on to deal with the primary judge's finding that the adjudicative referral was itself invalid because the Director failed to take into account a relevant consideration, namely the various services rendered by Dr Daniel during the entire two-year period preceding the date of the referral. She submitted that his Honour erred in concluding that the referral period was two years, and contended that it was in fact only five months, being the period in which the 80/20 rule breach was said to have occurred. She further submitted that in dealing with a possible s 92 agreement, the Director did not fail to accord Dr Daniel procedural fairness. 71 Mrs Crennan QC, senior counsel for Dr Daniel, essentially relied upon the reasoning of the primary judge in resisting the appeal.

Investigative referral decision 72 It was contended by Mrs Hampel that under s106KA(1) the Commission is required to make an investigative referral once a prima facie breach of the 80/20 rule is shown. Any potential defence that a practitioner might have to an allegation that there has been a "prescribed pattern of services", as referred to in that subsection, is irrelevant so far as the Commission is concerned. Such a defence can only be raised before a Committee, in accordance with s 106KA(2). 73 Mrs Hampel's submission depends, for its acceptance, upon the proposition that s 106KA(1) is applicable to the Commission in its investigative role. The primary judge rejected that contention. His Honour declined to read the expression "for the purposes of this Part" in the subsection as being applicable to the Commission's task. He regarded the subsection as nothing more than an aid to the Committee's fact finding role. He arrived at that conclusion only after analysing the structure and text of the Act in detail. He considered, in particular, the location of s 106KA in Subdivision C of Division 4. 74 Division 4 of the Act is headed "Professional Services Review Committees". Subdivision C is headed "Action to be taken by Committees". Section 106G provides that Subdivision C applies for the purpose of the consideration by a Committee of the matters in respect of which an adjudicative referral has been made to the Committee. Section 106H deals with matters to be considered by a Committee, while s 106J provides that a Committee is not required to have regard to all services covered by the adjudicative referral. Section 106K provides that a Committee may have regard to samples of services. 75 It is against the background of this constant reference to the "Committee" that his Honour found that s 106KA(1), which is headed "Patterns of services", applies only to a Committee conducting an investigation in response to an adjudicative referral, and is not directly referrable to the earlier work of the Commission. That conclusion is reinforced by the express references in ss 106KA(2) and 106KA(7) to "the Committee". It is improbable in the extreme that the expression "for the purposes of this Part" in s 106KA(1) was intended to render that subsection applicable to the investigative role undertaken by the Commission, notwithstanding the fact that the Commission's functions are governed by the provisions of Pt VAA. 76 In pressing her contention for a contrary interpretation of s 106KA(1), Mrs Hampel referred to the following passage, dealing with that subsection, at p 18 of the Explanatory Memorandum: 'The deeming point in no way represents some marker below which a practitioner is automatically considered to be practising appropriately and above which is automatically considered to have engaged in inappropriate practice. The deeming point does nothing more that to shift the evidentiary burden of the person under review. The only automatic outcome from reaching or exceeding the deeming point is that the practitioner will be referred to a Committee of his or her peers. The practitioner will be given the opportunity to demonstrate to the satisfaction of that Committee that exceptional circumstances prevailed during the referral period which allowed him or her to practice appropriately.' (emphasis supplied) 77 This passage certainly provides support for Mrs Hampel's contention that s 106KA(1) is not confined in its application to the Committee. It suggests that the subsection may have been thought to apply to the Director, when determining whether to make an adjudicative referral. Whether it also supports Mrs Hampel's contention that the subsection was intended to apply to the Commission is more doubtful. 78 However, the passage in question is the only part of the Explanatory Memorandum that supports either contention. There are other passages that suggest the contrary. For example, Mrs Crennan drew attention to a passage at page 3 which reads as follows: 'Once a practitioner reaches or exceeds the specified volume of services (the level will be separately agreed with each speciality) he or she will be deemed to have been practising inappropriately unless exceptional circumstances can be demonstrated to the satisfaction of the committee of peers…' (emphasis supplied) 79 The Explanatory Memorandum also reveals that s 106KA was introduced in response to criticisms that had been levelled at the former inquiry process. The section was intended to establish an effective way to tackle high volume cases on the basis of patterns of services. It was said that the absence of uniform standards regarding typical patterns of services had prevented Committees from establishing what levels of service were excessive, being unacceptable to a practitioner's peers. The Explanatory Memorandum at p 17 described how paras (1) and (2) of s 106KA: '…provide that where referred services constitute a 'prescribed pattern of services', the person's conduct in respect of those services is taken to have constituted engaging in inappropriate practice unless the person can satisfy the Committee that the services were rendered or initiated under exceptional circumstances.' (emphasis supplied) 80 Once again, in this passage, the emphasis is upon the role of the Committee, and not that of the Commission or the Director. 81 We consider that the primary judge correctly held that the Commission is not entitled to make an investigative referral decision by reference to s 106KA(1) alone. That subsection is directed to the Committee, and not to the Commission. To the extent that the Commission may have regard to patterns of services in determining whether to make an investigative referral, that is but one of a number of matters that it may take into account. In our opinion the fact that Dr Daniel's conduct had already been the subject of counselling and review by the Commission, and that no action had been taken to refer his case to the Director as a consequence, was plainly relevant to the exercise of the Commission's discretion under s 86 to make an investigative referral. The Commission obviously did not take that matter into account. It instead proceeded upon the erroneous assumption that merely because there appeared to have been a breach of the 80/20 rule, it was required to make an investigative referral. 82 We reject Mrs Hampel's submission that the Commission's only function, once a breach of that rule appears to have been demonstrated, is to perform the mechanical task of tallying the number of relevant services. The Commission's powers are broader than this. Section 86 confers upon the Commission a broad discretion to refer the question whether a practitioner has engaged in inappropriate practice to the Director. The Commission is obliged to take into account any explanation offered by the practitioner for what may be a temporary, and perhaps understandable breach of the rule. Its task is to consider not merely whether the number of services exceeds the number permitted under that rule, but whether the practitioner's conduct is capable, potentially, of falling within the definition of "inappropriate practice" in s 82(1)(a). The Commission is certainly entitled, in our view, to exercise its discretion having regard to the fact that the practitioner has been counselled, and his conduct subsequently reviewed, without any apparent repetition of the breach, or likelihood of that breach recurring. 83 It follows that we agree with the primary judge that the investigative referral decision in this case was invalid. It also follows, as his Honour found, that the adjudicative referral decision, which flowed from the investigative referral, must of necessity be invalid. 84 It is unnecessary, having regard to this conclusion, to consider the remaining issues in the appeal. However, these matters were fully argued, and they raise some issues of general importance. For that reason, putting to one side the validity of the investigative referral, we propose to briefly set out view concerning the validity of the adjudicative referral.

The Director's adjudicative referral 85 Mrs Hampel essentially advanced the same submission regarding the operation of the 80/20 rule in the context of the adjudicative referral as she had in relation to the investigative referral. She submitted that once the Director was satisfied that the rule had been breached, he had no option other than to refer the practitioner's conduct to a Committee. His only role was to satisfy himself that the number of services rendered exceeded the number set out in the rule. 86 Mrs Crennan responded to this submission by noting that one of the main objects of the 1999 amendments had been to confer a broader discretion upon the Director. She submitted that, unlike its predecessor, the scheme required the Director to undertake a major investigative role. In performing that task his powers were wider than those of the Committee. For example, he could dismiss an investigative referral, under s 91, if satisfied that there were insufficient grounds on which a Committee could reasonable find that the practitioner had engaged in inappropriate practice. That power was broader than the Committee's power under s 106KA(2) to dismiss an adjudicative referral by reason of "exceptional circumstances". 87 Mrs Crennan submitted that, under the new scheme, the Director is expected to filter out investigative referrals that lack sufficient substance to warrant being considered by a Committee. The Committee's time should not be taken up with weak cases. For example, there may be cases that can properly be dealt with by alternative means, such as an agreement under s 92. 88 Mrs Crennan submitted that it would be curious to think that the legislature had conferred upon the Director the widest of powers in all cases, save for those involving an alleged breach of the 80/20 rule. There was no reason in principle for drawing any such distinction. 89 We consider Mrs Crennan's submission to be correct. It is supported by various passages in the Explanatory Memorandum. 90 For example, at p 1, one of the improvements to the administration of the Scheme under the Bill is described as: "…increasing the investigation, case preparation and negotiation powers of the Director PSR (Recommendation 12 and 17-22 of the Report of the Review Committee)…." 91 The commentary regarding the Director's powers of investigation, under s 89, is also illuminating. After summarising the terms of the section, the Explanatory Memorandum continues: "The effect of this may mean a subsequent referral to a Committee becomes unnecessary. Alternatively, it will provide a Committee with sufficient information for a more comprehensive hearing, and maximise the use of their time and resources." 92 Mrs Hampel's initial contention was that once a prima facie breach of the 80/20 rule had been demonstrated, the role of the Director was confined essentially to that of checking the Commission's arithmetic. That contention is obviously untenable. It is at odds with the scheme as a whole. Ironically, it is also at odds with the role that the Acting Director perceived for himself in this very matter. As noted earlier, in his affidavit, the Acting Director acknowledged that, before making the adjudicative referral, he had considered whether this might be an appropriate case to enter into an agreement with Dr Daniel under s 92. The Acting Director had concluded that no such agreement could be contemplated because Dr Daniel had made no submissions regarding that matter, and had not acknowledged that his conduct constituted inappropriate practice. 93 During the course of argument Mrs Hampel qualified her initial contention by accepting that there might be limited circumstances in which the Director, faced with a breach of the 80/20 rule, might determine not to make an adjudicative referral. She acknowledged that the power to make such a referral was subject to s 91. Accordingly, if the Director concluded that no reasonable Committee could do other than find that "exceptional circumstances" were established, he could decline to refer the matter. In addition, she accepted that the Director could enter into an agreement under s 92 with a practitioner in an 80/20 case, but only where the practitioner was not seeking to establish "exceptional circumstances", and acknowledged inappropriate practice. 94 In our view, the Director's powers, once a breach of the 80/20 rule has been demonstrated to his satisfaction, are at least as extensive as those of the Commission. He is not obliged to refer the case to a Committee, although he may decide, ultimately, to do so. He must have regard to any submissions made to him under s 88(2) inviting him to dismiss the referral without setting up a Committee. He must take into account any relevant considerations that bear upon whether or not a Committee should be constituted. These would obviously include the fact that the Commission had counselled and reviewed the practitioner's conduct, and that there had been no repetition of the breach of the 80/20 rule. 95 It follows that even if, contrary to our earlier conclusion, the investigative referral was valid in this case, the adjudicative referral would be invalid by reason of the Acting Director's failure to have regard to the Commission's earlier conduct with respect to Dr Daniel. 96 As noted earlier, the primary judge also found that the adjudicative referral would have been invalid because the Acting Director did not have regard to all of the services rendered by Dr Daniel throughout "the referral period". His Honour concluded that this expression meant the period of two years immediately preceding the decision to refer the matter to the Director for investigation. 97 His Honour's reasoning appears to have been based, in part at least, upon his interpretation of what Finn J in Pradhan described as "a note in passing". Finn J said: "I would note in passing that the "referral period" is defined in s 81 to be the applicable two year period specified in s 86 (2) and (3)" 98 Nothing in the "note in passing" deals with whether the "applicable two year period" is an outer limit for referred services or a mandatory period. It is instructive to refer to the definition of "referral period" in s 81(1) where that expression is defined to mean "the period applicable under subsection 86(2) or (3), as the case may be". The relevant subsection for the purposes of this appeal is s 86(2). That subsection is set out at [26] above. It confines an investigative referral to those services "rendered during the two-year period immediately preceding the referral". 99 Mrs Hampel submitted that the primary judge had erred in concluding that the referral period was two years. She submitted that this would impose an unduly onerous burden upon the Director who might only be concerned with a period of a few months during which the 80/20 rule had been breached. Mrs Crennan submitted that there was nothing to suggest that requiring the Director to consider a two-year period was unduly onerous. The Director could be expected to exercise common sense, and only have regard to the wider period in order to give context to the period specifically identified by the Commission as involving the breach of the rule. She submitted that it would be unfair to a practitioner to single out a period of perhaps a few months, during which the rule had been breached, without having regard to the general background to that period. She contended that Parliament had mandated a two-year period as being the appropriate duration of the investigation. 100 The question of the proper construction of s 81 and s 86(2) is a difficult one. These provisions are not expressed in clear terms. The use of the expression "during the 2 year period immediately preceding the referral" in s 86(2) suggests that the two-year period is an outer limit for the investigation, beyond which neither the Commission nor the Director should ordinarily have regard. With great respect to the primary judge, we do not consider that Finn J's passing note in Pradhan should be taken to be determinative in supporting the contrary conclusion. 101 A conclusion that the two-year period is merely an outer limit, as submitted by Mrs Hampel, is reinforced when one considers s 86(4A), which permits the Director to request the Commission to give further information "relating to" any services, particulars of which are contained in the referral. Therefore, a referral period shorter than two years does not necessarily restrict the Director's investigation, as the Director may ask for information about services outside the referred period provided that they relate to those rendered within that period. 102 It is impossible for this Court, on the material before it, to assess how onerous the duty upon a Director to consider, in every case, two years of material might be, or whether that would detract from the considerable discretion inherent in the words "in such manner as he or she thinks appropriate" in s 89(1). 103 We note that the primary judge said at [23] that even though the Director should have regard to the whole of the referred services in the relevant two-year period, he did not consider that a failure to do so would, on that ground alone, invalidate an adjudicative referral. Earlier his Honour at [19] referred to the fact that not every failure to observe a procedural requirement will render a decision invalid: see Project Blue Sky Inc. v Australian Broadcasting Authority (1998) 194 CLR 355 at 389. 104 The final issue raised on the appeal was whether the Director had denied Dr Daniel procedural fairness by making the adjudicative referral without affording him an opportunity to enter into an agreement under s 92. 105 It is clear, as the primary judge concluded, that the Acting Director regarded it as a prerequisite for the exercise of his discretion for the person under investigation to be prepared to concede guilt of inappropriate practice or otherwise invite the Director to resort to s 92. Mrs Hampel submitted that, in the event that her primary submission regarding his limited role was rejected, the Acting Director acted correctly in approaching the section in that way. 106 We reject that submission. There is nothing in the language of the section to support that construction. Moreover, we agree with his Honour that if the Acting Director understood the section to operate in that way, he was under an obligation to afford Dr Daniel the opportunity to enter into such agreement. It follows that whether one characterises the Acting Director's approach to s 92 as involving a fundamental error of law going to jurisdiction, or whether it be characterised as a denial of procedural fairness, jurisdictional error has been demonstrated. The adjudicative referral could therefore have been set aside on this ground as well.

conclusion 107 In our view, no error has been shown in the primary judge's conclusion that the investigative referral decision was invalid. In addition, save for his Honour's finding that the "referral period" was a two-year period (which did not, in any event, invalidate the adjudicative referral), no error has been shown in his Honour's reasoning concerning the invalidity of that referral on other grounds. It follows that the appeal must be dismissed, with costs. I certify that the preceding one hundred and seven (107) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justices Marshall, North and Weinberg.

Associate: Dated: 6 February 2004 Counsel for the Applicant: Mrs F Hampel SC with S Moloney

Counsel for the Respondent: Mrs S Crennan QC with R Niall

Date of Hearing: 17 and 18 November 2003