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.