Melbourne Pathology Pty Ltd v Health Insurance Commission

15.1 Pathology Provider shall charge fees at not more than the Schedule Fee for compensable and private patients of the WDBH. 15.2 WDBH shall pay a fixed fee to Pathology Provider for the provision of pathology services to public patients of WDBH. 15.3 The fee payable to Pathology Provider in accordance with Clause 15.2 shall be payable by equal monthly instalments due in advance on the first calendar day of each month. 15.4 The fee payable shall be: 15.4.1 For the first six months of the Initial Period, $375,000.00 payable in accordance with the provisions of Clause 15.3; 15.4.2 For the remainder of the Initial Period the annual fee shall be the greater of: (i) 85% of the Medical Benefits Schedule value of public work performed by WDBH Hospital Laboratory for the twelve month period commencing six months prior to the commencement of the Agreement and ending six months after the commencement of the Agreement; or (ii) $650,00.00. 15.5 The fee payable to Pathology Provider shall be reviewed annually and adjusted on a pro rata basis should the amount of pathology work performed by the Pathology Provider for public patients of the WDBH vary by more than 5% from the amount of work as calculated in Clause 15.4.2(i). Each of the pathology services in respect of which the respondent contends that a medicare benefit is not payable (because the specimen required for the rendering of the service was not collected at a recognised hospital) was rendered to a patient at the request of the medical practitioner whose patient he or she was. Some patients were being treated in the Wangaratta District Base Hospital and were therefore "private patients of the WDBH," within the meaning of that phrase in clause 15.1. Other patients were being treated elsewhere. The pathology service was in either case rendered where the specimen was collected: in the "Hospital Laboratory."

The agreement contains no express covenant to execute the lease "which is annexed to this Agreement as Schedule C." But the undated document entitled "Lease" in Schedule C to the agreement was executed by each party under its seal. Clauses 2 and 3 of what the respondent contends - but the applicant denies - is a lease are in these terms: "In consideration of the rent reserved and the terms conditions and covenants as set out in this lease the Lessor leases to the Lessee the premises and a right to non-exclusive access to and over the common areas for the term commencing on the date of commencement and terminating on the date of termination; (a) subject to the encumbrances (if any) as set out at the foot of the Certificate of Title to the land upon which the premises is situated; and (b) excepting and reserving to the Lessor the uninterrupted passage of all pipes, ducts, and cables and the running of all substances and materials through them for which they are designed and reasonable access for repair and maintenance of same without cost to the Lessee. 3. HOLDING OVER If the Lessee continues to occupy the premises after the termination of this lease with the consent of the Lessor the Lessee shall be deemed to be a monthly tenant only and either party shall be able to terminate such tenancy by one month's notice in writing to the other. The rent to be paid for each month during any holding over period shall be such amount as is agreed upon in writing between the Lessor and the Lessee or failing agreement an amount equal to 110% of the monthly rent current at the date of termination." The expression "date of termination" is defined to mean 21 September 1998 if termination is by effluxion of time or otherwise when termination occurs "in accordance with the terms of this lease" or "on the termination (however occurring) of" the agreement. In clause 1 of the document the word "premises" is defined thus: "premises" means the premises described in Item 3 of Schedule A and includes the fixtures, fittings, plant and machinery if any of the lessor now or hereafter installed."

Item 3 of Schedule A reads: "Pathology Building, Wangaratta District Base Hospital, Clark Street, Wangaratta being part of the land more particularly described as Crown Allotments 2,3,4,5,6 and 7 of Section 56, Township of Wangaratta, County of Moira containing 631.5 square metres or thereabouts and being the area delineated and coloured red on the Plan annexed hereto." No plan was annexed to the document, but a plan of the ground floor of the building in which "the premises" are situated and on which plan "the premises" are delineated, was in evidence. And there was uncontradicted evidence that the area delineated is of about 630 square metres. There seems no reason to doubt that Item 3 is to be construed as intending before the words "Pathology Building" the words "Part of the". The expression "common areas" is also not without difficulty, but I did not understand counsel for either party to base any argument upon a consideration of the expressions defined thus: "common areas' means those areas (if any) of the building provided by the lessor for common use by the occupants in the building including where provided but without limiting the generality of the foregoing the lifts, entrances, lobbies, forecourt, corridors, toilets, tea rooms, stairways and other common amenities and conveniences. building' means the building of which the premises form part and known as Wangaratta District Base Hospital, Green Street, Wangaratta, Victoria along with any modifications, extensions or alterations and together with the fixtures, fittings, furnishing, plant, machinery and equipment for the time being installed." The buildings occupied or owned by the Hospital are separated by two parallel roads running north and south. There are such buildings on either side of Green Street and of Dixon Street. a third parallel road, Clark Street, runs beside the western boundary of the land owned or occupied by the Hospital. The two-storey building in which "the premises" are situated fronts on to Clark Street. The reception and administration building fronts on to Green Street. Provision is made in the document entitled a lease for the payment and the review of rent. Use by the applicant of the premises is limited to use for "Pathology and ancillary services". The applicant's covenants include a covenant "[a]t the termination of this lease" to "peaceably deliver up subject to fair wear and tear, possession of the premises to the Lessor". The expression "termination of this lease" is defined to "extend to every form of termination including expiration of the term by effluxion of time". Clause 7(d) of the document provides: "The Lessor at all reasonable times upon giving to the Lessee reasonable notice (except in the case of emergency where no notice shall be required) may: (i) enter upon the premises to view the state of repair; (ii) enter and carry out repairs, renovations or maintenance to the premises deemed necessary or desirable by the Lessor provided that in the exercise of such power as little inconvenience as is practicable is caused to the Lessee; (iii) enter the premises for the purpose of complying with the terms of any legislation affecting the premises or the building or any notice served upon the Lessor by any competent authority requiring the carrying out of any repairs, alterations, extensions or works provided that in the exercise of such power as little inconvenience as is practicable is caused to the lessee; (iv) for the purpose of this clause reasonable notice' shall mean a period of notice sufficient to ensure that no disruption occurs to the orderly efficient and proper carrying on of the lessee's business." Clause 10 includes the following: "(b) If the Lessee has duly observed and performed all of the provisions of this lease the Lessee may assign or sub-lease this lease to a respectable, solvent and responsible corporation or person with experience comparable to that of the lessee and capable of using the premises for a use expressly permitted by the provisions of this lease, (the onus of proving all of which to the satisfaction of the Lessor being upon the Lessee) who contemporaneously with such assignment or sub-lease: (i) execute an assignment or sub-lease of this lease (to which the Lessor shall be a party) in such form as the Lessor reasonably approves and without limit to the generality of the foregoing providing that the covenants of the assignee or sub-lessee shall be supplementary to this lease and shall not in any way relieve the Lessee from its liability hereunder." Upon the happening of any of a number of specified defaults by the applicant the Hospital is expressly authorised, subject to compliance with s.146 of the Property Law Act 1958 (Vic), to: "re-enter the premises, forcibly if necessary, eject the Lessee and recover possession and thereby terminate the lease and the Lessor may also remove any goods or effects upon the premises at the time of re-entry." Mr Hanks of counsel for the applicant submitted that upon a consideration of the agreement and the scheduled "lease" the conclusion should be reached that no leasehold estate in the premises had been conferred on the applicant, but rather a licence to occupy and use the premises for the purpose of rendering the services which the agreement required that the applicant render. In Mr Hanks' submission the provisions of the scheduled document were to be seen as ancillary to the agreement. Counsel for each party accepted that the test of the existence of the relationship of lessor and lessee was whether exclusive possession of the premises had been conferred on the applicant. That accords with authority: Lewis v. Bell (1985) 1 N.S.W.L.R. 731 at 734 and cases there cited. Citing another passage from Lewis v. Bell (at 735), Mr Hanks submitted that the limitation of use indicated, at least prima facie, that there was no lease, but a licence. The passage reads: "First, if the right to exclusive possession is the test, then in determining whether the grantee has been given the right of exclusive possession, the court must go initially to the terms of the grant: see Radaich v Smith (at 223) per Windeyer J. The grant of a right to exclusive possession, in terms, is of course prima facie sufficient. But the use, in the operative part of the document, of words such as lease' or devise' will ordinarily be understood to involve the grant of such a right. Conversely, if what is granted is not in terms exclusive possession or if the words used in the grant are not words understood to convey the right of exclusive possession, then (subject to what I shall say) the transaction is prima facie not one of lease. Thus, if that which is granted is not of its nature the right to possession or exclusive possession but, eg. the right to use the premises only for a defined and particular purpose, there will prima facie be no lease." But here the words used in the grant are words understood to convey the right of exclusive possession. And a number of other provisions in the document, such as that for re-entry by the Hospital and that for delivery of possession to the Hospital on termination, clearly imply that the right of exclusive possession is conveyed by the grant. The last sentence of the passage cited is concerned with the situation when the words used in the grant are not words understood to convey that right. The terms in which the provisions of the scheduled document are expressed, as well as the choice of a schedule for the expression of those provisions in lieu of the incorporation of the provisions into the body of the agreement, strongly indicate as intention to create a lease. Limitation of use is not inconsistent with that intention: Joel v. International Circus and Christmas Fair (1920) 124 L.T. (U.S.) 459. Reliance was placed by Mr Hanks on the circumstances that access by employees of the Hospital and of the Red Cross to a room in the interior of the premises has been had throughout the period of the applicant's occupation of the premises, and that when the premises are not staffed access to the premises is gained by use of keys to the premises, and that access is habitually had to certain installations on the premises (as, for example, a refrigerator and freezer used for blood specimens and owned by the Hospital, and air-conditioning plant) by employees of the Hospital and the Red Cross. These circumstances were said to indicate that exclusive possession of the premises was not held by the applicant. There was, however, no evidence to suggest that any of these entries on to the premises were made in exercise of any right derived from either the agreement or the scheduled document and the evidence is consistent with the hypothesis that the entries were made under licence granted by the applicant after the agreement and the scheduled document had been executed. I infer that was so. My conclusion is that at relevant times the premises were in the exclusive possession of the applicant under the scheduled document which conferred on the applicant a leasehold estate in the premises. The respondent submits that in sub-paragraph 16A(5AA)(d) (iii) the word "hospital" is used in reference to a place, the boundaries of which are defined by reference to the possession of the person or entity which there carries on hospital activities. Accordingly the premises, not being in the possession of the body corporate to which I refer as "the hospital", are not within the boundaries of that place and are not part of this "recognised hospital". The applicant insists, rightly, that the word "at" is used in ordinary speech and in legislative provisions - in several senses and that the meaning of the word is to be ascertained upon a consideration of the subject matter and the idiomatic context of the sentence in which it is used. (see Mintern-Lane v. Kercher [1968] V.R. 552 at 553-555; Attorney General's Reference (No. 1 of 1976) [1977) 3 ALLE.R.557; Collector of Customs (Tasmania) v. Flinders Island Community Association (1985) 60 A.L.R. 717 at 722-726; Collector of Customs v. Rottnest Island Authority (1994) 119 A.L.R. 406 at 421-422.) But for a consideration upon which Mr Maxwell of counsel for the respondent relied (to be considered later) I would understand the expression "at ... a recognised hospital) as comprehending a place within the boundary of the land on which the recognised hospital was situated and of which as a whole the person or entity conducting the hospital had possession. I say "as a whole" in order to accommodate the circumstance that within such a boundary there may be land the exclusive possession of which is in another. Examples which come to mind are a retail chemist shop or a cafe or newsagency or a medical research institute or, in the case of a hospital where education in medicine is carried on, a building occupied by a university. It may be uncommon that possession of some of such places is in this country in a person or entity other than that which conducts the hospital. But I cannot think it to be unknown. Where such an enclave existed within the boundary, it would be an entirely natural use of language to say that the shop or cafe or research institute was "at" the hospital. And the same can be said of the premises of which the applicant has exclusive possession. The consideration upon which Mr Maxwell relied derives from Division 4A of Part II of the Health Insurance Act 1973 and the Minister's speech to the House of Representatives on the occasion of his moving the second reading of the Bill which upon its enactment inserted that Division into the Act. The Bill was enacted as the Health Insurance (Pathology) Amendment Act (No.2) 1991. Until amended in 1991 Part II of the Health Insurance Act 1973 had provided that a medicare benefit was not payable in respect of a pathology service unless the service was rendered by or on behalf of a pathology practitioner approved by the Minister in an accredited pathology laboratory the proprietor of which was an approved pathology authority. In the second reading speech the Minister said, inter alia: "The purpose of this Bill is to make amendments to the Health Insurance Act 1973 in relation to pathology services. This is one of four Bills to put in place the Government's reforms for the restructuring of the pathology industry that were announced in the Budget. ... The pathology initiatives which I announced in the Budget were in response to two things - first, the National Health Strategy Background Paper No 6 Directions in Pathology' and second, longer term statistical evidence which has indicated that pathology services have been increasing at a disproportionate rate when compared with other medical services.

... The key components of the initiative are the introduction of a licensing scheme for pathology specimen collection centres and proposed regulatory amendments to the Pathology Services Table. ... In an attempt to increase their share of pathology service delivery, there are indications that some pathology practices compete with each other by providing significant inducements for treating practitioners to request pathology services from their practice. Some pathologists may place their trained staff within a doctor's surgery, and this action may not only reduce the doctor's ability to choose between pathologists on a service-by-service basis, but may have the undesirable effect of significantly increasing the amount of pathology ordered. From 1 February, in order to be licensed, a collection centre must be an independent facility, owned or leased by an approved pathology authority, which is set up with appropriate equipment and supplies for the collection of pathology specimens. The centre must be staffed by employees of that approved pathology authority and include staff trained in specimen collection procedures. It is generally recognised within the pathology profession that there are too many collection centres in this country, many of which are operating in very close proximity. Often this has the effect of being inefficient and adding unnecessary expense to the provision of pathology services. The number and location of collection centres will be reviewed in cooperation with representatives from the pathology profession, with a view to reducing the number significantly over a two-year period. The formula for the allocation of licences for permanent collection centres is based on the volume of pathology services, the number of full time equivalent specialist pathologists associated with the practice and the number of treating practitioners who request pathology from that practice. The number of centres operated by some pathology practices will exceed the number which may be granted a licence under the new arrangements. Excess centres may receive temporary licensing and will be phased out over two years. From 1 February 1992, private approved pathology authorities will be required to hold a licence for each of their collection centres, to enable the payment of Medicare benefits in respect of pathology services rendered at those centres. The licence fee has been set at $1,000. Recently established pathology practices will be eligible to apply for up to three licences, and so new market entrants will be assisted during their first year of operation. In addition, on a proven needs basis, special consideration may be given to granting licences to centres which service rural areas currently. The new transaction fees are intended to cover costs other than the test procedure itself and include indirect operational costs, professional quality assurance, courier and collection costs. ... The Bill provides for specific circumstances under which a Medicare benefit for a pathology service will not be payable. A medicare benefit for a pathology service will not be payable where the pathology specimen is collected in an unlicensed collection centre. Any person who operates an unlicensed centre will be required to take all reasonable steps to inform both the person from whom the specimen is to be taken and the pathologist who may perform the pathology service that medicare benefits will not be payable for the service. A Medicare benefit for a pathology service will not be payable where inappropriate agreement, arrangement or incentive for ordering the service exists between the approved pathology practitioner rendering the service, the treating practitioner requesting the service or a medical entrepreneur. The reform of collection centre arrangements is being undertaken to negate the potential for this nexus. There must be no functional, direct or indirect, pecuniary or other beneficial contractual arrangement or understanding in relation to the ordering of pathology between the approved pathology authority, a pathologist, the treating practitioner, employer or employee of the practitioner, or any other party. ... The crucial role of general medical practitioners in primary health care will continue to be encouraged, as will the collection of patient samples in their surgeries, wherever possible. Bulkbilling arrangements will continue. Patients will not suffer loss of existing entitlements to pathology services. However, the significant reduction in the number of collection centres will encourage general practitioners to collect specimens themselves. The patients should, therefore, be inconvenienced only when their doctor insists on directing them to a collection centre which may be some distance from that referring doctor." Division 4A gave effect to the policy disclosed by the second reading speech by establishing a system of licensing specimen collection centres. Mr Maxwell's submission was that the result of the arrangements between the hospital and applicant, which was at all material times an approved pathology proprietor, was that the premises contained a specimen collection centre for which no licence under Division 4A had been sought. Mr Maxwell submitted that an interpretation of the expression "at ... a recognised hospital" which enabled a medicare benefit to be payable in respect of a pathology service, the pathology specimen required for the rendering of which had been collected on those unlicensed premises, would defeat and not promote the purpose underlying the Health Insurance Act 1973. The variability of meaning of the word "at" makes sub- paragraph 16A(5AA)(d)(iii) "ambiguous" if not "obscure", within the meaning of those words in s.15AB(1)(b)(i) of the Acts Interpretation Act 1901, and recourse to the second reading speech is accordingly authorised. I cannot think that the Health Insurance Act 1973 or the second reading speech discloses a policy against an unlicensed collection centre occupied under a lease, but not against an unlicensed collection centre occupied under a licence. No policy which I can discern influences to a construction of the expression "at" ... a recognised hospital" which denies the application of the expression to the former, but not to the latter. I therefore give to the expression what in its context I take to be its natural meaning. There will be an order that each of the decisions the subject of the further amended application filed 16 February 1996 be set aside, a declaration that the pathology specimen or specimens required for the rendering of the pathology service the subject of each of the said decisions was or were "collected ... at ... a recognised hospital" within the meaning of those words in paragraph 16A(5AA)(d) of the Health Insurance Act 1973, an order that each of the matters to which each of the said decisions relates be referred to the respondent for further consideration according to law, and an order that the applicant's costs of the proceeding be paid by the respondent.

I certify that this and the preceding sixteen (16) pages are a true copy of the reasons for judgment of his Honour Justice Jenkinson Dated: Associate Appearances Counsel for the applicant: Mr P J Hanks Solicitor for the applicant: Price Brent Counsel for the respondent: Mr C M Maxwell Solicitor for the respondent: Australian Government Solicitor Date of hearing: 11 September 1996