CATCHWORDS

ADMINISTRATIVE LAW - Pathology services - Approved pathology authorities - Specimen collection centres - Units of entitlement - Licences - Minister to allocate units - Minister to determine principles - Principles to include formula for working out number of units - Determination of principles - Validity - Whether formula statistically flawed - Whether Minister obliged to accord natural justice to potential applicants before making determination - Allocation of units - Whether valid - Whether unreasonable - Whether obligation to accord natural justice before making allocation - Whether natural justice accorded - Reconsideration of allocation - Whether cured invalid allocation.

Administrative Decisions (Judicial Review) Act (Cth) 1977, s.5

Health Insurance Act 1973 (Cth) ss.23DNB, 23DND

Judiciary Act 1903 (Cth) s.39B.

Queensland Medical Authority v. Blewett (1988) 84 ALR 615

Minister for Primary Industries v. Austral Fisheries Pty Ltd (1993) 40 FCR 381

South Australia v. Tanner (1989) 166 CLR 161

Minister for Resources v. Dover Fisheries Pty Ltd (1993) 116 ALR 54

Coulter v. The Queen (1988) 164 CLR 350

Minister for Foreign Affairs and Trade v. Magno (1992) 37 FCR 298

Lynch v. Minister for Human Services and Health (Unreported, 15 December 1995)

Barnard v. National Dock Labour Board [1953] 2 QB 18

Bridge v. The Queen; Ex rel. Skalenski [1953] 1 DLR 305

Hunt v. Allied Bakeries (No 2) [1959] 1 WLR 50

Cooper Brookes (Wollongong) Pty Ltd v. Federal Commissioner of Taxation (1981) 147 CLR 297

Minister for Primary Industries and Energy v. Austral Fisheries Pty Ltd (1993) 40 FCR 381

Gill v. Donald Humberstone & Co Ltd [1963] 3 All ER 180

Mixnam's Properties Ltd v. Chertsey Urban District Council [1964] 1 QB 214

In re Gosling (1943) 43 SR (NSW) 312

Bates v. Lord Hailsham of St Marylebone [1972] 1 WLR 1373

Bread Manufacturers of NSW v. Evans (1981) 180 CLR 404

Kioa v. West (1985) 159 CLR 550

Pharmacy Restructuring Authority v. Martin (1994) 53 FCR 589

Calvin v. Carr [1980] AC 574

Twist v. Randwick Municipal Council (1977) 136 CLR 106

Wu v. Minister for Immigration and Ethnic Affairs (1994) 48 FCR 294

MELBOURNE PATHOLOGY PTY LTD ACN 006 283 816 v THE MINISTER FOR HUMAN SERVICES AND HEALTH, HEALTH INSURANCE COMMISSION and JACKIE WOOD VG 19 & 68 of 1996; GRIBBLES PATHOLOGY (VIC) PTY LTD (ACN 006 823 089) v THE MINISTER FOR HUMAN SERVICES AND HEALTH, HEALTH INSURANCE COMMISSION and JACKIE WOOD VG 20 & 71 of 1996; MACQUARIE PATHOLOGY SERVICES PTY LTD (ACN 001 951 775) v THE MINISTER FOR HUMAN SERVICES AND HEALTH, HEALTH INSURANCE COMMISSION and JACKIE WOOD VG 21 & 72 of 1996

COURT:                       Sundberg J

PLACE:                       Melbourne

DATE:              26 March 1996

IN THE FEDERAL COURT OF AUSTRALIA           )

VICTORIA DISTRICT REGISTRY                            )

GENERAL DIVISION                                                )

                                                                        No VG 19 & 68 of 1996

                                                            BETWEEN:     MELBOURNE PATHOLOGY PTY LTD ACN 006 283 816

                                                                                    Applicant

                                                            AND:               THE MINISTER FOR HUMAN SERVICES AND HEALTH, HEALTH INSURANCE COMMISSION and JACKIE WOOD

                                                                                    Respondents

                                                                        No VG 20 & 71 of 1996

                                                            BETWEEN:     GRIBBLES PATHOLOGY (VIC) PTY LTD (ACN 006 823 089)

                                                                                    Applicant

                                                            AND:               THE MINISTER FOR HUMAN SERVICES AND HEALTH, HEALTH INSURANCE COMMISSION and JACKIE WOOD

                                                                                    Respondents

                                                                        No VG 21 & 72 of 1996

                                                            BETWEEN:     MACQUARIE PATHOLOGY SERVICES PTY LTD (ACN 001 951 775)

                                                                                    Applicant

                                                            AND:               THE MINISTER FOR HUMAN SERVICES AND HEALTH, HEALTH INSURANCE COMMISSION and JACKIE WOOD

                                                                                    Respondents

COURT:                       Sundberg J

DATE:              26 March 1996

PLACE:                       Melbourne

                                                          MINUTES OF ORDERS

IN PROCEEDING VG 19 OF 1996 THE COURT:

1.         Declares that the decision made by the third respondent on 13 December 1995 allocating units of entitlement to the applicant under section 23DNB(1) of the Health Insurance Act 1973 (Cth) in respect of the year commencing 1 February 1996 is invalid and of no effect.

2.         Refers the applicant's application for allocation of units of entitlement under section 23DNB(1) in respect of the year commencing 1 February 1996 to the first respondent for determination according to law.

3.         Directs that the first respondent determine the application by 5.00 p.m. on 7 May 1996.

4.         Stays the declaration in paragraph 1 until 5.00 p.m. on 8 May 1996.

5.         Orders that the respondents pay half of the applicant's costs of and incidental to the application, to be taxed if not agreed.

IN PROCEEDING VG68 OF 1996 THE COURT:

1.         Declares that the decision made by the third respondent on 2 February 1996 purporting to confirm the decision made by her on 13 December 1995 is invalid and of no effect.

2.         Orders that the respondents pay half of the applicant's costs of and incidental to the application, to be taxed if not agreed.

IN PROCEEDING VG 20 OF 1996 THE COURT:

1.         Declares that the decision made by the third respondent on 13 December 1995 allocating units of entitlement to the applicant under section 23DNB(1) of the Health Insurance Act 1973 (Cth) in respect of the year commencing 1 February 1996 is invalid and of no effect.

2.         Refers the applicant's application for allocation of units of entitlement under section 23DNB(1) in respect of the year commencing 1 February 1996 to the first respondent for determination according to law.

3.         Directs that the first respondent determine the application by 5.00 p.m. on 7 May 1996.

4.         Stays the declaration in paragraph 1 until 5.00 p.m. on 8 May 1996.

5.         Orders that the respondents pay half of the applicant's costs of and incidental to the application, to be taxed if not agreed.

IN PROCEEDING VG71 OF 1996 THE COURT:

1.         Declares that the decision made by the third respondent on 31 January 1996 purporting to confirm the decision made by her on 13 December 1995 is invalid and of no effect.

2.         Orders that the respondents pay half of the applicant's costs of and incidental to the application, to be taxed if not agreed.

IN PROCEEDING VG 21 OF 1996 THE COURT:

1.         Declares that the decision made by the third respondent on 13 December 1995 allocating units of entitlement to the applicant under section 23DNB(1) of the Health Insurance Act 1973 (Cth) in respect of the year commencing 1 February 1996 is invalid and of no effect.

2.         Orders that the respondents pay half of the applicant's costs of and incidental to the application, to be taxed if not agreed.

IN PROCEEDING VG72 OF 1996 THE COURT:

1.         Declares that the decision made by the third respondent on 31 January 1996 allocating forty one units of entitlement to the applicant under section 23DNB(1) of the Health Insurance Act 1973 (Cth) in respect of the year commencing 1 February 1996 is invalid and of no effect.

2.         Refers the applicant's application for allocation of units of entitlement under section 23DNB(1) in respect of the year commencing 1 February 1996 to the first respondent for determination according to law.

3.         Directs that the first respondent determine the application by 5.00 p.m. on 7 May 1996.

4.         Stays the declaration in paragraph 1 until 5.00 p.m. on 8 May 1996.

5.         Orders that the respondents pay half of the applicant's costs of and incidental to the application, to be taxed if not agreed.

Note:    Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.

IN THE FEDERAL COURT OF AUSTRALIA           )

VICTORIA DISTRICT REGISTRY                            )

GENERAL DIVISION                                                )

                                                                        No VG 19 & 68 of 1996

                                                            BETWEEN:     MELBOURNE PATHOLOGY PTY LTD ACN 006 283 816

                                                                                    Applicant

                                                            AND:               THE MINISTER FOR HUMAN SERVICES AND HEALTH, HEALTH INSURANCE COMMISSION and JACKIE WOOD

                                                                                    Respondents

                                                                        No VG 20 & 71 of 1996

                                                            BETWEEN:     GRIBBLES PATHOLOGY (VIC) PTY LTD (ACN 006 823 089)

                                                                                    Applicant

                                                            AND:               THE MINISTER FOR HUMAN SERVICES AND HEALTH, HEALTH INSURANCE COMMISSION and JACKIE WOOD

                                                                                    Respondents

                                                                        No VG 21 & 72 of 1996

                                                            BETWEEN:     MACQUARIE PATHOLOGY SERVICES PTY LTD (ACN 001 951 775)

                                                                                    Applicant

                                                            AND:               THE MINISTER FOR HUMAN SERVICES AND HEALTH, HEALTH INSURANCE COMMISSION and JACKIE WOOD

                                                                                    Respondents

COURT:                       Sundberg J

DATE:              26 March 1996

PLACE:                       Melbourne

                                                     REASONS FOR JUDGMENT

SUNDBERG J:

The applicants

Melbourne Pathology Pty. Ltd., Gribbles Pathology (Vic.) Pty. Ltd. and Macquarie Pathology Services Pty. Ltd. are approved pathology authorities within the definition in s.3(1) of the Health Insurance Act 1973 ("the Act").  Each of them has applied for relief in respect of the allocation to it by the first respondent, the Minister for Human Services and Health, of units of entitlement pursuant to s.23DNB of the Act.  The applications raise similar issues, and were heard together.

Melbourne Pathology Pty. Ltd. provides pathology services in Victoria.  Its business was formed in about 1927 and it was incorporated in 1984.  It employs nearly 600 full-time staff.  Gribbles Pathology (Vic.) Pty. Ltd. commenced business in South Australia more than fifty years ago and is now the largest private pathology practice in Australia.  It employs over 1000 staff in Victoria and South Australia.  It has operated collection centres in Victoria since February 1989 and in South Australia since its inception.  Macquarie Pathology Services Pty. Ltd. has operated collection centres in New South Wales and the Australian Capital Territory for some twenty five years and in Queensland for about eight years.  It is the sixth largest approved pathology authority in Australia, the second largest in New South Wales and the largest in the Territory.  It employs more than 450 staff.  Except where I
refer to the applicants collectively, I will call them "Melbourne", "Gribbles" and "Macquarie".

Since the introduction of the system of licensed specimen collection centres with effect from 1 February 1992 the applicants have held licences under the Act to operate specimen collection centres ("centres").  Employees at each centre collect specimens from patients whose practitioners have requested an applicant to render pathology services.  The applicants conduct tests on and analyses of the specimens at their accredited pathology laboratories, and report the results to the referring practitioners.  The applicants claim of the second respondent, the Health Insurance Commission ("the Commission"), Medicare benefit in respect of these services in cases where the patients assign their Medicare benefit entitlements to the applicants.  Medicare benefit is payable in respect of pathology services rendered in relation to a specimen collected in premises maintained by a provider of pathology services only if the premises are a licensed centre.  In developing and maintaining its business as a provider of pathology services, each applicant has made a substantial investment in establishing, equipping and staffing its centres.  The centres are central to their operations.

The 1992 Scheme

A licensing scheme was introduced in 1992 in response to concerns that there were too many centres, leading to inefficiencies and increasing costs to Medicare and the community.  The scheme sought to reduce the number of centres by setting a limit on the number of permanent centres and phasing out the remainder by restricted temporary licences.  All privately owned approved pathology authorities ("APAs") are required to hold a licence for
each centre, and the Act precludes the payment of Medicare benefit for specimens collected in unlicensed centres.  Licences are allocated annually and apply from 1 February.

Under the scheme, a centre must be operated by an APA, be located in premises owned or leased by the APA, be staffed by properly trained personnel employed by the APA, and be set up with appropriate equipment and supplies.

Towards the end of each year, applications are sought and received from APAs for units of entitlement to licences for the following year.  Except in certain rural and remote areas, where one unit may entitle its holder to more than one licence, each unit entitles an APA to one licence.  The Minister's delegate determines the number of units to be allocated to each APA out of a pool.  After receiving advice on their unit allocations, APAs are required to submit applications for licences for specific centres.

The scheme was designed to allow an orderly reduction in the number of centres to approximately half their original number, and to manage the future establishment of centres by introducing a limit on the number licensed in any year.

The legislation

Division 4A of Part IIA of the Act deals with centres, and consists of ss.23DNAA to 23DWL.  Section 23DNB(1) provides:

                If a person that is an approved pathology authority applies before 1 February in any year in writing to the Minister for an allocation of units of entitlement to operate licensed collection centres during the year beginning on that day (the 'relevant year'), the Minister must, on or before that day, by writing, do either of the following:

                (a)           determine that the person is not to be allocated any units of entitlement ...;

                (b)           allocate to the person a number of units of entitlement ....

Sub-section (3) requires the Minister to determine in writing principles with which she must comply in performing duties under the section.  By sub-s.(4) the principles the Minister is to determine must include a formula for working out whether any units are to be allocated to an APA and, if so, how many, and the number and locations of centres that an APA may operate under a unit.  When performing a duty under the section the Minister is required to comply with any relevant principles in force under sub-s.(3), and may take into account any other matters, not inconsistent with these principles, she thinks relevant.

Section 23DND deals with applications for licences in respect of a centre.  An approved pathology authority may apply to the Minister for a licence: sub-s.(1).  The Minister may approve the grant only if the grant will not result in the APA operating centres it is not authorised to operate under its allocation of units.  A licence comes into force on the day, and remains in force for the period, specified in it: s.23DNE(3).  A licence may not specify a period that ends on or after 1 February next following the day on which it comes into force: sub-s.(4).

The early Determinations

There have been six Determinations since the introduction of the scheme.  The first two focussed on the phased reduction in the number of centres by determining the number of "surplus" centres applicable to each APA.  Under Determination No. 3, effective from 28 January 1994, the allocation of licences was based on the provider's market share, defined in terms of average daily number of episodes of patient testing for a sixty two day period in 1991, number of full time equivalent pathologists and number of requesting practitioners.  The relevant data was supplied by the APAs themselves and was not verifiable.

In late October 1994 the Commission wrote to each APA entitled to operate a centre advising that it was anticipated that a new Determination would be made.  It was said that one element of the Determination was expected to relate to the number of hours each recognised pathologist worked for any APA in an average week over the last thirteen weeks of the 1993-94 financial year.  APAs were invited to lodge returns providing this information.  The applicants did so.  A revised formula was applied by Determination No. 4 which came into operation on 11 November 1994.  Permanent licences were redistributed according to a provider's market share, based on auditible information in the 1993-94 financial year.  Market share was determined by reference to the number of patient episodes, the number of treating practitioners and the number of recognised pathologists associated with each APA.

In December 1994 APAs were advised of their allocations under Determination No. 4.  Some received increased shares and others reduced shares, while some allocations remained unchanged.  Melbourne's share was reduced from fifty eight to forty nine, Gribbles' from ninety two to eighty and Macquarie's from fifty six to forty.

Determination No. 5

Soon after Determination No. 4 was gazetted, it was discovered that the person who made the decision to determine the number of units did not have a proper delegation.  APAs were informed of this problem.  A standard letter sent to all APAs stated that "consideration is being given to making a new allocation that would more closely resemble the allocation of
licensed collection centres that each APA currently holds".  Determination No. 5 was made to deal with this problem.  It reinstated the allocation used in Determination No. 3 for the twelve month period from 1 February 1995.  Clause 4 applied to the year commencing on 1 February 1995 and subsequent years.  In relation to the year commencing on 1 February 1995, it required the Minister to determine as the number of units of entitlement to be allocated to an applicant, the number that was the sum of the maximum number of centres the applicant was entitled to operate in accordance with the last determination under s.23DNB(1) or (4) as in force before 16 September 1994 and the number, if any, of licences formerly allocated to the applicant under s.23DNC and in operation on 15 September 1994.  In relation to the year commencing 1 February 1996 and later years, the clause required the Minister to determine as the number of units to be allocated the number allocated to the applicant by the most recent determination under s.23DNB(1) or (2): sub-clause (3).  Clause 10(2) provided that on and after 1 February 1995 the number of centres an APA could operate for each unit allocated under s.23DNB was to be determined in accordance with a table there set out.  In a capital city, any other major urban or major rural centre, one unit entitled an APA to operate one centre.  In minor rural areas one unit entitled it to operate three centres.

Allocation under Determination No. 5

On 23 January 1995 the Minister allocated Melbourne fifty eight units, Gribbles ninety two units and Macquarie fifty six units.  The letters informing the applicants of the allocations stated that the effect of the new Determination No. 5 was that an APA would receive an allocation of the number of units to which it was entitled under Determination No. 3.  In late January and early February 1995 a delegate of the Minister granted licences to the applicants to operate their centres in the twelve months commencing 1 February 1995.

1995 review

In early April 1995 the applicants received notice that the Minister had established a review of the system of licensed centres.  A copy of the review committee's terms of reference was enclosed.  Amongst other things, it was to examine the need for and role of centres, evaluate the impact and cost effectiveness of the current scheme, and identify and analyse alternative arrangements for promoting cost effective collection services and compare them with the proposed revised licensing scheme.  The applicants were invited to make submissions to the committee.  This they did.  Melbourne contended that all restrictions associated with centres should be removed "in order to return to free competition which is essential for highly regarded efficient practices to grow and therefore to minimize costs".  If the licensing scheme were to be retained, APAs should be allowed to operate unlicensed centres which would attract a lower or no Patient Episode Initiation Fee.  APAs should be allowed to purchase licences from other APAs.  A letter from the Minister's Department acknowledging the submission stated that a draft report of the review would be forwarded to Melbourne for comment.  According to Melbourne, it never received such a draft or any other communication from the Minister or anyone else in relation to the review.

In its submission, Gribbles contended that there should be no restriction on licences.  However, if there were to be some limit on the number of centres, factors such as population, the number of general practitioners in the State or district, and the number of patient referrals should be considered.  It also suggested arrangements under which only the State would be able to operate centres or centres would be shared by different pathology providers.

Macquarie also contended that centres be deregulated.  It said that the most cost effective and efficient result would be for medical practitioners to collect the specimens and be remunerated for doing so.

Determination No. 6

Shortly after 3 November 1995 each applicant received from the Commission a letter requesting it to complete and lodge a form recording the number of hours each recognised pathologist had been employed for the period 4 July 1994 to 3 July 1995.  Shortly after 16 November 1995 each applicant received a letter from the Commission requesting it to lodge an application for units for the year commencing 1 February 1996.  Each letter stated that "One element of the formula to be used in the allocation process is expected to relate to the number of hours that recognised pathologists were employed by each APA during the last financial year".  Reference was made to the 3 November letter and to errors in the forms accompanying that letter.  Replacement forms were provided.  Shortly thereafter the applicants submitted their applications for the year commencing 1 February 1995.  On 29 November the Health Insurance (Pathology-Licensed Collection Centres) Determination (No. 6) was gazetted.

Clause 5 of the Determination required the Minister to calculate the number of units of entitlement to be allocated to an applicant by using the formula

Factor A of the formula relates to the number of Group P 1O PEI items ("Group items"), as worked out in accordance with item 2 of the schedule.  Factor B relates to the number of
full time equivalent pathologists, as worked out in accordance with item 3 of the schedule.  Component N is the global entitlement for the relevant year, calculated at the end of 30 November preceding the commencement of that year, reduced by one for each person who is an APA and whose application for units for that year is in force at the end of that 30 November.  The phrase "global entitlement" means the total number of units available for allocation for a year.

Clause 2 of the schedule states that factor A is "worked out for an applicant by the ... Commission" by adding up the number of Group items rendered by the applicant in the "reference year" and dividing that number by the total number of Group items rendered in the reference year by all APAs.  The phrase "reference year" means the period of fifty two weeks containing all the calculation periods.  The "calculation periods" are the period of four weeks commencing on the first Monday of the last financial year preceding an applicant's application year, and the twelve subsequent periods of four complete weeks.  An "application year" is the year, commencing on or after 1 February 1996, in relation to which an applicant applies for the allocation of units.

Clause 3 indicates that factor B is determined by adding up the number of full time equivalent recognised pathologists employed by the applicant in the reference year and dividing that number by the total number of such pathologists employed in that year by all APAs.  A note to clause 3 states that the calculation is based on the assumption that a pathologist who works for an APA for an average of fewer than eight hours in each week is to be ignored, and one who works for an APA for an average minimum of forty hours in each week is a full time equivalent.

By letters dated 13 December 1995 the Commission informed Melbourne that as a result of the application of the formula it had been allocated forty seven units, Gribbles that it had been allocated eighty four units, and Macquarie that it had been allocated forty units, for the year commencing 1 February 1996.

The applicants complain that prior to the reduced allocation they were not told of the making of Determination No. 6, that Determination No. 5 would not continue to apply, or that the Minister intended to allocate a reduced number of units.  The result of the reduction is that Melbourne will have to close eleven centres with effect from 1 February 1996, with consequent loss of the value of the commercial arrangements made in relation to them.  Gribbles will have to close at least eleven, and in all probability sixteen, centres.  Macquarie will have to close sixteen centres.  The applicants will lose patients, suffer a loss of profits, and have to arrange the surrender of leases relevant to the centres to be closed.  Melbourne says it will have to dismiss about twenty nine staff, and Macquarie between twenty three and twenty seven staff.

The proceedings

In each case the applicant seeks under s.5(1) of the Administrative Decisions (Judicial Review) Act 1977 ("the ADJR Act") to review the decision to reduce its entitlement on a number of grounds:

(a)        it was made while Determination No. 5 was still in operation, and was not made in accordance with that Determination;

(b)        it was not made by the Minister;

(c)        it was made by the third respondent, Jackie Wood, the General Manager of the Government Programs Division of the Commission, and she was not authorised to make the decision on behalf of the Minister;

(d)        it was made pursuant to an invalid Determination No. 6;

(e)        it was made on the basis of factors A and B in the formula which factors had not been determined by the Commission as required by the schedule to Determination No. 6.

Next it is claimed that Determination No. 6 is invalid on eight grounds:

(a)        it is beyond the power conferred by s.23DNB;

(b)        it improperly purports to restrict the total number of units available to APAs;

(c)        it is so arbitrary, irrational and discriminatory against the applicant that it is not a valid exercise of power under s.23DNB(3);

(d)        it is so unreasonable that no reasonable Minister could have made it;

(e)        the schedule to the Determination improperly purports to delegate to the Commission duties imposed on the Minister by s.23DNB;

(f)         the Determination does not include principles as to the locations of centres that an APA may operate, contrary to s.23DNB(4)(c);

(g)        the Minister was obliged by s.23DNB(5)(a) to ensure that Determination No. 6 was in compliance with Determination No. 5, but did not do so;

(h)        Determination No. 6 is inconsistent with Determination No. 5.

The next claim is that the Minister failed to accord natural justice to the applicant in that she did not give it notice of her intention to replace Determination No. 5 with Determination No. 6, or afford it an opportunity to be heard.

Then it is claimed that the Minister failed to accord natural justice to the applicant in that she did not give it notice of her intention to reduce its number of units, or an opportunity to be heard on that topic.

Each applicant also applies under s.39B(1) of the Judiciary Act 1903 for a declaration that Determination No. 6 is invalid and that the Minister is obliged to allot it units in accordance with Determination No. 5.

Subsequent developments

By letter of 29 January 1996, about two weeks after the commencement of the proceedings, the third respondent advised each applicant that she was prepared to reconsider the decision to reduce its entitlement.  The letter stated that this offer was prompted by the applicant's claim, which the writer denied, that it had not been accorded procedural fairness.  The
writer said that in her reconsideration of the matter she would apply the formula in clause 5(2).  She then set out the data she had used in applying the formula (data contained in the letter of 13 December 1995), and invited the applicant to make a submission as to the correctness of the data and to put forward any other matters not inconsistent with Determination No. 6 that it wished her to take into account.  Any submission was to be received by 4 p.m. on 30 January, that is to say by the next day.

Each applicant made a written submission in response to the invitation.  It did so without prejudice to the claims it was making in the proceeding.  It also said it had not had sufficient time in which to make a proper submission.

On 31 January Macquarie informed the Commission of the forty two centres in respect of which it sought licences.  On 1 February Melbourne applied for licences for forty seven of its centres, specifying the eleven in respect of which no application was made.  On the same day Gribbles informed the Commission of the eleven centres in respect of which licences were not sought.

On 31 January the third respondent confirmed her decision of 13 December 1995 in relation to Gribbles, and on 2 February confirmed her decision in relation to Melbourne.  On 31 January she informed Macquarie of her "new decision" to increase its entitlement to forty one units.

In the light of these events, Melbourne and Gribbles amended their statements of claim to allege the reconsideration and confirmation of the earlier decision.  Macquarie amended its statement of claim to allege the reconsideration and the making of the later decision.

The second proceedings

On 12 February 1996 Melbourne commenced a second proceeding.  Gribbles and Macquarie each commenced a second proceeding on 14 February.  In the case of Melbourne and Gribbles each proceeding relates to the decision, made on 2 February for Melbourne and 31 January for Gribbles, to confirm the earlier decision.  In the case of Macquarie the proceeding relates to the reconsideration made on 31 January.  The grounds of attack in each proceeding are essentially those deployed in relation to the earlier decision.

(1)        Competency of application for review of Determination

The respondent contended that the application for review of Determination No. 6 is not competent on the ground that it does not relate to a decision of an administrative character within s.5(1) of the ADJR Act.  It was said that the Determination laid down principles of general application to APAs and that this was a sign of its legislative character.  Further, it was contended that the fact that the Determination was a disallowable instrument for the purposes of s.46A of the Acts Interpretation Act 1901 confirmed that character.  In my view the objection is sound.  Parliament could have invented its own principles, but it delegated the task to the Minister.  Thus the Minister, in determining principles, was acting legislatively.  See Queensland Medical Authority v. Blewett (1988) 84 A.L.R. 615, at p.636.  The conclusion that the Determination is not susceptible of review under the ADJR Act does not, however, dispose of the applicants' challenge to it.  They also seek to review it under s.39B of the Judiciary Act.  This section permits review of legislative as well as administrative action.  See Minister for Primary Industries v. Austral Fisheries Pty. Ltd. (1993) 40 F.C.R. 381, at p.398.

(2)        Total number of units

Factor N in the formula in clause 5(2) of Determination No. 6 has as its starting point the global entitlement for the relevant year.  The phrase "global entitlement" means the total number of units of entitlement that are available for allocation for the year.  That number is further defined as the number allocated as of the end of 30 November before the commencement of the year for the year in which the 30 November occurs.  The applicants contend that the Act confers no power on the Minister to fix an arbitrary total number of units available for allocation.

Section 23DNB(3) requires the Minister to determine principles governing the performance of duties under sub-s.(1).  The principles are thus to govern the allocation of the number of units to which an APA is entitled.  The section provides no express guidelines as to the content of the principles.  In South Australia v. Tanner (1989) 166 C.L.R. 161, at p.165 Wilson, Dawson, Toohey and Gaudron JJ. said:

                In the course of argument, the parties accepted the reasonable proportionality test of validity ..., namely, whether the regulation is capable of being considered to be reasonably proportionate to the pursuit of the enabling purpose.  ...  The same test, in relation to a power limited to regulation, was expressed by Dixon J. in Williams (1933) 49 C.L.R. 142, at 156, as being, in substance, whether the regulation goes beyond any restraint which could be reasonably adopted for the prescribed purpose.

In Minister for Resources v. Dover Fisheries Pty. Ltd. (1993) 116 A.L.R. 54, at pp.66-67, after quoting the above passage, Gummow J. said:

                The fundamental question is whether the delegated legislation is within the scope of what the parliament intended when enacting the statute which empowers the subordinate authority to make certain laws ....

                ... In the joint judgment ... in Shanahan v. Scott (1957) 96 C.L.R. 245, at 250, the following was propounded.  A power such as that in s.25(1) of the Act does not authorise the making of regulations which vary or depart from the positive provisions of the Act, or which go outside the field of operation which the Act marks out; such a power does not support attempts to widen the purposes of the Act, to add new and different means of carrying them into effect, or to depart from or vary the plan which the legislature has adopted to [attain] its ends.  These are indicia which assist in deciding the general question of whether the regulations in question are a reasonable means of attaining the ends of the legislative delegation of power.

The "prescribed purpose" in the present cases is the formulation of principles to govern the allocation of units of entitlement to operate centres.  The question is whether the creation of a formula which has as a factor the total number of available units is within the scope of what Parliament intended when enacting s.23DNB.  Is it a reasonable means of attaining the ends of the principle-making power?  Cf. Coulter v. The Queen (1988) 164 C.L.R. 350, at p.357 and Minister for Foreign Affairs and Trade v. Magno (1992) 37 F.C.R. 298, at pp.309-311.  In my view it is.  Sub-section (4)(a) requires the principles to include a formula for working out the number of units to be allocated to APAs.  It is, I think, reasonably proportionate to the pursuit of the enabling purpose contained in s.23DNB to set a maximum number of available units.  To do so does not vary or depart from the positive provisions of the Act.

(3)        Locations

Section 23DNB(4)(c) requires the principles determined by the Minister to include the number and locations of centres an APA may operate under a unit.  Clause 9 is the only part
of the Determination that might be a compliance with this requirement.  Sub-clause (1) provides:

                The number of LCCs that an APA may operate:

                (a)           in a statistical local area referred to in column 2 of an item in the following Table; and

                (b)           for each unit of entitlement allocated to the APA under paragraph 23DNB(1)(b) or (2)(b) of the Act:

                is the number set out in column 3 of the item.

A "statistical local area" is

                an area described, using a title set out in column 2 of the Table, in the document entitled "Rural/Remote Areas Classification":

                (a)           published by the Department of Human Services and Health; and

                (b)           as in force on 1 February 1996.

The Table is as follows:

                Column 1                                                               Column 2                                               Column 3

                Item no.                                  Statistical local area in which each LCC is                       Number of LCCs per

                                                                                   to be located                                                      unit of entitlement

                1                                                                              Capital City                                                           1

                2                                                                              Other Major Urban                                              1

                3                                                                              Rural Major                                                           1

                4                                                                              Rural Other                                                            3

                5                                                                              Remote Major                                                       1

                6                                                                              Remote Other                                                        3

                7                                                                              Other Offshore Areas                                          1

The applicant contended that clause 9 dealt only with the number of centres an APA may operate.  In my view it deals with both the number and locations of centres.  It provides a scheme which leaves it to APAs to determine how many centres they can operate for the number of units they have been allocated.  The number of centres depends on their location.  For example, one unit entitles an APA to one centre in a capital city or three centres in a remote region.  The clause thus deals with "the number and locations" of centres an APA may operate under a unit.

(4)        Unauthorised provisions and improper delegations

Section 23DNB(1)(b) requires the Minister to allocate units.  Sub-section (3) requires her to determine the principles with which she must comply in making the allocation.  Sub-section (5) requires her, in performing duties under the section, to comply with her own principles.  Item 2.1 in the schedule to the Determination requires the Commission to work out factors A and B in the formula.  Clause 5(2) of the Determination requires the Minister to calculate the number of units by use of the formula.  So the Minister has merely the mechanical task of determining factor N and doing the arithmetic involved in applying the formula.  She has no power to review the Commission's working out of factors A and B.  The Commission's calculation is binding on her.  The applicants argued that the fact that the Commission is to work out factors A and B contravenes s.23DNB(3), (4)(a) and 5(a) and (b).

I cannot discern any contravention of sub-s.(3).  The Minister has determined principles.  They are contained in the Determination.  The principles entrust to the Commission the working out of two components of the formula.  But that does not mean that the Minister has failed to determine principles.  The Determination discloses that she is happy for the Commission to have a role in working out the formula.  Nor do I think there is any contravention of sub-s.(4)(a).  The Determination includes a formula for working out the number of units to be allocated.  The fact that the formula gives the Commission a role in its implementation does not involve a failure by the Minister to include a formula in the principles.  Nor is there any contravention of sub-s.(5).  The Minister must comply with the principles, even though they commit to the Commission the working out of certain parts of the formula.

Reliance was placed by the applicants on Lynch v. Minister for Human Services and Health, an unreported decision of the Full Court given on 15 December 1995.  Section 23DN(1) empowered the Minister to approve premises as an accredited pathology laboratory.  Section 23DNA(1) provided that the Minister may determine the principles that are to be applied in the exercise of his powers under s.23DN(1).  Section 23DN(3) required the Minister, in exercising powers under the section, to apply the principles.  The Minister promulgated principles which provided in part that premises would not be approved as an accredited pathology laboratory unless they had been inspected by an agency which reported that they complied with certain standards.  It was held that s.23DNA(1) did not authorise the Minister to confer a decision-making role on the agency.  Davies and Lehane JJ. said:

                The primary decision-making power is conferred upon the Minister, which includes his delegates ....  Section 23DNA(1) provides for the promulgation of principles to be applied in the exercise of the Minister's powers, and therefore by the Tribunal, not for the conferral of a decision-making power upon another body.

                Had cl.4.2(a) of the principles merely provided a procedure whereby the Minister and his delegates could be advised with respect to relevant matters, there would have been no problem with it ....  But cl.4.2(a) of the principles purports to have a determining effect.

                A decision-making power is conferred when, inter alia, the exercise of a function or power serves as an "ultimate and operative determination" which affects legal rights and obligations ... or when ... there is a "determination effectively resolving an actual substantive issue".  If the formation by [the agency] of a view unfavourable to an applicant's case determines the application, as cl.4.2(a) provides, then the inspection agency has a decision-making role.  Its adverse finding operates as the final and operative decision determining the application.

                The conferral of such a decision-making role upon the inspection agency is not authorised by s.23DNA(1).  The Act does not enable the Minister to repose in an inspection agency a power to refuse applications for the approval of premises or (which is substantially the same thing) a power, by the terms of its report, to compel the Minister to refuse such an application.

The applicant contended that the determination by the Commission of factors A and B was a final and complete determination, and thus not authorised by s.23DNB.

As a result of the Lynch principles, premises could not be approved if the agency gave an unfavourable report on them.  The principles thus gave the agency power to control the approval of premises - the very matter committed to the Minister by s.23DN(1).  In the present cases the mechanical task performed by the Commission in determining factor A - adding up the number of Group items rendered by the applicant in the reference year, dividing that number by the total number of Group items rendered in the reference year by all APA's, and rounding the result to five decimal places - is not making an ultimate or operative determination affecting legal rights.  Nor do the Commission's calculations effectively resolve any substantive issue.  Certainly thecalculations are a necessary prerequisite for the allocation of units.  However, they do not, bythemselves, enable an allocation to occur.  They are merely part of the groundwork that enables an operative
determination to be made by the Minister.  The Minister's input in relation to factor N and the final working out of the formula by her or her delegate is necessary before any rights are affected or any substantive issue determined.

What I have said about factor A applies to factor B.  The Commission adds up the number of full time pathologists employed by the applicant in the reference year, divides that number by the total number of full-time pathologists employed by all APAs during the reference year, and rounds the result to five decimal points.  The applicant says that all that is left for the Minister to do is the mechanical task of determining factor N and doing the arithmetic involved in applying the formula.  But the formula as a whole involves a mechanical task.  No discretion is involved on anyone's part.  The Commission must do some arithmetic and pass its results to the Minister.  The Minister then does some arithmetic of her own, and achieves a result by applying the formula.  Although the Commission's work is necessary for the Minister to obtain a result, it does not itself resolve a substantive issue.

(5)        Determination deprives Minister of discretion

It was contended that the Determination is invalid because it deprives the Minister of a discretionary power which Parliament intended her to have.  It was said that s.23DNB(1) and 5(b) showed that the Minister was intended to have a discretionary power.  In Lynch, the other member of the Full Court, Moore J. said:

                Sections 23DN(3) and 23DNA contemplate the formulation of principles that guide the Minister in exercising the discretionary power in s.23DN(1).

                ...

                What the terms of s.23DNA do not suggest is that it is permissible to formulate principles that would not involve the Minister determining whether or not approval should be granted ....  In my opinion, what s.23DNA authorises is the formulation of principles which will guide the Minister in the exercise of the discretionary power conferred by s.23DN(1).  However s.23DNA does not authorise principles that deny to the Minister the capacity to exercise the discretionary power to determine whether approval should be granted or refused.

The present cases seem to me to be quite different from Lynch.  There, s.23DN(1) gave the Minister a discretion to approve or not approve premises.  The principles to be applied in the exercise of that discretion were at large.  Section 23DNA did not require that the principles deal with any particular matter.  By way of contrast, s.23DNB(4) requires the principles to include a number of matters, including a formula for working out whether any units should be allocated to an APA, and the number of units to be allocated.  The whole notion of a formula designed to produce a number of units is inconsistent with the existence of a discretion to decide the number.  When s.23DNB is read as a whole, it becomes clear that sub-s.(1) does not confer a discretion on the Minister.  The Minister must determine either that an APA is not to be allocated any units or that it is to be allocated a certain number of units.  Whether the APA is to get units and how many it is to get is to be "worked out" in accordance with a formula.  No discretion is involved.  In relation to numbers, the section requires the Minister's principles to put her in a straightjacket.  The applicant relied on sub-s.(5)(b) as showing that the Minister had a discretion in determining the number of units to be allocated.  I do not think it does show that.  In relation to numbers, the Minister cannot take into account other matters.  That would be inconsistent with the formula required to be determined by sub-s.(4)(a).

(6)        Delegation of Minister's powers to the Commission

The applicants contended that the schedule improperly purports to delegate to the Commission duties imposed on the Minister by s.23DNB.  What was said to have been
delegated was the task of working out factors A and B.  Reference was made to s.131(1) which provides that the Minister, the Secretary, or the Managing Director of the Commission may delegate to an officer any of his powers under the Act, other than the power of delegation.  "Officer" is defined in sub-s.(4) as an officer of the Department, a person performing the duties of an officer of the Department, a member of the Commission and certain members of the staff of the Commission.  There is no power to delegate to the Commission itself.  The general power of delegation conferred on the Minister by s.41A of the Health Insurance Commission Act 1973 is limited to powers conferred by that Act.

Items 2 and 3 of the schedule do not in my view involve an attempt by the Minister to delegate to the Commission the duty imposed on her by s.23DNB to determine allocations.  The Minister is required by sub-s.(4)(a) to adopt a formula to determine the number of units to be allocated.  A scheme which involves the Commission implementing parts of the formula (in the sense of adding up items and dividing the product by the result of another addition) is not in my view the delegation of the duty to make allocations.  It is the Minister who approves the formula and performs the ultimate calculation, that is to say, it is she who, using the formula, calculates the number of units to be allocated and makes the allocation.  That is the duty that can only be performed by the Minister or her delegate.  What was done by the Commission was not the performance of a duty of the Minister.

(7)        Factors A and B not determined by Commission

The calculation of factors A and B was made by Mr. Jansson.  He was an officer of the Commission, but he was not in possession of a delegation under s.131.  The applicants contended that, on the assumption that the Determination was valid, the allocations themselves were bad.  The schedule requires factors A and B to be worked out by the
Commission.  Mr. Jansson worked them out in the course of his duties as an employee of the Commission.  But they were never formally adopted by the Commission.

Attention must be paid to what it was that Mr. Jansson did.  As to factor A, he added up the number of items rendered by an applicant in the reference year, and the total number of items rendered by all APAs in that year.  He then divided the first number by the second.  As to factor B, he added up the number of full-time pathologists employed by the applicant in the reference year and the total number of full-time pathologists employed by all APAs in that year.  He then divided the first by the second.  In doing this he was not making a decision or exercising a discretion.  The task involved in working out factors A and B was purely arithmetical and not complex.  In his Administrative Law 6th ed., p.363 Professor Wade, after referring to Denning L.J.'s observation in Barnard v. National Dock Labour Board [1953] 2 Q.B. 18, at p.40 that while a judicial function can rarely be delegated, an administrative one can often be, says:

                The decisions in fact show that the courts do not normally allow the delegation even of administrative functions if they involve the exercise of discretion.  There is no general principle that administrative functions are delegable.  The principle is rather that, where any sort of decision has to be made, it must be made by the authority designated by Parliament and by no one else.  Occasionally the court will allow some degree of delegation on the ground that the matter is merely administrative ....

See also Bridge v. The Queen; Ex rel. Skalenski [1953] 1 D.L.R. 305; Hunt v. Allied Bakeries (No. 2) [1959] 1 W.L.R. 50; Sykes, Lanham and Tracey, General Principles of Administrative Law 3rd ed., par.305; Taylor, Judicial Review (1991), p.233; Aronson and Franklin, Review of Administrative Action (1987), p.57.  Mr. Jansson's function was purely administrative in character.  It involved no exercise of discretion, and it did not amount to the making of a decision.  Accordingly, I hold that it was a function the Commission could validly delegate to him.

(8)        Determination No. 5

Clause 10 of Determination No. 6, which provides that Determination No. 5 is revoked, did not come into operation until 1 February 1996.  The other clauses commenced on 29 November 1995.  Accordingly, until 1 February 1996 both Determinations were operative.  All relevant events except the confirmation on 2 February 1996 of the earlier decision in relation to Melbourne occurred before Determination No. 5 was revoked.  The applicants contend that the two Determinations are inconsistent and both cannot apply to them.  Different unit entitlements will result from an application of the Determinations.  They rely on clause 4(3) of Determination No. 5.  Sub-clause (1) applied when the Minister decided an application in respect of a year commencing on 1 February if in the case of a year commencing on 1 February 1995 the application was lodged before 11 November 1994 and in the case of a subsequent year was lodged before the preceding 1 November.  Sub-clause (2) dealt with the determination of the number of units to be allocated in the year commencing on 1 February 1995.  Sub-clause (3) provided:

                Where this clause applies in relation to an application for the year commencing on 1 February 1996 or a subsequent year, the Minister must determine as the number of units of entitlement to be allocated to the applicant the number that is the number of units of entitlement allocated by the most recent determination under subsection 23DNB(1) or (2) of the Act in relation to the applicant.

Clause 4 applies in relation to an application for the year commencing on 1 February 1996 only if an application is lodged before 1 November 1995.  The applicants lodged their applications after 1 November 1995 (as permitted by clause 5 of Determination No. 6), and accordingly clause 4(3) of Determination No. 5 could not apply to them.  Only Determination No. 6 could apply.  Accordingly there is no basis for the inconsistency argument.

(9)        Decisions arithmetically wrong

In the third respondent's letters of 13 December 1995 factor N appears as 1143.  It is common ground that it was in fact 1144.  That is the number given in the reasons for decision given on 15 January 1996.  Mr. Jansson gave evidence that he made the factor N calculation and used the number 1144 in implementing the formula.  The number 1143 was a typographical error, and was not the number used in working out the formula.  While in the witness box he did a calculation using 1144, and it produced the numbers of units in the 13 December letters.  Using 1143 did not produce those numbers.  On the basis of that evidence I find that in making the decision in each case factor N was calculated in accordance with clause 5(2) of the Determination.

(10)      "Group P 10 PEI item"

The determination of factor A involves adding up the number of items rendered in the reference year.  "Group P 10 PEI item" means

                a service to which an item in Group P 10 (Patient episode initiation) of Part 2 of the Schedule to the Health Insurance (1995-96 Pathology Services Table) Regulations relates.

The relevant reference year is the period 4 July 1994 to 3 July 1995.  The Regulations referred to in the definition did not come into operation until 28 September 1995, after the end of that period.  Accordingly, said the applicants, there were no items that could be used in the calculation of factor A.  In my view the relevant time at which the Regulations must be in operation is when factor A is being worked out by the Commission.  That occurred between the end of November 1995 and the beginning of February 1996.  The Regulations were then in operation.  The applicants' contention that the relevant date is when the service data is recorded is not supported by the verbiage of item 2.1 of the schedule.  Factor A is to be worked out by adding up the number of items rendered in the reference year by the applicant and by all APAs.  It is then that the functionary performing the additions must look to the definition of "Group P 10 PEI items".  There is nothing in item 2.1 that suggests that it is during the reference year that the items must exist.

(11)      Calculation of factor A

Items 2.1(a) and (b) of the schedule to Determination No. 6 require the Commission, inter alia, to add up the number of Group items rendered in the reference year based on date of service data recorded by the Commission "no earlier than 1 November following the reference year", and divide that number by the total number of Group items rendered in that year by all APAs based on the same data.  The applicants claim that factor A was actually worked out by reference to date of service data recorded earlier than 1 November.  The evidence was that when claims for Medicare entitlements are received by the Commission they are entered into its records.  After 1 November a request is made at the statistical branch of the Commission to extract from the existing records the data required for the allocation process.  That information goes to a separate data base, and Mr. Jansson accesses that data base in the course of performing the calculations that determine unit entitlement.  Mr. Jansson said he interpreted the phrase "no earlier than 1 November" as meaning that the data used in the allocation was not to be extracted earlier than 1 November "in order to ensure that there are as many claims as could be expected recorded on the ... Commission claims data base".  For the respondents it was argued that the word "recorded" was ambiguous.  It could mean "recorded for the purpose of implementing the formula", or "recorded for the purpose of providing funds for Medicare claims".  It was submitted that having regard to its context in a provision dealing with the allocation of units, it should be given the former meaning.

Where two constructions of a provision are open, the court will of course prefer the one which avoids what it considers to be an inconvenient or unjust result.  But the fact that the words used are clear and unambiguous does not necessarily require the court to accept such a result.  In Cooper Brookes (Wollongong) Pty. Ltd. v. Federal Commissioner of Taxation (1981) 147 C.L.R. 297, at p.304 Gibbs C.J., after referring to the general rule that effect is to be given to clear and unambiguous words in a statute, added:

                There are cases where the result of giving words their ordinary meaning may be so irrational that the court is forced to the conclusion that the draftsman has made a mistake, and the canons of construction are not so rigid as to prevent a realistic solution in such a case.

Mason and Wilson JJ. said, at p.321:

                where the judge labels the operation of the statute as "absurd", "extraordinary", "capricious", "irrational" or "obscure" he assigns a ground for concluding that the legislature could not have intended such an operation and that an alternative interpretation must be preferred.  But the propriety of departing from the literal interpretation is not confined to situations described by those labels.  It extends to any situation in which for good reason the operation of the statute on a literal
reading does not conform to the legislative intent as ascertained from the provisions of the statute, including the policy which may be discerned from those provisions.

Penelope Rogers gave evidence for the respondents.  She is the Assistant Secretary of the Diagnostics and Technology branch of the Department.  One of her duties is to advise the Minister in relation to Pathology policy, especially Pathology financing policy.  She described the policy behind the phrase "no earlier than 1 November".  She said the date of service data was derived from the Commission's Medicare claims data base.  Date of service data is used because, for some patient billed pathology services, there is an interval between the provision of the service and the patient's claim against Medicare.  There is a lag of some four months after the end of a financial year before accurate date of service data is available to be recorded to determine units of allocation.  Date of service data for the period 4 July 1994 to 3 July 1995 was not available until around November 1995.  Hence the phrase "no earlier than 1 November following the reference year".

The phrase "date of service data recorded by the Health Insurance Commission" in its natural meaning is a reference to the record that is made in respect of pathology services rendered.  The "date" referred to is that on which a pathology service was rendered.  Thus the date contemplated is that recorded by the Commission when Medicare claims are received by it.

The first step required for the determination is to add up the items rendered by the applicant in the reference year based on the Commission's data recorded no earlier than 1 November 1995.  The reference year is July 1994 to June 1995.  Obviously most of the claims during that year were recorded by the Commission earlier than 1 November 1995.  This makes the definition a nonsense, since the clear intention is to include in the reference year
data recorded in that year, but the requirement that it be recorded on or after 1 November eliminates most of that data.  That would be irrational, and is a good reason for looking for some reading of the provision that will preserve its validity.  There are many instances where one meaning of a statutory provision is rejected in favour of another when the former would render the provision unconstitutional or nugatory.  If item 2.1 in the schedule is given its literal or natural meaning it would, in my view, result in the invalidity of the Determination.  It would be an irrational provision which no reasonable Minister could make.  See Minister for Primary Industries and Energy v. Austral Fisheries Pty. Ltd. (1993) 40 F.C.R. 381 and the discussion under heading (12).  It is, I think, a "realistic solution" to the difficulty presented by the phrase "recorded ... no earlier than 1 November", to treat the draftsman as intending to refer to data ascertained by those in the Commission whose job it is to work out factor A for an applicant.  On this view the draftsman has used an inappropriate word ("recorded") to describe what would actually happen.  But where the court concludes that the draftsman has made a mistake, the "realistic solution" to which Gibbs C.J. referred must include correcting the mistake.

In Gill v. Donald Humberstone & Co. Ltd. [1963] 3 All E.R. 180, at p.183 Lord Reid acknowledged that regulations addressed to practical people skilled in a particular trade or industry should be construed in the light of practical considerations, rather than by the meticulous examination of their language that might be appropriate in construing a statute.  His Lordship said:

                difficulties cannot always be foreseen, and it may happen that in a particular case the requirements of a regulation are unreasonable or impracticable; but, if the language is capable of more than one interpretation, we ought to discard the more natural meaning if it leads to an unreasonable result, and adopt that interpretation which leads to a reasonably practicable result.

Although Lord Reid was speaking of workplace safety regulations, the passage is, I think, apposite to the present case.  What his Lordship said in 1963 in relation to the more generous construction accorded to regulations is probably now the approach adopted to the interpretation of statutes.  But it nevertheless shows that it is appropriate to adopt in relation to regulations intended to have a practical application a more liberal approach than that applied to an Act of Parliament.  See also Pearce, Delegated Legislation (1977), par.629.

In my view, therefore, factor A was not worked out by reference to date of service data recorded earlier than 1 November.

(12)      Irrationality of Determination No. 6

In Minister for Primary Industries and Energy v. Austral Fisheries Pty. Ltd. (1993) 40 F.C.R. 381 the Full Court held that the incorporation in a plan of management of a formula for the allocation of catch quotas which was based on a statistical fallacy, and which operated to produce an absurd result, constituted an exercise of power which was capricious and irrational, such that no reasonable person could ever have devised it.  Lockhart J. quoted with approval the following passage from the judgment of Diplock L.J. in Mixnam's Properties Ltd. v. Chertsey Urban District Council [1964] 1 Q.B. 214, at pp.237-238:

                the kind of unreasonableness which invalidates a by-law is not the antonym of 'reasonableness' in the sense in which the expression is used in the common law, but such manifest arbitrariness, injustice or partiality that a court would say: 'Parliament never intended to give authority to make such rules; they are unreasonable and ultra vires' ....

Beaumont and Hill JJ. said:

                the apportionment contemplated by s.7B(5) must reflect a method that is not capricious and irrational.  At the same time, it is not for the court to devise a method of allocation which appears fairer than that adopted in a plan.

                ...

                The method adopted in the plan will only be beyond the scope of s.7B(5) if no reasonable person could ever have devised it.  This is a stringent test ...

The applicants' contention that the Determination was arbitrary, irrational, unjust, partial, discriminatory and so unreasonable that no reasonable Minister could have determined to make it was supported by the evidence of Dr. Gordon, who is Director of the Statistical Consulting Centre at the University of Melbourne, and a Senior Lecturer in the Department of Statistics at the University.

Dr. Gordon was of the view that the definition of factor A is nonsensical for the reason I have described under heading (11).

In her principal affidavit Ms. Rogers said that the purpose of the licensing scheme for pathology centres introduced in 1992 was to improve efficiency in specimen collection services.  She also said there was a concern about the predominance of low volume centres in Sydney and Melbourne.  This concern was repeated by the respondents' senior counsel in the course of earlier interlocutory proceedings.  He said the Commission wanted to "take collection centres from those who had not used them very much", and who had a relatively small number passing through them, and to reallocate them to where there was a heavier demand.

By reference to an example which assumed that all APAs are equally efficient, Dr. Gordon showed that what the formula in fact does is to take units away from APAs with larger numbers of units and give them to those with smaller numbers of units.  In other words the allocation is not made on the basis of any differences in efficiency, but solely because of the different number of centres the APAs hold.  It is also the reverse of the policy of taking centres from those who had not used them much.  It gives units to those APAs.

Dr. Gordon demonstrated by use of the figures appearing in the affidavits that Melbourne and Gribbles had greater than average volumes of Group items passing through their centres, but had nevertheless suffered reductions in their allocations.

Dr. Gordon also attacked factor B on the ground that it does not reflect the kind of efficiency mentioned by Ms. Rogers and senior counsel.  If there are two APAs with identical numbers of items, and one of them employs more pathologists than the other, the second obtains a larger allocation of units.  That hardly rewards efficiency.  The APA that renders fewer services per pathologist is given more units.

Finally Dr. Gordon said that the effect of the "+1" at the end of the formula is irrational.  All other things being equal, its effect is to give an extra unit to APAs with a small number of existing entitlements and to take away a number of units from large APAs.  This phenomenon is part of the reason the three applicants lost units under the formula.  Another "bizarre" consequence of the "+1" feature is that an applicant with one unit retains it even if it has no market share, so that its factors A and B are zero.

Dr. Gordon concluded that

•           the formula is defective and irrational

•           the definition of factor A is nonsensical

•           the formula reflects market share of all items, rather than LCC collected items, which leads to anomalous consequences

•           factor B is not relevant, given the statements about the rationale of the formula

•           the use of N and the addition of "+1" has implications which are discriminatory and irrational, unless the intention is that all APAs will become of similar size.

•           Melbourne's and Gribbles' average volumes per unit of entitlement are greater than the overall average, but each has suffered a reduced allocation, which is inconsistent with the stated rationale of the formula.

After she had read Dr. Gordon's report, Ms. Rogers swore a further affidavit in which she amplified her description of the objectives of the scheme.  She said that in addition to improving efficiency in specimen collection services (the objective stated in her principal affidavit), the scheme's aims include managing the growth in collection centres and costs to Medicare, encouraging APAs to make more considered commercial decisions about their use of centres, and promoting equity amongst APAs.  The last aim enables new APAs to gain access to centres and ensures that APAs with similar levels of activity are treated equally.  She said the aim of the formula is to allocate units not according to efficiency but according to activity in the market (i.e. frequency of Group items and number of full time recognised pathologists).  The Group items recognise that an episode of pathology service for a patient involves the collection of the patient's specimen at one of number of possible locations: a centre, the patient's residence or a doctor's rooms.  Each of the eight items in the Pathology Services Table relates to a different collection place.  After collection, the specimen is taken to an approved laboratory for testing and reporting of results.  APAs perform pathology work on a contract basis for hospitals and other government agencies.  This work is not funded by Medicare.  All patient episodes of pathology service for which Medicare claims are made are counted, not only those initiated by the collection of a specimen at a centre.  This, said Ms. Rogers, gives APAs flexibility since they can decide what mix of specimen collection places they will use, and to what extent they wish to use centres.  If only those episodes initiated by the collection of a specimen at a centre were used in calculating factor A, access to the centre scheme would be restricted, preventing smaller operators from developing their market and new APAs from entering the centre market.

Ms. Rogers' later evidence about the "activity" basis of the formula corresponds with senior counsel's description of the policy underlying the formula - to take centres from those who had not used them much and reallocate them to where there is a heavier demand.

Dr. Gordon attacked factor B on the ground that far from rewarding efficiency it encourages inefficiency.  Ms. Rogers supported it is a measure of the quality of service.  It recognises that supervision by recognised pathologists is an integral component of accreditation arrangements for approved pathology laboratories and the medical consultative role recognised pathologists perform in ensuring the provision of quality pathology services.

Ms. Rogers said that the purpose of the reduction of the global allocation by one for each APA (part of factor N) and the "+1" in the formula is to ensure that all APAs applying for units of entitlement receive at least one.  The aim is to see that small operators have access to centres.

I have already rejected the constructional basis of what I understand to be Dr. Gordon's principal criticism of the formula - the "no earlier than ..." issue.  The "+1" element in the formula is designed to ensure that small operators have access to centres.  Whether that is an aim that appeals to the court, or appears to the court to be reasonable, is not to the point.  As was said in Austral Fisheries, it is not for the court to devise a method of allocation which appears fairer than that in fact adopted.  That the formula ensures access to small operators at the expense of larger operators is not so capricious and irrational that no reasonable Minister could have constructed the formula.

Dr. Gordon attacked factor B on the ground that it does not reward efficiency as claimed.  Ms. Rogers' reference to efficiency in her first affidavit was a reference to the licensing scheme rather than the formula.  In her second affidavit she supported the formula as a measure of the quality of service in the sense I have described.  Dr. Gordon did not respond to Ms. Rogers' second affidavit, which was filed on the second day of the hearing.  It is not for me, in a dispute about "reasonableness" in the sense described, to second guess the appropriateness of the task assigned to factor B by those who invented the formula.  They have put forward a basis for it which has not been challenged.

That leaves the criticism that the formula does not achieve its stated aim of allocating units according to activity in the market.  In the course of Dr. Gordon's cross-examination the following exchanges took place:

                You consider it irrational, do you not, that companies that do not perform pathology services in LCCs get awarded more units than companies that do perform services in LCCs? --- That certainly seems to me strange, yes.

                That is part of your criticism of the scheme?  ---  Yes.

                Do you agree that the reason you make that criticism is an assumption by you that the operation of the services in LCCs is more efficient than the operation of services outside the LCCs?  ---  No, I don't make that assumption.

                Well, why then do you say that operation of services in LCCs should be in some way rewarded? --- Because I took that to be what Ms. Rogers and Dr. Buchanan were saying.

                I see? --- That it was a good thing if people who had LCCs had a high volume of items through them.

                ...

                But if the correct purpose of the formula was not to place any special importance on the performance of pathology services in LCCs, those remarks of yours would no longer have logical force, would you agree? --- I would agree with that, yes.

Dr. Gordon's attack on the formula was that it had the result that APAs which rely on centres for a substantial proportion of Group items lost units in favour of those which do not depend significantly on centres for the collection of Group items.  In the exchange I have set out, he accepted that if the aim of the formula was "not to place any special importance on" the performance of services in centres, his criticism would no longer have force.  In her second affidavit, the substance of which I have described, Ms. Rogers said there was no evidence that centres were more cost efficient or had a clear technical advantage over other
specimen collection places.  In the course of her cross-examination the following exchange occurred:

                I take it that the objective here is to allocate according to ... the global level of activity of each APA, rather than their activity in relation to licensed collection centres? --- It is all of their specimen collection activity, not just collection activity through licensed collection centre schemes and it's recognition of the fact ... that a feature of the scheme is always about ... giving APAs choice and flexibility about whether they apply for units of entitlement, whether they use all of those units of entitlement for centres ....

The applicants' attack on the formula was based on the rather faint hints as to the purpose or purposes lying behind it that were distilled from Ms. Rogers' first affidavit, and from what senior counsel had told the court lay behind it.  When the statistical line of attack on the formula became clear to Ms. Rogers from Dr. Gordon's report, she amplified certain parts of her first affidavit.  In particular, she gave an enlarged account of what the formula sought to achieve.  I do not consider there is any relevant inconsistency between her two affidavits, as was suggested by the applicants.  I accept her evidence on this point.

Once it is accepted that the purpose of the formula is to allocate units according to the global level of specimen collection activity, and not just activity in centres, Dr. Gordon's criticism falls away, as he acknowledged.

In my view the formula does not fall on the ground of unreasonableness in the sense described in the authorities.  As was said in Austral Fisheries, the question is not whether a better formula could have been constructed.  The test is stringent - whether the formula is so
capricious and irrational that no Minister acting reasonably could have constructed it.  Though the formula may have imperfections, I do not think it falls foul of the test.

(13)      Natural justice

(a)        The Determination

The applicants submitted that there was a denial of natural justice as the Minister did not hear them before determining the principles.  It has been held that the rules of natural justice do not govern the exercise of a power of a legislative kind.  In In re Gosling (1943) 43 S.R. (N.S.W.) 312 Jordan C.J. was of the view that the power to fix the price of milk was a delegated legislative power, and that the rules of natural justice did not apply to such a power.  In Bates v. Lord Hailsham of St. Marylebone [1972] 1 W.L.R. 1373 Megarry J. held that a committee set up under a statute with the power to fix the remuneration of solicitors was not bound to afford opportunities for representations to be made by bodies (other than the Law Society) representing solicitors before making an order which would affect solicitors generally.  His Lordship expressed the opinion that the rules of natural justice do not affect the process of legislation, whether primary or delegated.

In Bread Manufacturers of N.S.W. v. Evans (1981) 180 C.L.R. 404 one question was whether a commission empowered by legislation to fix the price of bread was required to notify interested persons of its proposal to exercise its price-fixing powers in a particular way.  It was held that it was not.  At pp.415-417 Gibbs C.J. said:

                I do not doubt the correctness of the decisions in [Gosling and Bates].  But I am not persuaded that the question whether the rules of natural justice apply should be answered by deciding whether or not the power in question should be classified as legislative.

                ...

                I return to consider the nature of the power which the Commission exercises under s.20(1).  ... the Commission does not follow a procedure similar to that of a court.  It is not called upon to adjudicate upon a controversy between contending parties.  The exercise of its discretion does not depend on the formation of an opinion as to any particular fact or circumstance.  ... its discretion is virtually unfettered.  Its function ... was to make a general decision of a discretionary character which affected all consumers and sellers of bread.  In Salemi v. Mackellar [No. 2] (1977) 137 C.L.R. 396, at p.452 Jacobs J. drew a distinction between an act which directly affects a person individually, and one which affects him simply as a member of the public or a class of the public, and said that an executive or administrative decision of the latter kind is truly a "policy" or "political" decision and is not subject to judicial review.  Although it is unsafe to generalise, I respectfully agree with the significance of the distinction.

All the features referred to by Gibbs C.J. are applicable to the making of the Determination.  That leads to the result that the Minister is not obliged to hear interested parties before determining principles under s.23DNB(3).

(b)        The 13 December decisions

Each applicant complains that before making the allocation in December 1995 the decision-maker did not give it notice of any intention to reduce the number of units it held, of the matters that it was proposed be taken into account in making the reduction, of the making or existence of Determination No. 6 or the substance of its provisions, or of the substance of the matters put against it.  Nor was it offered an opportunity to address the matters contained in the Determination, to be heard by the Minister before its unit entitlement was reduced, or to meet the matters alleged against it.  In their Defences the respondents denied they were under any duty to give the applicants notice or an opportunity to be heard.  But they admitted that they had not given any notice or opportunity.  In my view the decision-maker was obliged to give the applicants notice that it was proposed to apply the formula in
the Determination in calculating the units to be allotted to each of them, and the opportunity to make submissions as to how the formula applied to them.  In Kioa v. West (1985) 159 C.L.R. 550, at pp.582-583 Mason J. said:

                The reference to "legitimate expectation" makes it clear that the doctrine applies in circumstances where the order will not result in the deprivation of a legal right or interest.  Take, for example, an application for a renewal of a licence where the applicant, though he has no legal right or interest, may nevertheless have a legitimate expectation which will attract the rules of natural justice.  ... The expectation may be based on some statement or undertaking on the part of the authority that makes the relevant decision.  ... Alternatively, the expectation may arise from the very nature of the application, ... or from the existence of a regular practice which the person affected can reasonably expect to continue.  ... The expectation may be that a right, interest or privilege will be granted or renewed or that it will not be denied without an opportunity being given to the person affected to put his case.

And at p.587 his Honour referred to

                the importance which the law attaches to the need to bring to a person's attention the critical issue or factor on which the administrative decision is likely to turn so that he may have an opportunity of dealing with it.

Each applicant had an expectation that its current allocation of units would not be reduced without it being afforded an opportunity to put its case.  That expectation was in my view "legitimate" as that word has been explained in the authorities.  In Minister for Immigration v. Teoh (1995) 183 C.L.R. 273, at p.312 McHugh J. approved, as an accurate statement of the circumstances that could give rise to a legitimate expectation, the following passage from an article by Pamela Tate intituled The Coherence of "Legitimate Expectations" and the Foundations of Natural Justice, Monash University Law Review, vol.14 (1988), 15, at pp.48-49:

                ... there are four principal sources which the courts recognise as capable of rendering expectations legitimate or reasonable: (1) a regular course of conduct which has not been altered by the adoption of a new policy; (2) express or implied assurances made clearly on behalf of the decision-making authority within the limits of the power exercised; (3) the possible consequences or effects of the expectation being defeated especially where those consequences include economic loss and damage to reputation, providing that the severity of the consequences are a function of justified reliance generated from substantial continuity in the possession of the benefit or a failure to be told that renewal cannot be expected; and (4) the satisfaction of statutory criteria.

The consequences to the applicants in the present cases are severe.  Each will have to close centres and retrench staff.  Those consequences result from the Commission's failure to tell the applicants that their current unit entitlements could not be expected to continue.  Of particular importance in this connection is clause 4(3) of Determination No. 5, upon which each applicant relied in entering into its commercial relationships for the operation of the centres.  The applicants' legitimate expectation that their unit entitlements would not be reduced without their having an opportunity to put their cases was disappointed.  They were not afforded that opportunity.  They were not even aware of Determination No. 6, and thus had no opportunity of dealing with its application to them.

In support of their contention that the respondents were not obliged to afford the applicants an opportunity to be heard, reliance was placed on Pharmacy Restructuring Authority v. Martin (1994) 53 F.C.R. 589.  In that case the Full Court held that an authority considering an application by a pharmacist to relocate his premises was not obliged to afford a hearing to competitors whose economic interests might be affected by the grant of the application.  It
was submitted that the following passage from p.597 of the report was apposite to the present case:

                we do not know of any general principle to the effect that a statutory authority charged with the duty of considering an application is obliged by the principles of procedural fairness to notify and hear everybody whose economic interests may be damaged by an approval.  To promulgate a general rule imposing such an obligation would be to visit upon statutory decision-makers a potentially massive task of indeterminate reference ....  In the absence of authority we are not prepared to hold that ... the Authority had any obligation to notify or hear pharmacists, non-parties to the application for approval, merely because an approval might commercially damage them.

That is a far cry from the present case.  The applicants here were existing licence holders, with the legitimate expectations I have described.

(c)        The reconsideration

The respondents contended that the reconsideration of the initial decisions cured any natural justice deficiency that might otherwise have affected them.  The reconsideration resulted in no new decision so far as concerned Melbourne and Gribbles.  The earlier decisions were "confirmed".  The reconsideration did however result in a new decision for Macquarie.  As a result of the December decision it lost sixteen units.  The reconsideration gave it an extra unit.  So it lost only fifteen units.  In Calvin v. Carr [1980] A.C. 574, at p.592 Lord Wilberforce, for the Privy Council, said:

                no clear and absolute rule can be laid down on the question whether defects in natural justice appearing at an original hearing, whether administrative or quasi-judicial, can be "cured" through
appeal proceedings.  The situations in which this issue arises are too diverse, and the rules by which they are governed so various, that this must be so.

At p.593 his Lordship said:

                there may be instances when the defect is so flagrant, the consequences so severe, that the most perfect of appeals or re-hearings will not be sufficient to produce a just result.

He then approved the approach adopted in New Zealand cases, which he summarised as follows:

                an appeal to a domestic or administrative tribunal does not normally cure a breach of natural justice by a tribunal of first instance so as to oust the jurisdiction of the courts to redress such breaches, but ... the exercise of such a right of appeal is a matter that may be taken into account by the courts in considering the grant of discretionary remedies.

                ...

See also Twist v. Randwick Municipal Council (1977) 136 C.L.R. 106, at p.116 and Wu v. Minister for Immigration and Ethnic Affairs (1994) 48 F.C.R. 294, at pp.298-299.  As with the present case, Wu did not involve an appeal.  In Wu the question was whether a prima facie invalid decision was cured by a reconsideration de novo by different delegates.  Wilcox J. thought Lord Wilberforce's observations in relation to appeals were applicable in that context, and I think they are applicable to the reconsiderations that occurred in the present cases.  In the present case the breach of natural justice was grave.  No opportunity at all was provided for the applicants to deal with the new Determination.  They were not even told it had been made.  Further, serious consequences flowed to them from the implementation of the Determination.  They would have to close centres and dismiss staff, with consequent dislocation of their practices.  Next, the reconsideration was by the initial decision-maker.  It was not an appeal in any sense of the word.  Finally, the offer was conditional upon the receipt of a submission by 4.00 p.m. on the day after the offer was made.  The offers were received at about 12.30 p.m. on 29 January, and the response was required by 4.00 p.m. on 30 January.  Though the applicants complied with the deadline, they all complained in their submissions that by reason of short notice they had not been afforded a real opportunity to make a submission and present supporting material.  I think their complaints were justified.  In the exercise of my discretion, I do not propose to withhold relief based on the respondents' failure to accord natural justice by reason of the reconsideration of the earlier decisions by the third respondent.

I do not draw any distinction between Melbourne and Gribbles on the one hand and Macquarie on the other with respect to the reconsiderations.  It is true that as a result of the reconsideration Macquarie's allocation was increased from forty to forty one.  It had lost sixteen units as a result of the 13 December decision, but that decision was invalid because it was reached in breach of the rules of natural justice.  A reconsideration that did not cure the original defect cannot result in a valid decision simply because it purported to improve Macquarie's position by giving it one unit more than the invalidly reduced allocation.  Macquarie still had fifteen fewer units than it had before 13 December 1995.

(14)      Conclusion

In the first Melbourne proceeding I will declare that the decision made on 13 December 1995 is invalid.  I will refer Melbourne's application for allocation of units for the year commencing 1 February 1996 to the Minister for determination according to law.  I will
direct the Minister to determine the application by 5.00 p.m. on 7 May 1996, and will stay the declaration of invalidity until 5.00 p.m. on 8 May 1996.

I will grant the same relief in the first Gribbles proceeding.

In the second Melbourne proceeding I will declare that the decision made on 2 February 1996 purporting to confirm the decision made on 13 December 1995 is invalid.

In the second Gribbles proceeding I will declare that the decision made on 31 January 1996 purporting to confirm the decision made on 13 December 1995 is invalid.

In the first Macquarie proceeding I will declare that the determination made on 13 December 1995 is invalid.

In the second Macquarie proceeding I will declare that the decision made on 31 January 1996 is invalid.  I will refer Macquarie's application for allocation of units for the year commencing 1 February 1996 to the Minister for determination according to law.  I will direct the Minister to determine the application by 5.00 p.m. on 7 May 1996, and will stay the declaration of invalidity until 5.00 p.m. on 8 May 1996.

Although the applicants have succeeded in having the various decisions set aside, their attack on the validity of Determination No. 6 failed.  That attack occupied a little over half the time of the hearing.  I propose to award each applicant half its costs of the applications.

On 25 January 1996 each applicant applied to Gray J. for interlocutory injunctions.  His Honour dismissed the applications and reserved the costs.  Although the applicants failed to obtain the relief they sought, the respondents' conduct in relation to the making of the 13 December 1995 determinations gave the applicants little choice but to seek urgent relief.  The respondents conceded before his Honour, "properly" so he said, that there was a serious question to be tried on the natural justice issue relating to the making of the allocations (the issue on which they ultimately succeeded), and that the balance of convenience was in favour of the applicants, in the sense that the loss and inconvenience to them and to others far outweighed any loss or inconvenience to the respondents.  His Honour twice said that he had reluctantly concluded that he could not give the applicants the relief they sought.  In those circumstances I think it is appropriate that the parties bear their own costs of the applications before Gray J.

                                                                                    I certify that this and the preceding 47 pages are a true copy of the reasons for judgment of the Honourable Justice Sundberg

                                                                                    .................................................

                                                                                                            Associate

                                                                                                            26 March 1996

Counsel for the Appellant:                                             Mr G H Garde QC, Mr P J Hanks and

                                                                                    Mr M Goldblatt

Solicitors for the Appellant Melbourne

            Pathology Pty Ltd:                                            Price Brent

Solicitors for the Appellant Gribbles

            Pathology (Vic) Pty Ltd                                    Schetzer Brott

Solicitors for the Appellant Macquarie

            Pathology Services Pty Ltd                               Schetzer Brott

Counsel for the Respondent:                                         Mr N Moshinsky QC and Mr R Frazzetto

Solicitors for the Respondent:                            Australian Government Solicitor

Date of Hearing:                                                           19-22 February, 21 March 1996

Place of Hearing:                                                          Melbourne

Date of Judgment:                                                         26 March 1996