Minister for Health and Family Services v Jadwan Pty Ltd [1998] FCA 1549 (4 December 1998)

Last Updated: 8 December 1998

FEDERAL COURT OF AUSTRALIA

ADMINISTRATIVE LAW - Administrative Decisions (Judicial Review) Act 1977 (Cth), s 5(1)(b) - revocation of nursing home approval under s 44 of the National Health Act 1953 (Cth) - whether failure to observe procedures required by law to be observed in connection with making of the decision - reliance on report of Standards Review Panel purportedly established under the National Health Regulations - membership of Panel did not comply with the National Health Regulations- effect of non-compliance.

ADMINISTRATIVE LAW - failure to take relevant considerations into account - whether Minister bound to take into account fact that Panel was not established in accordance with the National Health Act 1953 and the National Health Regulations - whether consideration was so insignificant it could not materially have affected the decision.

National Health Act (Cth), ss 40AA, 44, 45D, 45E, 105AAB.

National Health Regulations, rr 7, 8, 9, 10, 11, 12, 24, 25, 26, 27, 28, 29.

Administrative Decisions (Judicial Review) Act 1977 (Cth), s 5(1)(b).

Our Town FM Pty Ltd v Australian Broadcasting Tribunal [1987] FCA 301; (1987) 16 FCR 465, cited.

Peninsula Anglican Boys' School v Ryan [1985] FCA 387; (1985) 7 FCR 415, cited.

Minister for Aboriginal Affairs v Peko Wallsend Ltd [1986] HCA 40; (1986) 162 CLR 24, cited.

Otter Gold Mines Ltd v Australian Securities Commission (1997) 15 ACLC 1732, cited.

MINISTER FOR HEALTH AND FAMILY SERVICES v JADWAN PTY LTD

TG 14 of 1998

BURCHETT, DRUMMOND, SACKVILLE JJ

HOBART

4 DECEMBER 1998

IN THE FEDERAL COURT OF AUSTRALIA
TASMANIA DISTRICT REGISTRY	TG 14 of 1998

BETWEEN:	MINISTER FOR HEALTH AND FAMILY SERVICES APPELLANT
AND:	JADWAN PTY LTD RESPONDENT

JUDGE:	BURCHETT, DRUMMOND, SACKVILLE JJ.
DATE:	4 DECEMBER, 1998
PLACE:	SYDNEY

THE COURT ORDERS THAT:

1. Appeal allowed in part.

2. Set aside Order 2 of the Orders made by the trial Judge on 19 June 1998.

3. In substitution for Order 2, set aside the decision of the Minister, made on 6 August 1997, to revoke the approval of the Derwent Court Nursing Home.

4. The Appellant pay half the Respondent's costs of the appeal.

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

IN THE FEDERAL COURT OF AUSTRALIA
TASMANIA DISTRICT REGISTRY	TG 14 of 1998

ON APPEAL FROM A JUDGE OF THE FEDERAL COURT OF AUSTRALIA

BETWEEN:	MINISTER FOR HEALTH AND FAMILY SERVICES APPELLANT
AND:	JADWAN PTY LTD RESPONDENT

JUDGES:	BURCHETT, DRUMMOND, SACKVILLE JJ.
DATE:	4 DECEMBER 1998
PLACE:	HOBART

REASONS FOR JUDGMENT

THE COURT:

The Proceedings

This is an appeal from a decision of a Judge of this Court, declaring that a decision made on 6 August 1997 by a delegate of the appellant ("the Minister") was void. The delegate decided on that date to revoke the approval of the Derwent Court Nursing Home ("Derwent Court") as an approved nursing home under s 40AA of the National Health Act 1953 (Cth) ("National Health Act 1977 "). The respondent is the proprietor of Derwent Court, which is located in Dynnyrne, a suburb of Hobart. We refer to the decision of 6 August 1997 as the "revocation decision".

The delegate, in making the revocation decision, relied on the findings made by a Standards Review Panel, purportedly established pursuant to reg 8 of the National Health Regulations. The trial Judge found that the Panel had not been established in compliance with the requirements of the National Health Regulations and that it did not act in accordance with procedures laid down in those regulations. In consequence, his Honour held that the respondent had made out the ground of review provided for in s 5(1)(b) of the Administrative Decisions (Judicial Review) Act (Cth) ("ADJR Act 1953 "). That ground is as follows:

"procedures that were required by law to be observed in connection with the making of the decision were not observed".

The Minister's Notice of Appeal raised a number of contentions. All have been abandoned, except one. In particular, the Minister no longer disputes that the Panel was not properly constituted and did not follow the correct procedures. The only issue raised by the appeal, then, is whether the failure to establish the Panel validly or its failure to conduct its inquiry validly, constituted a failure to observe "procedures that were required by law to be observed in connection with the making of the decision", within s 5(1)(b) of the ADJR Act.

The respondent did not file any notice of contention. However, when the hearing of the appeal commenced, Mr Sealy, who appeared for the respondent, stated that he wished to amend the original application. He sought leave to amend the application to raise the following ground:

"The making of the decision was an improper exercise of the power conferred by s 44 of the National Health Act in that the Respondent:

(a) took an irrelevant consideration into account;

Particulars

The Respondent treated a document dated 26 May 1997 and entitled `Report of The Standards Review Panel of Tasmania - Derwent Court Nursing Home' as if it were a report of a Standards Review Panel which had been properly constituted pursuant to the National Health Regulations, whereas the said document was in fact a document which had been prepared by Dr Penelope Flett, Mrs Ethel Guy and Ms Janet Cooper.

(b) failed to take a relevant consideration into account.

Particulars

The Respondent failed to take into account the fact that the document dated 26 May 1997 and entitled `Report of The Standards Review Panel of Tasmania - Derwent Court Nursing Home' was not a report of a Standards Review Panel which had been properly constituted pursuant to the National Health Regulations, but was merely a document which had been prepared by Dr Penelope Flett, Mrs Ethel Guy and Ms Janet Cooper."

Mr Bell, very fairly recognising that the proposed amendment raised no new factual ground, did not oppose leave being granted. Accordingly, the Court granted the leave sought by the respondent.

An application by Mr Sealy to add a further ground to the application, based on an alleged breach of the rules of natural justice, was refused.

The Legislative Background

National Health Act 1997

The National Health Act creates a scheme of Commonwealth funding for approved nursing homes. The legislation in force at the relevant times has been amended in consequence of the enactment of the Aged Care Act (Cth), which introduced a new funding regime. In particular, s 45E of the National Health Act, which is crucial to the outcome of the present case, has now been repealed. The outline which follows describes the material provisions as they stood prior to the recent amendments.

Part 5 of the National Health Act 1991 establishes procedures for the approval of premises as an approved nursing home and the revocation of any such approval. Section 44 is as follows:

"44(1) The Minister may, at any time, review the approval of a nursing home under this Part.

(2) If the Minister considers that:

(a) the nature of an approved nursing home has changed since the approval under review was given or deemed to have been given; or

(b) a condition applicable to the approved nursing home has not been complied with;

the Minister may vary the nature of the approval or revoke or suspend the approval as the Minister considers justified in the circumstances of the case.

(2A) The Minister may give the proprietor of the approved nursing home written notice of his or her intention to vary the nature of the approval or revoke or suspend the approval as the case may be.

(3) Upon receipt of:

(a) an application in writing by the proprietor of an approved nursing home for revocation of the approval of the nursing home; or

(b) ...;

the Minister, may revoke the approval of the nursing home.

(4) A variation of the nature of, or a revocation or suspension of, an approval of a nursing home under this section shall be effected by notice in writing served on the proprietor of the nursing home, and, in the case of a notice suspending an approval, the notice shall set out the period of the suspension (not being a period that commences before the date of service of the notice).

It will be seen that s 44(2)(b) makes it a ground for revocation or suspension of an approval if the Minister considers that a condition applicable to the nursing home has not been complied with. Section 40AA(6) provides that the approval of premises as an approved nursing home is subject to a large number of conditions. These include par (ck), which was introduced into the legislation by the National Health Amendment Act (Cth). It imposes the following condition:

"(ck) a condition that the nursing home care provided in the nursing home satisfies the standards determined under section 45D".

Section 45D empowers the Minister, by written notice, to determine standards to be observed in the provision of nursing home care in approved nursing homes. By notice in the Commonwealth Gazette dated on 11 November 1987, the then Minister gave notice of the determination of standards to be observed in the provision of nursing home care in approved nursing homes.

Section 45E of the National Health Act 1991 (now repealed) is headed "Declaration of non-compliance with standards"). It provides as follows:

"45E(1) If the nursing home care provided in an approved nursing home does not satisfy the standards determined under section 45D, the Minister may, by written notice served on the proprietor of the nursing home, declare that the home does not satisfy those standards.

(2) Where a declaration is in force under subsection (1), the Minister may, by written notice served on the proprietor of the nursing home, determine that, while the declaration remains in force, Commonwealth benefit is not payable to the proprietor of the nursing home in respect of a patient admitted to the nursing home after the making of the determination.

...

(6) While a determination under subsection (2) is in force:

(a) Commonwealth benefit is not payable to the proprietor of the nursing home in respect of a patient admitted to the home after the making of the determination; and

(b) ....

(10) The Minister shall not make a declaration under subsection (1) in respect of a nursing home unless:

(a) a Standards Review Panel has been established in the State or Territory in which the nursing home is situated; and

(b) the requirements of any regulations made for the purposes of this subsection have been satisfied.

(11) Without limiting the generality of subsection (10), regulations made for the purposes of that subsection may provide for:

(a) the giving, to the proprietor of a nursing home, of notice of the Minister's intention to make a declaration under subsection (1) in respect of the nursing home;

(b) the reference to the Standards Review Panel in the relevant State or Territory, at the request of the proprietor, of the notice given by the Minister;

(c) the making by the Standards Review Panel of recommendations to the Minister, including:

(i) recommendations that a declaration should be made or should not be made; and

(ii) where the Panel recommends that a declaration be made, recommendations regarding the action that should be taken under subsection (2)... following the making of the declaration.

(12) This section does not imply that the Minister may not, in circumstances where the Minister is satisfied of the matter referred to under subsection (1) (whether or not the Minister has taken any action under this section), suspend or revoke the approval of the nursing home concerned as an approved nursing home under section 44 if he or she considers that to be a more appropriate course of action."

Section 45E(12), like s 40AA(6)(ck), was inserted into the National Health Act by the National Health Amendment Act (Cth).

Part 7A of the National Health Act 1991 deals with review of decisions. Section 105AAB(1) defines "reviewable decision" to include a decision of the Minister or her delegate under s 44. Subject to one exception, not presently relevant, the definition does not include a decision under s 45E. A person affected by a reviewable decision may request the Minister to reconsider the decision: s 105AAB(2). Upon the receipt of the request, the Minister must reconsider the decision and may affirm, revoke or vary it: s 105AAB(4). Applications may be made to the Administrative Appeals Tribunal ("AAT") for review of reviewable decisions that have been affirmed or varied under s 105AAB(4): s 105AAB(7).

It follows from these provisions that a decision by the Minister to affirm a decision under s 44(2) to revoke or suspend an approval may be the subject of an application to the AAT for review. A decision by the Minister to make a declaration under s 45E(1), or to give a notice under s 45E(2), cannot be the subject of such an application.

National Health Regulations

Part 4 of the National Health Regulations provides for the establishment and specifies the functions of Standards Review Panels. The Minister is empowered to establish a Panel or Panels in each State and Territory in which nursing homes are situated: reg 8. By reg 9, the functions of a Panel are to:

"(a) review the nursing home care provided in nursing homes; and

(b) compare the provision of that care with standards determined under section 45D of the Act; and

(c) inquire into matters for the purposes of a function referred to in paragraph (a) or (b); and

(d) report the findings of the Panel, and the reasons for those findings, to the Minister; and

(e) make recommendations to the Minister resulting from its reports; and

(f) perform these functions:

(i) at the direction of the Minister; or

(ii) on a referral by a proprietor."

The word "recommendation" is defined in reg 7 to mean

"a recommendation:

(a) that a declaration should or should not be made under subsection 45E(1) of the Act; and

(b) specifying the action (if any) to be taken under subsection 45E(2)... of the Act."

This definition reflects the terms of s 45E(11)(c) of the Act.

Regulation 10 provides that, subject to Part 4, a Panel has power to do all things necessary or convenient to be done in connection with the performance of its functions.

Regulations 11 and 12 deal with the appointment and membership of panels. It is not necessary to extract these provisions in detail, since the Minister now concedes that the Panel appointed in this case did not meet the requirements specified in the Regulations. However, we shall return to the respects in which the Panel failed to meet the requirements of regs 11 and 12.

Division 4 of Part 4 of the Regulations contains provisions relating to the performance by Panels of their functions. Regulation 24 directs a Panel to act with as little formality and as much expedition as the requirements of Part 4 and a proper consideration of the matter permit. Regulation 25 provides that, if the Minister intends to give notice to a proprietor under s 45E(1) of the National Health Act (that is, a notice declaring that the nursing home does not satisfy the standards determined under s 45D), the Minister must inform the proprietor by notice in writing of her intention to do so. The notice must inform the proprietor that he or she may refer the notice to a Panel: reg 25(2). Regulation 27 allows a proprietor to refer a notice received under reg 25 to the Chairperson of a Panel, provided the proprietor acts within fourteen days of receipt of the notice.

Regulation 26 provides as follows:

"26. The Minister may, by notice in writing to the Chairperson, direct a Panel for a State or Territory to perform the functions of a Panel specified in paragraphs 9(a), (b), (c) and (d) in relation to a matter in respect of a nursing home situated in the State or Territory, being a matter specified in the notice."

On receipt by a Panel of a direction by the Minister under reg 26, or a reference under reg 27 in respect of a nursing home, the Chairperson must inform the proprietor that the Panel will perform its functions in relation to the direction or reference: reg 28(1). The proprietor must be given an opportunity to give the Panel information to which the Panel must have regard in the performance of its functions: reg 28(2).

Where the Chairperson of a Panel has given notice to a proprietor under reg 28(2), the Panel

"must report and make recommendations in respect of the nursing home to the Minister"

within 28 days from the expiration of a specified period unless there are exceptional circumstances: reg 29. The report and recommendations must be in writing.

Course of Events

The respondent purchased Derwent Court in 1984. At that time, Derwent Court was approved under s 40AA of the National Health Act, as a place in which nursing home care could be provided to fifty-one eligible residents. The respondent operated Derwent Court as a nursing home pursuant to that approval until August 1997.

On 6 September 1996, following a standards monitoring visit to Derwent Court, a delegate of the Minister notified the respondent of his intention to make a declaration under s 45E(1) of the National Health Act that Derwent Court did not satisfy standards determined under s 45D. The letter advised the respondent, in accordance with reg 25(2) of the National Health Regulations, that it had fourteen days from the receipt of the notice to refer the matter to the Chairperson of the Standards Review Panel.

On 19 September 1996, the respondent, acting pursuant to reg 27, referred the notice to the Chairperson of the Panel. On 2 December 1996, the Panel ("the first Panel") reported to the Minister. It found that Derwent Court failed to meet several of the standards gazetted pursuant to s 45D of the National Health Act and that urgent action was required to meet those standards. On 3 February 1997, the delegate of the Minister declared, pursuant to s 45E(1) of the Act, that Derwent Court did not satisfy the standards. The delegate also made a determination under s 45E(2) that, while the declaration remained in force, Commonwealth benefit was not payable in respect of any new patient admitted to Derwent Court. The delegate further advised that he was considering revoking the approval of Derwent Court and required the respondent to show cause within three days why this should not be done.

It appears that the delegate subsequently deferred the threatened revocation of approval. In any event, on 5 March 1997, the respondent made written submissions in relation to the first Panel's report. A further review of Derwent Court by a standards monitoring team took place in mid-March 1997.

On 1 April 1997, the Minister's delegate wrote to the respondent as follows:

"My purpose in writing is to advise you of my intention, as a delegate of the Minister for the purposes of Regulation 26 of the National Health Regulations, to ask the Standards Review Panel of Tasmania to:

* again review the nursing home care being provided at Derwent Court Nursing Home;

* compare that care with the standards determined under section 45D of the National Health Act 1953;

* inquire specifically into:

* the policies, process and practices used at Derwent Court Nursing Home to deliver nursing home care and determine whether all of these elements operate together to ensure that outcomes for residents are met in a sustainable manner; and

* whether the actions set out in your submission dated 5 March 1997 will result in sustained improvements in outcomes for residents at Derwent Court Nursing Home; and

* report to me on its findings."

On 1 May 1997, the delegate directed the Chairperson of a new Panel, Dr Flett, to perform the functions specified in the letter of 1 April 1997. The operative part of the letter of 1 May 1997 was in substantially the same terms as the letter of 1 April 1997. Of course, as is now not disputed, the membership of this "Panel" did not meet the requirements of regs 11 and 12 of the National Health Regulations.

We pause to observe that there was some debate as to the delegate's intentions in giving the directions to the second Standards Review Panel chaired by Dr Flett ("the second Panel"). Mr Sealy suggested that the delegate gave the directions to the second Panel in order to satisfy the requirements of s 45E(10), thereby paving the way for the delegate to exercise the powers conferred by sub-ss 45E(1) and (2). On this basis, Mr Sealy contended that the directions to the second Panel were not intended to have anything to do with the exercise or proposed exercise of the Minister's power to revoke or suspend an approval conferred by s 44(2).

This interpretation of events is not sustainable. The delegate, as Mr Bell submitted, plainly acted on the assumption that a Panel could be directed to prepare a report for the purpose of assisting the Minister in deciding whether or not to exercise the power of suspension or revocation conferred by s 44, independently of any question arising under s 45E. That this is the proper construction of events is shown by the fact that, as at 1 April 1997, a declaration under s 45E(1) and a notice under s 45E(2) were already in force in respect of Derwent Court. Moreover, the delegate responsible for making the declaration and giving the notice had already advised the respondent that he was considering revoking Derwent Court's approval. Thus there could hardly have been any point to a further consideration of whether the Minister should exercise the powers conferred by s 45E. In any event, as will become clear, the delegate responsible for the letters of 1 April and 1 May 1997 saw her role as being to make a decision pursuant to s 44(2) rather than yet another decision pursuant to s 45E.

The second Panel carried out investigations, conducted interviews with representatives of the respondent and visited Derwent Court. The Panel reported on 26 May 1997. It summarised its findings as follows:

"1. The Panel reviewed the nursing home care being provided and found that care was not consistent with contemporary nursing home care practices.

Further, the Panel found many serious deficiencies when relating that care to the Standards under Section 45D of the National Health Act 1953.

2. When the Panel inquired specifically into policies, processes and practices at the nursing home, it found that there is no systematic approach to care and other practices, including the absence of documented processes to provide evidence of consistent adherence to policy and procedure.

3. In the Panel's view, the actions set out in the submission from [the respondent] are not adequate in themselves, nor do they demonstrate a knowledge base substantial enough to result in sustained improvements in outcomes for residents. This view was not altered during the course of the Panel's review."

On 28 May 1997, the Department provided the respondent with a copy of the second Panel's report. An accompanying letter informed the respondent that the delegate would consider the report in relation to its compliance with the s 45D standards; and warned that the delegate might consider whether the approval of Derwent Court should be revoked. The respondent was invited to make submissions on the contents of the report. It did so on 4 June 1997.

On 20 July 1997, the Minister's delegate gave the respondent notice under s 44(2A) of the National Health Act, of her intention to revoke Derwent Court's approval. The notice set out her finding that a condition applicable to the approval of Derwent Court had not been complied with, namely, the condition in s 40AA(6)(ck) that the nursing home care provided in the nursing home satisfy the standards determined under s 45D.

The notice was accompanied by a detailed statement of reasons. In the course of those reasons, the delegate considered whether Derwent Court met the "Descriptive Standards" which she identified as the standards (31 in number) set out in a Departmental handbook and "designed to determine compliance with the standards determined under s 45D". The delegate made the following findings on material questions of fact:

" the Gazetted Standards have not been complied with by this nursing home;

these involve serious deficiencies in care, most of which require urgent action;

the proprietor has not taken the appropriate substantial action which would overcome these deficiencies; and

there is no reasonable prospect that the proprietor will do so on the substantial and urgent basis required."

In making the findings extracted above, the delegate relied heavily on the findings of the Standards Monitoring Team of March 1997 and the confirmation of those findings by the second Panel. For example, Descriptive Standard 1.4 was addressed as follows:

"Descriptive Standard 1.4 - All residents are adequately nourished and adequately hydrated.

A. The first Panel did not report separately on this Descriptive Standard.

B. The proprietor's submission did not consider this Descriptive Standard.

C. The finding of the Standards Monitoring Team assessing this Descriptive Standard in March 1997 was urgent action required. The central issue identified by the team was the absence of any process for staff to assess, review, implement interventions and evaluate the nutritional status of residents. For example, where a problem in weight loss had been identified with one resident, no action was taken due to the absence of any process to develop a strategy for addressing the weight loss.

D. The proprietor did not comment on this finding.

E. The second Panel confirmed the finding of urgent action required.

F. The proprietor again did not comment on the finding.

I accept the findings of the Standards Monitoring Team and the second Panel that urgent action is required to satisfy this Descriptive Standard. I am satisfied that the deficiency in this Descriptive Standard constitutes a failure to satisfy the requirements of Gazetted Standard 3." (Emphasis in original.)

Copies of the reports of the first and second Panels were annexed to the delegate's reasons. The reasons defined the expression "second Panel" to mean

"the Standards Review Panel of Tasmania chaired by Dr Penelope Flett, meeting at the request of the First Assistant Secretary, Aged and Community Care Division as delegate of the Minister for Family Services in May 1997 and reporting to the delegate on 26 May 1997."

On 6 August 1997, the Minister's delegate notified the respondent of the revocation of the approval of Derwent Court. The letter noted that, as a consequence of the revocation, the respondent would not be paid the recurrent subsidy for providing nursing home care to eligible nursing home residents. We were informed that, in consequence of the revocation, Derwent Court ceased to operate as a nursing home.

On 1 September 1997, the respondent's solicitors made a request pursuant to s 105AAB(2) of the National Health Act that the Minister reconsider the delegate's decision. By letter dated 13 October 1997, another delegate of the Minister ("the reconsideration delegate") affirmed the revocation of the decision. The letter was accompanied by a detailed statement of reasons.

The reasons included the following findings on material questions of fact:

" the Gazetted Standards were not satisfied by this nursing home;

the non-compliance at this nursing home involved serious deficiencies in care, most of which required urgent action;

as at 6 August 1997 the proprietor had not taken the appropriate substantial action which would overcome these deficiencies;

...

the findings on deficiencies in the standards in the reports of the first and second Panels and in the standards monitoring report of March 1997 related to care issues at least as much as they did to the physical premises."

The reasons defined the expression "second Panel" in the same way as the reasons accompanying the delegate's notice of 20 July 1997.

The evidence on which the reconsideration delegate's findings were based included

"the report by the second Panel...which found that urgent action was required on 25 of the 31 Descriptive Standards."

The reconsideration delegate addressed a number of issues that had been raised by the respondent in its submissions. These included the following claim made by the respondent:

"3. It is my client's belief that the Standards Review Panel which inspected the Home in May 1997 and reported to your delegate Sarah Jane Halton on May 26th 1997 and upon whose report the decision to revoke the Home's approval was based:

3.1 was not constituted in the manner prescribed by Regulation 12(1) of the National Health Regulations; and

3.2 comprised a member or members who did not possess the necessary qualifications or experience as prescribed by Regulation 11(1) of the National Health Regulations

and that the findings and recommendations of that Standards Review Panel should not have been taken into account in making a decision on the revocation of the Home's approval."

The delegate responded to this claim as follows:

"3.1 I assume that this refers to the absence of an industry representative on the second Panel. The effect of Regulation 12(11) is to allow the Panel to proceed despite the absence of a member from one of the categories set out in Regulation 11(1). I note the Department's efforts in attempting to fill the vacancy. Regulation 12(11) is provided for the purpose of allowing the Standards Review Panel process to proceed. To do otherwise could create unnecessarily prolonged uncertainty for consumers, their families and providers.

3.3 I have cited the evidence I have had regard to. Dr Penelope Flett has outstanding expertise in both clinical gerontology and in the delivery of nursing home care and I accept that the Minister was satisfied as to her experience as required by Regulation 12(3).

The other members meet the requirements. In any case, if one of them did not, it would not be enough to set aside the findings of the Panel because the report was prepared and signed by the consensus of the members, so the lack of expertise of one member would not be enough to diminish the findings."

On 7 November 1997, the respondent applied to the AAT for review of the revocation decision of 6 August 1997, which had been affirmed on 13 October 1997. On 21 January 1998, the respondent sought review in this Court under the ADJR Act of the revocation decision. The AAT adjourned the proceedings before it, pending the outcome of the application to the Court.

The Decision of the Primary Judge

The primary Judge noted that both parties had agreed that nothing turned on whether the relevant decision was the revocation decision of 6 August 1997 or the affirmation decision of 13 October 1997. He held as follows:

(i) The Court should not decline to decide the legal issues by reason of the pending AAT proceedings.

(ii) The constitution of the second Panel failed to comply with the requirements of regs 11 and 12 of the National Health Regulations. The Panel consisted of only three members instead of the five required by reg 12(1). It lacked both a person with management experience, as required by regs 11(1)(a) and 12(1)(b), and an officer of the Department as required by reg 12(1)(e). Further, one of the three members of the Panel was ineligible for appointment, since she did not hold the qualification specified by the regulation pursuant to which her purported appointment was made.

(iii) The second Panel had failed to give the respondent the notice required by reg 28(1).

(iv) The failure to follow the procedures in relation to the appointment of the second Panel and to the giving of notice under reg 28 constituted a failure to observe procedures required by law to be observed in connection with the making of each of the decisions, within s 5(1)(b) of the ADJR Act.

(v) The failure was sufficiently serious to invalidate each decision, since the object of the National Health Act and the Regulations could not be achieved unless the procedures required by regs 11 and 12 were followed.

(vi) The Minister had not erred in law in her interpretation and application of the Standards. In particular, her delegates had not erred in referring to the Departmental booklet.

As we have already noted, the only challenge made by the Minister to his Honour's reasoning is in relation to the conclusion stated in par (iv). On that issue, his Honour reasoned as follows:

"I now need to determine the consequence of the failures to follow the procedures in relation to the appointment of the second Panel and giving of notice pursuant to reg 28. As mentioned above, the revocation power contained in s 44 of the Act does not expressly require the Minister to seek a report or recommendation from a Panel. The Minister argues that s 44 confers a `free standing' power which is not affected by defective procedures in relation to the operation of a Panel.

However in this case the Minister did seek a report from the second Panel, and clearly relied upon that report in making her decision. The Minister relied not only on what the second Panel said but on the fact that a Panel said it. There was no legal inhibition on the Minister seeking the advice of a Panel and in the circumstances it was, administratively speaking, an appropriate and sensible course. However the second Panel was not constituted as the law requires and did not follow the procedures required by law for Panels. As a consequence, the Minister's decision to revoke was in my opinion infected by legal error.

...

It can properly be said in my opinion that the procedures required to be followed in relation to the constitution and functioning of a Panel are procedures `in connection with' the Minister's decision to revoke approval for Derwent Court. While a Panel report is not a necessary precondition to the Minister's decision to revoke, once that route was selected it became something which related to, or had a `connection with' the Minister's decision to revoke approval. When the Minister chose to use the Panel procedure she was `required by law' to use a Panel constituted in accordance with the Regulations and to follow the procedure therein prescribed. The Panel is a mechanism carefully designed to provide a contribution not only of differing expertise but differing values. For example, a Panel composed of five nursing home proprietors or five nursing union members would lack the legitimacy the law intends."

As we have noted, despite the orders made by the trial Judge, Derwent Court has not reopened as a nursing home. A formidable practical barrier to its doing so is the currency of the Minister's declaration under s 45E(1) and her determination under s 45E(2), both made on 3 February 1997.

Submissions

Having regard to the respondent's amendment of its original application, it is convenient first to consider the respondent's arguments.

Mr Sealy submitted that the effect of s 45E(12) of the National Health Act is that the Minister could not lawfully be satisfied that an approved nursing home did not satisfy the standards determined under s 45D unless and until the Panel procedure, as required by s 45E(10), had been completed. On that basis, the establishment of a Panel in accordance with the National Health Regulations, was a procedure "required by law to be observed in connection with the making of the [revocation] decision". Alternatively, Mr Sealy contended that the Minister had elected to give a direction to the Standards Review Panel pursuant to reg 26. She was therefore required by law to use a Panel constituted in accordance with the National Health Regulations.

Mr Sealy argued that, in any event, the Minister had failed to take into account a relevant consideration or had taken into account an irrelevant consideration, when making the decision to revoke Derwent Court's approval. She had relied heavily on the report of the second Panel and had treated it as if it were the report of a properly constituted Panel appointed under the National Health Regulations. The findings of the Panel had been accorded a status and significance that flowed from the belief of the Minister's delegate that the report emanated from a Panel established under procedures provided for by the National Health Act itself. In truth, the report was prepared by three individuals not clothed with any authority under the Act or the Regulations, and not having the broad mix of qualifications requisite under the Act and Regulations.

Mr Bell countered the respondent's first argument by the following reasoning:

(i) Section 5(1)(b) of the ADJR Act applies to a procedure required by law to be followed as part of the decision-making process.

(ii) The Minister had exercised the power conferred by s 44(2) of the National Health Act to revoke the approval. That power was conferred in wide terms. Unlike the power in s 45E, it was not predicated on the Minister observing the Panel procedure. The Minister was not required to appoint a Panel in order to revoke the approval of a nursing home.

(iii) The Minister was entitled to appoint a Panel pursuant to reg 26 to make a report for the assistance of the Minister in deciding whether or not to exercise the power in s 44 to cancel Derwent Court's approval. But the fact that the Minister elected to appoint a Panel gave rise to no relevant obligation to follow the Panel procedure. The Minister did not omit any step she was required to take in connection with the making of a decision under s 44(2).

(iv) This approach did not limit the right of a person adversely affected by a decision under s 44(2) to seek review of that decision. If, for example, the Minister's reliance on a report of an improperly constituted Panel resulted in a denial of procedural fairness, the decision could be impugned. In any event, the proprietor could seek review of the decision in the AAT.

In response to the respondent's second submission, Mr Bell argued that the Minister had neither taken into account an irrelevant consideration, nor failed to take into account a relevant consideration. Section 44 of the National Health Act did not confine the Minister to particular sources of advice. It was open to the Minister and her delegates to seek the advice of the three persons who prepared the report of the second Panel. The fact that the Panel had not been validly constituted was not to the point.

An Overview of the Legislation

When considering the questions of construction posed by the competing submissions, a number of factors need to be borne in mind.

First, the subject matters of ss 44 and 45E are different. Section 44 is concerned with revocation, suspension or variation of an approval of a nursing home. The effect of revocation or suspension, in practical terms, is to require closure of the home, since a nursing home ordinarily is not financially viable without payment of Commonwealth benefit. Section 45E is, with one exception (related to "exempt bed status" (sub-s (4A)), concerned with a more limited sanction, namely, the withdrawal of Commonwealth benefit in respect of new patients while a declaration under s 45E(1) remains in force. Section 45E envisages that the nursing home can continue to operate and receive Commonwealth benefit in respect of existing patients.

Secondly, the grounds for invoking the powers conferred by s 44(2) are very much wider than the ground which enlivens the power in s 45E. Section 45E applies if the nursing home care provided in an approved nursing home does not satisfy the standards determined under s 45D. Section 44(2) applies if the Minister considers, inter alia, that any one of the many conditions applicable to an approved nursing home has not been complied with.

Thirdly, prior to the enactment of the National Health Act (Cth), s 40AA(6) of the National Health Act 1991 did not require nursing homes, as a condition of approval, to satisfy the standards determined under s 45D. The 1991 Act introduced such a requirement, by inserting par (ck) into s 40AA(6). The same Act introduced s 45E(12), which was clearly intended to address the relationship between s 45E and s 44(2) having regard to the potential overlap between the two provisions resulting from the enactment of par (ck).

Fourthly, the National Health Act distinguishes between declarations and notices given under s 45E, on the one hand, and action taken under s 44 on the other. Section 45E(10), for example, prevents the Minister making a declaration under s 45E(1) unless a Standards Review Panel has been established and has satisfied the requirements of the Regulations. Similarly, s 105AAB provides for the AAT to review cancellation and revocation decisions made under s 44, but not declarations and notices given under s 45E (except those relating to "exempt bed status"). Section 45E(11)(b) contemplates that a proprietor who receives notice that the Minister intends to make a declaration under s 45E(1) may request that the notice be referred to a Panel. The legislation contemplates, therefore, that a proprietor is entitled to have a Panel (but not the AAT) review the notice served under s 45E(1).

Fifthly, sub-ss 45E(10) and (11) confer regulation-making power specifically in relation to the procedures required for the making of a declaration and the giving of a notice under s 45E(1). While the National Health Act contains a general regulation-making power (s 140), s 44 contains no provisions equivalent to those in sub-ss (10) and (11) of s 45E.

Regulation 26

Mr Bell submitted that reg 26 of the National Health Regulations is broad enough to authorise the Minister giving a direction to a Panel to review the standard of nursing home care provided in nursing homes for the purpose of assisting the Minister to determine whether she should exercise the powers conferred by s 44 of the National Health Act (as distinct from s 45E). Indeed, as we have pointed out, that is exactly what the delegate purported to do in the letter of 1 May 1997, addressed to Dr Flett. While it is by no means clear that Mr Bell's submission ultimately assisted the Minister's appeal, it should be addressed. In our view, the submission should be rejected.

There are a number of indications suggesting that the Minister can give directions to a Panel only to perform functions in connection with a possible exercise of powers under s 45E of the Act. The indications include the following:

(i) The functions of the Panels, as specified in reg 9, are very closely related to the criterion specified in s 45E(1), namely that nursing home care provided in an approved nursing home does not satisfy the standards determined in accordance with s 45D. It is true that reg 9(a) provides that the functions include reviewing the nursing home care provided in the nursing home. But reg 9(b) shows that the point of the review is to compare the provision of that care with the standards determined under s 45D.

(ii) Part 4 of the National Health Regulations is an exercise of the specific regulation-making power conferred by sub-ss (10) and (11) of s 45E. It is for this reason that the definition of "recommendation" is confined to a recommendation concerning action under sub-ss 45E(1) and (2): see s 45E(11)(c). Similarly, reg 9(f) reflects the terms of sub-ss (10) and 11(b) of s 45E.

(iii) Regulation 26 is located between two provisions (regs 25 and 27), which are specifically referable to procedures contemplated by s 45E itself. It would be curious if reg 26 were intended to confer on the Minister a free-standing power to give directions to a Panel authorising it to consider the exercise of powers conferred by a different section, s 44.

(iv) While reg 26 does not specifically state that the Minister may direct a Panel to make recommendations (in the limited, defined sense), reg 29 provides that a Panel which has given notice under reg 28(2) must report and make recommendations within a specified period. Regulation 29 cannot be read to be confined to references by a proprietor under reg 27 (see reg 28(1)). Nor, despite its heading, can it be regarded simply as a provision relating to the timing of reports. It contemplates that the Panel will make recommendations on whether action should be taken under s 45E(1) or s 45E(2).

It follows that reg 26 does not empower the Minister to give directions to a Panel to review nursing home care for purposes outside the exercise or possible exercise of the powers conferred by s 45E. This does not necessarily mean that the Minister could not have asked the same group of people to provide a report for her assistance in considering the exercise of the power of revocation under s 44(2). Such a report would not, however, have been provided by a Panel duly constituted under the National Health Regulations. We shall return to this question later.

Is the Minister's Power under s 44 Conditional on the Establishment of a Panel?

The Minister's power under s 44, to revoke or suspend an approval, is not subject to an express requirement that the Minister appoint or receive a report from a Standards Review Panel. The Minister is empowered to act only if he or she considers that the nature of the approved nursing home has changed since the date of approval (s 44(2)(a)) or a condition applicable to the home has not been complied with (s 44(2)(b)). However, once those conditions are satisfied, the Minister has a broad discretionary power to vary, revoke or suspend the approval "as the Minister considers justified in the circumstances of the case". There is nothing in s 44 itself to suggest that the Minister's power of revocation is conditional on the establishment of a Standards Review Panel. Mr Sealy did not suggest otherwise.

Section 45E(10) prohibits the Minister making a declaration under s 45E(1) in respect of a nursing home unless a Standards Review Panel has been established and the requirements of the Regulations have been satisfied. Since such a declaration is a precondition to the exercise of the power in s 45E(2) to withhold Commonwealth benefit for future patients, it follows that that financial sanction cannot be imposed without a Panel being established and making a report. However, the language used in s 45E(10) restricts only the Minister's power under s 45E(1) to make a declaration. It does not prevent the Minister from forming the view that the nursing home care does not satisfy the standards determined under s 45D. Much less does it prevent the Minister from being satisfied that a condition applicable to an approved nursing home has not been complied with, even where the condition is one that requires nursing home care to satisfy the standards determined under s 45D. It follows that s 45E(10) cannot of itself limit the Minister's power to suspend or revoke an approval to circumstances in which a Panel has been appointed. Again, Mr Sealy did not suggest otherwise.

Is the position altered by s 45E(12)? Section 45E(12) addresses a situation in which the Minister "is satisfied of the matter referred to under [s 45E(1)]". That "matter", plainly enough, is that the nursing home does not satisfy the standards determined under s 45D. In these circumstances, s 45E (12) is not to be taken as implying that the Minister may not suspend or revoke the approval in respect of the nursing home if she considers that a "more appropriate course of action". This is so whether or not the Minister has taken any action under s 45E(1). The sub-section is not expressed as a limitation on the power conferred by s 44(2). It merely negates an implication that the drafter thought might otherwise flow from s 45E.

The evident purpose of s 45E(12) is to ensure that the Minister's power under s 44 to revoke or cancel an approval is not restricted by the detailed procedures applicable to the more limited sanctions provided for in s 45E. The intention is certainly not to make the Minister's power under s 44 conditional on the appointment of a Panel. This conclusion is consistent with the general structure of the legislation which (as we have explained) clearly distinguishes between the two sources of Ministerial power, and provides different remedies by way of review where the powers are exercised. It is also consistent with the Explanatory Memorandum to the National Health Amendment Bill . Clause 15 of the National Health Amendment Bill 1991 (which became s 45E(12)) was explained as follows:

"This clause amends section 45E of the Principal Act to make it clear that irrespective of any action the Minister may take under section 45E of the Principal Act in regard to a nursing home that does not satisfy standards, the Minister may still proceed to take action under section 44 of the Principal Act against a home which may be in breach of the conditions of its approval."

Mr Sealy contended that this result is anomalous because it would mean that the legislation provides elaborate safeguards for the lesser sanction (denial of Commonwealth benefit for new patients), but affords fewer safeguards for the more severe sanctions (cancellation or suspension of approval). It is true that there are fewer initial constraints on the Minister's power to cancel or suspend an approval than are imposed on the power to deny benefit to new patients. One reason for this is that the power of suspension or even revocation may have to be exercised in circumstances of urgency, for example, where the safety or well-being of patients is in immediate peril. However, the legislation provides important safeguards to a proprietor adversely affected by a cancellation or suspension decision, although they differ from those available in respect of decisions under s 45E. In particular, as we have noted, a proprietor is entitled to seek review on the merits in the AAT of a Ministerial decision to cancel or suspend an approval, while a proprietor threatened with a denial of benefit for new patients is limited to a review by a Panel.

There is therefore nothing anomalous in concluding that the exercise of the Minister's power under s 44(2) of the National Health Act to cancel or suspend an approval is not conditional upon the appointment of a Panel pursuant to the National Health Regulations.

The Alternative Argument: ADJR Act, s 5(1)(b)

It follows from what has been said that the Minister's delegate was neither bound nor entitled to direct a Standards Review Panel to review the nursing home care provided by Derwent Court for purposes not connected with the exercise or possible exercise of the powers conferred by s 45E. The direction given on 1 May 1997 accordingly was not authorised by the National Health Act or the National Health Regulations. In substance, what happened in the present case was that the delegate mistakenly assumed that a Panel could be directed to prepare a report under reg 26 for purposes unconnected with the proposed exercise of powers under s 45E.

The mere fact that the delegate mistakenly assumed that such directions could be given to a Panel, does not mean that there was a failure to observe procedures that were required by law to be observed in connection with the making of the revocation decision. Doubtless the words "in connection with", as used in s 5(1)(b) of the ADJR Act, are to be read widely: Our Town FM Pty Ltd v Australian Broadcasting Tribunal [1987] FCA 301; (1987) 16 FCR 465 (Wilcox J), at 479-480. But there could be no contravention of s 5(1)(b) in this case unless the delegate failed to observe procedures she was required to observe in connection with the decision to revoke Derwent Court's approval.

Neither the National Health Act nor the National Health Regulations required that a Panel should be established and should make a valid report before a decision to revoke Derwent Court's approval could be made: cf Peninsula Anglican Boys' School v Ryan [1985] FCA 387; (1985) 7 FCR 415 (Wilcox J), at 428. The failure to establish a Panel in accordance with the Regulations did not constitute a failure to observe any procedure required by law in connection with the revocation decision. Whatever other consequences might flow from the delegate's reliance on an improperly constituted Panel, the ground of review specified in s 5(1)(b) is not made out.

Did the Delegate Fail to Take into Account a Relevant Consideration or Take into Account an Irrelevant Consideration?

It follows from what has been said that the Minister's delegate is not required or indeed entitled to adopt the Panel procedure, when making a decision to cancel or suspend an approval of a nursing home under s 44(2) of the National Health Act. However, it may well have been open to the delegate, when considering whether she should cancel Derwent Court's approval, to seek the advice of the three individuals comprising the Panel. Mr Bell contended that the fact that the three individuals had not been properly appointed as members of the Panel did not detract from the proposition that the delegate could take into account their views on the standard of care provided by Derwent Court, when making her decision under s 44(2) of the Act.

This argument would have some force as a factual matter, if the decision-maker had recognised that the Panel not been validly appointed. Had she appreciated the correct position, she might nonetheless have decided to take into account the views expressed and give them such weight as was appropriate. But she would have done so simply on the basis that three individuals, with specific qualifications and experience, had formed those views. She would not have given weight to their findings because they were clothed with the authority of the Act and the Regulations.

In fact, the delegate relied heavily on the findings of the second Panel when making the revocation decision. She repeatedly referred to the confirmation by the second Panel of findings made by a Standards Monitoring Team, that urgent action was required to ensure that Derwent Court achieved compliance with the relevant standards. The delegate also expressly accepted the findings of the second Panel, and did so without close analysis of its reasoning or of the nature of its investigations.

The delegate took this course because she assumed that the second Panel had been validly appointed under the Regulations. So much appears from the definition of "second Panel" in her reasons. There is nothing in the reasons to suggest that the delegate adverted to the possibility that the Panel had not been validly constituted under the Regulations. It is an obvious and, indeed, almost inescapable inference that the delegate gave weight to the Panel's confirmation of adverse findings precisely because she thought that it had been validly appointed under the Regulations and that it had conducted its inquiries pursuant to the authority conferred by the Regulations. The delegate did not treat the Panel's findings as simply made by three individuals having no authority under the Act or Regulations and lacking, as a Panel, the full range of qualifications a validly constituted Panel would have had.

It will be recalled that the trial Judge was told that there was no difference between the revocation decision, made on 6 August 1997, and the reconsideration decision, made on 13 October 1997. In fact, the reconsideration decision-maker was in a somewhat different position than the delegate. Prior to the reconsideration decision, the respondent made written submissions. In those submissions, it specifically contended that the Panel had not been properly constituted and that one member did not have the experience prescribed by reg 11.

The reconsideration decision-maker, however, rejected this submission. He expressly found that the regulations permitted the Panel to proceed, even without the minimum membership required by reg 12. He also rejected the submission that other members did not meet the requirements of the Regulations. In taking this course, he relied on arguments that were adhered to by the Minister in the proceedings at first instance. The trial Judge, as has been seen, rejected the arguments and they are no longer pressed. Nonetheless, they plainly impressed the reconsideration decision-maker, who acted on the basis that the arguments were correct.

It follows that if the reconsideration decision-maker approached the question of cancellation of Derwent Court's approval on the same basis as the delegate, namely, that the Panel had been validly appointed and thus its findings had been made pursuant to the authority conferred on it by the Regulations. It is true that the reconsideration decision-maker said that, even if one member did not have the requisite experience, that could not "diminish the findings". But that observation does not detract from the basis upon which the reconsideration decision-maker clearly proceeded.

In supplementary written submissions, Mr Bell argued that the revocation decision-maker, although entitled to take into account the legal constitution or status of the Panel, was not bound to take that factor into account: cf Minister for Aboriginal Affairs v Peko-Wallsend Ltd [1986] HCA 40; (1986) 162 CLR 24, at 39-40, per Mason J. He contended that, where the power exercised by the Minister is that conferred by s 44(2)(b) of the National Health Act, the only considerations that the Minister is bound to take into account are those bearing on the standard of nursing care provided by the home and the nature and degree of non-compliance with the relevant condition (in this case compliance with s 45D standards). The Minister was free to consider or ignore the legal status (or lack of it) of the Panel. The fact that the Panel had not been properly constituted and had not received a lawful direction from the Minister, was not a matter the delegate was bound to take into account.

In our view, this submission pays insufficient attention to the relationship between s 44 and 45E and to the fact that the Minister's power under s 44(2) is not untrammelled. The Minister's power to establish a Panel and to give it directions is, for reasons we have given, limited to a review of nursing home care for purposes connected with the exercise or possible exercise of powers conferred by s 45E. The legislation, in particular s 44, does not permit the Minister to establish a Panel and give it directions for the purpose of considering whether or not to cancel the approval of a nursing home. Much less does the legislation authorise the Minister to treat an invalidly constituted Panel as a duly constituted body, clothed with the authority of the Act and the Regulations.

It is, perhaps, arguable as to whether the case should be characterised as one whereby the delegate took into account an irrelevant consideration (treating the findings of the Panel as having been made by a properly constituted Panel) or as one in which the delegate failed to take into account a relevant consideration (that the findings upon which she relied so heavily were not made by a properly constituted Panel, but by three individuals having no authority under the Act or Regulations). We think the former view is preferable, since the delegate was not entitled, as a matter of construction of the Act, to treat the findings of the Panel in the way in which she did. In any event, subject to the issue of materiality considered below, the revocation decision constituted an improper exercise of the power conferred by s 44 of the National Health Act. For the reasons that have been given, the flaw in the revocation decision was not cured by the reconsideration decision.

Finally, Mr Bell argued that, even if the delegate had taken into account irrelevant considerations, it was not conduct that gave rise to an entitlement to judicial review. In our view, this is not a case in which the factor taken into account was so insignificant that it could not have materially affected the decision: cf Peko-Wallsend, at 41, per Mason J; Otter Gold Mines Ltd v Australian Securities Commission (1997) 15 ACLC 1732 (FCA/FC), at 1741, per Merkel J. The findings of the second Panel were plainly given weight, at least in part, because the delegate thought it had been validly established and had acted pursuant to a valid direction. It is not possible to say what conclusion the delegate might have reached, or even if the three individuals would have been appointed to advise her, had the true position been appreciated prior to the revocation decision. Similarly, it is not possible to say what effect an appreciation of the true position would have had on the reconsideration decision.

It follows that the respondent has made out its case that the making of the revocation decision was an improper exercise of the power conferred by s 44 of the National Health Act, as was the making of the reconsideration decision.

Conclusion

The Minister has made good the only ground of appeal that was pressed, namely that the cancellation decision of 6 August 1997 and the reconsideration decision of 13 October 1997 did not involve a failure to observe procedures required by law to be observed in connection with the making of the decisions. However, the respondent has succeeded on the ground in respect of which it received leave to amend its application. That is, it has established that the making of the cancellation decision was an improper exercise of the power conferred by s 44 of the National Health Act in that the Minister took into account an irrelevant consideration.

The trial Judge made a declaration that the revocation decision of 6 August 1997 was void. Having regard to the ground on which the respondent has now succeeded, we think that the appropriate orders are as follows:

1. Appeal allowed in part.

2. Set aside Order 2 of the Orders made by the trial Judge on 19 June 1998.

3. In substitution for Order 2, set aside the decision of the Minister, made on 6 August 1997, to revoke the approval of the Derwent Court Nursing Home.

The respondent has succeeded on a ground not raised before the trial Judge and only raised belatedly on the appeal. The Minister succeeded on the only ground in the Notice of Appeal that was pressed. In these circumstances, the appellant should pay half the respondent's costs of the appeal. The costs order made by the trial Judge should stand.

I certify that this and the preceding twenty-five (25) pages are a true copy of the Reasons for Judgment herein of the Honourable Justices Burchett, Drummond, Sackville JJ

Associate:

Dated: 4 December 1998

Counsel for the Appellant:	Mr K Bell QC Ms D Mortimer
Solicitor for the Appellant:	Australian Government Solicitor
Counsel for the Respondent:	Mr L Sealy
Solicitor for the Respondent:	Piggott Wood & Baker
Date of Hearing:	23 November 1998
Date of Judgment:	4 December 1998