Health Insurance Commission v G and M Nicholas Pty Ltd [2004] FCAFC 236 (25 August 2004)

Last Updated: 7 September 2004

FEDERAL COURT OF AUSTRALIA

Health Insurance Commission v G and M Nicholas Pty Ltd [2004] FCAFC 236

ADMINISTRATIVE LAW – whether breach of statutory undertaking by accredited pathology laboratory in favour of Minister – undertaking related to permitting persons authorised by Chief Commonwealth Medical Officer to enter and inspect accredited laboratory – breach of undertaking established by Medicare Participation Review Committee but rejected by the Administrative Appeals Tribunal – inspection not undertaken after notification by laboratory of refusal to permit inspection on nominated occasion – unusual evolution of circumstances preceding refusal to permit inspection in advance of physical arrival of inspectors at laboratory – interpretation of regulatory undertaking – whether question of law involved – appeal from decision of the Administrative Appeals Tribunal dismissed by majority


Health Insurance Act 1973 (Cth) ss 3(1), 16A(2), 23DB, DF, DL, DN & DNA, 41, 124E & FC
Health Insurance Commission Act 1973 (Cth)
Administrative Appeals Tribunal Act 1975 (Cth) ss 33 & 44


GEC Marconi Systems Pty Ltd v BHP Information Technology Pty Ltd [2003] FCA 50; (2003) 128 FCR 1
Federal Commerce & Navigation Co Ltd v Molena Alpha Inc [1979] AC 757
Lombok Pty Ltd v Supetina Pty Ltd (1987) 14 FCR 226
Carter v Hyde [1923] HCA 36; (1923) 33 CLR 115
Collector of Customs v Pozzolanic [1993] FCA 456; (1993) 43 FCR 280
Collector of Customs v Agfa-Gevaet Ltd [1996] HCA 36; (1996) 186 CLR 389









HEALTH INSURANCE COMMISSION v G AND M NICHOLAS PTY LTD T/AS MEDTEST PATHOLOGY SERVICES AND MEDICARE PARTICIPATION REVIEW COMMITTEE

N 63 OF 2004



EMMETT, CONTI & SELWAY JJ
25 AUGUST 2004
SYDNEY

IN THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES DISTRICT REGISTRY	N63 OF 2004

ON APPEAL FROM THE PRESIDENT OF THE ADMINISTRATIVE APPEALS TRIBUNAL

BETWEEN:	HEALTH INSURANCE COMMISSION APPELLANT
AND:	G AND M NICHOLAS PTY LTD T/AS MEDTEST PATHOLOGY SERVICES FIRST RESPONDENT MEDICARE PARTICIPATION REVIEW COMMITTEE SECOND RESPONDENT
JUDGES:	EMMETT, CONTI & SELWAY JJ
DATE OF ORDER:	25 AUGUST 2004
WHERE MADE:	SYDNEY

THE COURT ORDERS THAT:

1. The appeal be dismissed with costs.




















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

IN THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES DISTRICT REGISTRY	N63 OF 2004

ON APPEAL FROM THE PRESIDENT OF THE ADMINISTRATIVE APPEALS TRIBUNAL

BETWEEN:	HEALTH INSURANCE COMMISSION APPELLANT
AND:	G AND M NICHOLAS PTY LTD T/AS MEDTEST PATHOLOGY SERVICES RESPONDENT MEDICARE PARTICIPATION REVIEW COMMITTEE SECOND RESPONDENT
JUDGES:	EMMETT, CONTI & SELWAY JJ
DATE:	25 AUGUST 2004
PLACE:	SYDNEY

REASONS FOR JUDGMENT

EMMETT AND SELWAY JJ

1 The first respondent, G and M Nicholas Pty Ltd (‘Medtest’), is an approved pathology authority and conducts an accredited pathology laboratory, within the meaning of those terms as used in the Health Insurance Act 1973 (Cth) (‘the Act’). This appeal concerns the question of whether Medtest breached an undertaking given by it on 18 July 2000, and accepted by the Minister for Health and Aging (‘the Minister’) (formerly being the Minister for Health and Aged Care), under s 23DF of the Act (‘the 23DF Undertaking’). If Medtest has breached the 23DF Undertaking, a determination could be made that would have the consequence that Medtest will cease to be an approved pathology authority for the purposes of the Act. That would have serious commercial consequences for Medtest because, under s 16A(2), a Medicare benefit is not payable in respect of a pathology service unless the service was rendered in an accredited pathology laboratory, and the proprietor of the laboratory was an approved pathology authority.

2 Medtest is the occupier of premises located at Unit 1, 214 The Boulevarde, Fairfield Heights, which is an accredited pathology laboratory within the meaning of the Act. On 3 December 2002, a Medicare Participation Review Committee, established pursuant to s 124E(3) of the Act, determined that a breach of the 23DF Undertaking had occurred, and made a determination that had the effect that Medtest ceased to be an approved pathology authority for the purposes of the Act. Following that determination, Medtest appealed to the Administrative Appeals Tribunal (‘the Tribunal’), and on 23 December 2003 the Tribunal, constituted by its President, set aside the determination of the Committee of 3 December 2003. In substitution for that determination, the Tribunal decided that Medtest had not breached the 23DF Undertaking.

3 The Health Insurance Commission, established under the Health Insurance Commission Act 1973 (Cth) (‘the Commission’), which represents the Minister, now appeals from the decision of the Tribunal pursuant to s 44 of the Administrative Appeals Tribunal Act 1975 (Cth), which provides for an appeal to the Federal Court of Australia on a question of law. Since the Tribunal was constituted by its President, the appeal is to a Full Court constituted by three judges of the Federal Court.

THE LEGISLATIVE FRAMEWORK

4 Medicare benefits are payable under the Act, in specified circumstances, in respect of pathology services. However, under s 16A(2) a Medicare benefit is not payable in respect of a pathology service if the service was not rendered in an accredited pathology laboratory or the proprietor of the laboratory in which it was rendered was not an approved pathology authority.

5 An approved pathology authority is a person in respect of whom there is in force an undertaking given by the person, and accepted by the Minister, under s 23DF of the Act. Under s 23DF(1), where an undertaking in accordance with the appropriate approved form is signed by or on behalf of a person, and the person gives the undertaking to the Minister together with an application for the Minister’s acceptance of the undertaking, the Minister may, subject to certain exceptions, accept the undertaking on behalf of the Commonwealth and determine the period for which the undertaking is to have effect. Section 23DB(1) provides that the Minister may approve forms of undertaking to be given by persons who wish to become approved pathology authorities. Such forms of undertaking have been approved by the Minister. The 23DF Undertaking is in accordance with the appropriate approved form and was signed on behalf of Medtest on 18 July 2000. The Undertaking was subsequently accepted by the Minister.

6 Under s 3(1) of the Act, an accredited pathology laboratory is defined as premises in respect of which there is in force an approval under s 23DN of the Act. Under s 23DN(1), where a person (the applicant) makes an application to the Minister for the approval of premises as an accredited pathology laboratory, the Minister may approve in principle the premises as an accredited pathology laboratory. Under s 23DN(3), the Minister must, in exercising the powers conferred by that section, apply the principles determined under s 23DNA that are in force at that time. Under s 23DNA(1) the Minister may determine the principles that are to be applied in the exercise of powers conferred by s 23DN(1). Under s 23DN(2), where the Minister approves in principle premises under s 23DN(1) and the applicant pays the accreditation fee, the Minister must approve the premises as an accredited pathology laboratory.

7 Section 23DL(1) of the Act provides that, where the Minister has reasonable grounds for believing that a person, who is an approved pathology authority, has breached an undertaking given by the person for the purposes of s 23DF, the Minister must give notice in writing to the person setting out particulars of those grounds, and inviting the person to make submissions to the Minister, showing cause why the Minister should not take further action in relation to the person under s 23DL. Under s 23DL(4)(c), where the Minister gives notice to a person under s 23DL(1), the Minister must, if the person makes submissions and the Minister is satisfied that there are reasonable grounds for believing that there has been a breach of the 23DF Undertaking, give notice in writing to the chairperson of a Medicare Participation Review Committee.

8 Upon receiving such a notice in relation to an approved pathology authority, a chairperson must establish a Medicare Participation Review Committee under s 124E(3). Under s 124FC(1), where a committee is established under s 124E(3) in relation to an approved pathology authority, the committee must determine whether the authority has breached the undertaking given by the authority. Under s 124FC(1)(e), if the committee determines that the authority has breached the undertaking given by it, the committee must make one or more of six determinations set out in that paragraph. The determinations include the following:

• that the undertaking should be revoked;
• that no undertaking given by the authority should be accepted by the Minister under s 23DF during the period specified in the determination, being a period expiring not later than five years after the day in which the determination takes effect.

THE ALLEGED BREACH OF UNDERTAKING

9 The 23DF Undertaking, given by Medtest on 18 July 2000, included the following section:

‘PART 9 – INSPECTION OF PREMISES

(13) The authority undertakes that it will, at any reasonable time, permit a person, who -

a) is authorised by the Chief Commonwealth Medical Officer to enter and inspect a laboratory of the authority; and

b) produces evidence of being so authorised to the authority

to

i)	enter and inspect the laboratory;

...

(14) The authority undertakes that it will provide an authorised person referred to in clause 13 with all reasonable facilities and assistance for the effective exercise of the powers referred to in clause 13.’

10 On 15 May 2002, the Minister gave Medtest a notice under s 23DL(1) concerning certain events of 17 April 2002 and, on 14 June 2002, submissions were made on behalf of Medtest in accordance with s 23DL(2). Having considered those submissions, the Minister was satisfied that there were reasonable grounds for believing that, on 17 April 2002, there had been a breach of the undertaking by Medtest and gave notice to a chairperson pursuant to s 23DL(4)(c). The Chairperson, Mr D.I. Cassidy QC, then established a Medicare Participation Review Committee pursuant to s 124E(3) of the Act. On 3 December 2002, having determined that Medtest had breached the 23DF Undertaking on 17 April 2002, the Committee determined that the 23DF Undertaking be revoked, and that no further undertaking under s 23DF given by Medtest should be accepted by the Minister for three months.

11 The Committee determined that there was a breach by Medtest of the 23DF Undertaking. It did so because it found that, on 17 April 2002, a representative of Medtest clearly stated that Medtest would not permit an inspection of its laboratory that was proposed to be carried out on 18 April 2002. It is necessary to examine the evidence before, and findings made by the President of the Tribunal concerning that matter.

12 The Minister has put in place administrative arrangements whereby inspection of accredited pathology laboratories is carried out on the Minister’s behalf by the National Association of Testing Authorities (‘NATA’). The arrangements are set out in the Memorandum of Understanding between the Commonwealth and NATA, whereby the Commonwealth recognised NATA as ‘the national authority for accreditation of laboratories conducting tests and measurements in all technical fields’.

13 Members of NATA may make arrangements whereby their laboratories can be accredited by NATA. In order to become accredited by NATA, inspection of the premises must be conducted by nominees of NATA. Accreditation by NATA has the consequence that the laboratory will be approved for the purposes of the Act. As indicated above, accreditation requires the application of principles determined by the Minister pursuant to s 23DNA, to which reference has already been made.

14 On 1 March 2002, the Minister’s delegate wrote to Medtest informing it that the delegate had approved Medtest’s application for the accreditation of its pathology laboratory pursuant to s 23DN. The approval of Medtest’s laboratory was extended up to 30 April 2002. However, that approval was revoked on 14 March 2002. That revocation was challenged by Medtest in the Tribunal (‘the Revocation Proceeding’), which issued a stay of the revocation. Directions were made for an expedited hearing, commencing on 13 May 2002. Medtest also applied to the Minister for an extension of the approval of the laboratory and for a new approval. Those applications were refused and were also the subject of Medtest’s application to the Tribunal.

15 On 10 April 2002, Phillips Fox, who were acting for the Minister, wrote by facsimile to Gadens, who were acting for Medtest, relevantly saying:

‘Our client reserves the position in relation to whether to approach the Chief Medical Officer to see whether a NATA inspection can be arranged pursuant to Part 9 of the approved pathology authority undertaking provided by your client.’

16 On 12 April 2002, Phillips Fox wrote by facsimile to Gadens, relevantly saying:

‘We have spoken to an officer of NATA yesterday morning who informs us that:

•	NATA has recently received a letter from Gadens indicating your client’s intention to apply for assessment and accreditation;

...

•	NATA has tentatively arranged for an assessment to be carried out on 18 April 2002;
•	NATA will attempt to have a report of the assessment available shortly before the end of April 2002;
•	NATA has taken extra care to identify members of the assessment group who are most unlikely to be commercial competitors of your client and thus to remove any possible basis for concern for your client;

...
Please inform us in writing before 5 pm on Monday 15 April 2002:

•	whether your client would consent to an assessment by NATA on 18 April 2002 as outlined above; and
•	whether your client consents to the proposed timetable outlined above.’

17 Gadens responded by facsimile on 15 April 2002, relevantly saying:

‘[NATA] proposes that [Medtest] assessment for accreditation be carried out on 18 April 2002. Unfortunately that date is not suitable for Medtest. Medtest proposes that an assessment for accreditation be carried out by NATA and the Royal College of Pathologists of Australia (RCPA) on 24 April 2002. This should enable an accreditation decision to be made and a report prepared by 30 April 2002.’

The letter also referred to a proposal to apply to the Tribunal for a directions hearing in relation to the Revocation Proceeding.

18 On 15 April 2002, Hunt & Hunt, who were acting for NATA, wrote to Gadens by facsimile, indicating that NATA was still awaiting the return of a completed application form from Medtest. The letter said:

‘If your client does intend to make application for accreditation then the application form and all the other necessary documents must be returned to NATA today. As you are aware NATA is conducting an assessment at your client’s laboratory this Thursday. We understand that Phillips Fox...have supplied the names for the people who will constitute the assessment team. We are instructed that there has been no objection taken to anyone on that team.
NATA can and will treat the assessment being conducted for [the Commission] as the assessment necessary for your client[’]s application for accreditation provided that the application documents are returned to NATA today.’

19 Gadens responded by facsimile to Hunt & Hunt on the same day saying that they and Medtest were unaware that an assessment was ‘being conducted for the [Commission]’. The letter also said:

‘Please tell us on what basis you assert that such an assessment is being carried out.’

20 On the same day, NATA wrote by facsimile direct to Medtest, relevantly saying:

‘I refer to correspondence from Gadens lawyers concerning an application for your laboratory. Please note that an application package was forwarded to Gadens on the 8 April 2002. In order to apply for accreditation the application form included in the package and application fee should be forwarded to NATA.
I would also like to confirm that an assessment of your laboratory is to be conducted on Thursday 18 April 2002 commencing at 9:00am.
[The names of proposed assessors for the assessment were set out]
Please let me know in writing by close of business today whether the assessment team is acceptable to you.
Concerning the arrangements for the assessment, it would be appreciated if a room could be available in which to hold the preliminary and exit discussions. We will make our own arrangements for lunch.
...a questionnaire has been forwarded to you for completion prior to the assessment. Please ensure that the completed staff and test list be forwarded to NATA no later than close of business Tuesday, 16 April 2002. The remainder of the questionnaire should be available at the assessment.
In addition we request that information relating to the re-screen of Pap smears for the 1998 patients be available at the assessment...
We would prefer the assessment to be conducted as a normal NATA/RCPA assessment. For this to occur it would be preferable for there to be no legal representation. Should you, however, intend to have legal representation we must be advised by close of business today in order to make arrangements for our own legal advisers.’

On 16 April 2002, Gadens wrote to Hunt & Hunt by facsimile, referring to the letter from NATA to Medtest and indicating an objection to two members of the team named in NATA’s letter, and requesting the name or names of the replacement assessors that NATA was proposing.

21 On 16 April 2002, Phillips Fox also wrote to Gadens by facsimile marked ‘URGENT’, referring to Gadens’ letter of 15 April 2002 saying, inter alia, as follows:

‘7. We now request your clarification of your client’s position in relation to inspection before 6:00pm today in relation to the following matter.
8. In Part 9 of the Undertaking which is attached to your client’s approval...your client undertook to permit any person authorised by the Chief Medical Officer to enter its premises on reasonable notice to carry out an inspection.
9. ...
10. We now seek clarification of your client’s position – if the Chief Medical Officer authorises the assessment visit on Thursday 18 April would your client permit that assessment visit to occur?
11. We request your response by 6:00 pm today so that we can inform the Tribunal of your position and take your response into account when considering what application to make to the Tribunal tomorrow.’

22 On 16 April 2002, Phillips Fox wrote by facsimile to the Tribunal with an emailed copy to Gadens. The letter relevantly said:

‘5. NATA has arranged for an assessment team to carry out an assessment inspection of the applicant’s premises on Thursday of this week – 18 April 2002.
6. The members of this team are busy professionals some of whom have made arrangements to travel from interstate. If the inspection is to be cancelled, it is appropriate that they have some notice.
7. Yesterday evening...the applicant’s lawyers stated that 18 April 2002 was not a suitable date for the inspection to occur.
8. We have spoken to NATA again today and they say that if the assessment visit does not take place on 18 April 2002 it would take some time to organise another visit.’

23 On 17 April 2002 at 6.32 am, Phillips Fox sent to Gadens an email saying:

‘As far as I am aware the entire team of assessors proposed by NATA is as per previous notifications to you by us and as notified directly to your client by NATA.
As far as I am aware NATA is still working towards an inspection tomorrow. Have you contacted NATA to make any arrangements for an alternative assessment time?
...
We need any urgent reply to our inquiry about whether your client will decline to permit an inspection if it is carried out under the authority of the Chief Medical Officer in accordance with the undertaking given by your client.’

24 Later on 17 April 2002 at 12.53 pm, the Commission wrote to Gadens by facsimile, relevantly saying:

‘I understand that:

• NATA has arranged, on an urgent basis, to assess your client’s premises tomorrow 18 April 2002;
• if the assessment does take place tomorrow, NATA will have an assessment report available by, at the latest, 29 April 2002;
• if the assessment does not take place tomorrow, an assessment cannot take place on 24 April or any other day in April, and no fresh NATA assessment report will be available before 30 April 2002; and
• your client has refused to allow NATA to assess its premises tomorrow but has offered no adequate reason for this refusal.

I note that:

• your client provided an undertaking to the Commonwealth pursuant to section 23DF... on 18 July 2000, which remains in force;
• pursuant to clause 13 of the undertaking, your client undertook to permit a person to inspect its premises at any reasonable time; and
• each member of the NATA team scheduled to attend your client’s premises tomorrow has been authorised for the purpose of clause 13 of the undertaking.

It appears to me that, if your client continues to refuse to allow NATA to assess its premises tomorrow, prima facie it will be in breach of its undertaking.

...

Please write to me by no later than 14:30 hours today to advise me whether:

• your client continues to refuse to allow NATA to assess its premises tomorrow, notwithstanding the terms of its undertaking and the risk that adverse consequences may flow from that decision, or
• your client will permit tomorrow’s assessment to proceed.

I look forward to hearing from you.’ [Emphasis added.]

25 Gadens responded by facsimile later on 17 April 2002, relevantly saying:

‘With no disrespect to you and your helpful suggestions, you will readily appreciate our client’s confusion as to how its application for accreditation to NATA has changed in status to a section 23DF/Part 9 inspection.
It is not apparent to us whether the "assessment team" proposed by NATA is identical to that proposed for the purpose of any inspection pursuant to section 23DF, Health Insurance Act/Part 9.
However, if such assessment team is identical then it seems to us that it or any such team should not include [two individuals]. Pursuant to NATA invitation to consider the proposed assessment team Medtest has also objected to both of those assessors taking part in the assessment.’

26 At about 5.50 pm on 17 April 2002, in a telephone application made in connection with the Revocation Proceeding, the Minister requested the Tribunal to give directions as follows:

‘1. That [NATA] have leave to inspect the premises, staff and records of [Medtest] on Thursday 18 April 2002, in accordance with the permission given by [Medtest] on 18 July 2000...for the purpose of NATA preparing a further assessment and accreditation of [Medtest] laboratory.
2. That [Medtest] permit [NATA] for the purposes of these proceedings to inspect the premises, staff and records of [Medtest] on Thursday 18 April 2002.’

A Deputy President of the Tribunal declined to give the directions sought by the Minister.

27 At about 5:50pm on 17 April 2002, a telephone conversation took place between Ms Wendy Blacker of Gadens and Mr Paul Alexander Richard Fenton-Menzies of the Commission. Mr Fenton-Menzies is general counsel within the legal services branch of the Commission. The substance of the conversation was as follows:

Fenton-Menzies:	‘As previously advised an assessment team authorised by the Chief Commonwealth Medical Officer, consisting of NATA assessors, is proposing to inspect Medtest premises at 9:00am on Thursday 18 April 2002 pursuant to Medtest’s Undertaking. HIC continues to press for the assessment tomorrow despite the comments of the [Tribunal] earlier today. Tomorrow’s proposed assessment is not a NATA assessment for the purposes of NATA accreditation.’
Blacker:	‘Medtest refuses to allow the proposed assessment team to enter Medtest premises for the purposes of the proposed assessment. It is entirely appropriate for Medtest to say no because there has been insufficient notice to Medtest of the proposed assessment date. Some of Medtest’s staff will not be at Medtest’s premises tomorrow as they are working elsewhere. They have been unable to get the time off from their other jobs to be at Medtest’s premises for the assessment. Medtest wants all its staff at any assessment. Medtest premises is a small laboratory and the proposed assessment will distract Medtest’s employees from their work and cause other logistical problems. Medtest needs to be able to operate properly. Medtest takes the view that at the end of the day it is not reasonable for anyone to come to Medtest’s premises. Medtest takes that view on the basis that it has been insufficient notice of the proposed assessment date, which means that it is not reasonable for anyone to come to Medtest’s premises for the proposed assessment tomorrow.’
Fenton-Menzies:	‘The proposed inspection would assist the decision making process of the delegate.’

Mr Fenton-Menzies referred Ms Blacker in a general way to the letter of 17 April 2002 from the Commission to Gadens. Ms Blacker appeared to be familiar with the contents of that letter. The conversation then continued:

Fenton-Menzies:	‘NATA tells me that if the proposed assessment does not take place tomorrow, NATA can’t provide a fresh and recent report to the delegate prior to 30 April 2002. HIC takes the view that the proposed assessment must be conducted at a reasonable time and that reasonable notice need not be given. HIC takes the view that during business hours on a Thursday is a reasonable time for an inspection under the Undertaking. An inspection after 5:00pm on a Friday may be an unreasonable time for an inspection under the Undertaking. HIC is aware that sometimes the inspection under the Undertaking may be a distraction to operations, but this was an inherent evil of assessments, and that would occur at any time that an assessment takes place. HIC takes the view that notice of the proposed assessment need not be reasonable, as HIC is not required to give any notice at all. This has been a helpful conversation, but we should not debate the point any longer, as clearly we take a different view of whether the proposed assessment is at a reasonable time for the purposes of the Undertaking. Without intending to be an alarmist, Medtest’s decision not to allow the proposed assessment to take place may have consequences for Medtest, because HIC takes the view that Medtest’s refusal to permit the proposed assessment team to enter in its premises for the purposes of an assessment under the Undertaking means that Medtest may well be acting inconsistently with its Undertaking. If Medtest acts inconsistently with its Undertaking, statutory consequences may well flow.’
Ms Blacker:	‘Medtest will not allow the assessment team to enter its premises on the proposed assessment date as HIC had given insufficient notice to the proposed assessment date.’
Fenton-Menzies:	‘On the basis of this conversation, HIC will contact NATA and stand the assessment team down, as there is no point in going to the expense of having the assessment team attend Medtest’s premises tomorrow, if Medtest will refuse them entry. I will send a draft letter by email to you summarising the content of our conversation. If my understanding of the conversation is incorrect you can send me an email setting out the matters you consider require correction. I will then send a copy of my letter, with any amendments I consider necessary on HIC letterhead.’

28 At 7:17pm on 17 April 2002 Mr Fenton-Menzies emailed to Ms Blacker a copy of a draft letter with a covering comment saying:

‘Further to our telephone conversation this evening, I attach a draft of the letter I propose to send to you. It is only a draft, and I would be grateful for any comments.’

29 At 7:20pm on 18 April 2002, Mr Fenton-Menzies received an email from Ms Blacker saying:

‘[I apologise] for not responding earlier to this email. I have been involved in other matters today and this is the first opportunity I have had. I propose to respond to your letter in writing, and will do so tonight.’

Mr Fenton-Menzies received no other reply to his email of 17 April 2002 and, on 18 April 2002, he sent a letter by facsimile to Ms Blacker saying, relevantly:

‘I refer to our telephone conversation yesterday evening...
I confirm that I told you that:

•	a NATA assessment team was proposing to inspect your client’s premises today at 9:00am, pursuant to Part 9 of your client’s APA undertaking dated 18 July 2000...
•	each member of the assessment team had been authorised by the Chief Medical Officer for the purposes of clause 13 of the undertaking.

You told me that:

•	your client refused to permit any of the proposed NATA assessment team to enter its premises today;
•	your client took the view that it was not in breach of the undertaking, because today was not ‘at a reasonable time’ for the purposes of clause 13 of the undertaking; and
•	your client took this view because insufficient notice was given of the proposed inspection date.

I indicated that HIC did not agree that today was not ‘at a reasonable time’ within the meaning of clause 13 of the undertaking.
Given your statements to me last night, I advised the NATA assessment team not to attend at your client’s premises today.
I note in passing that Phillips Fox wrote to you on 12 April 2002 and mentioned that it was proposed that a NATA team visit your client’s premises today. I also note the remarks made by Phillips Fox in its letter to you of 5 April 2002.’

30 On 16 April 2002, the Commission had written to the Commonwealth Chief Medical Officer, requesting that he provide authority to the proposed NATA assessment team by signing a draft authorisation instrument that was attached. On 17 April 2002 the instrument was signed by the Chief Medical Officer, whereby he authorised each of the proposed inspection team to enter and inspect Medtest’s laboratory and to do any or all of the things set up in par 13 of the undertaking of 18 July 2000. The authority ended by saying:

‘This authorisation is given for the purposes of clauses 13 and 14 of the APA Undertaking given by Medtest on 18 July 2000 and accepted by the delegate of the Minister for Health and Aging on 23 May 2001. This notice is evidence of this authorisation.’

31 On 17 April 2002, the Commission sent a facsimile communication to NATA saying relevantly:

‘A signed instrument from the Commonwealth Chief Medical Officer follows for your records. I am arranging for the original to be couriered today...
I confirm my telephone request for arrangements to be made for the couriered document to be given to [name inserted] upon arrival. I understand that... Phillips Fox will keep you advised of developments in relation to this matter throughout the day.’

THE TRIBUNAL’S DECISION

32 In his reasons, the President found that no person with authority had been refused permission to enter Medtest’s premises and that no person attended at the entrance and asked to be permitted to enter. His Honour observed that there may be some room for a finding, in a particular case, that there has been a constructive refusal of entry, just as the law of contract recognises anticipatory breach. However, his Honour considered that such a refusal would need to be very clear and that the problem with the present case was that there was not ‘a sufficient degree of clarity’.

33 His Honour accepted the evidence of Mr Garry Nicholas, a director of Medtest, and its laboratory manager, that if the persons authorised by the Chief Medical Officer had in fact arrived at Medtest’s premises on 18 April 2002 and asked to be admitted, he would have permitted them to enter.

34 His Honour accepted that Mr Fenton-Menzies had said to Ms Blacker in their conversation late on 17 April 2002 that, if Medtest acted inconsistently with the 23DF Undertaking, statutory consequences might flow. However, his Honour observed that, in saying so, Mr Fenton-Menzies had just referred to the differing views that he and Ms Blacker took. His Honour found that that conversation could not reasonably be understood as a notice of such formality as to give rise to a breach of the 23DF Undertaking, either constructive, or actual. His Honour considered that a reasonable person in the position of Ms Blacker, conscious that the application to the Tribunal to direct an inspection had failed, would not construe the conversation with Mr Fenton-Menzies as a formal demand under the 23DF Undertaking, notwithstanding the reference to statutory consequences.

35 His Honour noted that it was common ground that NATA accreditation was the basis for accreditation as a laboratory under the Act. Counsel for the Commission had observed that NATA had ‘canonical status as the independent accreditation authority’. His Honour accepted that it may be that NATA is ‘technically acting differently when it is assessing for its own accreditation than when it is advising the Minister or her delegate’. However, his Honour considered that, whatever was to happen on 18 April 2002, it was always to be an assessment by NATA, whether it was technically described as an assessment for NATA’s own accreditation, from which would follow accreditation by the Minister’s delegate, or whether the assessment was a special assessment for the Minister’s delegate alone.

36 His Honour concluded that what was proposed for 18 April 2002 was not within the 23DF Undertaking. His Honour’s reasons were, first, that it was a voluntary assessment. Medtest had lost accreditation in respect of its laboratory and, unless the Tribunal intervened under s 41 of the Act, Medtest was not accredited. If it did not want to permit a NATA inspection, that was its right. While the consequence may have been the loss of its ability to provide services with Medicare benefits, that was its problem, not the Commission’s. Medtest had no obligation to permit inspection. Secondly, his Honour concluded that what was proposed was an assessment, not a mere inspection. Eight distinguished medical experts were to attend, who would have wanted to discuss practices and procedures in some detail. Had the Commission proposed an inspection by one local expert, it would not have needed to know in advance whether entry would be permitted. The need to know in advance was necessary only because the assessment was by eight distinguished experts, some of whom had to travel from interstate. By that independent reasoning, his Honour found that there was no breach of the 23DF Undertaking.

ERROR OF LAW

37 The Commission contended that the President’s decision involved an error of law in that, in the light of the evidence and the President’s findings, the only conclusion open to the President, as a matter of law, was that there was a breach of the 23DF Undertaking. Alternatively, the Commission contended that his Honour erred in applying the criterion of how a reasonable person in the position of Ms Blacker might react to the statements made by Mr Fenton-Menzies.

REASONING

38 As the President found, there was no actual failure to comply with the 23DF Undertaking. Medtest had only undertaken to permit a person who was authorised and produced evidence of being so authorised to enter and inspect its laboratory. At no time did any member of the assessment team produce evidence of being authorised by the Chief Commonwealth Medical Officer to enter and inspect Medtest’s laboratory. While the members of the assessment team were in fact authorised by the Chief Commonwealth Medical Officer, they did not satisfy the second requirement by producing evidence of being so authorised.

39 The most that could be said is that, on 17 April 2002, Medtest, by its solicitor, Ms Blacker, made it clear to the Minister, and her delegates, that, even if a person who was authorised produced evidence of being so authorised, Medtest would not permit that person to enter and inspect its laboratory on 18 April 2002. However, and notwithstanding what Medtest had informed the Minister, his Honour found that, had those prerequisites actually been satisfied, in the events that would happen, Medtest would have permitted any such person to enter and inspect its laboratory.

40 The reason why Ms Blacker, on behalf of Medtest, indicated that Medtest would not permit the inspection is that Medtest was taking a stance that, on the proper construction of the 23DF Undertaking, Medtest only bound itself to permit a person to enter and inspect its laboratory upon receiving reasonable notice. The President concluded that was an erroneous view of the meaning of the undertaking. There was no challenge to that conclusion.

41 However it was not disputed that the stance that was taken by Medtest was taken in good faith and, apparently, on the basis of its legal advice. There was no finding by his Honour that Medtest was taking the stance that, whether it was right or wrong about its understanding of the 23DF Undertaking, Medtest would not comply with it. Nor is there any evidence that the Minister or her delegates or agents understood that the reason for Medtest’s position was other than as stated by Ms Blacker to Mr Fenton-Menzies on 17 April 2002.

42 If the contractual analogy be apt, it is not an anticipatory breach of contract, constituting repudiation, to take a stance as to the construction of the contract, albeit an erroneous stance, so long as there is no intimation that the contract will not be performed according to its proper construction, provided the relevant provision is not at "the root" of the contract such that the anticipated failure to perform (for whatever reason) can only be viewed as a repudiation: see GEC Marconi Systems Pty Ltd v BHP Information Technology Pty Ltd [2003] FCA 50; (2003) 128 FCR 1 at 492-493; cf. Federal Commerce & Navigation Co Ltd v Molena Alpha Inc [1979] AC 757 at 778-779 and see Lombok Pty Ltd v Supetina Pty Ltd (1987) 14 FCR 226 at 243-245. Any qualification in relation to ‘the root’ of the contract would not seem to be applicable in the circumstances of this case.

43 On the other hand, it may be that the contractual analogy is not entirely apt. Within this statutory and regulatory framework, a better view may be that it was implicit within the 23DF Undertaking made by Medtest that it also gave an undertaking to continue to stand ready and be prepared throughout the term of the 23DF Undertaking to comply with the undertaking and each provision of it. On this approach, a statement by Medtest indicating that it would not comply with the 23DF Undertaking, or any part of of it, would breach that implicit undertaking and would provide a proper basis for action under ss 23DL and 124E of the Act. As with the contract analogy, on this approach also the issue that needs to be determined is whether the statement made on behalf of Medtest can be understood as a breach of that implicit undertaking. Was Medtest saying that it was no longer prepared to comply with its undertaking? Or was it, on the other hand, saying that it would comply (whatever the undertaking was), but disputed the meaning of the undertaking?

44 Unless the statutory scheme is interpreted analogously to the law of contract, or unless some further requirement is implied in the 23DF Undertaking, it is difficult to understand how it could be said that Medtest breached the 23DF Undertaking. As already noted, no-one produced to Medtest, evidence of being authorised by the Chief Commonwealth Medical Officer to enter and inspect Medtest’s laboratory as required by the terms of the undertaking.

45 In our view, it was open to the President, on the material before him, to reach the conclusion reached by him; that there was no breach of the 23DF Undertaking by Medtest. Ms Blacker was not evincing an intention on the part of Medtest no longer to be bound by the 23DF Undertaking or any aspect of it. She was asserting, albeit erroneously, that Medtest was not bound to permit any of the authorised persons to enter and inspect its laboratory on the following day because reasonable notice had not been given. Medtest had always indicated that it would permit entry and inspection, albeit six days after the date proposed. Ms Blacker explained, in her conversation with Mr Fenton-Menzies, why it was appropriate for Medtest to say no to the request to inspect on the following day.

46 In referring to how a reasonable person, in the position of Ms Blacker, might construe the statements made by Mr Fenton-Menzies, his Honour was doing no more than making an observation as to the meaning of the statements made and whether they led to the conclusion that Ms Blacker’s statements amounted to a repudiation of the 23DF Undertaking in the light of Mr Fenton-Menzies’ statements. That process of reasoning did not involve an irrelevant consideration, as the Commission contended. In any event, we are of the view that, on the facts as found or that are not in dispute, the conclusion reached by the President was correct.

CONCLUSION

47 The appeal should be dismissed with costs.

I certify that the preceding forty-seven (47) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justices Emmett & Selway JJ.

Associate:


Dated: 25 August 2004

IN THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES DISTRICT REGISTRY	N 63 OF 2004

ON APPEAL FROM THE PRESIDENT OF THE ADMINISTRATIVE APPEALS TRIBUNAL

BETWEEN:	HEALTH INSURANCE COMMISSION APPELLANT
AND:	G AND M NICHOLAS PTY LTD T/AS MEDTEST PATHOLOGY SERVICES FIRST RESPONDENT MEDICARE PARTICIPATION REVIEW COMMITTEE SECOND RESPONDENT

JUDGES:	EMMETT, CONTI & SELWAY JJ
DATE:	25 AUGUST 2004
PLACE:	SYDNEY

REASONS FOR JUDGMENT

CONTI J

48 I am indebted to my colleagues Emmett and Selway JJ for their comprehensive narrative of the facts and circumstances material to the resolution of the issues arising in the present appeal, and their summary of the reasoning below of the President of the Administrative Appeals Tribunal (‘the Tribunal’) furnished on 23 December 2003. The Health Insurance Commission (‘the Commission’) has brought this appeal, pursuant to Order 53 Rule 2, principally in order to establish what it contends to be the true characterisation of the operation of the standard form of Approved Pathology Authority Undertaking (‘Undertaking’), adopted by the Commission for the time being under the auspices of s 23DF of the Health Insurance Act 1973 (Cth) (‘the Act’) for the purpose of qualification of pathology laboratories for receipt of Medicare benefits. An outcome to the appeal adverse to the first respondent (‘Medtest’) would appear to have unpredictable consequences. Although in the events which subsequently happened, as recorded in [28] of the reasons for decision below of the Tribunal, Medtest became ‘fully accredited’, in circumstances not disclosed in his Honour’s reasons, the Commission was unable to indicate what would be the consequences in terms of s 124FC of the Act, based upon what the Commission might commit by was of recommendation. Nevertheless the Commission has indicated to the Full Court that it would not seek an order for the costs of this appeal, should it be upheld. The present proceedings therefor bear the hallmarks of a test case, at least for that reason.

49 The Commission challenged three principal aspects of the reasons for decision of the Tribunal, being those aspects framed by the Commission in its written submissions to the Full Court, as follows:

(i) as a general principle, advance notice by the Commission of proposed entry into and inspection of a laboratory accredited for the time being for payment of Medicare benefits, purportedly pursuant to the Undertaking, and notwithstanding the refusal of the proprietor of the laboratory ‘authority’ (to adopt the regulatory expression for a laboratory operator or proprietor), may conceivably be effective, but in order to constitute any such constructive refusal of entry, the refusal would have to be ‘very clear’ (to cite his Honour’s description), and involve some significant degree of formality;

(ii) in the present case, the failed application for directions made by the Commission to the Tribunal, late on the day preceding the nominated entry and inspection date, was a relevant factor in assessing whether the purported notice of entry and inspection on the part of the Commission, and the refusal in advance of Medtest of the Commission’s entry and inspection, had sufficiently taken place; and

(iii) in the circumstances, a reasonable person in the position of Medtest’s solicitor would not have understood there to have been made by the Commission any formal demand under the Undertaking, and hence there was no sufficient advance notice, and thus no refusal on the part of Medtest.

For an understanding of the context to those three findings of the Tribunal challenged on the appeal, it is necessary to read the background material recorded by the Tribunal below, at least to the extent summarised in the reasons for the joint judgment of Emmett and Selway JJ.

50 The Commission submitted that the Tribunal erred in law to the extent described in summary above, with the consequence that its decision as to absence of breach of the Undertaking on the part of Medtest was fatally undermined. The Commission emphasised at the outset of its submissions on the appeal that the Undertaking is in the nature of a quasi-legislative instrument, being authorised by the Act and susceptible to disallowance by either House of the Parliament. The Commission further described the Undertaking as a generic document, albeit required to be signed by the pathology laboratory operator (ie the so-called ‘authority’), if its pathology output was to qualify in principle for Medicare benefits. The Commission contended that the Tribunal, in reaching its decision, impermissibly ‘read in’ criteria, and imposed glosses on words, neither of which emerged from the Undertaking according to its terms, its statutory context and its purported regulatory operation, and being criteria and glosses material to the true construction and operation of the Undertaking. Consequently it was submitted that the Tribunal’s decision was thereby undermined.

WHETHER MEDTEST FAILED TO PERMIT ENTRY TO ITS LABORATORY IN BREACH OF THE UNDERTAKING

51 As recorded in the reasons for joint judgment of Emmett and Selway JJ, the President of the Tribunal was highly critical of the course adopted by the Commission immediately following the Commission’s lack of success at the hastily assembled hearing conducted by a member of the Tribunal late in the day on 17 April 2002. Earlier on that day, the Commission had been confronted with the dilemma of implementing, or else postponing, arrangements already in place for five eminent scientists to travel early in the following morning, at least two from interstate, to Medtest’s laboratory in the outer suburbs of Sydney, for an inspection scheduled by the Commission to commence from 9.00 am, albeit on a day originally proposed by the Commission for an assessment by the National Association of Testing Authorities (‘NATA’). The inspection team was also to include three officers of the Commission, who appear to have been technically qualified. What had thus become demanded by the Commission was purportedly an inspection of Medtest’s laboratory pursuant to Part 9 of the Undertaking, instead of a request for an inspection for the previously intended purpose of a NATA assessment.

52 The reason for the Commission’s decision to persist with an inspection of Medtest’s laboratory at the previously appointed time, despite the Tribunal’s unfavourable ruling made on the preceding evening for an inspection for NATA purposes, was implicitly enough its concern in relation to Medtest’s purported explanation that some of its technical ‘staff’ would not be present at the inspection, because of their inability ‘to get the time off from their other jobs to be present at Medtest’s premises for the assessment’. It was perhaps by reason of that concern that the Commission adopted the expedient, albeit controversial, course of invoking the authority of the peremptory terms of the Undertaking as to entering and inspecting the laboratory of an ‘authority’, Medtest being a laboratory ‘authority’. It was a course designed by the Commission implicitly to circumvent or overcome the adverse ruling of the hastily convened Tribunal hearing late on 17 April 2002, made in the context of a NATA assessment proposed by the Commission. That hearing had been convened by the Tribunal because of the Commission’s concern to maintain the impetus of the pending inspection it had unsuccessfully sought to convene on the following day, albeit purportedly on a different regulatory footing or basis, because of the difficulty and delay of making fresh inspection arrangements at a later date. I agree with the preliminary submission of the appellant Commission that the issues raised on the appeal involve wholly or substantially questions of law.

53 In support of the Commission’s first basis for challenge summarised in [49(i)] above, the Commission pointed out that the purported prescription for crystallisation relevantly of the operation of the Undertaking contained no formal requirement for the inspection of any laboratory by or on behalf of the Commission, but nevertheless the Undertaking constituted the mechanism by which the Commonwealth was empowered to limit and regulate the qualification for continuing as an approved pathology laboratory ‘authority’. In other words, the Commission’s submission continued, the Undertaking is the mechanism, or at least part of the mechanism, by which the Commonwealth regulates the entitlement of a laboratory ‘authority’, directly or indirectly, to Medicare benefits, for instance without over-servicing, and also in ensuring its capacity to conduct pathology testing properly and safely under properly qualified supervision. Consequently it was submitted by the Commission that it is impermissible to ‘read into’ the Undertaking the criteria and the glosses, postulated by the President of the Tribunal, concerning the need for advance notice to a laboratory authority of any proposed entry and inspection to be for instance ‘very clear’.

54 The full text of clause 13 of Part 9 of the Undertaking reads as follows:

‘Part 9 – Inspection of Premises

13) The authority undertakes that it will, at any reasonable time, permit a person who -

a) is authorised by the Chief Commonwealth Medical Officer to enter and inspect a laboratory of the authority; and

b) produces evidence of being so authorised to the authority to

i)	enter and inspect the laboratory;

ii) inspect any equipment used in relation to the rendering of services in the laboratory;

iii) inspect any process in the rendering of services in the laboratory;

iv) inspect documents and other records related to staffing, supervision and the rendering of services in the laboratory; or

v) make and retain copies of, or take and retain extracts from, any such documents or records with proper regard for individual patient confidentiality.

14. The authority undertakes that it will provide an authorised person referred to in clause 13 with all reasonable facilities and assistance for the effective exercise of the powers referred to in clause 13.’

It may be observed that the Undertaking relates essentially to permission of inspection of equipment, processes and records, and does not extend to interrogation. No issue arises as to the legitimacy of that scope of authority per se.

55 In the present circumstances, the identity of the intended inspection team was disclosed in advance to Medtest, though in the prior context of a proposed NATA inspection. The subsequent communications between the parties demonstrates that Medtest became aware, albeit, in the course of a telephone conversation late on 17 April 2002 between the respective solicitors for Medtest and the Commission, that the Commission required that the inspection arrangements previously notified should proceed. That was to occur upon the changed footing of a Part 9 inspection (ie an inspection under the auspices of Part 9 of s 23DF of the Act), instead of a NATA inspection, the latter arrangements having become aborted by the Tribunal’s ruling late on 17 April 2002, that is, the day preceding the previously scheduled, but by then Tribunal disallowed, NATA assessment inspection.

56 There is potential difficulty with the Commission’s case as to the meaning of Part 9, by reason of the opening expression of clause 13(b) thereof, namely ‘produces evidence...’. Does that expression mean production by the Commission to a laboratory authority confined to the time of any attempted physical entry, or does it include production beforehand, for instance in the course of communications between the parties and/or their respective legal representatives? In my opinion the latter inclusive meaning is tolerably clear and should be preferred, given the present tenses ‘is authorised’ and ‘produces evidence’, when read in context together. Recourse to analogies constrained by contractual principles is to my mind without justification in the context of operation of this regulatory instrument.

57 In support of the Commission’s second basis for challenge, as framed in [49(ii)] above, it was submitted that the Tribunal’s attribution of significance to the events late on 17 April 2002, in its reasons for decision, distracted from the key issues involved in the dispute. The Commission sought to reject the Tribunal’s criticism of its conduct in resorting to alternative invocation of the so-called ‘compulsory power’ of the Commission, the subject of the Undertaking, after the Commission had failed to obtain relief at the Tribunal hearing convened in haste at the instigation of the Commission late on 17 April 2002. The Commission demonstrated in the later Tribunal proceedings conducted by the President (Downes J), that Medtest was fully aware that the Commission’s request for an inspection in the morning of the following day, that is, 18 April 2002, was literally authorised by the Undertaking, albeit that the inspection scheduled for that occasion had been previously convened for the purpose of a NATA assessment, until the Tribunal’s unfavourable ruling late on 17 April 2002. The Commission also demonstrated that Medtest was further aware that what could conceivably eventuate from its refusal of that on-site inspection, as a consequence of breach of the Undertaking, could be loss of entitlement in relation to Medicare benefits.

58 In that regard, Mr Nicholas, Medtest’s laboratory manager and co-ordinator (being also a director of Medtest) acknowledged in cross-examination that as at 17 April 2002, he understood that the inspection proposed for the following day (18 April 2002) was to be undertaken by a team authorised ‘under the Part 9 undertaking’, and further that he was aware that although he had instructed Medtest’s solicitor to convey to the Commission Medtest’s refusal of the intended Part 9 inspection, what might eventuate as a consequence of the refusal was a Commission assertion of breach of the Undertaking on Medtest’s part. In that regard, the President of the Tribunal found, with respect correctly, that ‘... the undertaking does not require reasonable, or indeed any, notice’, and further that ‘[i]inspections without notice are among the very things which are encompassed by the Undertaking’. It was emphasised by the Commission that no notice of contention to the contrary of those findings of the Tribunal was given by Medtest, in the context of its present appeal to the Full Court. I would therefore conclude that the Commission’s second basis for challenge is also soundly conceived in principle.

59 In support of the third basis for challenge, as framed in [49(iii)] above, the Commission submitted that since ‘Medtest proceeded on a particular legal view that [the Commission] was obliged to provide reasonable notice before being able to call on its powers’, being an interpretation of the Undertaking which was rejected by the Tribunal in its decision the subject of appeal, and there being no notice of contention, in that regard as well, Medtest had engaged in a ‘legal gamble’ by knowingly refusing in advance the entry to its laboratory on the following day by the team of experts appointed by the Commission. Moreover the Commission emphasised that there was no evidence placed before the Tribunal, in support of any absence of comprehension on Medtest’s part, that what was being requested by the Commission, by no later than the evening of 17 April 2002, was an inspection purportedly pursuant to the Undertaking alone. It was further emphasised that the Tribunal made no finding that Medtest had not understood that the Undertaking was being belatedly invoked and relied upon by the Commission, in order purportedly to sustain an entitlement of the Commission to inspect at the previously appointed time on the altered basis. What the Tribunal found was that ‘a reasonable person in the position of Ms Blacker, conscious that the application to the Tribunal to direct an inspection had failed, would not have so construed the events relevantly involved’. That finding of the Tribunal, involving as it did an imputed or constructive knowledge test, was submitted by the Commission not to have been open to the Tribunal to make, in the light of the admissions of Mr Nicholas already summarised in [58] above, and that therefore in making that further finding, the Tribunal erred further in law. There is clearly force in that submission.

60 The Commission accordingly submitted that the Tribunal ‘misdirected itself in departing from assessment of the basic factual questions which should have been its focus, in taking account of its view of the appropriateness of the [Commission’s] conduct, and in setting glosses on the relevant questions by requiring particular high levels of clarity and formality’. Or as put in another way by the Commission, for the Tribunal to have held that a reasonable person would not have understood that the request for entry and inspection had been made by the Commission under the auspices of the Undertaking, in circumstances however where Medtest ‘actually did understand that’, was to colour the Tribunal’s findings with an unjustified artificiality. That conclusion was submitted by the Commission to be open to be drawn, and should be drawn, decisively in its favour, because the ultimate issue tendered to the Tribunal was whether Medtest had breached the Undertaking in the circumstances postulated, irrespective of what might be thought of the expediency of the course adopted by the Commission in order to maintain on foot the arrangements for the inspection on 18 April 2002.

61 Since therefore Medtest had refused in advance the request for entry on the following morning of 18 April 2002, actually, knowing and appreciating that the request was made purportedly pursuant to the Undertaking, so the Commission’s submissions continued, it could not rightly be said by Medtest that there had been no breach thereof by its repudiation of the impending visit by the Commission purportedly on the Part 9 footing. Analogously to contract law, the Commission postulated, exercise of an option may be established by reference to what the optionee would ‘fairly understand to be the meaning of it’ in the circumstances of its receipt. I was referred in that regard to what was observed by Isaacs J in Carter v Hyde [1923] HCA 36; (1923) 33 CLR 115 at 126, in the context of a dispute as to whether an option to purchase realty had been effectively exercised, as follows: ‘...[h]is (ie an optionee’s) own attitude shows that he understood it, and I think reasonably understood it, as adding nothing to the conditions. Ordinary practice for evidentiary purposes involves an inventory, and the addition of the word is only an indication of what the respondents understood the offer to import. His attitude is, in effect, an admission of that’.

62 Once again, I am of the opinion that the appellant’s third principal submission should be accepted in principle. It does not seem to me to be sensible that the Commission was required to incur the substantial cost of bringing its inspectors to Medtest’s premises on the morning of 18 April 2002, in order to substantiate the fact of Medtest’s unequivocal refusal of the preceding evening conveyed by Medtest’s lawyers to the Commission’s lawyers. No analogy to the tender of money in disputed circumstances was suggested, nor would it have been apt.

WHETHER THE PROPOSED ENTRY WAS TO BE AN INSPECTION WITHIN THE UNDERTAKING

63 The President of Tribunal found that there was no breach of the Undertaking committed by Medtest in any event, irrespective of whether or not Medtest failed to permit entry, in breach of the Undertaking, for the reason that the Commission scheduled inspection of the site, equipment, processes and documents by the experts and other representatives of the Commission was not ‘within the Undertaking’. The Commission submitted that in so concluding, the Tribunal committed several errors of law.

64 The first basis for that finding on the part of his Honour appears to have been that what was proposed from the outset by the Commission to Medtest was ‘a voluntary assessment’ for NATA purposes. The Commission acknowledged that what had been originally proposed had been of that description, as it was obviously bound to do. However by the evening of 17 April 2002, the Commission submitted, it was mutually understood that what was being requested by the Commission was an inspection pursuant to Part 9 of the Undertaking, albeit essentially by the experts originally nominated for that occasion as NATA assessors. I have already referred to the evidence demonstrating that understanding, both of the Commission and of Medtest. Thus it may be concluded that the Commission made Medtest aware that what would occur on the following day, at the instance of the persons previously characterised as a NATA assessment team (including certain Commission officers), would be an inspection undertaken on behalf of the Commission in order to establish whether entry would be refused by Medtest in purported breach of the Part 9 of the Undertaking. Any such refusal to permit an assessment within Part 9 of the Undertaking would necessarily constitute breach thereof on Medtest’s part, albeit that Medtest’s accreditation for Medicare benefits was due to expire in any event twelve days later on 30 April 2002, unless accreditation might be extended or renewed.

65 Thus the Commission emphasised that although Medtest may well have been entitled to refuse a NATA assessment under the auspices and for the purposes of NATA alone, Medtest had no valid standing to refuse or oppose an inspection to be made pursuant to the authority of the Undertaking, and Part 9 thereof in particular, without Medtest running the gauntlet of the consequences of refusal. Those consequences were of significance. Thus whilst permitting a visit and inspection, to be undertaken on behalf of the Commission, was a matter for Medtest’s decision, any refusal to do so would expose Medtest to the prospect of loss of future Medicare entitlements. At the time of Medtest’s refusal to allow the requested inspection to take place on the following day, being on 18 April 2002, the Undertaking was still in place, and Medtest was continuing to be eligible for Medicare entitlements in respect of services provided by its laboratory.

66 The President of the Tribunal expressed the view, in my opinion rightly, that the introductory Part 9 expression ‘at any reasonable time’ did not imply that reasonable notice must be given, but his Honour said that his view in that regard did not resolve the principal issue the subject of the proceedings. His Honour would not adopt the earlier opinion of the Medicare Participation Review Committee that Part 9 did not, on its face, require an actual attendance, or alternatively that if clause 13(b) of Part 9 could be satisfied by the production of an appropriate authority in advance, it did not follow that a refusal thereupon to permit entry in advance would be constituted. Nevertheless his Honour considered that ‘[t]here may be some room for a finding in a particular case that there has been a constructive refusal of entry just as the law recognises anticipatory breach’. The analysis I prefer however would place emphasis on the words of the Undertaking that a laboratory ‘... will... permit...’. I think it is tolerably clear that Medtest communicated its decision to the effect that it would not give its permission for a future inspection at the time appointed by the Commission. That seems to me to fairly reflect a denial of permission within Part 9 of the Undertaking.

67 In reaching his conclusion on the issue of notice, the President of the Tribunal considered that the critical conversation between Mr Fenton-Menzies, a legal officer of the Commission and Medtest’s solicitor Ms Blacker, took place immediately after the Commission had failed in its application, made to the Tribunal in the evening or late afternoon on 17 April 2002, for an order for an inspection under s 33 of the Administrative Appeals Tribunal Act 1975 (Cth), and further that a reasonable person in the position of Ms Blacker, conscious that the application to the Tribunal had failed, would not construe that conversation as containing a formal demand under the Undertaking on the part of Mr Fenton-Menzies, notwithstanding his references to Ms Blacker as to statutory consequences of a refusal.

68 Moreover the President characterised Mr Fenton-Menzies assertions to Ms Blacker, following upon the so-called direction hearing, as ‘playing with words’. Though his Honour accepted that Mr Fenton-Menzies probably said that the proposed assessment would not be a NATA assessment for the purposes of NATA accreditation, he also found that Mr Fenton-Menzies ‘... probably said this to avoid a concern he had that such an assessment might not be able to be compelled under the undertaking’. His Honour explained his conclusion, drawn adversely the evidence of to Mr Fenton-Menzies, in the following terms:

‘... In my opinion Mr Fenton-Menzies was playing with words. He was attempting to allow the form to rule the substance. It was common ground before me that NATA accreditation was the basis for accreditation as a laboratory. Counsel for the Commission said that NATA had "canonical status as the independent accreditation authority". Perhaps it is technically acting differently when it is assessing for its own accreditation that when it is advising the Minister or her delegate. However, that is not how I understand the evidence. What is important is that nothing changed on 18 April. It was always to be an assessment by NATA whether it was technically described as an assessment for NATA’s own accreditation, from which would follow accreditation by the Minister’s delegate, or whether the assessment was a special assessment for the Minister’s delegate alone.’

69 My difficulty with the foregoing finding is that there is nothing explicit or implicit in Part 9 of the Undertaking, that would deny to persons, albeit initially retained by the Commission to undertake a NATA assessment, authority to undertake additionally or instead an inspection under the auspices of Part 9, so long as they were ‘authorised by the Chief Commonwealth Medical Officer’ so to do, and that it could not be asserted on the basis of the evidence that the members of the NATA team were not so authorised, whether explicitly or implicitly, subsequently to the decision of the Tribunal adversely to the Commission given in the evening of 17 April 2002, nor could it be asserted on the basis of the evidence that Medtest was of any different understanding.

70 Although the Tribunal accepted the testimony of Mr Nicholas that if persons authorised by the Chief Medical Officer had arrived at the Medtest laboratory on the morning of 18 April 2002, and had sought to be admitted, he would have permitted them to enter, and doubtless, so I would infer from that finding, would otherwise have complied with the requirements of Part 9. My difficulty resides in his Honour’s hypothesis that ‘[i]t is one thing to say in advance that you will not agree to someone entering the premises. It is quite another thing to actually refuse permission to someone on the doorstep’. On my reading of Part 9, non-observance thereof is not triggered in operation only by refusal in person of entry to a laboratory ‘on the doorstep’. There is nothing explicit or implicit in Part 9 which required, as a condition of breach of the Undertaking that the Commission must in effect undertake the expense and inconvenience of transporting its inspector or inspectors literally to the doorstep of a laboratory in order for any breach of Part 9 to be established, notwithstanding that it may have been made clear and emphatically beforehand that inspection of the laboratory by Commission representatives and appointees would be denied. Given that the inspection proposed by the Commission had been the subject of outright and unconditional refusal communicated in the evening preceding the appointed day of the inspection, it does not seem to me that Part 9 is fairly susceptible to an interpretation which would require the cost and inconvenience of travel to premises for that inspection, in the context where refusal to allow the inspection had been already unequivocally and emphatically communicated to the Commission by the laboratory authority.

71 I would therefore respectfully disagree with the conclusion of his Honour that ‘[h]owever one looks at what was proposed for 18 April it does not seem to me to have been within the undertaking’. His Honour’s first reason given for that conclusion was as follows:

‘... it was a voluntary assessment. Medtest had lost its accreditation except to the extent that this Tribunal had intervened under s 41 of the Act. Unless the Tribunal continued to intervene Medtest was not credited. If it did not want to permit a NATA inspection that was its right. The consequence may have been loss of its ability to provide services with Medicare benefits; but that was its problem, not the Commission’s.’

I have already expressed my own view as to the nature of the assessment, albeit belated, being the changed characterisation of the inspection nominated by the Commission from that of a NATA inspection to a Part 9 inspection. Accreditation of Medtest’s laboratory had not by then come to an end, if his Honour’s views adversely to the Commission were soundly conceived.

72 I would also respectfully disagree with the further conclusion of his Honour that ‘... what was proposed was an assessment not a mere inspection’, his Honour’s reason being that the persons nominated by the Commission to attend ‘... would have wanted to discuss practices and procedures in some detail’. The emphasis of Part 9 is upon the notions of entry and inspection, though it is to be observed that Part 9 speaks generally of an obligation of a laboratory authority, such as Medtest, to provide ‘all reasonable... assistance’, as well as ‘all reasonable facilities’. I would have thought that the notion of ‘assistance’ in that context would reasonably and necessarily extend to answering any pertinent questions consistently with the Commission’s statutory obligations and the scope of the functions and tasks of an authorised entrant/inspector.

CONCLUSIONS

73 It will be apparent, from my conclusions above expressed, that in my opinion, the appeal should be allowed, and the scope of relief sought by the Commission should be remitted to the Tribunal for determination according to law. The explicit text of the Undertaking is in my opinion too intractable to allow for the kind of qualifications in favour of a laboratory operator postulated by the Tribunal. I should add for completeness that in reaching the conclusions which I have, I have borne in mind that the question whether the circumstances giving rise to the present dispute fall within the provisions of this statutory instrument properly construed, referred to in these reasons of course as the Undertaking, is one of law: Collector of Customs v Pozzolanic [1993] FCA 456; (1993) 43 FCR 280 at 287 (Neaves, French and Cooper JJ). I do not think that in the context in which the words of the Undertaking are framed, it can rightly be said that the same bear their ‘ordinary meaning’, such that it would be reasonably open to hold that the issues arising are merely factual (Collector of Customs v Agfa-Gevaet Ltd [1996] HCA 36; (1996) 186 CLR 389 at 395 (the Court)).

I certify that the preceding twenty-six (26) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Conti.

Associate:

Dated: 25 August 2004

Counsel for the Appellant	F Kunc and JK Kirk
Solicitor for the Appellant	Sparke Helmore
Counsel for the First Respondent:	P Dwyer and RT Kelly
Solicitor for the First Respondent:	Gadens
Date of Hearing:	19, 20 May 2004
Date of Judgment:	25 August 2004