FEDERAL COURT OF AUSTRALIA Shaffer v Secretary, Department of Health & Aged Care [2002] FCA 1028 SOCIAL WELFARE – National Health Legislation – Pharmaceutical Benefits Scheme – approved pharmacists – cancellation of approval where not carrying on business at premises in respect of which pharmacist is approved – whether mandatory or discretionary power – nature of discretion. National Health Act 1953, s 98(3) W H Soul Pattinson & Co Ltd v Secretary, Department of Health and Family Services (1997) 74 FCR 339 not followed SUSAN HENRIETTA SHAFFER v SECRETARY, DEPARTMENT OF HEALTH & AGED CARE N 940 of 2001 WHITLAM J 16 AUGUST 2002 SYDNEY IN THE FEDERAL COURT OF AUSTRALIA NEW SOUTH WALES DISTRICT REGISTRY N 940 of 2001 ON APPEAL FROM THE ADMINISTRATIVE APPEALS TRIBUNAL BETWEEN: SUSAN HENRIETTA SHAFFER APPLICANT AND: SECRETARY, DEPARTMENT OF HEALTH AND AGED CARE RESPONDENT JUDGE: WHITLAM J DATE OF ORDER: 16 AUGUST 2002 WHERE MADE: SYDNEY THE COURT ORDERS THAT: 1. The appeal is dismissed. 2. The applicant pay the respondent's 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 N 940 of 2001 ON APPEAL FROM THE ADMINISTRATIVE APPEALS TRIBUNAL BETWEEN: SUSAN HENRIETTA SHAFFER APPLICANT AND: SECRETARY, DEPARTMENT OF HEALTH AND AGED CARE RESPONDENT JUDGE: WHITLAM J DATE: 16 AUGUST 2002 PLACE: SYDNEY REASONS FOR JUDGMENT Introduction 1 On 5 July 2000 a delegate of the respondent cancelled the approval of the applicant under s 90 of the National Health Act 1953 ("the Act"). The applicant applied to the Administrative Appeals Tribunal ("the Tribunal") for review of that decision. On 21 May 2001 the Tribunal affirmed the delegate's decision. This is an appeal from the Tribunal's decision. 2 Under s 90 of the Act the respondent has the power to approve a pharmacist for the purpose of supplying pharmaceutical benefits from "particular premises". The applicant was an approved pharmacist under s 90 in respect of premises at 145 Canterbury Road in the Sydney suburb of Canterbury. The approval number was 0865M. The Decision to Cancel the Pharmacy Approval 3 The essential background to the cancellation of that approval may be quickly sketched. On 14 September 1999 the applicant wrote to the respondent's delegate. She said that she had been given notice to quit the premises at 145 Canterbury Road by 1 November 1999. She enclosed a letter from her landlord's agent which stated that the premises were to be "redeveloped". The applicant said: "I want to be able to hold my approval to the site until I can sign a contract with the developer. I do not imagine that it should take more than a few months." The delegate replied on 30 September 1999. He said that he would not cancel approval number 0865M for a period of three months with effect from 1 November 1999. 4 The applicant ceased to carry on business as a pharmacist at 145 Canterbury Road on 1 November 1999. On 14 January 2000 the applicant applied for approval under s 90 of the Act in respect of premises at 197 Canterbury Road. On the same date she also sought "an extension of the suspension of the current Approval Number until 1 May 2000". The delegate replied on 19 January 2000 that he intended to review the matter "on or about 1 May 2000". 5 The application for approval was referred to the Australian Community Pharmacy Authority ("the Authority") pursuant to s 90(3A) of the Act. The Authority wrote to the applicant on 28 February 2000, pointing out that the evidence furnished in support of her "legal right to the proposed premises" related to 193 Canterbury Road. When it was confirmed that this was the correct address of the proposed premises, the applicant was asked to make a fresh application. 6 Accordingly, by application dated 21 March 2000, the applicant applied for approval under s 90 of the Act in respect of premises at 193 Canterbury Road. The Authority considered this application at its meeting on 19 April 2000 and wrote to the applicant's solicitors requesting them to provide evidence of the applicant's legal right to use these premises for the purposes of the approval. By fax dated 26 May 2000 the Authority informed those solicitors that, if the legal right issue was not adequately addressed by its next meeting on 28 June 2000, the Authority would not recommend the grant of the approval. On 2 June 2000 the applicant withdrew her application. 7 On 2 June 2000 the applicant also sent the Health Insurance Commission Approvals Clerk in New South Wales an email in the following terms: "i spoke with ann mihulka today and she has a client who is interested in purchasing my approval. we should submit the paperwork before the next meeting." On 19 June 2000 the delegate wrote to the applicant indicating that, as a consequence of that email, he would continue to allow the "park" of approval number 0865M until 30 June 2000. However, the delegate said that, if he did "not receive another relocation application, the basis of which will be the proposed cancellation of your approval," he would have "no other option but to cancel that approval". 8 On 29 June 2000 Ann Mihulka, a health industry consultant, wrote to the delegate on behalf of the applicant. She said that it was proposed to relocate the applicant's approval number 0865M to a shopping centre in Western Australia. Ms Mihulka said the application should be ready to be submitted to the Authority for its September meeting, and she requested the delegate to "extend the parking of the approval number for a further 12 weeks". 9 On 5 July 2000 the delegate wrote to the applicant, saying that he was not prepared to consider a further request to "park" the approval and cancelling approval number 0865M with effect from the close of business that day. The delegate said that his decision to cancel the approval was made under s 98(3) of the Act. The Review by the Administrative Appeals Tribunal 10 A hearing before the Tribunal took place on 11 April 2001. The applicant gave evidence. She said that she now occupied premises at 181 Canterbury Road pursuant to a three-year lease for a term which commenced on 10 November 2000. The applicant said that she wished to reopen her pharmacy at these premises "if my approval number is reinstated". The Tribunal also received in evidence the following documents tendered by the respondent: · the amendments to the rules relating to recommendations of the Authority which came into effect on 29 September 1999 (Determination No. PB 11 of 1999), · the Third Community Pharmacy Agreement between the Commonwealth of Australia and the Pharmacy Guild of Australia, · the rules relating to recommendations of the Authority which came into effect on 26 July 2000 (Determination No. PB 8 of 2000), · the Authority's "Applications Handbook July 2000–June 2000", and · the Health Insurance Commission guidelines relating to deactivation of approvals under s 90 of the Act. 11 The Tribunal gave its decision affirming the delegate's decision on 21 May 2001. Its written statement of reasons comprised 41 pages. After referring in some detail to the evidence, the Tribunal canvassed in great detail the submissions of the parties' representatives. In particular, it considered the decision in W H Soul Pattinson & Co Ltd v Secretary, Department of Health and Family Services (1997) 74 FCR 339. The Tribunal distinguished that case on the facts and held (at [118]) that, where a decision-maker was satisfied that an approved pharmacist was not carrying on business as a pharmacist at premises in respect of which she was approved, s 98(3) of the Act conferred a "broad discretion" whether or not to cancel the relevant approval. 12 However, the Tribunal accepted a submission (at [111]) that "there is a prima facie duty … to cancel an approval where the pharmacy business is no longer being carried on in the particular premises unless there are highly persuasive reasons not to do so." The Tribunal went on to say (at [121]) that the decision-maker should ask: "Is there something about this case so significant that I should not perform my normal duty?" 13 The Tribunal then considered (at [121]-[128]) a number of factors it identified in the circumstances of the present case which "might be so significant that the duty to cancel should have been displaced". It referred to the Health Insurance Commission guidelines relating to deactivation of approvals. The Tribunal took into account the applicant's attempts to relocate and to sell her approval number. It said that it would rule out such a factor as being of significance because the applicant had "done little if anything to look for ways of staying open for business until after her original premises closed on 1 November 1999." In support of that conclusion, the Tribunal referred to a note of a telephone conversation on 19 December 1997 between the applicant and the Health Insurance Commission Approvals Clerk. 14 The Tribunal said: "128. At this stage in the argument the Tribunal is prepared to find that the decision under review should not be disturbed. The Tribunal considers that this result follows regardless of whether the test is the harsher test proposed by Mr Gath [the solicitor for the respondent] or a less stringent test where the Tribunal must make the correct or preferable decision in reviewing the exercise of a statutory discretion of a standard variety. Essentially, the Tribunal sees the Applicant's failure to pursue alternatives prior to the closure of her premises (as discussed in paragraph 122 above) as a major problem for her in the exercise of this discretion regardless of the test." (It had earlier (at [112]) described Mr Gath's test as "less liberal than the administrative policy" in the Health Insurance Commission guidelines relating to deactivation.) 15 The Tribunal then dealt with what it described as the applicant's "argument that the policy underpinning the Act is not simply the primary importance of the supply of benefits". It noted the provisions in Part 2 of the Third Community Pharmacy Agreement relating to pharmacy approvals and relocations. The Tribunal concluded: "133. The Tribunal sees some merit in Mr Burley's submission. At base the submission is that the Tribunal is to consider the interests of an approved pharmacist who wishes to cease trading for a period or who wishes to sell an approval number. 134. The Tribunal is quite prepared to give weight to the position of the pharmacist in this matter. However, a balance has still to be struck by a decision-maker in exercising the discretion. Applying the balance here the Tribunal has concluded that the tentative conclusion it reached in paragraph 128 above should not be disturbed. The Tribunal has concluded that the merits of the Applicant's case are insufficient to displace the importance that should be accorded to the actual supply of pharmaceutical benefits. Conclusion 135. The Tribunal has decided that the decision of the Respondent to cancel the Applicant's approval number was the most appropriate decision in this case." The Grounds of Appeal 16 Counsel for the applicants press three grounds of appeal. First, they say that the Tribunal applied the incorrect test in exercising the discretion conferred by s 98(3) of the Act. Secondly, it is submitted that there was no evidence to support a finding by the Tribunal that after 1 November 1999 the applicant was able to locate three potential premises in Canterbury Road into which she might move her business. Thirdly, they contend that there was no evidence to support the Tribunal's finding that the applicant had been aware as early as 19 December 1997 that she would have to vacate 145 Canterbury Road. 17 Section 98 of the Act relevantly provides: "(1) Whenever: (a) an approved pharmacist requests that his or her approval under section 90 in respect of all or any of the premises in respect of which he or she is approved be cancelled; (aa) … (b) … the Secretary shall cancel that approval. (2) Where: (a) an approved pharmacist gives the Secretary notice in writing that the pharmacist has ceased to carry on business as a pharmacist at premises in respect of which the pharmacist is approved; or (b) … the Secretary may cancel the approval. (3) Where the Secretary is satisfied that an approved pharmacist is not carrying on business as a pharmacist at premises in respect of which the pharmacist is approved, the Secretary may, by notice in writing to the pharmacist, cancel the approval of the pharmacist under section 90. (3A) Where the Secretary is satisfied that an approved medical practitioner is not practising in the area in respect of which the medical practitioner is approved, the Secretary may, by notice in writing to the medical practitioner, cancel the approval of the medical practitioner under section 92. (4) If a person becomes an approved pharmacist in respect of premises in an area in respect of which a medical practitioner is approved under section 92, the Secretary shall cancel the approval of the medical practitioner in respect of that area or of that part of the area in relation to which that section no longer applies." 18 In the Soul Pattinson case Beaumont J (at 370) construed s 98(3) to mean that, once the respondent was satisfied that pharmacists were not carrying on business at the premises specified, the respondent came under a duty to cancel the relevant approval. (Contrary to the submission of counsel for the applicant, it is quite clear that his Honour did not merely decide that in the circumstances of that case the respondent had a duty to exercise his statutory power.) In the present case the Tribunal was bound to apply Beaumont J's construction. Yet it did not do so. Instead, the Tribunal expressly held that s 98(3) conferred a "broad discretion". It thought that the exercise of this discretion required it to apply either a "harsh" test by seeing whether there were "highly persuasive reasons" not to cancel the approval or a "less stringent" test by making the "correct or preferable" decision whether or not to cancel the approval. 19 Counsel for the respondent submits that the Tribunal's view was most favourable to the applicant. In any event, he submits that Soul Pattinson is wrongly decided and that s 98(3) of the Act does confer a discretion. The Health Insurance Commission guidelines are in point here. Their stated purpose is to assist pharmacists who wish temporarily to "deactivate" an approval to supply pharmaceutical benefits under s 90 of the Act. This process was formerly known as "parking an approval". The guidelines contain a note that they aim to describe the way in which a delegate is likely to exercise the "discretion" under s 98(3) of the Act to cancel an approval. 20 On the construction point, counsel for the respondent repeats the following submissions which are recorded in Soul Pattinson at 364-365: "1. … Section 98(3) of the National Health Act 1953 ('the Act') confers a discretion or a power, but not a duty. Whether an Act confers a duty which must be exercised if the circumstances call for its exercise, or conversely confers a discretion, is to be determined by reference to the language, structure and purpose of the Act: … 2. Section 98(3) manifestly confers a discretion. It uses the term 'may', which is a strong prima facie indication of a discretion, rather than a duty: see Finance Facilities Pty Limited v Commissioner of Taxation (1971) 127 CLR 106 at 134 per Windeyer J. 3. The use of the term 'may' in s 98(3) is in sharp contrast to the use of the mandatory 'shall' in 98(1) and 98(4). Those two sub-sections require the exercise of the power which each confers. The intervening sub-sections, s 98(2), (3) and (3A), by contrast use the discretionary 'may'. 4. This careful scheme of distinction between mandatory duties and discretionary powers is used consistently elsewhere within the Act: see, for example, the discretionary power conferred by s 95(1) and compare the mandatory duty conferred by s 95(5). A similar distinction is apparent in the different subsections of s 90 of the Act." (Section 95 is concerned with the suspension or revocation of an approval under s 90 of the Act pending or following investigation and report by a Committee of Inquiry established under Pt VIII of the Act. Beaumont J had earlier observed (at 356) that the Act appears to permit suspension of an approval only in the circumstances specified in s 95.) 21 In Soul Pattinson his Honour acknowledged (at 370) that s 98(3) uses the word "may", not "shall". However, he was of the view that Windeyer J's further observations in Finance Facilities at 134-135 about circumstances in which "may" means "must" resolved the construction point. 22 It is unfortunate that Beaumont J does not appear to have been referred to the legislative history of s 98. It was amended by s 24 of the Health Legislation Amendment (No 2) Act 1986. The power to cancel under s 98(2), where notice is given by an approved pharmacist, became permissive. The word "may" was substituted for "shall". Section 98(3) was inserted in order to allow a cancellation where no notice was given, but the decision-maker had to be satisfied that the pharmacist had ceased to carry on business for a period of 6 months. (That qualification was removed in 1992 when s 98(3) was re-cast in its current language.) The Health Legislation Amendment (No 2) Act 1986 also provided for a right of review by the Tribunal of a decision under the new s 98(3) to cancel an approval. 23 Finance Facilities was recently explained by Gleeson CJ and McHugh J in Samad v District Court of New South Wales (2002) 189 ALR 1 at 11. Even though s 33(2A) of the Acts Interpretation Act 1901 does not apply to s 98(3) of the Act, I think it is clear from the whole statutory context that cancellation under s 98(3) may be done at the discretion of the decision-maker. As the Health Insurance Commission guidelines recognize, a business may have to close for reasons beyond the control of the pharmacist. The use in s 98(3) of the present continuous form of the verb "carry" is instructive. It can hardly have been intended that a temporary cessation of a pharmacy business would require the cancellation of an approval. That is not likely to be conducive to the efficient and equitable supply of pharmaceutical benefits. It follows that I have the misfortune to think that Beaumont J was plainly wrong in his construction of the nature of the power under s 98(3). In my view, the decision-maker's satisfaction that a pharmacist is not carrying on business enlivens the discretion but does not dictate the outcome of its exercise. 24 Recent legislative developments confirm the construction that I favour. The National Health Amendment Act (No 1) 2000 was enacted in order to implement the provisions of Part 2 of the Third Community Pharmacy Agreement. Clause 37 of that agreement deals with "non trading approvals". Item 9 of Sch 1 to that Act is a saving provision. It expressly gave effect to the rules made under s 99L(1)(a) of the Act as in force immediately before its commencement. These are the rules subject to which the Authority makes recommendations whether or not a pharmacist should be approved under s 90 in respect of particular premises. They include the amendments made by Determination No. PB 11 of 1999, paragraphs 3 and 4 of which expressly contemplate recommendations by the Authority where a pharmacist approved under s 90 in respect of premises has ceased to carry on business at those premises and the respondent "(ac) is aware of the cessation and the reasons for it; and (ad) has decided, under section 98 of the Act, not to cancel the approval concerned". 25 Naturally enough, counsel for the applicants contend too that the power to cancel conferred by s 98(3) of the Act is discretionary. But they say that the Tribunal's exercise of its discretion miscarried because it applied the "harsh" test. It must be said that the reasons of the Tribunal are confusingly expressed. However, on a fair reading, I think it is clear enough that the Tribunal considered both its "harsh" and "less stringent" tests in the applicant's circumstances. The use of the word "displace" in the second last paragraph of the Tribunal's reasons reproduced in [15] above does not suggest to me that it has reverted to the application of its "harsh" test. Counsel for the applicants are critical of the Tribunal's alleged failure to balance "the interests of the Commonwealth in ensuring an effective distribution of pharmaceutical benefits, and the interests of pharmacists supplying the benefits which facilitate the distribution process". Considered against the policy stated in the Health Insurance Commission's guidelines, especially the maximum period of 6 months allowed for a deactivation, the applicant's case was hopeless. The Tribunal has dealt with the case which the applicant presented to it on the basis that it had a "broad discretion". The Tribunal's failure to apply the true ratio of Soul Pattinson, as it should have done, involved an error of law. However, its decision was not based on that error. The Tribunal's misunderstanding of Beaumont J's reasoning did not, fortuitously, cause it to dispose of the case on the basis of the "harsh" test. It purported to and, in my view, ultimately did reach what it thought was the correct decision, uninfluenced by any predisposition in favour of cancellation. Since the Tribunal actually did exercise a broad discretion, the statements in Wade v Burns (1966) 115 CLR 537 relied on by the applicant are of no assistance to her. The primary ground of appeal is not made out. 26 Counsel for the applicant rest their argument in support of her "no evidence" grounds of appeal on the discussion by Mason CJ of the review of factual findings in Australian Broadcasting Tribunal v Bond (1990) 170 CLR 321 at 355-360. In the same case Deane J said (at 367): "If a statutory tribunal is required to act judicially, it must act rationally and reasonably. Of its nature, a duty to act judicially (or in accordance with the requirements of procedural fairness or natural justice) excludes the right to decide arbitrarily, irrationally or unreasonably … When the process of decision-making is disclosed, there will be a discernible breach of the duty if findings of fact upon which a decision is based are unsupported by probative material and if inferences of fact upon which such a decision is based cannot reasonably be drawn from such findings of fact. Breach of a duty to act judicially constitutes an error of law which will vitiate the decision." 27 Properly understood, Bond provides no comfort to the applicant. In Minister for Immigration and Ethnic Affairs v Teo (1995) 57 FCR 194 a Full Court of this Court pointed out (at 200) that, in a case such as the present where the subject matter of the "appeal" is confined to a question of law, the general common law principles of administrative law are called into play. To make out a "no evidence" ground under those principles, it is necessary to show an absence of evidence or material to support the very decision under challenge. The finding of fact that might be so reviewed for error of law must itself constitute that decision. It is not sufficient that a finding of fact is just a step along the way to an ultimate determination. 28 In the present case the "statutory precondition" for the Tribunal's exercise of power was its satisfaction that the applicant was not carrying on business at 145 Canterbury Road. There was no factual dispute about that jurisdictional fact. So far as the exercise of the discretionary power is concerned, neither of the alleged findings of fact relied on by the applicant grounds the decision of the Tribunal. Accordingly it is not necessary for me to look at the file note of the telephone conversation of 19 December 1997 in order to see whether it supports the Tribunal's finding as to when the applicant knew she would have to vacate 145 Canterbury Road. The reason why arguments such as those mounted on behalf of the applicant cannot succeed was put succinctly by Gleeson CJ in Minister for Immigration and Multicultural Affairs v Rajamanikkam [2002] HCA 32. Referring to Bond, his Honour said (at [26]): "As that case showed, identification of the 'decision' may constitute an important step in deciding whether there has been an error of law in the form of a breach of a duty to act in accordance with the requirements of procedural fairness. The requirement is to 'base [a] decision on evidence'; a requirement as to the way the decision-maker is to go about the task of decision-making. The distinction between judicial review of administrative decision-making upon the ground that there has been an error of law, including a failure to comply with the requirements of procedural fairness, and comprehensive review of the merits of an administrative decision, would be obliterated if every step in a process of reasoning towards a decision were subject to judicial correction. The duty to base a decision on evidence, which is part of a legal requirement of procedural fairness, does not mean that an administrative decision may be quashed on judicial review if the reviewing court can be persuaded to a different view of the facts." (Footnote omitted.) 29 The appeal will be dismissed with costs. I certify that the preceding twenty-nine (29) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Whitlam. Associate: Dated: 16 August 2002 Counsel for the applicant: S C G Burley and M J Darke Solicitors for the applicant: W G McNally & Co Counsel for the respondent: N J Williams SC Solicitor for the respondent: Australian Government Solicitor Date of hearing: 1 November 2001 Date of judgment: 16 August 2002