Commonwealth v Pharmacy Guild of Australia

Re: THE COMMONWEALTH OF AUSTRALIA and THE PHARMACY GUILD OF AUSTRALIA and
ANOTHER
And: THE PHARMACY GUILD OF AUSTRALIA and ANOTHER (Cross Appellants) and THE
COMMONWEALTH OF AUSTRALIA (Respondent to Cross-Appeal)
No. V G198 of 1989
FED No. 797
Administrative Law
91 ALR 65

COURT

IN THE FEDERAL COURT OF AUSTRALIA

VICTORIA DISTRICT REGISTRY
GENERAL DIVISION
Woodward(1), Sheppard(2) and Ryan(3) JJ.

CATCHWORDS

Administrative Law - Judicial review - National Health Scheme - pharmaceutical benefits - Determination by Pharmaceutical Benefits Remuneration Tribunal of the manner in which 'Commonwealth price' is to be ascertained - deferral by Tribunal of final decision whether certain award salary increases should be taken into account as increased labour costs - absence of reasons - whether failure to have regard to relevant consideration - whether deferral manifestly unreasonable.

National Health Act 1953 ss 84, 85, 90, 98A, 98B, 98BA, 98BD, 98BE

Administrative Decisions (Judicial Review) Act 1977 paras 5(1)(e), 5(2)(b) and 5(2)(g)

Judiciary Act 1903 s 39B

HEARING

MELBOURNE

#DATE 21:12:1989

Counsel for the Appellant: J Fajgenbaum QC and R M Downin

Solicitors for the Appellant: Australian Government Solicitor

Counsel for the Respondents: N H M Forsyth QC and G T Pagone

Solicitors for the Respondents: Cornwall Stodart

ORDER

1. The appellant forthwith amend its notice of appeal by

adding as respondents thereto the members of the Pharmaceutical Benefits Remuneration Tribunal.

2. These orders not be entered until the expiry of a period

of 21 days after notification of such amendments to the members of the Tribunal.

3. Liberty to the members of the Tribunal to apply within

that period of 21 days.

4. Subject to orders 1, 2 and 3, the appeal be dismissed.

5. The cross-appeal be dismissed.

6. The appellant pay to the respondents their costs of the

appeal.

7. There be no order as to the costs of the cross-appeal.

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

JUDGE1

In this matter I have had the benefit of reading the draft judgment of Sheppard J, in which his Honour has set out the relevant sections of the National Health Act 1953 ('the Act') under which the Pharmaceutical Benefits Remuneration Tribunal ('the Tribunal') operates. His Honour has also described the circumstances leading up to the particular decision of the Tribunal which is before the Court, and the reasons which led the learned primary Judge to determine that the Tribunal's decision, concerning the price to be paid by the Commonwealth for prescription services, should be set aside pursuant to the Administrative Decisions (Judicial Review) Act 1977 ('the Judicial Review Act'). I shall not repeat what his Honour has said on these matters any more than is necessary to explain the reasons for the decision which I have reached.

In my view the fundamental cause of the difficulties which have arisen in this case is the failure of the Tribunal to carry out its statutory duty, set out in section 98BD of the Act, to provide reasons in writing for each set of findings and determination which it makes. All that the Tribunal has done, in a lengthy statement referred to as its Twelfth Report, is to set out the contentions of the parties before it - essentially the Commonwealth and the Pharmacy Guild of Australia ('the Guild') - and to announce its conclusions. I can find nothing in the statement which could be described as a reason for preferring the Commonwealth's submissions to those of the Pharmacy Guild, which was the course taken by the Tribunal in deciding each issue relevant to these proceedings.
The position is further complicated by the fact that many of the conclusions reached by the Tribunal are couched in esoteric terms which, presumably, are clear enough to those persons who appear regularly before the Tribunal, but because of their elliptical and allusive character are difficult for the uninitiated to understand fully and, I suspect, would puzzle many of the chemists whose livelihoods are so directly and seriously affected by the Tribunal's decisions.
It can not be said too often that decision-makers who are subject to the Judicial Review Act, and particularly formally constituted tribunals, are under a clear obligation to explain their decisions in terms which can be understood by the people affected by those decisions; see Ansett Transport Industries (Operations) Pty Ltd v Wraith (1983) 48 ALR 500 at 507.
In dealing with the vital question of labour costs which lies at the heart of this appeal, the Tribunal explained its decision to exclude from its determination of dispensing fees any allowance for recent award increases in the salaries of pharmacists' managers and others, in the following terms:

"Labour Costs

...

The tribunal decided not to adopt the submission for an increase in this component on account of movements in award wages granted in accordance with the second tier Restructuring and Efficiency Principle. The claim that the labour cost component should be represented in the prescription fee according to the level of the relevant State award for pharmacists' managers has therefore not been adopted on this occasion. However, the Tribunal considers that the resolution of this matter needs to be considered in the context of the Data Base Inquiry."

Nowhere in its statement was the nature of the "Data Base Inquiry" explained. There was one other reference to a topic, "Change in Wholesale Margin", which would also require to be considered in the course of the Data Base Inquiry. It is apparent from other material put before the Court that the next hearing to be conducted by the Tribunal after that which is before the Court was intended to be the Data Base Inquiry, which would accordingly become the thirteenth inquiry in the Tribunal's sequence. The point is important because it appears from the passages quoted above that the Tribunal's actual decision was to defer to its next inquiry a final decision on the way in which recent State awards for pharmacists' managers and others should be reflected in the dispensing fee arrived at by the Tribunal. It was this deferral which was held by the learned primary judge to constitute, first, a failure by the Tribunal to take into account a matter which it was bound to consider and, secondly, a conclusion that was manifestly unreasonable.
I do not find it necessary to determine the precise form that the Data Base Inquiry was to take, although it appears that it included surveys of the actual costs incurred by a range of chemists in dispensing prescriptions. It is sufficient for present purposes that the Tribunal decided to defer to its next inquiry a final conclusion on the taking into account of the relevant State awards.
The task of judicial review is made very difficult by the almost complete absence of any statement of the Tribunal's reasoning processes. However, the absence of reasons has not been challenged in the present proceedings, and the Court must do the best it can on the meagre material available. For example, since the submissions of the Commonwealth have been almost completely adopted by the Tribunal, it is reasonable to assume that any reasons which were given by the Commonwealth for its submissions have found some favour at least with the Tribunal. It may also be possible to infer the reasons which influenced the Tribunal from the very nature of the decisions which it reached.
In considering whether the Tribunal was obliged to build into its calculation of an appropriate dispensing fee some allowance for the effect of the relevant awards, a number of factors need to be considered.
In the first place, it is important to note that the Tribunal's task is a continuing one. The legislation envisages regular reviews; and in fact there have been twelve inquiries and reports within a period of less than eight years. Thus each decision of the Tribunal operates for only a period of months rather than of years. This is made necessary by the fact that the economic considerations upon which the Tribunal acts are constantly changing; and it must be accepted that each decision of the Tribunal starts to become out-of-date from the day it is pronounced - or even earlier, since changes can occur between the time of hearing and the date of operation of the determination.
The second important point to bear in mind is that the Tribunal can, at best, do only rough justice as between the average pharmacist and the Commonwealth, which provides the funds, in determining the manner in which the Commonwealth price of pharmaceutical benefits is to be ascertained.
Until the time of the determination in question, the Tribunal operated by first taking into account, as best it could from statistical material available, the then current average cost to the pharmacist of the drugs which were prescribed. This calculation was complicated not only by the difficulty in identifying the drugs in question and their list prices, but also by the availability of certain discounts offered by drug wholesalers for purchases in quantity, for example, and on the other hand the fact that premiums might be charged in certain circumstances.
From this cost price of the drugs was then calculated the average value of the mark-up, which was fixed by the Tribunal at an arbitrary figure of 25% for ready prepared drugs which were supplied to the customer without any mixing or processing on the part of the pharmacist, and 33% in the case of those drugs that required preparation by the pharmacist.
This average value of mark-up was then taken into account in determining the appropriate figure for what has been variously described as a professional fee or dispensing fee, which was designed to cover the pharmacists' other costs of labour and overheads, including an allowance for his own labour and an element of profit.
In order to perform this task, the Tribunal had to begin by ascertaining the effect in practice of its previous decision. Because its statutory task is to prescribe only a manner of arriving at the amount to be paid by the Commonwealth to the pharmacist, and not an exact figure, it could not be sure of the base from which it had to begin until it discovered the effect which the mark-up provision had had in the period since the last review. If the wholesale cost of the drugs had, for some reason, risen sharply since the last review, the payment of the mark-up would have led to a wind-fall profit to the pharmacist, which then had to be taken into account in determining whether the dispensing fee should be increased at the next review, left as it was, or reduced - as happened for the first time on the occasion in question.
Because, until now, the Tribunal has determined that there should be a single fixation of a dispensing fee applying to the whole of Australia, there must necessarily be an averaging process involved. Some pharmacists will receive more than they are strictly entitled to and others, correspondingly, less. For example, there are surprisingly wide disparities from State to State in the pay levels of pharmacists' employees. We were told of a difference between $442 per week in Tasmania and $560 per week in Victoria for one category of employee. The Tribunal's practice has been to bring all the relevant awards into account, but to arrive at a national decision by giving different weightings to the respective State awards in accordance with the numbers of pharmacists affected by them. Thus a significant increase in an award wage in Western Australia will make very little difference to the national average, whereas a comparatively small increase in New South Wales will make a noticeable difference to that average. This makes clear the nature of the rough justice to which I have earlier referred.
The main bone of contention in the present case is an increase in a New South Wales award for pharmacy managers which, on a weighted basis, should have produced the result, according to the Guild, of a 19 cent increase for all pharmacists. This would have been a good deal less than the alleged real cost to New South Wales pharmacists and would have represented a bonus to Victorians, for example, who had not experienced any increase in wage costs. On the other hand, Victorians may have been disadvantaged for some time by reason of higher wage levels which they had to pay and which were only partially compensated for by the formula used by the Tribunal.
It is no doubt because of the approximations involved in the decisions of the Tribunal that it has not found it necessary to indicate the precise nature of the decisions that it has reached on all the various points which were raised in the twelfth inquiry.
Thus, for example, under the heading "Economies of Scale", the Tribunal referred to an agreement between the parties that an increase in pharmacists' remuneration was warranted on this occasion due to this factor. Because, in 1988, the permitted quantity of drugs or medicine on each prescription was doubled, fewer prescriptions were being filled. The Tribunal said that the Commonwealth had suggested a one cent increase and the Guild had claimed a three cent increase. The Tribunal accepted that some adjustment was due and said it had been reflected in its determination, but it did not state a figure.
Apart from this item, which presumably required an increase of one, two or three cents, the Tribunal found justifiable increases which totalled 41 cents and reasons for decrease in the sum of 52 cents. One would have expected, therefore, an adjustment downwards of about nine cents. However, having concluded that "some reduction in fee is required unless past procedures and principles are to be ignored", the Tribunal went on to say that it had "decided to act with caution in determining the amount of the reduction in fees. It has decided, therefore, to reduce remuneration by five cents per prescription....". In fact, its order required a decrease of five cents in relation to ready prepared items and eight cents in the case of "extemporaneously prepared and related items".
All this indicates that the Tribunal was conscious of the fact that it was dealing with a range of matters which were difficult to quantify, and that it could only hope to paint on its canvas with a broad brush, having regard to all the inherent differences between States, between small and large pharmacies, between pharmacies situated in city shopping centres and in small country towns, and so on.
A further important consideration is that the Tribunal does not deal with the entire income of a pharmacist's business. For this reason, the considerations applying to judicial review of the Tribunal's actions are, in my view, significantly different from those which have been applied in a number of decisions of this Court to the Commonwealth's determination of charges which nursing homes may make for their services; see for example, Alexandra Private Geriatric Hospital Pty Ltd v Blewett(1985) 7 FLR 341. Because pharmacies normally stock a wide range of goods which are not pharmaceutical, and many drugs which do not require prescription, the Tribunal is only concerned with a part of the income of the pharmacy. It is, however, a significant part of that income; and the tribunal must of course act justly in reaching its determinations.
It is clear from its statement in its twelfth report that the Tribunal is conscious of the continuing nature of its function. Thus under the heading "Non-Labour Cost" the Tribunal rejected the applicant's claim for an adjustment based upon the last six months results of changes in the Consumer Price Index, and decided to continue with twelve-monthly adjustments as it had in the past. So also, under the important heading of "Mark-up", the Tribunal referred to the fact that an increase of 46 cents under this heading had been established up to the end of 1987, but this had not been directly brought into account in either of the two previous reports and determinations. The Tribunal accepted that a further six cents increase had occurred during the six months ended June 1988. It was its decision to bring this total of 52 cents into account which caused the reduction in the dispensing fee which it determined on this occasion. It is reasonable to assume that, had the varying factors been more precisely calculated in one of the earlier inquiries, some reduction would have occurred at that time. In this sense the pharmacists had been receiving, in the previous year or so, a benefit for which they had not established a case.
On the other hand, under "Change in Wholesale Margin", the Tribunal referred to the fact that it had considered issues relating to this topic at the tenth and eleventh inquiries and had deferred a decision upon them because of doubts about the precise effects which had been felt by pharmacists due to this factor. The Tribunal went on to say that, having considered submissions to its two previous inquiries, it now accepted an agreed figure of 31 cents per prescription as being an appropriate increase under this head. This arose because a reduction in the wholesale margin for pharmaceutical goods had also reduced the pharmacist's income from the mark-up. However the Tribunal referred to one aspect of this topic which is still in contention, and indicated that it could be considered in the course of the next inquiry.
Similarly, under the heading "Generic Pricing Scheme" the Tribunal said that it believed that any impact of the Government's decision on this topic would be reflected in the mark-up component of pharmacists' remuneration, and would accordingly be adjusted by the Tribunal when the matter was again considered. This and the previous references to which I have drawn attention, underline the Tribunal's belief that it is entitled, in the course of its regular reviews, to defer some issues for future consideration. It clearly believes also that it is not obliged to reach a precise answer on the material available to it at each inquiry, and it is entitled to make an exercise of judgment which is not based upon any exact calculation, but represents the Tribunal's best judgment as to a fair and reasonable result in all the circumstances.
In my view the Tribunal is correct in this approach, and had it taken the trouble to explain what it was doing and why it was doing it, there would probably have been no grounds for seeking judicial review.
In particular, faced with a situation in which there had been salary movements in three States only, one of which highlighted the arbitrary effect of increases in New South Wales being applied throughout Australia, I think the Tribunal was entitled to defer, until its next hearing in a few months time, consideration as to the way in which these issues should be dealt with.
Some idea of what the Tribunal apparently had in mind when it deferred consideration of the different award determinations in New South Wales, South Australia and Western Australia (a one cent increase was claimed by the Guild by reason of the determinations in the last two States) may be gleaned from its interim report in the Data Base Inquiry, which was published on 26 April 1989 and was before the primary judge in these proceedings. Under the heading "Differential Remuneration", the Tribunal said,

"The issue of differential remuneration as between intrastate or interstate is a matter of fundamental importance in the establishment of a remuneration basis........ . The subject of differential remuneration also arose during two other recent inquiries. ........ ...

The tribunal considers, prima facie, that a case exists for differential payment to pharmacies, including essential pharmacies in non-metropolitan areas. There may also be a case for differential rates based on a State and/or other location basis. Further submissions are invited in respect of this aspect."

Further, in carrying out its task, the Tribunal was required by its statute to have regard to the decisions of the Conciliation and Arbitration Commission when that Commission laid down principles for the fixation of salaries and wages. In determining on a 4% general wage increase, to be granted only in return for award restructuring and improved industrial efficiency in each case, the Commission had indicated its expectation that the resulting improved flexibility in the use of labour would result in no net increase of costs to employers. It was this principle, that flowed through into the State awards, which we are particularly concerned with here; and the Commonwealth argued before the Tribunal that there should be no increase resulting from the particular awards because, if the pharmacy industry took advantage of the opportunities for structural improvements and efficiencies, there need be no increased costs; and if it failed to do so, then there was no reason why the cost of that failure should be passed on to the consumer. The Guild countered by claiming that there was very little room for increased efficiencies, or the benefits of restructuring, in small businesses such as many pharmacists' shops represent.
The Tribunal made no precise findings on this issue, but it did act in accordance with the Commonwealth's submissions, so it may be presumed that it gave some weight to them. At the same time, it reserved further consideration of the matter to its next inquiry which, in my opinion, was a reasonable step to take, bearing in mind that the respective submissions of the parties were dealing with the likely outcome of the award increases. Clearly a better judgment on the matter could be reached after those increases had been in operation for some little time.
The learned primary judge drew attention to the principle expressed by Mason J in Minister for Aboriginal Affairs v Peko-Wallsend Limited (1986) 162 CLR 24, where, at 40 - 41, his Honour said,

"The limited role of a court reviewing the exercise of an administrative discretion must constantly be borne in mind. It is not the function of the court to substitute its own decision for that of the administrator by exercising a discretion which the legislature has vested in the administrator. Its role is to set limits on the exercise of that discretion, and a decision made within those boundaries cannot be impugned".

I have reluctantly reached the conclusion that the primary judge has been led, by the absence of any proper statement of the Tribunal's reasoning processes, into assuming that it has acted in an arbitrary and unreasonable fashion and so has failed to take into account a consideration which it was bound to take into account - bearing in mind that the Act requires the Tribunal to act in accordance with "equity, good conscience and the substantial merits of the case"; see s 98BC of the Act.

His Honour took the view that it was an improper use of the power committed to the Tribunal for it to reduce the dispensing fee by reason of the fact that an increase in total remuneration had been derived from the mark-up factor, without at the same time allowing an increase for any relevant award variations which had occurred. (Presumably the principle would positively require the one cent derived from Western Australia and South Australia to be brought to account, just as much as the 19 cents derived from New South Wales.)
To say this is, in my view, to place the Tribunal in a position where its discretion is restricted in an unwarranted manner. The fact that the Tribunal had seen fit to off-set such considerations on some previous occasions does not mean it is always bound to do so. Nor does the fact that the Tribunal in this determination, for the first time, reduced the amount of the professional fee, mean that it has necessarily fallen into error. His Honour said,

"...the Tribunal gives no explanation why there should be this reduction in actual amount of the professional fee. This may have resulted from the failure to determine the effect of labour costs. It may be from other causes. It is difficult to see how, at a time of general inflation in Australia, the amount of the professional fee should be reduced in actual terms. The reduction in real terms is even greater. The tribunal has given no satisfactory reason for this reduction."

Concerning this comment of his Honour's about inflationary times, it should be noted that the propriety of reducing the dispensing fee by 46 cents was not in dispute, and the decision to reduce it by 52 cents was clearly open to the Tribunal and is not challenged here. Whether there would be countervailing considerations in the relevant period to neutralise this reduction was a matter of chance. The factor on which the Guild now relies to complete the bridging of the gap between increasing and decreasing factors only arose shortly before the determination was made, and required a special sitting to enable it to be considered at all.

As I have indicated, the fault lies with the Tribunal for failing to explain itself. But this does not mean that assumptions should be made against the Tribunal. The Court must do its best from the surrounding circumstances to try to understand what the Tribunal had in mind. Once that effort is made, it should not, in my view, be concluded that the Tribunal's determination constituted an improper exercise of power requiring judicial review. As Jenkinson J said in The Pharmacy Guild of Australia v J.M. Riordan, (VG' 273 of 1989, unreported, 26 October 1989),

"...the exercise of the power may in my opinion lawfully be guided by such considerations of moral and political and economic philosophy as commend themselves to the Tribunal and as are not beyond the limits of what in this community is considered rationally defensible."

The only substantial constraints which Jenkinson J recognised as arising from the general circumstances in which pharmaceutical prescriptions are made available in the Australian community were, first, the need for pharmacists to receive, in addition to the cost to them of the ingredients, some recompense for the trouble and expense of supplying the product and, secondly, the need for those payments to amount to a sufficient consideration to induce a sufficient number of pharmacists to continue to operate as approved pharmacists under the provisions of the Act. If his Honour is right in this, as I believe he is, I think it follows that no particular ingredient of costs can be said to be a matter which the Tribunal is bound to take into arithmetic account when determining a dispensing fee.

For the reasons which I have indicated, I believe the learned primary judge was led into error by the Tribunal's failure to explain adequately or at all the reasons for its various decisions. I do not believe that the Tribunal did fail to have regard to any matter which it was bound to consider. The Act does not prescribe in any detail the way in which the Tribunal should go about its task, what factors it should take into account or the weight to be given to any particular factors. On this occasion it failed to bring into arithmetic account a particular consideration, namely the recent award variations in three States. However, over eight pages of the Tribunal's 39 page statement were used to set out the respective arguments of the parties on this issue; there can be no doubt that it was strongly urged to make allowance for those award variations and it reached a distinct decision that it should not do so on this occasion. There were good reasons available for it to defer, at least for a short time, a final decision on this difficult question. It should not be assumed, from its failure to explain those reasons, that it acted capriciously or unjustly.
The same reasoning which applies to the alleged failure of the Tribunal to take into account a relevant consideration applies even more strongly to the alleged unreasonableness of the Tribunal's decision.
In my view, the case against the Tribunal on these grounds is not made out, and therefore the appeal should be allowed and the orders made below set aside. However I think the entire blame for this litigation lies at the door of the Tribunal for its failure to explain its actions, as it was required to do by the statute under which it operates. For this reason I would award no costs to the Commonwealth of either the proceeding in the Court below or of this appeal.
I should say, in conclusion, that I agree with the learned primary judge that it is probably not lawful, and certainly not practical, to send decisions made by the Tribunal back to it for further consideration. This arises from the requirement of the Act that all determinations by the Tribunal must be prospective and, in view of the changes which will necessarily have occurred since the date of the original determination, it is not practicable for the Tribunal to make a fresh determination based on matters as they stood at that date.
This is, in my view, a strong reason why the Court should be slow to interfere with any decision of this particular Tribunal. While the Tribunal cannot be permitted to ignore the requirements of its own legislation, or of the Judicial Review Act, it will always be difficult for a Court reviewing its decisions to take hold of a particular item which has been the subject of a decision and direct either that that part of the decision, or that the final decision which represents the end result of a series of related decisions, be set aside. The result could be a distortion of the decision made, or a reversion to a previous decision which was clearly out-of-date and inappropriate.
The only solutions which I can see to this dilemma are, first, for the Tribunal to observe with care the requirements for it to give reasons and, secondly, if any of those reasons appear to give rise to a right of challenge by way of judicial review, then application must be made as a matter of urgency and the Court would have to treat that application as a matter of urgency, thus reducing to the shortest possible time the period of interference with the Tribunal's determinations.
In the present case, the determination was made on 27 January and was expressed to take effect on 1 February. The application for judicial review was dated 24 February and an interlocutory order was made on 14 March directing the Commonwealth to maintain records which would enable it to make additional payments to pharmacists if a decision were made to set aside the determination. The matter was heard, and judgment given on 13 June which, given the amount of material which had to be compiled and presented and the complexity of the matter, was a very reasonable result from the point of view both of the parties and of the Court. The case was obviously treated on all sides as requiring a degree of priority.
For the reasons given I would allow the appeal, set aside the orders of the primary judge and make no order as to costs.

JUDGE2

This is an appeal from a judgment of a judge of the Court (Northrop J.) in an application for judicial review. The application was based both upon provisions of the Administrative Decisions (Judicial Review) Act 1977 and s.39B of the Judiciary Act 1903 which invests this Court with jurisdiction to grant relief against officers of the Commonwealth. His Honour ordered that the determination of the Pharmaceutical Benefits Remuneration Tribunal ("the Tribunal") made on 27 January 1989 be set aside and that the Commonwealth of Australia pay the respondents' costs of the application. The respondents, who were the successful applicants at first instance, are the Pharmacy Guild of Australia ("the Guild") and Mr. J.P. Matthews who is a registered pharmacist and "an approved pharmacist" for the supply of "pharmaceutical benefits" within the meaning of Part VII of the National Health Act 1953 ("the Act"). I shall hereafter refer to the respondents as the Guild. The Guild has almost 5,000 members throughout Australia. Each is an employer and carries on the business and profession of a pharmacist. Some carry on business on their own account and some in partnership.

The members of the Tribunal were joined as respondents to the application but do not appear to have been joined as parties, appellants or respondents, to the appeal which has been brought by the Commonwealth of Australia. Attention should be paid to this matter before any formal orders determining the outcome of the appeal are taken out. To this end I would be prepared to allow the Commonwealth to amend its notice of appeal to join the members of the Tribunal as respondents. Upon the basis that it seems unlikely that the Tribunal would wish to do otherwise than to submit to such order as the Court sees fit to make, notice of the amendment should be given to the Tribunal and a period of 21 days from the date thereof should be allowed to elapse before any formal order is taken out. Liberty to the members of the Tribunal to apply within this time should be reserved.
The Guild instituted a cross-appeal but this was not proceeded with and need not be further mentioned.
The provisions of the Act which are in question are to be found in Part VII which is headed, "Pharmaceutical Benefits". The Tribunal is established by s. 98A. The function of the Tribunal is provided for in s. 98B. Subsection 98B(1) provides that the function of the Tribunal is to determine "the manner" in which the Commonwealth price of all or any pharmaceutical benefits is to be ascertained for the purpose of payments to approved pharmacists in respect of the supply by them of pharmaceutical benefits. The expression "Commonwealth price" is not defined in the Act. "Pharmaceutical benefit" is defined in s. 84 to mean a drug or medicinal preparation in relation to which Part VII applies. By s.85 benefits shall be provided by the Commonwealth, in accordance with Part VII of the Act, in respect of the drugs and medicinal preparations in relation to which the Part applies. In short, the Part applies to drugs and medicinal preparations that are declared by the Minister to be drugs and medicinal preparations to which the Part applies or are included in a class of drugs and medicinal preparations declared by the Minister to be a class of drugs and medicinal preparations to which the Part applies.
Another expression used in subsec. 98B(1) is "approved pharmacist". This is defined in s. 84 to mean a pharmacist for the time being approved under s. 90 of the Act. Section 90 empowers the Secretary to the Department of Health to approve pharmacists for the purpose of supplying pharmaceutical benefits from designated premises.
There is finally the expression "the manner". Subsection 98B(2) defines "a manner" as follows:-

"(2) A manner determined under sub-section

(1) shall-

(a) in the case of a ready-prepared pharmaceutical benefit - take as a basis -

(i) the approved price to pharmacists of the pharmaceutical benefit concerned; or

(ii) if the pharmaceutical benefit concerned is a form of a drug or medicinal preparation to which a substance has, or substances have, been added in accordance with a determination in force under sub-section 85(3) relating to that drug or medicinal preparation - the approved price to pharmacists of that form of that drug or medicinal preparation, that was applicable on the first day of the month of the year in which the supply occurs;

(b) in the case of other pharmaceutical benefits - take as a basis the basic wholesale price of each ingredient that is applicable on the day on which the supply occurs; and

(c) provide for the addition of such fees and other amounts as are determined by the Tribunal."

Subsection 98B(3) defines "ready-prepared pharmaceutical benefit" referred to in para. 98B(2)(a), the "approved price to pharmacists" referred to in sub-paras. (i) and (ii) thereof and "basic wholesale price" referred to in para. 98B(2)(b). It is unnecessary to refer to the detail of these definitions. Subsections 98B(4) and (5) are as follows:-

"98B. (4) The Tribunal may approve criteria that it considers to be appropriate for use in determining the nature or magnitude of fees or other amounts referred to in paragraph (2)(c), and may, at any time, vary or revoke such criteria.

(5) In determining fees or other amounts referred to in paragraph (2)(c) and in approving criteria under sub-section (4), the Tribunal shall have regard to any principles determined, from time to time, by the Australian Conciliation and Arbitration Commission as being appropriate for the fixation of award wages or salaries."

The Tribunal, at the time of its decision, which is the subject of consideration in this appeal, had not determined any criteria pursuant to subsec. 98B(4). There was some suggestion in the submissions made by the Guild that the Tribunal's failure to approve criteria was in some way a factor which vitiated its decision. This suggestion was, however, withdrawn, and nothing turns on the Tribunal's failure in this respect except perhaps considerations such as were mentioned by the learned primary Judge to the effect that the absence of criteria placed the Tribunal under a disadvantage and could, as a result, lead it into legal error.
When I come to refer to the detail of the Tribunal's decision and the argument relied upon by the parties, it will emerge that the provisions of subsec. 98B(5) are of substantial relevance. Before I come to those matters, however, it is necessary to refer to some further provisions of the Act.
Section 98BA provides that the Tribunal shall, as soon as practicable after the commencement of the section, and at such subsequent intervals as are determined by the Chairman, hold an inquiry to ascertain whether the Commonwealth price of all or any pharmaceutical benefits should be varied. The balance of s. 98BA and ss. 98BB and 98BC go on to provide for the manner in which inquiries are to be held, the manner in which the Tribunal is to be constituted and for its procedure. Section 98BD (so far as it is relevant) and s. 98BE are as follows:-

"98BD. (1) After the completion of an inquiry under section 98BA, the Tribunal shall issue, in a proceeding conducted in public, a statement, in writing, of its findings and the reasons for them.

(2) Where the Tribunal -

(a) determines fees or other amounts referred to in paragraph 98B(2)(c); ........ ........ ........ ........ ........ ..... the Tribunal shall issue, in a proceeding conducted in public, a statement, in writing, setting out the terms of that determination or decision and the reasons for making it. ........ ........ ........ ........ ........ .... 98BE. A determination of the Tribunal under sub-section 98B(1) shall come into operation on a date specified in the determination, not being a date earlier than the date on which a statement setting out the terms of the determination is issued by the Tribunal in accordance with section 98BD."

Since the relevant provisions of Part VII of the Act to which I have referred came into force on 12 May 1981 (see the National Health (Pharmaceutical Benefits Amendment) Act 1981), the Tribunal has held 13 inquiries and made 13 reports. The inquiry and report here in question are the twelfth such inquiry and report. The report is headed, "Pharmaceutical Benefits Scheme, Twelfth Inquiry", and begins with a statement. In para. 2 of the statement the Tribunal said that it had decided on a decrease in pharmacists' remuneration effective on and from 1 February 1989 of 5 cents per ready-prepared prescription and 8 cents for "extemporaneously prepared and related items". Ready-prepared prescriptions are those referred to in sub-para. (i) of para. 98B(2) and the other items are those referred to in sub-para. (ii) thereof. The difference is between the supply of benefits, that is drugs, which are already made up and those which require some preparation by pharmacists in the dispensing process.
In para. 4 of its statement the Tribunal said:-

"4. The Tribunal took into account an important element which emerged during the course of this Inquiry. It became evident during this Inquiry that, in consideration of the impact on pharmacists' remuneration as a result of the Government's decision to increase the maximum quantities on a number of PBS items, the Tribunal should consider the concept on which pharmacists' remuneration is established. It was implicit in the Guild's submission for an increase in remuneration on account of this factor that adjustment should be made which would maintain the current level of income for pharmacists. The Commonwealth advised that it strongly opposes this principle, and stated that 'the Government is not about maintaining some level of gross income to pharmacists, but is involved in reimbursing them for the cost of dispensing certain prescriptions'. The Tribunal accepts the Commonwealth's proposition for the purposes of this Inquiry, which is consistent with past practice."

Before proceeding to refer to the report itself, I should explain one aspect of the way in which the Tribunal approaches its task. Its function is to determine the manner in which the Commonwealth price of pharmaceutical benefits is to be ascertained; subsec. 98B(1). Its function is not to fix actual prices. This led his Honour to say:-

"It must be remembered that the Tribunal does not determine the Commonwealth price to be paid by the Commonwealth to approved pharmacists. The Commonwealth price is ascertained by administrators 'in accordance with a determination in force under sub-section 98B(1)'; see paragraph 99(1)(a). In addition to the application of the determination, the Commonwealth price depends upon other material provided to the Commonwealth by approved pharmacists. Variations in a determination of necessity have the capacity to vary the amount of the Commonwealth price but in the present case there is no material to show the amount of variation in the Commonwealth price resulting from the reduction in the professional fee. It was conceded that a reduction would result but the amount of the reduction cannot be ascertained."

In the course of its reports the Tribunal, from time to time, has used the expression, "gross margin base", or, "margin base". During the argument on the appeal, counsel for the Commonwealth informed us, without objection from counsel for the Guild, that the margin base is the addition of the average value of the 25 per cent mark-up on drugs dispensed as at 1 July 1988 (in the case of the report here in question) plus the professional or dispensing fee. It is thus a reduction to monetary terms of the average mark-up and the professional fee. It follows that the Tribunal prescribes the manner, but not the end result; its function is to determine whether the existing structure should be varied. But as it begins each new exercise, it does so upon a base worked out retrospectively by reference to the operation its previous determination has had.
The report itself is divided into eight sections, namely, the introduction, a statement of general principles, a summary of the parties' submissions, the approach to the determination of pharmacists' remuneration, factors bearing on the level of remuneration, the Tribunal's conclusion on these factors, a section described as "Prescriptions on Authority" and the Tribunal's conclusions.
Paragraphs 2.1 and 2.2 of the section of the report dealing with general principles are as follows:-

"2.1 The Commonwealth Government (the Commonwealth) drew the Tribunal's attention to the National Wage Case

(NWC) decision of 12 August 1988 wherein the Australian Conciliation and Arbitration Commission (AC & AC) 'stressed the need to restrain labour costs as far as possible, to improve the productivity of the Australian economy and to keep inflation down. For these reasons, pay rises to operate under the August 1988 National Wage Case Principles are dependent on commitments to make no extra claims outside the Principles, and to review awards so as to develop a more highly skilled and flexible labour force to assist in structural adjustment and to provide workers with access to more varied, fulfilling and better paid jobs'.

2.2 Section 98B(5) of the National Health Act 1953 requires the Tribunal to have regard to any Principles determined, from time to time, by the AC & AC as being appropriate for the fixation of wages and salaries. The above Decision of 12 August 1988, which granted a 3 per cent increase in salaries and wages after 1 September 1988 is the relevant increase to consider at this Inquiry."

I leave aside the Tribunal's summary of the parties' submissions and come to the section dealing with its approach to the determination of pharmacists' remuneration. Paragraphs 4.1 and 4.2 of its report are as follows:-

"4.1 The two basic elements of pharmacists' remuneration are:

. a mark-up on the wholesale cost of the ingredients (which cost is negotiated between the Minister for Community Services and Health and pharmaceutical manufacturers), which is currently 25 per cent for RP (ready prepared) benefits, 33 1/3 per cent for extemporaneously prepared (EP) benefits and 25 percent for RP/EP benefits; and . a flat fee, referred to as a 'dispensing fee' or 'professional fee', currently $2.64 for RP and $3.83 for EP and RP/EP items respectively. 4.2 A substantial degree of agreement exists between all parties on the approach to be followed in the fixation of the Commonwealth remuneration payable to approved pharmacists for the supply of pharmaceutical benefits under the NHS. There was agreement during this Inquiry:

. with respect to the weightings to be given to the labour costs and non-labour costs in the 'dispensing fee'; . that the 'dispensing fee' should reflect increases in labour costs, incorporating proprietors' notional salaries as well as salaries and wages of qualified and unqualified staff. The quantum of the increase was, however, a matter of dispute between the parties; . that an increase in remuneration should occur to compensate for the diseconomies of scale resulting from the decreased volume of prescriptions dispensed per pharmacy. The quantum of the increase was, however, in dispute with the Commonwealth, calculating 1 cent per prescription and the Guild seeking 3 cents; . that an increase in remuneration is due on account of the reduction of the wholesale margin from 1 January 1988. Here again, the quantum of the adjustment was in dispute between the Commonwealth and the Guild; and . that remuneration has increased through the mark-up component flowing from increased drug prices. The only area of dispute between the Commonwealth and the Guild appeared to be the period over which this factor is to be calculated."

The Commonwealth submitted that the gross margin base should be $4.42 per prescription and the Guild said that the figure should be $4.79.
In sub-para. 5.3 of its report the Tribunal referred to the National Wage case decision of 12 August 1988 which, inter alia, granted a 3 per cent wage increase from 1 September 1988. The Tribunal said that this part of the decision was accepted by all parties as being relevant to the consideration of pharmacists' fees in the inquiry. The parties' agreement ceased, however, when the Guild sought to have taken into account additional amounts on account of movements in State awards which came into force in South Australia and Western Australia as a result of decisions relating to the Restructuring and Efficiency (R & E) Principle and the 38 hour week. It was the Commonwealth's submission that it was not appropriate to increase the remuneration for pay increases granted under the R & E Principle because any wage increases should not have resulted in any net addition to labour costs. The increases provided for in the two State awards came about as a result of the implementation by the appropriate State Tribunals of what is known as the second tier component of the National Wage case decision given on 12 August 1988. In paras. 5.3.3, 5.3.4 and 5.3.5 of its Report the Tribunal said:-

"5.3.3 The Commonwealth submitted that, on this occasion, 10 cents per RP prescription is the appropriate increase on account of labour cost increases. And it is 'not appropriate to increase remuneration for such pay increases' granted under the R and E Principle. It contended that any wage increases granted under this Principle should not have resulted in any net addition to labour costs.

5.3.4 In respect of the 38 hour week provisions, the Commonwealth submitted 'that this Tribunal should consider material relevant to the net cost impact of the shorter week before determining what, if any, increases in pharmacists' remuneration may be warranted'. The Commonwealth's position is that any cost offset measures associated with the introduction of the shorter hours should be considered prior to any adjustment to pharmacists' remuneration.

5.3.5 The matter of the second tier increases flowing from the March 1987 NWC Decision was considered by the Tribunal at the Ninth and Tenth Inquiries. The Tribunal, on both occasions, considered that, prior to any adjustment in pharmacists' fees as a result of increases granted under the second tier adjustment, there would need to be further submissions and material presented so that proper consideration could be given to the final net cost effects of such increases, after having regard to the cost offsets achieved in accordance with the relevant wage fixing principles."

Those paragraphs set out the Commonwealth's submissions about the matter. Understandably the Guild took a different view and submitted that the increases had brought about an additional labour cost which ought to be taken into account. It is unnecessary, for the purposes of this case, to refer to the detail of the Guild's submissions in this regard. In para. 5.3.18 the Tribunal referred to evidence tendered by the Commonwealth concerning changes to the applicable New South Wales State award. It referred to the fact that the Commonwealth had reiterated its submissions that that award, which gave increases to pharmacists in New South Wales, did not imply that labour costs had increased to the extent indicated by the Guild. Earlier, in paras. 5.3.16 and 5.3.17 the Tribunal said:-

"5.3.16 The Commonwealth opposed any increase in pharmacists' remuneration due to awards under the Restructuring and Efficiency Principle. The Commonwealth's position is that 'the second tier provided for pay rises for those workers who could justify them under the wage fixing principles. Primacy was given to the Restructuring and Efficiency Principle, under which pay rises could be justified as a result of measures implemented to improve efficiency and productivity'. The Commonwealth considered that 'where wage rates rise as a result of agreements made under the Restructuring and Efficiency Principle, there should be no compensating rise in the dispensing fee'. 5.3.17 With respect to the Guild's submission in this context, the Commonwealth does not accept the argument that small businesses necessarily have little opportunity for cost offsets, or that cost offsets are not possible with respect to proprietors' labour. For example, the Commonwealth submitted that small businesses could improve productivity through computerisation or through a more efficient mix of casual and full-time staff. Moreover, the Commonwealth considered that it is incorrect to say that cost offsets do not apply to casual or part-time staff. It contended that these staff have been required to participate to the extent practicable in many efficiency measures. The Commonwealth noted that in the South Australian Retail Pharmaceutical Chemists Award Agreement, one significant cost offset - the reduction of the minimum period of engagement - applies specifically to part-time employees."

In para. 5.5 the Tribunal dealt with increased remuneration "Via Mark-Up Component". By this it referred to the increases in amounts paid to pharmacists by way of mark-up as a consequence of the mark-up being calculated upon increased prices of drugs. The percentages of either 25 per cent or 33 1/3 per cent remained the same, but the amounts received were greater because of the increase of the bases upon which the percentages were calculated. Amongst other things the Tribunal said:-

"5.5.1 The Commonwealth submitted that pharmacists' remuneration should be reduced by 52 cents per prescription on account of increased remuneration received via the mark-up component. The 52 cents is made up as follows: . 46 cents for increases received up to end of 1987; and

. 6 cents for increases received for the 6 months ended June 1988. 5.5.2 In respect of the 46 cents, the Commonwealth submitted that it was not disputed by the Guild when proposed by the Commonwealth at the Tenth and Eleventh Inquiries. Full details of the basis of the Commonwealth's submission were outlined in the Tribunal's Determination for those two Inquiries."

In its conclusion on the factors bearing on the level of remuneration, the Tribunal said in para. 6.1(a) under the heading, "Gross Margin Base" that it accepted the Commonwealth's calculation that the gross margin base as at 1 July 1988 should be $4.42. In para. 6.1(b) under the heading "Labour Cost" the Tribunal said:-

"The Tribunal decided not to adopt the submission for an increase in this component on account of movements in award wages granted in accordance with the second tier Restructuring and Efficiency Principle. The claim that the labour cost component should be represented in the prescription fee according to the level of the relevant State award for pharmacists' managers has therefore not been adopted on this occasion. However, the Tribunal considers that the resolution of this matter needs to be considered in the context of the Data Base Inquiry."

The Data Base Inquiry referred to in the last of the quoted paragraphs is a reference to the thirteenth inquiry conducted by the Tribunal. Its Report in relation to that Inquiry was published on 26 August 1989 and has been the subject of proceedings in this Court; see The Pharmacy Guild of Australia v. Riordan, Jenkinson J., 26 October 1989, unreported and Dornan v. Riordan, Wilcox J., 26 November 1989, unreported. That Report had not been published at the time his Honour gave judgment in this matter on 13 June 1989, although the Tribunal had published a preliminary report dated 26 April 1989 which was amongst the material in evidence at the primary hearing.
In para. 6.1(c) of the Tribunal's report now in question, the Tribunal dealt with non-labour cost. It is unnecessary to refer to the terms of that paragraph. In para. 6.1(d), under the heading, "Mark-Up", the Tribunal said:-

"The increase in pharmacists' remuneration already received via the mark-up component, based on the Commonwealth's calculations, has increased to 52 cents per prescription since last considered by the Tribunal. The 52 cents comprises 46 cents for increases received up to the end of 1987 and 6 cents for increases received for the six months ended June 1988.

........ ........ ........ ........ ........ ..... The Tribunal accepts the common ground of all parties that there should be an adjustment for the 46 cents on this occasion. ... Accordingly, the Tribunal has decided that there is justification for a reduction to pharmacists' remuneration by 52 cents per prescription on account of increases already received by the mark-up component."

In its conclusions the Tribunal said that, after full and careful review of all the submissions and the material before it, the Tribunal had determined that, effective from 1 February 1989, the dispensing fee for ready-prepared items should be decreased by 5 cents to $2.54 and the dispensing fee for extemporaneously prepared and related items should be decreased by 8 cents to $3.68.
Shortly stated, it is the Guild's submission that the Tribunal omitted from account a relevant consideration because it did not include the labour cost component giving effect to second tier increases in the three State awards to which reference has been made. Rather it deferred the matter. This submission was accepted by Northrop J.
The learned primary Judge reached his conclusion that the Tribunal's decision should be set aside because he thought that the Tribunal had omitted a relevant consideration from account (paras. 5(1)(e) and (2)(b) of the Judicial Review Act) and also that its decision reflected an exercise of power which was so unreasonable that no reasonable person could have so exercised the power (paras. 5(1)(e) and (2)(g)). The essential paragraphs of his judgment in which he reached these conclusions were as follows:-

"In the past, the Tribunal has had regard to increases in labour costs incurred by pharmacists as a factor supporting an increase in the amount of the professional fee. A consideration of this matter included a consideration of increases in award wages. In its reasons for making the twelfth determination the Tribunal deferred consideration of the labour cost component arising from State awards. The relevant parts of the reasons of the Tribunal on this point have been set out. In the circumstances of this case, having regard to the fact that the Tribunal had regard to and applied a reduction to the amount of the professional fee based on the mark-up concept but deferred consideration of a balancing item, the labour costs, which in the past had been applied, the Court is satisfied that the applicants have made out their case insofar as it is based on the ground specified in paragraph 5(2)(b) of the Judicial Review Act.

Further, on the facts of this case, the Court is satisfied that the applicants have made out their case insofar as it is based on the ground specified in paragraph 5(2)(g) of the Judicial Review Act, namely that the exercise of the power was so unreasonable that no reasonable person would have so exercised the power.

The Tribunal has adopted an approach of considering each component to be used in determining the professional fee separately and in isolation without considering the overall result or practical effect of the determination. It appears to have followed blindly a consideration of each component part without regard to the function of the Tribunal. The Tribunal should keep in mind what it is required to do by the powers conferred upon it by the National Health Act. It is required to determine the manner in which the Commonwealth price is to be ascertained. In particular, the manner shall provide 'for the addition of such fees and other amounts as are determined' by it. The Tribunal has adopted a practice of treating the 'professional fee' as a polyglot hold-all within which is compressed all manner of component parts. It has even said that the professional fee 'does not have any relationship to the cost of dispensing'. In 1985 an amount based upon the mark-up of the cost price of materials to the pharmacist was included as a separate amount under paragraph 98(2)(c) of the National Health Act. Since then that amount has become meaningless and the amount of the professional fee has been distorted by using it as a means of varying the amount of the margin. The Tribunal has created component parts of the professional fee, looked at each part, added or subtracted the result and treated the resulting answer as the professional fee. There may be logic in this approach, but such an approach can lead to error.

........ ........ ........ ........ ........ ..... It is all very well for the Tribunal, in determining the manner in which the Commonwealth price is to be ascertained, to look at each discrete component forming part of what it describes as the dispensing or professional fee, to allocate an amount to each of those components and then by arithmetic arrive at a lump sum. The addition or subtraction of these disparate amounts do not, of necessity, constitute the correct procedure to arrive at the fee. The Tribunal must take the amount so arrived at and determine, in the light of the function it is required to perform, whether that result is an appropriate amount. It must take a practical view of its functions. ........ ........ ........ ........ ........ ..... For many years, the Tribunal has been making determinations with respect to professional fees. On each occasion, the Tribunal has adopted a similar method in doing so. It has considered disparate matters as referred to in the reasons under review. Except for the one occasion when no increase was given, each determination of the Tribunal increased the amount of the professional fee. In fact, as a result of the eleventh inquiry, the Tribunal determined a specific increase to ensure an easing of the deprivation of the amount of the professional fee resulting from the increase in the amount of drugs and medicines which could be dispensed at the one time. That deprivation continues but the interim increase has been brought to an end to the detriment of pharmacists. But worse was to follow. The professional fee was reduced to an amount less in actual amount to that determined on 30 June 1988 even without the interim fee. This is where the paradox arises. Apart from the arithmetic arising with respect to the disparate components of the professional fee, the Tribunal gives no explanation why there should be this reduction in actual amount of the professional fee. This may have resulted from the failure to determine the effect of labour costs. It may be from other causes. It is difficult to see how, at a time of general inflation in Australia, the amount of the professional fee should be reduced in actual terms. The reduction in real terms is even greater. The Tribunal has given no satisfactory reason for this reduction."

In the first and third of the quoted paragraphs his Honour referred to the reasons for decision given by the Tribunal for its determination and said that the relevant parts of the reasons had been set out. The paragraphs of the Report to which his Honour referred are paragraphs which have been referred to above, particularly those dealing with gross margin base, labour cost and mark-up.
One of the major criticisms which his Honour made of the Tribunal's decision was that the Tribunal deferred the taking into account of second tier increases. It said that it had decided not to adopt the Guild's submission for an increase in the dispensing fee on account of movements in award wages granted in accordance with the second tier restructuring and efficiency principle with the consequence that the Guild's claim that the labour cost component should be represented in the prescription fee according to the level of the relevant State award for pharmacists' managers "had not been adopted on this occasion". But the Tribunal went on to say that it considered that the resolution of the matter needed to be considered in the context of the Data Base Inquiry which had then to be completed. In my opinion, it emerges from his Honour's reasons that he decided to set aside the decision, not only because the Tribunal had deferred the matter to the Data Base Inquiry, but because he thought that any decision which arrived at a conclusion without taking the second tier increases into account must perforce both omit a relevant consideration from account and be manifestly unreasonable. In the way in which the matter was argued by counsel for the Guild before us, however, it was the deferral of the matter upon which the Guild relied rather than upon any proposition that the Tribunal was bound to give effect to the increases in any decision which it made.
The principles upon which the Court acts in determining whether a decision-maker has failed to take a relevant consideration into account are well considered. There are a number of authorities, but it is enough to refer to the judgment of Mason J. (as he then was) in Minister for Aboriginal Affairs v. Peko-Wallsend Limited (1986) 162 CLR 24 especially at pp 39-42. It seems to me that there is no express statutory provision dealing with this matter. The closest provision to it is to be found in subsect. 98B(5) which obliges the Tribunal to have regard to any principles determined from time to time by the Australian Conciliation and Arbitration Commission (now the Industrial Relations Commission) as being appropriate for the fixation of award wages or salaries. Having considered the entirety of the Tribunal's Report and decision, I have not myself found any failure by it to have regard to these principles.
In any event, this was not how the Guild's case was put. In the submission of counsel for the respondents the scope and purpose of the Act required the Tribunal to have regard to labour costs. The Tribunal on this occasion, and on all previous occasions, had recognized the relevance of them. In this regard the Tribunal had acted correctly because its function could not properly be performed without adverting to the question of costs. The costs of labour were of "dominating importance" in a service industry. The costs which were relevant were the whole of the labour costs, in other words both the second tier as well as the first tier. Counsel referred to evidence that labour costs accounted for approximately 70 per cent of costs other than the costs of goods sold and that labour costs included a notional salary of a working proprietor which reflected the salary of a pharmacist manager. Counsel emphasised that the Tribunal did not accept the Commonwealth's submissions or reject the Guild's submissions about the second tier. Its language was that it "did not adopt" the Guild's submission "on this occasion". Counsel said that just as Scarlett O'Hara in Gone With The Wind was fond of saying, "I'll think about that tomorrow", the Tribunal had decided to follow the same course. In acting as it did it was not discharging the function of determining an appropriate Commonwealth price as from 1 February 1989. Its decision to set to one side for future consideration a matter of such vital relevance thus vitiated its determination. It was its failure in this regard which led to the reduction of the Commonwealth price despite the operation of inflationary factors, of which labour was the chief component. The result demonstrated "the fundamental wrongness" of the decision.
In the submission of counsel for the Commonwealth, the view reached by the Tribunal was adjusted downwards to bring into account additional amounts received because of higher wholesale prices and the effect of the percentage mark-up. After emphasising that nothing in the express language of the Act made labour costs, particularly additional costs brought about by second tier adjustments, a relevant consideration, counsel said that the Tribunal had taken account of the considerations which it was said it had ignored. It was submitted that the Tribunal, in having regard to the wage fixing principles pursuant to subsec. 98B(5) of the Act, was entitled to conclude that the second tier increases did not necessarily result in any net addition to labour costs. And it was entitled to refer to the Data Base Inquiry the consideration of whether the dispensing fee should reflect State awards for particular classes of pharmacists' employees. Subsection 98B(4) left the Tribunal at large to determine what were the relevant considerations for its determination. The Act did not require the Tribunal to make a determination that reflected any particular labour cost and nothing in the Act obliged it to fix a Commonwealth price by reference to "a cost-plus system". Counsel also said that the Tribunal was concerned with total remuneration consisting of both the mark-up and the dispensing fee and, if the fee were to be increased on account of allowable cost increases then, to the extent that those cost increases had been recovered because of the effect of the mark-up component, they ought not to be allowed by way of increases to the dispensing fee.
For the moment I prefer to approach the matter as one which involves the question whether the Tribunal has omitted a relevant consideration from account. For the time being, I leave aside the question of manifest unreasonableness. I have earlier said that there is no express provision which obliges the Tribunal to take labour costs, or any aspect of them, into account. In accordance with principle, the enquiry must be whether there is to be discerned from the scope and purpose of the Act an indication that labour costs are to be taken into account.
Schemes which the Australian Parliament has adopted for providing hospital, medical, nursing home and pharmaceutical benefits to the community, either freely or on a subsidised basis, very often operate by seizing upon an existing non-government structure which provides those services and subsidising it. That occurs in the case of the provision of medical treatment, the provision of private hospital treatment and the provision of nursing home accommodation. So here the legislation picks up undertakings, that is pharmacies, and approves of them as suppliers of drugs and other medical preparations which are to be provided to the community on a subsidised basis. Pharmacies, like nursing homes, members of the medical profession and some hospitals are the creatures of the private sector. Those who operate them, no matter how much professional dedication they bring to their task, do so for profit. If it were not feasible to operate them profitably, pharmacy businesses would not exist any more than would nursing homes or medical practices. The legislature must be taken to understand this and to have intended prices to be fixed which would enable pharmacies to continue to operate profitably. In saying what I have, I do not mean that it follows that the prices must be such as to enable all pharmacies to operate profitably or that the prices might not be such as would make some pharmacies uneconomical perhaps because of an over concentration of them in one area, the existence of them in sparsely populated areas, inefficient operation or for other reasons. But fundamentally, so it seems to me, the legislature must have intended that the price to be fixed would be one which would enable properly run pharmacies in appropriate geographical areas to operate with a reasonable margin of profit. I emphasise the word "reasonable".
Unquestionably one of the substantial outgoings incurred by any business is the cost of labour. That is a cost which the Tribunal, rightly in my opinion, has recognised as important and relevant in its decisions. In taking labour costs into account it has followed the legislature's underlying intention that the price fixed should reflect the cost of labour which pharmacies incur.
It does not appear to me that there is a great deal of dispute about all this in the competing submissions of the parties. It is the Commonwealth's submission that the Tribunal did take these matters into account and for good reason decided not to give effect to second tier increases. If that is what the Tribunal had said, I would not myself have been disposed to think that the Tribunal had left out of account any relevant consideration. If, upon the evidence before it, the Tribunal thought it correct to say that second tier increases were absorbed either in the increased margin or in the greater efficiency which would come about as a result of the application of the restructuring and efficiency principle, that would have been a matter entirely for it on the evidence which was before it. The difficulty I have is the language which the Tribunal has used in the critical paragraphs which appear as part of para. 6.1(b) of the Report which I have earlier quoted. Despite the submissions made on behalf of the Commonwealth to the contrary, I think it emerges that the Tribunal put the matter on the shelf to be dealt with in the Data Base Inquiry. But its task was to fix a Commonwealth price for the period commencing on 1 February 1989. If it did not properly discharge this function, pharmacists would be denied an adequate price for their services. Indeed, it is the Guild's complaint that the very deferral of the question was the cause of the reduction in the price about which it complains. In essence, I think the problem is that the Tribunal, by its deferral, albeit for what was to it a good reason, deferred a matter which it was not entitled to defer. It had to take it into account and deal with it in its decision here in question. That is what, in my opinion, the Act required.

I would therefore dismiss the appeal insofar as the learned primary Judge's decision depends upon the Tribunal having left out of account a relevant consideration. I have more difficulty with the question of manifest unreasonableness. However, in this regard, the Guild relies upon what was said about this matter by Mason J. in the passage earlier referred to from his judgment in Peko-Wallsend, (162) CLR at p 41, namely:-

"It follows that, in the absence of any statutory indication of the weight to be given to various considerations, it is generally for the decision-maker and not the court to determine the appropriate weight to be given to the matters which are required to be taken into account in exercising the statutory power. ... I say 'generally' because both principle and authority indicate that in some circumstances a court may set aside an administrative decision which has failed to give adequate weight to a relevant factor of great importance, or has given excessive weight to a relevant factor of no great importance. The preferred ground on which this is done, however, is not the failure to take into account relevant considerations or the taking into account of irrelevant considerations, but that the decision is 'manifestly unreasonable'."

In the present case, there may be something to be said for the view that the Tribunal has not omitted the second tier adjustments from account; rather it has given them little or no weight. If that be the correct view of what the Tribunal did, then I think that this is a case where it is appropriate to conclude that the Tribunal's decision is manifestly unreasonable and that for the reasons which I have already given. I would, however, dissociate myself from the view that the Tribunal's decision is one which "is so outrageous in its deficiency of logic or of accepted moral standards that no reasonable person who had applied his mind to the question to be decided could have arrived at it"; Council of Civil Service Unions v. Minister for the Civil Service (1985) AC 374 per Lord Diplock at p 410. I do not think that this is the occasion for an analysis of the authorities to determine whether there is some different approach to the question of manifest unreasonableness in Australia from that which exists in the United Kingdom. I would prefer a view, however, which did not put the test in language which is, with respect, as vehement and extreme as that used by Lord Diplock. I think that from time to time it will be found that manifest unreasonableness is present in cases to which Lord Diplock's words could not be applied. I refer, for example, to the recent decision of the High Court in Chan Yee Kin v. Minister for Immigration and Ethnic Affairs (1989) 87 ALR 412 and to the decision of this Court in Alexandra Private Geriatric Hospital Pty. Limited v. Blewett (1985) 7 FCR 341. Manifest unreasonableness was found in those cases notwithstanding the judicial disagreement to which they gave rise.
All this having been said, I would also dismiss the appeal insofar as it challenges the learned primary Judge's conclusion on manifest unreasonableness, so long as my decision is understood in the way that I have explained. But I think that the more appropriate ground is the omission of a relevant consideration from account.
It remains to consider whether any change should be made to his Honour's order. His Honour dismissed the application and did not make the usual order remitting the matter to the Tribunal to be considered by it according to law. His Honour's reason for taking this course is to be found in the provisions of s.98BE of the Act earlier quoted. This provides that a determination of the Tribunal under subsec. 98B(1) shall come into operation on a date specified in the determination, not being a date earlier than the date on which a statement setting out the terms of the determination is issued by the Tribunal in accordance with s. 98BD. It was agreed by counsel that the provisions of s. 98BE empower the Tribunal to make only prospective determinations. Before his Honour it was agreed that, that being the case, it was inappropriate to refer the matter back to the Tribunal. If it made any determination which was contrary to law, s. 98BE operated to prevent it from embarking upon the exercise a second time.
Notwithstanding the concession made by counsel for the Commonwealth before his Honour, a submission was made to us that the fact that the Tribunal's decision was open to judicial review led to the conclusion that the Court, if it decided that the Tribunal's decision should be set aside, retained all the powers conferred upon it by s. 16 of the Judicial Review Act so that the provisions of s. 98BE of the Act did not operate to prevent the Court from requiring the Tribunal to decide the matter again. I have given the submission some thought. I do not think that the matter is without difficulty, but I think that the better view is that the terms of s. 98BE of the Act are paramount and make it inappropriate for this Court to follow its normal course of remitting a matter to a decision-maker for fresh determination. I would not, therefore, make any alteration to or variation of the order made by his Honour.
Before I conclude, there is one further matter which I should mention. In the course of his Honour's reasons for judgment, he made critical comments of the Tribunal's failure to provide reasons for its decision. This was not a matter independently relied upon as a ground for review either at first instance or on appeal. Nevertheless, I wish to indicate my agreement with what his Honour has said about this matter. Notwithstanding the obligation which the Act imposes upon the Tribunal to provide reasons - see subsec. 98BA(4) and subsec. 98BD(2) - and the length of the Tribunal's report, I think it is a fair criticism of the Tribunal to say that the report consists of a reference to the relevant provisions of the Act, a comprehensive statement of the submissions of the Guild and the Commonwealth and the Tribunal's conclusions. The Tribunal's reasoning process is not disclosed. I would add my voice to his Honour's in saying that I think that this is unfortunate. The provision of reasons is an important aspect of the Tribunal's overall task. Reasons are required to inform the public and parties with an immediate interest in the outcome of the proceedings of the manner in which the Tribunal's conclusions were arrived at. A purpose of requiring reasons is to enable the question whether legal error has been made by the Tribunal to be more readily perceived than otherwise might be the case. But that is not the only important purpose which the furnishing of reasons has. A prime purpose is the disclosure of the Tribunal's reasoning process to the public and the parties. The provision of reasons engenders confidence in the community that the Tribunal has gone about its task appropriately and fairly. The statement of bare conclusions without the statement of reasons will always expose the Tribunal to the suggestion that it has not given the matter close enough attention or that it has allowed extraneous matters to cloud its consideration. There is yet a further purpose to be served in the giving of reasons. An obligation to give reasons imposes upon the decision-maker an intellectual discipline. The Tribunal is required to state publicly what its reasoning process is. This is a sound administrative safeguard tending to ensure that a Tribunal such as this properly discharges the important statutory function which it has.
In the result I would dismiss the appeal with costs.

JUDGE3

I have had the advantage of reading, in draft, each of the judgments of Woodward and Sheppard JJ. Between them those judgments have fully set out the factual circumstances and the legislative provisions on which this appeal turns, and have conveniently identified the contentions which contradict or support the conclusion reached by Northrop J. at first instance.

The function conferred on the Tribunal by s.98B(1) of the National Health Act 1953 ("the Act") is to "determine the manner" in which the Commonwealth price for pharmaceutical benefits is to be ascertained. Sub-s.(2) of s.98B which has been reproduced in the judgment of Sheppard J. provides that:

"A manner determined under sub-section (1) shall - ...

(c) provide for the addition of such fees and other amounts as are determined by the Tribunal."

In my view "determined" in s.98B(2)(c) in the context of the whole of Part VII of the Act has the connotation that the Tribunal is required to decide or fix on, in a final way which can be acted upon, at least until the making of a new determination as contemplated by ss.98BA(1) and 98BE, the fees and other amounts to be added as provided for in the determination of the manner under s.98B(1). Once the Tribunal has identified a matter which requires the adjustment of a fee or other amount for which the "manner" provides, it is bound to reflect that matter in a determination under s.98B(2)(c).
The Tribunal clearly accepted that a movement had occurred in the labour cost component of the "gross margin base", but it declined to quantify that movement or reflect it in the adjustment of the dispensing fee determined as part of its Twelfth Report. It was open to the Tribunal, having identified the movement in labour costs, to decide that it did not warrant any adjustment of the dispensing fee which it was then determining. However, in my view, the Tribunal did not take that course. It merely deferred consideration of the extent (if any) to which the movement in labour costs should be reflected in the dispensing fee, saying in para. 6.1(b) of its Report:

"The claim that the labour cost component should be represented in the prescription fee according to the level of the relevant State award for pharmacists' managers has therefore not been adopted on this occasion. However, the Tribunal considers that the resolution of this matter needs to be considered in the context of the Data Base Inquiry."

Accordingly, I agree with Sheppard J. that, for the reasons which he has expressed, the appeal must be dismissed with costs.

[1989] FCA 797

21 DECEMBER 1989