Sharard v Mildura Base Hospital
[1999] VSC 519
•17 December 1999
SUPREME COURT OF VICTORIA
CAUSES JURISDICTION Do not Send for Reporting Not Restricted
No. 7627 of 1997
| ANDREW SHARARD | Plaintiff |
| v | |
| MILDURA BASE HOSPITAL | First Defendant |
| SWAN HILL DISTRICT HOSPITAL | Second Defendant |
| KERANG & DISTRICT HOSPITAL | Third Defendant |
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JUDGE: | Mandie J | |
WHERE HELD: | Melbourne | |
DATE OF HEARING: | 15-16, 21-22 September 1999 | |
DATE OF JUDGMENT: | 17 December 1999 | |
CASE MAY BE CITED AS: | Sharard v Mildura Base Hospital & Ors | |
MEDIA NEUTRAL CITATION: | [1999] VSC 519 | |
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Contract – interpretation – whether pathologist employed by hospital was entitled to share of balance of monies received in relation to private patients and remaining in fund upon termination of employment.
Unjust Enrichment – whether pathologist whose services were provided by his employer to other hospitals was entitled to share of monies received by those hospitals in relation to private patients.
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APPEARANCES: | Counsel | Solicitors |
For the Plaintiff | Mr R. McGarvie | Ebsworth & Ebsworth |
| For the Defendants | Mr P. Cawthorn and Mr P. McCaffrey | Phillips Fox |
HIS HONOUR:
In this proceeding, Dr Andrew Sharard ("the plaintiff"), claims to be entitled to monies derived from private practice fees for pathology services received by the firstnamed defendant, the Mildura Base Hospital ("the Mildura Hospital"), in the sum of $114,795.67. The plaintiff’s claim against the secondnamed defendant, the Swan Hill District Hospital (“the Swan Hill Hospital”) and the thirdnamed defendant, the Kerang & District Hospital (“the Kerang Hospital”), is that those hospitals have been unjustly enriched by the receipt of private practice fees for pathology services and ought to make restitution to him in the sums of $237,322.10 and $79,492.44, respectively. If that claim fails, the plaintiff has an alternative claim against the Mildura Hospital for damages for breach of contract. It is convenient to refer to "private practice fees" but it should be noted that in large part the monies were received in the form of medical benefits which had been assigned by private patients to the plaintiff and claimed by the hospitals in the plaintiff's name.
Facts
The plaintiff is a specialist pathologist who had been in private practice from 1976 to 1991. By letter dated 2 January 1992, the plaintiff was appointed by the Mildura Hospital as its Director of Pathology Elect. The letter signed by the hospital’s Chief Executive Officer, Mr Duckett, advised the plaintiff that he would officially take over as Director of Pathology once the current Director of Pathology had completed his contract. The letter attached a copy of the Duty Statement and also referred to the terms and conditions laid down in the Hospital Specialists and Medical Administrators Award ("the Award"). The letter said, without explanation, that the plaintiff would "be a contributor and recipient from the Special Purposes Fund Pathology". The plaintiff later discovered what this meant.
The attached duty statement provided that the plaintiff’s salary and conditions of employment would be according to the Award and that his hours of duty would be 38 hours per week, Monday to Friday, 8.00am to 5.00pm with on-call as per Award. Clause 3 of the Award contained a 10% allowance for continuous duty, cl. 4 of the Award provided for on-call duty and a further 10% allowance and cl. 29 of the Award stipulated that: "An officer shall not engage in private practice during his/her normal hours of work without the written approval of the hospital."
A statement of appointment signed on behalf of the Mildura Hospital and by the plaintiff dated 23 January 1992 stated that the plaintiff’s appointment was full-time, his commencement date was 23 January 1992 and his commencing salary was $1,427.60 gross per week plus a 10% on call allowance and a 10% availability allowance and that the conditions of appointment were according to the Award.
The plaintiff became Director of Pathology Elect and for a period he was also Acting Director of Medical Services and from around 5 November 1992 until 5 December 1994 he was Director of Pathology at the Mildura Hospital.
Although it may not be determinative of any issue, it is useful to briefly refer to the policy background affecting rights of private practice in public hospitals. On 4 January 1991, the Health Department of Victoria had issued a circular to the Mildura Hospital (circular 4/91) which relevantly read as follows:
"Re: Full Time Hospital Specialists – Rights of Private Practice
Please find attached a policy circular and agency agreement which establish the current policy of Health Department Victoria regarding the exercise, by full time hospital specialist medical staff of their rights of private practice.
Health Department Victoria is of the view that uniformity of practice in administration of special purpose funds is a requirement, given the considerable taxation implications both for hospitals and the medical practitioners who generate the funds.
The policy conditions, contained in the attached policy circular are therefore issued subject to Section 42 of the Health Services Act 1988 as detailed in the attached directive.
Annexed to the police circular is an agency agreement which reflects, in a contractual context, the policy conditions in the circular.
…
The policy conditions have been arrived at following a period of several years negotiations between Health Department Victoria, the Victorian Hospital's Association and the Australian Medical Association (Victorian Branch). As well, there has been both legal advice and the opinion of the Australian Taxation Office regarding these policy conditions. As the policy conditions are issued subject to Section 42 of the Health Services Act 1988, no amendment or alteration of them can be countenanced.
…"
Attached to the circular was a direction under s. 42 of the Health Services Act 1988 directing, inter alia:
"That in approving conditions on which full-time specialist medical staff may engage in private practice in the course of their employment, the hospital shall implement Health Department policy as enunciated in the Health Department circular No 36/1990 dated 19 December 1990 (including the agency agreement annexed thereto)."
The Health Department policy circular No. 36/1990 relevantly provided :
"SUBJECT: FULL TIME HOSPITAL SPECIALISTS – RIGHTS OF PRIVATE PRACTICE
The exercise of limited rights of private practice is a long standing aspect of the work of many full-time medical practitioners in some public hospitals.
In 1959, the Dillon Committee examined private practice arrangements then existing in various public hospitals as part of its overall inquiry into the terms and conditions of employment of medical practitioners in the public hospital system, and recommended retention of limited rights of private practice for certain full-time medical staff.
…
For a medical benefit to be payable to a patient treated privately by a full-time medical practitioner employed in a public hospital, it is a legal requirement that the fees incurred by the patient be paid to the treating doctor. If that does not occur, a medical benefit is not payable.
However, it is essential that before hospitals are able to collect this private practice income, the medical practitioners concerned should give their consent for the hospitals to act as their agents.
Further, and notwithstanding the fact that the fees are paid to the medical practitioner, directly or through an agent, it is the intention of the parties concerned that the balance of the funds are used for the purchase of medical equipment or the conduct of medical research or medical training and education. These are uses to be within the context of hospital priorities.
…
Accordingly, the Department has approved the following conditions under which a full time medical officer shall engage in private practice.
CONDITIONS OF PRIVATE PRACTICE FOR FULL-TIME MEDICAL OFFICERS EMPLOYED IN PUBLIC HOSPITALS
1. No full-time medical officer employed in a public hospital shall engage in private practice within the hospital without the approval of the Board of Management.
2.All private practice arrangements shall depend upon the full-time medical officers authorising the hospital to act as a collecting agent for the fees raised for private practice. All fees shall be raised in the names of the medical practitioners who provide the services. The hospital shall indemnify the medical practitioners against any action related to such fees raised without the authority of the attending medical practitioners.
3.In the absence of compelling reasons to the contrary, there should be only one fund, styled 'Special Purposes Fund (Medical)'. In situations where more than one fund is crated the funds should be styled 'Special Purposes Fund (Name of Speciality)'.
4.Each Special Purposes Fund should be administered by a Special Purposes Committee comprised of representatives of the Board of Management and the participating medical practitioners.
The representatives of the participating medical practitioners shall be elected annually by and from the participating contributors to the Fund.
This Committee should be so constituted that the participating medical practitioners have the majority.
Where it is not practicable for such a majority to be established, e.g. a sole participating medical practitioner in a hospital, the practitioner member(s) shall be granted such multiple voting rights as to ensure a majority position.
5.The Committee administering the Special Purposes Fund shall:-
(a)hold at least one meeting and may hold as many meetings as it sees fit in any one year;
(b)make such rules with respect to the regulation of the conduct of meetings as it sees fit; and
(c)arrange that the Special Purposes Fund be audited at least yearly. The cost of such audit shall be paid out of the Fund and a copy of the audit report shall be forwarded to the Board of Management of the hospital as soon as practicable.
6.The first call on the Fund should be reimbursement to the hospital for bona fide costs (direct and indirect), incurred by the hospital consequent upon those participating medical practitioners engaging in private practice, such costs being those agreed between the hospital and the medical practitioners contributing to the Fund pursuant to guidelines issued by the Heath Department of Victoria.
7.The second call on the Fund shall be by the Committee for any or all of the following purposes:
(a)the disbursement of individually based allowances not exceeding in each case 25% of the aggregate of that participating medical practitioner’s annual gross award salary, including all award allowances;
(b)subscriptions or dues incurred by a participating medical practitioner for membership of professional associations;
(c)the purchase of text books or professional periodicals or journals used by a participating medical practitioner in his/her work;
(d)the conduct of educational programmes and professional development activities for a participating medical practitioner;
(e)the reasonable cost of travel for professional purposes within Australia or abroad of a participating medical practitioner.
8.After meeting payments as in paragraphs 6 and 7 any surplus shall be donated as a gift to the hospital each year prior to June 30 and be transferred to a separate account and constitute a separate fund. This fund, styled as “(name of) Hospital Education, Equipment and Research Fund”, is to be administered by the Board of Management of the hospital…"
The minutes of the Special Purposes Fund (Pathology) Committee Meeting held at the Mildura Hospital on 20 February 1991 recorded:
“rights of private practice
Correspondence received from the Health Department Victoria which outlined the new procedures to be adopted by Hospitals which had, or were contemplating the appointment of salaried full-time specialists, was tabled and discussed.
The Chief Executive Officer [Mr Duckett] highlighted the changes outlined in clauses 6, 7 and 8 whereby:
(a)60% of the Pathology receipts would be reimbursed to the Hospital to cover all direct and indirect bona fide costs in operating the Pathology Department.
(b)40% of the Pathology receipts would be transferred into a special Purposes Fund (Pathology) Account from which would be paid the Pathologists’ bonus, subscriptions, text books, educational programmes, cost of travel for professional purposes.
(c)Any balance of unexpended funds in the Special Purposes Fund (Pathology) Account would be gifted to the Hospital at the end of each financial year.
…
Agreed That it be recommended to the Committee of Management that the new procedures outlined in Health Department Victoria Circular 4/91 be adopted and implemented from 1st July 1991.
…
agency agreement
Noted that under the new regulations it was necessary for the Hospital and the Specialists to enter into an Agency Agreement."
The minutes of the Special Purposes Fund (Pathology) Committee Meeting held at the Mildura Hospital on 1 July 1991 included a resolution in paragraph 2 in terms identical to those contained in paragraph 6 of the Health Department policy circular No. 36/1990, and concluded with the following: “Current agreement 60% Hospital 40% Fund.”
By letter dated 17 September 1992, the Mildura Hospital advised the plaintiff that on 25 February 1991 it had formally adopted the Health Department directive in Circular 4/91 (said to be attached) regarding the establishment of new Special Purpose Funds Committees and the management of funds. The letter further advised that “as a consequence of this directive it is necessary that each of the Pathologists employed at the Mildura Hospital sign an Agency Agreement” and the plaintiff was asked to sign the Agency agreement enclosed. Both parties executed the Agency agreement.
The Agency agreement was made on 28 September 1992 and provided:
"Whereas:
A.The Medical Practitioner is employed by the Hospital to provide medical services.
B.By the terms of that employment the Medical Practitioner is entitled to provide medical services to private patients and to render accounts to those private patients in the name of the Medical Practitioner.
C.The Medical Practitioner has appointed the hospital the agent of the Medical Practitioner in the collection and disbursement of money received from those accounts (hereinafter called "private practice fees").
D.The particulars of that agency are set forth hereunder.
Now this agreement witnesses as follows:
1. Definitions and Interpretations
In this Agreement, the following definitions and interpretations shall apply:
(a)'Special Purposes Committee' means the committee comprised of representatives of the Board of Management of the Hospital and Medical Practitioners established pursuant to Circular 36/1990 of the Health Department of Victoria concerning the administration of private practice fees.
(b)'The Guidelines' means those written guidelines issued from time to time by the Health Department of Victoria to public hospitals within the State of Victoria upon which both the Australian Medical Association (Victorian Branch) and the Victorian Hospitals' Association have been previously consulted.
(c)'private patient services' means those medical services described in Clause 3.1.
(d)'private practice fees' means those fees collected by the Hospital on behalf of the Medical Practitioner which are in payment for private patient services.
2. Appointment
The Medical Practitioner hereby appoints the hospital the agent of the Medical Practitioner and the hospital accepts this appointment to do the following things in the name of and on behalf of the Medical Practitioner.
Collection of Private Practice Fees
3.1As directed by the Medical Practitioner, the Hospital shall render accounts for medical services provided by the Medical Practitioner to private patients.
3.2 All accounts for private patient services shall be in the name of the Medical Practitioner.
3.3. The Hospital shall collect all private practice fees.
Special Purposes Fund Account
4. The Hospital shall deposit all private practice fees in an account operated by the hospital, styled 'Special Purposes Fund (Medical)', or 'Special Purposes Fund (Name of Speciality)'. The administrative procedures of the Hospital concerning the opening and operation of banking accounts shall apply to this account.
Reimbursement of Hospital Expenses
5.The Medical Practitioner authorises the Hospital to withdraw money from Special Purposes Fund and reimburse itself for costs incurred by the Hospital in provision of private patient services by the Medical Practitioner.
6.The amount of the reimbursement to the Hospital shall be that prescribed by the Guidelines.
[The Guidelines (if any) were not in evidence but it was common ground that the amount which was prescribed was 60%.]
7. The Hospital may reimburse itself at any time.
Application for Special Purposes
8.The Medical Practitioner authorises the Hospital to withdraw further money from the Special Purposes Fund at the direction of the Special Purposes Committee and to pay and apply the same for all or any of the following :
(a)subscriptions or other dues of the Medical Practitioner for membership of professional associations;
(b)the purchase of text books or professional periodicals or journals for use in the work of the Medical Practitioner;
(c)educational programmes and professional development activities of the Medical Practitioner;
(d)the reasonable cost of travel in Australia and abroad for a professional purpose of the Medical Practitioner.
Gift to Hospital
9.1The Medical Practitioner hereby directs the Hospital to withdraw an amount or amounts, calculated as set out below, from the Special Purposes Fund on or before the 30th day of June of each year and to apply that amount or those amounts as a gift by the Medical Practitioner to the Hospital.
9.2 The amount of the gift to be paid into a separate Hospital account styled (name of) Hospital Education, Equipment and Research Fund shall be the resultant from the following calculation:
the total private practice fees received by the hospital in respect of the Medical Practitioner, less
(a) reimbursement to the hospital pursuant to clause 5 hereof.
[Reimbursement of 60% of its costs.]
(b) special purpose payments pursuant to clause 8 hereof.
[Payments made at the direction of the Special Purposes Committee.]
(c)an allowance which will not exceed twenty-five per centum (25%) of the aggregate of the annual gross salary, including all award allowances, of the Medical Practitioner for that financial year.
9.3In the event that the Hospital does not withdraw the amount, calculated as above, from the Special Purposes Fund on or before the 30th day of June of each year, the Medical Practitioner and the hospital declare and agree that the whole legal and beneficial interest in that amount shall belong thereafter to the hospital, as being a gift made on that date by the Medical Practitioner.
Residue to Medical Practitioner
10.The Medical Practitioner hereby directs the Hospital to pay to the Medical Practitioner, as soon as possible following the 30th day of June of each year, that sum in the Special Purposes Fund representing private practice fees of the Medical Practitioner which have not been paid, applied or donated pursuant to the foregoing provisions.
11.The Hospital may from time to time, on the request of the Medical Practitioner, make interim payments during the year to the Medical Practitioner on account of the amount estimated to be payable pursuant to clause 9.2(c) and such payments shall be taken into account in determining the state of account between the parties.”
In 1992, the Mildura Hospital’s Pathology Department operated in a self-contained building within the hospital grounds. It employed approximately 18 full time staff (including the pathologists) and it was performing approximately 75,000 tests per year generated from the hospital’s in-patient services, its out-patient services and its Accident and Emergency Department. As a result of the introduction of "case mix funding", the hospital was in the process of restructuring its financial operations and in mid to late 1992 Mr Duckett had discussions with the plaintiff about the budgetary pressure the Hospital was under to ensure that each of its departments made a "profit", or at the very least, broke even. The plaintiff discussed with Mr Duckett the idea of the provision of a visiting pathologist to the Swan Hill Hospital and the Kerang Hospital and the conduct of pathology tests in one or other of the laboratories so that each laboratory’s workload and income would increase and a better service would be provided. The plaintiff proposed to make contact with the two hospitals and suggest this course. The plaintiff testified that he made these suggestions as a means to alleviate the alleged deficit of the pathology department and in the process protect his own position but also in order that he might eventually derive an additional source of income for himself. [The plaintiff testified that he intended at a later stage to negotiate with the hospitals concerned regarding payment of some portion of the income derived from private work as a reward for doing "these extra things for these hospitals to our mutual benefit" but for various reasons he never did so.]
On 6 January 1993, the plaintiff wrote to Mr Duckett, supporting the idea of integrating laboratory services with the Swan Hill Hospital. Soon after, in a meeting held at the Mildura Hospital, the plaintiff met most of the Swan Hill Hospital’s and the Kerang Hospital’s medical technologists. The subject was raised and the response was favourable. Also around early 1993, the plaintiff made contact with the Chief Executive Officer of the Swan Hill Hospital, Mr Dunstan, and discussed the provision of supervisory services to the Swan Hill Hospital’s laboratory. The plaintiff gave evidence that agreement was reached to "provide the supervisory services to their laboratory enabling them to do work that was chargeable. Quite apart from that, there was also a matter of quality assurance within the laboratory itself. And there was also agreement reached in principle that we had started accumulating these tests which - rare tests or uncommon tests that previously had to be sent off to other laboratories to be done, that we agreed there should be a pooling of such work and that either one of the hospitals could be allotted to actually perform those tests. So there was general agreement reached in principle on those matters.”
There then followed correspondence between the Mildura Hospital and the Swan Hill Hospital which resulted in agreement upon the provision of pathology services and relevant financial arrangements.
By letter dated 3 May 1993 from the Mildura Hospital to the Swan Hill Hospital, the Mildura Hospital offered to provide a pathology service to the Swan Hill Hospital on the following basis:
"1. Swan Hill Hospital would retain its own Laboratory. In order for this to be achieved, Mildura Base Hospital would provide the necessary supervision by a qualified Pathologist and allow Swan Hill to 'utilise' his Provider Number to undertake the necessary charging for tests.
2.A qualified Pathologist would visit Swan Hill Laboratory at least once per fortnight, as per the minimum standards for N.A.T.A., but would provide up to one visit per week if required for clinical pathological appointments. Such visits would include postgraduate education as required.
3.The Swan Hill Hospital would meet the travelling costs and salary of the Pathologists for each of these visits. The salary cost would be calculated on the base salary, plus WorkCare costs.
4.For all Pathology tests sent to Mildura Base Hospital for processing, we would undertake to provide all the testing for hospital patients free and we would bulk bill the Commonwealth Government for all chargeable work. This would be based on the ratio of 60% - 40%.
5.In relation to Biochemistry, Swan Hill would send to Mildura the following tests:-
[Four tests listed]
with charging for these services as per Clause 4 aforegoing.
6.Mildura Base Hospital would send all the following tests to Swan Hill:-
[Eight tests listed]
For these tests Swan Hill Hospital would provide the test for hospital patients free of charge and would bulk bill the Commonwealth for all chargeable tests.
7.All specimens would be couriered to each Hospital, daily, Monday to Friday and the results would be faxed as soon as possible to designated facsimile machines within each Laboratory.
Mildura Base Hospital would be in a position to commence this service as from 1st June, 1993, and this agreement would run for a period of twelve (12) months and then the matter would be reviewed."
The Swan Hill Hospital sought clarification of three aspects and received a letter dated 14 May 1993 stating:
"…
1. Courier Service
The cost of the Courier Service would be met totally by Mildura Base Hospital.
2. Proportional Share of your S.P.F. Fund
From this Hospital's point of view, the S.P.F. Fund would be totally under your Hospital's control and my mention of this Fund was purely from the point of view that I had anticipated that you would possibly use this Fund to pay the share of the bonus for the Visiting Pathologist.
3. Public/Private Ratio
We are basing our proposal to provide all hospital work for you free, on the basis that the ratio of all work sent to us will be 60% Public, 40% Private…"
The Swan Hill Hospital accepted the Mildura Hospital's proposal by letter dated 31 May 1993, the service to commence from 1 July 1993. A "formal written agreement" was suggested by the Swan Hill Hospital but such an agreement never eventuated.
The plaintiff was not aware of the contents of the foregoing correspondence.
By letter dated 29 July 1993 from the Swan Hill Hospital, the plaintiff was advised:
"… that the Board of Management has approved your appointment as Visiting Pathologist.
In accordance with by-law 17.5 the initial appointment is for a period of two years.
The appointment is also conditional on two factors, reflecting the arrangement for Pathology Services between our two hospitals. The conditions are:
i. That you continue to be employed as a Pathologist at the Mildura Hospital.
ii.That the Mildura Hospital and the Swan Hill District Hospital maintain the current agent [counsel agreed that the word 'agent' was a mistake and the word intended must have been 'arrangement'] for the provision of Pathology Services.
Should either of the above conditions cease the appointment would terminate…"
The plaintiff commenced acting as Visiting Pathologist at the Swan Hill Hospital with Dr De Silva, a Deputy Pathologist at the Mildura Hospital, occasionally acting in his place. The plaintiff obtained a separate provider number for himself at that location so that the Swan Hill Hospital was able to claim medical benefits by bulk billing for the treatment of private patients. The Mildura Hospital invoiced the Swan Hill Hospital monthly for the pathology services provided by the plaintiff and Dr De Silva.
At the time of the plaintiff’s appointment as a Visiting Pathologist to the Swan Hill Hospital, its Pathology Department employed two laboratory managers, four scientists, a registered nurse and clerical staff.
In or about July 1993, the plaintiff commenced discussions with the Chief Executive Officer of the Kerang Hospital, Mr Penny, in relation to providing the Kerang Hospital with a similar service to that being provided to the Swan Hill Hospital . At the time of these discussions, the Kerang Hospital’s Pathology Department treated in-patients and out-patients and conducted approximately 6000 to 7000 tests per year. It employed three technologists (who carried out the tests) and two clerks and it paid the Bendigo Base Hospital a fee for the use of its pathologists' supervisory services.
In July 1993, the plaintiff attended a meeting at the Kerang Hospital with Mr Penny and the Kerang Hospital’s Laboratory Manager, Mr Birchmore. After this meeting, correspondence was entered into between the Mildura Hospital and the Kerang Hospital. As in the case of the Swan Hill Hospital, the plaintiff was not aware of the contents of this correspondence.
By letter dated 21 September 1993, the Mildura Hospital made a proposal to the Kerang Hospital to provide supervisory services on the same terms in substance to those which the Mildura Hospital had previously agreed with the Swan Hill Hospital. The Kerang Hospital replied by letter of the same date seeking some further information and the Mildura Hospital by letter dated 21 September 1993 provided the following further information :
"(a) It is envisaged that the Director of Pathology [the plaintiff], or his Deputy [Dr De Silva], would visit the Kerang and District Hospital at least once each fortnight. This Hospital would consider a charge equivalent to four (4) hours' pay per visit of a Principal Specialist (MS26) would not be unreasonable. In addition, the Hospital would consider a kilometerage charge for the distance between the Swan Hill Hospital and the Kerang Hospital and return to the Swan Hill Hospital to be reasonable.
(b)The Pathologists involved would intend to visit both the Swan Hill Hospital and the Kerang Hospital on the same day in their fortnightly visit, and at this stage it is difficult to precisely give a "timed" visit.
(c) Consideration is being given to all Hospitals in the Group (which could expand further) joining a Group Purchasing System, but our earlier investigations revealed that savings would be minimal as this hospital already attracts very competitive prices for laboratory consumables."
By letter dated 7 October 1993 the Kerang Hospital advised the Mildura Hospital that the Kerang Hospital’s Board of Management had accepted the Mildura Hospital’s offer.
By letter dated 20 October 1993, the Mildura Hospital replied to the Kerang Hospital agreeing to provide a pathology service on general terms which were the same or substantially the same as those agreed with the Swan Hill Hospital.
By letter dated 25 January 1994, the Kerang Hospital advised the plaintiff that his appointment as a Visiting Medical Officer had been approved by the Board of Management for an initial period of 12 months.
On or about 25 January 1994, the plaintiff commenced duties at the Kerang Hospital and on occasions Dr De Silva acted in his place. The plaintiff obtained a separate provider number for himself for the Kerang Hospital’s billing system. The Mildura Hospital regularly invoiced the Kerang Hospital for the pathology services provided by the plaintiff and Dr De Silva.
Section 16A of the Health Insurance Act 1973 (Cth) ("the Act") provides that a medicare benefit is not payable in respect of a pathology service unless, inter alia, the service was rendered by or on behalf of, and determined to be necessary by, an approved pathology practitioner and rendered in an accredited pathology laboratory, the proprietor of which was an approved pathology authority. If the practitioner rendering the service is not the proprietor of the laboratory, the service must be rendered in the laboratory under an agreement (whether by way of contract of employment or otherwise) between the practitioner and the proprietor of the laboratory. Presumably, in this case, as the plaintiff was not employed by the Swan Hill Hospital or the Kerang Hospital, the relevant "agreement" between them was constituted by the plaintiff's acceptance of his appointment as a visiting pathologist or medical officer to each of the hospitals. As to the pathology practitioner's duty of supervision, see s. 3AA of the Act.
Section 20A of the Act provides for the assignment of a medicare benefit by the patient or person entitled to receive it. It enables an agreement between the eligible person and the practitioner, in accordance with the approved form, under which the eligible person assigns the right to payment of the medicare benefit to the practitioner and the practitioner accepts the assignment in full payment of the medical expenses incurred by the eligible person.
The bulk billing system in respect of pathology services for private patients used by all three defendant hospitals was substantially the same. A patient would present himself or herself at the hospital's Pathology Department; the patient's details (including name, residential address, sex, date of birth and Medicare number), the date of the request, details of the requested services, the requesting or referring practitioner’s details, and the name and provider number of the approved pathology practitioner responsible for the tests would be recorded on an assignment of benefits form. After the form had been completed and the services had been rendered, the patient would sign the form. The department's clerical staff would then prepare "assignment continuation forms" and match them with the assignment forms, put them in bundles of 50 and place the appropriate claim form on top of each bundle. The plaintiff would then sign the form placed on top of each bundle and the bundles would be submitted either to Medicare or to the Department of Veterans’ Affairs. Those bodies would then remit the appropriate amounts in accordance with the Commonwealth Medical Benefits Schedule to the hospitals. The total amount would be paid by a cheque payable to the plaintiff and sent to the hospital and the hospital would bank the cheque in its bank account.
The only private patients not covered by this system were people, such as some tourists, who were not covered by Medicare. The plaintiff knew that all of the hospitals were forwarding the claims in this way and that they were receiving the cheques which were made payable to him and that they were not being paid into his bank account but into the hospitals' bank accounts. He made no comment or complaint about this.
By letter dated 24 October 1994, the Mildura Hospital advised the plaintiff that the Board was negotiating with a private pathology firm to provide the hospital's pathology services and by letter dated 4 November 1994 the plaintiff was advised that his position would be "made redundant" from Monday 5 December 1994. As a result, the plaintiff ceased his employment with the Mildura Hospital on 5 December 1994 and ceased providing services to the other defendant hospitals on that date.
In response to letters on the plaintiff's behalf from the Australian Medical Association (Victorian Branch), the Mildura Hospital denied that the plaintiff had any further entitlement to monies in the Fund and the Swan Hill Hospital (by letter dated 19 December 1994) said:
"…The pathologists at Mildura were given honorary Visiting Medical Officer appointments to this Hospital. At no time were they paid employees of Swan Hill District Hospital, nor did they receive any form of remuneration from this Hospital.
Under the principles found in the Dillon Report, salaried medical officers, who have been granted rights of private practice, are able to claim up to 25% of their salary. This has traditionally been funded from Special Purpose Funds (however styled) into which 40% of fees raised was deposited. Salaried medical officers were not entitled to the 40% of fees raised.
With regards to the Pathologists employed by Mildura Base Hospital they were neither salaried medical officers of Swan Hill District Hospital nor had they applied for or been granted rights of private practice. Their private practice arrangements were a matter between themselves and their employer, Mildura Base Hospital. I suggest that you look to the Mildura Base Hospital for any claim, as it was with that hospital that your member was employed.
I do not believe Dr Sharard has any claim against this Hospital…"
By letter dated 4 January 1995 from the plaintiff's solicitors to the Mildura Hospital, the solicitors said, inter alia:
"… Dr Sharrard (sic) is entitled to all of those moneys which are from the treatment of private patients, indeed, it could be no other way at law.
The agency of the hospital has been terminated by Dr Sharrard, and you have been asked to forward the net receipts to the Victorian Branch of the Australian Medical Association, who represent Dr Sharrard. Will you please advise whether you will act in accordance with this request? …"
There was also a "formal revocation" of the Agency agreement in a letter from the plaintiff's solicitors to the defendants' solicitors dated 28 June 1995.
Apart from some payments under cl. 8, the plaintiff had received no payment other than the bonus under the Agency agreement. For a short time, the plaintiff had received a bonus calculated by reference to the agreed 25% of his annual salary. Thereafter, he had received a bonus calculated at 35% of his annual salary. The reason for the increase does not appear from the evidence.
The amended statement of claim
By his amended statement of claim, the plaintiff made the following three claims (I omit those not relied upon):
(i)the plaintiff's primary claim against the Mildura Hospital was that upon termination of the Agency agreement the plaintiff became absolutely entitled to any sum remaining in the Fund in respect of his private practice fees received since 30 June 1994 (see especially paragraphs 4, 5, 14, 16.2, 16.3, 16.4, 16.5 and 16.6 of the amended statement of claim);
(ii)the plaintiff claimed against the Swan Hill Hospital and the Kerang Hospital that they had each received substantial sums of money (namely, the private practice fees less 60%) for and to the use of the plaintiff and had been unjustly enriched (see paragraph 19 of the amended statement of claim);
(iii)the plaintiff made a claim against the Mildura Hospital (in the alternative to (ii)) for damages for breach of the Agency agreement arising out of its alleged failure to collect the private practice fees charged at the Swan Hill Hospital and the Kerang Hospital.
The plaintiff’s primary claim against the Mildura Hospital
The plaintiff's primary claim relates to the monies received and banked by the Mildura Hospital on and after 1 July 1994 until the plaintiff's position was terminated on 5 December 1994. The plaintiff's argument was based on the Agency Agreement and ran as follows. The hospital, as agent for the plaintiff (cl. 2) made claims or rendered accounts in the name of the plaintiff for medical services provided by the plaintiff to private patients (cll. 3.1, 3.2) the hospital collected the medical benefits or private practice fees (cl. 3.3) and deposited them in a bank account operated by the hospital ("the Fund") (cl. 4). Nothing turned on whether that bank account was styled "Special Purposes Fund (Pathology)" (as it should have been) or the hospital simply used its general bank account as the repository of the fees. Upon deposit of any fees in the Fund, the hospital became immediately entitled at any time thereafter to withdraw 60% of the money as reimbursement for costs incurred by the hospital (cll. 5-7). Clause 9.1 of the Agency agreement directed the hospital to withdraw an amount (which I will refer to as "the net amount") from the Fund on or before 30 June of each year and to apply that amount as a "gift" by the plaintiff to the hospital. The amount of the gift was to be paid into a separate hospital account entitled "The [Mildura] Hospital Education, Equipment and Research Fund" (cl. 9.2) and the net amount was to be calculated as follows:
"the total private practice fees received by the Hospital in respect of the Medical Practitioner, less
(a)reimbursement to the Hospital pursuant to Clause 5 hereof; [agreed to be 60%]
(b)special purpose payments pursuant to Clause 6 hereof; and
(c)an allowance which will not exceed twenty-five per centum (25%) of the aggregate of the annual gross salary, including all award allowances, of the Medical Practitioner for that financial year."
The net amount was so calculated and applied as a gift for the year ended 30 June 1993.
The amounts involved from 1 July 1994 to 5 December 1994 were as follows:
Fees, less 60%
Less bonus (35% of salary)
[Paid by interim payments (see cl. 11)]
$129,706.80
$14,911.13Net amount claimed
$114,795.67
Clauses 9.3 and 10 provide:
"9.3 In the event that the Hospital does not withdraw the amount, calculated as above, from the Special Purposes Fund on or before the 30th Day of June of each year, the Medical Practitioner and the Hospital declare and agree that the whole legal and beneficial interest in that amount shall belong thereafter to the Hospital, as being a gift made on that date by the Medical Practitioner.
10The Medical Practitioner hereby directs the Hospital to pay to the Medical Practitioner, as soon as possible following the 30th day of June of each year, that sum in the Special Purposes Fund representing private practice fees of the Medical Practitioner which have not been paid, applied or donated pursuant to the foregoing provisions."
The evidence was that as at 5 December 1994 the Mildura Hospital had not withdrawn the net amount of $114,795.67. The plaintiff submitted that the Agency agreement terminated at the time that the plaintiff's employment terminated on 5 December 1994 (or, at the latest, by the time of and as a result of the plaintiff's solicitors' letter of 4 January 1995). The plaintiff submitted that in consequence the hospital no longer had the power to withdraw the net amount from the Fund under cl. 9.1 and that cl. 9.3 had no further operative effect. The result was that the net amount remained or was the property or entitlement of the plaintiff and did not and could not become the subject of a gift to the hospital pursuant to either cl. 9.1 or cl. 9.3.
The Mildura Hospital submitted in answer that:
(a) the plaintiff was a full-time employee of the hospital;
(b) the employer was entitled to the benefits of all of the work which he did;
(c)the plaintiff required the permission of his employer to perform "private work" and to retain any benefit from it;
(d)the Agency agreement was the exclusive source of his entitlement to financial benefits from monies derived from private patients;
(e)under the Agency agreement the plaintiff was entitled to any special purpose payments (cl. 9.2(b)) and his bonus (cl.9.2(c)) but no more;
(f)the plaintiff therefore had no accrued right to any further monies in the Fund upon the termination of his employment and of the Agency agreement and after termination no new entitlement to receive monies from the Fund could arise.
Neither party contended that the fact that the bulk of the monies were received as assigned medicare benefits had any special relevance or affected the application of the Agency agreement to those monies.
In my view, it is incorrect to say that the "agency" created by cl. 2 of the Agency agreement was necessarily or automatically terminated by the termination of the plaintiff's employment by the Hospital. For example, if a medical practitioner were to provide medical services to private patients on the last day of his employment, the medical practitioner would be obliged if necessary to supply the requisite information to the hospital in order that accounts or claims might be sent out in accordance with his directions. In that event, it seems to me that the hospital would be acting as the authorised agent of the medical practitioner in sending out those accounts or claims, whether or not they were sent out on that day or the next day. So far as the collection of the resulting payments is concerned, in this example, the hospital would be entitled, it seems to me, to deposit those payments in the Fund. Whether that is because the agency continues, or because the relevant provisions of the Agency agreement continue to be applicable, matters not.
In this case, there was no evidence as to whether any of the accounts or claims were sent out, or any of the monies were received and paid into the Fund, after the date of termination of the plaintiff's employment. The parties I think proceeded upon the assumption that it did not matter whether or not all accounts or claims had been sent out by the date of termination of employment or whether or not all receipts had been paid into the Fund by that date. I consider that this assumption was correct but for the reason that, in my view, once medical services were provided to a private patient by the medical practitioner, the Agency agreement became applicable and continued to apply to the collection and disposition of fees or medical benefits, whether or not the employment of the medical practitioner was subsequently terminated. The entitlements of the hospital under the agreement arose when the medical services were provided (or at the latest when the accounts or claims were sent out) and those entitlements did not depend for their existence or continuation upon any further act by the medical practitioner. Both parties were bound by cll. 3 – 10 of the Agency agreement which created those entitlements and, once they "attached" to particular medical services or to accounts and claims, the termination of employment or the express "termination" of the agency or the Agency agreement could have no relevant effect.
Just as the hospital was entitled immediately upon deposit to withdraw 60% of the amount in the Fund for costs incurred (cl. 5) and that withdrawal could be effected then or later, so the hospital was immediately entitled upon deposit to withdraw (then or at any time until 30 June next) the net amount as a gift to the hospital (cl. 9.1). Furthermore, if the hospital did not withdraw the net amount by 30 June under cl. 9.1 (as the Mildura Hospital appears not to have done in this case) the parties were all along bound by cl. 9.3 which provided for what was to happen in that eventuality: it was agreed that the whole legal and beneficial interest in the net amount was to belong to the hospital. It seems to me that the plaintiff had no power or right to "terminate" or avoid the Agency agreement or, at least, the operation of cll. 9.1 and 9.3, as far as monies in the Fund as at 5 December 1994 are concerned (or as far as medical services provided to private patients by him on or before that date are concerned). It would be correct to say, I think, that the relevant rights of the Mildura Hospital had "accrued" by that date. I should add that the plaintiff did not explain why, if the Agency agreement did not apply after termination, the plaintiff was necessarily entitled to the net amount in the Fund. The plaintiff's claim is therefore rejected.
The plaintiff's claim against the Swan Hill Hospital and the Kerang Hospital
The plaintiff claimed that each of these hospitals had been unjustly enriched and ought to make restitution to the plaintiff in respect of an amount representing 40% of the total amount billed or claimed and received in the plaintiff's name. In the case of the Swan Hill Hospital, the amount claimed was the sum of $237,322 representing 40% of the private practice monies received for the period 1 July 1993 to 5 December 1994. In the case of the Kerang Hospital, the amount claimed was the sum of $79,942 representing 40% of the private practice monies received for the period 25 January 1994 to 5 December 1994.
There was no written agency agreement between the plaintiff and either of these hospitals and it was common ground that there was no other contract between them which dealt with the matter at issue. It was also common ground that the plaintiff's services to these hospitals were provided by the plaintiff in his capacity as a full-time employee of the Mildura Hospital and pursuant to an agreement between the Mildura Hospital and each of these hospitals.
Counsel for the plaintiff referred to Pavey & Matthews Pty Ltd v Paul (1989) 162 CLR 221, esp. per Deane J at 255-6, as supporting the plaintiff's claim based upon unjust enrichment. Counsel also referred to:
· Australian and New Zealand Banking Group Ltd v Westpac Banking Corporation (1988) 164 CLR 662, 673 – a passage in the High Court's judgment dealing with the basis of the common law action for money had and received for recovery of an amount paid under a fundamental mistake of fact as lying not in implied contract but in restitution or unjust enrichment.
· Halsbury's Law of Australia (817,382) relating to constructive trusts:
"Although constructive trusteeship based on unconscionable conduct has been most commonly imposed in the context of the breakdown2 of a de facto relationship in the event that the legal interests in property are not commensurate with the respective parties' contributions to the property or relationship,3 the principle applies more generally. The circumstances giving rise to equitable intervention in this context are where the substratum of a joint relationship or endeavour is removed without attributable blame and where the benefit of money or other property contributed by one party on the basis and for the purposes of the relationship or endeavour would otherwise be enjoyed by the other party in circumstances where it would be unconscionable for that other party to retain a benefit with respect to the relevant property not commensurate with his or her contribution.4 The unconscionability criterion therefore dictates that a constructive trust may be imposed even if this is contrary to the express or implied intention of either or both of the parties.5
3.See, for example, Muschinski v Dodds (1985) 160 CLR 583; 62 ALR 429; 11 Fam LR 930; Baumgartner v Baumgartner (1987) 164 CLR 137; 76 ALR 75; 62 ALJR 29; 11 Fam LR 915; Hibberson v George (1989) 12 Fam LR 725, CA (NSW); Booth v Beresford (1993) 61 SASR 475; 17 Fam LR 147; Kais v Turve (1994) 11 WAR 357; 17 Fam LR 498, SC (WA), Full Court.
4.Muschinski v Dodds (1985) 160 CLR 583 at 620 per Deane J (see also at 599 per Mason J); 62 ALR 429; 11 Fam LR 930; Baumgartner v Baumgartner (1987) 164 CLR 137 at 149-50; 76 ALR 75; 62 ALJR 29; 11 Fam LR 915 per Mason CJ, Wilson and Deane JJ; National Australia Bank Ltd v Maher [1995] 1 VR 318 at 321 per Fullagar J, CA (VIC).
5.Koh v Chan (1997) 139 FLR 410 at 428-9 per Murray J, SC(WA). See, for example, Kais v Turvey (1994) 11 WAR 357; 17 Fam LR 498, SC (WA), Full Court."
· Baumgartner v Baumgartner (1987) 164 CLR 137, 147-8 in the judgment of Mason CJ, Wilson & Deane JJ, a passage referring to Mushinski v Dodds and then stating:
"His Honour pointed out that the constructive trust serves as a remedy which equity imposes regardless of actual or presumed agreement or intention 'to preclude the retention or assertion of beneficial ownership of property to the extent that such retention or assertion would be contrary to equitable principle' (20): see also at p.617. In rejecting the notion that a constructive trust will be imposed in accordance with idiosyncratic notions of what is just and fair his Honour acknowledged that general notions of fairness and justice are relevant to the traditional concept of unconscionable conduct, this being a concept which underlies fundamental equitable concepts and doctrines, including the constructive trust (21)."
Counsel for the plaintiff said that the plaintiff relied on the basis of "a failed joint enterprise under which one party had received substantially all of the benefit" and the plaintiff nothing. Counsel then referred to money had and received and to Houston v Donovan (1902) 28 VLR 418 adopting the passage in the argument of Mr Cussen (at p.420):
"The nature of an action for money had and received is shown in Bullen and Leake on Pleadings (5th ed.), p.292, which citing Moses v Macferlan (c) says: - 'Whenever a person has received money which in justice and equity belongs to another, under circumstances which render the receipt of it a receipt by such person to the use of such other, a debt is created which is recoverable by action.' As Hood, J., says in the judgment appealed from: - 'The action for money had and received is an equitable one to recover money which ought not in justice to be kept, and the defendant can be liable no further than for the money she has received'. (d)"
Counsel for the plaintiff submitted that it was clearly unconscionable for these hospitals to retain every cent earned from private patients without making proper allowance for the plaintiff's contribution. Counsel conceded that the hospitals were entitled to withhold 60% for their costs (the conventionally accepted proportion) but no more.
Counsel for the defendants, the Swan Hill Hospital and the Kerang Hospital, generally rebutted the plaintiff's submissions and also submitted, citing Brenner v First Artists Management Pty Ltd [1993] 2 VR 221, 261 per Byrne J, that the hospitals should not, as reasonable persons, have realised that a person in the position of the plaintiff would expect to be paid by them for his services or to receive a share of the private practice fees. Counsel said that the hospitals paid the Mildura Hospital for the plaintiff's services and had no reason to believe that the plaintiff would expect any payment from them. Further, the amount claimed, it was submitted, was unreasonable having regard to the time spent by the plaintiff, his salary level and bonuses received and out of all proportion to the services provided.
It seems to me that it cannot be said (to the extent that the plaintiff did seek to so contend) that the plaintiff was legally entitled to payment of the whole of the fees and assigned benefits in the way that he would have been if he had been conducting a private pathology practice from his own laboratory. Nor, as I understood it, was it contended that the hospitals were collecting and banking monies received as a result of payment by patients of debts owed, or of benefits assigned, to the plaintiff in his own right. It seems to me that as the pathology services were in large part performed by hospital staff in a hospital laboratory, albeit under the plaintiff's supervision by virtue of his hospital appointment as visiting pathologist, the plaintiff was not, in accepting the assignment of medicare benefits, discharging debts for fees owed to him in his own right but rather acting on behalf of the hospitals in so doing. The action of the plaintiff in knowingly permitting the hospitals to collect the fees and assigned benefits and bank them in their own bank accounts tends to confirm the correctness of that analysis. The sole question therefore seems to be that which was put by the plaintiff, in substance: whether it was contrary to notions of good conscience, unjust or unreasonable for the hospitals to retain the whole of the monies received. I do not consider that it was. While the extra supervisory responsibility involved must be recognised, all of the services rendered by the plaintiff to or on behalf of the two hospitals were rendered in his capacity as a full-time employee of the Mildura Hospital and performed during the course of that employment and on that hospital's "paid time". If the services had been rendered at the Mildura Hospital, no extra remuneration would have been derived by the plaintiff. Further, I do not think that either of the two hospitals as reasonable persons ought to have realised that the plaintiff expected to be paid 40%, or any other proportion, of the private practice fees or medical benefits received. What the hospitals received was not a "windfall" but was the fruit partly of their own resources and partly of the services for which they paid the Mildura Hospital. Those hospitals were paying the Mildura Hospital for the plaintiff's services and had no reason to think that he expected any further or other payment from them. In fact, the plaintiff had no such expectation. The plaintiff's claim therefore fails.
The plaintiff's alternative claim against the Mildura Hospital
This claim for damages must also fail because even if the Mildura Hospital was obliged to collect and had collected all of the private practice fees or assigned benefits in respect of private patients serviced at the other two hospitals and placed them in the Fund, the plaintiff would have been no better off. I should say also that I do not think that the Mildura Hospital had any such obligation under the Agency agreement.
There will be judgment for the defendants with costs including reserved costs.
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