The proceeding has exposed a shameful chapter in the administration of the Commonwealth social security system and a massive failure of public administration. It should have been obvious to the senior public servants charged with overseeing the Robodebt system and to the responsible Minister at different points that many social security recipients do not earn a stable or constant income, and any employment they obtain may be casual, part-time, session, or intermittent and may not continue throughout the year … It should have been plain that in such circumstances the automated Robodebt system may indicate an overpayment of social security benefits when that was not in fact the case.
Justice Murphy
2.1
As discussed in the second interim report, several legal questions and legal cases were raised as result of the Income Compliance Program. At the time of tabling the second interim report, the class action lawsuit (Prygodicz v Commonwealth of Australia) had been lodged and was initially expected to go to trial. However, on the first day of proceedings, an in‑principle agreement was reached and a settlement was subsequently approved. Consequently, the claims made by the class action applicants were not tested at trial.
2.2
This chapter summarises:
the claims of the class action lawsuit and its settlement in the Federal Court of Australia, including the categorisation of class action group members and the reaction to the settlement;
whether the government knew that the scheme was not legally sound; and
the ‘Implementation Plan for Settlement Distribution Scheme’.
The class action lawsuit
2.3
The class action applicants argued that recipients of ‘Robodebts’ should be compensated by the Commonwealth for the money they repaid (or had been garnished from them) as the debts raised against them were not lawful.
2.4
As described by Mr Andrew Grech, Partner, Gordon Legal, the class action was ‘not designed to compensate group members or their surviving family members by way of damages for personal injury’ nor was it designed to be a ‘royal commission or any kind of commission of inquiry’. Additionally, as the case did not go to trial, the role of Justice Murphy in the proceedings was ‘not to make findings in the proceedings’ but rather to approve the terms of the settlement.
2.5
On 11 June 2021, Justice Murphy approved the class action settlement, totalling $112 million dollars (inclusive of approximately $8.41 million in legal fees to be paid to Gordon Legal). The settlement sum is for ‘restitutionary damages’ and is representative of ‘quasi‑interest’ based on the amount of money individuals repaid and the time they were without the monies.
2.6
The settlement sum is in addition to the government’s announcement in May 2020 to repay or reduce these debts to zero. The final settlement does not make payments for distress, damages or other forms of compensation.
2.7
Eligible Group Members who repaid wrongly raised debts will receive a share of the settlement sum and will receive a refund or have their debts reduced to zero if this has not yet occurred. The settlement also provides eligible Group Members with a court declaration that the debts raised against them were not validly made by the Commonwealth.
Group member categorisation
2.8
Approximately 648 000 people are members of the class action and are referred to as ‘Group Members’. Group Members have been categorised based on how their debt was calculated and the amount of money they repaid.
2.9
Group Members in categories 1 to 3 will also receive the benefit of the declaration that their debts were not validly made.
2.10
Group Members will only receive a share of the settlement sum if they are in an eligible category (all of category 2 and part of category 3). This will be processed by Services Australia through the ‘Implementation Plan for Settlement Distribution Scheme’.
2.11
Group Members in category 4 will not receive a portion of the settlement sum nor benefit from the aforementioned declaration as their debts were not based on averaged income data from the ATO.
Reaction to the class action settlement
2.12
Overall, the reaction to the class action settlement has been positive. The proceedings enabled affected individuals to receive restitutionary damages for their financial loss and recognition that the government unlawfully raised and pursued individuals for debts.
2.13
Concerns, however, have been raised that the settlement does not provide compensation for personal injury, including the psychological and financial stress individuals experienced during the process. Many witnesses spoke to the committee about how, although they were glad that the process had been finalised, dealing with the system took a toll on their financial wellbeing and mental health.
2.14
These sentiments were echoed by organisations that assisted individuals with these debts throughout the years. Ms Charmaine Crowe, Senior Adviser, Social Security, Australian Council of Social Service summarised this view:
There are 433,000 people who have received or will receive robodebt refunds, or who have had the unlawful debts that were charged against them dropped, who will not receive compensation for the hurt and anguish that this horrific scheme caused over many years.
2.15
Group Members were given opportunities to opt out of the class action and also to object to the proposed settlement. Approximately 600 Group Members lodged objections to the proposed settlement and a total of 5 426 individuals opted out of the class action.
2.16
Those who have opted out of the class action will not receive a share of the settlement sum but will be able to bring their own case against the Commonwealth should they wish to do so.
2.17
Justice Murphy noted that the number of individuals who raised objections to the settlement represents between 0.04% and 0.1% of Group Members and that ‘[m]any of the objections reflect the financial hardship, inconvenience, lasting anxiety and distress that group members experience’. However, he did not view this as a reason to refuse approving the settlement.
2.18
Concerns were also raised that the government has not taken accountability for the errors with the program. For example, Mr Grech stated that among Group Members ‘… there was quite an intense feeling that no-one has really been accountable for what happened …’.
Did the government know the scheme was not legally sound?
2.19
A key question that the committee has been pursuing throughout this inquiry is what knowledge the Commonwealth government had regarding the legal basis of the Income Compliance Program.
2.20
While the class action did not attempt to answer the question, issues regarding the government’s knowledge of the system’s legality arose during the proceedings.
2.21
In the process of the class action, Group Members also sought to receive ‘aggravated and exemplary’ damages from a negligence claim and 'exemplary damages' from an unjust enrichment claim. These claims were based on an allegation that the responsible ministers and senior public servants had knowledge that the Commonwealth did not have the power to recover debts based on income averaged data from the ATO and acted unlawfully despite this knowledge.
2.22
While these allegations were not tested in court, Justice Murphy stated that these ‘… are serious allegations and they are strenuously denied’. He further wrote that it is ‘one thing’ for the applicants to prove that ‘the responsible Ministers and senior public servants should have known’ that income averaging based on ATO data was an unreliable method, but it is:
… quite another thing to be able to prove the requisite standard that they actually knew that the operation of the Robodebt system was unlawful. There is little in the materials to indicate that the evidence rises to that level. I am reminded of the aphorism that, given a choice between a stuff‑up (even a massive one) and a conspiracy, one should usually choose a stuff-up.
2.23
In discussing this matter following the settlement, Mr Guy Tiffany, Lawyer, Gordon Legal, stated that:
… We found it quite remarkable that the claim that the government did not know the legality of what it was doing could be the case, when the people who were overseeing the system, you would have imagined, were the people with the most expert technical knowledge of what is allowed and permitted under the social security legal system.
2.24
Moreover, there have been several decisions of the Administrative Appeals Tribunal which have found that this system was flawed or unlawful and several reports issued by the Office of the Commonwealth Ombudsman which identified issues with the income compliance system.
2.25
As Mr Tiffany described, it is baffling that the system continued for over four years despite all of the information the government had about the flaws of the system.
2.26
While this question remains unresolved, Justice Murphy commented on the Commonwealth’s legal obligations to its citizens:
… it is self-evident that before the Commonwealth raised, demanded and recovered asserted social security debts, it ought to have ensured that it had a proper legal basis to do so. The proceeding revealed that the Commonwealth completely failed in fulfilling that obligation. Its failure was particularly acute given that many people who faced demands for repayment of unlawfully asserted debts could ill afford to repay those amounts.
Implementation Plan for Settlement Distribution Scheme
2.27
Services Australia is responsible for distributing the settlement sum to the eligible class action Group Members and this will occur through the ‘Implementation Plan for Settlement Distribution Scheme’ (SDS).
2.28
The SDS involves the following three phases:
Phase 1 – Categorisation: Group Members will be categorised into one of four groups in order to determine if they are eligible for a share of the settlement sum.
Phase 2 – Category notification, tracing and reminders to Group Members: Group Members will be notified of which category they have been placed into and will be requested to verify their contact and bank details with Services Australia.
Phase 3 – Assessment, notification, and distribution of entitlements: Services Australia will determine the final payment amount per individual, notify individuals of this amount and make payments to eligible Group Members.
2.29
During the process, individuals will have the opportunity to dispute both their categorisation and their calculated settlement share with Services Australia.
2.30
Throughout the implementation of the SDS Services Australia will be working with the ‘Independent Scheme Assurer’ (ISA) to ensure the accuracy of Group Member categorisation and final settlement payments. The ISA will provide verification reports to Services Australia and Gordon Legal.
2.31
The entire process is expected to be completed by late September 2022.
Committee view
2.32
The Income Compliance Program caused undue stress and financial hardship to Australians who at some point in their lives required financial support from the government.
2.33
The settlement of the class action lawsuit is a welcomed development and provides long overdue recognition to affected individuals whom the Commonwealth had unlawfully asserted debts against.
2.34
The committee is sympathetic to the views expressed by Gordon Legal, that despite the compliance program operating for four years, despite the decisions of the Administrative Appeals Tribunal which found the program was flawed or unlawful, despite the Commonwealth Ombudsman's reports that identified deficiencies within the program and despite all the information and expertise the government and its agency had on-hand, it is 'quite remarkable that…the government did not know the legality of what it was doing'.
2.35
The committee accepts that these allegations have not been tested in court. However, the committee reiterates the words of Justice Murphy:
The proceeding has exposed a shameful chapter in the administration of the Commonwealth social security system and a massive failure of public administration.
2.36
Further, that 'the Commonwealth completely failed in fulfilling [its] obligation' and that this 'failure was particularly acute given that many people who faced demands for repayment of unlawfully asserted debts could ill afford to repay those amounts'.
2.37
The committee remains concerned that many will not receive any form of compensation (monetary or otherwise), particularly for the severe psychological and financial hardship the program inflicted on individuals.
2.38
The committee supports the role of the Independent Scheme Assurer in working with Services Australia to ensure the settlement distribution scheme is completed in a fair and reasonable manner.
2.39
The committee, however, acknowledges that individuals affected by this program have been waiting an extended period for a resolution and will not receive their share of the settlement sum until late September 2022. This is too long. The committee insists that the Australian Government and Services Australia to do everything in their power to ensure people receive their settlement sum as quickly as possible.
2.40
The committee further echoes the concerns of impacted individuals who feel that no-one in the government has taken responsibility for the consequences of the program.
2.41
The committee recommends that Services Australia distributes the settlement sum in accordance with the Implementation Plan for Distribution Scheme, as a matter of priority.
2.42
The committee recommends that following the finalisation of the Implementation Plan for Settlement Distribution Scheme, Services Australia publicly release the following data:
the number of class action Group Members in each category;
the total value of the debts of Group Members, broken down by category; and
the average share of the settlement sum eligible Group Members received.