Federal Court Labels Illegal Robodebt Extortion Scheme a “Massive… Stuff-Up”

By Paul Gregoire and Ugur Nedim

In his 11 June ruling on the class action taken against the Coalition government’s Centrelink robodebt scheme, Federal Court Justice Bernard Murphy said that rather than “a conspiracy”, he found the unlawful automated debt collection initiative to be “a stuff-up”, albeit “a massive one”.

Initiated by then social services minister Scott Morrison in July 2015, the robodebt scheme sought to prop up the federal Coalition’s growing debt by demanding the paying back of past welfare payments made to recipients whom it asserted had unlawfully claimed funds.

However, the logic behind the scheme devised by the current prime minister was flawed, and it resulted in thousands of debt notices being sent out to Australians demanding payment of amounts that they didn’t actually owe.

“The proceeding has exposed a shameful chapter in the administration of the Commonwealth social security system and a massive failure of public administration,” Justice Murphy made clear. And he added that this “should have been obvious” to senior public servants and the ministers responsible.

Last week saw the Federal Court of Australia give its final approval to the settlement of the class action that involved over 400,000 citizens. And while the Coalition government has agreed to the huge payout, it hasn’t admitted it has any legal liability to do so.

The flawed scheme

An automated debt collection system, robodebt ran from July 2015 through to November 2019. It involved computer-generated Centrelink notices being sent out to around 433,000 Australians demanding individual debt repayments, which taken together amounted to at least $1.763 billion.

As Justice Murphy explained in his final findings the scheme was problematic as it utilised a flawed technique known as “income averaging”.

This involved using ATO data to determine how much an individual earnt via work over a set period, prior to any welfare payments being distributed to them.

Some people work different hours from week-to-week, while others are employed intermittently, and these people can still be eligible for certain Centrelink payments whilst working under these conditions.

On having calculated the amount earnt over a set period, the computer system then averaged this out into an “assumed” fortnightly income, which then resulted in falsely estimated overpayments.

“Ministers and senior public servants should have known that income averaging based on ATO data was an unreliable basis upon which to raise and recover debts from social security recipients,” his Honour set out.

Yet, based on this unreliable premise, the robodebt scheme saw the government actively pursue these computer-generated debts, often via private debt collection agencies, which resulted in around 381,000 targeted citizens paying over $751 million to Centrelink.

The robodebt settlement

Overall, the government has agreed to wipe the $1.763 billion in unlawfully claimed debt it made during the time the robodebt scheme was running.

The Morrison government will refund the $751 million invalid repayments, drop the claims on $744 million partially repaid debts, and wipe out the remaining $268 million in illegally claimed debts, which were simply left unresolved.

The federal Coalition has also agreed to pay a further $112 million in compensation, including legal fees. With the deduction of the legal costs, the rest of this money will be distributed amongst 394,000-odd claimants who are eligible for the funds.

The firm that conducted the case, Gordon Legal, did so on a “no-win no-fee basis”. So, as part of the settlement, the court agreed to an $8.4 million payout to cover the firm’s legal costs, as well as an additional $4.2 million to cover the costs of distributing the compensation funds to claimants.

Unjust enrichment

Pending the courts approval, the Commonwealth government had already agreed to a settlement covering $1.2 billion in financial benefit. Although, last week’s final decision sees the financial benefit amounting to over $1.7 billion.

The Morrison government announced it would commence paying back the false robodebt claims it had already received in May last year.

This was seen as a move aimed at reducing the likely flack caused by the upcoming class action, which asserted the government had engaged in unjustly enriching itself.

The landmark civil action was brought after a 2019 court ruling regarding a case where Victoria Legal Aid represented Deanna Amato in successfully challenging a $2,500 debt that the Centrelink computer system raised against her name.

The Federal Court further found that the 10 percent penalty that was added to Amato’s debt was also falsely applied.

This ruling came just weeks after the federal Coalition had dropped its use of income averaging to calculate outstanding debts.

Failing the most vulnerable

In response to a question regarding a grandfather with cancer being caught out by robodebt last June, Morrison said “I would apologise for any hurt or harm in the way that the government has dealt with that issue and to anyone else who has found themselves in those situations.”

Following last November’s agreement to the class action settlement, Morrison rejected suggestions that then government services minister Scott Robert should be stood down over the scandal.

Indeed, while Christian Porter is often charged with the blame for the debt collection scheme due to his overseeing its early stages whilst he was social security minister, the responsibility for robodebt could easily be laid at the feet of its creator, the current PM.

In summing up his findings, Justice Murphy noted that when the state asserts that its citizens are legally obliged to pay a debt to it, authorities have an obligation to ensure that the debt has “a proper basis in law” prior to going about recovering it.

His Honour set out that those Australians who do find it necessary to seek the support of social security from time to time, include many marginalised and vulnerable people, who may be ill-equipped to “properly understand or to challenge the basis of the asserted debts”.

The justice further acknowledged that the scheme had caused unwarranted “financial hardship, anxiety and distress” to those targeted. And in some cases, this resulted in suicidal ideation and in the most extreme instances, it caused people to take their own lives.

“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,” said Justice Murphy. “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,” his Honour underscored.