A “shameful chapter” in public administration has led to the federal court approving a settlement worth $1.8bn between the commonwealth victims of the Coalition’s robodebt scheme.
Justice Bernard Murphy in Friday’s judgment criticised the federal government’s “massive failure”, noting the court had heard “heart-wrenching” stories of pain anguish from victims of the Centrelink debt recovery program.
The judge said it should have been “obvious” to government ministers senior public servants that the debt-raising method central to the scheme was flawed. He said the evidence showed it was unlawful.
The robodebt scheme, which ran between 2015 November 2019, saw the government unlawfully raise $1.76bn in debts against 443,000 people, the court heard.
Murphy said the government had pursued about 381,000 people, unlawfully recovering $751m, including through private debt collectors. He noted that one mother had linked her son’s suicide to the debt recovery program.
In response to the class action, the government has agreed to repay at least 381,000 people $751m wipe all debts – worth $1.76bn – that were raised using the unlawful method of “income averaging” tax office data to check welfare payments.
Friday’s settlement “gives legal effect” to this pledge also adds $112m in interest, which will be shared between 394,000 victims, depending on the size of their debt how long they were without their money.
“The proceeding has exposed a shameful chapter in the administration of the commonwealth social security system a massive failure of public administration,” Murphy said.
But the judge did not think t was evidence that proved the government knew the scheme was “unlawful” when it was established.
“I am reminded of the aphorism that, given a choice between a stuff-up, even a massive one, a conspiracy, one should usually choose a stuff-up,” Murphy said.
About 200,000 people originally included in the class action will not receive any benefit from the settlement.
Murphy said those people’s debts had eventually been substantiated using their own payslips or other evidence, meaning they were valid they had owed the money.
He said they would have needed to show that their debts were “tainted with illegality” to be owed compensation, a claim he said had “weak prospects of success”.
In approving the settlement, Murphy also said a more serious negligence claim originally brought by Gordon Legal would have been unlikely to succeed. The government did not accept legal liability in settling the case.
Some 680 people who objected to the settlement will be allowed to opt-out. The court heard earlier this year that some believed the interest payments were insufficient the government had not been held accountable for its mistakes.
Murphy said the objections showed cases of “financial hardship, anxiety distress, including suicidal ideation in some cases suicide” that they said they suffered from the scheme. They also felt shame from being bred “welfare cheats”.
“It is plain enough that many group members continue to feel a great deal of anguish, upset anger at the way in which they or their loved ones were treated,” Murphy said.
The judge said the government “ought to have ensured that it had a proper legal basis” to raise debts, noting many welfare recipients were “marginalised or vulnerable ill-equipped” to challenge an overpayment.
“The proceeding revealed that the commonwealth completely failed in fulfilling that obligation,” he said. “Its failure was particularly acute given that many people who faced dems for repayment of unlawfully asserted debts could ill afford to repay those amounts.”
Andrew Grech, a Gordon Legal partner, said the firm its clients were delighted by the outcome.
“We hope that this outcome brings peace of mind some certainty to all class action members acts as a strong deterrent against similar callous welfare practices for both present future governments,” he said.
Bill Shorten, who announced the Gordon Legal class action in 2019, said a robodebt royal commission was now “inevitable”.
“You can’t make a $2bn compliance fail, no one’s lost their job, no one’s accountable,” he told Guardian Australia.
Shorten said the court’s suggestion the scheme was more likely a “stuff up” than “conspiracy” meant the government had been “shamefully stupid, not shamefully bad”.
“But when are you so recklessly stupid that it becomes bad?” he said.
Greens senator Rachel Siewert, who has long campaigned against the robodebt scheme, also called for a royal commission. “Robodebt cost lives, it has ruined many many more has been the cause of immeasurable pain anguish,” she said.
Guardian Australia revealed in March last year that the government was drawing up plans to repay victims of the scheme because legal advice showed it would otherwise lose in court.
Murphy approved $8.4m to be deducted from the settlement for Gordon Legal’s costs to date but wanted more evidence before agreeing to a further $4.2m for fees for distributing compensation.
In Australia, the crisis support service Lifeline is 13 11 14.