Background
From approximately July 2015 to November 2019, the Commonwealth used income averaging in an automated process to identify and recover supposed social-security overpayments. The Commonwealth acknowledged that debts raised solely through income averaging lacked a proper legal basis. At least $1.763 billion in debts was asserted against approximately 433,000 people, and about $751 million was recovered from roughly 381,000 people.
The representative proceeding began in 2019 and was first settled in 2021 for approximately $112 million. Documents later disclosed through the Royal Commission into the Robodebt scheme supported allegations that Commonwealth officers knew, or were recklessly indifferent to whether, the scheme was unlawful. Former group members then pursued an appeal against the 2021 settlement orders, and mediation produced a new settlement covering both the existing proceeding and the proposed misfeasance-in-public-office claim.
The Court’s Holding
Beach J set aside the operative 2021 settlement orders, permitted amendments adding the misfeasance claim and a new category of secondary claimants, and approved the new settlement under s 33V of the Federal Court of Australia Act 1976 (Cth). The Court found that setting aside the earlier orders would not prejudice third parties and would permit substantially greater compensation for existing group members while extending eligibility to additional people.
The Commonwealth must pay up to $548.5 million in addition to the approximately $112 million paid under the earlier settlement: $475 million as compensation, up to $13.5 million for legal costs, and up to $60 million for administering the distribution scheme. The Court appointed Gordon Legal as scheme administrator, approved a $35 million common-fund commission for Omni Bridgeway, authorised representative reimbursements, and ordered that administration costs be independently assessed and regularly reported.
Key Takeaways
- A court-approved class-action settlement may be set aside by consent where doing so facilitates a new settlement and does not adversely affect third-party rights.
- The new scheme compensates eligible primary claimants and may also cover close relations who developed a recognised psychiatric illness after a death materially contributed to by the assertion of a Robodebt.
- The Court fixed the funder’s commission at $35 million after assessing the case’s particular risks and benefits under the multifactorial approach, rather than applying a standard percentage commission.
Why It Matters
The decision replaces the 2021 resolution with a substantially larger settlement based on evidence disclosed after the Royal Commission. It also illustrates the Federal Court’s protective role in scrutinising settlement fairness, litigation-funding returns, administration expenses, and the treatment of vulnerable class members.
Beach J described Robodebt as a failure of public administration and ministerial responsibility, emphasizing the need for decision-makers to understand and supervise automated systems that affect individual rights.