Robodebt class action settlement approved

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This case saw approval of the settlement in the ‘Robodebt’ class action. The class action concerned the Commonwealth’s botched attempt to identify overpayments of social security benefits through data matching (which Murphy J described (at [5]) as “a shameful chapter in the administration of the Commonwealth social security system and a massive failure of public administration”). The applicants advanced two broad claims against the Commonwealth, being: (a) unjust enrichment; and (b) negligence for damages for economic loss and “stress, anxiety and stigma.”  

The settlement followed the Commonwealth’s admission in the proceeding that it did not have a proper legal basis to raise, demand or recover asserted debts, totalling at least $1.7 billion against approximately 400,000 social security recipients, which were based on income averaging from ATO data. At the time of that admission, and separate to the settlement, the Commonwealth promised to refund approximately $751 million to affected individuals.

The settlement provided that the Commonwealth would: (a) consent to the Court making declarations that any debt determined solely on basis of ATO data was not validly made, (b) not raise any further invalid debts and (c) pay a settlement sum of $112 million, which after deduction of Court-approved legal costs, was to be distributed to class members. 

His Honour gave the seven reasons set out below for approving the settlement. 

First, counsel recommended that the Court approve the proposed settlement in a confidential joint opinion that his Honour gave significant weight to. 

Second, a Court-appointed contradictor provided the Court with detailed submissions that the proposed settlement was fair and reasonable as between the parties and describing it as “a very favourable outcome”. 

However, the contradictor submitted that the proposed settlement was not fair and reasonable as between class members because certain categories of class members would receive no financial benefit but would be bound by the release. His Honour did not accept that this imbalance caused the settlement to be unfair or unreasonable but nevertheless made an order allowing class members from those categories, who had filed an objection to the settlement, to opt out in order to preserve their rights to pursue their own matters. 

Third, his Honour considered the applicants’ negligence claims to be weak. In particular, his Honour doubted that the applicants would be able to establish the alleged duty of care, though he also noted that the negligence claims added little as they centrally concerned the same losses as the unjust enrichment claims. 

Fourth, because the Commonwealth had already refunded $707.9 million and promised to refund the balance paid to it under the Robodebt scheme, the proceeding largely concerned claims for interest on those amounts and benefits that the Commonwealth received. In this light, his Honour found that the proposed settlement of $112 million was “very favourable”.

Fifth, only a small proportion of class members objected to the settlement (between 0.04% and 0.1% approximately). 

Sixth, his Honour considered that, subject to minor tweaks, the settlement distribution scheme was fair and reasonable. 

Seventh, Gordon Legal conducted the case on a no-win-no-fee basis and provided adverse costs indemnity to the applicants. His Honour noted that litigation funding was unlikely to have been available and commended Gordon Legal on making the case possible. 

His Honour approved legal costs of $8.4 million, as assessed by an independent costs referee and appraised by the contradictor. However, his Honour declined to approve a further $4.22 million that the costs referee estimated for future settlement administration work, citing inherent uncertainty in the assumption on which the estimate was based and required the costs referee to consult further with Gordon Legal and make a revised estimate.

Prygodicz v Commonwealth of Australia  (No 2) [2021] FCA 634

Federal Court of Australia, Murphy J,
11 June 2021

Applicants’ Solicitors: Gordon Legal;
Respondent’s Solicitors: Australian Government Solicitor;
Applicants’ Funder: N/A

Austlii Link: Accessible here

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