You are here:
AustLII >>
Databases >>
Federal Court of Australia >>
2021 >>
[2021] FCA 634
Database Search
| Name Search
| Recent Decisions
| Noteup
| LawCite
| Download
| Context | No Context | Help
Prygodicz v Commonwealth of Australia (No 2) [2021] FCA 634 (11 June 2021)
Last Updated: 11 June 2021
FEDERAL COURT OF AUSTRALIA
Prygodicz v Commonwealth of Australia (No 2) [2021] FCA
634
SUMMARY
In accordance with the practice of the Federal Court in some cases of public
interest, importance or complexity, the following summary
has been prepared to
accompany the orders made today. This summary is intended to assist in
understanding the outcome of this proceeding
and is not a complete statement of
the conclusions reached by the Court. The only authoritative statement of the
Court’s reasons
is that contained in the published reasons for judgment
which will be available on the Court’s website.
This is a class action brought by six applicants against the Commonwealth of
Australia, arising out of the Commonwealth’s use
of an automated
debt-collection system between July 2015 and November 2019, intended to recover
social security payments that they
alleged had been overpaid, colloquially known
as the “Robodebt system”. In summary, the system attempted
to identify overpayments of social security benefits at particular points of
time through
data matching. That was automatically conducted by:
(a) utilising PAYG income information of social security
recipients kept by the Australian Taxation Office (ATO data) and evenly
apportioning that income over fortnightly increments in the review period (in a
process the parties called “income
averaging”) to determine that
person’s notional or assumed fortnightly income; and
(b) comparing the notional or assumed fortnightly income of the
person with the actual fortnightly income information provided by the
person to Centrelink (which was the basis upon which the level of social
security
payments had been assessed and paid to the person at an earlier point
in time).
Once this process had taken place, the Commonwealth determined whether the
person had been overpaid social security benefits, and
where that had occurred,
it sought to raise and recover that asserted debt.
In the
course of the proceeding the Commonwealth admitted that it did not have a proper
legal basis to raise, demand or recover asserted
debts which were based on
income averaging from ATO data. The evidence shows that the Commonwealth
unlawfully asserted such debts,
totalling at least $1.763 billion against
approximately 433,000 Australians. Then, including through private debt
collection agencies,
the Commonwealth pursued people to repay these wrongly
asserted debts, and recovered approximately $751 million from about 381,000
of
them.
The applicants now seek court approval under s 33V of the Federal Court of
Australia Act 1976 (Cth) of a proposed settlement of the class action. In
summary, the proposed settlement provides that the Commonwealth will, without
admission of liability:
(a) consent to the Court making declarations
(Declarations) which, in effect, provide that any decision by the
Commonwealth:
(i) that an applicant or group member owed a
debt under s 1223 of the Social Security Act 1991 (Cth) because the
person had obtained the benefit of a social security payment to which they were
not entitled, where the Commonwealth
relied solely on income averaging from ATO
data; and
(ii) did not have other evidence that the person was likely to have earned
employment income at a constant fortnightly rate during
the period covered by
the ATO income information;
was not validly made;
(b) not raise, demand or recover from any of the 433,000
people who had a Robodebt raised debt asserted against them, any invalid
debt as
described in the Declarations; and
(c) will pay $112 million inclusive of legal costs, which after deduction of
Court-approved legal costs, is to be distributed to
Category 2 Group Members
(approximately 381,000 people, who wholly or partly paid to the Commonwealth or
had recovered from them
Robodebt raised debts, totalling approximately $751
million) and Eligible Category 3 Group Members (approximately 13,000 people who
paid or had recovered from them an amount that was greater than the debt they
actually owed) pursuant to a Court-approved Settlement
Distribution Scheme
(SDS).
The proposed settlement of $112 million is on top of a previously announced
Commonwealth program under which it promised to withdraw
approximately $1.763
billion in debts based on income averaging from ATO data and to refund
approximately $751 million it had received
or recovered from 381,000 social
security recipients in relation to such debts (Commonwealth-recovered
amounts). The Declarations made by the Court today give legal effect to the
Commonwealth’s promises to undertake the withdrawal of
these debts and the
related refunds.
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 and
to the responsible Minister(s) at different
points who designed and were charged
with overseeing the Robodebt system that many social security recipients do not
earn a stable
or constant income, and any employment they obtain may be casual,
part-time, sessional, or intermittent and may not continue throughout
the year.
Where a social security recipient does not earn a constant fortnightly wage,
does not earn income every fortnight, or
only works for intermittent periods in
a year, their notional or assumed fortnightly income based on
income averaging is unlikely to be the same as their actual fortnightly
income. 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. Yet, in the absence of further information from
social security
recipients, that is the basis upon which the Commonwealth raised
and recovered debts for asserted overpayments of social security
benefits.
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. However, it is quite another
thing to be able to prove to 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.
It is fundamental that before the state asserts that its citizens have a
legal obligation to pay a debt to it, and before it recovers
those debts, the
debts have a proper basis in law. The group of Australians who, from time to
time, find themselves in need of support
through the provision of social
security benefits is broad and includes many who are marginalised or vulnerable
and ill-equipped
to properly understand or to challenge the basis of the
asserted debts so as to protect their own legal rights. Having regard to
that,
and the profound asymmetry in resources, capacity and information that existed
between them and the Commonwealth, 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.
On top of the financial hardship, distress and anxiety caused to a great many
vulnerable people and the costs to the public purse
of a huge Commonwealth
program to identify the debts to be withdrawn and to refund the
Commonwealth-recovered amounts, the Commonwealth
has now agreed to pay a further
$112 million; to meet the substantial costs of the settlement distribution
scheme to categorise eligible
group members and to pay them a share of that
settlement; and to meet its own significant legal costs. That has resulted in a
huge
waste of public money.
The proceeding advances two broad claims against the Commonwealth:
(a) a claim for unjust enrichment (primarily a claim for
monies had and received) alleging that the Commonwealth was unjustly enriched
by
its recovery of wrongly asserted debts from the applicants and group members;
and
(b) a common law tort claim in negligence for damages for economic loss suffered
by the applicants and group members as a result
of the breach of the
Commonwealth’s alleged duty of care in raising and recovering wrongly
asserted debts, coupled with a claim
for damages for stress, anxiety and stigma
associated with the request or demand for recovery of the asserted debts (which
the applicants
called distress damages).
In my view it is clear that the proposed settlement is fair and reasonable
between the applicants and group members on the one hand,
and the Commonwealth
on the other. I was though troubled as to whether the proposed settlement was
fair and reasonable as between
the different categories of group members. That
concern arises because, while the proposed settlement provides substantial
financial
benefits to Category 2 Group Members and Eligible Category 3 Group
Members, and some benefit to Category 1 Group Members, it provides
no financial
benefit to Ineligible Category 3 Group Members and Category 4 Group Members
(Ineligible Group Members) who comprise approximately 202,000 of the
about 648,000 group members. Yet Ineligible Group Members are also bound by the
release
in the Settlement Deed and thus lose their rights (if any) to sue for
claims that are the same or similar to those made in the proceeding.
Ultimately I concluded that it is appropriate to approve the proposed
settlement, albeit with some changes to the settlement as initially
proposed,
including to allow the 680 group members who filed objections to approval of the
proposed settlement an opportunity to
opt out of the proceeding at this stage,
if they wish to do so.
In summary, the reasons for approving the settlement are as follows:
First, the Court had the benefit of a confidential joint
counsels’ opinion in which counsel frankly and candidly expressed their
opinion as to the fairness and reasonableness of the proposed settlement.
Counsel recommended that the Court approve the proposed
settlement by reference
to a variety of factors, particularly the risks facing the applicants in
relation to liability and quantum.
It is appropriate to give significant weight
to Counsels’ Opinion and I have done so.
Second, the Court had the benefit of detailed submissions from Fiona
Forsyth QC and Eugenia Levine of counsel (the Contradictor), appointed by
the Court to represent group members’ interests. The Contradictor agreed
that the proposed settlement is fair
and reasonable as between the
parties, describing it as “a very favourable outcome”.
The Contradictor however submitted that the proposed settlement is not fair
and reasonable as between group members because Category 1 Group Members
and Ineligible Group Members will receive no financial benefit under the
proposed settlement but will be bound by the release. The Contradictor
contended that Category 1 Group Members and Ineligible Group
Members, totalling
some 254,000 people should be given an opportunity to opt-out, if they so wish.
I did not accept this argument
but I have allowed those 680 people who filed
objections to the proposed settlement to opt-out now if they wish to do so.
Those objectors
will be told which category they fall into before having to
decide whether to opt-out or not.
In summary the view I took of the varying strengths and weaknesses of the
different categories of group members is:
(a) Category 1 Group Members cannot in my view succeed
in their unjust enrichment claims (or for negligently inflicted economic loss).
No asserted debts were recovered from them by the Commonwealth and therefore
they have suffered no economic loss and the Commonwealth
has not been unjustly
enriched at their expense. In those circumstances it is not unfair or
unreasonable that they will not receive
a share of the Distribution Sum;
(b) Category 2 Group Members and Eligible Category 3 Group Members have good
prospects of success in their unjust enrichment claims,
it is fair and
reasonable that they receive substantial financial benefits under the proposed
settlement; and
(c) Ineligible Group Members do not have debts based on income averaging from
ATO data; instead their debts were assessed by the
Commonwealth from payslips,
bank statements and other information they provided. For them to succeed in
their unjust enrichment
claims (and their negligence claims) they must establish
that the debts were somehow “tainted” with illegality because
the
(accurate) income information upon which their debts were assessed was provided
in response to a notice generated by the Robodebt
system or in response to a
debt based on income averaging from ATO data which was earlier raised. In my
view their claims have weak
prospects of success and are more likely than not to
fail at trial. It is not unfair or unreasonable that they will receive no
financial
benefit under the settlement.
Third, I consider the negligence claims of the applicants and all
categories of group member to be weak. I doubt that the applicants can
establish the alleged duty of care. But the negligence claims are something of a
distraction because even if (contrary to my view)
they are treated as likely to
succeed at trial, they add little. They centrally concern the same losses as
those claimed in the unjust
enrichment claims. To the extent that they extend
beyond the unjust enrichment claims by seeking distress damages and aggravated
and exemplary damages those claims face significant uncertainty and are attended
by considerable risk.
Fourth, because at the point of settlement the Commonwealth had
already refunded $707.9 million of the Commonwealth-recovered debts based
on
income averaging from ATO data, and had promised to refund all such amounts, the
potential quantum of the claims in the proceeding
are largely concerned with
claims for interest, or for the benefit the Commonwealth received by its use of
the Commonwealth-recovered
amounts (which the parties called
“quasi-interest”). When regard is had to the different
methods by which interest or quasi-interest might be assessed, and to the risks
those
claims face, the proposed settlement of $112 million inclusive of costs is
a very favourable one.
Fifth, prior to the settlement approval hearing 680 group members
filed objections to settlement approval (objections) both within time and
out of time. That comprises only about 0.1% of the approximately 648,000 group
members, but it is not clear
whether all of the objections were intended as
such. Taking into account the objections that may not have been intended as
such,
it appears that less than 0.04% of group members filed objections.
One thing, however, that stands out from the objections is the financial
hardship, anxiety and distress, including suicidal ideation
and in some cases
suicide, that people or their loved ones say was suffered as a result of the
Robodebt system, and that many say
they felt shame and hurt at being wrongly
branded “welfare cheats”. Some of the objections were
heart-wrenching and one
could not help but be touched by them. One bereaved
mother told the Court that her son had committed suicide after the Commonwealth
demanded payment of a social security debt which she says he did not owe, some
group members spoke of contemplating suicide, and
many spoke of suffering
financial hardship and serious anxiety or stress. It is plain enough that many
group members continue to
feel a great deal of anguish, upset and anger at the
way in which they or their loved ones were treated. Even so, for the reasons
I
explain, the objections do not justify refusing to approve the proposed
settlement.
Sixth, I consider the system under the proposed Settlement
Distribution Scheme for categorising group members and distributing the
Distribution
Sum to Category 2 Group Members and Eligible Category 3 Group
Members to be fair and reasonable.
Seventh, Gordon Legal conducted the case on a no-win no-fee basis, and
provided an indemnity to the applicants against any adverse costs
order against
them if the case was unsuccessful. I doubt that litigation funding would have
been available for the case and it is
unlikely the case could have been brought
without the firm taking on those risks. That is to the firm’s credit.
I appointed an independent Costs Referee to inquire into and to report as to
the reasonableness of Gordon Legal’s costs in the
proceeding and in
respect to its work under the SDS. The Costs Referee assessed the
applicants’ reasonable legal costs of
the proceeding at $8.4 million. The
Contradictor and the Commonwealth submitted that it is appropriate to adopt the
Costs Referee’s
assessment, and neither the applicants or Gordon Legal
opposed adoption. It is appropriate to adopt that assessment. $8.4 million
may
seem like a huge or excessive amount for those uninitiated in relation to the
legal costs incurred in large, complex class action
litigation. But such a view
would be uninformed having regard to the careful scrutiny given to the costs by
the Costs Referee and
the Contradictor, and I am satisfied that amount is fair,
reasonable and proportionate.
In relation to the costs likely to be incurred by Gordon Legal in the future
in performing its functions under the Settlement Distribution
Scheme, I take a
different view. On the basis of assumptions made by Gordon Legal to the effect
that approximately 40,000 group
members are likely to contact the firm and the
time likely to be taken in dealing with their queries and concerns, the Costs
Referee
estimated that Gordon Legal’s reasonable costs for such future
work would be approximately $4.2 million. On that basis the
Contradictor
submitted it was appropriate to now approve that lump sum amount.
In my view the assumptions upon which that estimate are based are inherently
uncertain. At present one simply cannot know how many
group members are likely
to contact Gordon Legal. I accept that it is necessary to estimate and set
aside an amount of costs before
distributions can be made to group members, and
the assessment cannot be delayed for too long or it will delay distribution of
the
settlement monies. However, I am not prepared to accept the estimate as
sufficiently accurate at present. I have ordered the Costs
Referee to confer
with Gordon Legal and then to determine the best methods to assess the
reasonableness and proportionality of Gordon
Legal’s costs for performing
that work on an ongoing basis and to have those costs paid monthly or two
monthly, and to permit
the Costs Referee to make an updated and more accurate
estimate of the likely future costs.
Finally, for those perpetual critics of the Part IVA class action regime, the
present case is one more example where the regime has provided real, practical
access to justice. It has
enabled approximately 394,000 people, many of whom
are marginalised or vulnerable, to recover compensation from the Commonwealth
in
relation to conduct which it belatedly admitted was unlawful. The proposed
settlement demonstrates, once again, that, when properly
managed, our class
action system works.
I also wish to thank the parties’ lawyers for the way they conducted
the case. Some of the legal issues in the case were complex
and difficult, and
the amount in dispute was large. The litigation was strenuously contested yet
the solicitors and counsel for
both sides conducted themselves appropriately and
responsibly while strongly representing their clients’ interests; they did
not get lost in the fog of the contest.
MURPHY J
11 JUNE 2021
MELBOURNE
FEDERAL COURT OF AUSTRALIA
Prygodicz v Commonwealth of Australia (No
2) [2021] FCA 634
|
File number:
|
|
|
|
|
Judgment of:
|
|
|
|
|
Date of judgment:
|
|
|
|
|
Catchwords:
|
REPRESENTATIVE PROCEEDINGS –
application for court approval of settlement under s 33V of the Federal Court
of Australia Act 1976 (Cth) – principles relevant to settlement
approval – whether the proposed settlement is fair and reasonable as
between
the parties – whether the proposed settlement is fair and
reasonable as between group members – whether proposed settlement
distribution scheme is fair and reasonable – principles relevant to
approval of applicants’ legal costs – whether
legal costs proposed
to be charged by applicants’ solicitors are reasonable – settlement
approved
|
|
|
|
Legislation:
|
Federal Court of Australia Act 1976 (Cth) ss 33C, 33J, 33V,
33Y, 33ZB, 33ZF, 37M, 37AF, 37AG, 51A, 54A
|
|
|
|
Cases cited:
|
Australian Competition and Consumer Commission
v Coles Supermarkets Australia Pty Ltd [2014] FCA 1405
Australian Securities and Investments Commission v Richards [2013]
FCAFC 89
Mobil Oil Australia Pty Ltd v State of Victoria [2002] HCA 27;
(2002) 211 CLR 1
Modtech Engineering Pty Ltd v GPT Management Holdings Ltd [2013] FCA
626
Ultramares Corporation v Touche (1931) 225 NY 170
Underdown v Secretary, Department of Education, Employment and Workplace
Relations [2009] FCA 965
Wang v Secretary, Department of Employment & Workplace Relations
[2007] FCAFC 17
Wang v Secretary, Department of Employment & Workplace Relations
[2006] FCA 898
Williams v FAI Home Security Pty Ltd (No 4) [2000] FCA
1925; (2000) 180 ALR 459
Edelman, Interest Awards in Australia (2003, LexisNexis
Butterworths)
J D Heydon, M J Leeming and PG Turner, Meagher, Gummow and
Lehane’s Equity Doctrines & Remedies (Fifth edition, p 865)
|
|
|
|
Division:
|
General Division
|
|
|
|
|
Victoria
|
|
|
|
|
Administrative and Constitutional Law and Human Rights
|
|
|
|
Number of paragraphs:
|
|
|
|
|
|
|
|
|
Counsel for the Applicants: |
Mr B Quinn QC and Mr M Guo |
|
|
|
Solicitor for the Applicants:
|
Gordon Legal
|
|
|
|
Counsel for the Respondent:
|
Mr M Hodge SC and Ms Z Maud
|
|
|
|
Solicitor for the Respondent:
|
Australian Government Solicitor
|
|
|
|
Counsel for the Contradictor:
|
Ms F Forsyth SC and Ms E Levine
|
ORDERS
|
|
|
|
|
KATHERINE PRYGODICZFirst
Applicant ELYANE PORTERSecond Applicant STEVEN
FRITZE (and others named in the Schedule) Third Applicant
|
|
AND:
|
COMMONWEALTH OF
AUSTRALIARespondent
|
THE COURT ORDERS THAT:
Settlement Approval
- The
Respondent provides an undertaking to the Court in the form set out at Annexure
A to these orders.
- Upon
the Respondent giving the undertaking in Annexure A to these orders, pursuant to
ss 33V of the Federal Court of Australia Act 1976 (Cth) (the Act),
the settlement of the proceeding upon the terms set out in the Deed of
Settlement between the Applicants, the Respondent and Gordon
Legal exhibited as
“AG-1” to the Affidavit of Andrew Grech dated 22 April 2021
(Settlement Deed), together with the Settlement Distribution
Scheme Implementation Plan in Annexure B to these orders (Implementation
Plan), be approved subject to the following:
(a) the definition of Scheme Claimant, as contained in
the Settlement Deed, is amended to mean “a Category 2 Group Member or
an
Eligible Category 3 Group Member for whom the Respondent has current bank
account details or preferred payment destination at
the date set out in or
determined under the Implementation Plan”; and
(b) the Framework of Settlement Distribution Scheme at Annexure B to the
Settlement Deed and the Implementation Plan (together “the
Scheme”) are to be read together. To the extent of any inconsistency
between the Framework of Settlement Distribution Scheme and the
Implementation
Plan (as amended in accordance with order 2 above), the Implementation Plan
shall prevail over the Framework of Settlement
Distribution Scheme.
- Pursuant
to ss 33V and 33ZF of the Act, the Court authorises the Applicants nunc pro
tunc to enter into and give effect to the Settlement Deed and the Scheme for
and on behalf of the group members.
- Pursuant
to s 33ZB of the Act the persons affected and bound by the settlement of the
proceeding are the Applicants, the group members, and the
Respondent.
Opt Out for Objecting Group Members
- Pursuant
to ss 33J and 33ZF of the Act, the date by which any group member, who pursuant
to Order 17 of the Orders of 23 December 2020 filed a Notice of Objection
with
the Court on or before 4.00 pm on 5 May 2021 in respect of the proposed
settlement of the proceeding (the Objecting Group Members), may opt out
of the proceeding be extended to 4.00 pm AEST on 17 September 2021.
- Pursuant
to s 33Y(2) of the Act, the form and content of the notice set out in Annexure D
(Further Opt Out Notice) is approved as that by which Objecting
Group Members are to be given notice of their extended period to opt out of the
proceeding.
- Pursuant
to s 33Y(3) of the Act, the Further Opt Out Notice is to be given to the
Objecting Group Members by 6 August 2021 according to the following
procedure:
(a) using its best endeavours the Respondent shall use
its own resources to identify the names of all of the Objecting Group Members,
the MyGov account details of those Objecting Group Members who have a MyGov
account linked to Services Australia, and their last
known contact details held
by the Respondent including as identified on the Objecting Group Members’
Notice of Objection;
(b) where possible the Respondent shall cause the Further Opt Out Notice to be
sent to each Objecting Group Member’s MyGov
Account Inbox which is linked
to Services Australia; and
(c) where an Objecting Group Member does not have a MyGov account Inbox linked
to Services Australia the Respondent will use its
best endeavours to send the
Further Opt Out Notice by mail to the Objecting Group Member’s last known
address.
- The
costs incurred by the Respondent of the procedure referred to in Order 7 above
shall be borne by the Respondent, and otherwise
the costs of each party of and
incidental to the procedure set out in Order 7 above shall be costs in the
cause. For the avoidance
of doubt, reasonable work done in answering enquiries
by class members and members of the public in relation to the Further Opt Out
Notice and/or the proceeding generally is work incidental to Order 5 above.
- The
Further Opt Out Notice may be amended by the Applicants’ or
Respondent’s solicitors before it is published in order
to correct any
website or email address or telephone number or other non-substantive
error.
- If
the solicitors for any party receive, on or before 4.00 pm AEST on 17 September
2021, a notice purporting to be an opt out notice
in response to the Further Opt
Out Notice completed by any Objecting Group Member, the solicitors shall file
the notice in the Victoria
District Registry of the Court within three business
days, and the notice shall be treated as an opt out notice received by the Court
at the time it was received by the solicitors.
- The
Applicants’ solicitors and the Respondent’s solicitors have leave to
inspect the Court file and copy any such opt
out notices
filed.
Declarations
- The
Court hereby makes the declarations in the form of Annexure C to these
orders.
Costs of the proceeding to the date of settlement
approval
- Pursuant
to ss 33V and 33ZF of the Act, so much of the Deduction Amount payable to Gordon
Legal under the Settlement Deed as comprises legal costs pursuant to
clause
2.8.4.a of the Settlement Deed in respect of conduct of the proceeding on behalf
of the Applicants and group members be approved
in the amount of
$8,413,795.71.
Gordon Legal’s future costs for performing
its functions under the Scheme
- The
reference to the Costs Referee pursuant to Order 11 of the orders made
23 December 2020 be amended to include the following:
(a) as soon as practicable the Costs Referee shall
confer with Gordon Legal, and any other person the Costs Referee considers
appropriate,
and then determine the best method:
(i) to assess the reasonableness and
proportionality of Gordon Legal’s costs for performing its functions under
the Scheme on
an ongoing basis, and for such costs to be considered for approval
by the Court and paid at either monthly or two monthly intervals
as the Costs
Referee determines; and
(ii) to permit the Costs Referee to make an updated and more accurate estimate
of Gordon Legal’s future reasonable and proportionate
costs for performing
its functions under the Scheme, intended to assist the Court to consider
approval of a lump sum amount for future
costs so that the distribution of
settlement monies to the Scheme Claimants can proceed without material delay;
(b) the Costs Referee shall provide short reports to the
Court providing her opinion as to the reasonableness and proportionality
of
the:
(i) costs in the invoices rendered by Gordon
Legal for the firm’s ongoing work;
(ii) updated estimate of Gordon Legal’s future costs in a lump sum
amount;
and the Court will decide whether to approve such costs on the papers;
and
(c) the Costs Referee or Gordon Legal may seek urgent
directions from the Court in relation to any issue which
arises.
- Following
receipt and consideration of the Costs Referee’s reports as to Gordon
Legal’s costs for performing its functions
under the Scheme, pursuant to
ss 33V and 33ZF of the Act:
(a) so much of the Deduction Amount payable to Gordon
Legal under the Settlement Deed as comprises Gordon Legal’s costs pursuant
to clause 2.8.4.b of the Settlement Deed in respect of conducting its functions
under the Scheme, and in respect to the Costs Referee’s
reasonable costs
in performing her role and functions after the conclusion of the settlement
approval hearing, will be approved and
fixed by the Court; and
(b) so much of the Deduction Amount payable to Gordon Legal under the Settlement
Deed as comprises legal costs pursuant to clause
2.8.4.a of the Settlement Deed
in respect to the Contradictor’s reasonable costs in performing her role
and functions after
the conclusion of the settlement approval hearing, will be
approved and fixed by the Court.
- Within
7 days of the date of completion of Phase 3 of the Scheme (Assessment,
Notification, and Distribution of Entitlements) Gordon Legal will file a
confidential costs report with the Costs Referee and the Court for the purpose
of reporting on the actual
costs incurred in respect of it performing its
functions under the Scheme.
Other orders
- Pursuant
to s 33ZF of the Act, the parties each have leave to apply to the Court for
orders in respect of any issue arising in relation to the administration
of the
Settlement Deed or the Scheme.
- All
inter partes costs orders in the proceeding and in proceeding VID
648/2020 be vacated.
- Upon
the Court being informed by the Scheme Assurer that all distributions under the
Scheme have been completed, the proceeding be
dismissed with no further order as
to costs.
Confidentiality
- Pursuant
to s 37AF(1)(b) of the Act, on the ground that the order is necessary to prevent
prejudice to the proper administration of justice, and until further
order, the
evidence identified in Annexures E and F to these orders not be published or
disclosed without the prior leave of the
Court to any person or entity other
than the Applicants, their respective legal advisers, the Judge with the
carriage of the matter
from time to time and officers of the Court to whom it is
necessary to disclose the evidence.
- The
parties have liberty to apply.
ANNEXURE A - RESPONDENT’S UNDERTAKING
The respondent undertakes to the Court that the intended operation and
interpretation of clauses 2.2.1 and 2.2.2 of the Settlement
Deed, when read
together, is that:
(a) Group Members are precluded from objecting to or challenging a debt decision
that was the subject of the proceeding if the nature
of their objection or
challenge is of the same nature as the claims made in the proceeding;
however,
(b) Group Members are not precluded from enquiring about, objecting to or
challenging (including by exercising their statutory rights
of review) debt
decisions which were the subject of the proceeding if the basis of their
enquiry, objection or challenge is different
in nature to the claims made in the
proceedings.
ANNEXURE B
ANNEXURE C - DECLARATIONS
In respect of asserted overpayment debts raised against the applicants and group
members, the Court declares that:
- A
decision that an applicant or group member owed the Commonwealth a debt under s
1223 of the Social Security Act 1991 (Cth), because the person had
obtained the benefit of a social security payment to which they were not
entitled, was not validly
made where all of the following apply:
(a) the rate of the social security payment for the
applicant or group member was dependent upon the person’s ordinary income
on a fortnightly basis;
(b) the Commonwealth based its decision on an assumption (Assumption)
that the person’s ordinary income for a fortnight (relevant
fortnight) was greater than the amount of ordinary income that the person
had reported to the Commonwealth for the relevant fortnight;
(c) the Commonwealth relied solely on PAYG employment income data from the
Australian Taxation Office (ATO data) to make the Assumption and did not
have evidence that the person was likely to have earned employment income at a
constant fortnightly
rate during a period covered by the ATO data, or other
evidence to support the Assumption; and
(d) the Assumption was based on an assessment of the person’s employment
income for the relevant fortnight derived from averaging
the ATO data, for a
longer period that included the relevant fortnight, as if the person had earned
income at a constant rate during
that period.
ANNEXURE D
ANNEXURE E
ANNEXURE F
REASONS FOR
JUDGMENT
MURPHY J:
INTRODUCTION
- In
this application the applicants, Katherine Prygodicz, Elyane Porter, Steven
Fritze, Felicity Button, Shannon Thiel and Devon Collins,
seek court approval
under s 33V of the Federal Court of Australia Act 1976 (Cth) (the
FCA) of a proposed settlement of a class action they have brought against
the respondent, the Commonwealth of Australia (the Commonwealth).
- The
class action arose out of the Commonwealth’s use of an automated
debt-collection system between July 2015 and November 2019,
intended to recover
social security payments that had been overpaid, colloquially known as the
“Robodebt system”. In summary, the system attempted to
identify overpayments of social security benefits in a period under review
(review period) through data matching. That was automatically conducted
by:
(a) utilising PAYG income information of social security
recipients kept by the Australian Taxation Office (ATO data) and evenly
apportioning that income over fortnightly increments in the review period (in a
process the parties called “income
averaging”) to determine that
person’s notional or assumed fortnightly income; and
(b) comparing the notional or assumed fortnightly income of the
person with the actual fortnightly income information provided by the
person (which was the basis upon which the level of social security payments had
been
assessed and paid to the person);
to determine whether the person had been overpaid social security benefits, and
where that had occurred, to raise and recover that
asserted debt.
- The
proceeding advances two broad claims against the Commonwealth:
(a) a restitutionary claim for unjust enrichment
(principally monies had and received) alleging that the Commonwealth was
unjustly
enriched by its receipt or recovery of wrongly asserted debts from the
applicants and group members; and
(b) a common law tort claim in negligence for damages for economic loss suffered
by the applicants and group members as a result
of the Commonwealth’s
alleged breach of its duty of care in raising and recovering wrongly asserted
debts, together with damages
for “stress, anxiety and stigma”
associated with the request or demand for, and threatened or actual, recovery of
their
asserted debts (distress damages).
- In
the course of the proceeding the Commonwealth admitted that it did not have a
proper legal basis to raise, demand or recover asserted
debts which were based
on income averaging from ATO data. The evidence shows that the Commonwealth
unlawfully asserted such debts,
totalling at least $1.763 billion against
approximately 433,000 Australians. Then, including through private debt
collection agencies,
the Commonwealth pursued people to repay these wrongly
asserted debts, and recovered approximately $751 million from about 381,000
of
them.
- 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,
sessional, or intermittent and may not continue throughout the year. Where
a
social security recipient does not earn a constant fortnightly wage, does not
earn income every fortnight, or only works for intermittent
periods in a year,
their notional or assumed fortnightly income based on income
averaging is unlikely to be the same as their actual fortnightly income.
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. Yet, in the absence of further information from social
security
recipients, that is the basis upon which the automated Robodebt system
raised and recovered debts for asserted overpayments of social
security
benefits.
- It
is, however, one thing for the applicants to be in a position to prove that the
responsible 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. It is quite another thing to
be able to prove to 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.
- It
is fundamental that before the state asserts that its citizens have a legal
obligation to pay a debt to it, and before it recovers
those debts, the debts
have a proper basis in law. The group of Australians who, from time to time,
find themselves in need of support
through the provision of social security
benefits is broad and includes many who are marginalised or vulnerable and
ill-equipped
to properly understand or to challenge the basis of the asserted
debts so as to protect their own legal rights. Having regard to
that, and the
profound asymmetry in resources, capacity and information that existed between
them and the Commonwealth, 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.
- In
summary, the proposed settlement provides that the Commonwealth will, without
admission of liability:
(a) consent to the Court making declarations
(Declarations) which, in effect, provide that any decision by the
Commonwealth:
(i) that an applicant or group member owed a
debt under s 1223 of the Social Security Act 1991 (Cth) (the SSA)
because the person had obtained the benefit of a social security payment to
which they were not entitled, where the Commonwealth
relied solely on income
averaging from ATO data; and
(ii) did not have other evidence that the person was likely to have earned
employment income at a constant fortnightly rate during
the period covered by
the ATO income information;
was not validly made;
(b) not raise, demand or recover from any Category 1
Group Member or Category 2 Group Member (which categories I later explain) any
invalid debt as described in the Declarations; and
(c) pay $112 million inclusive of legal costs (Settlement Sum), which
after deduction of Court-approved legal costs (Distribution Sum), is to
be distributed to Category 2 Group Members and Eligible Category 3 Group Members
pursuant to a Court-approved Settlement
Distribution Scheme (SDS).
- The
proposed settlement is on top of an earlier announced Commonwealth program under
which it withdrew approximately $1.763 billion
in debts based on income
averaging from ATO data and promised to refund approximately $751 million it had
received or recovered from
social security recipients in relation to such debts
(Commonwealth-recovered amounts).
- The
materials indicate that the Commonwealth maintained the Robodebt system in the
face of approximately 29 decisions of the Administrative
Appeals Tribunal
(AAT) up to 30 May 2017, which rejected income averaging based on ATO
data as a basis for asserting a social security debt. Then, on
27 November
2019, in the “test case” of Amato v The
Commonwealth of Australia (Federal Court VID611/2019), the Commonwealth
consented to declarations to the effect that the debt in that case, raised based
on
income averaging from ATO data, was invalid. The financial hardship and
distress caused to so many people could have been avoided
had the Commonwealth
paid heed to the AAT decisions, or if it disagreed with them appealed them to a
court so the question as to
the legality of raising debts based on income
averaging from ATO data could be finally decided.
- The
result has been that, on top of the financial hardship, distress and anxiety
caused to a great many vulnerable people and the
costs to the public purse of a
huge Commonwealth program to identify the debts to be withdrawn and to refund
the Commonwealth-recovered
amounts, the Commonwealth has now agreed to pay a
further $112 million; to meet the substantial costs of the settlement
distribution
scheme to categorise eligible group members and to pay them a share
of that settlement; and to meet its own significant legal costs.
That has
resulted in a huge waste of public money.
- For
the reasons I explain, in my view it is clear that the proposed settlement is
fair and reasonable inter partes, that is, between the applicants and
group members on the one hand, and the Commonwealth on the other. I was though
troubled as
to whether the proposed settlement was fair and reasonable inter
se, that is, as between the different categories of group members.
- That
concern arises because, while the proposed settlement provides substantial
financial benefits to Category 2 Group Members and
Eligible Category 3 Group
Members and some benefit to Category 1 Group Members, it provides no financial
benefit to Ineligible Category
3 Group Members and Category 4 Group Members
(Ineligible Group Members) who comprise approximately 202,000 of the
about 648,000 group members. Yet Ineligible Group Members will also be bound by
the release
in the Settlement Deed and thus lose their rights (if any) to sue
for the claims made in the proceeding or claims arising out of
or related to the
subject matter of the proceeding, without receiving any corresponding benefit.
- Ultimately
I concluded that it is appropriate to approve the proposed settlement, albeit
with some changes to the settlement as initially
proposed, including to allow
the 680 group members who filed objections to approval of the proposed
settlement an opportunity to
opt out of the proceeding at this stage, if they
wish to do so.
- In
a case such as the present, in which a large number of group members will be
bound into the settlement but will receive no corresponding
financial benefit,
it is important that they understand why that result is appropriate. Out of a
need to fully ventilate those reasons
the judgment is longer than I would wish.
However, for those who do not wish to trudge through the judgment in its
entirety the
salient reasons can be summarised as follows.
- First,
the Court had the benefit of a confidential joint counsels’ opinion dated
9 April 2021 provided by Bernard Quinn QC, Georgina
Costello QC, Min Guo and
Andrew Roe of counsel, who appeared for the applicants (Counsels’
Opinion). The provision of the opinion required counsel to frankly and
candidly express their opinion as to the fairness and reasonableness
of the
proposed settlement, rather than advocating a position on behalf of their
clients. Counsel recommended that the Court approve
the proposed settlement.
It is appropriate to give significant weight to the Counsels’ Opinion, and
I have done so.
- Second,
the Court had the benefit of detailed submissions from Fiona Forsyth QC and
Eugenia Levine of counsel (the Contradictor), appointed by the Court to
represent group members’ interests. The Contradictor accepted that the
proposed settlement is
fair and reasonable as between the parties,
describing it as “a very favourable outcome”.
- The
Contradictor however submitted that the proposed settlement is not fair and
reasonable as between group members because Category 1 Group Members and
Ineligible Group Members will receive no financial benefit under the
proposed
settlement but will be bound by the release. The Contradictor contended that
the proposed settlement would only be fair
and reasonable as between group
members if Category 1 Group Members and Ineligible Group Members are permitted
to opt out of the
proceeding at this stage. I gave careful consideration to the
Contradictor’s submissions, and I largely accepted them. I
do not though
accept that the proposed settlement will only be fair and reasonable as between
all categories of group members unless
Category 1 Group Members and Ineligible
Group Members are given an opportunity to opt out of the proceeding at this
stage.
- In
summary:
(a) Category 1 Group Members cannot in my view succeed
in their unjust enrichment claims (or for negligently inflicted economic loss).
No debts were recovered from them by the Commonwealth. Therefore they have
suffered no economic loss and the Commonwealth has not
been unjustly enriched at
their expense. In those circumstances it is not unfair or unreasonable that
they will not receive a share
of the Distribution Sum;
(b) Category 2 Group Members and Eligible Category 3 Group Members have good
prospects of success in their unjust enrichment claims,
and it is fair and
reasonable that they receive substantial financial benefits under the proposed
settlement;
(c) Ineligible Group Members do not have debts that were raised based on income
averaging from ATO data; instead largely being assessed
from payslips, bank
statements and other information they provided. For them to succeed in their
unjust enrichment claims (and their
negligence claims) they must establish that
their debts were somehow “tainted” with illegality because the
(accurate)
income information upon which their debts were assessed (and then
recovered) was provided in response to a notice generated by the
Robodebt system
or in response to a debt based on income averaging from ATO data which was
previously raised. In my view their claims
have weak prospects of success and
are more likely than not to fail at trial. It is not unfair or unreasonable
that they will receive
no financial benefit under the settlement;
(d) the Contradictor submitted that, notwithstanding the weakness of Ineligible
Group Members’ claims, they should be seen
as having some value
such that Ineligible Group Members should receive some share of the Distribution
Sum. The evidence however shows that the
applicants’ lawyers strived to
obtain a measure of compensation for Ineligible Group Members, but the
Commonwealth refused
to meet that demand. The applicants’ lawyers having
been unable to negotiate any financial benefit for Ineligible Group Members,
the
Contradictor’s contention that they should have received some
benefit under the proposed settlement eludes the point. A negotiated settlement
which gave them some benefit was not available and
had their claims proceeded to
trial it is likely that they would have failed. Given the risks that Ineligible
Group Members’
claims faced I am not satisfied that the proposed
settlement is not fair and reasonable as between them and the other categories
of group members; and
(e) allowing any Category 1 Group Member or Ineligible Group Member who filed an
objection to the proposed settlement to opt out
should they so wish, including
those who were late in filing their objection, operates to improve the fairness
of the proposed settlement.
- Third,
I consider the negligence claims of the applicants and all categories of group
member to be weak. I doubt that the applicants can
establish the alleged duty
of care. But the negligence claims are something of a distraction because even
if (contrary to my view)
the negligence claims are treated as likely to succeed
at trial, they add little as they centrally concern the same losses as those
claimed in the unjust enrichment claims. To the extent that they extend beyond
the unjust enrichment claims by seeking distress
damages and aggravated and
exemplary damages those claims face significant uncertainty and are attended by
considerable risk.
- Fourth,
because at the point of settlement the Commonwealth had already refunded $707.9
million of the Commonwealth-recovered amounts, and
had promised to refund all
such amounts, the potential quantum of the claims in the proceeding largely
concerns the claims for interest
on the Commonwealth-recovered amounts, or for
the benefit the Commonwealth received by its use of the Commonwealth-recovered
amounts
(which the parties called “quasi-interest”). When
regard is had to the different methods by which interest or quasi-interest might
be assessed, and the risks those
claims face, the proposed settlement of $112
million inclusive of costs is a very favourable one.
- Fifth,
prior to the settlement approval hearing 680 group members filed objections to
settlement approval (objections) both within time and out of time. That
comprises only about 0.1% of the approximately 648,000 group members, but it is
not clear
whether all of the objections were intended as such. Taking into
account the objections that may not have been intended as such,
it appears that
less than 0.04% of group members filed objections.
- One
thing that stands out from the objections is the financial hardship, anxiety and
distress, including suicidal ideation and in
some cases suicide, that people say
they have suffered through the Robodebt system, and that many say they felt
shame and hurt at
being wrongly branded “welfare cheats”. Some of
the objections were heart-wrenching and one could not help but be touched
by
them. One bereaved mother told the Court that her son had committed suicide
after the Commonwealth demanded payment of a social
security debt which she says
he did not owe, some group members spoke of contemplating suicide, and many
spoke of suffering financial
hardship and serious anxiety or stress. It is
plain enough that many group members continue to feel a great deal of anguish,
upset
and anger at the way in which they or their loved ones were treated. Even
so, for the reasons I explain, the objections do not justify
refusing to approve
the proposed settlement.
- Sixth,
with the discrete improvements and clarifications agreed between the
Contradictor and the Commonwealth, I consider the system under
the proposed SDS
for categorising group members and distributing the Distribution Sum to Category
2 Group Members and Eligible Category
3 Group Members is fair and reasonable.
It provides for the Commonwealth to categorise the group members into the
categories under
the Settlement Deed which categorisation must be independently
verified by accounting firm KPMG (the Scheme Assurer) with Gordon Legal
representing group members’ interests in relation to any dispute about
categorisation. The calculation
of each person’s entitlement is to be
undertaken by the application of a simple interest formula based on the amount
of any
invalid debt recovered by the Commonwealth, and the length of time over
which the Commonwealth had the use of the money. The Scheme
Assurer has the
obligation to independently verify the calculation of claimants’
entitlements and the Commonwealth’s
payments of such entitlements. The
costs of the Scheme Assurer are being paid separately by the Commonwealth and
will not come out
of the Settlement Sum.
- Seventh,
Gordon Legal conducted the case on a no-win no-fee basis, and provided an
indemnity to the applicants against any adverse costs
order against them if the
case was unsuccessful. In my view the case could not have been brought without
the firm doing so. I doubt
that litigation funding would have been available
for the case and it is unlikely the case could have been brought without the
firm
taking on those risks. That is to the firm’s credit.
- I
appointed an independent Costs Referee to inquire into and to report as to the
reasonableness of Gordon Legal’s costs in the
proceeding and in respect to
its work under the SDS. I also appointed the Contradictor to represent group
members’ interest
in relation to the reasonableness of costs. The Costs
Referee assessed the applicants’ reasonable legal costs of the proceeding
at $8.4 million. Both the Contradictor and the Commonwealth submitted that it
is appropriate to adopt that assessment, and neither
the applicants nor Gordon
Legal opposed adoption. It is appropriate to adopt that assessment. $8.4
million may seem like a huge
or excessive amount for those uninitiated in
relation to the legal costs incurred in large, complex class action litigation.
But
such a view would be uninformed having regard to the careful scrutiny given
to the costs by the Costs Referee and the Contradictor
and I am satisfied that
amount is fair, reasonable and proportionate.
- In
relation to the costs likely to be incurred by Gordon Legal in the future in
performing its functions under the SDS, I take a different
view. On the basis
of assumptions made by Gordon Legal to the effect that approximately 40,000
group members are likely to contact
the firm and the time likely to be taken in
dealing with their queries and concerns, the Costs Referee estimated that Gordon
Legal’s
reasonable costs for such future work would be approximately $4.22
million. On that basis the Contradictor submitted it was appropriate
to now
approve that lump sum amount.
- In
my view the assumptions upon which that estimate are based are inherently
uncertain. At present one simply cannot know how many
group members are likely
to contact Gordon Legal. I accept that it is necessary to estimate and set
aside an amount of costs before
distributions can be made to group members, and
the assessment cannot be delayed for too long or it will delay distribution of
the
settlement monies. However, I am not prepared to accept the estimate as
sufficiently accurate at present. I have ordered the Costs
Referee to confer
with Gordon Legal and then to determine the best methods to assess the
reasonableness and proportionality of Gordon
Legal’s costs for performing
that work on an ongoing basis and to have those costs paid monthly or two
monthly, and to permit
the Costs Referee to make an updated and more accurate
estimate of the likely future costs:
- Finally,
for those perpetual critics of the Part IVA class action regime, the present
case is one more example where the regime has provided real, practical access to
justice. It has
enabled approximately 394,000 people, many of whom are
marginalised or vulnerable, to recover compensation from the Commonwealth
in
relation to conduct which it belatedly admitted was unlawful. The proposed
settlement demonstrates, once again, that, when properly
managed, our class
action system works.
- I
thank the parties’ lawyers for the competent and capable way in which they
conducted the case. Some of the legal issues in
the case were complex and
difficult, and the amount in dispute was large. The litigation was strenuously
contested yet the solicitors
and counsel for both sides conducted themselves
appropriately and responsibly while strongly representing their clients’
interests.
They did not get lost in the “fog of war” and were
ultimately able to reach a settlement which is a credit to their efforts.
- I
also thank the parties and the Contradictor for the high quality of the evidence
and written submissions filed in the settlement
approval application, upon which
I have directly drawn at some points.
THE EVIDENCE
- The
applicants relied upon the following material:
(a) the affidavits of Andrew Grech, a partner of Gordon
Legal, affirmed 25 November 2020, 2 December 2020, 9 April 2021, 16 April
2021,
22 April 2021 and 29 April 2021 and 20 May 2021 (the First, Second, Third,
Fourth, Fifth, Sixth and Seventh Grech Affidavits). The applicants
claimed legal professional privilege and made claims of confidentiality in
relation to parts of the Third, Fourth
and Seventh Grech affidavits which I
allowed after some reductions in those claims. The relevant annexures to those
affidavits include:
(i) the Deed of Settlement between the
parties (the Settlement Deed), and the execution pages of the
counterparts signed by the parties on various dates between 20 and 30 November
2020;
(ii) the confidential Counsels’ Opinion;
(iii) the various conditional costs agreements signed by each of the
representative applicants;
(iv) the supplementary report of Mr Dudman, the expert costs consultant engaged
by Gordon Legal, dated 16 April 2021;
(v) the Framework of Settlement Distribution (SDS Framework);
and
(b) the affidavit of Peter Gordon affirmed 9 April
2021.
The applicants filed short written submissions dated 9 April 2021, and made oral
submissions at the approval hearing.
- The
Commonwealth relied upon the following materials:
(a) three affidavits of Emma Gill, a senior executive
lawyer in the employ of the Australian Government Solicitor, the solicitors
for
the Commonwealth, affirmed on 20 April 2021, 30 April 2021 and 6 May 2021;
and
(b) the affidavit of Robert McKellar, acting General Manager of Debt &
Integrity Projects within Services Australia, affirmed
on 5 May 2021 which,
amongst other things, annexes the Implementation Plan for the Settlement
Distribution (Implementation Plan). Together, the SDS Framework and the
Implementation Plan comprise the
“SDS”.
The Commonwealth filed written submissions in respect to the application for
settlement approval dated 19 April 2021, the applicants’
reasonable legal
costs dated 30 April 2021, and the Contradictor’s submissions dated 5 May
2021; and made oral submissions
at the hearing.
- The
Contradictor filed written submissions dated 23 April 2021, and further
submissions in respect to the applicant’s legal
costs dated 30 April 2021,
and made oral submissions at the hearing.
- In
relation to legal costs, the following materials were before the
Court:
(a) the Costs Referee’s Report dated 1 April 2021,
and the Costs Referee’s Second Report dated 26 April 2021; and
(b) the report of Mr Dudman dated 31 January 2021, the supplementary report
dated 16 April 2021 and the further report dated 29 April
2021 (the
First, Supplementary and Third Dudman Reports).
THE ROBODEBT SYSTEM
- On
about 1 July 2015, through Services Australia, the Commonwealth introduced the
Robodebt system. Services Australia is the Executive
Agency, created as a
successor to the Department of Services Australia (formerly the Department of
Human Services) (Department), responsible for administering social
security payments under the SSA. At all relevant times the Department was
responsible for
the payment of social security payments under the SSA, doing so
through Centrelink.
- Under
the SSA the amount of any benefit that social security recipients are entitled
to receive is affected, amongst other things,
by income tests set out in Chapter
3. From July 2010, the income tests were prescribed to be applied to a
person’s income
calculated on a fortnightly basis, and thus, where a
person worked irregular hours or periods, the person’s entitlement to
a
social security benefit might vary from fortnight to fortnight. Social security
recipients were required to report their income
to Centrelink on a fortnightly
basis so that the correct amount of the relevant social security benefit could
be paid to them.
- The
Robodebt system was aimed at identifying and recovering overpayments of social
security benefits from social security recipients
and it was forecast to achieve
very substantial recoveries of such overpayments for the Commonwealth. As I
have said, the system
attempted to identify overpayments of social security
benefits in a review period through data matching, which was automatically
conducted by:
(a) utilising the PAYG income information of social
security recipients kept by the Australian Taxation Office and evenly
apportioning
that income over fortnightly increments in the review period (in a
process the parties called “income averaging) to determine
that
person’s notional or assumed fortnightly income; and
(b) comparing the notional or assumed fortnightly income of the
person with the actual fortnightly income information provided by the
person (which was the basis upon which the level of social security payments had
been
assessed and paid to the person);
to determine whether the person had been overpaid social security benefits, and
where that had occurred, to raise and recover that
asserted debt.
- Where
the comparison indicated an overpayment of social security payments to a person
during fortnightly periods in the review period,
a letter was automatically sent
to the person stating that the information received from the ATO was different
to that which the
person had told Centrelink, and telling the person that they
were required to confirm or update their income information within a
specified
period, and if they did not do so the Commonwealth would rely on the ATO income
information which might result in a debt
that the person would have to pay.
- If
by the specified date the person had supplied no or insufficient further
information, including payslips and bank statements, to
explain the discrepancy,
the Robodebt system made an assumption that the person’s previously
reported income was incorrect
and that the person had earned the amounts
indicated in the ATO income information in equal fortnightly amounts during the
relevant
period of employment (the Fortnightly Income Assumption). The
materials before the Court indicate that group members often experienced
substantial difficulties in producing pay slips,
statements by former employers
and bank statements for review periods that sometimes related to periods that
were some years earlier.
- If
the Robodebt system determined, based on the Fortnightly Income Assumption, that
the person was entitled to a lesser amount of
social security benefits for the
review period, the system sent the person a letter stating that they owed a debt
to the Commonwealth
in the amount specified (Asserted Overpayment Debt),
which was a notice for the purposes of s 1229(1) of the SSA. The letter advised
the recipient of the availability of rights of administrative merits review
pursuant to Parts 4 and 4A of the Social Security (Administration) Act
1999 (Cth) (the SSAA).
- If
the asserted debt was not repaid by the person within the period specified the
Commonwealth was able to require repayment of the
amount by a variety of
methods, including by garnishing tax returns, recovering monies from the
person’s bank account or commencing
legal proceedings against the person,
and to impose an additional amount by way of a statutory penalty.
THE PROCEEDING
The class
- The
applicants commenced the class action on 19 November 2019. The group
description in the Second Further Amended Statement of Claim
filed 17 September
2020 (2FASOC) defines the represented class as all persons (group
members):
(a) who at any time after 1 July 2010 received the
benefit of one or more of the following social security payments from the
Commonwealth:
Newstart Allowance, Youth Allowance, Disability Support Pension,
Austudy Allowance, Age Pension, Carer Payment, Parenting Payment,
Partner
Allowance, Sickness Allowance, Special Benefit, Widow A Allowance Payments and
Widow B Allowance Payments (Social Security Payments); and
(b) in respect of whom the Commonwealth, at any time after 1 July
2015:
(i) generated correspondence or other
notification referring to a difference between the income information obtained
by Centrelink
from the ATO and that used by Centrelink in assessing Social
Security Payment entitlements and requesting, requiring or reminding
the Social
Security Payment recipient to check, confirm or update employment income
information (Robodebt notification);
(ii) by or following the Robodebt notification, asserted an overpayment of one
or more Social Security Payments recoverable by the
Commonwealth as an Asserted
Overpayment Debt; and
(iii) requested or demanded repayment of any Asserted Overpayment Debt or part
thereof; and
(c) who:
(i) have paid, had paid on their behalf, or
had recovered from them, any Asserted Overpayment Debt or part thereof;
and/or
(ii) have not been informed by the Commonwealth that no recovery action will be
pursued in respect of their Asserted Overpayment
Debt.
The claims
- I
have previously set out the two broad claims made in the proceeding; (a) a
restitutionary unjust enrichment claim; and (b) a claim
in tort for negligently
inflicted economic loss.
- The
Originating Application filed in November 2019 sought the following
relief:
(a) declarations that:
(i) the Commonwealth does not have and has
not had any statutory power to raise and recover or seek to recover any Robodebt
raised
debts or impose any penalty thereon;
(ii) the Commonwealth was unjustly enriched by receipt of each Commonwealth
recovered amount and is liable to make restitution of
each Commonwealth
recovered amount to the applicants and group members;
(iii) the Commonwealth recovered amounts are moneys had and received by the
Commonwealth to the use of the applicants and group members
return of which they
are entitled to;
(iv) the Commonwealth owed and owes a duty of care to the applicants and group
members as alleged in the Statement of Claim; and
(v) the Commonwealth breached its duty of care to the applicants and group
members in the manner alleged in the Statement of
Claim.
(b) restitution of all of or the aggregate of
Commonwealth recovered amounts and interest earned by the Commonwealth thereon;
(c) return of all of or the aggregate of Commonwealth recovered amounts as money
had and received by the Commonwealth to the use
of the applicants and group
members;
(d) damages in negligence;
(e) interest pursuant to statute; and
(f) costs.
- By
an Amended Originating Application filed 1 July 2020 the applicants sought two
further declarations, being that:
(a) the Commonwealth does not have and has not had any
statutory power to use any income information provided by on behalf of an
applicant
or group member in response to a Robodebt notification to determine or
assert an Asserted Overpayment Debt; and
(b) the Commonwealth acted unlawfully in:
(i) using calculations or other outputs of
the Robodebt system to procure or compel the provision by any applicant or group
member
to the Commonwealth of income information and/or to generate or send to
any applicant or group member any Robodebt notification;
(ii) determining and asserting against any applicant or group member any
Asserted Overpayment Debt, or recalculation of it;
(iii) requesting or demanding repayment by any applicant or group member of any
Asserted Overpayment Debt, or recalculation of it;
and
(iv) recovering from any applicant or group member and retaining any Asserted
Overpayment Debt, or recalculation of it.
- In
the 2FASOC, the pleading was amended to add claims for aggravated damages in
respect of the negligence claims, and exemplary damages
in respect of both the
negligence claims and the unjust enrichment claims. The claims for aggravated
and exemplary damages are founded
in allegations that through identified
Ministers of the Crown and senior public servants the Commonwealth had actual
knowledge:
(a) of the vulnerabilities of some of the applicants and
group members;
(b) that the automated system for identifying asserted overpayments and raising
and recovering debts based on income averaging from
ATO data led to the
assertion of Asserted Overpayment Debts against the applicants and group members
for amounts which may not have
been, and in many cases were not, actually owed;
(c) that it had no statutory or other power to seek to recover such Asserted
Overpayment Debts; and
(d) that it was acting unlawfully in asserting such debts.
The categories of group members
- The
initial Statement of Claim and the Amended Statement of Claim did not break the
group members down into categories. Both the
applicants and the Commonwealth
said that it was not until about June 2020 that the parties came to understand
that there were several
different categories of group members within the class
description.
- On
1 July 2020, the applicants filed a Further Amended Statement of Claim
(FASOC) which described four categories of group members (at paragraph
41A). Paragraph 41A of the Defence describes those four categories
in different
terms, but the differences are not material. To avoid confusion I use the
categories as described in the Defence and
the Settlement Deed.
- “Category
1 Group Members” are those who have or had a debt that is alleged to
be an Asserted Overpayment Debt that was determined wholly or partially
based on
apportioned ATO PAYG income information, but from whom the Commonwealth has not
received or recovered any monies.
- “Category
2 Group Members” are those who have or had a debt that is alleged to
be an Asserted Overpayment Debt that was determined wholly or partially
based on
apportioned ATO PAYG income information, part or all of which has been received
or recovered by the Commonwealth.
- “Category
3 Group Members” are those who have or had a debt that is alleged to
be an Asserted Overpayment Debt, part or all of which has been received
or
recovered by the Commonwealth, that was initially determined based on
apportioned ATO PAYG income information, part or all of
which was paid to or
recovered by the Commonwealth, but which was later recalculated by the
Commonwealth in the context of a subsequent
review under s 126 of the SSAA based
on information provided by or on behalf of the group member (such as payslips
and/or bank statements) and not based
on apportioned ATO PAYG income
information.
- A
practical example of a Category 3 Group Member is a person who first received an
Asserted Overpayment Debt determined based on income
averaging from ATO data,
and then provided income information which the Commonwealth used to assert a
validly determined debt. The
applicants alleged that the circumstance of the
group member providing information which the Commonwealth then used against the
group
member “tainted” the subsequent debt with illegality, such
that it is not recoverable by the Commonwealth, notwithstanding
that the
ultimate debt when viewed in isolation was lawfully raised.
- Under
the proposed settlement Category 3 Group Members are divided into two
subcategories being: (a) Eligible Category 3 Group Members;
and (b) Ineligible
Category 3 Group Members. I later explain the basis for this
sub-categorisation.
- “Category
4 Group Members” are those who have or had a debt that is alleged to
be an Asserted Overpayment Debt, all, part or none of which has been received
or
recovered by the Commonwealth, that was wholly determined based on information
provided by or on behalf of the group member (such
as payslips and/or bank
statements) and not based on income averaging from ATO PAYG income information.
- A
practical example of a Category 4 Group Member is a person who first received a
Robodebt notification and provided income information
in response to the
notification, which allowed the Commonwealth to validly determine a debt. The
applicants alleged that the circumstance
of the group member providing
information which the Commonwealth then used against the group member
“tainted” the subsequent
debt with illegality.
Other relevant matters and steps
- On
17 September 2019, Gordon Legal announced that it was investigating a class
action against the Commonwealth in relation to the
Robodebt system. On 19
November 2019 the firm commenced the proceeding.
- On
27 November 2019, the Commonwealth consented to declarations in Amato
which stated that the demand by the Commonwealth for payment
of the alleged social security debt in that case was not validly made because
the
information before the decision-maker was not capable of satisfying the
decision-maker that the debt was owed by the applicant to
the Commonwealth
within the scope of ss 1222A and 1223(1) of the SSA in the amount of the alleged
debt. The alleged debt was a debt
raised wholly or partially based on income
averaging from ATO data.
- In
its Defence filed 14 February 2020, the Commonwealth did not contest that a
social security recipient’s notional fortnightly
income based on income
averaging from ATO data did not provide a legal basis for the Commonwealth to
assert that the person owed
an Asserted Overpayment Debt to the Commonwealth.
Even so, the Commonwealth denied that the applicants and group members had an
entitlement to restitution from the Commonwealth on the basis of unjust
enrichment or for compensatory damages in negligence.
- Amongst
other things, the Commonwealth asserted a “juristic reason” as a
defence to the unjust enrichment claims, and
contended that it permitted the
Commonwealth to retain the Commonwealth-recovered amounts. The juristic reason
alleged in relation
to the first, third, fourth and fifth applicants and an
unspecified number of group members was that those persons, in fact, had
a debt
payable to the Commonwealth pursuant to s 1223(1) of the SSA (even though the
original basis upon which the debt was asserted
was invalid, it being based on
income averaging from ATO data).
- In
relation to the negligence claim, the Commonwealth denied the existence of the
alleged duty of care.
- On
1 July 2020, the applicants filed the FASOC by which the sixth applicant was
joined to the proceeding. It set out four categories
of group members and
advanced different claims for the different categories. As I have said, the
claims in respect of Category 3
Group Members and Category 4 Group Members do
not rely on debts based on income averaging from ATO data.
- On
29 May 2020, the Hon Stuart Robert MP, the Minister for Government Services,
publicly announced that from July 2020 the Commonwealth
would refund all
repayments made on debts raised wholly or partially using income averaging of
ATO income information and any interest
charges and/or recovery fees paid on
related debts (the 29 May 2020 Announcement).
- On
1 July 2020, the Commonwealth publicly announced that:
(a) from 13 July 2020, it would write to people who were
eligible for a refund in respect of a debt raised wholly or partially using
income averaging of ATO income information and would start making refunds in
respect of such debts from 27 July 2020; and
(b) debts raised using averaging of ATO income information, in respect of which
no amount had been paid to the Commonwealth, would
be reduced to
zero,
(the 1 July 2020 Announcement). The evidence shows that shortly
thereafter the Commonwealth then commenced to act upon those
promises.
- On
17 July 2020, the Commonwealth filed its Defence to the FASOC. It referred to
the Minister’s public announcements on 29
May 2020 and 1 July 2020, and
admitted that the existence of a debt in a particular amount could not be
validly established for the
purpose of s 1223(1) of the SSA where the
decision that the person owed a debt in that amount depended, wholly or in part,
on income
averaging from ATO data, without other information capable of
supporting a conclusion that the social security recipient received
a consistent
fortnightly income over the relevant period.
- The
Commonwealth continued to deny that it was required to make restitution for
unjust enrichment. It continued to advance the “juristic
reason” as
to why it was entitled to retain any enrichment it had obtained by reason of its
recovery of the Commonwealth-recovered
amounts. It also continued to deny the
existence of the alleged duty of care.
- On
26 August 2020, the applicants sought to file the first proposed 2FASOC to
include claims for aggravated damages in negligence,
and for exemplary damages
in respect of the claims for unjust enrichment and negligence. These additional
claims were founded in
allegations that the Commonwealth had actual knowledge
that the Robodebt system of raising debts based on income averaging from ATO
data led to the assertion of debts for amounts which may not have been and in
many cases were not actually owed, knowledge that it
had no statutory or other
power to seek to recover such debts, and knowledge that it was acting unlawfully
in asserting such debts.
The proposed amendment was opposed by the
Commonwealth. Following a hearing on 31 August 2020, leave was refused to file
the first
proposed 2FASOC because it did not adequately plead or particularise
the serious allegations of knowledge of unlawfulness.
- On
14 September 2020, the applicants served a second proposed 2FASOC which further
pleaded and particularised the allegations that
through identified Ministers and
senior public servants the Commonwealth had actual knowledge that the Robodebt
system was unlawful.
The Commonwealth again opposed the amendment. Following a
hearing on 16 September 2020 leave was granted for the amended pleading:
Prygodicz v Commonwealth of Australia [2020] FCA 1454.
- The
Commonwealth unsuccessfully sought leave to appeal the decision to allow the
2FASOC: Commonwealth of Australia v Prygodicz [2020] FCA 1516 (Lee
J). Although Justice Lee refused the application for leave to appeal, his
Honour relevantly observed (at [14]-[15]:
The primary judge’s characterisation of the
pleading of actual knowledge of illegality by the Commonwealth as
“weak”
might be seen as an example of his Honour’s
characteristic polite understatement; it might be thought, albeit on an
impressionistic
basis, that aspects of the pleading suggest a real question
arises as to whether there currently exists, within the knowledge of
those
acting for the applicants, a reasonable basis for some of the allegations made.
One example will suffice.
The class action has been commenced on behalf of four categories of persons.
Each of whom, following what is described as a Robodebt
notification, received
an assertion of overpayment of one or more Social Security Payments recoverable
by the Commonwealth as a debt,
and defined in the pleading as an “Asserted
Overpayment Debt”. One category of the group members (and, apparently, the
third applicant in respect of what is described as the Second Debt Period) had
an Asserted Overpayment Debt that was neither wholly
nor partly a
Robodebt-raised debt at all, but simply had a debt determined by the
Commonwealth based upon income information provided subsequent to a
Robodebt notification. These are called the “Category 4 Group
Members” in the pleading. In respect
of these persons, even if there was
not a relevant Robodebt-raised debt, it is nevertheless alleged that the
Asserted Overpayment
Debt was determined and based upon income information
provided “in response to a Robodebt notification”: see 2FOSAC [sic]
[1(b)(ii)], [41A(d)] and [45]. As I understand the pleading (and my
understanding was not disputed by Senior Counsel for the applicants),
it is
said, even though there was no Robodebt-raised debt, given that a debt was
raised in the circumstances pleaded, the Commonwealth
was not only unlawfully
alleging a debt, but that by virtue of [70A(k)], the Commonwealth actually
knew it was acting unlawfully. Given the seriousness of the allegation and
the novelty as to this aspect of the argument as to illegality,
prima facie,
this seems to me to be a most remarkable allegation to be made on the basis of
the material identified.
(Emphasis in original.)
- The
case was listed for a two week trial to commence on 16 November 2020. On the
first day of trial the parties reached the in-principle
agreement which is now
the subject of the settlement approval application. The parties’
agreement was subsequently recorded
in the Settlement Deed.
The opt out notices
- Pursuant
to orders made 6 March 2020, by 25 May 2020 the Commonwealth was required to
send group members an opt out notice in the
form set out in Annexure B to those
orders. The orders fixed 4:00 pm on 29 June 2020 as the time and date by which
group members
could opt out of the proceeding. I am satisfied on the evidence
that group members were given notice of their right to opt out in
accordance
with the orders made on 6 March 2020.
- The
opt out notice informed group members as to the scope of the proceeding as
follows:
The Applicants allege in the statement of claim in this
proceeding that since 1 July 2015, Centrelink has sent to class members a
notification (by mail, email, ‘myGov’ or the ‘Centrelink
Express’ app) claiming that there was a difference
between the income
information obtained by Centrelink from the Australian Taxation Office and that
used by Centrelink in assessing
Centrelink payments, claiming that class members
had been overpaid, and demanded that the claimed overpayment had to be paid
back.
Class members have received these demands and have paid, had paid on their
behalf, or had recovered from them (by, for example, demands
from debt
collectors, or having had their tax returns garnished) amounts for these claimed
overpayments.
The Applicants allege that Centrelink had no right to demand or recover any part
of these overpayments, and that in doing so, the
Commonwealth has been unjustly
enriched, and has been negligent.
The Respondent to the class action is the Commonwealth of Australia, being the
legal entity responsible for Centrelink. The Respondent
admits that it has made
demands and recovered parts of some overpayments, but says that in some cases,
there was a valid basis known
as a ‘juristic reason’ to recover the
overpayments because the recipients were actually overpaid. The Applicants say
that there is no such thing as a ‘juristic reason’ in Australian
law. The Respondent denies that it was negligent as
alleged by the
Applicants.
The notice did not mention that the proceeding also sought damages for stress,
anxiety and stigma associated with the request or
demand for, and threatened or
actual, recovery of their asserted debts.
- The
opt out notice expressly informed group members that if they did not opt out
they would be bound by any outcome in the proceeding,
including if the
proceeding was not as successful as they wished. The notice said:
Class members are “bound” by the outcome in
the class action, unless they have opted out of the proceeding. A binding
result can happen in two ways being either a judgment following a trial,
or a settlement at any time. If there is a judgment or a settlement of a
class action class members will not be able pursue the same claims and
may not be able to pursue similar or related claims against the
Respondent in other legal proceedings. Class members should note that:
(a) in a judgment following trial, the Court will decide various factual
and legal issues in respect of the claims made by the Applicants and class
members. Unless those decisions are successfully appealed they bind the
Applicants, class members and the Respondent. Importantly,
if there are other
proceedings between a class member and the Respondent, it may be that neither of
them will be permitted to raise
arguments in that proceeding which are
inconsistent with a factual or legal issue decided in the class action.
(b) in a settlement of a class action, where the settlement provides for
compensation to class members it may extinguish all rights to
compensation which a class member might have against the Respondent which arise
in any way out of the events or transactions
which are the subject-matter of the
class action.
If you consider that you have claims against the Respondent which are based on
your individual circumstances or otherwise additional
to the claims described in
the class action, then it is important that you seek independent legal advice
about the potential binding
effects of the class action n before the
deadline for opting out...
(Emphasis in original.)
- In
relation to the binding nature of any outcome in the proceeding, the opt out
notice also said:
What will happen if you choose to remain a class
member?
Unless you opt out, you will be bound by any settlement or judgment of class
action. If the class action is successful you will
be entitled to share in the
benefit of any order, judgment or settlement in favour of the Applicants and
class members, although
you may have to satisfy certain conditions before your
entitlement arises. If the action is unsuccessful or is not as successful
as
you might have wished, you will not be able pursue the same claims and may not
be able to pursue related claims against the Respondent
in other legal
proceedings.
- Subsequently,
by orders made 17 August 2020, the Court varied its earlier opt out orders in
respect of the following two groups: (a)
persons who were not identified as
group members by the Commonwealth as at 25 May 2020, but who the Commonwealth
subsequently identified
as such; and (b) the representatives of deceased estates
of persons who were group members, where the Commonwealth held contact details
for those representatives. Pursuant to the August orders, by 24 August 2020,
the Commonwealth was required to send group members
in those two groups an opt
out notice in the form set out in Annexure A to those orders, being similar in
form to the earlier notice.
The orders fixed 4.00 pm on 14 September 2020 as
the time and date by which such group members could opt out of the
proceeding.
- I
am satisfied on the evidence that those group members were given notice of their
right to opt out of the proceeding in accordance
with the orders made 17 August
2020.
- In
my view the opt out notice informed group members in straightforward terms that
if they did not opt out of the proceeding and the
action was unsuccessful or not
as successful as they might have wished, they would not be able pursue the same
claims and may not
be able to pursue related claims against the Commonwealth in
other legal proceedings.
The Notice of Proposed Settlement
- Pursuant
to orders made 23 December 2020, by 25 January 2021 the Commonwealth was
required to send a Notice of Proposed Settlement
to group members (Notice of
Proposed Settlement). I am satisfied on the evidence that the Notice of
Proposed Settlement was sent to group members in accordance with the orders
of
23 December 2020.
- The
Notice of Proposed Settlement informed group members as follows:
CATEGORIES OF GROUP MEMBERS AND WHAT THE PROPOSED
SETTLEMENT MEANS
- If
the proposed settlement is approved by the Court, you will not need to repay any
‘invalid debt’. The Court will declare
debts to be invalid
where:
- the
rate of the social security payment for the group member was dependent upon the
person’s ordinary income on a fortnightly
basis;
- the
Commonwealth based its decision on an assumption (Assumption) that the
person’s ordinary income for a fortnight (relevant
fortnight) was greater
than the amount of ordinary income that the person had reported to the
Commonwealth for the relevant fortnight;
- the
Commonwealth relied solely on PAYG employment income data from the ATO (ATO
data) to make the Assumption and did not have evidence
that the person was
likely to have earned employment income at a constant fortnightly rate during a
period covered by the ATO data,
or other evidence to support the
Assumption;
- the
Assumption was based on an assessment of the person’s employment income
for the relevant fortnight derived from averaging
the ATO data, for a longer
period that included the relevant fortnight, as if the person had earned income
at a constant rate during
that period.
- If
the settlement is approved by the Court, $112 million will be made available to
be paid to eligible group members, less an amount
to be deducted for the
Applicants’ reasonable legal costs (as approved by the Court) in bringing
the proceeding and to pay
Gordon Legal for performing its functions under the
Settlement Distribution Scheme.
- Under
the proposed settlement, group members are in different categories. Not all
categories of group members will receive a payment.
A group member can be in
more than one category if they had more than one debt. People who will receive
a settlement payment are
known as ‘eligible group members’. Further
information about the categories and who will receive a settlement payment
is in
the Table at paragraph 15 below.
- If
you are an eligible group member, you may also have the amount you paid to
Services Australia refunded (if it has not been refunded
already) or no longer
be required to pay the balance of your debt or both.
- The
amount eligible group members receive will depend on when they paid an amount
towards an ATO income averaged debt and when that
money was paid back to them.
- This
means that eligible group members who paid back more and were without their
money for longer will receive a bigger settlement
payment than those who paid
back less and were without their money for a shorter time. The Table below
explains how the proposed
settlement will
operate.
|
Category
|
Definition of category
|
What the proposed settlement means for this
category
|
|
Category 1
|
You are in category 1 if you had a debt that was either
partly or wholly based on averaged ATO income information, but did not
pay any money to Centrelink in respect of the debt.
|
Not eligible for settlement
payment
Category 1 group members:
- will get the benefit of a
declaration made by the Court that they do not have to pay back a debt based on
averaged ATO income information
to Centrelink
- will not have to pay back the
debt based on averaged ATO income information to Centrelink; and
- will not
receive a settlement payment.
|
|
Category 2
|
You are in category 2 if you had a debt that was either
partly or wholly based on averaged ATO income information, and you paid back
some or all of the money to Centrelink.
|
Eligible for settlement payment
Category 2
group members:
- will get the benefit of a declaration made by the Court
that they do not have to pay back a debt based on averaged ATO income
information
to Centrelink
- will have their debt refunded (if it has not
already been refunded);
- will not have to pay back the balance of the debt
owing to Centrelink; and
- will receive a settlement payment.
|
|
Category 3
|
You are in category 3 if you had a debt that was
initially partly or wholly based on averaged ATO income information, but with
the
debt later being recalculated:
based on information (payslips or bank
statements) provided to Centrelink and
not on the basis of averaged ATO
income information
and paid back some or all of the money to
Centrelink.
|
Some members only eligible for settlement
payment
Category 3 group members:
- will get the benefit of a
declaration made by the Court that they do not have to pay back a debt based on
averaged ATO income information
to Centrelink (this will be relevant to the
initially calculated debt only, not the final recalculated debt);
- will
only receive a settlement payment if the amount they have paid to Centrelink for
a debt partly or wholly based on averaged
ATO income information was more than
the value of the recalculated debt using other information provided to
Centrelink
|
|
Category 4
|
You are in category 4 if you had a debt that was not
based on averaged ATO income information.
|
Not eligible for settlement payment
Category 4
group members:
- will not receive a settlement payment because their debt was
not based on averaged ATO income information.
|
- The
Notice of Proposed Settlement also informed group members as follows:
- An
independent organisation will check that Services Australia correctly
categorises group members and pays group members the right
amount. Gordon Legal
will also be told about how Services Australia has categorised group members and
will have an opportunity to
check that the categorisation is correct. If the
Court approves the settlement, group members will be told if they are an
eligible
group member or not, and if they are an eligible group member, how
payments will be calculated.
- The
Notice of Proposed Settlement set out the process by which the Court would
decide whether to approve the proposed settlement.
It also explained that the
Court had appointed the Contradictor to represent the interests of group
members, and had appointed the
Costs Referee who was responsible for inquiring
into and reporting on the reasonableness of the legal costs proposed to be
deducted
from the Settlement Sum.
- In
relation to the right of group members to object to the proposed settlement, the
Notice of Proposed Settlement said the following:
IF YOU DON’T WANT TO OBJECT TO THE PROPOSED
SETTLEMENT
- There
is nothing you need to do if you don’t want to object to the
proposed settlement. If the settlement is approved, Services Australia will
notify you about the category you are in, the amount of any payment you will
get, and information about what to do if you don’t
agree with your
categorisation.
IF YOU WANT TO OBJECT TO THE PROPOSED SETTLEMENT
- If
you think you might want to object to the proposed settlement of the Class
Action, you may want to get independent legal advice
now (this can’t be
from Gordon Legal).
- If
you want to ask the Court not to approve the settlement, you must send a
completed copy of the attached Notice of Objection form
by 5 March 2021
either:
- by
email to the Victoria registry of the Federal Court of Australia at the email
address robodebt@fedcourt.gov.au; or
b. if you don’t have access to email,
by post to the postal address;
Victoria Registry
Federal Court of Australia
Owen Dixon Commonwealth Law Courts Building 305 William Street
Melbourne VIC 3000
- If
you want to, you can file with the Court any written submissions, which further
state the reasons why you object to approval of
the proposed settlement, and any
evidence upon which you may rely, by 19 March 2021. If you want to, you can also
file further submissions
after the Costs Referee’s report is available on
12 April 2021, doing so by 19 April 2021.
- Written
submissions and any evidence should be in approved Court forms. You might want
to get an independent lawyer to help you fill
these out.
- You
can attend (or send a representative to) the hearing 6 May 2021 when the Federal
Court will consider whether to approve the settlement
and you or your
representative may make oral submissions in support of your objection. The
hearing will take place at:
Federal Court of Australia
Owen Dixon Commonwealth Law Courts Building
305 William Street
Melbourne VIC 3000
- Information
about how to attend will be available on the Federal Court’s website, and
may include options to attend online or
by telephone.
- The
Notice of Proposed Settlement broadly informed group members of the effect of
the release to be provided under the proposed settlement,
as follows:
OTHER INFORMATION ABOUT THE PROPOSED
SETTLEMENT
- If
the Court approves the proposed settlement, group members won’t be able to
make the same legal claims made in this Class
Action in new proceedings, unless
the group member opted out of the Class Action.
- In
my view the Notice of Proposed Settlement gave group members timely notice of
the salient elements of the proposed settlement,
informed them that they had an
opportunity to take steps to protect their own position by objecting to court
approval if they wished
to do so, and informed them that they would lose their
rights (if any) to make the same legal claims if the settlement is approved.
As
I said previously, the opt out notice had earlier informed group members that if
they did not opt out of the proceeding and the
action was unsuccessful or not as
successful as they might have wished, they would not be able pursue the same
claims and may not
be able to pursue related claims against the Commonwealth in
other legal proceedings.
THE PRINCIPLES RELEVANT TO SETTLEMENT APPROVAL
- The
principles to be applied in a settlement approval application under s 33V of the
FCA are well-established. The central question
is whether the proposed
settlement is a fair and reasonable compromise of the claims of the applicants
and group members. That requires
consideration of whether the proposed
settlement is fair and reasonable, first, as between the applicants and group
members and the
respondent, and, second, as between the group members: Evans
v Davantage Group Pty Ltd (No 3) [2021] FCA 70 at [17] (Beach J);
Blairgowrie Trading Ltd v Allco Finance Group Ltd (Recs &
Mgrs Apptd) (In Liq) (No 3) [2017] FCA 330; (2017) 343 ALR 476 at [81]
(Beach J). The Court assumes an onerous and protective role in relation to
group members’ interests which is not unlike the
role the Court assumes
when approving settlements on behalf of infants: Australian Securities and
Investments Commission v Richards [2013] FCAFC 89 at [8] (Jacobson,
Middleton and Gordon JJ); Kelly v Willmott Forests Ltd (in
liquidation) (No 4) [2016] FCA 323; (2016) 335 ALR 439 at [62]
(Murphy J); Blairgowrie at [81]-[85]; Caason Investments Pty Ltd v Cao
(No 2) [2018] FCA 527 at [12] (Murphy J). The relevant principles were
usefully summarised by Moshinsky J in Camilleri v The Trust Company
(Nominees) Ltd [2015] FCA 1468 at [5].
- In
Botsman v Bolitho [2018] VSCA 278; (2018) 57 VR 68 at
[203]- [208] (Tate, Whelan and Niall JJA) the Victorian Court of Appeal
said:
[203] It is an essential starting point to identify the
settlement and its terms. It is commonplace that a deed of settlement may
address more than the settlement of the claims against the defendant and will
also deal with the distribution of settlement money,
including to a litigation
funder. The structure of sub-ss 33V(1) and (2) suggests that such payments may
be distributions of money
that has been paid under a settlement to which the
Court has given approval under s 33V(1). Those distributions are the subject of
separate Court approval under s 33V(2).
[204] The question of fairness interposes itself at various levels. Most
obviously, there will need to be consideration of the fairness
of a proposed
settlement sum.
[205] The Court is being asked to approve a compromise of litigation.
Inevitably, that will require an assessment of whether the
plaintiff is likely
to succeed in the action, the measure of damages that a successful judgment
would yield, the prospects of recovery,
and the expenditure in costs, time and
effort that would be required to bring the proceedings to a conclusion.
[206] That assessment does not involve a simple calculus but calls for matters
of judgment based on imperfect knowledge and is influenced
by the appetite for
risk. It will be informed by the complexity and duration of the litigation and
the stage at which the settlement
occurs. It is important to
acknowledge that it is the state of imperfect knowledge and the existence of
risks that will have likely induced
the settlement. It follows that those
matters should be accorded a degree of prominence in any assessment of the
reasonableness of
the settlement.
[207] Those considerations mean that there will rarely, or ever, be a single
correct settlement. Strategic decisions must be factored
into account but it is
not the role of the Court to second guess those decisions.
[208] The question of fairness will also be relevant to the distribution of the
settlement sum, particularly where, as is usually
the case, the group members
will receive less than their claimed losses and the costs of bringing the
proceeding (both in terms of
legal costs and funding costs) will need to be
accounted for. It follows that there will often be questions of fairness as
between
group members, particularly where some, but not all, of the group
members have funded the litigation or where it may be necessary
to apportion the
settlement sum between group members based on differences in their respective
claims.
(Citations omitted.)
- The
Court’s assessment as to whether the applicants and group members are
likely to succeed in their claims at trial, and as
to the quantum of the damages
they may obtain if they do succeed, involves the exercise of judgement based on
imperfect knowledge.
In making an assessment as to the reasonableness of the
proposed settlement the Court must take into account the appetite for risk
of
the applicants and/or the applicants’ lawyers. As I said in Kelly
at [74]:
It is established that the Court should not second-guess
the applicant’s lawyers as to whether the settlement ought to have
been
accepted, or to proceed as if it knows more about the actual risks of the
litigation than those lawyers. The Court takes the
applicant’s lawyers as
it finds them, recognising that different applicants and different lawyers will
have different appetites
for risk. The question is whether the proposed
settlement is within the range of reasonable outcomes, not whether it is the
best
outcome which the Court considers might have been won by better bargaining.
(Citations omitted.)
- The
factors stated in Williams v FAI Home Security Pty Ltd
(No 4) [2000] FCA 1925; (2000) 180 ALR 459 at [19]
(Goldberg J), now reflected in the Class Actions Practice Note (GPN-CA)
at 15.5, are a useful guide to the considerations relevant in deciding whether a
proposed settlement is fair and reasonable.
They include:
(a) the complexity and likely duration of the
litigation;
(b) the reaction of the class to the settlement;
(c) the stage of the proceedings;
(d) the risks of establishing liability;
(e) the risks of establishing loss or damage;
(f) the risks of maintaining a class action;
(g) the ability of the respondent to withstand a greater judgment;
(h) the range of reasonableness of the settlement in light of the best recovery;
(i) the range of reasonableness of the settlement in light of all the attendant
risks of litigation; and
(j) the terms of any advice received from counsel and/or from any independent
expert in relation to the issues which arise in the
proceeding.
THE PROPOSED SETTLEMENT
The key terms
- The
benefits accruing to different categories of group members are set out in cl
2.4.1 of the Settlement Deed. Clause 2.4.1 relevantly
provides among other
matters that, without admission of liability, the Commonwealth:
(1) will consent to the Court making Declarations in the
following form: cl 2.4.1(e):
In respect of asserted overpayment debts
raised against Representative Applicants and Group Members, the Court declares
that:
- A
decision that a Representative Applicant or Group Member owed the Commonwealth a
debt under s 1223 of the Social Security Act 1991, because the person had
obtained the benefit of a social security payment to which they were not
entitled, was not validly made where
all of the following apply:
- the
rate of the social security payment for the Representative Applicant or Group
Member was dependant upon the person’s ordinary
income on a fortnightly
basis;
- the
Commonwealth based its decision on an assumption (Assumption) that the
person’s ordinary income for a fortnight (relevant
fortnight) was greater
than the amount of ordinary income that the person had reported to the
Commonwealth for the relevant fortnight;
- the
Commonwealth relied solely on PAYG employment income data from the Australian
Taxation Office (ATO data) to make the Assumption
and did not have evidence that
the person was likely to have earned employment income at a constant fortnightly
rate during a period
covered by the ATO data, or other evidence to support the
Assumption;
- the
Assumption was based on an assessment of the person’s employment income
for the relevant fortnight derived from averaging
the ATO data, for a longer
period that included the relevant fortnight, as if the person had earned income
at a constant rate during
that period.
(2) will not demand, raise or recover from Category 1
Group Members and Category 2 Group Members any “invalid debt” as
described in the Declarations: cl 2.4.1(b).
(3) will pay to each Category 2 and Eligible Category 3 Group Members the
Distribution Sum, being the amount left from the Settlement
Sum of $112 million
after deduction of Court-approved legal costs, with each such group
member’s share to be determined in
accordance with the SDS;
(4) will pay Category 2 Group Members and Eligible Category 3 Group Members a
share of the Distribution Sum calculated by reference
to the amount of the money
received or recovered from them and the time they were without the money prior
to the amount being refunded;
and
(5) will refund to each Category 2 Group Member any debt raised using income
averaging from ATO data to the extent any such refund
has not already been made
90 Under the proposed settlement Category 3 Group Members are broken down
into two sub-categories:
(a) “Eligible Category 3 Group
Members”, being those for whom the validly recalculated debt (not
being based on income averaging from ATO data) is an amount less than the
amount recovered or received from them by the Commonwealth; and
(b) “Ineligible Category 3 Group Members”, being those for
whom the validly recalculated debt is equal to or more than the amount
recovered or received from them in relation to the initial
debt.
Only Eligible Category 3 Group Members, whose recalculated debt is less
than the amount of the invalidly raised debt the Commonwealth received or
recovered from the group member, will receive a share of the
Distribution Sum.
That is on the basis that they are the only Category 3 Group Members who have
suffered a loss by reason of the
initial wrongly asserted debt.
- Category
1 Group Members and Ineligible Group Members (that is, Ineligible Category 3
Group Members and Category 4 Group Members)
will not receive a share of the
Distribution Sum.
- In
return the Commonwealth will receive the benefit of the release in cl 2.2 of the
Settlement Deed. Clause 2.2.1 of the Settlement
Deed provides that, subject to
Court approval of the settlement:
...the Applicants on their own behalf and on behalf of
the Group Members release the Respondent and its Related Persons [defined to
mean past and present ministers, officers, employees, agents, professional
advisers, executors, administrators or assigns of a party
to the Settlement
Deed] from all Claims in the Proceeding, other than claims that arise under this
Deed (including the Settlement
Distribution Scheme).
The release is by all group members who have not opted out of the proceeding,
including Category 1 Group Members and Ineligible Group
Members.
The benefits and burdens of the proposed settlement for the
different categories of group members
Category 1 Group Members
- Category
1 Group Members are those whose debts were based on income averaging from ATO
data, but who have made no repayments of such
debts. The evidence shows that
there are approximately 52,000 Category 1 Group Members and the total value of
their debts is approximately
$268 million. As at 17 March 2021, the debts of
around 50,518 such group members had been withdrawn by the Commonwealth and that
process was ongoing.
- Category
1 Group Members will not receive a share of the Distribution Sum. The
Contradictor submitted that the proposed Declarations
and the Settlement Deed
(which provides that the Commonwealth will not demand, raise or recover from any
Category 1 Group Member
any invalid debt as described in the Declarations) have
little practical benefit for them because they get little more than what
had
already been promised to them by the Commonwealth. On that basis the
Contradictor contended that the proposed settlement is
not in their interests,
because they will be bound the release yet get little more.
- In
my view the Contradictor overstated the position. Although at the point the
settlement was reached the Commonwealth had publicly
announced that it would
withdraw all Asserted Overpayment Debts based on income averaging from ATO data,
in my view the Declarations
and the Settlement Deed provide some benefit for
Category 1 Group Members.
- First,
the Declarations provide that the Asserted Overpayment Debts of Category 1 Group
Members are invalid insofar as they were raised
based on income averaging from
ATO data. They achieve one of the key aims of the proceeding, being to ensure
that debts raised based
on income averaging from ATO data are declared invalid
by the Court. It is in the interests of Category 1 Group Members that the
Declarations be made.
- Second,
the evidence shows that there are (or were) approximately 52,000 people with
debts of approximately $268 million against which no
repayments have been made,
and who were eligible to have their debts withdrawn pursuant to the Commonwealth
announcements. The evidence
does not, however, show how many of those group
members had not yet had their debts withdrawn when the case settled on 16
November
2020. As at 17 March 2021 the debts of 50,518 such group members had
been withdrawn. On the assumption that approximately 10% to
15% of Category 1
Group Members had not yet had their debts withdrawn at the point of settlement,
there were at that time approximately
5,200 to 7,800 such group members with
debts of between $26.8 million and $40.2 million (on the rough and ready
assumption that debts
were evenly apportioned between group members). For those
group members the proposed Declarations and the relevant settlement term
provide
a means for them to legally enforce that entitlement in the event that their
debts were somehow overlooked in the Commonwealth
program or if the Commonwealth
altered its position. When it is all said and done the Commonwealth program was
a political promise,
which could later be changed or withdrawn. Further, even if
not changed it can be expected that the program will come to an end at
some
point. After the program comes to an end anyone who was somehow missed (because
for example they were overseas) may then be
unable to have their debt withdrawn
(or if they are a Category 2 Group Member or Eligible Category 3 Group Member to
have their debt
refunded). The advantage of the Declarations is that their debts
will be declared invalid in perpetuity.
- Third,
for many Category 1 Group Members the Declarations are likely to provide a sense
of vindication and “closure” through
the Court’s declaration
that their debts were unlawfully raised.
- Fourth,
the Declarations will mark the Court’s disapproval of the
Commonwealth’s conduct in invalidly raising Asserted Overpayment
Debts
based on income averaging from ATO data; and also inform the public more broadly
in that regard. It is in the interests of
Category 1 Group Members for the
Declarations to be made as they serve to vindicate their claims that it was
unlawful for the Commonwealth
to raise debts based on income averaging from ATO
data: see Australian Competition and Consumer Commission v Coles Supermarkets
Australia Pty Ltd [2014] FCA 1405 at [74]- [79] (Gordon J) and the cases
there cited.
- In
my view the proposed settlement does provide some benefits for Category 1 Group
Members in return for the release.
Category 2 Group members
- Category
2 Group Members are those whose debts were wholly or partially based on income
averaging from ATO data, and who have made
a repayment towards those debts. The
evidence shows that there are approximately 381,000 Category 2 Group Members
from whom Commonwealth
received or recovered approximately $751 million of such
debts. At the time the settlement was reached about $707.9 million had
been
refunded.
- For
the same reasons as in relation to Category 1 Group Members the Contradictor
contended that the Declarations provide little practical
benefit to Category 2
Group Members, as they provide for little more than what had already been
promised to them. For essentially
the same reasons as in respect of Category 1
Group Members, I do not accept that the Declarations are of little practical
benefit
to Category 2 Group Members. They:
(a) meet one of the keys aims of the proceeding and it
is in the interests of Category 2 Group Members that the Declarations are made;
(b) benefit Category 2 Group Members because at the point the settlement was
reached approximately $707.9 million had been refunded,
against a total of $751
million in Commonwealth-recovered amounts. Thus, about $43 million remained
outstanding to group members
at that point. For those Category 2 Group Members
who had not been provided with refunds at that point, the Declarations provide
a
means for them to legally enforce that entitlement in the event that their debts
were somehow overlooked in the Commonwealth program
or if the Commonwealth
altered its position;
(c) are likely to provide a sense of vindication and “closure”
through the Court’s declaration that their debts
were unlawfully raised;
and
(d) record the Court’s disapproval of the Commonwealth’s conduct and
inform the public in that regard.
- The
Contradictor did not though submit that the proposed settlement is not in the
interests of Category 2 Group Members; that could
not be so when the proposed
settlement provides them with substantial financial benefits. They will receive
a share of the Distribution
Sum calculated by reference to the amount of money
the Commonwealth received or recovered from them and the time they were without
the money prior to it being refunded.
Eligible Category 3 Group Members
- It
is not clear on the evidence how many Eligible Category 3 Group Members exist,
but in the course of the settlement approval hearing
the Commonwealth estimated
that there were approximately 13,000 such persons. I proceed on that
basis.
- For
the same reasons as in relation to Category 2 Group Members, the Contradictor
submitted that the Declarations provide little practical
benefit for Eligible
Category 3 Group Members. I do not accept that for essentially the same reasons
as apply to Category 2 Group
Members.
- The
Contradictor did not submit that the proposed settlement is not in the interests
of Eligible Category 3 Group Members. Again,
that could not be so because they
will receive substantial financial benefits under the proposed settlement. They
will receive a
share of the Distribution Sum calculated by reference to the
amount of money the Commonwealth wrongly received or recovered from
them (over
and above their validly recalculated debt) and the time they were without the
money prior to it being refunded.
Ineligible Group Members
- As
explained above, “Ineligible Group Members” comprises Ineligible
Category 3 Group Members and Category 4 Group Members.
- Ineligible
Category 3 Group Members do not receive a share of the Distribution Sum and do
not get the benefit of the Declarations.
That is on the basis that their debts
have been recalculated on a valid basis, which debt is equal to or more than the
invalid debt
that the Commonwealth received or recovered from them, such that
the Commonwealth can no longer be said to have received or recovered
from them
an invalid debt based on income averaging from ATO data. As their recalculated
debts are not based on income averaging
from ATO data they will remain liable to
pay such debts.
- Category
4 Group Members do not receive a share of the Distribution Sum and do not get
the benefit of the Declarations. That is on
the basis that they never had a
debt determined based on income averaging from ATO data.
- The
Contradictor contended that the proposed settlement is not in the interests of
Ineligible Group Members because they receive no
financial benefit but are
burdened with the release.
- In
response the applicants contended that Ineligible Group Members do receive some
benefit under the proposed settlement. They noted,
and I accept, that the
categories of group members in the proceeding bear no relationship to the way
the Services Australia’s
customer information is recorded or its systems
are structured. To categorise group members into the four categories in the
proceeding
requires analysis and manual inspection of records, which is time
consuming and expensive. Outside of the requirements of the SDS
no such
categorisation is likely to be undertaken. The applicants contended, and I
accept, that the evidence tends to show that
many group members do not
understand what category they fall into nor the basis upon which any such
categorisation would be made;
whether they are entitled to a refund or to have
their debts withdrawn under the Commonwealth program; or whether they should be
entitled to share in the Distribution Sum. They also submitted, and I accept,
that the evidence tends to show that many group members
have little trust that
Centrelink will properly or accurately categorise them or adequately explain the
basis upon which they have
done so.
- On
that basis the applicants contended that under the proposed settlement
Ineligible Group Members will receive the benefit of a transparent
process with
independent oversight to assess what category they fall into, and therefore
whether they have any entitlement under
the proposed settlement. At the end of
that process they will know where they stand and understand the basis upon which
any such
decision was made. While that asserted benefit can be criticised as
not amounting to much, I accept that it has some value to Ineligible
Group
Members.
WHETHER THE PROPOSED SETTLEMENT IS FAIR AND REASONABLE
- For
the reasons I now explain, I am well-satisfied that the proposed settlement is
fair and reasonable as between the parties. Whether the proposed
settlement is fair and reasonable as between the different categories of group
members
is more difficult, but ultimately I am satisfied that it is.
- The
following matters are important to my views in this regard.
Counsels’ Opinion
- The
Counsels’ Opinion was prepared by the senior and junior counsel briefed
for the applicants in the proceeding, provided on
the basis that counsel
candidly and frankly disclose the factors material to the decision to recommend
the settlement for approval
by the Court. I cannot go into the detail of
Counsels’ Opinion as it is confidential. That confidentiality is
important because
counsel frankly appraise the relative strengths and weaknesses
of the applicants’ claims in circumstances where settlement
approval
cannot be taken as a given. If Counsels’ Opinion were not kept
confidential, and the settlement approval application
was refused, the
applicants and group members would be disadvantaged in any negotiations for
another settlement and/or in the conduct
of any trial. It must suffice to note
that Counsels’ Opinion addressed the fairness and reasonableness of the
proposed settlement
both as between the parties and as between group members by
reference to the complexity and likely duration of the litigation, the
reaction
of the class to the settlement, the stage of the proceedings, the risks of
establishing liability for each of the causes
of action, the risks in relation
to quantum, and the reasonableness of the settlement in light of the attendant
litigation risks,
and recommended that the Court approve the settlement as fair
and reasonable. The authorities provide that it is appropriate to
give
significant weight to Counsels’ Opinion and I have done so.
The Contradictor’s submissions
- The
Contradictor made detailed written and oral submissions which comprehensively
addressed the salient issues in the application.
It is plain from those
submissions that the Contradictor conscientiously represented the interests of
group members. The careful
and comprehensive approach the Contradictor took
gave me confidence in reaching the conclusions that I have.
- I
accept the Contradictor’s submission that the proposed settlement is fair
and reasonable as between the applicants and group
members and the Commonwealth.
I do not however accept that the proposed settlement is only fair and reasonable
as between group members
if Category 1 Group Members and Ineligible Group
Members are now permitted to opt out of the proceeding should they wish to do
so.
- In
passing, I should deal with the Contradictor’s submission that by a media
release on 16 November 2020 Gordon Legal suggested
that the value of the
proposed settlement was approximately $1.2 billion. The media release relevantly
said:
The settlement reached with the Commonwealth of
Australia means that if approved by the Court, since the commencement of the
Robodebt
Class Action, more than $1.2 billion in financial benefit will have
been provided to approximately 400,000 group members.
...
The total financial outcome achieved is made up as follows:
- The Commonwealth has today agreed to pay $112 million in compensation to
approximately 400,000 eligible individual Group Members,
including legal
costs;
- The Commonwealth is repaying more than $720 million in debts collected from
Group Members invalidly and will continue to provide
refunds;
- The Commonwealth has agreed to drop claims for approximately $398 million in
debts it has invalidly asserted against group members
of the class
action;...
- The
Contradictor contended that the press release obscured the fact that, as at the
date of settlement, the Commonwealth had already
announced and embarked on a
program to withdraw debts based wholly or partially on income averaging from ATO
data, and to refund
any such debts which had been recovered from them.
- The
evidence shows that, at the time the proceeding was commenced, the claims in the
proceeding had a monetary value of at least $1.763
billion, being the amount of
the Asserted Overpayment Debts which the Commonwealth raised based on income
averaging from ATO data.
It sought declarations that those debts be declared
invalid, and the return of the Commonwealth-recovered amounts to the applicants
and group members, which the evidence indicates total at least $751
million.
- The
monetary value of the principal claims for relief was, though, substantially
reduced when the Commonwealth made the 29 May and
1 July 2020 Announcements,
under which it promised to withdraw all debts based on income averaging from ATO
data and refund all such
Commonwealth-recovered amounts. Between July 2020 and
the settlement in November 2020, the Commonwealth performed the promises it
had
made, and was continuing to do so.
- As
a result, at the time the settlement was reached, the monetary value of the
applicants’ and group members’ unjust enrichment
claims had been
reduced to the claims for interest or quasi-interest earned on the
Commonwealth-recovered amounts during the period
the Commonwealth held that
money. The Contradictor estimated those claims to have a potential quantum of
between approximately $39
million and $194 million.
- It
can readily be accepted that the monetary value of the proposed settlement is
not $1.2 billion, but the media release Gordon Legal
did not say that in terms.
It is unnecessary to determine what representations may have been conveyed by
the media release because
nothing turns on it. It is appropriate to assess the
fairness and reasonableness of the proposed settlement having regard to the
benefits provided under it, not by reference to any other benefits the
litigation may have generated for the applicants and group
members. But I do
not see the Commonwealth’s decision to reverse its previous position and
to withdraw all debts based on
income averaging from ATO data and refund all
Commonwealth-recovered amounts as being unrelated to the class action. Of
course,
I cannot know what lay behind the Commonwealth’s decision to
reverse its position, but it is open to infer that the Commonwealth’s
view
as to the applicants’ prospects of success on the claims in the class
action, the pending mediation and the approaching
hearing date were material to
the decision. I am not persuaded it was misleading for Gordon Legal to say that
“the total financial
outcome” for approximately 400,000 group
members through the proceeding (as distinct from through the proposed
settlement)
was more than $1.2 billion.
The release
- Clause
2.2.1 of the Settlement Deed releases the Commonwealth from “all Claims in
the proceeding. “Claims in the proceeding”
is defined to
mean:
...a claim made in the Proceeding or arising out of or
in relation to the subject matter of the Proceeding, but does not include a
claim that arises from rights under this Deed (including the Settlement
Distribution Scheme).
- The
release in cl 2.2.1 is limited by a carve-out in cl 2.2.2, which states:
The release provided by the Applicants and Group Members
in clause 2.2.1 does not affect in any way a Group Member’s right or
ability to:
- enquire
about, object to, or challenge a debt decision of the Respondent that is not the
subject of the Proceeding; and
- enquire
about, object to, or challenge a decision of the Respondent with respect to his
or her entitlement to any social security
payment.
- In
the settlement approval hearing, in response to concerns about the ambiguity of
the carve out, the Commonwealth offered the following
undertaking:
The respondent undertakes to the Court that the intended
operation and interpretation of clauses 2.2.1 and 2.2.2 of the Settlement
Deed,
when read together, is that:
- Group
Members are precluded from objecting to or challenging a debt decision that was
the subject of the proceeding if the nature
of their objection or challenge is
of the same nature as the claims made in the proceeding; however,
- Group
Members are not precluded from enquiring about, objecting to or challenging
(including by exercising their statutory rights
of review) debt decisions which
were the subject of the proceeding if the basis of their enquiry, objection or
challenge is different
in nature to the claims made in the
proceedings.
The proposed settlement is approved on the basis of this undertaking, as
recorded in the orders.
- The
meaning of the phrase “a claim made in the Proceeding” in the
release is plain. It can only mean the common claims
based in unjust enrichment
and for negligence advanced by the applicants on their own behalf and on behalf
of the group members.
- The
meaning of a claim “arising out of or in relation to the subject matter of
the Proceeding” is not as clear, particularly
the scope or extent of the
phrase “in relation to”. The breadth of this phrase gave rise to a
concern on my part that
the release might purport to effect a release of group
members’ non-common claims based in their individual circumstances.
Such
a release would be impermissible as the applicants do not have representative
authority under Part IVA of the FCA beyond the scope of the common claims under
s 33C. The applicants represent group members “only with respect to
the
claim the subject of that proceeding, but not with respect to their individual
claims”: Timbercorp Finance Pty Ltd (in liquidation) v Collins;
Timbercorp Finance Pty Ltd (in liquidation) v Tomes [2016] HCA 44; (2016)
259 CLR 212 at [39], [49], [53]-[54] (French CJ, Kiefel (as her Honour then
was), Keane and Nettle JJ), [122] and [141]-[142] (Gordon J); Dyczynski v
Gibson [2020] FCAFC 120; (2020) 381 ALR 1 at [96], [106(a)], [201],
[249]-[251] (Murphy and Colvin JJ), at [395]-[396] (Lee J).
- As
Gaudron, Gummow and Hayne JJ observed in Mobil Oil Australia Pty Ltd v State
of Victoria [2002] HCA 27; (2002) 211 CLR 1 at [34], what is decided in a
class action is “the claims that are made, or could be made,
against the defendant by all those in the “class” or
“group” that is identified in the proceeding”
(emphasis
added). Accordingly it is only appropriate to approve the proposed settlement
on the basis that the release does not go
beyond the common claims of the
applicants and group members which are or could have been advanced in the
proceeding, as the applicants’
authority to provide a release does not
extend beyond that.
- The
scope of the carve-out in cl 2.2.2 is somewhat unclear, but that concern was
addressed to an extent by the undertaking the Commonwealth
provided. The
undertaking provides that group members are precluded from challenging a debt
decision only if the basis of their
objection or challenge is of the same nature
as the claims made in the proceeding. That is, if the challenge is based in an
assertion
that the debt was raised based on income averaging from ATO data, or
based on information provided in response to a Robodebt notification
or a
notification of a debt based on income averaging from ATO data.
- I
do not purport to decide any question that may arise in other subsequent
proceedings as to whether any particular group member’s
claim for damages
for personal injury arising from the Commonwealth’s assertion or recovery
of a debt based on income averaging
from ATO data (or alternatively based on
information provided in response to a Robodebt notification or notification of a
debt based
on income averaging from ATO data) is in fact precluded by the
release. But for the purposes of the settlement approval application
I proceed
on the assumption that the release will preclude group members from making such
a claim. For the reasons I set out, I do
not consider that the release means
that the proposed settlement is not fair and reasonable as between the parties
or as between
group members.
The complexity and likely duration of the litigation
- I
have previously outlined the claims in the proceeding, the nature of the relief
sought, and the steps taken in the proceeding and
I need not do so again. The
quantum of the amount in dispute is large, the case having a monetary value of
approximately $1.763
billion at its commencement. Even after the Commonwealth
had withdrawn all debts based on income averaging from ATO data and refunded
all
Commonwealth-recovered amounts, the claims for interest or quasi-interest have a
value estimated by the Contradictor at between
approximately $39 million and
$194 million.
- The
proceeding was brought on for final hearing within one year of being filed, and
it involved a substantial and expedited discovery
process, including disputed
claims for legal professional privilege and public interest immunity. Discovery
was still proceeding
as the hearing date approached.
- The
applicants and group members claim aggravated and exemplary damages in the
negligence claims, and exemplary damages in the unjust
enrichment claims,
founded in allegations that the responsible Ministers and senior public servants
actually knew that the Commonwealth had no statutory or other power to
seek to recover debts based on income averaging from ATO data, and that
the
Commonwealth was acting unlawfully in asserting such debts. Those are serious
allegations and they are strenuously denied.
- Because
the applicants’ case is primarily based in documents discovered by the
Commonwealth the factual substratum of the case
is unlikely to be contentious,
but the proceeding raises a number of novel or contentious questions of law and
is therefore legally
complex. These include questions as to:
(a) the existence of a novel duty to exercise reasonable
care in the performance of the relevant Commonwealth-controlled functions
under
the SSA;
(b) the existence of a “juristic reason” for the Commonwealth to
retain so much of the Commonwealth-recovered amounts
as the Commonwealth
believes were “in fact” owed by them under other debts to the
Commonwealth;
(c) the availability of a claim for exemplary damages in an unjust enrichment
claim and for both exemplary and aggravated damages
in a tortious claim in
negligence;
(d) the contention that the debts of Ineligible Group Members, which were not
based on income averaging from ATO data, were somehow
“tainted” with
illegality;
(e) the availability of a claim for damages for stress, anxiety and stigma in
the absence of evidence of any recognised psychiatric
injury or condition;
and
(f) the availability of a claim for distress damages in a tortious claim in
negligence for economic loss.
The applicants filed an outline of written submissions for trial running to 148
pages in relation to these issues, and the Commonwealth
filed an outline of
written submissions running to 96 pages.
- Having
regard to the novelty of the issues in the proceeding and the quantum at stake,
whichever way the decision went on some of
those issues at trial there is a
likelihood that the unsuccessful party will appeal. An appeal would add at
least a further year
before the case could be concluded and some of the issues
(including the existence of the alleged duty of care, the availability
of the
juristic reason defence to the unjust enrichment claims, and the availability of
distress damages in a claim in negligence
for economic loss) might result in an
application for special leave to the High Court. There was a possibility that
this would further
delay any resolution of the dispute. It is in the interests
of group members to receive a fair settlement as early as possible.
This
consideration points in favour of approving the settlement.
The stage of the proceedings at which settlement was
reached
- The
proceeding was listed for trial commencing on 16 November 2020 and settled on
the first day. The evidence shows that the parties
participated in a mediation
on 4 and 5 June 2020 and had continued to negotiate thereafter. By the time
settlement was reached the
applicants had the benefit of substantial discovery,
had filed their lay and expert evidence, and the parties had the benefit of
understanding how the evidence was said to support a claim that through the
responsible Ministers and senior public servants the
Commonwealth actually knew
that it was unlawful to raise debts based wholly or partially on income
averaging from ATO data. Both
parties had filed lengthy opening submissions.
- The
parties and their lawyers were in a position to make a well-informed assessment
of the strengths and weaknesses of their respective
cases on liability and
quantum; the costs likely to be incurred by proceeding to trial, and of the
risks of appeal on the contentious
issues. These considerations also point in
favour of approving the settlement.
The risk of establishing liability
- It
is necessary to understand that in setting out the risks of establishing
liability (and also in relation to the risks in establishing
quantum) I do not
purport to decide any question or issue regarding the respective strengths and
deficiencies in the parties’
cases in the proceeding. My remarks as to
the prospects of success on liability (and quantum) are merely in aid of setting
out why
I consider the proposed settlement to be fair and reasonable.
The unjust enrichment claims
- Broadly,
for the applicants and Category 2 Group Members and Eligible Category 3 Group
Members to succeed in their unjust enrichment
claims, they must establish
that:
(a) the Commonwealth has been enriched by the recovery
or receipt of monies;
(b) the receipt or recovery of those monies by the Commonwealth was at the
expense of the applicants’ and group members;
(c) the receipt occurred in circumstances where it would be unjust for the
Commonwealth to retain the enrichment (sometimes called
an “unjust
factor”); and
(d) the claim is not subject to a defence:
Mann v Paterson Constructions Pty Ltd [2019] HCA 32; (2019) 267 CLR 560
at [212]- [213] (Edelman J).
- Subject
to a defence being made out by the Commonwealth, if the applicants prove the
first three elements they will be entitled to
an order for restitution,
requiring the reversal of the transfer of value received by the Commonwealth so
as to restore the parties
to the status quo ante, being their
pre-transfer position, inclusive of the transfer of the benefit derived or
obtained by the Commonwealth from its use
and retention of the monies.
- There
is some confusion in the 2FASOC in relation to the unjust enrichment claims.
The 2FASOC is pleaded on the basis that there
are a variety of claims available
to the applicants under the heading of unjust enrichment. In the alternative,
the applicants plead
a distinct or separate claim for monies had and received.
Then, in opening submissions for trial, the applicants appear to articulate
that
what were pleaded as individual alternative claims for unjust enrichment in the
2FASOC are in fact alternative unjust factors
giving rise to a right to
restitution. These unjust factors are that the Commonwealth was enriched:
(a) without lawful basis - as the asserted debts were
recovered from the applicants and group members ultra vires and
unlawfully, as there was no lawful basis for the Commonwealth to raise and
recover them;
(b) by reason of a mistake of law - as the applicants and group members were
mistaken as to their legal obligation to repay or have
recovered from them the
amounts received by the Commonwealth;
(c) on “a basis that failed” - as the basis upon which monies were
received by the Commonwealth was not satisfied;
(d) by “compulsion or duress colore officii” - as
illegitimate pressure was applied, by apparent or claimed authority of the
State, upon the applicants and group members
that caused or contributed to their
decision to pay money to the Commonwealth; and
(e) by unlawful conduct - as the Commonwealth was enriched in consequence of its
breach of a duty of care said to be owed to the
applicants and group
members.
- It
should be kept in mind that unjust enrichment is a unifying legal concept which
illuminates why the law recognises, in a variety
of distinct categories of case,
an obligation on the part of the defendant to make fair and just restitution for
a benefit derived
at the expense of the plaintiff: Pavey v Matthews
[1987] HCA 5; (1987) 162 CLR 221 at 256-257 (Deane J); Muschinski v Dodds
[1985] HCA 78; (1985) 160 CLR 583 at 617 (Deane J). To my mind the monies had and received
claim sits within the concept of unjust enrichment, not as an alternative
claim.
What the applicants pleaded as “claims” in unjust enrichment are
better understood as unjust factors within the
monies had and received claim,
which together or severally would have, if proven, provided a proper basis to
require the Commonwealth
to make restitution of the value of the benefit it held
to the detriment of the applicants and Category 2 Group Members and Eligible
Category 3 Group Members. For convenience, when I refer to the unjust
enrichment claims of the applicants and group members I mean
their monies had
and received claim, as that is the better prism through which to view their
claims.
- Save
in relation to the sixth applicant and Category 4 Group Members the Commonwealth
conceded the first two elements of the unjust
enrichment claim, but it denied
the existence of any “unjust factor” which would provide a
principled ground for recovery.
- In
my view the applicants and group members have good prospects of making out the
money had and received claim on the basis that the
Asserted Overpayment Debts
were recovered from the applicants and group members ultra vires and
unlawfully, as there was no lawful basis for the Commonwealth to raise and
recover them, or, alternatively, on the basis of a
mistake of law. Essentially
that is because, at least in respect of the ultra vires claim, it is
likely that the Court would hold that the reformulation of the law in
Woolwich Equitable Building Society v Inland Revenue
Commissioners [1993] AC 70; [1992] 3 All ER 737 applies in Australia.
- In
Woolwich the House of Lords held that money paid by a citizen to a public
authority in the form of taxes or other levies paid pursuant to
an ultra
vires demand by the authorities is prima facie recoverable as of
right. Lord Goff observed at 171-172:
The revenue has made an unlawful demand for tax. The
taxpayer is convinced that the demand is unlawful, and has to decide what to
do.
It is faced with the revenue, armed with the coercive power of the state,
including what is in practice a power to charge interest
which is penal in
effect....
...the revenues position appears to me, as a matter of common justice, to be
unsustainable; and the injustices rendered worse by
the fact that it
involves...the revenue having the benefit of a massive interest-free loan as the
fruit of its unlawful action.
Similarly at 197 Lord Browne-Wilkinson said:
If the revenue is right, it will be enriched by the
interest on money to which it had no right during that period. In my judgment,
this is the paradigm of a case of unjust enrichment.
- The
High Court has not been called on to rule on the applicability of the
Woolwich principle, but as Justice Edelman and Professor Elise Bant, the
learned authors of Unjust Enrichment noted, the principle has “been
mentioned without criticism, and even approval, in a number of Australian
cases”. In
State Bank of New South Wales Limited v Commissioner of
Taxation for the Commonwealth of Australia [1995] FCA 893; (1995) 62 FCR 371
at 378 Wilcox J said “I see no reason why the reformulation of the law
effected in Woolwich should not be adopted in Australia.” His
Honour went on to hold (at 381) that the bank was “as a matter of general
principle”
entitled to restitution of the interest earned on the monies
held by the Commissioner, because an entitlement to such interest did
not fall
outside the “restitution principle applied in Woolwich”. In
Chippendale v Commissioner of Taxation [1996] FCA 80; (1996) 62 FCR 347
at 366 Lehane J said that it “seems likely” that Woolwich
will be followed in Australia. The principle in Woolwich also sits
comfortably with other Australian authorities: Commissioner for State Revenue
(Vic) v Royal Insurance Australia Limited [1994] HCA 61; (1994) 182 CLR 51
at 69 (Mason CJ) and Sargood Brothers v Commonwealth [1910] HCA 45;
(1910) 11 CLR 258 at 276 (O’Connor J) and Mason v New South Wales
[1959] HCA 5; (1959) 102 CLR 108 at 129 (Kitto J).
- In
my view it is unlikely that the Court would distinguish the position in
Woolwich from that in the present case on the basis that the present case
is not concerned with the recovery of unlawful taxes or levies,
instead being
concerned with overpayments of social security benefits under the SSA. Nor can
I see much force in the Commonwealth’s
contention that the SSA indicates a
legislative intent that a notice issued for the purpose of s 1229(1) of the SSA
will have legal effect even if the notice was issued ultra vires and
unlawfully.
The juristic reason defence
- The
Commonwealth raises by way of defence that it has a “juristic
reason” for retention of so much of the Commonwealth-recovered
amounts
that it believes is in fact owed as a debt by the applicants and group members.
The Commonwealth alleges that there exists
a valid debt arising by operation of
s 1223(1) of the SSA where it is able to show that a debt is actually payable
pursuant to that provision, even though the original basis upon
which a debt was
claimed and recovered from the social security recipient was no longer correct,
citing David Securities Pty Ltd v Commonwealth Bank of
Australia [1992] HCA 48; (1992) 175 CLR 353 at 380 and 384 (Mason CJ, Deane,
Toohey, Gaudron and McHugh JJ), 392 (Brennan J), 405 (Dawson J). In David
Securities (at 379) the plurality said:
...the recipient of a payment which is sought to be
recovered on the ground of unjust enrichment, is entitled to raise by way of
answer
any matter or circumstance which shows that his or her receipt (or
retention) of the payment is not unjust.
In opening submissions for trial the Commonwealth contended that, in respect to
any amount that was “in fact” owed by
a person, it was not unjustly
enriched at the expense of the applicant and group members by its recovery from
them of invalidly raised
debts.
- The
Commonwealth further argues that, having raised a juristic reason for retention
of the monies it had received, the burden falls
on the applicants to negative
that basis for retention, and if the applicants did not discharge that burden
they are not entitled
to recover the value of the benefit retained, citing:
National Mutual Life Association of Australasia Ltd v Walsh (1987) 8
NSWLR 585 at 592 (Clarke J); Griffiths v Commonwealth Bank of Australia
[1994] FCA 402; (1994) 123 ALR 111 at 123-124 (Lee J); Re Magarey Farlam
Lawyers Trust Accounts (No 3) [2007] SASC 9; (2007) 96 SASR 337 at [168], [177]-[183]
(Debelle J); Clarke v Abou-Samra [2010] SASC 205 at
[69]- [72], [103]-[106] (Kourakis J).
- In
my opinion the prospects of the Commonwealth making out the juristic reason
defence are poor. There is force in the applicants’
submission that the
juristic reason defence boils down to the proposition that the Commonwealth
having recovered monies from vulnerable
social security recipients through the
coercive powers of the state, to which monies it had no lawful entitlement, it
should then
be permitted to retain those funds to set off other allegedly owed
debts it asserts. This is distinct from the position in Clarke where
such a retention was said to be good in law where the claim was one for recovery
of money paid under a mistake of fact. In
my view it is for the Commonwealth to
show that the existence of some other debt means that its receipt or retention
of unlawfully
recovered monies is not unjust. I would not readily accept that
the Commonwealth is able to retain those amounts because it believes
those
persons have some other debt that it could apply that money to instead.
- That
is particularly so when there is no prejudice to the rights of the Commonwealth
if the juristic reason defence is not allowed.
There is nothing to prevent the
Commonwealth from asserting and recovering any debt that is “in
fact” owed by any of
the applicants or group members. It is more likely
that the Court would find that if the Commonwealth can establish that any
applicant
or group member actually owes a debt it should seek to enforce
that debt. I doubt that the Court would find that it was permissible for
the Commonwealth to hold onto monies which it had unlawfully
obtained and to
apply those monies in satisfaction or set off of a different debt it says is
owed, when that debt is not proven.
At a minimum, requiring the Commonwealth to
assert any entitlement to a different debt through the procedure provided under
the
SSA, rather than simply applying monies unjustly recovered by it as a set
off, would afford the alleged debtors natural justice and
would facilitate their
rights to challenge such newly asserted debts through administrative merits
review under Parts 4 and 4A of the SSAA.
- The
Commonwealth had put on no evidence for the trial to show that any group member
has other debts to the Commonwealth which are
not based on income averaging from
ATO data; how any amount said to be owed was determined; and if not determined
how long such a
determination may take. In my view it would be for the
Commonwealth to show that, in fact, group members have other debts to the
Commonwealth. There is nothing to show that it had gathered that information or
made such assessments other than in respect of the
applicants themselves.
Allowing the Commonwealth to determine at its leisure whether and to what extent
some other alleged debt
is owed to it is unlikely to be seen as a proper
foundation to permit it to retain monies which it unjustly obtained to its
benefit.
- Even
so, as the Contradictor submitted, it must be accepted that the applicants faced
at least some risk in relation to the juristic
reason defence. The proposed
settlement of the monies had and received claim should (and does) reflect the
likely success of the
applicants and group members, with some allowance for the
risk, either at first instance or on appeal, that the juristic reason defence
might succeed. Again, this consideration points in favour of approving the
settlement.
The liability risks having regard to the different categories
of group members
- I
now turn to apply the above analysis to the different categories and
sub-categories of group members.
Category 1 Group Members
- There
can only be a viable monies had and received claim if the Commonwealth was in
fact monetarily enriched. In my view there is
no viable unjust enrichment claim
on behalf of Category 1 Group Members because the Commonwealth was not in
receipt of any monies
from Category 1 Group Members obtained at the expense of
those group members.
Category 2 and Eligible Category 3 Group Members
- In
my view the unjust enrichment claims of Category 2 Group Members and Eligible
Category 3 Group Members enjoy good prospects of
success. That is so having
regard to the evidence and to the Commonwealth’s concession in its Defence
that it did not have
a legal basis to raise and recover debts wholly or
partially based on income averaging from ATO data. Where the Commonwealth
recovered
such asserted debts (or in the case of Eligible Category 3 Group
Members recovered more than the subsequently validly recalculated
debts), the
applicants and group members have good prospects of establishing that the
Commonwealth was: (a) enriched by the receipt
of monies; (b) at the expense of
those group members; (c) in circumstances where it would be unjust for the
Commonwealth to retain
the enrichment because the Commonwealth admitted such
debts were not validly raised.
Ineligible Group Members
- In
their opening submissions for trial in relation to Ineligible Category 3 Group
Members’ unjust enrichment claims, the applicants
submitted that while
Asserted Overpayment Debts raised against them were not based on income
averaging from ATO data, they were raised
on the basis of income information
procured by unlawful means, being “tainted” by the initial raising
of a debt based
on income averaging from ATO data which would have been unlawful
if imposed. The applicants contended that the threat of imposition
of an
unlawful debt could never constitute a legitimate means of procuring actual
income information from a group member who would
not otherwise have been
required to provide it.
- In
relation to Category 4 Group Members the applicants submitted that, while the
ultimate debt was lawfully raised, it was raised
on the basis of income
information procured by unlawful means because the process of debt raising was
“tainted” by the
initial Robodebt notification based on income
averaging from ATO data, which threatened the imposition of an unlawful debt in
order
to procure the provision of actual income information.
- Thus
the prospects of success in the unjust enrichment claims of Ineligible Group
Members are entirely dependent on the novel “tainting”
argument. In
opening submissions for trial the applicants submitted that this argument has a
solid foundation in first principles.
They contended that unjust enrichment
involves an examination of the conduct of both parties, and while it might be
said that equity
might or ought not come to the aid of someone who is actually
owed a debt, the relevant debts of Ineligible Group Members were only
raised
after they responded to Robodebt notifications based on income averaging from
ATO data, or to debts raised on that basis.
On the applicants’ argument,
but for the Robodebt system, Ineligible Group Members would not have laboured
under any misapprehension
that they had to furnish (accurate) income information
to the Commonwealth, which the Commonwealth then used against them in raising
a
validly calculated debt.
- In
its opening submissions for trial (and in submissions in the settlement approval
application) the Commonwealth strongly argued
that the “tainting”
claim is hopeless; has “no prospect of success” and “no
value”. It contended
that had the proceeding gone to trial the claims of
Ineligible Group Members would have failed and there would have been a strong
basis for awarding indemnity costs against the relevant representative
applicants. It argued that the “tainting” argument
is plainly
flawed because at its centre is the proposition that a decision to raise a debt
that is validly made in accordance with
the statutory power under the SSA, and
which is unaffected by jurisdictional error, is somehow deprived of statutory
effect because:
(a) in the case of Ineligible Category 3 Group Members
an earlier decision that is no longer operable was invalidly made; or
(b) in the case of Category 4 Group Members for no reason capable of rational
articulation.
- The
Commonwealth submitted that the unjust enrichment claim on behalf of Ineligible
Group Members fails to engage with the statutory
scheme, in particular with the
effect of s 1223(1) of the SSA and (in relation to Ineligible Category 3 Group
Members) with the consequences of engaging the internal review procedures
under
s 126 of the SSAA. It said that the tainting argument is founded in the false
proposition that where a group member either
provides income information (such
as payslips or bank statements) in response to a Robodebt notification, or
provided such information
in support of an application for internal review by
the Secretary of an original debt decision, the Commonwealth had
“procured”
information “by unlawful means”.
- The
Commonwealth submitted that the “tainting” argument misunderstands
the relevant provisions in the SSAA and the SSA.
In relation to Category 3
Group Members the Commonwealth accepts that the debts that were initially
invalidly raised were affected
by jurisdictional error, because the decisions
were based on income averaging from ATO data. Nonetheless, it says that the
debt
amount ultimately raised following a review by the Secretary of the
original decision reflected a decision validly made pursuant
to s 126 of the
SSAA.
- The
Commonwealth submitted that:
(a) s 126 confers on the Secretary a broad power to
review a decision of an officer if there is a “sufficient reason”
to
do so, on the Secretary’s own motion or on the application of a person
affected by the decision, see: ss 126(2)(a) and 129(1)
of the SSAA;
(b) on review, the Secretary may affirm, vary or set aside the decision and
substitute a new decision: ss 126(3) and 135(1)(b) of
the SSAA;
(c) a decision by the Secretary or an authorised review officer may be reviewed
on the merits by the AAT: s 142(1), SSAA;
(d) for the purposes of such a review, the “decision” of the
Secretary or the review officer that is the subject of the
review is, where the
original decision was affirmed or varied, that decision as affirmed or varied: s
142(4)(a) and (b); and
(e) if the original decision is set aside and a new decision is substituted, the
decision the subject of the review by the AAT is
the new decision: s 142(4)(c).
- The
Commonwealth contended that the effect of these provisions is that, even if the
initial debt decision is invalidly raised and
is affected by jurisdictional
error, once a s 126 review is undertaken, the question whether a debt has been
validly determined turns
on consideration of the review decision. If a new
decision is substituted, that review decision will be effective to identify a
debt where the asserted overpayment of social security benefits is determined
based on probative information such as payslips or
bank statements. The
Commonwealth said that the applicants seem to accept that the debt ultimately
identified in relation to Category
3 Group Members is “lawfully
raised” and argues that, unless the review decision that identified the
recalculated debt
is somehow impugned, the applicants cannot succeed in claiming
restitutionary relief of the amounts ultimately retained by the Commonwealth.
- The
Commonwealth further submitted that s 1223(1) of the SSA provides that the
amount of any overpayment is a debt due to the Commonwealth which “is
taken to arise when the
person obtained the benefit of the payment”, that
is, at the time of the overpayment. It said that it is not apparent how
it
could be unjust for the Commonwealth to receive from a Category 3 Group Member
an amount that was no greater than the amount in
respect of which the person was
always indebted to the Commonwealth pursuant to s 1223 of the SSA.
- In
their opening submissions for trial in relation to Category 4 Group Members, the
applicants submitted that they “have had
legitimate debts raised against
them only after the Robodebt System calculated and threatened the imposition of
an unlawful debt
based upon income averaging and deployed that threat to procure
the provision of actual income information.” In response,
the
Commonwealth again contended that, once an overpayment debt is validly raised it
is taken to have arisen when the person obtained
the overpayment. It said,
again, that it is hard to see how it could be unjust for the Commonwealth to
receive money from a Category
4 Group Member which the group member legitimately
owed as a debt.
- The
Contradictor accepted that the “tainting” argument is weak and
described the argument as “probably among the
most difficult and tenuous
aspects of the applicants’ case” and carrying “very
substantial risk”. The Contradictor
also described the claims of
Ineligible Category 3 Group Members as “novel and probably best
characterised as weak”.
- In
my view there is force in the Commonwealth’s argument regarding the
construction of the SSAA, and an air of unreality in
the applicants’
submission that it is unlawful for the Commonwealth to raise a debt based, for
example, on payslips or bank
statements supplied by a social security recipient,
even if that followed an initially wrongly determined debt. It is important
to
understand that the Robodebt system included an initial letter to social
security recipients (which the applicants characterised
as a Robodebt
notification) stating that the information received from the ATO was different
to that which the person had told Centrelink,
and telling the person that they
were required to confirm or update their income information within a specified
period, and if they
did not do so, the Commonwealth would rely on the ATO income
information which might result in a debt that the person would have
to pay.
- I
am not, without more, inclined to accept the applicants’ characterisation
of Robodebt notifications as coercing people to
provide actual income
information by threatening the imposition of an unlawful debt in order to
unlawfully procure such information.
The form of the Robodebt notifications
changed over time and I was not taken to every example of such notifications,
but having
regard to the pro forma Robodebt notification provided to the Court
in the settlement approval hearing it is difficult to see much
force in the
contention that it is coercive. Relevantly, it said:
We have information from the Australian Taxation Office
(ATO) that we need your help to confirm or update. The employment dates or
income details are different to what you told us when getting a payment. We use
your employment information so you get paid the
right payment.
This is not a debt letter. Please check the ATO information with this letter
carefully.
You must confirm or update the information within 28 days of receiving
this letter.
Go online and check today
The easiest way is to sign into your Centrelink online account link to your
myGov account.
...
Please note, if you don’t confirm or update the information within 28
days, we may apply the employment dates and income from
the ATO to your record.
This may result in a debt you will need to repay.
After you have confirmed or updated the details, we will write to you to let you
know the outcome and what you need to do next.
If you need help
If you don’t have internet access or need help to sign in, go into any one
of our service centres. If you need help with the
employment information
provided, call us on 1800 086 400.
(Emphasis in original.)
- In
my view the Ineligible Group Members’ unjust enrichment claims are weak
and have little prospect of success. That is central
to my conclusion that the
proposed settlement is fair and reasonable both inter partes and as
between group members.
The negligence claim
- The
applicants allege the existence of a duty to exercise reasonable care in the
performance of Commonwealth-controlled functions
under the SSA to avoid
foreseeable economic loss to persons in the position of the applicants and group
members, including:
(a) assessing and determining whether they are or were
entitled to Social Security Payments;
(b) assessing and determining the amount of the Social Security Payments to
which they were entitled on the basis of their respective
reported fortnightly
income;
(c) raising and recovering debts arising from overpayments of Social Security
Payments;
(d) obtaining information evidencing, demonstrating or verifying actual
fortnightly income for use in performing those functions;
(e) raising and recovering such debts using the actual fortnightly income rather
than the notional fortnightly income of persons;
and
(f) requesting or demanding repayment of any overpayment of Social Security
Payments and any associated penalties.
(the Commonwealth-controlled functions)
- It
is common ground that the alleged duty of care does not fall within an existing
category of known duties. The existence of and
appropriateness of imputing such
a novel duty of care to avoid foreseeable harm would therefore fall to be
determined by a close
analysis of the facts bearing on the relationship between
the applicants and group members and the Commonwealth by reference to the
“salient features” or factors described in Caltex
Refineries (Qld) Pty Ltd v Stavar [2009] NSWCA 258; (2009) 75 NSWLR 649 at
[102]- [103] (Allsop P (as his Honour then was)).
- In
the context of a settlement approval application it is unnecessary to go to each
of the salient features in the present case.
It suffices to note, as the
Contradictor submitted, that the applicants face a weighty challenge in
establishing such a novel duty
of care.
- In
its opening submissions for trial the Commonwealth submitted that the alleged
duty of care is excluded as a matter of construction
of the SSA, and set out a
number of authorities in support of that submission.
- In
Scott v Secretary, Department of Social Security [1999] FCA
1774; (1997) 57 ALD 627 at [51] (Heerey J), upheld on appeal in Scott v
Secretary, Department of Social Security [2000] FCA 1241; (2000) 65 ALD 79
at [20]- [23] (Beaumont and French JJ (as his Honour then was), with Finkelstein
J dissenting), rejected the proposition that Department had a
common law duty of
care under which it had obligations to inform persons in the position of the
applicants of the potential benefits
to which they were entitled under the SSA.
- In
Scott v Pedler [2003] FCA 650; (2003) 74 ALD 424 at [65]
Gray ACJ said that the extensive system for merits review provided by the social
security law was:
...a powerful indication that the legislature did not
intend that the correctness of a particular decision should be challenged
collaterally
in proceedings in a court, such as proceedings for damages for
negligence in the exercise of the statutory function.
- That
decision was upheld on appeal in Scott v Pedler [2004] FCAFC 67; (2004)
80 ALD 283 at [63] (Conti J, with whom Gyles J and Allsop J (as his Honour then
was) agreed). The Full Court did not accept that the respondents owed
the
applicants a duty under the SSA or at common law to decide their claims under
the SSA with care and with due expedition. Conti
J explained (at
[101]:
The authorities which have been cited in these reasons
reveal a confined or restricted availability of any viable causes of action
for
damages at the instance of persons claiming to have been injured by the exercise
of administrative power. So much has been exemplified
by the High Court
decisions in Crimmins, Sullivan, Graham Bailey [sic]
Oysters and Shaddock, and by the majority judgment of the Full
Federal Court in the earlier Scott litigation. The circumstances of the
appellants which I have outlined and reviewed stand outside the principal cited
earlier from
those authorities.
- The
Scott decisions have been consistently applied in other cases:
(a) In Wang v Secretary, Department of
Employment & Workplace Relations [2006] FCA 898 at [48], upheld on
appeal in Wang v Secretary, Department of Employment & Workplace
Relations [2007] FCAFC 17 at [19] (Sundberg, Dowsett and Bennett JJ), Heerey
J cited the Scott decisions as authority for the propositions that:
“[b]reaches of the Social Security Act do not confer private rights
for damages...[n]or is there any duty of care owed.” (citations
omitted)
(b) In Pickering v Centrelink [2008] FCA 561 the applicant alleged that
Centrelink’s actions had contributed to his mental illness. McKerracher J
said (at [16]) that where
a statutory power is subject to a right of review and
the decision-maker exercises the power in good faith, the exercise of the power
will not give rise to a common law duty of care. His Honour also said (at
[17]-[21]) that the Scott decisions and Wang applied similar
principles in the context of the SSA and the SSAA and should be followed.
(c) In Underdown v Secretary, Department of Education, Employment and
Workplace Relations [2009] FCA 965 at [59]- [60] McKerracher J considered an
appeal from the AAT by the deceased applicant’s spouse, and a claim for
damages by the applicant’s
former spouse against Centrelink for alleged
breaches of the SSA in connection with a finding that his former spouse had been
paid
an overpayment of social security benefits. His Honour cited the Scott
decisions with approval and said at [59]-[60]:
All decisions taken by Centrelink as to the
grant, cancellation, suspension or rate of payment of a social security benefit
are subject
to the extensive review procedures in Pt 4 of the [Social Security
Administration Act].
It follows that no claim for damages can be made
out.
His Honour dismissed the ‘appeal’ on the
basis that it had no prospect of success.
(d) In EOX17 v Commonwealth of Australia [2018] FCA 1656 at [2] and [40]
the applicant challenged a decision to refuse a disability support pension on
the basis that the applicant’s psychiatric
impairment had not been
assessed as permanent. Perry J cited the Scott decisions,
Pickering and Wang and held that the case had no reasonable
prospect of success including because (at [40]):
...no common law duty of care arises with
respect to the exercise of powers under the Social Security Act...
...
The reason for this is that the statutory power is subject to review. That
review process is regarded as obviating that necessity
for a common law duty of
care. Nor has the Act been interpreted as evincing any intention to confer a
private right of damages for
breach of statutory duty given, as noted above, the
stipulation by the Social Security Act of mechanisms for the review of decisions
and the Act overriding purpose being for the benefit of society in general, as
opposed
to individual recipients of social welfare.
(Citations omitted.)
- It
can be accepted that the alleged statutory duty and duty of care in the
Scott cases is different to the duty of care alleged in the present case.
The present case is not a claim for breach of statutory duty
or breach of a duty
of care based in a failure to take particular steps in the context of social
security entitlements; it is a claim
alleging breach of a duty of care in the
exercise of the relevant Commonwealth-controlled functions. But having regard to
the terms
of the SSA and the SSAA, the levels of administrative merits review
provided in those Acts, and the authorities in relation to the
existence of a
common law duty of care with respect to the exercise of powers under the SSA, in
my view the applicants are unlikely
to be able to establish the alleged duty of
care.
- Even
putting the Scott decisions to one side, as the Contradictor submitted,
the Commonwealth’s submissions with respect to the Caltex factors
and the six criteria in Crimmins v Stevedoring Industry Finance Committee
[1999] HCA 59; (1999) 200 CLR 1 at [3] and [93] (McHugh J, Gleeson CJ
agreeing) show that the alleged duty of care is novel and untested; it involves
consideration of authorities
about which the parties make substantially
different submissions; it is attended by substantial complexity and as a
consequence it
should be characterised as having “at best uncertain and at
worst weak prospects of success.”
- The
Commonwealth further submitted that the courts have always taken a cautious
approach to claims in negligence for economic loss,
out of concerns in relation
to the indeterminacy of liability. It cited McHugh J in Perre
v Apand Pty Ltd [1999] HCA 36; (1999) 198 CLR 180 at [106], where his Honour
referenced the remarks of Cardozo CJ in Ultramares Corporation v Touche
(1931) 225 NY 170 at 179 and said that such caution was appropriate to avoid
‘the imposition of liability “in an indeterminate
amount for an
indeterminate time to an indeterminate class.” His Honour went on to say
(at [107]) that ‘[l]iability
is indeterminate only when it cannot
realistically be calculated.” Justice Kirby said (at [298]) that
“[a] line must
be drawn to limit indeterminate liability”. The
Commonwealth’s contentions regarding indeterminacy are not without force
but I am not persuaded as to their correctness when the Commonwealth knows or
has the means to know the ascertainable class affected
by its conduct and the
nature of the likely losses, in these circumstances its liability is not
indeterminate: Perre at [109].
- My
view that the applicants’ prospects of establishing the alleged duty of
care are low is significant to my conclusion that
the proposed settlement is
fair and reasonable both inter partes and as between group
members.
The risks having regard to the different categories of group
members
- My
views in relation to the risks on liability which face the unjust enrichment
claims for the different categories of group members
also apply in relation to
the negligence claims. In summary:
(a) Category 1 Group Members cannot have a claim in
negligence for economic loss as the Commonwealth did not receive or recover any
amounts from them; and
(b) Ineligible Group Members claims for negligently caused economic loss are not
based in debts raised by income averaging from ATO
data. Their success in these
claims depends upon the “tainting” argument which, for the reasons
previously explained,
is weak and likely to fail at trial.
Again, this is material to my conclusion that the proposed settlement is fair
and reasonable both as between the parties and as between group
members.
The risks in relation to quantum
The quantum risks in the unjust enrichment claim
Category 1, Category 2 and Eligible Category 3 Group
Members’ claims
- As
I have said, in my view:
(a) Category 1 Group Members do not have a claim for
unjust enrichment as the Commonwealth did not receive or recover any Asserted
Overpayment Debts from them. The potential quantum of their claims is zero;
and
(b) the quantum of Category 2 Group Members and Eligible Category 3 Group
Members’ claims for unjust enrichment is only the
value of their claims
for interest or quasi-interest.
Ineligible Group Members’ claims
- The
potential quantum of Ineligible Group Members’ unjust enrichment claims is
in my view modest because the practical value
of success on the
“tainting” argument is unlikely to be a refund of the wrongly
determined debts. The Commonwealth has
authority under s 192 of the SSAA to
require a person to give information or produce a document where the Secretary
wishes to investigate
whether Social Security Payments were payable to the
person or as to the rate of social security payment that is or was applicable.
Therefore the Commonwealth was, and is, able to require group members to produce
income information such as payslips and bank statements,
without relying on any
Robodebt notification or any previous debt determination based on income
averaging from ATO data. Once the
Commonwealth obtains such income information
from group members it is able to raise and recover debts assessed on the basis
of that
information, in circumstances where it cannot reasonably be said that
debt is “tainted” with illegality. Thus, the potential
quantum of
any success in the “tainting” argument is likely to be limited to
the value to the Commonwealth of its temporary
possession of any monies
prematurely recovered, that is, interest or quasi-interest.
The claims for interest or quasi-interest
- The
applicants’ Amended Reply expressed the claim for interest or
quasi-interest as follows:
...if and to the extent that the Commonwealth was but is
no longer enriched at the expense of any Applicant or Group Member, the
Commonwealth
remains liable to make restitution of any interest or other
benefit obtained by the Commonwealth by reason and during the period of the
enrichment.
(Emphasis added.)
- In
opening submissions for trial the Commonwealth challenged the asserted
entitlement to interest or quasi-interest and also contended
that any interest
entitlement is far less than that put by the applicants.
- In
relation to the asserted entitlement to interest at common law, the Commonwealth
relied on Commonwealth v SCI Operations Pty Ltd [1998] HCA 20;
(1998) 192 CLR 285 at [72] where McHugh and Gummow JJ doubted that there
exists “a ‘free-standing’ right to the recovery of interest
where
the defendant has had the use of the plaintiff’s money in
circumstances which indicate an unjust enrichment at the expense
of the
plaintiff.” Their Honours said that the existing state of authority does
not favour acceptance of such a broad proposition.
- The
Commonwealth also submitted that any entitlement to interest at common law that
is found to exist runs from the time when the
cause of action is complete,
citing Edelman, Interest Awards in Australia (2003, LexisNexis
Butterworths) at pg. 96. It contended that the cause of action giving rise to
an entitlement to restitution of
Commonwealth-recovered amounts cannot have
arisen until the debt that formed the subject of the s 1229(1) notice was set
aside. On its argument, a debt identified for the purpose of s 1223(1) of the
SSA exists in fact, regardless of whether the debt was determined by a process
involving jurisdictional error. Thus, a notice
issued for the purpose of s
1229(1) in relation to such a debt is legally effective to make the debt due and
payable, and to engage the Commonwealth recovery powers
under Pt 5.3 of the SSA.
Because an obligation on the part of the debtor to pay the debt is created,
there can be no right to restitution of an
amount paid by a debtor (or otherwise
recovered by the Commonwealth) in relation to a debt unlawfully determined
unless and until
the debt is set aside or varied on review, or set aside by a
court on judicial review. The invalidly determined debts of the applicants
and
group members were not set aside until after July 2020.
- In
relation to s 51A of the FCA, the Commonwealth submitted that any entitlement to
interest depends on two questions. First, whether
the Commonwealth refunded the
relevant amount prior to commencement of the proceeding, as if it had done so
the statutory jurisdiction
to award interest will not be enlivened, citing
SCI Operations at [42] (Gaudron J). Second, when the relevant cause of
action giving rise to the entitlement to restitution “arose”.
For
the reasons already outlined, the Commonwealth contended that the cause of
action in restitution did not arise until the debt
that had been unlawfully
determined was set aside or varied on review, or set aside by a court on
judicial review.
- In
my view it is doubtful that the Commonwealth’s contention that the cause
of action for unjust enrichment only crystallised
at the time the Asserted
Overpayment Debt is set aside or varied will succeed at trial. An administrative
decision to raise a debt
which is made outside power is void ab initio.
I find it difficult to see why the common law would treat an invalidly
determined debt, which the Commonwealth had no power to
raise, as being regular
up to the date that the Commonwealth admitted it had no power or authority to
raise the debt. Even so, and
as the Contradictor submitted, the claims in the
nature of interest or quasi-interest are fairly to be characterised as having
“considerable
complexity and uncertainty”. If the Commonwealth
succeeds in its various arguments it will dramatically reduce the value of
the
applicants’ and group members’ claims for interest at common law.
In such circumstances a discount for risk is appropriate.
- There
is also a risk in relation to quantum in relation to the appropriate interest
rate. At trial the applicants intended to rely
upon the evidence of Jerome
Fahrer, an economist, who set out some theoretical floor and ceiling rates for
the interest to be applied
in relation to the period over which the Commonwealth
retained the Commonwealth-recovered amounts. In his opinion the appropriate
floor rate is 1.8% being the weighted average of the five year bond rate, and
the appropriate ceiling rate is 9% being the weighted
average return over the
period between 2015 and 2019 if the Commonwealth had transferred the
Commonwealth-recovered amounts to the
Future Fund for investment. The
applicants also contended that the rate of interest should be no lower than that
available under
s 51A of the FCA, which averaged 5.5% over the relevant
period.
- The
Contradictor made some “back of the envelope” calculations as to the
likely recovery in respect of the interest or
quasi-interest claims based on
high-level assumptions that:
(a) the invalid debts were raised between 2015 and
2020;
(b) where some group members had their invalidly raised debts reviewed, that
review took some years to be finalised;
(c) some invalidly raised debts were repaid by group members in full and others
were repaid in instalments over time, with a substantial
number of group members
probably repaying invalidly raised debts to the Commonwealth between around 2017
and 2019;
(d) on the basis of the above, somewhere between approximately one year and
three years is likely an appropriate timeframe for assessing
the length of time
during which the Commonwealth retained group members’ monies received or
recovered in respect of invalid
debts; and
(e) in July 2020 the Commonwealth publicly announced a commitment to refund all
debts based on income averaging from ATO data and,
in fact, refunded
approximately $707.9 million by 2 December 2020 (and $723.7 million by 13 April
2021).
- On
the basis of those high-level assumptions, in the table set out below, the
Contradictor estimated the potential ranges of recovery
with respect to claims
for interest or loss of use of money in respect of $721 million for 1-3 years,
using as alternatives the floor
and ceiling rates identified by Mr Fahrer as
well as the interest rate that may be payable pursuant to s 51A of the FCA.
Interest
is calculated on a simple
basis.
|
Rate
|
1 year
|
2 years
|
3 years
|
|
5 year bond rate – 1.8%
|
$12.98 m
|
$25.96 m
|
$38.93 m
|
|
Federal Court pre-judgment rate – 5.5%
|
$39.66 m
|
$79.31 m
|
$118.97 m
|
|
Investment in Future Fund – 9%
|
$64.89 m
|
$129.78 m
|
$194.67 m
|
- In
my view, it is not sound to base the applicable rate of interest on the returns
that the Commonwealth may have achieved had it
invested the
Commonwealth-recovered amounts in the Future Fund. There is no evidence as to
what the Commonwealth did with the Commonwealth-recovered
amounts and I do not
accept it would be appropriate to set an interest rate based on Future Fund
returns. In my view it is more
likely that the Court would apply an interest
rate approximating the Federal Court pre-judgment rate, averaging at around
5.5%, which
would provide a range of recovery of approximately $40 million to
$119 million.
- By
reference to the estimated recovery ranges the Contradictor submitted that the
proposed $112 million settlement represents a very
favourable outcome with
respect to the interest or quasi-interest component of the claims. I agree.
That is particularly when the
most likely recovery range of $40 million to $119
million, does not take into account the risks that:
(a) the applicants and group members might not succeed
in their unjust enrichment claims; and
(b) the Commonwealth’s arguments in relation to the availability of claims
of interest or quasi-interest and in relation to
when interest should commence,
might succeed.
- The
risks in relation to the quantum of the interest or quasi-interest claims is
material to my view that the proposed settlement
is fair and reasonable inter
partes and as between group members.
The exemplary damages claim
- The
proceeding claims exemplary damages in the unjust enrichment claims, based in
the contention that the conduct of the Commonwealth
was outrageous and
contemptible and showed contumelious disregard for the rights of the applicants
and group members. In opening
submissions for trial the applicants submitted
that while exemplary damages are “rarely” awarded in claims for
restitution
they may properly be awarded where the Court considers it is
necessary to do so to achieve justice, citing the dissenting judgment
of Mason P
in Harris v Digital Pulse Pty Ltd [2003] NSWCA 10; (2003)
56 NSWLR 298 at [224] (Spigelman CJ, Mason P and Heydon JA (as his Honour then
was). In that case his Honour said that, in an appropriate case where
disgorgement
was an inadequate means of enforcing common decency, equity in its
exclusive jurisdiction ought not be prevented from awarding exemplary
damages.
The applicants also cited Kuddus v Chief Constable of Leicestershire
Constabulary [2001] UKHL 29; [2002] 2 AC 122; [2001] 3 All ER 193 at
[60]- [68] (Lord Nicholls), which considered the availability of exemplary
damages in a case alleging the tort of misfeasance in public office.
- The
applicants were, however, unable to take the Court to any decision where
exemplary damages had been allowed in a claim for restitution.
In
Harris, the ratio decidendi of the judgments of Spigelman CJ and
Heydon JA is that the New South Wales Supreme Court has no power to make a
punitive monetary
award for breach of fiduciary duty where the duty arises in
the context of a contractual relationship: at [5], [44], [57], [63] (Spigelman
CJ), [233] and [470] (Heydon JA). Heydon JA also said in obiter (at [233],
[470]) that there is no power in the law of New South
Wales to award exemplary
damages for equitable wrongs. In J D Heydon, M J Leeming and PG Turner,
Meagher, Gummow and Lehane’s Equity Doctrines & Remedies (Fifth
edition, p 865) the learned authors said: “[e]quity and penalty are
strangers....Punishment through monetary awards or
otherwise is contrary to the
basis and purpose of equity.... The learned authors went on to say while awards
of [sic] aggravated
wrongdoing are an accepted remedy at common law, they are
alien to equitable principle.”
- In
Prygodicz, Lee J said at [34]:
The enquiry undertaken in relation to restitutionary
relief in Australia (being an enquiry directed to who should properly bear loss
and why) is conducted by reference to equitable principles.
“Damages” is a common law remedy, and the use of the term
“exemplary damages” in relation to an enquiry undertaken by
reference to equitable principles is heterodox. To say the
least, the notion
that a form of punitive monetary award could be made in the circumstances
pleaded is a highly surprising one when
it is fundamental that a restitutionary
claim (advanced by the common law action for “money had and
received”) is based
solely on the informing principle of the prevention
and reversal of unjust enrichment.
- In
my opinion the applicants have little prospect of establishing that exemplary
damages are available in an unjust enrichment claim.
Further, as I later
explain, even if exemplary damages are available in such a claim, I doubt that
the applicants are able to prove
to the requisite standard that the responsible
Ministers and senior public servants actually knew that the
Commonwealth’s conduct in raising and recovering debts based on income
averaging from ATO data was unlawful.
- Overall,
the quantum risks in the unjust enrichment claims are significant to my
conclusion that the proposed settlement is fair and
reasonable both as between
the parties to the proposed settlement and as between group members.
The quantum risks in the negligence claim
- As
I have said, the negligence claim is centrally concerned with obtaining relief
in the same amount as in the unjust enrichment claim.
Both claims principally
seek recovery of the Commonwealth-recovered amounts plus interest or
quasi-interest. The analysis of the
quantum risks in the negligence claims is
therefore something of a distraction because those claims have substantially
lower prospects
of success than the unjust enrichment claim. The better prism
through which to assess whether the proposed settlement is fair and
reasonable
in the interests of group members is through their unjust enrichment
claims.
Category 1, Category 2 and Eligible Category 3 Group
Members’ claims
- As
I have said, in my view:
(a) Category 1 Group Members do not have a claim for
damages for negligently inflicted economic loss as they have not suffered any
economic loss. The Commonwealth did not receive or recover any amounts from
them; and
(b) putting to one side their claims for distress damages, aggravated damages
and exemplary damages, the quantum of Category 2 Group
Members and Eligible
Category 3 Group Members’ negligence claims is only the value of their
claim for interest, which is essentially
the same amount as in their unjust
enrichment claims.
Ineligible Group members’ claims
- For
the same reasons as in the unjust enrichment claim the practical value of
Ineligible Group Members’ negligence claims is
modest. Any success they
are able to achieve on the “tainting” argument is unlikely to be a
refund of the wrongly determined
debts.
The interest claims
- My
observations in relation to the complexities and difficulties in relation to the
quantum of group members’ claims for interest
or quasi-interest in the
unjust enrichment claims apply equally to their negligence claims. Those risks
are material to my view
that the proposed settlement is fair and reasonable both
as between the parties to the settlement and as between group members.
The claim for distress damages
- In
their negligence claims the applicants and group members seek damages for
“significant concern, stress, anxiety and stigma”
caused by
“any request or demand by the Commonwealth for repayment of an Asserted
Overpayment Debt and associated penalty,
and any threatened, foreshadowed or
actual recovery action in respect thereof”. Senior counsel for the
applicants expressly
disavowed any claim for damages for personal injury
including psychiatric injury, and accepted that the claim is for damages for
economic loss and any consequential stress, anxiety and stigma.
- This
claim faces significant uncertainty and real risks that it will fail.
- First,
I doubt that significant concern, stress, anxiety and stigma which does not
amount to a recognised and diagnosable psychiatric disorder
is compensable in a
claim in negligence for damages for personal injury: Tame v
State of New South Wales [2002] HCA 35; (2002) 211 CLR 317 at [7] (Gleeson
CJ) and [193] (Gummow and Kirby JJ); s 35 Civil Law (Wrongs) Act 2002
(ACT); ss 72 and 74-75 Wrongs Act 1958 (Vic). The proceeding does not
claim damages in negligence for personal injury per se, and it is worth
noting that none of the applicants put on medical evidence to show that they
suffered any recognised psychological
injury or condition.
- If
a claim for stress, anxiety or stigma, which does not amount to a recognised
psychiatric disorder, is not available in a tortious
claim for damages for
personal injury, in principle it is difficult to see why it would be available
as a form of consequential loss
in a tortious claim for damages for economic
loss. As Gummow and Kirby JJ said in Tame (at [194]) the basis for the
distinction drawn by the law of torts between recovery for recognised
psychiatric injury or illness and
mere emotional distress is the reduction
in:
...the scope of indeterminate liability or increased
litigation. It restricts recovery to those disorders which are capable of
objective
determination. To permit recovery for recognisable psychiatric
illnesses, but not for other forms of emotional disturbance, is to
posit a
distinction grounded in principle rather than pragmatism, and one that is
illuminated by professional medical opinion rather
than fixed by purely
idiosyncratic judicial perception.
- Second,
for their alleged entitlement to distress damages the applicants and group
members relied on the decision in Moore v Scenic Tours
[2020] HCA 17; (2020) 377 ALR 209 (Kiefel CJ, Bell, Gageler, Keane, Nettle
and Gordon JJ, Edelman J agreeing). In Moore the plurality (at
[43]-[44]) allowed damages for disappointment and distress consequent on a
breach of contract. That is a quite
different factual and legal context to the
present case. The plurality in Moore applied the reasoning in Baltic
Shipping v Dillon [1993] HCA 4; (1993) 176 CLR 344, where Mason CJ, with
whom Toohey and Gaudron JJ agreed, said at 363 that Courts had recognised
exceptions to the ordinary rule precluding
distress or disappointment damages
for breach of contract where the disappointment or distress was “caused by
the breach of
a contract...the object of the contract being to provide pleasure
or relaxation”. The applicants could not point to any Australian
case in
which distress damages have been awarded in a damages claim for negligence
causing economic loss.
- As
the Contradictor submitted, the claim for distress damages consequent on a claim
in tort can properly be described as tenuous and
subject to very considerable
litigation risk. In my view the claim is novel and weak.
The claims for aggravated and exemplary damages
- The
applicants sought aggravated and exemplary damages based in the allegation that
the responsible Ministers and senior public servants
had actual knowledge of the
unlawfulness of the Robodebt system.
- I
have no difficulty in accepting that, if the applicants can establish the
existence of the alleged duty of care and its breach,
and if the applicants can
prove to the requisite standard that the responsible Ministers and senior public
servants actually knew that the operation of the Robodebt system was
unlawful, and it continued it, then exemplary damages would be available. In my
view
it would be a paradigm case for such damages. As Gordon J said in Lewis
v Australian Capital Territory [2020] HCA 26; (2020) 94 ALJR 740 at
[111]:
Exemplary damages may also have particular significance
in restraining executive power. In Ibbett, the Court considered exemplary
damages for trespass to land and said:
“The common law fixes by various means
a line between the interests of the individual in personal freedom of action and
the
interests of the State in the maintenance of a legally ordered society. An
action for trespass to land and an award of exemplary damages has long been a
method by which, at the instance of the citizen, the State is called to account
by the
common law for the misconduct of those acting under or with the authority
of the Executive Government.”
The Court went on to say that it is “well
established ... that an award of exemplary damages may serve ‘a valuable
purpose
in restraining the arbitrary and outrageous use of executive
power’ and ‘oppressive, arbitrary or unconstitutional action
by the
servants of the government’”.
(Emphasis added, citations omitted.)
- But
in the present case the prospects for the applicants making out a claim for
aggravated or exemplary damages are weak.
- First,
the applicants’ prospects of establishing the alleged duty of care are
low, and the claims for aggravated and exemplary damages
can be no stronger than
the cause of action in respect of which they are sought.
- Second,
the prospect of the applicants being able to prove to the requisite standard the
allegations that the identified responsible Ministers
and senior public servants
had actual knowledge of the unlawfulness of the Robodebt system are low. At the
least, as the Contradictor
submitted, the prospects of their substantiating the
pleaded allegations are uncertain and attended by considerable risk.
- As
I said earlier, it is one thing for the applicants to be able to prove that the
responsible 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. It is, however, quite
another thing to prove to the requisite standard that they actually knew
that the operation of the Robodebt system was unlawful, and yet continued to
operate it.
- The
applicants’ case in this regard relies upon Commonwealth documents, as
neither side proposed to call the relevant Ministers
or senior public servants.
I was not taken to all of the documents upon which the applicants would have
sought to rely, but it is
appropriate to infer that the applicants’
opening submissions for trial referred to those excerpts which most supported
their
case. Those excerpts did not in my view establish actual knowledge.
- In
deciding whether the applicants proved that the identified Ministers and senior
public servants actually knew that the Robodebt
system raised debts unlawfully
and yet supported its continued operation, the Court is required to take into
account the seriousness
of such allegations, their inherent unlikelihood, and
the gravity of the consequences flowing from a finding that the Ministers and
senior public servants engaged in the conduct alleged: s 140(2)(b) and (c)
Evidence Act 1995 (Cth). Having regard to the applicants’ opening
submissions for trial, I seriously doubt that the evidence was sufficient
to
substantiate the allegation that the Ministers and senior public servants
actually knew the Robodebt system was unlawful.
- Overall,
the quantum risks in the negligence claim are significant to my conclusion that
the proposed settlement is fair and reasonable
both between the parties and as
between group members.
The reasonableness of the proposed settlement in light of the
attendant litigation risks
Fairness and reasonableness as between the
parties
- While
the unjust enrichment claims of Category 2 Group Members and Eligible Category 3
Group Members have good prospects of success,
because of the Commonwealth
program to withdraw and refund unlawfully asserted debts those claims are
effectively limited to claims
for interest or quasi-interest based on the amount
of the Commonwealth-recovered amounts and the length of time over which the
Commonwealth
held them. I earlier discussed the risks in relation to liability,
and the complexities and uncertainties associated with the quantum
of the claims
for interest or quasi interest. It is unnecessary to do so again.
- The
same is true of the negligence claims, which centrally concern the same losses
as the unjust enrichment claims. To the extent
the negligence claims encompass
claims beyond those within the scope of the unjust enrichment claims (eg,
distress damages, and aggravated
and exemplary damages) those claims are weak.
- Having
regard to these matters, in light of the attendant risks of the litigation I
consider the proposed $112 million settlement
to be plainly fair and reasonable
as between the applicants and group members on the one hand and the Commonwealth
on the other.
As the Contradictor submitted, it constitutes a “very
favourable outcome”.
Fairness and reasonableness as between group
members
Category 1 Group Members
- For
the reasons earlier given, I do not accept that Category 1 Group Members receive
no benefit from the proposed settlement. They
receive the benefit of the
Declarations which achieve one of the key aims of the proceeding, being to
ensure that debts raised based
on income averaging from ATO data are declared
invalid by the Court. The Declarations and the relevant settlement terms also
provide
a means for those who had not yet had their debts withdrawn to legally
enforce that entitlement in the event that their debts were
somehow overlooked
in the Commonwealth program or if the Commonwealth altered its position.
- Fundamentally,
the limited benefit that Category 1 Group Members receive under the proposed
settlement reflects the fact that no monies
were recovered from them by the
Commonwealth and therefore they cannot succeed in either their unjust enrichment
claims or their
claims for negligently caused economic loss.
- Insofar
as it might be argued that the proposed settlement is not in the interests of
Category 1 Group Members because they receive
nothing for any psychiatric or
psychological injury they have suffered, yet are bound by the release, the
proceeding does not allege
that the applicants and group members seek damages
for any recognised psychiatric injury. The claim in tort is for
negligently inflicted economic loss and consequential stress anxiety or stigma,
when Category 1 Group Members
cannot show economic loss.
- In
my view it is not unfair or unreasonable as between group members that the
benefits for Category 1 Group Members under the proposed
settlement are less
than those for Category 2 Group Members and Eligible Category 3 Group Members.
They receive the benefit of the
Declarations but get no financial benefit
because they have not suffered any loss. Having regard to the attendant risks
of litigation
on liability and quantum in my view the proposed settlement is
fair and reasonable as between Category 1 Group Members and the other
categories
of group members.
Category 2 Group Members and Eligible Category 3 Group
Members
- As
I have said, Category 2 Group Members and Eligible Category 3 Group Members will
receive substantial financial benefits under the
proposed settlement through an
entitlement to share in the Distribution Sum. It is uncontentious that the
proposed settlement is
in their interests, the only question is whether the
disparity in the benefits they obtain as compared to the other categories of
group members means that the settlement is not fair and reasonable as between
group members.
- For
the reasons previously explained, it is not unfair or unreasonable as between
group members that the benefits for Category 2 Group
Members and Eligible
Category 3 Group Members under the proposed settlement are more than those for
Category 1 Group Members, and
that Ineligible Group Members receive little or
nothing. I have already explained why that is so in relation to Category 1
Group
Members and I need not reiterate that. The proposed settlement simply
reflects the strength of the Category 2 Group Members and
Eligible Category 3
Group Members claims and the weakness of the claims of Category 1 Group Members
and Ineligible Group Members.
- In
my view the Distribution Sum principally represents a compromise for interest or
quasi-interest on Commonwealth-recovered amounts
based on income averaging from
ATO data. That is apparent from the terms of the Declarations and because the
SDS apportions payments
between Category 2 Group Members and Eligible Category 3
Group Members on the basis of the amount the Commonwealth-recovered amounts
and
the length of time group members were “out of the money”.
- The
proposed $112 million settlement sits comfortably in the upper end of the range
of reasonable outcomes in relation to the claims
for interest or quasi-interest
on debts based on income averaging from ATO data that were recovered by the
Commonwealth.
- Having
regard to the attendant risks of the litigation on liability and quantum, as I
explain further below, in my view the proposed
settlement is fair and reasonable
as between Category 2 Group Members and Eligible Category 3 Group Members and
the other categories
of group members.
Ineligible Group Members
- Ineligible
Group Members will receive no financial benefit under the proposed settlement.
The applicants said that Ineligible Group
Members receive the practical benefit
of a comprehensive process for categorisation of group members with independent
oversight by
the Scheme Assurer, and representation of group members’
interests by Gordon Legal. The applicants likened the benefit to
the situation
of a person who receives legal advice. The recipient may not like the advice
received, but he or she has had the benefit
of it.
- In
my view, by the end of the process under the SDS there are reasonable grounds to
be confident that group members will be appropriately
categorised. They will
all have had the benefit of a flexible, fair and cost free mechanism to ensure
the identification of all
debts raised after 1 July 2015 that are invalid on the
basis set out in the Declarations. At that point all group members should
be
able to know where they stand and understand the basis upon which any such
decision was made, which is otherwise unlikely to occur.
While this can be
criticised as not amounting to much, it has some value.
- First,
as I have said, I consider the claims of Ineligible Group Members to be weak and
more likely than not to fail at trial. I am not
persuaded that the fact that
Ineligible Group Members receive no or little benefit under the proposed
settlement, yet are burdened
with a release shows that the proposed settlement
is not fair and reasonable as between group members. I am not persuaded that a
settlement which provides:
(a) substantial benefits for Category 2 and Category 3
Group Members who have claims with good prospects of success;
(b) no financial benefits for Ineligible Group Members with claims which are
palpably weak and more likely than not to fail; and
(c) that all group members will be bound into a
release;
means that it falls outside the range of reasonable outcomes. The settlement
simply reflects the weakness of the Ineligible Group
Members’ claims and
the strength of the claims of Category 2 and Eligible Category 3 Group Members.
- It
is not the role of the Court to second guess the applicants’ lawyers as to
whether the settlement ought to have been recommended,
or to proceed as if it
knows more about the actual risks of the litigation than those lawyers. The
question is whether the proposed
settlement is within the range of reasonable
outcomes, not whether some better outcome might have been won, nor whether it is
the
best outcome that could have been achieved: Botsman at [207];
Kelly at [74]. In saying this I do not intend to suggest that some
better outcome could have been achieved. In my view the settlement
falls in the
upper end of the range of reasonable outcomes.
- Second,
the Contradictor’s submission that the claims of Ineligible Group Members
should be ascribed at least some value somewhat misses the point when the
applicants’ lawyers were unable to negotiate an outcome to benefit
Ineligible Group
Members. Having regard to the Seventh Grech Affidavit, I am
satisfied that the applicants’ lawyers endeavoured to negotiate
a
settlement which would provide some financial benefit for Ineligible
Group Members, but the Commonwealth refused to meet that demand. The
applicants’ solicitors
and counsel are very experienced and competent
class action litigators and I infer they concluded that no better outcome was
achievable
through negotiation.
- Having
been unable to negotiate a settlement which gave some financial benefit to
Ineligible Group Members, the only way that the
applicants’ lawyers could
recover anything for them was if the case proceeded to trial. At trial their
claims faced a binary
outcome, that is, either their claims would succeed or
they would fail. As I have said, in my view their claims are weak and it
is
more likely than not that they would have failed and costs would have been
awarded against the relevant representative applicants.
- Third,
the Seventh Grech Affidavit also shows that the applicants’ lawyers were
alive to the potential conflicts of interest between
the different categories of
group members, and provided separate written advice to the representative
applicants for each of the
categories. Each of the representative applicants
provided instructions to accept the proposed settlement knowing that Ineligible
Group Members (and Category 1 Group Members) would be bound in the settlement
but would not share in the Distribution Sum.
- Insofar
as the interests of Ineligible Group Members are concerned, having regard to the
attendant risks of litigation on liability
and quantum, I consider the proposed
settlement to be fair and reasonable as between them and the other categories of
group members.
Should all Category 1 Group Members and Ineligible Group
Members be permitted another opportunity to opt out?
- I
now turn to deal with the Contradictor’s submission that unless Category 1
Group Members and Ineligible Group Members are
given an “informed
opportunity” to opt out of the proceeding the proposed settlement is not
fair and reasonable. I do
not accept this submission.
- First,
for the reasons previously given it is not unfair or unreasonable that Category
1 Group Members and Ineligible Group Members receive
no financial benefit under
the proposed settlement. The proposed settlement reflects: (a) that Category 1
Group Members have suffered
no economic loss and therefore cannot make out their
unjust enrichment claims or their claims for negligently caused economic loss;
and (b) that Ineligible Group Members’ claims are weak and more likely
than not to fail.
- Second,
the parties, including the representative applicants representing the interests
of Category 1 Group Members and Ineligible Group
Members, oppose allowing
Category 1 Group Members and Ineligible Group Members to opt out at this stage.
- The
Commonwealth went as far as to contend that the Court does not have power to fix
another date so as to extend the period during
which a group member may opt out
of the proceeding pursuant to s 33J(3) of the FCA, because no application has
been made by a group
member or party. It contended that s 33ZF of the FCA,
understood in light of BMW Australia Ltd v Brewster [2019] HCA 45;
(2019) 94 ALJR 51, is not a source of power for the Court on its own motion to
order that a person cease to be a group member, particularly in light
of the
specific power conferred by s 33J(3). It said that an order extending the opt
out period to allow group members to opt out
of the settlement is not capable of
being characterised as an order “to ensure that justice is done in the
proceeding”
as between the parties to the proceeding.
- In
my view the Court has power to extend the time for opt out without there being
an application by the parties or a group member.
The power in s 33ZF is not
restricted to ensuring justice is done in the proceeding only as between the
parties as the Commonwealth
submitted. Understood in the context of the
representative regime, and taking into account the Court’s protective role
in
relation to group members’ interests in an application under s 33V, in
my view the power in s 33ZF extends to ensuring that
justice is done in the
proceeding as between group members. In my view the ratio in Brewster
does not extend as far as the Commonwealth contended.
- In
any event, 19 of the in time objections indicated that the objector would prefer
to opt out of the proceeding. It is open to treat
these as an application to
extend the opt out period pursuant to s 33J(3) of the FCA.
- Putting
the question of power to one side, in circumstances where the
Contradictor’s proposition is strenuously opposed by the
parties, making
the order sought would risk an appeal and consequential delay and cost. There
is also a risk that the Commonwealth’s
argument as to power might succeed.
- Third,
experienced lawyers representing the parties have reached an in-principle
settlement on a particular basis, doing so after the time
for opt out had
expired. The Commonwealth’s opposition to a further opt out at this stage
is understandable when an important
aspect of the utility of the class action
regime is that it provides finality for the respondent: Newstart 123 Pty Ltd
v Billabong International Ltd [2016] FCA 1194; (2016) 343 ALR 662 at [68]
and [70] (Beach J).
- Fourth,
Ineligible Group Members have already had an opportunity to opt out of the
proceeding. Of course, at that point group members did
not know into which
category they fell but the opt out notice informed them that the proceeding
could be resolved either by a settlement
or a judgment, and that if they did not
opt out of the proceeding they would be bound by the outcome, including if the
outcome was
unsuccessful or not as successful as they might have wished.
- Fifth,
it is common ground that many group members fall into more than one category. I
accept Mr Grech’s evidence that many group
members had difficulty in
understanding the opt out notice, and that a further opt out notice is likely to
be even more confusing,
following as it would their receipt of the Notice of
Proposed Settlement. Any confusion may lead some Ineligible Group Members to
opt out of the proceeding when it is not in their interests to do so because
they are also Category 2 Group Members or Eligible Category
3 Group Members.
- Sixth,
allowing a further opt out would result in:
(a) major cost both in relation to the publication of
the further opt out notice to approximately 254,000 group members and in
responding
to the tens of thousands of enquiries which are likely to ensue. Such
costs will be carried at first instance by Gordon Legal but
they will then be
able to claim those from the Distribution Sum, which will reduce the
compensation payable to Category 2 Group Members
and Eligible Category 3 Group
Members; and
(b) substantial delay in the distribution of the Distribution Sum, as before an
“informed” opt out process could begin
it will first be necessary to
categorise all group members, which is likely to take approximately two months
and that completion
of an opt out of such magnitude will take up to 10-12
months.
Given the weakness of the Ineligible Group Members’ claims I do not
consider it appropriate that the compensation payable to
Category 2 Group
Members and Eligible Category 3 Group Members be reduced, nor materially
delayed.
- In
the circumstances of the present case I am not persuaded the proposed settlement
is not fair or reasonable unless a further opt
out is allowed.
A limited further opt out?
- Although
the applicants opposed an order to allow Category 1 Group Members and Ineligible
Group Members another opportunity to opt
out of the proceeding, they embraced
the Court’s suggestion that there was some benefit in allowing group
members who filed
objections, including late objections, to now opt out if they
wish. The Commonwealth said that it neither consented to nor opposed
that
course. I made that suggestion not because I considered that the settlement was
not fair and reasonable unless Category 1 Group
Members and Ineligible Group
Members were given an opportunity to opt out at this stage, but rather because
allowing group members
who objected to the proposed settlement to now opt out of
the proceeding would improve fairness. The proposed settlement has been
approved on the basis that some 680 group members who filed objections to
settlement approval, including late objections filed up
to the close of business
on the day prior to the settlement approval hearing, are to be given the
opportunity to opt out.
The reaction of the class to the proposed settlement
- 596
group members filed objections to the proposed settlement within time, and a
further 84 group members filed late objections in
the period up to the
settlement approval hearing on 6 May 2021. I have granted leave for those
late objections to be filed out of
time, but not in relation to any objections
filed after the settlement approval hearing.
- 269
of the within time objections specified no reason for the objection, and there
are reasons to doubt that they were intended as
objections. 130 of the within
time objections set out a statement of the group members’ personal
experience or contained information
relevant to the proceeding, but did not set
out any coherent objection to settlement approval. Many of the objections
raised arguments
against the debt said to be owed by the group member, and it is
hard to tell whether these are objections to settlement approval
or to the debt
that was raised against them. It is usually not possible to determine which of
the identified categories of group
members each objector falls into, so as to
understand whether or not they will receive any financial benefit under the
settlement.
- Mr
Grech said, and I accept, that the overall reaction of the class to the
settlement was positive. Only 680 out of approximately
648,000 group members
objected to the proposed settlement, and of those it appears that 415 are
arguably not objections at all.
Put another way, only somewhere between 0.1%
and 0.04% of group members objected to the proposed settlement.
- Even
so, the fact that only a small proportion of group members object to settlement
approval is not determinative of fairness and
reasonableness; they provide a
convenient focus by reference to which the Court may assess the fairness and
reasonableness of a proposed
settlement and it is the Court’s task to make
that assessment: Darwalla Milling Co Ltd v F Hoffman-La Roche (No 2)
[2006] FCA 1388; (2006) 236 ALR 322 at [39].
- Many
of the objections reflect the financial hardship, inconvenience, lasting anxiety
and distress that group members experienced
because the Commonwealth raised and
in many cases, recovered debts from them when it had no lawful basis to do so.
It is plain that
many group members continue to feel upset and anger in relation
to the Robodebt system and many objectors said that the Robodebt
system has had
profoundly negative and damaging effects upon them.
- Some
group members, including Ms Prygodicz, first learned of their Asserted
Overpayment Debt when the Commonwealth, through the ATO,
garnished their tax
return. Others only found out that they owed a debt when their attempt to pay
for something by credit or debit
card was rejected by their bank due to
insufficient funds, which they found humiliating. Many objectors felt demeaned
by having
to prove that they were not “welfare cheats”, particularly
when they believed they had made full and frank disclosure
of their income to
Centrelink, and considered that they were honest people. Some group members
said they had taken out high interest
loans in order to pay off the asserted
debts, which later turned out to have been unlawfully asserted. Tragically, some
group members
said that they had contemplated suicide or attempted to take their
own lives, and two objectors said that their loved ones had committed
suicide.
I have given the numerous objections serious consideration but for the reasons I
explain I do not consider they justify
refusing to approve the proposed
settlement.
- I
have grouped the objections into some broad categories and I set out below some
examples of the objections. In part I do so in order that group members
understand that their concerns have been heard.
Jennifer Miller
- Jennifer
Miller filed an objection to settlement approval on behalf of her deceased son,
Rhys Cauzzo, and she appeared at the settlement
approval hearing. Tragically,
her son, Rhys, committed suicide on 26 January 2017. Ms Miller presented as an
honest person who
was deeply aggrieved by the circumstances leading to her
son’s death. Ms Miller said that her son committed suicide following
receipt of three letters of demand and final notices from Dun & Bradstreet,
a debt collection agency engaged by the Commonwealth,
in the period between 8
November 2016 and 3 January 2017. The debts asserted to be owed by her son
totalled $27,603.39.
- Ms
Miller said that her son was very creative and intelligent but had always
suffered from a major depressive illness, and frequently
had panic attacks. He
was receiving support for his mental health but he was working and attending
university. While she accepted
that her son had pre-existing mental health
problems, Ms Miller was clear in stating that the Commonwealth’s pursuit
of the
asserted debts contributed to him committing suicide.
- It
is not clear on the materials as to whether or not the asserted debt was based
on income averaging from ATO data and Ms Miller
had been unable to obtain such
information from the Commonwealth. She said though that her son did not owe the
debt and she objected
to the proposed settlement because, among other matters,
she considered that it inadequately compensated those who had suffered emotional
and psychological distress through the operation of the Robodebt system and
because she considered that the settlement would mean
that those she considered
responsible, principally the responsible Ministers and senior public servants,
would not be held accountable
for the damage done to vulnerable people like her
son.
Harold Baeck
- Harold
Baeck filed an objection to settlement approval and appeared at the settlement
approval hearing. Mr Baeck is a welder and
sheet metal worker by trade and he
came across as an ordinary, honest, hard-working Australian. He said that he
obtained employment
through various job placement agencies, as well as working
for various small businesses, but he also received social security benefits
from
time to time. He said that around one and a half years ago he received a letter
from the Commonwealth, which he believes was
generated by the Robodebt system,
stating that he had been overpaid social security benefits of approximately
$3,200 and he had a
debt in that amount. He did not accept that he owed that or
any other amount, but said that his attempts to persuade Centrelink
of its error
fell on deaf ears. It took him around six months to obtain all the paperwork he
needed from the various job placement
agencies and small businesses he had
worked for or been placed through to challenge the asserted debt, which involved
significant
work, stress and anxiety. Having provided the information to
Centrelink he said the debt was reduced from $3000 to $400, which he
paid.
During some of that period he said he could not work as a result of the stress
caused by the wrongful assertion of the debt.
- Mr
Baeck’s objection reveals some of the damage caused by the Robodebt
system, but having regard to the attendant risks of the
litigation and the size
and terms of the proposed settlement, it does not justify refusing to approve
the proposed settlement.
Jordan Chadwick
- Ms
Chadwick filed an objection to the proposed settlement and appeared at the
settlement approval hearing. She said that the Commonwealth
asserted that she
owed a $16,000 debt and that she was harassed by Dun and Bradstreet in relation
to that asserted debt by telephoning
her continuously. She said that her
telephone “rang every single day – every single day”,
including in the days
after her father had committed suicide. She said that she
was told that if she did not agree to enter into a payment plan with Dun
&
Bradstreet that “all my wages will be garnished. My car will be
taken.” She also said that she raised queries
and complaints about the
asserted debt, but they “just fell on deaf ears.” She also opposed
approval of the proposed
settlement because she did not consider it compensated
people for the emotional distress, anguish and anxiety that they suffered
through the Robodebt system.
- Ms
Chadwick also said that she had been placed under immense financial pressure
through the Robodebt system. She said that approximately
$11,000 of the $16,000
asserted debt was garnished from her tax returns in part payment, and that
during the period in which she
was said to owe a debt she did not receive any
social security benefits. On her account this meant that she had to work three
jobs
while studying to be a social worker. She said that she had been affected
by the Robodebt system for approximately six years and
it had taken a
“huge mental toll”. The Commonwealth later accepted that the debt
was wrongfully raised and recovered
from her. The $11,000 she repaid has now
been refunded to her and the remaining balance of $5,000 has been zeroed.
- Again,
Ms Chadwick’s objection reveals some of the damage caused by the Robodebt
system, but having regard to the attendant
risks of the litigation and the size
and terms of the proposed settlement, it does not justify refusing to approve
the proposed settlement.
Kathryn Stanley
- Ms
Stanley opposed settlement approval on the basis that the proposed settlement
discriminates against those group members who were
threatened or coerced into
supplying information. To that extent her objection appears to reflect the
likely concerns of Ineligible
Group Members. For the reasons previously
explained, I do not accept that the proposed settlement unfairly discriminates
against
Ineligible Group Members; the proposed settlement merely reflects the
weakness of their claims as compared to the claims of Category
2 Group Members
and Eligible Category 3 Group Members.
- She
also requested the Court make additional orders for damages for the harm caused
to group members and to impose a moratorium on
debts based on overpayments of
income support payments incurred before the Robodebt system was suspended in
early December 2020.
The Court has no power to make such orders in the context
of a settlement approval application.
Thomas Burns
- Mr
Burns filed an objection to settlement approval and appeared at the settlement
approval hearing. He made a number of objections
to settlement approval, two of
which bear particular reference.
- First,
he said that settlement approval orders should not be made until such time as
group members are informed as to which category they
fall into. This objection
has some merit but I was ultimately not persuaded that it justified a refusal to
approve the settlement.
Categorising group members before seeking any
objections to settlement approval would have had the benefit of providing group
members
with better information before they are required to decide whether or
not to object, but:
(a) the objections which have been filed raise every
conceivable ground for objection, and they have been considered;
(b) where a group member falls into the category of Ineligible Group Member,
there is nothing that he or she can do to change that;
and
(c) there would be significant delay and cost in requiring categorisation to be
undertaken now, which would be at the expense of
Category 2 Group Members and
Eligible Category 3 Group Members without Ineligible Group Members obtaining any
commensurate benefit.
I am not persuaded that it is appropriate for Category 2
Group Members and Eligible Category 3 Group Members to suffer such extra
expense
and delay when, where a group member is an Ineligible Group Member, there is
nothing that he or she can do to change that,
and the proposed settlement is
fair and reasonable as between the different categories of group members.
- Second,
he objected to the Commonwealth charging interest on the debts of Ineligible
Group Members because such group members may have held
the mistaken belief that
they would not have to pay any such debt, let alone the interest accruing on it,
as it had been invalidly
raised. There is little force in this objection when
their debts were not raised based on income averaging from ATO data, but were
instead based on information such as payslips and bank statements provided by
those group members. In any event, the Court has no
power to change the terms of
the proposed settlement; only to approve or refuse to approve the proposed
settlement on the terms that
it was made.
Fleur Hawke
- Ms
Hawke filed an objection to settlement approval. She described herself a single
parent attempting to support herself and two children
on a single low income.
She said that the Commonwealth raised a debt against her based on the Robodebt
system, which meant that
she had to struggle to support her family while also
making repayments toward the Asserted Overpayment Debt. While she was repaying
that debt her entitlement to claim an advance payment from the Commonwealth,
which helped her to pay for essential items, was suspended
and in desperation
she turned to pay day loans and “shonky credit providers”. This led
her into either further debt.
She said that the Robodebt system
“ultimately led me down the road to financial ruin.”
- Again,
Ms Hawkes’s objection reveals some of the damage caused by the Robodebt
system, but having regard to the attendant risks
of the litigation and the size
and terms of the proposed settlement, it does not justify refusing to approve
the proposed settlement.
The categories of objection
- Gordon
Legal categorised the within time objections as follows, which categorisation is
in my view broadly accurate.
|
Nature of objection
|
Number of objections
|
|
1
|
Grounds for objection 1: debts calculated or
recalculated on the basis of payslips/bank statements should be refunded
|
49
|
|
2
|
Grounds for objection 2: settlement does not account for
distress and inconvenience
|
21
|
|
3
|
Grounds for objection 3: settlement sum too low
|
9
|
|
4
|
Grounds for objection 4: settlement inappropriate
because it prevents trial occurring/Respondent should be held to account/no
apology
|
10
|
|
5
|
Grounds for objection 5: legal costs
|
3
|
|
6
|
Grounds for objection 6: group members who received no
benefit from the settlement should not be precluded from pursuing separate
legal
action regarding their debt
|
1
|
|
7
|
Objection relates to two or more of grounds 1-6 listed
above
|
54
|
|
8
|
No grounds of objection noted
|
269
|
|
9
|
Statement of personal circumstances or other information
relevant to proceeding; no specific grounds provided
|
130
|
|
10
|
Irrelevant information or outside the scope of the
proceeding
|
11
|
|
11
|
Intending to opt out
|
19
|
|
12
|
Grounds were unclear or unable to be interpreted
|
15
|
|
13
|
Miscellaneous documents not objection forms
|
5
|
|
Total
|
596
|
The 84 late objections have not been categorised.
Ground 1
- The
49 objections grouped under Ground 1 broadly concern Ineligible Group Members.
For the reasons I have set out above this objection
does not in my view justify
refusing to approve the settlement. The central failure of the Robodebt system
was the raising and recovery
of Asserted Overpayment Debts based on income
averaging from ATO data. The debts asserted against Ineligible Group Members
Based
were not, however, based on income averaging from ATO data; they were
calculated or recalculated on the basis of payslips or bank
statements provided
by the group member. For Ineligible Group Members to establish an entitlement
to be refunded such debts they
must succeed in the “tainting”
argument which is weak. For the reasons previously explained, I am not
persuaded that
it is appropriate to refuse settlement approval.
Ground 2
- The
21 objections grouped under Ground 2 concern the hardship, stress, anxiety and
inconvenience many group members have suffered
through the Robodebt system. As
I have said, some of the objections are heart-rending and it is plain that many
group members suffered
significant financial hardship, anxiety and distress as a
result of the Robodebt system. The objections underline the massive failure
in
public administration that occurred; and the damage the system has caused, which
could and should have been avoided. But as I
have explained, in my view it is
unlikely that the applicants can establish the existence of the alleged duty of
care. If they could
establish the existence of the alleged duty of care and its
breach, it is unlikely that they can establish an entitlement to distress
damages; and their claims for aggravated and exemplary damages are weak. I am
not persuaded that these objections justify refusal
to approve the proposed
settlement.
Ground 3
- The
nine objections grouped under Ground 3 contend that the settlement is too low.
In some of these objections that complaint is
grounded in other matters,
including that it does not take account of the stress, anxiety and inconvenience
caused, the lack of any
compensation for Ineligible Group Members, or a
comparison of the settlement amount compared to the much greater amount of
wrongly
asserted debts. It is, however, appropriate to view the proposed
settlement alongside the Commonwealth’s program under which
it has
withdrawn Asserted Overpayment Debts totalling approximately $1.763 billion and
it has or will refund approximately $751 million
of Commonwealth-recovered
amounts. For the reasons previously explained, the proposed settlement reflects
a very favourable outcome
measured against the remaining claims in the
proceeding – being for interest or quasi-interest on the
Commonwealth-recovered
amounts – and having regard to the attendant risks
of the litigation on liability and quantum. I am well-satisfied that the
proposed settlement is not too low; in my view it is fair and reasonable as
between the parties and as between group members. These
objections are not
grounds to refuse settlement approval.
Ground 4
- The
10 objections grouped under Ground 4 contend that settlement approval should be
refused because it would prevent the trial from
occurring which would hold the
Commonwealth to account, and because the Commonwealth has made no apology. One
can readily appreciate
the desire of group members to have a trial and to
receive an apology, but in circumstances where the proposed settlement
represents
a very favourable outcome in relation to the claims which were likely
to succeed at trial, these objections have little force.
- First,
if the case proceeded to trial and the applicants succeeded, the Court has no
power to compel an apology. Second, the proposed
settlement, without an
apology, is consistent with s 37M of the FCA which provides that the
overarching purpose of the civil practice
and procedure provisions of the FCA is
to facilitate the just resolution of disputes according to law as quickly,
inexpensively and
efficiently as possible.
Ground 5
- The
three objections grouped under Ground 5 concern the applicants’ legal
costs and their proposed deduction from the settlement
sum.
- One
of these objections suggested that there was a relationship between legal costs
and their entitlement to share in the financial
benefits of the proposed
settlement. That is not the case. The fact that Category 1 Group Members and
Ineligible Group Members
will not share in the financial benefits of the
proposed settlement is unrelated to the reasonableness of the applicants’
legal
costs. Another objection appears to be made on the basis that group
members will somehow be liable for legal costs, and that their
share of the
Distribution Sum will have legal costs deducted from it, effectively leaving
them with no money in hand. That is not
the case.
- Another
objection is made on the basis that the applicants’ legal costs are too
high and that amount should more appropriately
be paid to group members. This
objection has no force in my view. The proceeding would not have been possible
without Gordon Legal
bringing the case on a no win-no fee basis and indemnifying
the applicants against adverse costs. The proceeding has achieved a
substantial
settlement in favour of the applicants and approximately 400,000 group members.
It is appropriate that Gordon Legal
be fairly remunerated for its work pursuant
to the conditional costs agreements the applicants entered into.
- It
is also fair and reasonable that those group members who stand to benefit from
the proposed settlement should pay a pro rata share
of the costs incurred in
achieving the settlement. Those group members who do not receive any financial
benefit under the proposed
settlement will not pay any share of the costs.
- As
I later explain in more detail, the question as to whether Gordon Legal’s
costs are reasonable and proportionate has been
the subject of careful scrutiny
by the Costs Referee, by the Contradictor who was specifically appointed to
represent group members’
interests in relation to the reasonableness of
legal costs, and by the Court. These objections do not justify refusal to
approve
the proposed settlement.
Ground 6
- The
sole objection under Ground 6 contends that group members who receive no benefit
from the settlement should not be precluded from
pursuing separate legal action
regarding their debt. This objection has some merit, and this contention was
the subject of detailed
submissions by the Contradictor. However, for the
reasons I have explained, I concluded that it is not a basis to refuse to
approve
the settlement.
- First,
as I have explained:
(a) the settlement is approved on the basis that the
release is not concerned with the non-common claims of group members based in
their individual or unique personal circumstances; and
(b) the release does not preclude group members from enquiring about, objecting
to or challenging debt decisions which were the subject
of the proceeding,
including by way of statutory review under the SSAA, if the basis for the
challenge or objection is different
in nature those made in the proceedings.
Thus, it leaves open a broad avenue for group members to object to or challenge
debt decisions
of the Commonwealth.
- Second,
the claims of Ineligible Group Members are based in the “tainting”
argument, and in my view they are weak and more likely
than not to fail at
trial.
- Third,
the opt out notice informed group members that the proceeding could be resolved
either by a settlement or a judgment, and that if
they did not opt out of the
proceeding and the action was unsuccessful or not as successful as they might
have wished, they would
not be able pursue the same or similar claims in other
legal proceedings. Thus, Ineligible Group Members were informed that, if
they
did not opt out, and the proceeding was resolved they may be bound into the
outcome without receiving any benefit.
- Fourth,
the Notice of Proposed Settlement informed group members as to the terms of
the proposed settlement and any group member who took
the trouble to file an
objection, including those who were late in doing so, will be permitted to opt
out of the proceeding and will
therefore not be bound by the release.
- In
the circumstances this objection does not justify refusal to approve the
proposed settlement.
Ground 7
- The
54 objections grouped under Ground 7 raise two or more of the matters raised
under Grounds 1-6 addressed above. I need not say
any more about those
grounds.
Ground 8
- The
269 objections grouped under Ground 8 do not set out any reason for objection.
There are reasons to doubt that they were intended
as objections, and they are
not a basis upon which settlement approval should be refused.
Ground 9
- The
130 objections grouped under Ground 9 provide little more than a statement of
personal circumstances or other information arguably
relevant to the proceeding.
They do not specify reasons for the objection and they are not a basis upon
which settlement approval
should be refused. There are also reasons to doubt
that they were intended as objections.
Ground 10
- The
11 objections grouped under Ground 10 contain irrelevant information or matters
which go outside the scope of the proceeding.
They are not a basis upon which
settlement approval could be refused.
Ground 11
- The
19 objections grouped under Ground 11 indicate that the objector would prefer to
opt out of the proceeding. The proposed settlement
is approved on the basis
that those group members who objected to the proposed settlement up to the point
of the settlement approval
hearing will be given the opportunity to opt out of
the proceeding. These objections do not justify refusing to approve the proposed
settlement.
Ground 12
- The
15 objections grouped under Ground 12 set out reasons for objection which are
unclear, and cannot justify a decision to refuse
to approve the proposed
settlement.
Ground 13
- These
five purported objections comprise miscellaneous documents. They are not
objections to settlement approval and do not justify
refusing to approve the
proposed settlement.
The risks of maintaining a class action
- There
is no risk that the application could not be continued as a representative
proceeding under Pt IVA of the FCA. Indeed, the case is a paradigm example of
the appropriate use of the regime.
The ability of the respondent to withstand a greater
judgment
- The
Commonwealth could unquestionably satisfy a judgment in a sum greater than the
proposed settlement, and indeed greater than any
amount that could possibly be
achieved through the litigation. No discount has or should be applied based on
any purported risk
that the Commonwealth would be unable to satisfy a greater
judgment.
WHETHER THE SETTLEMENT DISTRIBUTION SCHEME IS FAIR AND
REASONABLE
- The
SDS is Annexure B to the Settlement Deed. Clause 3 of the SDS requires the
Commonwealth to develop an Implementation Plan for
distribution of the
settlement. It is appropriate in my view to give particular attention to the
SDS because, somewhat unusually,
the distribution will be undertaken by the
respondent to the proceeding rather than by a scheme administrator nominated by
the applicants.
- The
SDS sets out the processes required to be undertaken in categorising group
members so as to determine whether they are eligible
to a share of the
Distribution Sum, for communicating with group members and for paying Category 2
and Eligible Category 3 Group
Members a share of the Distribution Sum calculated
by reference to the terms of the SDS. The administration of the settlement is
to be undertaken by the Commonwealth through Services Australia, with
independent oversight by the Scheme Assurer, and with Gordon
Legal having a role
to protect group members’ interests. The SDS includes processes for
resolution of any disputes, and also
allows matters to be brought before the
Court if necessary.
- The
SDS is designed to manage the distribution of the settlement funds only amongst
Category 2 Group Members and Eligible Category
3 Group Members as they are the
only persons eligible to be Scheme Claimants under the Settlement Deed. Any
suggested unfairness
to Ineligible Group Members arising from the fact that they
do not receive any financial benefit under the proposed settlement does
not
arise as a result of the SDS. Instead, it is a result of the Settlement Deed.
It is accordingly appropriate to approach the
fairness of the SDS by reference
to whether it is fair and reasonable having regard to the interests of Category
2 Group Members
and Eligible Category 3 Group Members, as they are the only
persons entitled to a distribution.
The Scheme Assurer
- Clause
2 of the SDS provides for the appointment of the Scheme Assurer, which is
responsible for providing assurance of the Commonwealth’s
calculation and
distribution of entitlements under the SDS to ensure that the SDS is
administered fairly and reasonably in accordance
with its terms. Under the SDS
the Commonwealth must provide information and data relating to group members to
the Scheme Assurer
to allow it to undertake its assurance functions. The costs
incurred by the Scheme Assurer will be met by the Commonwealth independently
of
any funds paid by way of settlement. The Scheme Assurer is required to assure:
(a) the appropriate categorisation of Group Members,
which process will include sampling of categorisations;
(b) the Commonwealth’s Information Communications Technologies system
design, build and release for the administration of the
SDS; and
(c) the calculation of the “Scheme Claimants” entitlements from the
Distribution Sum and the payment of those entitlements.
The Scheme Assurer must also provide an independent review mechanism for group
members who dispute the categorisation of their claim
or the entitlement
calculation.
The Implementation Plan
- The
Implementation Plan was prepared and agreed between the parties. It details the
functions to be performed by the Commonwealth
(principally by Services
Australia). In large part, the Implementation Plan provides greater detail
around the processes, obligations
and rights set out in the SDS Framework. In
written submissions the Contradictor raised various concerns about aspects of
the SDS,
and also consulted with Services Australia in relation to those
changes. By and large the Commonwealth took on board the Contradictor’s
concerns and made appropriate changes. The Implementation Plan now provides as
follows.
Phase 1
- The
Commonwealth is required to categorise group members to determine those who are
eligible for a distribution from the Distribution
Sum and those who are not. In
respect of the categorisation process, during Phase 1 the follows steps are
required to occur:
(a) by a specified date the Commonwealth is to provide
the Scheme Assurer with a random sample (using the methodology advised by the
Scheme Assurer) of a categorised cohort of group members to allow the Scheme
Assurer to review the data and ensure that, broadly,
the categorisation process
has been accurate and effective (see: Step 1.2 and SDS cl. 4.a.i);
(b) by a specified date the Scheme Assurer is to provide a report to Services
Australia and Gordon Legal which contains a full analysis
of the results of the
sample and an assessment of the adequacy of the verification process (see: Step
1.3 and SDS cl 4.a.iii);
(c) following receipt of the Scheme Assurer’s verification report, Gordon
Legal will advise Services Australia and the Scheme
Assurer as to whether or not
it is satisfied that group members have been correctly categorised (see: Step
1.4 and cl. 4.a.iv); and
(d) Services Australia will process the categorisation file and until that
processing has taken place Phase 2 of the Implementation
Plan will not commence.
Phase 2
- Phase
2 of the Implementation Plan provides:
(a) for the exclusion of Group Members who have opted
out of the proceeding;
(b) within 9 weeks of the Court making the settlement approval orders or
completion of the opt-out process, whichever is later, and
subject to
confirmation by Gordon Legal of their satisfaction with draft correspondence,
Services Australia is to send a letter which
details:
(i) how the categorisation of group members
works under the SDS;
(ii) whether or not the Group Member is eligible for a settlement payment based
on the categorisation of their debts
(iii) what dispute options there are if a group member disagrees with their
categorisation; and
(iv) the deadline by which (unless a relevant exception applies) the group
member must provide or update their bank details or provide
a residential
contact address to enable the distribution of their share of the Distribution
Sum (see: Step 2.2).
- At
the same time as letters are sent out, Services Australia is to set up a
dedicated inbound and outbound call centre and a website
so that group members
can obtain information and lodge disputes about their categorisation, as well as
provide additional methods
by which Category 2 Group Members and Eligible
Category 3 Group Members can provide bank account details or a residential
contact
address (see: Step 2.3). Step 2.4 contemplates that Services Australia
will undertake a non-exhaustive list of steps to contact group
members who
Services Australia have not already been able to contact for the purposes of
verifying their contact or bank account
details. Services Australia will take
these mandatory and non-exhaustive steps by a series of specified dates. The
mandatory non-exhaustive
list requires Services Australia to contact all
Category 2 Group Members and Eligible Category 3 Group Members by:
(a) checking whether the group member’s contact
details have changed, using information held by other Commonwealth agency
databases
and external collection agencies;
(b) outbound telephone call to the group member’s mobile phone or landline
(where those contact details are held by Services
Australia);
(c) sending two SMS messages, an initial and a final message, where Services
Australia possess a mobile phone number for the group
member;
(d) an advertising campaign on radio and social media; and
(e) making available information on a web portal.
- Step
2.5 provides a two-tiered dispute process which allows Group Members to dispute
their categorisation and thus their eligibility
for a payment from the
Distribution Some. The first tier of the dispute process is to be managed by
Services Australia. If the
tier 1 review does not satisfy the group member then
they can escalate their complaint to the Scheme Assurer. All disputes will
be
finalised by a specified date (see: SDS cl 4.f).
- Step
2.6 allows application to the Court in circumstances where, after notification
by the Commonwealth that it considers that it
has taken “all available
steps” to contact group members for the purposes of Step 2.4, Gordon Legal
considers that all
reasonable steps have not been taken (see: SDS cl. 4.b).
- Similarly,
Step 2.6 permits Gordon Legal, within a reasonable timeframe after its receipt
of the report by Services Australia regarding
all available steps it took in
respect of Step 2.4 to contact group members, to write to the Commonwealth
setting out what steps
the firm considers have not been taken or have not been
taken adequately and proposing a further time period in which that should
occur.
This is an alternative process to approaching the Court to resolve the dispute
over the reasonableness of the steps taken
by the Commonwealth to contact Group
Members. If Gordon Legal remain unsatisfied that all reasonable steps have not
been taken after
the period of extended time has elapsed, then it can approach
the Court.
- Step
2.7 provides that Category 2 Group Members and Eligible Category 3 Group Members
will be deemed to be Scheme Claimants. After
22 weeks have elapsed from the date
of the orders or from the end of the opt-out process for objectors, whichever is
the later, where
Scheme Claimants’ bank accounts and preferred payment
methods have been identified they will be deemed members of the
“registered cohort” who are eligible to receive a payment
from the Distribution Sum.
Phase 3
- Under
Step 3.1 the entitlement to a share of the Distribution Sum is contingent on
group members having either a current bank account recorded with
Centrelink or by having provided Centrelink with a nominated address to which a
cheque can be
sent by registered post.
- Step
3.1 has also been amended so as to provide greater clarity to the circumstances
in which a Category 2 Group Member and Eligible
Category 3 Group Member will be
taken to have provided current bank account details or a nominated contact
address.
- Step
3.1 of the Implementation Plan details that the period between the date from
which the repayment of an Asserted Overpayment Debt
was received by the
Commonwealth to the date of refund is used as the time during which the parties
have agreed to calculate the
applicable Federal Court pre-judgment interest
rates.
- Under
Step 3.2, within 7 days of the registered cohort being identified, the Scheme
Assurer is required to undertake a random sample
process to ensure that the
calculation of payments to eligible Group Members is being conducted on an
appropriate methodological
basis and provide assurance that the entirety of the
Distribution Sum is being distributed to eligible group members.
- Under
Step 3.3 Services Australia are required to notify eligible group members of the
amount of the payment, the formula by which
their payment was calculated, and
the dispute process. An inbound call centre and Web Portal will be available to
group members
for 48 weeks after the court approval of the settlement or the end
of the opt-out period for objectors, or whichever is later. The
period that
registered group members can receive information about their entitlement to a
payment from the Distribution Sum through
the web portal and the telephony line
will start the day the notice is issued and end when the 48 week period has
elapsed.
- Step
3.4 of the Implementation Plan now includes specified dates for payments to the
registered cohort to be made. The majority of
payments will be made over a
four-week period, from 32 weeks after the Court makes the settlement approval
orders or completion of
the opt out process, whichever is later. This step was
amended to include a non-exhaustive list of circumstances that will result
in
payments being made by manual processing or tailored services. Where the
processing of a payment is manual or otherwise individually
tailored, then the
Commonwealth is required to notify the relevant group member that payment could
take up to 16 weeks to process.
- Step
3.5 provides:
(a) the steps Services Australia will implement to
ensure that returned or rejected payments are recorded;
(b) the non-exhaustive list of steps Services Australia must take to ensure that
all reasonable steps are taken to reissue those
payments; and
(c) how the Commonwealth will treat monies received in respect of a returned or
rejected payments and whether such funds may be used
to pay persons who have not
been contactable, for an identified reason, and are therefore eligible to share
in the Distribution Sum.
- Step
3.6 provides for the Scheme Assurer to conduct a final assurance process and
will report to the Court that Services Australia
has followed the processes set
out in the Implementation Plan.
Gordon Legal’s function under the SDS
- Gordon
Legal’s functions under the SDS include that the firm:
(a) had a role in relation to preparation of the
Implementation Plan;
(b) must advise the Commonwealth as to whether it is satisfied that all group
members have been correctly categorised. There is a
dispute resolution procedure
for determination of disputes relating to the categorisation of group members;
(c) must be satisfied that the Commonwealth has used all reasonable endeavours,
including by taking the mandatory steps, to contact
and verify the contact and
current bank account details of Category 2 and Eligible Category 3 Group
Members;
(d) must agree to any notifications to and correspondence with group members
under the SDS. There is a dispute resolution procedure
in default of
agreement;
(e) shall be given an opportunity to provide input into the website text and
call scripts to be used by the Commonwealth in answering
group members’
questions regarding the SDS;
(f) may provide information and assistance about the SDS to group members who
request it, limited to advice explaining how group
members have been categorised
and explaining the methodology employed to calculate group members’
entitlements; and
(g) must have a detailed FAQs section on their website which addresses issues
and provides generic information to group members.
Gordon Legal anticipates that it will be required to field and answer enquiries
from tens of thousands of group members.
- The
calculation of the entitlement of Category 2 Group Members and Eligible Category
3 Group Members under the SDS involves a simple
interest calculation on the
Commonwealth-recovered amounts based on the period over which the Commonwealth
held those monies in respect
of each such group member. The costs, delay and
difficulties associated with some more individualised assessment method would
likely
have outweighed the benefits to group members.
- In
my view the SDS is fair and reasonable and in the interests of Category 2 Group
Members and Eligible Category 3 Group Members including
because:
(a) the claims of all group members are subjected to the
same procedures in relation to categorisation;
(b) the claims of all Category 2 Group Members and Eligible Category 3 Group
Members are subjected to the same principles and procedures
for assessing the
value of their entitlements under the scheme;
(c) the assessment methodology is likely to deliver a broadly fair relative
assessment of group member’s entitlements under
the scheme as between
Category 2 Group Members and Eligible Category 3 Group Members;
(d) does not provide special treatment to the applicants or group members by way
of a reimbursement payment;
(e) provides appropriate procedures and timelines for categorising group members
and determining the entitlements under the scheme;
(f) incorporate meaningful opportunities for review and objection by group
members, and allows Gordon Legal to represent group members’
interests;
(g) incorporates appropriate independent oversight through the appointment of
the Scheme Assurer; and
(h) provides reasonable grounds to be confident that group members will be
appropriately categorised and that Category 2 Group Members
and Eligible
Category 3 Group Members will receive their appropriate
entitlements.
WHETHER THE APPLICANTS’ LEGAL COSTS ARE FAIR AND
REASONABLE?
- Clause
2.8.4 of the Settlement Deed provides for the reasonable Court-approved legal
costs incurred by Gordon Legal in acting for
the applicants and group members in
the proceeding, and in undertaking its functions under the SDS, to be deducted
from the Settlement
Sum and to be paid to Gordon Legal as directed by the
Court.
Relevant principles
- Clause
2.8.4 reflects the Court’s protective role in relation to costs proposed
to be paid by group members. Judicial oversight
of such costs is an important
part of the Court’s role in protecting class members’ interests. In
Petersen Superannuation Fund Pty Ltd v Bank of Queensland
Limited (No 3) [2018] FCA 1842; 132 ACSR 258 at [88] I explained:
In class actions the requirement for judicial
supervision of legal costs proposed to be charged is obvious because: (a) the
applicant’s
solicitor is in a more dominant position vis-a vis a class
member than in a solicitor-client relationship in individual litigation;
(b)
class members are commonly not told about the mounting costs as they are
incurred and they suffer a significant information asymmetry
in that regard; (c)
it is not necessary for class members to retain the applicant’s solicitor
and commonly they do not, yet
they are usually made liable for a pro rata share
of the costs; (d) even where class members retain the applicant’s
solicitor
they do not provide instructions as to the running of the class action
and have no control over the quantum of costs, yet they are
usually made liable
for a pro rata share of the costs; (e) class members are unlikely to pay much
attention to legal costs because
they are usually only payable upon success and
from the successful outcome; (f) it is usually not until after settlement is
achieved
that class members are told the total costs claimed, but they are not
told (and it is commonly very difficult to accurately estimate)
what their pro
rata share of the costs will be; and (g) the Court has a protective role in
relation to class members’ interests.
- As
I said in Earglow Pty Ltd v Newcrest Mining Limited [2016] FCA 1433
at [91] in the context of the settlement approval application:
The Court should satisfy itself that the arrangements in
relation to legal costs meet any relevant legal requirements, contain reasonable
and proportionate terms relative to the commercial context in which they were
entered, and that the costs and disbursements are in
accordance with the terms
of the relevant agreements and are otherwise “reasonable”.
(Citations omitted.)
The Court must be satisfied that the legal costs sought to be recovered from
group members are, in all the circumstances, reasonable
and proportionate:
Modtech Engineering Pty Ltd v GPT Management Holdings Ltd
[2013] FCA 626 at [32] (Gordon J); Petersen; Lenehan v
Powercorp [2020] VSC 82 at [9]- [12] (Nichols J).
- “Proportionality”
is concerned with “the relationship between the costs incurred and the
value and importance of
the subject matter in issue”: Petersen at
[130] citing Skalkos v T & S Recoveries Pty Ltd (2004) 65 NSWLR 151;
[2004] NSWCA 281 at [8] (Ipp JA, Grove and Sheller JJA agreeing); Lenehan
at [11]. It involves a forward-looking assessment at the time the work is
performed, concerned with the benefit reasonably expected
to be achieved, not
the benefit actually achieved: Williams v Ausnet Electricity Services Pty Ltd
[2017] VSC 474 at [110] (Emerton J).
- In
Petersen (at [134]) I cited with approval the explanation of
proportionality by Beach J in Blairgowrie at [181], where his Honour
said.
...what is claimed for legal costs should
not be disproportionate to the nature of the context, the litigation involved
and the expected
benefit. The Court should not approve an amount that is
disproportionate. But such an assessment cannot be made on the simplistic
basis
that the costs claimed are high in absolute dollar terms or high as a percentage
of the total recovery. In the latter case, spending $0.50 to recover an
expected $1.00 may be proportionate if it is necessary to spend the $0.50. In
the
former case, the absolute dollar amount as a free-standing figure is an
irrelevant metric. The question is to compare it with the
benefit sought to be
gained from the litigation. Moreover, one should be careful not to use hindsight
bias. The question is the benefit reasonably expected to be achieved, not the
benefit actually achieved. Proportionality looks to
the expected realistic return at the time the work being charged for
was performed, not the known return
at a
time remote from when the work was performed; at the later time,
circumstances may have changed to alter the calculus, but that
would not deny
that the work performed and its cost was proportionate at the time it was
performed. Perhaps the costs claimed can
be compared with the known return, but
such a comparison ought not to be confused with a true proportionality analysis.
Nevertheless,
any disparity with the known return may invite the question
whether the costs were disproportionate, but would not sufficiently answer
that
question.
(Emphasis added.)
- I
went on to note, however, that there are inherent uncertainties in class action
litigation which mean that the determination of
what the applicant’s
lawyers might reasonably expect to achieve in the litigation may not be as
straightforward as in ordinary
inter partes litigation. As I explained in
Caason at [152]:
In circumstances where the applicant’s solicitors
cannot be expected to be completely accurate in assessments they make at the
commencement of a case about the level of risk, the likely aggregate claim value
and the likely quantum of legal costs, the proper question in relation to
proportionality of legal costs is what settlement or judgment amount it was
reasonable for the
applicant’s solicitors to expect would be achieved by
class members, not what they actually achieved. It is true that the
applicant’s
solicitors know more about the risks of the case than the
class members, but that does not mean they should not be paid costs reasonably
incurred in pursuing a benefit for class members which they reasonably expected
to be achievable. Nor does it mean that the applicant’s solicitors
should be punished when, by reason of the strenuous defence of the proceedings,
the costs blow out.
(Emphasis added.)
- Upon
the Court determining the quantum of reasonable legal costs in a proceeding
there can be no real question that it is appropriate
to order that amount be
deducted from the settlement sum and paid to the applicants’ lawyers. It
is fair and reasonable that
group members that will enjoy the benefits of a
settlement should pay a proportionate share of reasonable Court-approved legal
costs
incurred to obtain and then distribute the settlement. Such orders are
routinely made in settlement approval applications: see Thomas v Powercor
Australia Ltd [2011] VSC 614 at [30] (Beach J); Modtech at [24];
Kelly at [325]-[326].
The application for deduction of costs from the
settlement
- The
Notice of Proposed Settlement sent to group members stated that, at that time,
Gordon Legal estimated that the applicants’
legal costs would be “up
to approximately $16.0 million”. In their written submissions the
applicants said that they
sought an order for costs in the amount of $16
million.
- The
Notice of Proposed Settlement informed group members of their right to object to
the proposed settlement including in relation
to the reasonableness of the legal
costs proposed to be deducted from the proposed settlement. It also informed
group members that:
(a) it was a matter for the Court to determine what
amount of legal costs is reasonable, and should be deducted from the
settlement;
(b) the Court had appointed the Costs Referee to report to the Court as to the
reasonableness of legal costs; and
(c) the Court had also appointed the Contradictor to represent group
members’ interests in relation to the reasonableness of
legal
costs.
The appointment of the Costs Referee and Gordon Legal’s
appointment of an expert costs consultant
- In
the First Grech Affidavit filed on 25 November 2020, Mr Grech said that the
applicants had retained an expert costs consultant,
Michael Dudman of Blackstone
Legal Costing on 19 November 2020. Mr Dudman was retained to assess and provide
an independent expert
report in relation to the reasonable legal costs incurred
by Gordon Legal in acting for the applicants in the proceeding. Shortly
thereafter, my chambers telephoned Mr Grech to inform him that my usual practice
was for the Court to appoint an independent costs
referee under s 54A of the FCA
rather than rely upon an expert appointed by the solicitors for the
applicant.
- At
a case management hearing on 2 December 2020, counsel for the applicants
informed the Court that Mr Dudman’s retainer was
still on foot and he was
working towards producing a report as to the applicants’ reasonable legal
costs in the proceeding.
I told counsel that it was likely that I would rely on
the report of the Costs Referee rather than upon a cost consultant engaged
by
the applicants’ solicitors and that it was unlikely that I would allow the
costs incurred in obtaining his report as a deduction
from the settlement.
- On
23 December 2020, I made orders pursuant to s 54A of the FCA to appoint a costs
referee. Order 11 provided as follows:
Pursuant to s 54A of the Act Ms Cate Dealehr of the
Australian Legal Costing Group is appointed as a referee (Costs Referee)
to inquire into and report to the Court (Report) stating, with reasons,
the Costs Referee’s opinion on the following matters:
(a) the reasonableness of the Applicants’ legal costs for work done up to
the hearing of the settlement approval application,
including costs anticipated
but yet to be incurred as at the date of the Report;
(b) the lump sum amount of reasonable legal costs that the Court should approve
as fair and reasonable and allow to be deducted from
the settlement sum to be
applied to payment of the legal costs of the Applicants and Group Members
incurred in conducting the class
action;
(c) the approximate proportion of the Applicants’ legal costs for work
done up to the Settlement Approval Hearing that are:
(i) attributable to making and advancing the claims made on behalf of Category 4
Group Members and ineligible Category 3 Group Members;
and
(ii) attributable to making and advancing the allegations introduced by the
Second Further Amended Statement of Claim, including
but not limited to the cost
attributable to the first unsuccessful application to introduce those
allegations, the second successful
application to introduce those allegations,
the application for leave to appeal, the grant of leave for those allegations to
be made
and preparation for the trial of those allegations; and
(d) the reasonableness of the sum proposed to be charged by Gordon Legal to
perform its functions under the Settlement Distribution
Scheme (being Annexure B
to the Settlement Deed), being:
(i) those set out in clauses 3b, 3.c, 4.a.iv, 4.b, 4.d.ii, 4.e.ii, checking
whether the Commonwealth has correctly categorised Group
Members into members
who are entitled to a distribution under the Settlement Distribution Scheme, and
members who are not entitled
to a distribution under the Settlement Distribution
Scheme; and
(ii) those set out in clause 5, providing information and assistance to those
Group Members who request it, being limited to:
(A) explaining how Group Members have been categorised under the Settlement
Distribution Scheme; and
(B) explaining the methodology employed to calculate Group Members’
entitlements.
The Contradictor’s role in relation to legal
costs
- The
orders of 23 December 2020 also appointed the Contradictor to represent group
members’ interests in relation to whether
the legal costs proposed to be
deducted from the Settlement Sum are fair and reasonable. The orders permitted
the Contradictor to
seek documents and information from Gordon Legal and/or the
Costs Referee, and to confer with the Costs Referee in relation to the
reasonableness of the legal costs proposed to be charged to group members.
The reasonableness of costs proposed to be charged in the
proceeding
- As
set out above, Mr Dudman provided three reports to Gordon Legal.
- In
the First Dudman Report, Mr Dudman assessed Gordon Legal’s reasonable
legal costs up to the date of the settlement approval
application as follows
(excl. of
GST):
|
Professional fees
|
$9,654,123.33
|
|
Disbursements including counsel’s fees
|
$1,757,702.69
|
|
Total Reasonable Recoverable Costs
|
$11,411,826.02
|
- The
Costs Referee provided two reports to the Court. The first report dated 1 April
2021 (First Costs Referee’s Report) and a supplementary report
dated 26 April 2021 (Second Costs Referee’s Report).
- The
First Costs Referee’s Report concluded that Mr Dudman’s assessment
of legal costs up to the date of the settlement
approval application was
unreasonable, in particular that his assessment of professional fees of $9.65
million was excessive. The
Costs Referee assessed reasonable legal costs up to
the date of the settlement approval application in a total of $7.64 million of
which $5.34 million was professional fees. The precise figures are set out in
the table
below.
|
DESCRIPTION
|
AMOUNT ALLOWABLE
|
|
(A) UP TO 23 MARCH 2021
|
|
|
Professional Fees
|
$5,136,735.12
|
|
Disbursements
|
$1,945,206.58
|
|
SUB-TOTAL
|
$7,081,941.70
|
|
(B) ESTIMATED COSTS TO APPROVAL
|
|
|
Professional Fees
|
$201,715.32
|
|
Disbursements
|
$353,565.00
|
|
SUB-TOTAL
|
$555,280.32
|
|
TOTAL PROFESSIONAL FEES & DISBURSEMENTS (A) +
(B)
|
$7,637,222.01
|
- In
relation to the specific questions in Orders 11(c)(i) and (d) of the orders made
on 23 December 2020, the First Costs Referee’s
Report said
that:
(a) the Costs Referee was unable to provide an opinion
as to the appropriate proportion of the applicants’ legal costs for work
done up to the settlement approval hearing attributable to making or advancing
the claims of Ineligible Group Members; and
(b) the approximate proportion of the applicants’ reasonable legal costs
for work done up to the settlement approval hearing
that is attributed the
making or advancing the allegations of actual knowledge of unlawfulness in the
2FASOC is between 5-6.5%.
Those two questions arose out of opposition the Commonwealth had flagged to
costs incurred by Gordon Legal in pursuing the claims
of Ineligible Group
Members, and in pursuing aggravated and exemplary damages. As it eventuated
there is no need to address those
questions because the Commonwealth did not
maintain those submissions, and instead contended that the Costs Referee’s
Second
Report should be adopted (at least in relation to the costs incurred in
the proceeding up to the date of the settlement approval
application).
- In
response to the First Costs Referee’s Report the applicants filed the
Fourth Grech Affidavit dated 16 April 2021, the Supplementary
Dudman Report
dated 16 April 2021 and the applicant’s submissions in relation to legal
costs dated 19 April 2021 (the further cost materials). The
Supplementary Dudman Report made some criticisms of the Costs Referee’s
methodology and conclusions and the Fourth Grech
Affidavit contained information
which sought to underpin Mr Dudman’s approach.
- The
further cost materials had not been put to the Costs Referee. On 19 April 2021,
I made orders requiring that the Costs Referee
be provided with the further
costs materials filed by the applicants and that the Costs Referee submit a
supplementary report stating
her opinion in relation to the further cost
materials and any alteration or clarification to the opinions expressed in her
first
report.
- The
Second Costs Referee’s Report rejected Mr Dudman’s criticisms of the
methodology she used and maintained her opinion
that Mr Dudman’s
assessment of reasonable legal costs to the date of the settlement approval
application was excessive. However,
as flagged in her first report, the Costs
Referee determined that there was a proper basis to allow an increased loading
for skill,
care and attention. The Second Costs Referee’s Report
concluded that it was appropriate to increase the loading for skill
care and
attention to 30% having regard to the complexity of the matter, the difficulty
and novelty of the questions involved, the
amount in dispute in litigation and
the time within which the work was required to be done. That resulted in a
significant increase
in the total costs allowed.
- On
that basis the Second Costs Referee’s Report provided an increased
assessment of reasonable legal costs (inc. GST) up to
the date of the settlement
approval application in the amount of $8,413,795.71, made up of $6.096 million
in professional fees and
$2.316 million in disbursements. That was an increase
of $776,573.70. The precise figures in relation to the Costs Referee’s
assessment, as compared to Mr Dudman’s assessment are set out in the table
below:
|
DESCRIPTION
|
AMOUNT ASSESSED BY DUDMAN
|
AMOUND ASSESSED BY DEALEHR
|
|
(A) UP TO 23 MARCH 2021
|
|
|
|
Professional Fees
|
$9,821,676.75
|
$5,868,955.37
|
|
Disbursements
|
$2,031,402.68
|
$1,950,107.08
|
|
SUB-TOTAL
|
$11,685,526.01
|
$7,819,062.45
|
|
(B) ESTIMATED COSTS TO APPROVAL
|
|
|
|
Professional Fees
|
$224,134.28
|
$228,026.01
|
|
Disbursements
|
$353,565.00
|
$366,707.25
|
|
SUB-TOTAL
|
$577,699.28
|
$594,733.26
|
|
TOTAL PROFESSIONAL FEES & DISBURSEMENTS (A) +
(B)
|
$12,430,778.70
|
$8,413,795.71
|
|
DIFFERENCE
|
|
$4,016,982.99
|
- As
is apparent from the table, the Costs Referee assessed the applicants’
reasonable legal costs up to settlement approval in
an amount $4 million less
than Mr Dudman.
- The
differences in the assessments of the Costs Referee and Mr Dudman essentially
concerned two matters. First, they concerned the assessment and
quantification of the legal costs incurred in relation to discovery review work
performed by Gordon
Legal. The Costs Referee considered that the discovery
review work should be assessed on a time spent basis, that is, the time actually
recorded by Gordon Legal for discovery, being $244,000 (before application of a
scale percentage reduction.) In contrast, Mr Dudman
allowed $2.66 million for
discovery review by excising the time-based costs and then recalculating
discovery review using the perusing/scanning/examining
items provided for in the
Victorian Supreme Court costs scale. Mr Dudman sought to cost discovery not on
the basis of actual time
spent but on an item basis.
- Second,
the difference concerned the assessment and quantification of the legal costs
incurred in relation to the work of casual paralegals
employed by Gordon Legal.
The firm employed 27 casual paralegals to work on the case. Mr Dudman assessed
the costs in respect of
the work by the casual paralegals at $1,850,090. In
contrast the Costs Referee allowed those costs in an amount of approximately
$1
million.
- The
difficulty with accurately assessing these costs arises principally from the
fact that no time records were kept in respect of
these casual workers to
substantiate the claim in respect of their work. Mr Dudman’s analysis was
based upon an assumed daily
average of 7.2 hours per casual paralegal, as
provided in an excel spreadsheet prepared by Gordon Legal which set out the
casual
rosters on the basis for the calculation of the time said to have been
spent by the relevant workers. The Costs Referee expressed
the opinion that Mr
Dudman’s approach was not reasonable as there was: (a) no acceptable
explanation as to why time records
are not maintained; (b) the spreadsheet did
not substantiate that the work was in fact undertaken; and (c) there was no
basis for
an assumption that casual paralegals rostered 7.2 hours per day could
claim 100% of that time.
Whether to adopt the Costs Referee’s Second Report in
relation to costs incurred in the proceeding
- If
it was necessary to decide, I would prefer the Costs Referee’s opinions to
those of Mr Dudman in respect to the costs incurred
in the proceeding up to
the date of the settlement approval application. As the Contradictor submitted,
the Costs Referee’s
Reports show a considered, moderate and principled
approach, which is robustly independent and ought be preferred.
- It
is, however, unnecessary to decide that question in circumstances where the
Contradictor and the Commonwealth submitted that the
Costs Referee’s
assessment should be adopted, and neither the applicants nor Gordon Legal
opposed their adoption. It is established
that the reference procedure is not
to be treated as some sort of warm up for the real contest: Super Pty Ltd v
SJP Formwork (Aust) Pty Ltd (1992) 29 NSWLR 549 at 563-4 (Gleeson CJ (as his
Honour then was)) and 566-7 (Mahoney JA).
- In
Caason (at [132]) I set out the principles that apply to adoption of a
referee’s report as follows:
(a) an application contending that a report not be
adopted is not an appeal;
(b) the discretion to not adopt a report should be exercised consistently with
the purpose of the reference;
(c) where the report shows a thorough, analytical and scientific approach to the
assessment of the subject matter of the reference,
the Court would have a
disposition to accept the report;
(d) where the report reveals some error of principle, patent misapprehension of
the evidence or manifest unreasonableness in fact
finding, then there would
arise reasons for rejecting it; and
(e) the referee should give sufficient reasons to enable the parties and the
Court to know that the conclusion is not arbitrary or
influenced by improper
considerations, and is not affected by the flaws described in (d) above.
Where, as in the present case, the Court has the benefit of a costs
referee’s report that uses a reasonable methodology and
shows an
analytical and thorough approach there are good reasons for the Court to adopt
it. It is appropriate that I do so.
- Insofar
as the costs incurred up to the date of the settlement approval application are
concerned, I consider the Costs Referee’s
Second Report shows a fair,
analytical and scientific approach, and there was no suggestion to the contrary
by the applicants or
Gordon Legal. I could see no error of principle, patent
misapprehension of the evidence or manifest unreasonableness in fact finding,
and there was again no suggestion to the contrary. The detailed report provides
sufficient reasons to enable the parties and the
Court to know that conclusions
are not arbitrary, influenced by improper considerations or affected by any of
the flaws described
above, and again there was no suggestion to the contrary.
In the circumstances it is appropriate to adopt the Costs Referee’s
Second
Report to the extent of the assessment of reasonable legal costs up to the date
of the settlement approval hearing.
- To
those unexperienced in the conduct of large, complex class action litigation,
costs of $8.41 million may seem an extraordinary
amount. But any such view
would be naïve in relation to the costs involved in such litigation. This
is a case which, at its
commencement, had a potential value of more than $1.763
billion to the applicants and group members. Even after the Commonwealth
withdrew the assertion of debts totalling approximately $1.763 billion and
agreed to refund all Commonwealth-recovered amounts based
on income averaging
from ATO data, the applicants were left with a substantial claim for interest or
quasi-interest. The case is
large, involves novel and complex questions of law,
involved substantial discovery of Commonwealth documents, was expedited and was
strenuously contested. It required the applicants’ solicitors to interact
with thousands of group members and to use a large
team of solicitors,
barristers and paralegals. Almost inevitably it was very expensive.
- For
those group members with concerns about the quantum of approved costs, they
should take comfort from the fact that:
(a) the amount of $8.41 million is the result of a
detailed review by an independent expert costs consultant appointed by the
Court,
and was approved by the Contradictor who is specifically charged with the
obligation to represent group members’ interests
in relation to the
reasonableness of legal costs. Having regard to the detailed and careful
consideration given by the Costs Referee
and the Contradictor there are good
reasons to be confident that the amount is fair and reasonable in the
circumstances of the case;
(b) costs in that amount fall comfortably within the range of what the Court
commonly allows for costs in “standard”
class actions which settle
at the door of the Court, and this case is not standard; and
(c) the amount allowed is $4 million less than that recommended by the expert
costs consultant engaged by Gordon Legal, which represents
a substantial
improvement for group members.
The reasonableness of the costs to be incurred in settlement
administration
- In
relation to the costs associated with the work to be undertaken by Gordon Legal
in performing its role under the SDS the firm assumed
that it would be required
to respond to enquiries from approximately 40,000 group members. On that basis
the firm estimated its
costs as follows:
- Mr
Dudman assessed the reasonable costs for Gordon Legal in undertaking its role
under the SDS as
follows:
|
Professional Fees
|
$4,525,687.00
|
|
Disbursements
|
$245,760.38
|
|
Total Likely Reasonable Future Costs
|
$4,771,447.38
|
- In
the First Costs Referee’s Report, Ms Dealehr said that she: (a) was unable
to verify the disbursements claimed; (b) did not
accept Mr Dudman’s view
that it was appropriate to charge for such work on the Supreme Court scale
rather than on the basis
of reasonable hourly rates; (c) expressed concerns as
to the proposed hourly rates; and (d) said that the greatest difficulty was
the
assumption that Gordon Legal would be required to deal with 40,000 enquiries
from group members.
- With
those disclaimers, the Costs Referee allowed $65 per unexceptional query and
$315 per difficult query, and estimated total administration
costs at $2.689
million. Allowing for disbursements, that assessment was approaching $2 million
less than Mr Dudman’s assessment.
- In
the Second Costs Referee’s Report, which followed the provision of the
applicants’ further cost materials, Ms Dealehr
reached a different
conclusion. In this report the Costs Referee:
(a) accepted that the hourly rates proposed by Gordon
Legal for all classes of lawyers and other operators to be engaged in settlement
administration work were reasonable and at the middle end of the
“market” range;
(b) reduced the amount allowed for estimated disbursements by $95,694.62;
and
(c) on the basis of an acceptance of Gordon Legal’s estimate that it would
receive approximately 40,000 queries from group
members (and that those queries
could be broken down into 38,000 unexceptional queries and 2,000 difficult
queries) the Costs Referee
estimated the settlement administration costs likely
to be incurred by Gordon Legal at $4,299,536.17. That total is made up of
$4,147,000
for professional fees and $82,536.17 for disbursements.
- The
Costs Referee set out the foundations for allowing settlement administration
costs of $4.22 million as
follows:
|
PROFESSIONAL FEES
|
RATES IN WIP
|
|
Description of work
|
paralegal $300
solicitor $450
partner $650
no
loading
|
|
Paralegals to review questionnaires, provide phone
advice (unexceptional circumstances)
|
$2,820,000.00
|
|
Providing further detailed advice (difficult
circumstance)
|
$600,000.00
|
|
Providing further detailed advice (supervision,
unexceptional circumstances)
|
$216,000.00
|
|
Providing further detailed advice (supervision,
difficult circumstances)
|
$104,000.00
|
|
Sub-total
|
$3,770,000.00
|
|
Loading
|
N/A
|
|
Total professional fees (ex GST)
|
$3,770,000.00
|
|
Total professional fees (inc GST)
|
$4,147,000.00
|
|
*GST originally omitted
|
|
|
DISBURSEMENTS
|
|
|
Third party costs for online portal, Case management
System development and software licence fees
|
$70,032.88
|
|
Admin Work – Accountancy Fees for
‘checking’ work
|
$5,000.00
|
|
Total disbursements (ex GST)
|
$75,032.88
|
|
Total disbursements (inc GST)
|
$82,536.17
|
|
TOTAL ADMINISTRATION COSTS
|
$4,229,536.17
|
Whether to adopt the Costs Referee’s Second Report in
relation to settlement administration costs
- The
Contradictor submitted that the Costs Referee’s Second Report should be
adopted. The Commonwealth opposed adoption of the
Costs Referee’s Second
Report and said that the Court should allow a lower amount and noted that the
Costs Referee’s
opinion was based on assumptions that:
(a) Gordon Legal will receive 40,000 enquiries from
group members, with 38,000 classified as “unexceptional” and 2000
classified as “difficult”;
(b) a paralegal will spend 15 minutes on each of the 38,000 unexceptional
queries and one hour on each of the 2,000 difficult queries;
(c) a lawyer will supervise the paralegal team six hours per day, five days per
week in relation to the unexceptional queries, and
two hours per day, five days
per week in relation to the provision of advice in response to the difficult
queries.
- The
Commonwealth did not challenge the reasonableness of Gordon Legal’s
estimates both as to the number of likely enquiries
from group members or the
time involved in responding to those queries. It submitted, however, that
Gordon Legal’s estimates
suggest that most of the likely enquiries will be
from Category 4 Group Members or Ineligible Category 3 Group Members, who will
not receive any financial benefit under the proposed settlement. In making that
submission the Commonwealth relied on the Fourth
Grech Affidavit in which Mr
Grech said that:
(a) it is likely that a relatively large proportion of
Category 4 Group Members (approximately 170,000 people) will seek further
information
and advice from Gordon Legal because they may find it difficult to
understand or accept the significance of their debts being calculated
using
income information other than by income averaging from ATO data;
(b) it is likely that a relatively large proportion of Category 3 Group Members
(approximately 40,000 people) will seek further information
and advice from
Gordon Legal because they may find it difficult to understand or accept the
significance of their debts being recalculated
other than by income averaging
from ATO data, or may have difficulty understanding why they have or have not
been assessed as an
Eligible Category 3 Group Member;
(c) a large proportion of group members who have more than one debt, which Mr
Grech estimates to be around 100,000 people, may find
it difficult to understand
and/or accept the impact of the settlement having regard to the relative
complexity of their situation;
and
(d) it is unlikely that more than a relatively small number of Category 1 Group
Members (approximately 50,000-70,000 people) and
Category 2 Group Members
(approximately 370,000 people) will seek advice or assistance from either
Centrelink or Gordon Legal in
relation to the
settlement.
- The
Commonwealth argued that it is not fair and reasonable for Gordon Legal to
receive millions of dollars for explaining to Ineligible
Group Members why they
do not receive any payment under the proposed settlement when Gordon Legal: (a)
caused the claims on behalf
of Ineligible Group Members to be brought, which the
Commonwealth maintains were always hopeless; (b) promoted the claims on behalf
of Ineligible Group Members and the class action generally, thereby creating
expectations in the minds of those group members; and
(c) supports the
settlement of the proceeding on the basis that Ineligible Group Members will
receive no payment. The Commonwealth
also contended that it is not fair and
reasonable for Gordon Legal to be paid from the Settlement Sum for providing
advice to Ineligible
Group Members which amounts would otherwise be distributed
to Category 2 Group Members and Eligible Category 3 Group Members.
- There
are several difficulties with the Commonwealth’s arguments.
- First,
the Commonwealth’s argument boils down to the proposition that, it having
agreed to settle the proceeding on terms which include
Gordon Legal having a
significant role to represent group members’ interests under the SDS, the
firm should not be fairly remunerated
for that work. I am not persuaded that
would be fair or reasonable, particularly when the fact that Gordon Legal will
represent
group members’ interests in the categorisation process is
material to my conclusion that the SDS is fair and reasonable.
- Second,
it is common ground between the parties that it was not until about June 2020
that they came to understand that that there were
four categories of group
members within the class. While persons in each of those categories always fell
within the group definition
(as it did not require that a person have a debt
calculated on the basis of income averaging) the only causes of action pleaded
in
the initial statement of claim were pleaded on the basis of debts based on
income averaging from ATO data. But no one at that stage
understood that there
are approximately 202,000 group members on behalf of whom no cause of action was
pleaded.
- It
was not until the FASOC was filed on 1 July 2020 that the applicants identified
the four categories of group members, and pleaded
a claim in respect to Category
3 Group Members and Category 4 Group Members, based not on income averaging from
ATO data but on the
argument that their debts are tainted with the illegality of
the Robodebt system. The applicants submitted, and I accept that, it
was not
until they were able to identify the four categories of group members that they
came to understand the different claims in
the different categories, and thus
could reach any view as to the strength of those different claims. Even now the
parties are unable
to provide the Court with an accurate breakdown of Category 3
Group Members between those who are “Eligible” and
“Ineligible”.
In my view it is incorrect to say that Gordon Legal
commenced claims on behalf of Ineligible Group Members when it knew or should
have known they were hopeless.
- Third,
there is nothing wrong about capable and experienced solicitors and senior and
junior counsel pursuing what, as I infer, they saw
as the reasonably arguable
claims of Ineligible Group Members. For the purpose of assessing the fairness
of the proposed settlement
it is necessary for the Court to reach a view as to
the merits of those claims, but my view cannot be said to be conclusive and it
does not show that the applicants’ lawyers should have abandoned those
claims.
- Even
if it is assumed that the applicants’ lawyers should have understood the
weakness of Ineligible Group Members’ claims
by midway through the case,
and concluded that it was appropriate to abandon those claims, that could only
occur on notice to Ineligible
Group Members. When notice was given to the
Ineligible Group Members it was always going to be necessary to deal with their
queries
and concerns, and likely that the costs of that process would form part
of the applicants’ costs of the proceeding.
- Finally,
in my view it is more than a little rich for the Commonwealth – it having
caused the problem by wrongly raising $1.73 billion
in debts based on income
averaging from ATO data when it lacked a legal basis to do so in relation to
which a class action was commenced
against it which encompasses approximately
648,000 group members with disparate claims –to complain about the legal
costs involved
in unwinding the mess that it created.
- Even
so, while I am unpersuaded by the Commonwealth’s submissions, I do not
presently consider it appropriate to adopt the Cost
Referee’s Second
Report in relation to Gordon Legal’s future work under the SDS. That is
because, at this stage, it
is unsafe to assume that Gordon Legal will receive
40,000 enquiries from group members, of which 38,000 queries will be
“unexceptional”
and 2,000 will be “difficult”. The
reality is that it is impossible to know how many group members are likely to
raise
queries or how long they will take to resolve, but at some point an
estimate will have to be made because distributions to group
members cannot
commence until an amount has been set aside to cover Gordon Legal’s costs
associated with its functions under
the SDS.
- There
are real difficulties in reaching a reasonably accurate estimate of the likely
costs to be incurred, but I am not satisfied
that it is reasonable to fix an
amount of $4.22 million in advance. Instead, I have ordered
that:
(a) as soon as practicable the Costs Referee shall
confer with Gordon Legal, and any other person the Costs Referee considers
appropriate,
and then determine the best methods:
(i) to assess the reasonableness and
proportionality of Gordon Legal’s costs for performing its functions under
the Scheme on
an ongoing basis, and for such costs to be considered for approval
by the Court and paid at either monthly or two monthly intervals
as the Costs
Referee determines; and
(ii) to permit the Costs Referee to make an updated and more accurate estimate
of Gordon Legal’s future reasonable and proportionate
costs for performing
its functions under the Scheme, intended to assist the Court to consider
approval of a lump sum amount for future
costs so that the distribution of
settlement monies to the Scheme Claimants can proceed without material
delay.
(b) the Costs Referee provide short reports to the Court
providing her opinion as to the reasonableness and proportionality of
the:
(i) costs in the invoices rendered by Gordon
Legal for the firm’s ongoing work;
(ii) updated estimate of Gordon Legal’s future costs in a lump sum
amount;
and the Court will decide whether to approve such costs
on the papers.
- An
obvious problem with this course is that the Settlement Sum is fixed, and
distributions cannot be made to group members until the
total amount of future
costs are fixed. The applicants expressed concerns as to the difficulties that
may arise in taking this course.
There is some force in that concern but, as Mr
Grech said, it is likely the majority of queries will be from Ineligible Group
Members,
and the majority of the costs will be incurred when group members are
informed as to the category into which they fall. In my view,
at some point
during the period in which the categorisation process is ongoing, or perhaps
after the categorisation process is finished
but before distributions begin, the
Costs Referee should be in a better position to estimate the further legal work
that will be
required. For the present, it is appropriate to proceed on the
basis that the Court will consider the invoices rendered by Gordon
Legal on a
monthly or two-monthly basis.
CONCLUSION
- For
these reasons I have made the attached orders.
I certify that the preceding three hundred and
seventy-eight (378) numbered paragraphs are a true copy of the Reasons for
Judgment
of the Honourable Justice
Murphy . |
Associate:
Dated: 11 June 2021
SCHEDULE
OF PARTIES
|
|
|
|
|
Fourth Applicant: |
FELICITY BUTTON |
Fifth Applicant: |
SHANNON THIEL |
Sixth Applicant: |
DEVON COLLINS |
AustLII:
Copyright Policy
|
Disclaimers
|
Privacy Policy
|
Feedback
URL: http://www.austlii.edu.au/au/cases/cth/FCA/2021/634.html
