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As prominent lawyer Peter Gordon launches a class action against Centrelink’s controversial robo-debt scheme, the minister in charge claims it’s all a political stunt. By Mike Seccombe.

Robo-debt class action launched

Shadow minister for government services Bill Shorten and Gordon Legal senior partner Peter Gordon in Canberra this week.
Credit: AAP Image / Mick Tsikas

One hundred and seventy thousand people is a crowd. Enough Australians to fill the country’s biggest stadium, the Melbourne Cricket Ground, nearly two times over.

It’s also the number of people who received letters from the government’s automated debt recovery scheme, colloquially known as robo-debt, demanding they repay money that they were subsequently able to prove they did not owe.

The average debt asserted by Centrelink was a little under $2200, so that tots up to about $370 million erroneously – some would say falsely – demanded from people who owed nothing.

If such demands were made by another organisation – a bank or another corporate, for example – it might be called a scam. But this is Centrelink, operating in line with the plan implemented by the Coalition government three years ago.

The online compliance intervention (OCI) debt-recovery system was projected to recover $2.1 billion of social security “overpayments” over four years. And according to the minister for Government Services, Stuart Robert, those 170,000 cases are evidence of a system working exactly as it should.

On Tuesday, Robert came out to face the media, responding to the latest challenge to robo-debt – a proposed class action to be run by Gordon Legal, on the basis of “unjust enrichment”. That is, the allegation that through the use of a flawed algorithm in its computerised data-matching system, the government unlawfully clawed back hundreds of millions of dollars. It’s a novel legal approach and, in the view of some experts, one with dubious chance of success.

Robert was asked if he conceded that a high percentage of people had been subject to “incorrect” claims from the government. “Not at all,” he replied. “We know there’s been 850,000 Australians where the department has gone forward to say that the income that you declared to Centrelink on the left hand does not match your tax return on the right hand – can you please explain it. Twenty per cent [i.e. 170,000] of those have adequately explained it.”

He continued: “Of the remainder, 0.8 per cent have been overturned on appeal. That’s a 99.2 per cent effectiveness rate for those who cannot explain why what they reported to Centrelink does not equal what they told the ATO in their tax returns.”

Roberts gave the impression that 99.2 per cent of appeals are unsuccessful. But that would be the case only if everyone unable to explain their tax discrepancy – some 680,000 people – lodged an appeal.

That cannot be even remotely true. The Administrative Appeals Tribunal, where such appeals go, could never handle such a load.

The Saturday Paper directed questions to the Department of Human Services, under which Centrelink operates: How many matters relating to these alleged debts have been contested before the AAT? How many decisions have gone in favour of Centrelink and how many in favour of the customer?

The department did not answer the questions.

“So far as I’m aware there is no publicly available catalogue of how many matters relating to robo-debt have gone to review at the AAT,” says Joel Townsend, program manager of economic and social rights with Victoria Legal Aid.

Curiously, says Townsend, the government never pursues these cases beyond the first level of a two-tier appeal process at the AAT. Tier one cases are heard in private, and no reasons are given for decisions.

“In quite a number of cases, we understand, the debts have been sent back to Centrelink for reconsideration,” he says. “We have never once seen Centrelink do as it is entitled to do and appeal that to the public second tier of review at the AAT.

“It has never said, ‘We think that is wrong, we think you do have enough information to be satisfied that a debt exists and we are going to contest the issue at the second tier and publicly expose the lawfulness of our process.’

“Instead, it has simply accepted it needed to do a recalculation, following a loss at the AAT,” Townsend says. “[This] has resolved those individual matters but has not resolved the larger question of whether robo-debt passes muster as a process which can be legally relied on to raise a debt against a social security recipient.”

In military terms, you could call it a tactical withdrawal. The government prefers to bear the limited losses of a retreat, rather than face the potential disaster of a full-on confrontation over the questionable legality of robo-debt.

When particularly egregious examples of the inadequacies and cruelties of the automated system come to light – such as that of Anastasia McCardel, pursued by Centrelink over $6744 allegedly owed by her disability pensioner son who died six months previously; or Norm Austwick, 79 and recently widowed, chased for $67.55 allegedly overpaid almost 20 years ago – the debts are quickly made to go away and apologies are issued.

According to Townsend, the 170,000 errors conceded by the government are likely only a small part of the problem. “It’s very likely much higher than that,” he says. “There’s been a lot of talk of an error rate of 20 per cent, but that’s not the full picture. It doesn’t give us a sense of how many debts have been recalculated and reduced [after seeking a review by Centrelink], without being wiped entirely, or how many people have not requested a review, in circumstances where they might have had their debt reduced.”

Terry Carney, AO, emeritus professor of law at Sydney University and member of the AAT for 39 years until September 2017, is one of the most trenchant critics of the legality of robo-debt.

Before the regime was implemented, he wrote in the University of New South Wales Law Journal: “ATO data-matching previously was very properly used to trigger further enquiries about a portion of the approximately 300,000 discrepancies (and possible debts) identified annually by the Department of Human Services (better known to the public as Centrelink). Based on risk management profiling, Centrelink formerly selected around seven per cent of discrepancies for manual review and enquiry …”

“Now,” he tells The Saturday Paper, “they go after the other 93 per cent.”

Put simply, instead of satisfying itself through inquiries that a debt is owed, Centrelink now requires those who receive benefits, or who have previously received benefits, to prove a debt is not owed. The alleged debts may refer back years – or, in some cases, decades. Many recipients face difficult circumstances and are not in a position to provide evidence of their innocence.

At the same time, Centrelink uses an algorithm to calculate an approximate debt figure by averaging ATO data, rather than using its information-gathering powers to obtain verified fortnightly data to calculate an exact debt figure. Because of this, many assessments are false or highly inflated.

Carney and other experts believe it is not lawful for the government to pursue debts on the basis of such rough approximation. In his time on the AAT, he considered some half-dozen cases relating to the new system and “set aside all but one” for that reason.

The suggestion is that AAT members regularly do the same. And the government never appeals because that would leave it vulnerable to a judgement on the legality of the whole robo-debt process.

It has been described as a strategy of selective legal cowardice, relying on the likelihood that most people lack the evidence, will or resources to challenge an alleged debt even if they believe it to be wrong – while quickly surrendering to the few who challenge their debt recovery notices.

In the Federal Court, Victoria Legal Aid is currently running two robo-debt challenges.

One involves a Melbourne nurse, Madeleine Masterton, who received youth allowance while she was a student and received a robo-debt demand for $4000. When she challenged the debt, it was wiped in its entirety. Despite this, Masterton and her lawyer Peter Hanks, QC – who has long argued the unlawfulness of robo-debt – want to proceed with the case to test the legality of the method used to calculate debts.

It’s a similar story for Deanna Amato. Except that Amato first learnt of her alleged $2754 debt only when Centrelink took her tax return as part payment. She has now been refunded $1700, and the agency has recalculated her debt down to just $1.48. But she, too, intends to proceed with her court action.

These are exceptional cases, in which people are not willing to simply drop the matter after the government wipes their debt. Assuming the court agrees to both cases proceeding, they present a huge threat to the whole robo-debt scheme.

The class action announced this week by Peter Gordon, senior partner at Gordon Legal, is possibly an even bigger threat, says Professor Michael Legg, a specialist in class actions and complex civil litigation at the University of NSW.

“What you need [to begin such an action] is a representative party – somebody prepared to put their name to the litigation. And the legislation says there needs also to be at least six others who have a claim that arises out of similar related circumstances,” he says. “That requirement would seem to be met in this case.”

But the class action, as the name implies, does not relate simply to that lead applicant or a few others. It could apply to thousands of people who have been similarly wronged.

And that, says Legg, means the government could not do as it has done previously and simply “pick off” individuals.

“It will be harder for the government to settle the class action, because it will not know who all the group members are, so it can’t make it go away by going, ‘Oh we’ll fix up the people in the action,’ ” he says.

“It may be that once they know who the representative party is, they could try and pick that person off. So, Gordon [Legal] needs a representative party who says, ‘Nup, not interested in the money; I’m interested in the principle at stake.’ ”

At this stage, says James Naughton, principal lawyer at Gordon Legal, they have not settled on a lead applicant for their class action.

“But we have spoken to many potential ones,” he says.

And lined up a large team of lawyers and counsel to argue the case. Naughton will not say who, nor specify the precise cause of action, beyond the suitcase descriptor of “unjust enrichment”.

It’s early days yet, but despite Minister Robert’s assertion that the class action is no more than a political stunt cooked up by Bill Shorten and his friend Peter Gordon, there appears to be every reason for the government to be worried.

Says Legg: “Peter Gordon has been doing this sort of stuff a very long time, and for that reason you take it seriously. I’d be very surprised if he didn’t know what he was going to argue here. He is well resourced.

“This could become very, very expensive for the government.”

This article was first published in the print edition of The Saturday Paper on Sep 21, 2019 as "Robo cops it". Subscribe here.

Mike Seccombe
is The Saturday Paper’s national correspondent.