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With the government set to refund $721 million over the robo-debt fiasco, the scheme’s early critics are feeling vindicated. And the damage in cash terms could be far worse following a class action trial set to begin next month. By Mike Seccombe.

The robo-debt class action

The shadow minister for Government Services, Bill Shorten.
Credit: AAP Image / James Ross

Vindication has been a long time coming for Terry Carney.

It was March 2017, when Carney, a 39-year veteran member of the Administrative Appeals Tribunal, first found against the federal government in a robo-debt case.

More than three years passed before the Morrison government announced it would repay $721 million wrongfully raised against some 470,000 Australians.

When the news broke last Friday, Carney immediately began receiving congratulations from friends and associates.

“One of my friends, the other day, said, ‘Does this mean Terry Carney’s going to get an apology, and his job back?’ ” Carney says with a laugh.

He’s not wounded by the fact that after he made a series of decisions against robo-debt, he was not reappointed to the AAT in late 2017, despite his reappointment being recommended.

“Thank god they didn’t reappoint me,” he says, “because I could not possibly have made public comment, or written academic articles on it, if I’d been a serving member still hearing [matters].”

Freed from the constraints of his office, Carney became one of the most trenchant critics of the robo-debt system.

But he was far from the only one. From its beginnings in July 2016, the scheme was widely seen as having been designed with revenue, not procedural fairness, in mind. The government projected it would yield $2.1 billion over four years.

Several of the program’s elements combined to entrench its unfairness. The first was the use of a data-matching system that took annual income data from the tax office, which Centrelink then averaged into 26 fortnightly periods.

Joel Townsend, program manager of economic and social rights with Victoria Legal Aid (VLA), elaborates: “You couldn’t look at that annual taxation office data broken up into fortnightly chunks and draw a conclusion as to what somebody had actually earned … you couldn’t draw a conclusion as to whether they owed money back to the Commonwealth.”

The government’s response to criticism of this blunt misuse of tax data – which was still being advanced as recently as this week by Attorney-General Christian Porter – was that data-matching had long been used, including by the previous Labor government. But this is disingenuous.

As Carney wrote for the University of New South Wales Law Journal Forum in March 2018: “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).”

But robo-debt dispensed with such inquiries, which typically weeded out false positives by contacting employers for actual payroll data.

Previously, on the basis of risk-management profiling, Centrelink selected about 7 per cent of discrepancies for manual review and inquiry. Under robo-debt, Carney says, Centrelink instead went “after the other 93 per cent”.

The number of “compliance interventions” – letters demanding payment of alleged debts – jumped from 20,000 a year to 20,000 a week.

At the same time, robo-debt reversed the onus of proof, making it incumbent upon welfare recipients to prove they did not owe a debt.

The government went after “debts” dating back many years, making it harder still for people to find relevant documentation to prove their innocence.

It also sought to intimidate people with florid threats. In December 2016, then Human Services minister Alan Tudge went on TV and warned alleged debtors: “We’ll find you. We’ll track you down and you will have to repay those debts and you may end up in prison.”

Letters were sent out, bearing the logo not only of Centrelink but also of the Australian Federal Police, demanding people update their details, and threatening jail for any inaccuracies.

Carney called it “extortion”. The chief executive of the Australian Council of Social Service, Cassandra Goldie, said she was appalled that “the minister for Human Services is telling people on the lowest incomes, three weeks before Christmas, that if they have a debt with Centrelink they may go to prison …

“We are not a police state and people should not be made to feel like they are doing the wrong thing by claiming a social security payment,” she said.

After a formal complaint by ACOSS, the government eventually agreed to stop sending the threatening letters featuring the AFP logo.

But robo-debt continued, the government persisting to argue the system was working perfectly, despite facing sustained criticism from senate inquiries, the federal ombudsman, legal experts and welfare groups.

Meanwhile, all evidence suggested its behaviour was at least unfair, and potentially unlawful.

When Carney first found against the government in a robo-debt case in early 2017, he concluded the debt had been raised unlawfully. He found the same in four more cases before his services were dispensed with.

Carney knew he wasn’t the only AAT member to make such a finding, although he did not know precisely how many such decisions there were, or the exact reasoning of his colleagues, because of the two-tier process by which the tribunal system operates. At the first stage, cases are heard in private and no reasons are given for decisions.

Carney’s best guess is that the government lost between 200 and 500 times at that first level. It could have appealed to the second tier but didn’t. To do so might have publicly, formally revealed it had no legal leg to stand on.

As Bill Shorten, the shadow minister for Government Services, puts it: “They had done an actuarial calculus that they’d be better off buying off the individual wrong claims than scrapping the system. If you were a motivated and strong enough and well-resourced enough Centrelink victim, robo-debt victim, then they would pay you off.”

When Shorten took on his portfolio last June, one of the first things he did was read Carney’s forensic 2018 critique of robo-debt. Then he went to visit Carney at his home in Sydney.

Carney shared his estimate for the government’s robo-debt losses at the AAT.

“That got me thinking: if the Commonwealth is folding 200 times, this is cherry ripe for a class action,” says Shorten.

He spoke with Peter Hanks, QC, who had been working with Victoria Legal Aid on robo-debt, and arranged a meeting with Peter Gordon and his team from Gordon Legal.

“I laid it all out to them,” Shorten says. “I said, ‘This is worth you taking on as a class action’.

“And then I wrote that the thing was unlawful – in The Australian, of all places – on the second of September. And then we launched the class action.”

That action is going through the legal mediation process now, ahead of a trial that’s set to start on July 27.

But there has already been a legal decision, made by the Federal Court last year, which effectively sank the government.

VLA, says Joel Townsend, had long been looking for a case that could challenge robo-debt in court.

But it wasn’t easy to find someone prepared to take on the legal might of the Commonwealth, and the risk that costs might be awarded against them. While VLA is legally able to indemnify clients, it will not say if it did so in this case.

In the end, VLA backed Deanna Amato, who Centrelink raised a debt of $2754 against, dating back to the 2011–12 financial year, which included a 10 per cent penalty when Centrelink did not hear back from her – even though it was sending letters to her old address.

The first Amato knew of her alleged debt was when the government seized her $1700 tax refund.

At first, the Commonwealth tried to use its standard stratagem – recalculating her debt down to just $1.48, and then waiving it entirely. But Amato proceeded with her case, represented by Peter Hanks.

One week after her legal team filed their submissions – and just two weeks before her final hearing – Centrelink staff were instructed to stop raising debts against anyone solely on the basis of income averaging.

The court found just as Carney had at the AAT: that there was no material before the department capable of supporting the conclusion that a debt had arisen under the act.

“I always knew that I was right,” Carney says. “It really was a simple issue.”

Now, in response to the threat of the class action, the government says it will repay almost three-quarters of a billion dollars.

But the class action will not be stopped, either. It seeks that the government not only repay the amounts unlawfully raised, but also pay interest. Gordon Legal is seeking damages for “unjust enrichment” – essentially that the government took money and used it for its own benefit, while those people issued debt notices were deprived.

Finally, and perhaps most ominously for the government, they will seek damages for “negligence”, that the government was deliberately misleading in the way it set up the scheme, that it owed a duty to those welfare recipients.

And that might get to the big unresolved question about the whole saga: whether the government knew it was acting unlawfully. Ministers have argued at various points in the process that the government acted on legal advice. But that advice has never been made public.

Legal sources say the government’s repeated reference to this legal advice has left it vulnerable to a claim it waived privilege on that advice, allowing the lawyers to seek to see it.

Carney says he is sure the government must have been told it was not acting lawfully. Its long history of folding whenever it was challenged in the AAT makes a strong circumstantial case.

For now, answers will have to wait as the class action plays out, but there is a strong chance the Morrison government will be up for further vast sums.

This article was first published in the print edition of The Saturday Paper on Jun 6, 2020 as "Debt’s not all".

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Mike Seccombe is The Saturday Paper’s national correspondent.