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“The Centrelink Robodebt scandal – debt collection gone wrong”

If these economic times weren’t turbulent enough for the Federal Government in light of the COVID-19 pandemic, paying back an estimated whopping 721 million dollars[1] back to Centrelink recipients couldn’t come at a worse time.

More than 370,000 Australians[2] have been affected by the Robodebt mishap, some of whom having allegedly suffered significant emotional harm from the illegal debt notices.

How did this happen? And more importantly, how will the damage be rectified?

Robodebt explained

In simple terms, Robodebt is a computer system that checks how much people who are receiving welfare benefits should get paid.[3]

Centrelink welfare recipients are required to report their income (usually on a fortnightly basis), and these records are compared to Tax Office data from the recipient’s employer to show how much they are actually earning.[4]

The two figures are compared and if they don’t match, the recipient will be required to pay back the difference between their reported earnings and their actual earnings.[5]

This may seem like a relatively simple, even foolproof system. However, the system was inherently flawed and therefore, resulted in the significant payback owed.

The primary flaw was that the system lacked the element of human oversight, with many recipients being required to pay back multiple debts for the same welfare service.[6] Furthermore, the demands issued by Centrelink reversed the burden of proof by requiring people to demonstrate that they didn’t owe money.

Legal history

The first case to challenge the Robodebt was heard in the Federal Court in November 2019 by a Victorian woman. The judgment found that the demand for payment of the alleged debt was not validly made, thus ruling in the woman’s favour. [7]

A large class action by former and current Centrelink recipients challenging the debts has followed in the Federal Court, being fronted by Gordon Legal against the Commonwealth Government on behalf of 5 applicants and other group members.

The Labour Party’s Bill Shorten has publicly supported the class action, along with the Greens Community Services spokesperson, Rachel Siewert.

The Labour Party has called for a Royal Commission into the Robodebt debacle, which has mounted pressure on the Coalition to answer to claims that the system failed recipients and furthermore, resulted in significant emotional harm.[8]

Emotional harm

Bill Shorten has led the charge in claiming that the Robodebt scheme has caused welfare recipients emotional harm, stating that the scheme has “…been putting ordinary Australians through pain, trauma, people have lost jobs, people have lost relationships, people have suffered emotional injury, people were not allowed to go overseas, all on the basis of illegal government debt notices”.[9]

There have even been claims that the unlawful scheme has caused recipients to take their own lives.[10] The Labour party has advocated for the inquiry into these alleged incidents by way of the Royal Commission.

Furthermore, James Naughton, principal of Gordon Legal, has stated that the class action will seek compensation and claims for damages for the inconvenience and distress that the Robodebt system has caused.[11]

Unjust enrichment

The publicly accessible Statement of Claim filed by Gordon Legal on 16 March 2020 on behalf of past and current Centrelink recipients, claims that the Commonwealth Government has been unjustly enriched on the following grounds:

  1. Unjust enrichment without lawful basis;
  2. Unjust enrichment by mistaken payment;
  3. Unjust enrichment on a basis that failed;
  4. Unjust enrichment by compulsion or duress; and
  5. Unjust enrichment by unlawful conduct.

 

Broadly speaking, unjust enrichment is a remedy that aims to restore to an innocent party, the gains that someone else has obtained from them.

The courts accept that there are four basic elements to claims of unjust enrichment, namely: 

  1. The defendant must have been enriched;
  2. The enrichment must have been at the expense of the claimant;
  3. The retention of the enrichment is unjust; and
  4. Considerations of any available defence.

 

Along with the argument of unjust enrichment, Gordon Legal asserts that the Commonwealth Government was negligent in breaching its duty of care to Centrelink recipients who had unlawful debts raised against them.

 On 6 March 2020, the Honourable Justice Murphy of the Federal Court ordered that the parties hold a mediation prior to 19 June 2020. While the outcome of the mediation is not currently known at this time, the matter is set down for trial commencing on 20 July 2020 (however if this date is not available, the trial will commence in September). [12]

 The real debt figure

 Though the Robodebt payback figure has been commonly publicised as 721 million dollars, the true value of all welfare debts unlawfully issued through the Federal Government is expected to exceed 1 billion dollars.[13]

 Since 2015, a total of 2.1 billion dollars is estimated to have been raised through the Robodebt scheme, including approximately 200,000 debts that the Government still considers to be legal and subsequently, is not proposing a refund.[14]

 The true figure of the debts raised through Robodebt is much larger than the refunds being issued, namely, because much of the money has not been paid back. At this stage, it appears that three quarters of the money banked from the Robodebt claw-back will need to be repaid or absolved.[15] 

 Furthermore, the service costs for processing the Robodebt refunds are estimated to be in excess of 200 million dollars.[16]

 This doesn’t even count the legal fees that may arise from the class action, with Gordon Legal demanding interest on refunds and damages, with the interest on the refunds alone estimated at 90 million dollars.[17]

 The Government has also paid millions of dollars to external debt collection agencies in pursuing the Robodebt, however the actual figure is not known at this time due to commercial confidentiality.

 The payback

 Though the class action is ongoing, the Government is set to begin repayments to approximately 190,000 recipients in July of this year.[18]

 This decision came after the Department of Human Services halted a key part of the scheme in 2019, stating that it would require additional proof before it used the Robodebt system to identify excess payments. [19]

 What we can learn from this

 From a debtor’s perspective, the Robodebt debacle has shown that even a Goliath, like the Federal Government, can get things wrong. This may prompt debtors to be more litigious when issued with demands for payment which in any event, will keep credit professionals on their toes.

 For credit professionals, situations such as the Robodebt scandal serve as a reminder that human oversight is a helpful means to ensure accurate recording, as there is no replacement for effective, mindful and consistent practice.

 

Sources

Jordan Hayne & Matthew Doran, “Government to pay back $721m as it scraps Robodebt for Centrelink welfare recipients “, ABC News (online), 29 May 2020, https://www.abc.net.au/news/2020-05-29/federal-government-refund-robodebt-scheme-repay-debts/12299410

Gemma Acton, “Robodebt explained: How the Centrelink program worked, who is entitled to refunds and how to apply”, 7 News (online), 12 June 2020, https://7news.com.au/the-morning-show/robodebt-explained-how-the-centrelink-program-worked-who-is-entitled-to-refunds-and-how-to-apply--c-1096650

Jordon Hayne, “Robodebt class action to continue as vindicated recipients push for damages, ask for an apology”, ABC News (online), 30 May 2020, https://www.abc.net.au/news/2020-05-30/robodebt-class-action-continue-damages-debts-waived/12302174

Luke Henriques-Gomes, “Labour calls for royal commission into Coalition's robodebt scheme”, The Guardian (online), 23 June 2020, https://www.theguardian.com/australia-news/2020/jun/23/labor-calls-for-royal-commission-into-coalitions-robodebt-scheme

Gordon Legal, “Robodebt frequently asked questions”, https://gordonlegal.com.au/robodebt-class-action/robodebt-faqs/

Luke Henriques-Gomes, “Robodebt: total value of unlawful debts issued under Centrelink scheme to exceed $1bn”, The Guardian (online), 10 June 2020, https://www.theguardian.com/australia-news/2020/jun/10/robodebt-total-value-of-debts-issued-under-unlawful-centrelink-scheme-to-exceed-1bn-refund



[1] Jordan Hayne & Matthew Doran, “Government to pay back $721m as it scraps Robodebt for Centrelink welfare recipients “, ABC News (online), 29 May 2020, https://www.abc.net.au/news/2020-05-29/federal-government-refund-robodebt-scheme-repay-debts/12299410

[2] Ibid

[3] Gemma Acton, “Robodebt explained: How the Centrelink program worked, who is entitled to refunds and how to apply”, 7 News (online), 12 June 2020, https://7news.com.au/the-morning-show/robodebt-explained-how-the-centrelink-program-worked-who-is-entitled-to-refunds-and-how-to-apply--c-1096650

[4] Ibid

[5] Ibid

[6] Ibid

[7] Jordon Hayne, “Robodebt class action to continue as vindicated recipients push for damages, ask for an apology”, ABC News (online), 30 May 2020, https://www.abc.net.au/news/2020-05-30/robodebt-class-action-continue-damages-debts-waived/12302174

[8] Ibid.

[9] Jordan Hayne & Matthew Doran, “Government to pay back $721m as it scraps Robodebt for Centrelink welfare recipients “, ABC News (online), 29 May 2020, https://www.abc.net.au/news/2020-05-29/federal-government-refund-robodebt-scheme-repay-debts/12299410

[10] Luke Henriques-Gomes, “Labour calls for royal commission into Coalition's robodebt scheme”, The Guardian (online), 23 June 2020, https://www.theguardian.com/australia-news/2020/jun/23/labor-calls-for-royal-commission-into-coalitions-robodebt-scheme

[11] Jordon Hayne, “Robodebt class action to continue as vindicated recipients push for damages, ask for an apology”, ABC News (online), 30 May 2020, https://www.abc.net.au/news/2020-05-30/robodebt-class-action-continue-damages-debts-waived/12302174

[12] Gordon Legal, “Robodebt frequently asked questions”, https://gordonlegal.com.au/robodebt-class-action/robodebt-faqs/

[13] Luke Henriques-Gomes, “Robodebt: total value of unlawful debts issued under Centrelink scheme to exceed $1bn”, The Guardian (online), 10 June 2020, https://www.theguardian.com/australia-news/2020/jun/10/robodebt-total-value-of-debts-issued-under-unlawful-centrelink-scheme-to-exceed-1bn-refund

[14] Ibid.

[15] Ibid

[16] Ibid

[17] Ibid

[18] Jordan Hayne & Matthew Doran, “Government to pay back $721m as it scraps Robodebt for Centrelink welfare recipients “, ABC News (online), 29 May 2020, https://www.abc.net.au/news/2020-05-29/federal-government-refund-robodebt-scheme-repay-debts/12299410

[19] Ibid.