With lead author Dr Darren O’Donovan (senior lecturer in administrative law at La Trobe), I have authored a blog post on a significant test case recently heard by the President of the Administrative Appeals Tribunal, Justice Kyrou, and two senior members, called FTXB; Secretary, Department of Social Services (Social services second review) [2024] AATA 3021 (28 August 2024). The case is an important one that responds to the fact that the Department of Social Services (‘Department’) misinterpreted and misapplied the law over at least seventeen years (between 2003 and 2020). Indeed, this much has been conceded by the Department. It misapplied the law by calculating social security overpayments through a process known as ‘income apportionment.’ Though this is separate to robodebt, many such ‘apportioned’ debts were also robodebts (ie, there is overlap).
While there are several ways in which income apportionment may be carried out, typically it involves ‘spreading’ an income sum across several fortnights, so as to deem that this sum was ‘earned’ in smaller amounts on a fortnightly basis (eg, a sum of $800 received on 28 February could be spread across the fortnights of January and February so that it was deemed that the recipient earned $200 per fortnight throughout those two months/four fortnights). The legislation, and specifically s 1073B of the Social Security Act 1991 (Cth) (combined with some other income test provisions), did not permit this method of ‘deeming’ such a sum as income that was ‘earned’ across these fortnights. This was so, despite the fact that the Department believed this was a lawful practice for some seventeen years and has calculated at least 100,000 debts (and probably somewhere in the order of a million debts, as I would guess at this stage) on this unlawful basis.
It is a complicated issue, to be fair. A construction ‘trilemma’ bedevils s 1073B relating to whether income can be, and on what basis it can be, classified as ‘earned’ income, ‘derived’ income, or ‘received’ income. However, on top of that, there is also an underlying construction issue affecting the operation of the whole provision: namely, the provision dictates that no category of income (whether it was marked as ‘earned,’ ‘derived,’ or ‘received’ income) can be ‘spread’ beyond the ‘entitlement fortnight’ in which it is found to have been legally obtained by the recipient. For seventeen years, the Department appears to have been oblivious to these issues — the trilemma problem, and the underlying prohibition on spreading. It appears that it was the Robodebt Royal Commission (together with complaints to the Ombudsman) which led to the discovery of this problem. Indeed, I would argue that the Ombudsman’s castigation in and by the RRC prompted the office to take a much stricter approach to the complaints it received about income apportionment.
The appeal to the AAT2 (and the ‘full’ AAT2, with the President sitting) was inevitable for two cumulative reasons. First, as I say, the Department had already conceded that it had misapplied the law. It really was forced to concede that point following investigations over many months by the Commonwealth Ombudsman from 2021 — investigations that ultimately were made public with the publication of two reports by the Ombudsman in 2023. These reports detailed how the Department had misapplied the law. Of course, the Ombudsman would prefer they were known as ‘short records’ (or something of that nature); because, as the Ombudsman made clear in oral evidence in the Senate, these reports were not actually the full, unpublished ‘reports,’ and presumably a much more detailed analysis of the issues exists somewhere out of the public eye. In any case, the two documents were titled Lessons in Lawfulness and Accountability in Action: Identifying, Owning and Fixing Errors (subtitles excluded).
The second reason the appeal was inevitable, however, was because, quite unexpectedly (one would think), in a matter that was heard in the AAT1 in January 2024 (where reasons for the decisions are not publicly available), following the Ombudsman’s reports and the Department’s concession, an AAT1 member found that, in a matter concerning income apportionment, the Department had done nothing wrong. Again, given that the Department had already publicly conceded that income apportionment was unlawful, there was no basis on which they could accept the member’s holding that, in fact, there was nothing unlawful about it. Indeed, the member’s holding must have come as a surprise. And so the Department — a model litigant and a government agency presumed to hold true to its past public representations — had no choice but to appeal, if only to test its own theory. Never mind the theory was actually a concession to the Ombudsman’s allegations and a theory likely to be adverse to what might be called the Department’s ‘business’ interests.
And so the appeal case that follows the AAT1 member’s surprising decision — FTXB — is the focus of our new blog post. It is only the start of the story, however, and the narrative will eventually have to expand to feature the Department coming to grips with the precise scope of this longstanding error (ie, how many historical debt files are affected). Early reviews by the Department (obtained under FOI legislation) suggest something like 64% of all relevant ‘income’ debts will be affected — a strikingly high rate of affectation. But the Department will also have to build a pathway to remediation (ie, how will they recalculate all those debt files and make everyone ‘square’?). Of course, there is no guarantee that anything will happen. The matter, if the political system is not on top of it, may well fall off the political agenda. That is why it is important that attention is paid to these issues. That said, the fact that the Ombudsman has taken such a strict approach so far indicates that this Commonwealth complaints investigations office is likely to be on this matter for the long run.
As we note in our post, the new decision of FTXB appears to present a ‘pathway out of the morass’; however, many questions, both legal and ethical, remain to be resolved. We are yet to see a case in which the test case of FTXB — and the precedent it sets for future cases — has been applied. However, it is likely that, sooner or later, a matter will come before the AAT2 in which the President’s reasons will need to be put into action. Another possibility, of course, is that the Department will appeal FTXB to the Federal Court of Australia, seeking that a different construction of s 1073B be adopted. As with all things, time will tell; although, I would not be surprised if some headway is made on these questions before the end of the year.
