Justice Bernard Murphy on Friday said that the use of flawed income averaging tools to raise debts was a “shameful chapter.”

The federal government should have known that many people on social security do not have stable or consistent work and may earn income intermittently, he said.

However, Justice Murphy was not convinced the federal government knew the Robodebt scheme was unlawful.

“Given the choice between a stuff-up and a conspiracy, one should usually go with a stuff-up,” he told the Federal Court.

The 648,000-strong class action was led by Gordon Legal.

Justice Murphy approved $8.4 million in costs to Gordon Legal and said the 680 people who objected to the settlement would be given the opportunity to opt out.

Fiona Forsyth QC, who represented the group members, previously said the use of flawed income averaging tools to raise debts caused vulnerable people stress and humiliation.

Victims were “treated like criminals” and left “feeling like welfare cheats” as they received rude calls from debt collectors and Centrelink staff, Forsyth said.

They had their tax returns garnisheed, were forced to take extra jobs or expensive loans, and suffered detrimental effects in their relationships and mental health, sometimes leading to self-harm.

The automated matching of tax and Centrelink data to raise debts against welfare recipients the government claimed to have overpaid was ruled unlawful in 2019.

The Commonwealth subsequently settled the case without admitting legal liability.

Under the settlement, victims would receive $112 million in compensation, be repaid $720 million and have $400 million in unlawful debts wiped.

Justice Murphy earlier described it as a “good settlement”, but also questioned how fair the ultimate distribution of funds would be.

“You’ve got a series of people with strong claims and weaker claims,” he said.

“And rather than apportioning them, the strong claims get everything and weak claims get nothing.”

-with AAP