A Federal Court judge has refused drug company Merck's $540,000 settlement with Australians who claim its drug Vioxx caused them a heart attack, labelling the deal an "obvious injustice".
More than 1700 people joined a class action against the Australian arm of the international pharmaceutical company, claiming their heart trouble stemmed from taking its arthritis drug.
The parties reached a $540,000 settlement last month, subject to Federal Court approval, which would have resulted in the proceedings being dismissed and the matter finalised, meaning no future claims could have been brought against Merck over the drug.
Justice Christopher Jessup refused to approve the settlement on Friday, having last month expressed concern about its fairness.
The court had heard successful applicants would receive a maximum of $2000 if they were alive, and their estate would get $1500 if they were dead.
If the total payout for living claimants was to exceed $497,500, that figure would be divided equally among them.
The maximum payout for dead claimants would be $45,000.
It was estimated that only 200 to 300 claimants would meet the eligibility criteria, which required them to prove they suffered a heart attack after taking Vioxx for a certain period.
The lead plaintiff, Victorian grandfather Graeme Peterson, was awarded $330,000 in 2010 after Justice Jessup found Vioxx caused him to have a heart attack.
That decision was overturned on appeal to the Full Court but the judgment still allowed others to continue legal action over Vioxx.
Justice Jessup said the settlement had "very obvious advantages" for Mr Peterson, who would be relieved of hefty legal costs he owes to Merck after losing his case.
He said the claimants' law firm Slater and Gordon, who have spent millions of dollars on the case but will not receive any payment for their services, also "have a very real interest in securing the settlement".
But the settlement did not make an "important discrimination" between group members like Mr Peterson who had other risk factors when they had their heart attack, and those who had no other risk factors other than taking Vioxx, he said.
"For a group member who might, consistently with the reasons of the Full Court, anticipate a favourable judgment, the settlement would represent an obvious injustice," Justice Jessup said.
"(Mr Peterson) has taken upon himself the burden of conducting a representative proceeding.
"(It would) make it both unfair and unreasonable of him now, in effect, to walk away from the claims of those group members on the strength only of being able to settle the claims of the less deserving group members."
Claimant Trevor Whitehead, who objected to the settlement, said he was pleased there was potential for a better outcome.
"This case is complex and the settlement offer will also need to be complex in nature if the individual class members have any chance of receiving a fair and reasonable settlement for themselves," he told AAP.
The judgment means the parties can either try to renegotiate a new deal or take the case back to trial with a new lead plaintiff.
A Slater and Gordon spokesman said the firm was considering the judgment and would get instructions about options for the future of the proceedings.
Comment was sought from Merck.