Former Health Services Union (HSU) boss Kathy Jackson has been ordered to pay $1.4 million in compensation to the union for misappropriating funds.

The union sued Ms Jackson in the Federal Court, alleging she had set up a slush fund with the proceeds of a union settlement with the Peter MacCallum Cancer Centre in Melbourne.

They alleged she then funnelled the money into an opulent lifestyle, including significant cash withdrawals, luxury goods, valuable artwork and fine wine and dining.

She was also accused of spending up to $100,000 of HSU money on her divorce from former union figure Jeff Jackson.

She declared bankruptcy just before the Federal Court trial last month and chose not to attend.

Lawyers for the HSU said the misappropriated money was siphoned out of the National Health Development Account, set up by Ms Jackson, and that contrary to her claims, there was no evidence that all branches contributed for researching and campaigning purposes.

Cash withdrawals were 'falsely recorded'

On top of the compensation order, Ms Jackson was also ordered to pay a further $67,912 of overpaid salary.

Justice Richard Tracey attributed the amount to 40 weeks of overseas travel Ms Jackson went on between 2003 and 2010, in which she continued to claim her normal salary while letting leave accrue.

Key points: Former HSU boss ordered to pay $1.4m

Former HSU boss ordered to pay $1.4m Union claimed Kathy Jackson set up slush fund

Union claimed Kathy Jackson set up slush fund Court heard Jackson used funds on lifestyle, legal fees

Court heard Jackson used funds on lifestyle, legal fees Jackson declared bankruptcy before trial

Justice Tracey ruled Ms Jackson had withdrawn almost $400,000 from her union credit cards and had misused more than $300,000 on personal expenses.

He also found Ms Jackson was responsible for setting up what was known as "the Elliot Memorandum" with disgraced union heavyweight Michael Williamson, who is now in jail.

The agreement resulted in former union figure Rob Elliot being paid $150,000 a year for a maximum of 75 annual working days, regardless of whether he serviced the union or not, the court heard.

The total loss to the union for that agreement was $411,635.

Justice Tracey also found Ms Jackson signed 40 cash cheques from HSU East Branch funds, totalling $239,837.

None of the cheques were counter-signed, as was lawfully required under union rules.

Cash withdrawals were "falsely recorded" as something else in the union's records, Justice Tracey said.

The court heard Ms Jackson also used $34,725 of union funds on legal fees.

The union refused to pay, but was forced to settle with the legal firm when it became apparent Ms Jackson had used its authority to sign the money out.

"The evidence substantially supported the claims made by the HSU," Justice Tracey ruled.

Thomson feels some vindication

Outside court, HSU National Secretary Chris Brown said the union was vindicated.

"We're extremely pleased with the judgement and the outcome," Mr Brown said.

"I think it's an important day for HSU members, it's been a long time bringing people to account, not just Kathy Jackson but also Michael Williamson and Craig Thomson.

"We're now at a stage where we've done what we said we would do, that is hold them to account and where possible recover the monies that were stolen from the union."

Mr Brown said he did not accept that Ms Jackson was a union whistleblower.

"Certainly, with regards to Michael Williamson, there's no doubt she gave police information which lead to his conviction," Mr Brown said.

"With Craig Thomson however, we would dispute the fact that she was ever a whistleblower.

"There were other people involved in the national executive who deserved that honour, not Kathy Jackson.

"But what is quite clear is that all of this time that she was professing to be this hero of the whistleblower, she herself had ripped the union off and ripped the union members off, of a considerable amount of money, far more than Craig Thomson and certainly up there with Michael Williamson."

Mr Brown said he was hopeful the union could recover at least some of the funds and it would become a major creditor of Ms Jackson's estate.

"I don't really care much about Kathy Jackson, other than we have the judgement against her," he said.

"What is very important is we have a clear judgement, for the members of the HSU that she wronged the union and she stole members' money.

"Don't forget there is currently underway a police investigation into Kathy Jackson regarding criminal matters, so that still has to be played out, and she may be criminally held to account as well for what she's done."

Former federal MP Craig Thomson said he felt some vindication at the court's decision given it was Ms Jackson's allegations against him that led to his own conviction for theft from the union and his expulsion from Parliament.

"In relation to me, the amount of time, money and expense that was spent by the police and the media and everyone generally for what resulted in a conviction for taking cash of somewhere between $3,500 and $5,000, then it pales into insignificance against this particular matter," he said.

Funds used for lavish lifestyle

They said the only source of funds for the account came from Ms Jackson's Victorian HSU East branch.

In one example given to the court by HSU lawyers, Ms Jackson was accused of taking $8,000 out of the account, giving 10 people at a branch meeting $100 each, and pocketing the rest.

The court also heard Ms Jackson claimed she was allowed $55,000 in entitlements each year on top of her six-figure salary when she was national secretary of the union, but the union claimed it had no evidence of such an arrangement.

The trial, heard last month, was also told there was evidence Ms Jackson had withdrawn considerable funds from union accounts while in Las Vegas, San Francisco, Washington and Heathrow Airport in London.

She was also accused of using the money to pay for business-class airfares for her daughter to France, shopping trips to department stores Myer and David Jones and the Costco supermarket, and a single $14,000 dinner bill for exclusive Melbourne restaurant Fenix.

The court heard Ms Jackson was never popularly elected to any of the positions she held in the HSU.

She succeeded Craig Thomson as national secretary when he entered the Federal Parliament as a Labor MP for the NSW central coast, and famously blew the whistle on his misappropriation of union funds.

He was found guilty last year of 13 theft charges and also has a current HSU lawsuit against him before the Federal Court.

The court was told Ms Jackson continued to make significant withdrawals from the alleged slush fund after she lost her union authority when administrators moved in to take over in 2012.

Jackson declared bankruptcy, did not attend trial

The total lawsuit brought by the HSU against Ms Jackson is worth $2.5 million.

Ms Jackson tried without success to have the civil trial against her abandoned, telling the court in October last year she was too mentally unwell to defend herself.

She later accused Australia's senior unions of deliberately conspiring to destroy her "physically, emotionally and financially" as a result of blowing the whistle on Mr Thomson, a move her lawyer said "could have assisted in the downfall of the Labor Gillard government", he lawyer told the court in June.

"They hate her ... the senior unions in Australia were out to get my client and they got her good," he told the court.

When that failed to dissuade the court from proceeding with the trial, Ms Jackson declared bankruptcy.

Her lawyer withdrew from the case, meaning she was unrepresented.

She chose not to attend her Federal Court trial.

Ms Jackson's partner - Fair Work commissioner Michael Lawler - has also been drawn into the controversy.

In an affidavit tendered the court in June, Mr Lawler wrote that he and Ms Jackson had spent time in mental health units because of the "enormous and sustained personal stress".

"I have been the subject of a concerted campaign of malicious attacks," he wrote.

"I am not going anywhere. I occupy an office that I intend to continue, having devoted more than a decade of service."

Counsel assisting the Royal Commission into Trade Union Corruption and Governance has also recommended Ms Jackson be charged with criminal offences.