St Mary's Hog's Pty Ltd v HBCA Pty Ltd

Federal Court of Australia|2024-01-30|Before: Markovic J

Pursuant to s 56(4) of the Federal Court of Australia Act 1976 (Cth) and r 19.01(1)(c) of the Federal Court Rules 2011 (Cth) the proceeding is dismissed.
The applicants are to pay: (a) the first and third respondents' costs of their interlocutory application filed on 30 March 2023; (b) the second, fourth and fifth respondents' costs of their interlocutory application filed on 26 April 2023; and (c) the sixth respondent's costs of its interlocutory application filed on 8 May 2023.
The applicants are to pay the respondents' costs of the proceeding. Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

MARKOVIC J: 1 On or about 6 December 2011 the first applicant, St Mary's Hogs Pty Ltd, entered into a franchise agreement with the first respondent, HBCA Pty Limited, in relation to a Hog's Breath Café outlet at St Mary's, New South Wales. The second and third applicants, Luke Bernard Goodwin and Todd Adam Blackstock, are shareholders of St Mary's Hog's and guarantors under the St Mary's Hog's franchise agreement. 2 On 23 April 2021 the applicants commenced this proceeding under Pt IVA of the Federal Court of Australia Act 1976 (Cth) (FCA Act) on behalf of group members who are entities or persons who at any time between 1 June 2014 to 31 October 2020 (relevant period) were either: (1) a franchisee party to an agreement with HBCA in relation to the operation of a franchised Hog's Breath Café outlet; or (2) a guarantor to a franchise agreement or were otherwise required to provide an indemnity, guarantee, mortgage or other security in respect of a franchisee's obligations to HBCA thereunder, or under any related bank loan contract between that franchisee and HBCA, who had not entered into a binding release of their claims against HBCA arising out of conduct described in the amended statement of claim. 3 There are five additional respondents to the proceeding. They are: (1) Alfred Brett Dryland, the second respondent, who was, among other things, a director of HBCA during the relevant period and until 12 September 2019 its secretary; (2) Ross Murray Worth, the third respondent, who was a director of HBCA during the relevant period and until February 2020 its chief executive officer; (3) Steven George Spurgin, the fourth respondent, who from about February 2020 until about 19 December 2020 was the chief executive officer of HBCA and since 19 December 2020 has been the chief executive officer of HBCM Pty Ltd, the sixth respondent (see below); (4) Matthew Douglas Jesse, the fifth respondent, who was a director of HBCA during the relevant period; and (5) HBCM, the sixth respondent, which from 31 October 2020 purported to be the franchisor in Australia of the Hog's Breath Café franchise system under licence from Hog's Breath Company Pty Ltd, see St Mary's Hog's Pty Ltd v HBCA Pty Ltd [2022] FCA 52 at [5] (St Mary's Hog's (No 1)). 4 On 4 February 2022 on the application of each of HBCA and Mr Worth (HBCA parties), Messrs Dryland, Spurgin and Jesse, and HBCM respectively I made orders (4 February 2022 Orders) requiring the applicants to provide security for costs in the form of a bank guarantee or payment into Court in specified amounts and at various times for the costs of each of those respondents or groups of them. The first tranche of security was to be paid within 30 days of the making of those orders, that is by 6 March 2022: see St Mary's Hog's (No 1)). 5 The applicants were unsuccessful in their application for leave to appeal from the 4 February 2022 Orders with a Full Court of this Court dismissing their application on 26 September 2022: see Goodwin v HBCA Pty Ltd [2022] FCAFC 166. 6 Since that time the applicants have failed to make any payment of security in accordance with the 4 February 2022 Orders. Accordingly, the respondents now seek: an order pursuant to s 56(4) of the FCA Act, or alternatively r 19.01(1)(c) of the Federal Court Rules 2011 (Cth), that the proceeding be dismissed; and an order pursuant to s 23 of the FCA Act and r 1.32 of the Rules that the applicants be barred from bringing any fresh proceeding concerning any cause of action for the whole or any part of any claim for relief by them in this proceeding until the respondents' costs in this proceeding have been paid in full.

The franchise business 7 The background to the establishment and operation of the Hog's Breath Café franchise system is set out in St Mary's Hog's (No 1) at [9]-[16]. 8 Relevantly, HBCA was the franchisor of the Hog's Breath Café franchise system from about 2000 to October 2020. In September 2005 Hog's Breath Company and HBCA entered into a Franchise System and Development Management Agreement (FSDMA). Pursuant to the terms of that agreement Hog's Breath Company granted HBCA a licence to use intellectual property of the Hog's Breath Café franchise system and to grant franchises in Australia and New Zealand. 9 In 2020 a dispute arose between Hog's Breath Café and HBCA. According to Ginger White, a director of HBCM, that dispute was resolved in October 2020. Ms White's evidence is that its resolution included: (1) the surrender of the FSDMA pursuant to a deed of settlement, surrender and release; and (2) the sale of certain assets of the Hog's Breath Café franchise business by HBCA to HBCM pursuant to an asset sale and purchase agreement. 10 There is also a deed of assignment of franchise agreement dated 30 October 2020 between HBCA and HBCM which concerns the assignment by HBCA to HBCM of it rights, title and interest in the franchise agreements of the Hog's Breath franchise system. The effect of the deed of assignment and whether it operates to assign the franchise agreements to HBCM is disputed by the applicants in this proceeding: see St Mary's Hog's (No 1) at [6]. 11 Ms White explains that since 2020, following resolution of the dispute with HBCA, HBCM has been the franchisor of the Hog's Breath Café franchise system. The other director of HBCM is Mai Algie who was appointed on 10 May 2022 in place of Don Algie.

Local Court proceedings 12 On 7 December 2020 HBCA commenced proceeding no. 2020/346754 against the applicants in the Local Court of New South Wales (St Mary's Local Court proceeding). HBCA also commenced 10 additional proceedings against other Hog's Breath Café franchisees and their guarantors in the Local Court, the Magistrates Court of Queensland and the Magistrates Court of the Australian Capital Territory: see St Mary's Hog's (No 1) at [43]. 13 In addition to the St Mary's Local Court proceeding, Messrs Goodwin and Blackstock are defendants to three other proceedings of the nature described in the preceding paragraph including a proceeding commenced by HBCA against Penrith Hogs Pty Limited and Messrs Goodwin and Blackstock as defendants (Penrith Local Court proceeding). 14 The St Mary's Local Court Proceeding and the Penrith Local Court Proceeding (which I will refer to collectively as the Local Court Proceedings) are being run together in the Local Court. 15 On 18 February 2021 the applicants in this proceeding filed a cross-claim in the St Mary's Local Court proceeding which, according to Daniel Patrick Georges, the solicitor for the HBCA parties, is in substantially the same terms as the cross-claim filed by the defendants in the Penrith Local Court Proceeding. 16 Mr Georges received numerous communications from the applicants' solicitor, Philip Argy, indicating that the applicants proposed to commence a class action. Accordingly on about 21 April 2021 Mr Georges sought an order in the Local Court Proceedings that the applicants file a class action within two weeks failing which those proceedings should proceed to final hearing. 17 The Local Court Proceedings were effectively adjourned until about early 2023 pending the resolution of the security for costs issues in this Court and the expiry of time for the applicants to bring an application for special leave to appeal to the High Court from the decision in Goodwin. The Local Court Proceedings were then further delayed by Mr Goodwin's injury sustained in about late February 2023 (see below). 18 The Local Court Proceedings were originally listed for hearing on 14 June 2023 but were adjourned in light of Mr Goodwin's injury. On 22 June 2023 the Local Court made orders including: (1) specially fixing the Local Court Proceedings for hearing for three days commencing on 31 January 2024; (2) directing the defendants (in effect the applicants in this proceeding) to file and serve their evidence on or before 27 October 2023; and (3) directing HBCA to file and serve its evidence in reply on or before 24 November 2023. 19 On about 31 October 2023 the defendants in the Local Court Proceedings filed an affidavit affirmed by Mr Goodwin which, as Mr Georges understands the position, completes the defendants' evidence in those proceedings.

St Mary's Hogs 20 The current directors of St Mary's Hogs are Mr Goodwin and Shakeel Ahmed. Mr Ahmed is also its secretary. There are two classes of shares on issue: (1) D class shares of which: (a) GFDT Pty Ltd holds 2 shares; and (b) Mr Ahmed holds 2 shares; and (2) G class shares of which: (a) Mr Ahmed holds 60 shares; (b) Marguerite May Nicks, Mr Goodwin's sister, holds 20 shares; (c) GFDT holds 60 shares; and (d) Mr Blackstock and Alicia Jane Blackstock jointly hold 60 shares. 21 On 24 February 2023 Mr Goodwin suffered a traumatic brain injury which left him with cognitive impairment for more than seven months. Mr Goodwin was unable to make any important decisions during that time, including giving instructions in this proceeding or in the Local Court Proceedings. He has since recovered and on 31 October 2023 affirmed an affidavit in support of the applicants' opposition to the applications now before the Court. 22 According to Mr Argy, Mr Goodwin is the person responsible for St Mary's Hog's management and the only person instructing him on behalf of St Mary's Hog's since the commencement of this proceeding. Mr Ahmed is the restaurant manager for the restaurant operated by St Mary's Hogs, is not involved in management decisions about legal or corporate matters and has not been involved in providing instructions in relation to the proceeding.

Prejudice to HBCM in continuing this proceeding 23 Ms White gave evidence about the prejudice which, in her view, is being caused to HBCM by the continuation of this proceeding. She raised the following concerns: (1) there are restrictions on HBCM's ability to communicate with its franchisees about the proceeding, other than via solicitors in accordance with paragraph 11 of the Court's Class Actions Practice Note (GPN-CA) which limits HBCM's ability to communicate directly with the franchise system as a whole about the proceeding; (2) the proceeding brings the Hog's Breath brand into disrepute including by media coverage which Ms White considers has been negative; (3) the allegations made in the proceeding, which include allegations about the validity of the assignment of the franchise agreements from HBCA to HBCM, has made it more difficult for HBCM to enforce the franchise agreements as against particular franchisees. Ms White believes that those allegations may, in the case of some franchisees, be the reason or one of the reasons for franchisees failing to meet their obligations under the franchise agreements, including by failing to provide financials on a monthly basis to HBCM; (4) the number of stores in the franchise system has reduced from 48, when HBCM first took over as franchisor, to 34. According to Ms White, HBCM has received feedback from customers in or near areas where stores are closed suggesting demand for Hog's Breath Café to return to those areas. However, while this proceeding remains on foot it negatively impacts HBCM's prospects of attracting new franchisees because it is "a red flag" for potential purchasers. While it remains on foot the proceeding is the subject of disclosure to new franchisees in HBCM's disclosure document; (5) the proceeding raises risk profile when negotiating leases at existing sites and when seeking new sites; (6) the proceeding is a risk factor for potential new franchisees when raising finance for new sites which, in turn, affects the speed of obtaining finance and negatively impacts on its cost and thus reduces profitability. Similarly, the proceeding prejudices existing franchisees in obtaining finance to execute the new branding which Ms White says is imperative to the future success of the Hog's Breath franchise system in establishing it as a modern dining experience; and (7) the proceeding raises risk profile in relation to the negotiation of terms and conditions on supply contracts with existing suppliers as they become due, reduces the impact Hog's Breath has as a brand in attracting new suppliers and raises the cost of doing business with suppliers. 24 Mr Goodwin gives evidence in which he takes issue with Ms White's concerns about the ongoing prejudice to HBCM arising out of this proceeding. However, Mr Goodwin's evidence concerns HBCA's alleged conduct and the reason why he sought to commence this proceeding rather than defend multiple sets of proceedings in local courts in multiple jurisdictions. In my opinion it does not directly address the concerns raised by Ms White in relation to HBCM. Accordingly, it is not necessary for me to set out that evidence in any detail.

THE APPLICATIONS TO DISMISS THE PROCEEDING 25 The first order sought by the respondents in their respective interlocutory applications is an order that the proceeding be dismissed for failure to comply with the 4 February 2022 Orders.

Legislative framework and legal principles 26 Section 56(4) of the FCA Act empowers the Court or a Judge to dismiss a proceeding where security, or further security, is not given in accordance with an order made under the section. 27 Rule 19.01(1)(c) of the Rules relevantly provides that a respondent may apply to the Court for an order that if the applicant fails to provide security within the time specified in the order, the proceeding be dismissed. 28 In Sunshine Energy Australia Pty Ltd v Youssef [2023] FCA 189 at [8]-[10] Sarah C Derrington J set out the principles that guide the Court's discretion to dismiss a proceeding for failure to comply with an order requiring the payment of security for costs: 8 There is no doubt the Court has power under s 56(4) of the FCA Act to dismiss these proceedings for failure to provide the security for costs as ordered by the Court: Microbio Resources Inc v Betatene Ltd [1993] FCA 848. It is a broad, discretionary power: Mecrus Pty Ltd v Industrial Energy Pty Ltd [2015] FCA 103; 327 ALR 523 at [18]-[20] per Murphy J. The only limitation is that power must be exercised judicially: Bell Wholesale Co Ltd v Gates Export Corporation [1984] FCA 29; 2 FCR 1 at 3 per Sheppard, Morling and Neaves JJ. In Microbio, their Honours said at 9 - 10: The Court is careful to see that orders for security for costs do not work injustice to parties against whom such orders are made, but if those parties do not comply with the orders and give no evidence or explanation as to why they have not complied with them, they cannot be heard to complain of injustice if, after a considerable length of time, and extensions of time, the ultimate sanction of dismissal is applied. It is incumbent on parties in such circumstances to provide evidence of their position. 9 In Idoport Pty Limited v National Australia Bank Limited [2002] NSWSC 18 (upheld on appeal [2002] NSWCA 271), Einstein J identified five factors relevant to the exercise of the discretion: (1) the period that has elapsed since security was ordered; (2) the fact that the plaintiff has been on notice of the application for dismissal; (3) the seeming inability of the plaintiff to further fund the Main Proceedings; (4) the prejudice to the defendants; (5) the position of the Court. 10 These factors have been subsequently applied by this Court in Cosdean Investments Pty Ltd v Football Federation Australia Limited (No 3) [2007] FCA 766, Austcorp Project No. 20 Pty Limited v The Trust Co (PTAL) Limited, in the matter of Bellpac Pty Limited (Receivers and Managers Appointed) (in liq) [2015] FCA 850 and Manhattan (Asia) Limited v Dymocks Franchise Systems (China) Limited (No 2) [2016] FCA 1323. 29 Added to those authorities identified in Sunshine Energy at [10] where the factors relevant to the exercise of the discretion have been applied is the decision in Tinkler Group Holdings Pty Ltd v Winter (No 2) [2023] FCA 412.

The applicants' submissions 30 The applicants oppose the respondents' applications for the proceeding to be dismissed. They submit that it would be contrary to the interests of justice to dismiss the proceeding at this stage. 31 First, the applicants submit it would be contrary to the interests of justice for the proceeding to be dismissed at this stage, before the Local Court Proceedings are determined. They contend that there will be serious and obvious prejudice to the applicants if the proceeding is summarily dismissed without a determination of the merits of their claims, relying on Mainland Property Holdings Pty Ltd (Receivers and Managers Appointed) v Naplend Pty Ltd (No 4) [2023] FCA 1066 at [44]. The applicants submit that the group members in the proceeding will suffer similar prejudice as they will not have the benefit of a binding determination by this Court of the issues common to their claims. 32 The applicants submit that this factor assumes primary importance in the present applications, where the issues in this proceeding are substantially the same as those in the Local Court Proceedings. They say that if they succeed at trial in the Local Court Proceedings, that will constitute a material change in circumstances warranting the setting aside (or at least a substantial variation) of the 4 February 2022 Orders. They contend that: (1) if the issues in the Local Court Proceedings are decided in the applicants' favour, an issue estoppel will at least operate to preclude HBCA from recontesting those issues in this proceeding; (2) this will fundamentally change the assessment of the strength of the applicants' claims made against HBCA in this proceeding, constituting a material change in circumstances where the Court declined to make any finding about the strength of the applicants' claims when it originally ordered security; (3) it will be unjust to enforce the 4 February 2022 Orders if the applicants' claims succeed on the merits in the Local Court Proceedings; (4) other than HBCA, the other respondents are not parties to the Local Court Proceedings. However, the determination of those proceedings in favour of the applicants would still constitute a relevant material change in circumstances in relation to the orders for security made in their favour; (5) the claims made against the individual respondents are that they were knowingly concerned in or otherwise party to HBCA's contraventions. If the contraventions by HBCA are established in the Local Court Proceedings, the claims against the individual respondents in this proceeding are necessarily more likely to succeed; (6) the relief sought against HBCM is limited to a declaration that the purported assignment of the franchise agreements from HBCA to HBCM was void and orders restraining HBCM from seeking to enforce those agreements. If the Local Court finds the purported transfer of the St Mary's Hog's franchise agreement was ineffective, by reason of the prior repudiation of that agreement by HBCA or the failure to comply with franchising law, this would also change the assessment of the strength of applicants' claims for relief against HBCM in this proceeding; and (7) the Local Court's determination of the overlapping issues will substantially narrow the issues in dispute in this proceeding which will necessarily reduce the costs of defending the proceeding for all respondents. Thus, even if the applicants were still required to provide security for some of the respondents' costs after the determination of the Local Court Proceedings, this would at least warrant a reduction of the amount of security ordered. 33 The applicants submit that if the orders sought by the respondents are made now, they will be faced with potentially ruinous costs orders and barred from seeking further relief which is in the sole jurisdiction of this Court, even if they succeed on the merits of their claims at trial in the Local Court and that group members will also lose the benefit of this Court making findings in respect of those claims which are binding on the group. They submit that the prejudice to them and group members outweighs any prejudice to the respondents from awaiting the outcome of the Local Court Proceedings. 34 The applicants submit that the Court ought to reject HBCM's submission that a continued stay of the proceeding will have a negative commercial impact on it and, in any event, summary dismissal of the proceeding will not resolve the asserted prejudice to the respondents until the Local Court Proceedings are determined. 35 Secondly, the applicants submit that if the Court is not satisfied that the proceeding ought to remain stayed pending the outcome of the Local Court Proceedings, it ought instead order that the proceeding be declassed pursuant to s 33N of the FCA Act and permit the individual applicants' claims to continue, rather than dismiss the proceeding. They contend that: (1) the factors relied upon by the Court in making the 4 February 2022 Orders included that the proceeding was brought for the benefit of the group members and the applicants had not demonstrated that security could not be provided without their support; (2) declassing the proceeding would constitute a material change in circumstances warranting the setting aside (or at least substantial variation) of the original orders for security; and (3) if the Court determines that the proceeding ought no longer continue in its current form, a declassing order would be in the interests of justice for the purpose of s 33N of the FCA Act, consistent with the observations in Idoport Pty Ltd v National Australia Bank Ltd [2002] NSWSC 18 at [24] that the Court should endeavour "wherever practicable consistently with the interests of justice" to avoid dismissal of an applicant's claim without a determination on the merits.

Consideration 36 As set out above the discretion to dismiss a proceeding pursuant to s 56(4) of the FCA Act for failure to provide security for costs in accordance with an order for the Court must be exercised judicially. As was recognised in Idoport at [24] all relevant circumstances are to be taken into account and the Court would "[strain] wherever practicable consistently with the interests of justice to avoid taking the radical step of denying a plaintiff its day in Court". 37 However, it is appropriate to commence consideration of whether the order sought by the respondents should be made by having regard to the five factors identified in Sunshine Energy and which have been consistently applied in this Court. Before doing so I note that it is not in dispute that the applicants have not provided security in accordance with the 4 February 2022 Orders and that they are unable to do so. 38 The first factor is delay. The 4 February 2022 Orders were made some [22] months ago and the appeal from those Orders was dismissed on 26 September 2022, some [15] months ago. Even taking account of the period during which Mr Goodwin was incapacitated by his injury, February 2023 to October 2023, there is still an unexplained period of five months, from September 2022 to February 2023, when no steps were taken to comply with the 4 February 2022 Orders. 39 There are two directors of St Mary's Hog's: Mr Goodwin and Mr Ahmed. While the evidence is that Mr Ahmed was more concerned with the day to day management of the St Mary's Hog's outlet, there is no explanation why, during the period when Mr Goodwin was incapacitated, he, as a director, could not take steps to facilitate compliance with the 4 February 2022 Orders or give instructions on behalf of St Mary's Hog's. 40 Finally, there is no suggestion that further time would enable the applicants to raise funds to enable compliance with the 4 February 2022 Orders. 41 In the circumstances this factor weighs in favour of making the orders sought. 42 The second factor is that the applicants have been on notice of the application for dismissal: HBCA and Mr Worth filed their application on 30 March 2023; Messrs Dryland, Spurgin and Jesse filed their application on 24 April 2023; and HBCM filed its application on 8 May 2023. Thus, the applicants have been on notice of the applications for dismissal for some eight months and indeed on notice of potential for such an application to be made even prior to that time. On 2 November 2022 after the decision in Goodwin was handed down, HBCM's solicitors wrote to the applicants' solicitors in relation to their non-compliance with the 4 February 2022 Orders. In doing so HBCM's solicitors noted that if "the security for a Court order is not complied with, the Court may order that the proceeding be dismissed" and enquired whether, given that the 4 February 2022 Orders had not been complied with, the applicants would consent to a dismissal of the proceeding with an order that they pay HBCM's costs of the proceeding. 43 The third factor is the seeming inability of the applicants to further fund the proceeding. As noted above, it was not in dispute that the applicants have failed to provide any security in accordance with the 4 February 2022 Orders and they concede that they are unable to comply with those Orders. In the circumstances there is at the very least an inability on the part of the applicants to comply with the 4 February 2022 Orders and there is no suggestion that any further attempt is being, or will be, made to obtain funds to permit compliance with them. Rather, the applicants suggest that the Court would not make an order dismissing the proceeding but permit the applicants to pursue a proceeding in another court the outcome of which may enable them to then apply to this Court for variation of the 4 February 2022 Orders. I address that proposal further below. 44 The fourth factor is the prejudice to the respondents. As Jackman J observed at [15] of Tinkler "[t]he prejudice is established by the inevitable incurring of costs in the litigation, the loss of executive time on the part of … [the] respondents, and also the strain of litigation". Those observations are equally applicable here. That the proceeding has been stayed does not mean that the respondents are not otherwise subject to those factors. Despite the stay currently in place as a result of the applicants' failure to comply with the 4 February 2022 Orders, there is every possibility that they have had to incur costs in monitoring any progress in the proceeding and in attending case management hearings. Those steps would also result in the loss of executive time in providing instructions and the inevitable strain of litigation both on the respondents, who include personal respondents, and their resources. 45 In addition, Ms White gives evidence of the prejudice to HBCM of keeping the proceeding on foot (see [23] above). That includes negative publicity, the need for disclosure to potential new franchisees, the negative effect of the proceeding on attracting new franchisees and the seemingly negative effect of the proceeding when negotiating with lessors, finance providers and suppliers. The applicants submit that the present difficulties are the result of HBCA's prior misconduct and mismanagement of the franchise system, which is the basis of the claims in this proceeding. Even if that is so, it does not detract from the fact that HBCM, which is currently running the franchise system, is experiencing negative effects on its ability to do so by reason of the ongoing proceeding. 46 The applicants also contend that dismissal of this proceeding will not resolve the asserted prejudice to the respondents until the Local Court Proceedings are determined because those proceedings remain on foot as against HBCA and summary dismissal of this proceeding will not quell the dispute between HBCM and its franchisees. The Local Court Proceedings are scheduled to be heard in January 2024. They will resolve the issues as pleaded as between HBCA and the applicants including to the extent that those issues overlap with this proceeding. To the extent that is so there is no reason to maintain this proceeding. 47 HBCM is not a party to the Local Court Proceedings or, based on the evidence before me, any other proceeding which raises the issues in this proceeding. It matters not that a dismissal of this proceeding pursuant to s 56(4) of the FCA Act will not determine the merits. If there are issues to be resolved with HBCM, that can occur in due course either by way of an appropriate proceeding or otherwise. But it is not a reason to maintain this proceeding in the face of the applicants' ongoing failure to comply with the 4 February 2022 Orders to the detriment of HBCM's ongoing business operations. 48 The fifth factor is the position of the Court. It is unsatisfactory for the proceeding to remain on foot while the applicants remain in breach of the 4 February 2022 Orders without any tangible proposal or attempt to remedy that situation. As Jackman J said in Tinkler at [16] "litigation involving the kinds of delays and breaches of Court orders which the present case has experienced is an unwarranted use of the Court's resources" and is contrary to the overarching purpose of the civil practice and procedure provisions set out in s 37M and s 37N of the FCA Act. 49 In summary, each of these factors supports the respondents' applications for an order pursuant to s 56(4) of the FCA Act that the proceeding be dismissed. 50 I am not persuaded that the Court would decline to make the order sought by the respondents at this time because of the Local Court Proceedings. The applicants ask the Court to await the outcome of those proceedings because if they are successful on their cross-claim that will constitute a change in circumstances enabling them to seek to vary or set aside the 4 February 2022 Orders. That is a highly speculative basis upon which to refuse to make the order sought in the circumstances of this case. 51 The Court has the power to vary an order for security for costs "where there has been a material change of circumstances since the original application was heard": see Tucker v McKee [2022] FCA 315 at [56]. However, the applicants are not in a position to make such an application, or even to indicate that they will ever be in that position. That is because they do not know if they will succeed in the Local Court Proceedings. 52 In any event, success or otherwise in the Local Court Proceedings can only affect the parties to those proceedings i.e., the applicants and HBCA. Messrs Worth, Dryland, Spurgin and Jesse are not party to the Local Court Proceedings. They will not be bound by any finding made in those proceedings and it is difficult to see how any findings made in them could produce a relevant change of circumstances in relation to any of those respondents. 53 I turn to consider the applicants' alternative submission, namely that it is appropriate to make an order under s 33N of the FCA Act. That section relevantly provides: (1) The Court may, on application by the respondent or of its own motion, order that a proceeding no longer continue under this Part where it is satisfied that it is in the interests of justice to do so because: (a) the costs that would be incurred if the proceeding were to continue as a representative proceeding are likely to exceed the costs that would be incurred if each group member conducted a separate proceeding; or (b) all the relief sought can be obtained by means of a proceeding other than a representative proceeding under this Part; or (c) the representative proceeding will not provide an efficient and effective means of dealing with the claims of group members; or (d) it is otherwise inappropriate that the claims be pursued by means of a representative proceeding. 54 The applicants' submission that in the alternative the Court would make an order under s 33N(1) declassing the proceeding springs from [55] of Goodwin where, as a final observation, after stating their conclusion that there was no arguable error justifying a grant of leave to appeal Middleton and Lee JJ said: Accordingly, it is unnecessary to consider any issue of substantial injustice if leave is refused. Further, no-one suggests we consider in this case the question of whether, if security is ordered in a class action, the order in default of security should necessarily be a stay of the entire class action (or whether a preferable remedial response would be a more refined "declassing" order, which would allow the individual claim of the applicant to be maintained). 55 No such application was made by the applicants before the Full Court and no such application was before me. Counsel appearing for the applicants stressed in oral argument that his clients made written submissions as to the availability of s 33N of the FCA Act. 56 In fact the applicants do not have standing to make an application under s 33N of the FCA Act. An order can only be made on application of a respondent or by the Court of its own motion. 57 There are number of reasons why I would not make such an order. 58 First, the applicants do not identify on which of the bases identified in s 33N(1) such an order might be made. I would not speculate on which of the subsections the applicants rely. There is no evidence which assists me in that regard. In any event, given the issues raised in the proceeding I apprehend that it would not be in reliance on subs (1)(c) or (d) and there is no evidence to support the making of an order on the basis of subs (1)(a) or (b). 59 Secondly, and in contrast to the applicants' submissions relying on s 33N of the FCA Act, the applicants submit, in opposing the application to dismiss the proceeding, that to do so would be prejudicial to group members. That is, they present a somewhat inconsistent position. They rely on the interests of group members as a reason why the proceeding would not be dismissed for failure to comply with the 4 February 2022 Orders and yet abandon those interests in an attempt to keep the proceeding on foot for their own purposes and in their own interests. 60 Thirdly, based on their own analysis there is a significant degree of overlap between the issues raised in this proceeding and the Local Court Proceedings such that a declassing order would not seem to be appropriate as an alternative to dismissal. In other words it seems that a significant number of the issues that arise as between the applicants and at least HBCA will be resolved in the Local Court Proceedings. 61 Finally, while the applicants may seek to vary the 4 February 2022 Orders consequent on the making of an order pursuant to s 33N of the FCA Act, it does not follow that such an application would be successful nor would result in there being no security payable. 62 I am satisfied that an order should be made pursuant to s 56(4) of the FCA Act and r 19.01(1)(c) of the Rules dismissing the proceeding for failure to comply with the 4 February 2022 Orders.

THE APPLICATIONS FOR A BARRING ORDER 63 The respondents also seek an order pursuant to s 23 of the FCA Act and r 1.32 of the Rules that the applicants be barred from bringing any fresh proceeding concerning any cause of action for the whole or any part of any claim for relief by them in this proceeding until the respondents' costs in this proceeding have been paid in full. 64 The respondents seek such an order to avoid any attempt by the applicants to bring the same or similar claims against them without satisfying the costs orders made in their favour in this proceeding. 65 They rely on Idoport where, as well as dismissing the proceeding for failure to comply with orders to pay security for the defendants' costs, an order was made by the court which prohibited the plaintiff in that proceeding from bringing any "fresh proceedings concerning any cause of action or the whole or any part of any claim for relief by [it] in these proceedings, until costs in these proceedings have been paid in full". 66 In Idoport Pty Limited v National Australia Bank Limited [2006] NSWCA 202 (Idoport Appeal) the New South Wales Court of Appeal considered whether the appellant, Idoport, was entitled to bring the proceeding the subject of the appeal, referred to as the "present proceedings", without first having paid the respondents' costs in the earlier proceeding between the same parties. Among other things, the resolution of that question involved the construction of the barring order made in the earlier proceeding, consideration of whether the present proceedings came within the terms of the barring order and whether the present proceedings should be stayed in the exercise of the Court's inherent power to prevent abuse of its own processes: see Idoport Appeal at [2]. 67 In addressing those questions at [115] Beazley JA (with whom Mason P and Ipp JA agreed) said: The Order dismissing the present proceedings did not constitute shutting the appellant out of a right of access to the Court. Rather, the position was that the appellant engaged the resources of the Court and the respondents in order to mount a case of mammoth proportions. It was entitled to do so, but only within the construct of the Court's processes. Not being able to comply with the Court's Order in relation to security for costs, the Court is entitled to exercise its inherent jurisdiction to prevent its process being abused. For the reasons I have already discussed, the claims now attempted to be mounted by the appellant fall within the terms of the Declaration sought in para 14.3A of the Amended Summons in the Main Proceedings. For that reason, the present proceedings fall within the terms of the barring Order and in any event are an abuse of the Court's process. 68 Similarly, here the respondents submit that the Court is entitled to exercise its inherent jurisdiction to make a barring order in the terms they seek to prevent an abuse of its own processes. They submit that, while the features that motivated the Court in the original proceeding in Idoport are not present here, the applicants' foreshadowed strategy of using findings in litigation to which most of the respondents are not party to re-enliven claims made in this proceeding suggest that it is appropriate to protect at least those respondents, and the administration of justice, from an abuse of process. 69 In my view it is not appropriate to make the order sought by the respondents barring the applicants from commencing a fresh proceeding for the same claims of relief as in this proceeding until the respondents' costs are paid at this stage. 70 The applicants seek to maintain the present proceeding subject to the ongoing stay pending the outcome of the Local Court Proceedings. Their position is that if successful in that proceeding they will seek to vary the 4 February 2022 Orders, including potentially by setting them aside. They also suggest that they would be able to deploy findings in the Local Court Proceedings for their benefit in this proceeding. 71 The applicants have been unsuccessful in their attempts to maintain the status quo in this proceeding, which will now be dismissed. That said there is no suggestion, as things presently stand, that they intend to commence a fresh proceeding seeking all or part of the relief claimed in this proceeding once the outcome of the Local Court Proceedings is known, although I accept that may occur. If it does the respondents can, at that stage, seek an order pursuant to r 39.03(2) of the Rules. Rule 39.03 provides: (1) If the Court makes an order dismissing a proceeding or part of a proceeding, the applicant may apply to the Court: (a) for an order that the dismissal be without prejudice to any right of the applicant to bring fresh proceedings; or (b) for leave to claim the same relief in a new proceeding. (2) If: (a) a proceeding has been dismissed in whole or in part; and (b) the Court has ordered the applicant to pay another party's (the second party's) costs; the second party may apply to the Court for an order staying any further proceedings brought by the applicant against the second party on the same or substantially the same cause of action or relief, until the costs have been paid. 72 That is, as is apparent from its terms, r 39.03 of the Rules provides the respondents with the ability to seek the order they now seek but at a time when they are in fact faced with a fresh proceeding seeking the same relief in whole or in part as sought in this proceeding. 73 This proceeding does not have the same history as the litigation in Idoport. So much is accepted by the respondents. In Idoport, the proceeding, which was of some complexity, was well advanced and the order for dismissal for failure to pay security was sought when it was part heard. In contrast, despite the passage of time since its commencement, this proceeding is in its infancy in terms of steps taken in relation to readiness for hearing. There is on the evidence before me, and having regard to the history of the proceeding, no abuse of process or potential for abuse of process which the Court needs to prevent.

CONCLUSION 74 For those reasons I will make an order dismissing the proceeding for failure to comply with the 4 February 2022 Orders. 75 While the respondents sought two orders in their respective interlocutory applications, the principal relief sought was the dismissal of the proceeding. That was reflected in the relative time taken to address that application as opposed to the barring order in relation to which the respondents have been unsuccessful. The applicants should thus pay the respondents' costs of their interlocutory applications and, as the proceeding is to be dismissed, of the proceeding. 76 I will make orders accordingly. I certify that the preceding seventy-six (76) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justice Markovic.

SCHEDULE OF PARTIES NSD 351 of 2021 Respondents Fourth Respondent: MR STEVEN GEORGE SPURGIN Fifth Respondent: MR MATTHEW DOUGLAS JESSE Sixth Respondent: HBC MANAGEMENT PTY LTD (ABN 70 644 819 296)

Federal Court of Australia Act 1976(Cth)ss 23, 33N, 37M, 37N

Federal Court Rules 2011(Cth)rr 1.32, 19.01

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