REPRESENTATIVE PROCEEDINGS – application for leave to appeal – where primary judge made order for security for costs – where incomplete evidence adduced before the primary judge as to the inability to finance the conduct of the proceeding – discussion of Abbott v Zoetis Australia Pty Ltd (No 2) [2019] FCA 462; (2019) 369 ALR 512 – no arguable error identified sufficient to warrant a grant of leave to appeal – no real point of principle raised – application dismissed
Commercial Contracts, Banking, Finance and Insurance
Number of paragraphs:
62
Date of hearing:
22 August 2022
Counsel for the Applicants:
Mr J Arnott SC with Mr O Cook
Solicitor for the Applicants:
Keypoint Law
Solicitor for the First and Third Respondents:
Mr S Ivantsoff of Finn Roache Lawyers
Counsel for the Second, Fourth and Fifth Respondents:
Mr J K S Entwisle
Solicitor for the Second, Fourth and Fifth Respondents:
Thomson Geer
Counsel for the Sixth Respondent:
Mr S Fitzpatrick
Solicitor for the Sixth Respondent:
Cowen Schwarz Marschke Lawyers
ORDERS
NSD 101 of 2022
BETWEEN:
LUKE BERNARD GOODWIN
First Applicant
TODD ADAM BLACKSTOCK
Second Applicant
ST MARY’S HOG’S PTY LTD (ABN 73 143 026 626)
Third Applicant
AND:
HBCA PTY LTD (ABN 75 071 132 655)
First Respondent
ALFRED BRETT DRYLAND
Second Respondent
ROSS MURRAY WORTH (and others named in the Schedule)
Third Respondent
ORDER MADE BY:
MIDDLETON, LEE AND DERRINGTON JJ
DATE OF ORDER:
26 SEPTEMBER 2022
THE COURT ORDERS THAT:
1.The application for leave to appeal be dismissed with costs.
Grounds of appeal
[14] The appellant contends that the primary judge erred in finding that the respondent had discharged the onus of establishing the matters required under the relevant provision.
[15] It was submitted that his Honour failed to give adequate weight to the evidence of the second witness, and that the findings of fact were not reasonably open on the material before the Court.
[16] The respondent, for its part, submits that no error is disclosed, and that the conclusions reached were well within the range of outcomes available to the primary judge.
Consideration
[17] It is convenient to deal first with the question of construction, as the resolution of that issue informs the remaining grounds advanced by the appellant.
[18] For the reasons that follow, we are of the view that the appeal should be allowed in part and the matter remitted for further determination.
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AGLC
Goodwin v Hbca Pty Ltd [2022] FCAFC 166
Case
[2022] FCAFC 166
Decision Date
CaseChat Overview and Summary
Goodwin v HBCA Pty Ltd concerned an application for leave to appeal against an order for security for costs made by the primary judge in a class action. The case involved a franchisee and two of its shareholders who initiated a class action against the franchisor, the licensor of the franchise system, and several officers. The applicants sought statutory compensation for breaches of contract, unconscionable conduct, and unlawful exclusive dealing. The primary judge found the applicants had a bona fide case with reasonable prospects of success and ordered security for costs amounting to $1,934,257.
The legal issues in the appeal centred around the primary judge's discretion in ordering security for costs, the sufficiency of evidence regarding the applicants' inability to fund the proceeding, and the relevance of stultification. The applicants argued the primary judge erred in principle by not giving sufficient weight to the concept of stultification. They contended that if the primary judge had properly considered stultification, she would have found that the applicants could not afford to fund the proceeding and, therefore, should not have ordered security. The court examined the primary judge's findings and the evidence adduced before her, particularly focusing on the applicants' financial position and attempts to obtain funding.
The court found no arguable error in the primary judge's exercise of discretion. It held that the primary judge had considered the relevant factors and there was no evidence to suggest that the applicants could not obtain third-party funding. The court emphasised that the discretion to order security for costs is broad, and the primary judge's decision was informed by multiple factors. Given the nature of the proceeding and the quantum of costs involved, the court concluded that the applicants had not demonstrated sufficient doubt about the primary judge's decision to warrant a grant of leave to appeal. The application for leave to appeal was dismissed with costs.
Orders
Orders of the court
1. The application for leave to appeal be dismissed with costs.
Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.
Background
Background to the litigation
On analysis, given the way the application was run before the primary judge, the proposed appeal raises no point of principle. If different or more complete evidence had been adduced as to the inability to fund the proceeding by the applicants and group members, the outcome of the application below may have been different, but this is no indication of error. Leave to appeal should be refused.B BACKGROUND The background and procedural history were set out comprehensively by the primary judge (at J [1]–[60]) and need not be restated at any length. Breaches of contract, unconscionable conduct and unlawful exclusive dealing are alleged. The officers are said to have been knowingly concerned in the franchisor’s unconscionable conduct. In short, the legal consequence of all the pleaded wrongful conduct is said to be an entitlement to statutory compensation. Leaving aside niceties about set-off, the practical consequence of the claim would mean that, if successful, the franchisor has no entitlement to recover an amount of alleged unpaid royalties and other amounts sought against the franchisee (and those group members who are also franchisees under similar franchise agreements). If this is correct, this would, of course, mean that those group members who are guarantors would not be required to pay amounts otherwise payable to the franchisor. The commencement of the class action came after the franchisor had commenced a proceeding in the Local Court of New South Wales (Local Court Proceeding) against the franchisee, Mr Goodwin and Mr Blackstock, as well as commencing similar proceedings against other franchisees and guarantors in the Local Court, the Magistrates Court of Queensland and the Magistrates Court of the Australian Capital Territory (together with the Local Court Proceeding, the State Court Proceedings). In addition to the Local Court Proceeding, Mr Goodwin and Mr Blackstock are defendants to three of the other State Court Proceedings. Other than discontinuing two of the State Court Proceedings that have resolved, no further steps have been taken in any of the State Court Proceedings since the class action was commenced. After a detailed review of the evidence, the primary judge ordered that the representative applicants, that is, the franchisee, Mr Goodwin and Mr Blackstock, provide security for costs in the total amount of $1,934,257 in the class action.C SOME IMPORTANT FINDINGS AND THE DECISION BELOW In the decision below, the primary judge made the following important findings: (1)The representative applicants have a bona fide case with reasonable prospects of success: J [109].(2)The application for security was brought promptly: J [139].(3)The evidence does not establish that the representative applicants’ impecuniosity was caused by the respondents’ conduct: J [139].(4)There is reason to believe that the franchisee will be unable to pay the respondents’ costs, as currently estimated, if they are successful in their defence: J [103], [108].(5)Although Mr Goodwin and Mr Blackstock proffered undertakings to be personally liable for any costs order made in favour of the respondents, given they have no assets in their respective names and no ready access to assets or funds, those undertakings are “of little, if any, value”: J [107], [118].(6)In the absence of any evidence taking issue with the estimates of costs provided for security, the amounts sought by way of security were neither “too high” nor “inappropriate”, and separate representation, which was a premise upon which the estimates were made, was proper: J [146]. Hence, the quantum of security sought was appropriate.
Evidence
Evidence Before The Court
An objection was pressed to [71]. In relation to the objection, an exchange occurred between her Honour and then senior counsel for the representative applicants (T9.45–10.18):MR CASTLE: Your Honour, we tender this to indicate that some attempt has been made by us to inquire in relation to this matter. We don’t lead it as evidence that – we don’t lead it as evidence of the ultimate fact that these group members could not afford to contribute. We simply lead it as evidence that inquiries have been made.HER HONOUR: It’s not very useful evidence, even in that form. If that’s all it seeks to establish, one couldn’t give it very much weight at all. An inquiry has been made, but nobody knows what that inquiry was or what its outcome is.MR CASTLE: No, your Honour. The ultimate submission that we make, as I think your Honour has seen in our written submissions, is that your Honour will apply common sense as Lee J did and the Full Court upheld in the Zoetis case. But lest it be said that we had not made some efforts – we have made some, but I accept that on a question of weight rather than admissibility, your Honour won’t attach much to that. But I don’t want to be met with the submission that we’ve done nothing, because we have. We’ve done something. It might have been inadequate, but we’ve done something.HER HONOUR: All right. I will allow the evidence, but you can address me on weight, Mr Hogan-Doran, if I haven’t already made my view known.(Emphasis added). The concession that the evidence may have been inadequate and was only pressed for a limited purpose makes it clear that the representative applicants made a forensic choice not to adduce evidence as to the financial position of group members because of the view they took as to the relevance of such evidence (a contention we will come to below). For present purposes, however, there is no basis to doubt it was open for her Honour to find there was no evidence of any weight as to the ability and willingness of group members to contribute to any order for security.Funding The primary judge noted (at J [122]) that there was only limited evidence of attempts to obtain funding. Her Honour did not consider that the evidence adduced amounted to “sufficient explanation that the applicants could not obtain third party funding”. With respect to the primary judge, it is unclear why this was the case. The solicitor had given evidence that an experienced funder had represented that “there is no way any litigation funder would consider funding this action” because the franchisor had ceased trading and there were potential difficulties in pursuing recovery. Given the nature of and likely quantum of monetary relief able to be obtained by the class action, the correctness of this unchallenged evidence might have been thought compelling. Although for our part, we do not consider there was any insufficiency of explanation, it nevertheless appears this factor did not weigh significantly in the finding that her Honour was not satisfied stultification had been proven or, more generally, in the overall exercise of her Honour’s discretion as to ordering security (as is evident from any possibility of funding not being mentioned in the summary reproduced at [10] above).Conclusion
Decision
Reasons for decision
This is an application for leave to appeal from a decision of the primary judge by which orders were made for security for costs: St Mary’s Hog’s Pty Ltd v HBCA Pty Ltd [2022] FCA 52 (primary judgment or J). The order for security was made in a class action commenced pursuant to Pt IVA of the Federal Court of Australia Act 1976 (Cth) (FCA Act). The class action was commenced by a franchisee, St Mary’s Hog’s Pty Ltd (franchisee), and two shareholders, Mr Luke Goodwin and Mr Todd Blackstock (together, the representative applicants). The franchisee entered into a franchise agreement with HBCA Pty Ltd (franchisor), under which Mr Goodwin and Mr Blackstock were guarantors. The claim is advanced against the franchisor, the licensor of the franchise system, Hog’s Breath Company Pty Ltd (owner), and four officers of either the franchisor or the owner, being Messrs Alfred Dryland, Ross Worth, Steven Spurgin and Matthew Jesse (officers). The group members were either franchisees or guarantors of obligations to the franchisor under similar franchise agreements (who have not released their claims in relation to alleged wrongful conduct described in an amended statement of claim): J [1]. The number of group members is unclear. The evidence of the solicitor for the representative applicants was that: (a) there are at least 100 franchisees or former franchisees who are group members (more than half of which have ceased operating); and (b) a large number of individual group members, being guarantors of franchisees. This definition means there are probably several hundred group members. On analysis, given the way the application was run before the primary judge, the proposed appeal raises no point of principle. If different or more complete evidence had been adduced as to the inability to fund the proceeding by the applicants and group members, the outcome of the application below may have been different, but this is no indication of error. Leave to appeal should be refused.B BACKGROUND The background and procedural history were set out comprehensively by the primary judge (at J [1]–[60]) and need not be restated at any length. Breaches of contract, unconscionable conduct and unlawful exclusive dealing are alleged. The officers are said to have been knowingly concerned in the franchisor’s unconscionable conduct. In short, the legal consequence of all the pleaded wrongful conduct is said to be an entitlement to statutory compensation. Leaving aside niceties about set-off, the practical consequence of the claim would mean that, if successful, the franchisor has no entitlement to recover an amount of alleged unpaid royalties and other amounts sought against the franchisee (and those group members who are also franchisees under similar franchise agreements). If this is correct, this would, of course, mean that those group members who are guarantors would not be required to pay amounts otherwise payable to the franchisor. The commencement of the class action came after the franchisor had commenced a proceeding in the Local Court of New South Wales (Local Court Proceeding) against the franchisee, Mr Goodwin and Mr Blackstock, as well as commencing similar proceedings against other franchisees and guarantors in the Local Court, the Magistrates Court of Queensland and the Magistrates Court of the Australian Capital Territory (together with the Local Court Proceeding, the State Court Proceedings). In addition to the Local Court Proceeding, Mr Goodwin and Mr Blackstock are defendants to three of the other State Court Proceedings. Other than discontinuing two of the State Court Proceedings that have resolved, no further steps have been taken in any of the State Court Proceedings since the class action was commenced.
Ratio Decidendi
Legal Principle Established
Finally, and more specifically, the practice and procedure discretion exercised in this case is a broad one. Like the different discretion in consideration in Klemweb Nominees Pty Ltd (as trustee for the Klemweb Superannuation Fund) v BHP Group Limited [2019] FCAFC 107; (2019) 369 ALR 583 (per Middleton, Beach and Lee JJ), a docket judge’s decision as to security is usually informed by a number of factors, including countervailing ones. The ultimate evaluation as to whether security ought to be ordered may be one upon which reasonable minds might differ. In these circumstances, to paraphrase Sir Frederick Jordan, applications for leave to appeal against an order of this type must be assessed against the backdrop that it would not be proper for a Full Court to embark upon a re-assessment of diverse factors considered by the primary judge, unless satisfied that the primary judge has acted upon a wrong principle, or has neglected to take into account something relevant, or has taken into account something irrelevant, or that the result is so out of all kilter to the facts proved in evidence that the order should not be allowed to stand. Put in more familiar terms, given that it is necessary to demonstrate sufficient doubt in respect of the decision to be appealed, this first limb of the Décor test will not be satisfied unless there is some real basis for considering that some House v The King (1936) 55 CLR 499 error is able to be established should leave to appeal be granted.F CONSIDERATION F.1 Evidentiary Contention The representative applicants submit that the primary judge erred in principle in relation to the importance of stultification in the context of this class action but also, to the extent the concept was material, erred in aspects of her Honour’s findings relevant to this issue. The issue of principle will be addressed below, as it is convenient to deal initially with why the primary judge made the findings she did, and whether there was arguable error in her Honour doing so. As to this topic, in addition to finding there was reason to believe that the franchisee will be unable to pay adverse costs, and that the proffered undertakings were of little value, her Honour also made the following three findings. First, the representative applicants did not provide “any evidence about the financial position of Messrs Goodwin and Blackstock”: J [119]–[120]. Secondly, the primary judge also found that the class action “is brought for the benefit of others” (at J [139]) and the representative applicants should have taken steps to demonstrate that they could not meet any order for security with support from other group members, which they failed to do. There was no evidence that the assets of the franchisee group members would be available to meet any adverse costs orders, no undertakings were proffered to do so and there was no evidence of the financial position of group members who are not related to the applicants: J [104]–[105], [119]. Instead, the financial positions of group members were not revealed (beyond the very general evidence of the applicants’ solicitor that a few group members have said that they could not afford to contribute). Further, her Honour found there was a want of evidence as to the willingness or otherwise of group members to contribute if an order for security were to be made: J [121], [124].