St Mary's Hog's Pty Ltd v HBCA Pty Ltd (No 2)

St Mary's Hog's Pty Ltd v HBCA Pty Ltd (No 2) [2024] FCA 36 is a Federal Court procedure decision arising from a broader franchise dispute in the Hog's Breath Café system. The applicants had started a representative proceeding on behalf of franchisees and guarantors, but they had earlier been ordered to provide security for costs and did not do so.

Markovic J dismissed the proceeding under 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 applicants were also ordered to pay the respondents' costs of the interlocutory applications and the proceeding. The respondents separately sought orders preventing the applicants from bringing fresh proceedings about the same claims until costs were paid, but those applications were dismissed.

The commercial background starts with the St Mary's outlet. On or about 6 December 2011, St Mary's Hog's Pty Ltd entered into a franchise agreement with HBCA Pty Ltd. Luke Goodwin and Todd Blackstock were shareholders in St Mary's Hog's and guarantors under that agreement.

In April 2021, the applicants commenced a representative proceeding in the Federal Court under Pt IVA. The group definition covered franchisees and guarantors connected with Hog's Breath arrangements during the period from 1 June 2014 to 31 October 2020, provided they had not entered into a binding release of their claims against HBCA arising out of the conduct described in the amended statement of claim.

The respondents were not limited to HBCA. They also included several individuals associated with HBCA and HBCM Pty Ltd. The judgment records that HBCA had been the franchisor of the Hog's Breath Café system from about 2000 to October 2020 under a Franchise System and Development Management Agreement with Hog's Breath Company. In 2020, a dispute arose between Hog's Breath Company and HBCA. Evidence from HBCM's director, Ginger White, said that dispute was resolved in October 2020 through a deed of settlement, surrender and release and an asset sale to HBCM.

There was also a deed of assignment of franchise agreement dated 30 October 2020 between HBCA and HBCM. That deed concerned the assignment by HBCA to HBCM of its rights, title and interest in franchise agreements in the Hog's Breath system. The applicants disputed the effect of that deed and whether it operated to assign the franchise agreements to HBCM.

The Federal Court case did not arise in isolation. Before the representative proceeding was filed, HBCA had already commenced Local Court and other lower court proceedings against franchisees and guarantors, including a Local Court proceeding against these applicants. The applicants filed a cross-claim in the St Mary's Local Court proceeding. Their solicitor had also indicated that they proposed to commence a class action, and orders were sought in the Local Court requiring them to do so promptly or proceed to hearing there.

The Local Court proceedings were effectively adjourned while the Federal Court security for costs issues were being dealt with and while time ran for any special leave application after the Full Court decision. They were later delayed again after Mr Goodwin suffered a traumatic brain injury in February 2023. The judgment records that he was unable to make important decisions for more than seven months, including giving instructions in this proceeding and in the Local Court proceedings, but had recovered by the time he swore an affidavit in October 2023.

The immediate issue was procedural. The Court had to decide whether the representative proceeding should be dismissed because the applicants had failed to comply with the security for costs orders made on 4 February 2022. The power relied on was s 56(4) of the Federal Court of Australia Act 1976 (Cth), which allows dismissal where security is not given in accordance with an order, and r 19.01(1)(c) of the Federal Court Rules 2011 (Cth), which allows a respondent to seek dismissal if security is not provided within the specified time.

The applicants did not dispute that they had failed to provide any security. They also accepted that they were unable to comply with the orders. That meant the real question was how the Court should exercise its discretion in those circumstances.

The judgment refers to established discretionary factors used in this kind of application, including the period since security was ordered, whether the applicants had been on notice of the dismissal applications, the seeming inability of the applicants to further fund the proceeding, prejudice to the respondents, and the position of the Court.

The applicants argued that dismissal would be contrary to the interests of justice. Their main point was that the Local Court proceedings involved substantially the same issues. They said that if they succeeded there, that could amount to a material change in circumstances justifying the setting aside or variation of the security orders. They also argued that success in the Local Court could create issue estoppels against HBCA, strengthen their claims against the individual respondents, affect the position of HBCM on the assignment issue, and substantially narrow the issues and costs in the Federal Court proceeding.

In the alternative, the applicants argued that if the representative proceeding should not continue in its current form, the Court should declass the matter under s 33N of the Act and allow the individual applicants' claims to continue rather than dismiss the whole proceeding. They said that declassing would itself be a material change in circumstances and could justify revisiting the original security orders.

So the dispute before Markovic J was not about final liability. It was about whether a stayed but non-compliant representative proceeding should remain on foot in the hope that another court's future findings might later improve the applicants' position, or whether the proceeding should end because the applicants had not complied and could not comply with the condition imposed for it to continue.

The Court dismissed the proceeding. On the available reasons, several factors strongly supported that result. First, there had been substantial delay. The security orders had been made about 22 months earlier, and even allowing for Mr Goodwin's incapacity there remained an unexplained period when no steps were taken to comply. The Court also noted there was no suggestion that further time would enable the applicants to raise funds.

Second, the applicants had long been on notice that dismissal was being sought. The various respondents had filed interlocutory applications for dismissal between March and May 2023, and HBCM's solicitors had earlier warned that non-compliance with a security order could lead to dismissal.

Third, the applicants accepted they were unable to comply with the security orders. The Court treated that as at least an inability to fund compliance, with no indication that any further attempt to obtain funds was being made or would be made.

Fourth, the Court accepted that the respondents were prejudiced by the proceeding remaining on foot. That included the ordinary burden of litigation, such as ongoing costs, executive time and strain. In HBCM's case, the Court also referred to evidence from Ms White about specific commercial prejudice. That evidence included negative publicity, disclosure obligations to prospective franchisees, difficulty attracting new franchisees, effects on lease negotiations, finance risk, and supplier negotiations. The Court said that even if the applicants' complaints about HBCA's prior conduct were correct, that did not detract from the fact that HBCM was experiencing negative effects on its current business operations because the proceeding remained on foot.

The applicants' argument based on the Local Court proceedings did not prevent dismissal on the text available. The Court noted that those proceedings were scheduled to resolve issues as between HBCA and the applicants, including overlapping issues, and said there was no reason to maintain the Federal Court proceeding to that extent. The Court also noted that HBCM was not a party to the Local Court proceedings, but said that if issues needed to be resolved with HBCM, that could occur in due course by an appropriate proceeding or otherwise. That was not a reason to keep this proceeding alive despite ongoing non-compliance with the security orders.

The final orders were that the proceeding be dismissed and that the applicants pay the respondents' costs of the interlocutory applications and the proceeding. The orders also show that the respondents' applications to bar the applicants from bringing fresh proceedings concerning the same claims until costs were paid in full were dismissed. However, because the available reasons are truncated, the full explanation for refusing that additional relief is not visible here.

If you are a franchisee or guarantor considering a broad claim, this case is a warning that a representative proceeding still needs a practical funding plan. Security for costs can become the decisive issue. If the court orders security and the applicants cannot provide it, the case may be dismissed before any common issues are determined. That can leave parties back in individual proceedings after significant delay and expense.

If you are a franchisor, master franchisor, or a buyer taking over a network, the case also shows that unresolved litigation can have direct operational consequences. The evidence accepted in the available reasons included effects on disclosure to prospective franchisees, franchise recruitment, financing, lease negotiations, supplier dealings and brand reputation. Even where allegations are disputed, the existence of a proceeding can itself create commercial drag.

The case also highlights the risk of parallel proceedings. Here, there were Local Court proceedings and a Federal Court representative proceeding running in the background at the same time. The applicants argued that success in the Local Court might later justify changing the Federal Court security position. The Court was not persuaded to keep the Federal Court case alive on that basis. For business owners, that means each proceeding must be managed on its own procedural footing. A possible future win in one forum may not save a separate case if orders in that other case are not being met.

Guarantors should also pay attention to the group definition. It extended beyond operating franchisees to people who had provided guarantees, indemnities, mortgages or other security in respect of franchise obligations or related bank loan contracts. In franchise disputes, personal exposure can spread well beyond the company that runs the outlet.

The judgment is dated 30 January 2024. It is a Federal Court decision on dismissal for failure to provide security for costs. It is not a complete merits ruling on the underlying franchise dispute.

The available reasons are incomplete because the published extract used here is truncated before the end. That matters particularly for the court's full reasoning on the refusal to bar fresh proceedings and for any complete discussion of the declassing argument. The procedural outcome itself is clear from the orders.

This page is based on the Federal Court judgment in St Mary's Hog's Pty Ltd v HBCA Pty Ltd (No 2) [2024] FCA 36. The available text includes the orders, catchwords and substantial parts of the reasons, but it cuts off before the end of the judgment.

Because of that limitation, this page focuses on the procedural story that is clearly supported by the available text. It should be read as a careful explainer of the dismissal decision and its commercial significance, not as a complete account of every issue in the wider Hog's Breath franchise dispute.