Supreme Court New South Wales Medium Neutral Citation: Laith & Fadi Investments Pty Ltd v Fogo Brazilia Holdings Pty Ltd [2024] NSWSC 1508 Hearing dates: 30 September 2024 Date of orders: 28 November 2024 Decision date: 28 November 2024 Jurisdiction: Equity - Commercial List Before: McGrath J Decision: Plaintiffs to provide further security for the defendants' costs Catchwords: COSTS — security for costs — representative proceedings — where proceedings funded from the outset by litigation funder and funding agreement terminated by funder on the basis of alleged breaches of it by the lead plaintiffs — where lead plaintiffs suing for the benefit of others — impecuniosity of the lead plaintiffs and inability to meet an adverse costs order — no causal connection between plaintiffs' impecuniosity and defendants' conduct — whether proceedings likely to be stultified if an order for security is made — lead plaintiffs' failure to provide precise information of financial position of those standing to benefit from successful outcome of the litigation — insufficient evidence upon which to base finding of inability as opposed to unwillingness of group members to contribute towards an order for security — risk of injustice to the defendants in incurring substantial costs without having appropriate security — quantum of security determined adopting broad brush approach — HELD — security ordered to be paid in instalments Legislation Cited: Civil Procedure Act 2005 (NSW) ss 67, 98, 168, 169, 181 Competition and Consumer Act 2010 (Cth) ss 51AD, 51ACB, 82, 87, 236, 243; Sch 2 – Australian Consumer Law, ss 18, 21 Corporations Act 2001 (Cth) s 1335 Federal Court of Australia Act 1976 (Cth) ss 43(1A), 56 Legal Profession Uniform Law 2014 (NSW) ss 180, 181 Uniform Civil Procedure Rules 2005 (NSW) r 42.21 Cases Cited: Abbott v Zoetis Australia Pty Ltd (No 2) [2019] FCA 462; (2019) 369 ALR 512 Bell Wholesale Co Limited v Gates Export Corporation (1984) 2 FCR 1; [1984] FCA 34 Bray v F Hoffman-La Roche Ltd (2003) 130 FCR 317; [2003] FCAFC 153 Broadway Plaza Investments v Broadway Plaza Pty Ltd; In the matter of Combined Projects (Arncliffe) Pty Ltd [2019] NSWSC 1082 Capic v Ford Motor Company (No 2) [2016] FCA 1178 Carrano Investment Holding Pty Ltd v Siennamia Investments Pty Ltd [2022] NSWCA 262 Dae Boong International Co Pty Ltd v Gray [2009] NSWCA 11 De Jong v Carnival PLC [2016] NSWSC 347 Di Francesco v Pioneer Energy Pty Limited (No 2) [2014] NSWSC 1923 Eades v Endeavour Energy [2018] NSWSC 801 Flip Out Thornton Pty Ltd v Flip Out – Trampoline Arena Franchises Pty Ltd [2023] NSWSC 1094 General Trade Industries Pty Ltd (in liquidation) v AGL Energy Limited (No 2) [2023] FCA 556 Ingot Capital Investments Pty Ltd v Macquarie Equity Capital Markets Ltd [2002] NSWSC 609 Its Eco Pty Ltd v BPS Financial Ltd [2022] FCA 842 Jazabas Pty Ltd v Haddad (2007) 65 ACSR 276; [2007] NSWCA 291 Live Board Holdings v Cody Live Pty Ltd [2017] NSWCA 302 Louise Haselhurst v Toyota Motor Corp Australia Ltd t/as Toyota Australia [2020] NSWSC 1607 LRSM Enterprise Pty Ltd v Zurich Australian Insurance Limited [2014] NSWCA 88 Madgwick v Kelly (2013) 212 FCR 1; [2013] FCAFC 61 Metro Environmental Logistics Pty Ltd v Newcastle Port Corporation (No 5) [2024] NSWSC 714 Pioneer Park Pty Ltd (in liquidation) v Australia and New Zealand Banking Group Ltd (2007) 65 ACSR 383; [2007] NSWCA 344 Porter v Gordian Runoff Limited [2004] NSWCA 171 Category: Costs Parties: Laith & Fadi Investments Pty Ltd (First Plaintiff) Laith Karim Hana (Second Plaintiff) Fogo Brazilia Holdings Pty Ltd (First Defendant) Ian David Dresner (Second Defendant) Hilton Seskin (Third Defendant) Lazarus Legal Group Pty Ltd (Fourth Defendant) Representation: Counsel: N Li (Plaintiffs) A Vial (First and Second Defendants) S Sykes (Third Defendant) T Epstein (Fourth Defendant) Solicitors: Levitt Robinson (Plaintiffs) Lazarus Legal Group Pty Ltd (First and Second Defendants) APA Lawyers (Third Defendant) Sparke Helmore Lawyers (Fourth Defendant) File Number(s): 2021/00245787 Publication restriction: Nil JUDGMENT INTRODUCTION 1. In these representative proceedings, each of the defendants, Fogo Brazilia Holdings Pty Ltd, Ian David Dresner, Hilton Seskin and Lazarus Legal Group Pty Ltd, has applied for security for costs to be provided by the two lead plaintiffs, Laith & Fadi Investments Pty Ltd and Laith Karim Hana and a stay of the proceedings until such security is paid. 2. The substantive dispute in the representative proceedings involves a class action in which the lead plaintiffs claim relief against the defendants on behalf of Group Members who purchased rights to operate fast food restaurants as part of a franchise known as the 'Fogo Brazilia Churrasco Grill' (FBCG franchise). FBCG franchise restaurants operated in shopping mall food courts and sold Brazilian style churrasco grilled meat and associated products. The franchisor, Fogo Brazilia Franchise Holdings Pty Ltd, is in liquidation. 3. The lead plaintiffs operated an FBCG franchise in Wetherill Park, New South Wales. 4. The lead plaintiffs — Laith & Fadi as representative for all Group Members who, as franchisees, each entered into a standard form franchise agreement with the franchisor (Franchisee Group Members) and Mr Hana as representative for all directors of the Franchisee Group Members and all guarantors of the Franchisee Group Members' obligations under the franchise agreements (Guarantor Group Members) — allege that the defendants should be held liable for: 1. engagement or involvement in misleading or deceptive conduct in contravention of s 18 of the Australian Consumer Law (ACL) contained in Schedule 2 of the Competition and Consumer Act 2010 (Cth) (CCA) relating to information provided to the Franchisee Group Members in advance of them entering into the franchise agreements with the franchisor; 2. engagement or involvement in contraventions of various Franchising Codes within the meaning of ss 51AD and 51ACB of the CCA; 3. unconscionable conduct within the meaning of s 21 of the ACL by their involvement in the franchisor soliciting payments from the Franchisee Group Members for rights and assets which the defendants knew could not be granted; 4. breaches of the solicitors' duty of care against Lazarus Legal (who are also the solicitors for Fogo Brazilia and Mr Dresner in these proceedings); and 5. engaging in misleading or deceptive conduct in contravention of s 18 of the ACL by Mr Dresner and Fogo Brazilia causing payments to be made by the Franchisee Group Members into an account that did not belong to the franchisor. 1. The lead plaintiffs claim damages or compensation against all of the defendants pursuant to ss 236 and/or 243 of the ACL and ss 82 and/or 87 of the CCA and damages at general law against Lazarus Legal. 2. The amount of security which is sought against the lead plaintiffs by the defendants to the end of the trial differs: Fogo Brazilia and Mr Dresner together seek an amount of $1,625,593.72, Mr Seskin seeks an amount of $956,000 and Lazarus Legal seeks an amount of $887,591. 3. At the hearing, I made an order that the evidence in each motion formed part of the evidence in respect of all of the defendants' motions. 4. Mr N Li appeared for the lead plaintiffs instructed by Levitt Robinson, Mr A Vial appeared for Fogo Brazilia and Mr Dresner instructed by Lazarus Legal, Mr S Sykes appeared for Mr Seskin instructed by APA Lawyers and Ms T Epstein appeared for Lazarus Legal instructed by Sparke Helmore. 5. For the reasons set out below, I have determined that the lead plaintiffs should provide security for costs to each of the defendants in differing amounts payable in tranches and that there should be a stay of the proceedings if they fail to do so by the date on which each tranche is payable. RELEVANT FACTS Brief procedural history of the proceedings 1. In August 2021, the lead plaintiffs commenced the representative proceedings by summons filed 27 August 2021. On 9 September 2021, the lead plaintiffs filed the commercial list statement setting out their claims across 122 pages. The claims are wide ranging, extensive and factually dense. 2. On 6 July 2022, Lazarus Legal filed its list response. On 27 July 2022, Fogo Brasilia and Mr Dresner filed their list response. On 3 August 2022, Mr Seskin filed his list response. In essence, all of the defendants deny the claims made against them. 3. The lead plaintiffs have filed a reply to each of the list responses as follows: on 23 September 2022, a reply to the list response of Mr Seskin; on 11 October 2022, a reply to the list response of Lazarus Legal; and on 12 December 2022, a reply to the list response of Fogo Brasilia and Mr Dresner. 4. On 26 October 2022, Lazarus Legal filed an amended list response. 5. On 14 May 2024, the lead plaintiffs provided the defendants with a proposed amended commercial list statement in which it has removed all breach of duty of care claims against Lazarus Legal. The proposed amended commercial list statement has not yet been filed. 6. The lead plaintiffs have served extensive lay and expert evidence and an opt-out notice has been issued. After the determination of the applications before me, the next step in the proceedings is the service of the defendants' lay and expert evidence. The proceedings have not yet been set down for trial. 7. The opt out notice refers to 17 franchises (including the franchise of Laith & Fadi). There are two lead plaintiffs and, without double counting one of the Franchisee Group Members who is also one of the Guarantor Group Members (Abu Syeed), there are 48 corporate and individual Group Members in total, 16 of which are corporations. In essence, it is a closed group. Funding arrangements 1. In March 2018, the lead plaintiffs and their solicitors, Levitt Robinson, among others, entered into a Funding Agreement with Galactic Fogo Litigation LLC, a United States-based international litigation funder, to provide funding for the costs of the proceedings, including the provision of any security for costs ordered. Among the terms of the Funding Agreement relevant to this application is the following: 6. REPAYMENT 6.1 The Parties agree that, to the extent possible, the Final Amount… subject to Court approval, [is] to be paid and applied in accordance with Clause 6.2… 6.2 Subject to Clauses 3 and 4 and, if there is a settlement of the Proceedings which receives Court approval, if required, on or by the Repayment Date, the Representatives will, to the extent possible, apply the Final Amount (or any part of it) and any other amount which is received by the Clients or any Funding Group Member in the Proceedings as follows: 6.2.1 First – in payment of any professional costs and disbursements reasonably incurred by or on behalf of the Representatives through the provision of legal services to the Clients in connection with the Proceedings, in excess of the Funding; 6.2.2 Second – in repayment to the Funder of an amount equivalent to the Funding; 6.2.3 Third – in payment to the Funder of [redacted] of the Final Amount, unless the matter settles within fourteen (14) days of the date of this Agreement, or before the Funder has outlaid or incurred a liability for Legal Costs of [redacted] pursuant to this Agreement, in which case the Funder shall only be entitled to receive [redacted] of the Final Amount; 6.2.4 Fourth – in payment of any amount properly due to a Lead Applicant if a Lead Applicant has been appointed to represent the Clients as Group Members in the Proceedings; 6.2.5 Fifth – in payment of the balance to the Clients. … Previous security 1. On 14 March 2022, Hammerschlag CJ in Eq ordered by consent that the lead plaintiffs pay into court security for the costs of Fogo Brasilia and Mr Dresner up to the close of pleadings in the amount of $110,000 by 18 March 2022. On 23 March 2022, that security was paid into court. 2. On 22 March 2022, Hammerschlag CJ in Eq ordered by consent that the lead plaintiffs pay into court security for the costs of Lazarus Legal in the amount of $20,000 by 25 March 2022. In April 2022, that security was paid into court. 3. On 16 June 2022, the lead plaintiffs agreed to pay $50,000 into court as security for the costs of Mr Seskin up to the close of pleadings. On 24 June 2022, that security was paid into court. 4. In each case it was conceded by the lead plaintiffs that security should be provided in light of the provisions of the Funding Agreement. Correspondence and application concerning further security for costs for Fogo Brazilia and Mr Dresner 1. On 21 July 2022 Lazarus Legal (in their capacity as the solicitors for Fogo Brazilia and Mr Dresner) sent a letter to Levitt Robinson stating that Fogo Brazilia and Mr Dresner had incurred costs beyond $110,000 in the estimated amount of $286,854.67, that they intended to seek further security of $683,000 for their costs up to the close of evidence and inviting the lead plaintiffs to consent to the provision of further security in that amount. In the letter, Lazarus Legal also requested confirmation within 14 days that the Funding Agreement remained on foot and had not been superseded, varied, or otherwise modified in any way or terminated. 2. On 9 August 2023, Lazarus Legal sent a further letter to Levitt Robinson noting that there had been no response to their letter of 21 July 2022, repeating their request for the lead plaintiffs to confirm matters relating to the Funding Agreement and advising that, if no response was received and after filing a motion seeking further security for costs, Fogo Brazilia and Mr Dresner would issue notices to produce and subpoenas to the lead plaintiffs to obtain any funding agreement of which the lead plaintiffs were beneficiaries. 3. On 23 August 2023, Levitt Robinson sent a letter to Lazarus Legal responding to their letters of 21 July 2022 and 9 August 2023, confirming that the Funding Agreement remained current and that Galactic remained responsible for funding the representative proceedings. 4. On 25 August 2023, Levitt Robinson sent a further letter to Lazarus Legal accepting that an additional amount should be paid into court as security for the costs of Fogo Brazilia and Mr Dresner, but contesting the proposed quantum of $683,000. Levitt Robinson referred to Lazarus Legal's incurred costs of $286,854.67, stating that no explanation was provided as to how such costs were incurred and to what aspects of the representative proceedings they related. Further, Levitt Robinson disputed the basis of Lazarus Legal's estimate of their future costs, stating that the estimated costs for responding to lay and expert evidence may be overstated and were based on conjecture, as the lead plaintiffs' evidence had not yet been served and no order for the provision of expert evidence had been made. 5. On 29 November 2023, Levitt Robinson sent a letter to Lazarus Legal setting out their estimate that the costs likely to be incurred by Fogo Brazilia and Mr Dresner from that point in the representative proceedings onwards was approximately $576,666 and the basis on which that amount had been calculated. The letter concluded by stating that the lead plaintiffs did not presently accept that they were required to provide further security in respect of costs incurred up to the close of pleadings. 6. On 12 February 2024, Fogo Brazilia and Mr Dresner filed the notice of motion seeking security for their costs in the amount of $1,625,593.72. This is one of the applications that I am to determine. Correspondence and application concerning further security for costs for Mr Seskin 1. On 23 August 2023, APA Lawyers (the solicitors for Mr Seskin) sent a letter to Levitt Robinson stating that Mr Seskin's actual costs and disbursements to the close of pleadings were $147,699.68, which exceeded the security for costs of $50,000 paid into court by $97,699.68 and, after an allowance of a reduction of 33% to estimate party/party costs, the shortfall in security was $48,958.78. APA Lawyers also stated that Mr Seskin had incurred additional costs of $83,972.63 since the close of pleadings up to 31 July 2023 and that the costs of Mr Seskin to 31 July 2023 after the close of pleadings, less an amount of 33% to estimate party/party costs, were $56,261.66. APA Lawyers stated that they intended to apply for further security in relation to Mr Seskin's costs to the end of the trial and that they would file that application if Mr Seskin's claim for security could not be resolved. The letter concluded with APA Lawyers asking for confirmation that the lead plaintiffs would provide additional security of $105,220.44, being the total of the party/party costs estimated for Mr Seskin's costs up to 31 July 2023 in addition to the $50,000 already paid into court by the lead plaintiffs. 2. On 29 November 2023, Levitt Robinson sent a letter to APA Lawyers responding to their letter of 23 August 2023. Levitt Robinson stated that they estimated that the costs likely to be incurred by Mr Seskin from that point onwards were approximately $459,415 and set out the basis for the calculation. Levitt Robinson stated that on the basis that 70% of the incurred costs would be allowed on assessment, this amount would reduce to $321,591. 3. On 18 December 2023, APA Lawyers sent a letter to Levitt Robinson setting out their calculations of Mr Seskin's costs to the close of pleadings ($147,699.38, with a 33% reduction to $98,958.78), the costs from the close of pleadings to 31 July 2023 ($83,972.63, with a 33% reduction to $56,261.66) and Mr Seskin's costs from 1 August 2023 up to and including the final hearing of the proceedings ($1,269,935, with a 33% reduction to $850,856.45). The letter concluded by requesting that the lead plaintiffs consent to providing further security in the amount of $956,000 (including GST), failing which an application for further security would be made. 4. On 12 February 2024, Mr Seskin filed the notice of motion seeking security for his costs in the amount of $956,000. This is another of the applications I am to determine. Correspondence and application concerning further security for costs for Lazarus Legal 1. On 30 August 2023, Spark Helmore (the solicitors for Lazarus Legal) sent a letter to Levitt Robinson stating that the costs incurred by Lazarus Legal in the proceedings exceeded the amount originally anticipated, with Lazarus Legal having incurred costs and disbursements of approximately $90,000 to date. The letter then set out the calculation of the further costs and disbursements that Lazarus Legal would incur in defending the proceedings to the conclusion of the trial of approximately $1,072,500. Spark Helmore stated that in an endeavour to avoid dispute over the quantum of security to be provided, they were instructed to accept further security on the basis of 70% of the estimated future costs, which was $750,750. They concluded by stating that if the amount of the further security could not be agreed then an application to court would be made. 2. On 29 November 2023, Levitt Robinson sent a letter to Spark Helmore responding to their letter of 30 August 2023. Levitt Robinson stated that their estimate of the costs likely to be incurred by Lazarus Legal was the amount of $470,166 and that on the basis of 70% of incurred costs would be allowable on assessment, that amount would reduce to $329,116. 3. On 30 November 2023 at 11:04am, Spark Helmore sent an email to Levitt Robinson stating that they would consider their letter and seek instructions and asking whether they should tell Lazarus Legal that the letter from Levitt Robinson constituted an offer to provide security in the sums mentioned. 4. On 30 November 2023 at 12:54pm, Levitt Robinson sent an email to Spark Helmore stating that their letter was not an offer and had invited confirmation from Lazarus Legal as to its position on the extent to which it would be inappropriate for some of the costs already incurred to be taken into account for the security for costs. 5. On 12 February 2024, Lazarus Legal filed the notice of motion seeking security for its costs in the amount of $989,564.74. 6. On 19 April 2024, Lazarus Legal filed the amended notice of motion seeking security for its costs in the amount of $887,591. This is the last of the applications I am to determine. Galactic's termination of the Funding Agreement 1. On 22 April 2024, Galactic sent a letter to Levitt Robinson referring to an email Levitt Robinson had sent to Galactic on 12 April 2024 (defined as "Your Email") which evidently attached copies of those parts of the correspondence between the parties outlined above whereby the plaintiffs offered to pay certain sums of money by way of security for the defendants' costs. By that letter, Galactic terminated the Funding Agreement, relevantly stating: Breaches of the Funding Agreement 7. Your clients and/or your firm have breached the Funding Agreement in material respects. We set out under the headings below the conduct that constitutes the breaches. The breaches are constituted by: a. failure to seek our instructions; and b. failure to provide us with the necessary information in respect of the conduct of the proceedings so that we would be in a position to provide your firm with instructions. A. Offers made to the defendants to pay security for costs 8. Attached to Your Email was a copy of seven letters. Six of those letters (three of which were open and three of which are without prejudice) contained offers to the defendants to pay certain sums of money in tranches by way of security for costs (Letters). The collective total of the offers is $1,334,091.00. You proposed that consent orders be made to give effect to the agreement (assuming it is acceptable to the defendants). 9. The Letters, which included offers, were sent without our knowledge or consent, in breach of clause 11.1 or alternatively clauses 11.3, 13.1 and 13.3 of the Funding Agreement. We assume that your clients provided you with instructions to send the Letters. 10. Further, it is surprising that the Letters were sent in circumstances where only the day before, on 11 April 2024 at 10:35 am, we received an email from Blaise which inter alia said "We consider that the Plaintiffs ought to write to the Defendants with an explicit offer to pay security in tranches, including making an offer in respect of security for costs already incurred. I will write to you separately with some proposed correspondence". We did not receive any "proposed correspondence", only the Letters, which had already been sent at the time they were provided to us. B. Notices to Produce 11. On 28 March 2024 at 5:11 pm, we received an email from Blaise which inter alia (a) informed us that notices to produce had been issued; and (a) providing us with a copy of the notices (28 March Email). The letters to the defendants' solicitors enclosing the notices is dated 27 March 2024, a day before we received a copy of them. 12. The notices to produce were sent without our knowledge or consent, in breach of clause 11.1 or alternatively clauses 11.3, 13.1 and 13.3 of the Funding Agreement. We assume that your clients provided you with instructions to send the Letters. C. Amending the Commercial List Statement 13. The 28 March Email also attached a letter from your firm to the fourth defendant's solicitor, Sparke Helmore (SP Letter). 14. The SP Letter inter alia notifies the fourth defendant's solicitor that: a. the plaintiffs no longer press certain particulars in the second sub-paragraph sub-joined to paragraph 550 of their Commercial List Statement filed 9 September 2021 (CLS); and b. the plaintiffs no longer seek to press paragraphs 445 to 484 of the CLS. 15. The SP Letter was sent without our knowledge or consent. The proposed amendments to the CLS were made without our knowledge or consent. This is a breach of clause 11.1 or alternatively clauses 11.3, 13.1 and 13.3 of the Funding Agreement. We assume that your clients provided you with instructions to send the Letters. … 1. During the hearing, the lead plaintiffs accepted that Galactic's termination of the Funding Agreement was not brought about by any conduct on the part of the defendants (T57). 2. From an email dated 18 September 2024 from David Purcell of Litigation Funding Solutions (a broker of litigation funding) to Mr Rappaport of Levitt Robinson, it would appear that Galactic may have asserted an ongoing right to receive a benefit should the lead plaintiffs succeed in these proceedings. Financial position of the lead plaintiffs 1. Until the Funding Agreement was terminated, the lead plaintiffs were not contesting that it was appropriate that further security be ordered in favour of the defendants but only put in issue the quantum of that further security. The position of the lead plaintiffs changed with the termination of the Funding Agreement, as the costs of the lead plaintiffs in these proceedings are no longer funded by Galactic. As I have outlined in more detail below, the lead plaintiffs now argue that the proceedings will be stultified if they are ordered to provide security by reason of their inability to pay. 2. Relevant to the question of the funding of the lead plaintiffs' costs, at the hearing, the defendants made a concession — limited to their respective security for costs motions — that they would not submit that the lead plaintiffs failed to discharge their onus with respect to obtaining funding from an external third party litigation funder (T17.15–26). Accordingly, it is not necessary for me to consider the attempts made by the lead plaintiffs to obtain any further litigation funding after the termination of the Funding Agreement. 3. It is, however, necessary to determine the financial position of the lead plaintiffs, those persons standing behind them and the Group Members. Laith & Fadi 1. Company searches of Laith & Fadi establish that it has paid-up capital of $2 with two shareholders and directors, being Mr Hana and Fadi James Youssef. A property search of Laith & Fadi reveals that it has no property interests in Australia. 2. It is common ground that Laith & Fadi is impecunious, is not trading and remains incorporated for the sole purpose of prosecuting these representative proceedings. Mr Hana and entitles owned by him Income and expenses 1. The notice of assessment issued by the Australian Taxation Office for Mr Hana for the year ending 30 June 2023 shows that his taxable income was $111,375, his assessed tax payable was $26,553.87 and, after the deduction of PAYG withholding tax already paid, he was liable to pay $488.55 in income tax by 22 April 2024. 2. Mr Hana currently receives income from the following two management companies: 1. Paramount Building & Development Pty Ltd, of which he is one of two directors and a 50% shareholder, who paid him a salary of $54,999 in 2023; and 2. House of Finance Aus Pty Ltd, of which he is the sole director and shareholder, who paid him a salary of $64,896 in 2023. 1. The total of these income amounts is $119,895 per annum, which is $9,991.25 per month. Mr Hana says that he has never received any dividends from Paramount Building or House of Finance Aus. 2. According to Mr Hana, his monthly living expenses are $8,500 and monthly mortgage repayments are $5,030, totalling $13,530 per month or $162,360 per annum. Based on Mr Hana's income for 2023 of $119,895, he is spending more per month and per annum than he receives in income. 3. Mr Hana says Paramount Building runs at a loss and that his shares are of negligible or no value. No further financial information about Paramount Building was provided at the hearing. 4. Mr Hana is also one of two directors and a 50% shareholder of House of Finance Group Pty Ltd which carries on a finance brokerage business. House of Finance Group derives commission income from each loan it originates, with the commission income split into an upfront commission payable on the first drawdown of the loan and trail commission payable as a percentage of the outstanding balance of the loan for its life until it is repaid or refinanced. For the year ended 2023, House of Finance Group earned $1.9 million in upfront commission income and trail commission income of about $700,000. 5. Mr Hana says that the trail commissions are not able to be sold without the unanimous consent of the other director and shareholder of House of Finance Group, who does not currently consent. 6. House of Finance Aus receives approximately $1 million revenue per annum or $83,333 per month from House of Finance Group for management fees, which is its only source of income. 7. The monthly expenses of House of Finance Aus total between approximately $47,750 and $63,250, giving House of Finance Aus a net surplus of between approximately $25,083 and $30,583 which is lent to Mr Hana and used by him to lend to various property development entities. Assets 1. Mr Hana estimates his savings as being approximately $40,000. 2. According to property title searches, Mr Hana has engaged in the following property dealings in his own name between 2019 and 2024: 1. On 30 September 2019, Mr Hana purchased a property located at 40 Honeymyrtle Avenue, Denham Court, New South Wales, for $410,000. On 7 May 2021, Mr Hana sold 40 Honeymyrtle Avenue for $1,355,000 (generating an excess of $945,000). There is no evidence of what happened to this excess. 2. On 29 January 2021, Mr Hana purchased a property located in Wassell Street, Dundas, New South Wales for $1.15 million which was subdivided into two properties, being the first Wassell Street property and the second Wassell Street property respectively. On 15 March 2024, Mr Hana sold the second Wassell Street property for $1.8 million and the first Wassell Street property for $1.77 million (generating a total excess of $2.42 million). There is no evidence of what happened to this excess. 3. On 14 January 2022, Mr Hana purchased a property located in Wurmbea Way, Denham Court, New South Wales (first Wurmbea Way property). As at 12 June 2024, Mr Hana remained the registered proprietor of the first Wurmbea Way property. 4. On 14 January 2022, Mr Hana also purchased a second property located in Wurmbea Way, Denham Court, New South Wales (second Wurmbea Way property) for $502,000. On 11 June 2024, Mr Hana sold the second Wurmbea Way property for $1.73 million (generating an excess of $1,228,000). Mr Hana estimates that he will receive an amount of $125,000 from the sale of the second Wurmbea Way property, following payment of the outstanding mortgage, builder fees and capital gains tax. 1. The first Wurmbea Way property is currently desktop valued by Domain at $1.21 million and subject to a mortgage in the amount of $900,000. Mr Hana is the registered proprietor of the first Wurmbea Way property. Mr Hana says that his uncle contributed 50% of the purchase price and construction costs of the first Wurmbea Way property and has a beneficial interest in it. It would appear that Mr Hana is entitled to half of the proceeds if a sale of the first Wurmbea Way property ever occurs. 2. Mr Hana is also involved in seven property development projects that are each undertaken through the operation of special purpose vehicles (SPVs), where each of the SPVs purchase and manage development of the land. 3. Each of these SPVs are funded by investors, who contribute capital (up to 20%) in return for receiving units in the relevant SPV, and banks, who provide loans that are secured by the underlying assets of the relevant SPV. Investors are required to provide funds for any construction costs, whether they be contemplated at the outset or incurred afterwards — for example, where costs are overrun or disputed. 4. According to Mr Hana, calculating the value of the units in the SPVs is difficult because their value is subject to delays and increased costs of the property developments and ultimately depends upon their overall profitability. No evidence of the value of Mr Hana's units in the SPVs was given. 5. Mr Hana says that the properties owned by each of the SPVs cannot be sold without the consent of their unitholders and, as a result, these investments are highly illiquid. Of the seven development projects, Mr Hana estimates that the SPV property closest to completion is at least another 12 months away. 6. Mr Hana says that the business of House of Finance Group could be valued at approximately 1.5 times its current trail revenue of $700,000, which is $1,050,000. Mr Hana says that the upfront commission would be wholly discounted when valuing the business of House of Finance Group, although no reason was put forward for explaining why this would be the case. 7. No expert evidence of the value of House of Finance Group or House of Finance Aus was provided by the lead plaintiffs. 8. House of Finance Aus has provided loans to Mr Hana in the sum of $2.2 million for his various property developments, which are not repayable until the developments are completed and sold. 9. As stated above, Mr Hana says that Paramount Building runs at a loss and that his shares in it are of negligible or no value. Liabilities 1. By 2019, Mr Hana says that he discharged his debts in the amount of $100,000 that were incurred by him in connection with being a franchisor, being a personal loan of $21,000 and credit card debt. 2. Mr Hana estimates that he owes $2.2 million to House of Finance Aus. 3. House of Finance Aus has $260,000 in current liabilities for three motor vehicle loans and a credit card debt, requiring monthly repayments of $8,750 and $5,000 to $10,000 respectively. Additional information 1. Mr Hana has one dependent who is 15 months of age. 2. According to Mr Hana, he would need to obtain a further loan of $50,000 from the House of Finance Aus to allow him to contribute money into court for the purpose of funding these proceedings. Mrs Hana 1. For the financial year ending 30 June 2023, Katya Hana (Mr Hana's wife) had a taxable income of $135,246, the sources of which were: 1. a $42,500 salary from House of Finance Group (which no longer employs her); 2. a $89,131 salary from the House of Finance Aus; 3. $428 in wages from Laser Clinics Australia (which no longer employs her); and 4. a $9,586 parental leave payment from Centrelink. 1. Mrs Hana is currently employed by House of Finance Aus for which she receives a salary of $130,000 per annum (excluding superannuation). Financial position of the persons standing behind Laith & Fadi Mr Hana 1. Mr Hana is not only one of the lead plaintiffs; he is also a person standing behind Laith & Fadi because he is one of the shareholders in it. His financial position as outlined above is therefore relevant to the financial position of Laith & Fadi. Mr Youssef 1. The other shareholder of Laith & Fadi is Mr Youssef. No evidence has been provided of Mr Youssef's financial position. 2. According to the evidence of Justin Reynolds, a solicitor employed by Levitt Robinson, he unsuccessfully attempted to telephone Mr Youssef on two occasions: an unspecified day before 3 June 2024 and on 12 September 2024. Financial position of the Group Members 1. All of the material put before the court by the lead plaintiffs as evidence of the financial position of the Group Members was elicited by way of telephone calls between Justin Reynolds (a solicitor employed by Levitt Robinson) and each Group Member or a member of their family or an email sent by Mr Reynolds to a Group Member. 2. The defendants put in issue the weight that such evidence can be given, in light of the fact that the evidence has been expressed in the most general terms, the questions asked in each of the communications has not been disclosed, there is no direct evidence from any Group Member, there is no documentary evidence to support the assertions made about the financial position of the Group Members and the evidence does not permit the court to know the precise financial position of each of the Group Members. I agree that very little weight can attach to this evidence for the reasons given by the defendants. 3. To the extent that it can be discerned from the limited nature of the assertions contained in the evidence, the respective financial positions of the Group Members are as follows: Abu Syeed and Nurzhat Tazeen Huq 1. Mr Syeed was the Merrylands franchisee and a director of NAS Enterprises (NSW) Pty Ltd, one of the three Liverpool New South Wales franchisees. 2. Ms Huq is the wife of Mr Syeed. Ms Huq is a director of NAS Enterprises (NSW) Pty Ltd. 3. NAS Enterprises (NSW) Pty Ltd no longer trades and has been deregistered. 4. Mr Syeed is an employee and 70% shareholder of OM Proprietors NSW Pty Ltd, but does not receive any income. 5. Mr Syeed jointly owns a property of unspecified value with Ms Huq and takes out loans leveraged against his equity, which he says is minimal, to pay his monthly expenses. 6. Mr Syeed owns an Audi Q5 (2015) with an estimated value of $25,000. 7. Mr Syeed and Ms Huq have one dependent child who is 12 years of age. 8. Mr Syeed indicated that he was unable to contribute any money for the continuation of these proceedings because to do so would cause an inability to meet his own debts and family expenses, and Ms Huq was unwilling to provide any information about her financial position to Levitt Robinson. Mafizul Islam 1. Mr Islam is a director and guarantor of Golden Peak Australia Pty Ltd, the Bondi Junction New South Wales franchisee. 2. Golden Peak Australia Pty Ltd no longer trades. 3. Mr Islam receives a net income of $45,000 from his work as an Uber driver and owns two vehicles: a Toyota Rav 4 (2008) with an estimated value of $7,000 and a Toyota Camry (2014) with an estimated value of $8,000. 4. Mr Islam has two dependents who are 7 and 11 years of age respectively. 5. According to Mr Islam, he does not have any disposable income after meeting his expenses, the details of which were not provided. Farhad Hossen 1. Mr Hossen is a director and guarantor of Golden Peak Australia Pty Ltd, the Bondi Junction New South Wales franchisee, and a director and guarantor of R&F Innovation Enterprise Pty Ltd, the Darling Harbour New South Wales franchisee. 2. As indicated above, Golden Peak Australia Pty Ltd no longer trades. 3. R&F Innovation Enterprise Pty Ltd generates an annual revenue of $100,000, has an existing credit card liability of $10,000 and provides Mr Hossen with an annual net income of $77,024. 4. Mr Hossen jointly owns a property with his wife valued at $1.3 million, encumbered by a mortgage of $1 million and is required to make monthly mortgage repayments of $6,000. During COVID-19, the mortgagee did not require Mr Hossen to make any mortgage repayments. Following the resumption of mortgage payments, Mr Hossen has needed financial assistance from his family and friends to meet these repayments, with a total amount owing of $70,000. 5. Mr Hossen owns two vehicles: a Mazda CX9, with an estimated value of $30,000, and a Honda Civic, with an estimated value of $4,000. 6. Mr Hossen has two dependents who are 2 and 11 years of age respectively. His wife does not work. 7. According to Mr Hossen, he does not have any disposable income after meeting his expenses and will not be able to contribute any money for the costs of these proceedings. Luis Dominguez and Amelia Dominguez 1. Mr and Mrs Dominguez are the directors and guarantors of A&L Dominguez Pty Ltd, the Penrith New South Wales franchisee. 2. A&L Dominguez Pty Ltd does not trade and is dormant pending the outcome of these proceedings. 3. Mr Dominguez is currently employed at Westpac Banking Corporation and has a gross annual income of $205,000, excluding superannuation. Mrs Dominguez is currently employed at Commonwealth Bank of Australia and has a gross annual income of $155,000. 4. Mr and Mrs Dominguez jointly own a property valued at $1.7 million, encumbered by a mortgage of $1.324 million. They also jointly own a vehicle with an estimated value of $10,000, and $20,000 of shares in Westpac Banking Corporation. 5. Mr and Mrs Dominguez have three dependents who are 19 months, 4 years and 8 years of age respectively. 6. Mr and Mrs Dominguez have annual childcare expenses of $70,000 and a joint credit card liability of $10,000. 7. Separately, Mr Dominguez leases a Toyota Kruger valued at $70,000 and the same amount is outstanding on the lease. He also owns $3,000 of shares in Westpac Banking Corporation. Mrs Dominguez owns $3,000 of shares in Commonwealth Bank of Australia. 8. According to Mr Dominguez, he will not be able to contribute any money for the costs of these proceedings. MD Mostafa Hassan and Mohammed Masum Rana 1. Mr Hassan and Mr Rana are former directors and guarantors of DOAA & JAWAD Pty Ltd, the Narellan New South Wales franchisee. 2. DOAA & JAWAD Pty Ltd has been deregistered. 3. Mr Hassan is currently employed by Qube Logistics and has an annual net income of $70,000. 4. Mr Hassan jointly owns a property with his wife valued at $900,000, encumbered by a mortgage of $550,000. His wife is a casual employee of Campbelltown Council, working two days a week. 5. Mr Hassan also owns two vehicles: a Kia Sportage (2022) valued at $22,000; and an MG (2022) valued at $15,000. 6. Mr Hassan has a credit card liability of $7,000, which he incurred in purchasing the MG. 7. Mr Hassan has three dependents and he says he is unable to contribute any money for the costs of these proceedings. 8. No financial information has been provided in relation to Mr Rana as he did not respond to the inquiries of Levitt Robinson. Mahathi Jammula and Kamalakar Reddy Akavaram 1. Mrs Jammula and Mr Akavaram are directors of VSKM Pty Ltd, the Highpoint Victoria franchisee. They are married to each other. 2. VSKM Pty Ltd continues to trade. 3. Mrs Jammula is currently employed by VSKM Pty Ltd, has an annual net income of $50,000, owns a property of unspecified value, encumbered by a mortgage, and has equity in the property of $50,000. 4. Mr Akavaram is a director, 33.3% shareholder and employee of Asetron Private Limited Pty Ltd, receiving an annual net income of $70,000. He owns a property of unspecified value, encumbered by a mortgage, and has equity in the property of $100,000. 5. Mrs Jammula and Mr Akavaram have two dependents who are 7 and 11 years of age respectively. 6. According to Mrs Jammula and Mr Akavaram, they are each able to contribute $1,000 for the costs of these proceedings, being the total amount of Mrs Jammula's monthly disposable income after expenses and twice the amount of Mr Akavaram's monthly disposable income after expenses. Sarika Mogili 1. Mrs Mogili is a former director of VSKM Pty Ltd, the Highpoint Victoria franchisee. 2. Mrs Mogili has no income, no assets, two dependents and her husband is responsible for their family's monthly expenses. According to Mr Mogili, she will not be able to contribute any money for the costs of these proceedings. Mohamed Abdel Moaty Elsayed Elmahrakawy 1. Mr Elmahrakawy is a director and guarantor of Melbourne United Group Pty Ltd, the Frankston Victoria franchisee. 2. Melbourne United Group Pty Ltd has ceased to trade and is deregistered. 3. Mr Elmahrakawy has no annual income, no assets of value, no dependents and is financially supported by family and friends. According to Mr Elmahrakawy, he cannot make any financial contribution to the costs of these proceedings. Mohd Asaf Ud Dowla and Ishrak Hasnain 1. Mr Dowla and Mr Hasnain are directors of Swapno Pty Ltd, the Macarthur Square New South Wales franchisee. 2. Swapno Pty Ltd is no longer trading. 3. Mr Dowla is employed at an unnamed business and receives an annual net income of $80,000. He jointly owns two properties of unspecified value with his wife, encumbered by mortgages also of unspecified value, in which he says they have minimal equity and have recently refinanced to avoid bank foreclosures. 4. According to Mr Dowla, he has no disposable income after meeting his expenses. 5. Mr Dowla has two dependents: an adult child who is living with him at home and a sister who is living overseas. 6. Mr Hasnain receives an annual net income of $6,000 and has no assets or disposable income after meeting his expenses. He currently lives with his family in Bangladesh and has one dependent. Taslima Begum 1. Ms Begum is a director of RRZ Pty Ltd, the Bankstown New South Wales franchisee. 2. Ms Begum does not receive any financial support from her former husband, Rafique Ahmed Khan, who now lives overseas. Ms Begum has one dependent who suffers from nervous shock. Ms Begum survives on Centrelink payments of an unstated value and received proceeds from the sale of her home (she is now renting) in the sum of $20,000, which were all applied to pay the lessor of her franchise. 3. According to Ms Begum, she cannot afford to contribute any money towards the costs of these proceedings. Remaining Group Members 1. No evidence has been provided of the financial positions of the following remaining Group Members whom Levitt Robinson has attempted to contact but has been unsuccessful in doing so: 1. Rafique Ahmed Khan, a director of RRZ Pty Ltd, the Bankstown New South Wales franchisee; 2. Subrata Kumar Saha and Moli Saha, directors of Saha Enterprises Pty Ltd, one of two Rouse Hill New South Wales franchisees; 3. Saiful Kabir Sumon, Saidul Karim and Kazi Rakibul Alam, directors of Four Minds Pty Ltd, the Penrith New South Wales franchisee; 4. Mahmud Jawad Bin Rashid, director of Waseemu Pty Ltd, the Rhodes New South Wales franchisee; 5. Mostafizur Rahman and Tanmoy Sen, directors of RZ Group Pty Ltd, one of the three Liverpool New South Wales franchisees; 6. Touhidul Islam, director of Swapno Pty Ltd, the Macarthur Square New South Wales franchisee; 7. Mohammed Mahbubur Rahman, Nurul Islam Chowdhury and Towha Mohammad, directors and guarantors of Active Food and Beverage Pty Ltd, one of two Rouse Hill New South Wales franchisees; and 8. Sam Zakir Hussain Mazumder and Fahria Nusrat, directors and guarantors of Arvin Australia Pty Ltd, another one of the three Liverpool New South Wales franchisees. 1. There is no evidence about the financial position of 23 of the 48 Group Members. 2. No undertaking has been offered by any Group Member to pay the costs of the defendants in the event that these proceedings are unsuccessful. Costs arrangements with Levitt Robinson 1. The lead plaintiffs relied on an affidavit sworn 15 May 2024 by Stewart Levitt (a partner of Levitt Robinson) (Levitt May affidavit) in which Mr Levitt deposed to the following matters: 1. Levitt Robinson continues to act and is prepared to continue to act for each of the lead plaintiffs and each Group Member that was a client of Levitt Robinson immediately prior to the termination of the Funding Agreement on 22 April 2024. 2. No client Group Member has communicated with Levitt Robinson any intention to terminate Levitt Robinson's retainer with them. 3. Levitt Robinson proposes to charge on a speculative basis, subject to its disbursements being paid as and when they fall due. 4. Levitt Robinson has not yet prepared a draft conditional costs disclosure and costs agreement or circulated that to the lead plaintiffs or client Group Members for their consideration. 1. The lead plaintiffs also relied on an affidavit sworn 3 June 2024 by Mr Levitt (Levitt June affidavit) in which he deposed that he had personally paid the outstanding invoices of counsel for the lead plaintiffs since the termination of the Funding Agreement and has acknowledged liability to counsel for those unpaid invoices. 2. As at the time of the Levitt May affidavit, no conditional costs disclosure and costs agreement had been prepared or circulated by Levitt Robinson to the lead plaintiffs and Group Members. Exhibited to the Levitt June affidavit there was what was described as "a copy of the executed Conditional Costs Agreement dated 31 May 2024". But the Conditional Costs Agreement which is exhibited to the Levitt June affidavit was only signed by Mr Levitt on behalf of Levitt Robinson alone on 3 June 2024 and is not signed by any of the lead plaintiffs or Group Members. There is no evidence that the Conditional Costs Agreement has been circulated to the lead plaintiffs and the Group Members for their consideration, even less that they have agreed to it. There is also no evidence of what (if any) arrangements were in place for the retainer of Levitt Robinson by the lead plaintiffs or Group Members at any time prior to the Conditional Costs Agreement. 3. In light of this evidence, I cannot make any finding that the lead plaintiffs or the Group Members have entered into the Conditional Costs Agreement with Levitt Robinson. In any event, it would appear from the Levitt May affidavit that Levitt Robinson do not act for all of the Group Members, referring to the Group Members who were clients of Levitt Robinson immediately before the termination of the Funding Agreement as "client group members". 4. The lack of clarity in the evidence regarding the basis on which Levitt Robinson has been and is acting in the proceedings is troubling and prevents me from finding that it is accepted by the lead plaintiffs and the Group Members that Levitt Robinson will be acting on a speculative basis. 5. If I am wrong about that finding, then there are particular terms in the Conditional Costs Agreement which are relevant to the determination of these applications. 6. First, the Conditional Costs Agreement contains the following provisions in relation to the charging of professional fees, internal expenses and disbursements: B. SUCCESSFUL OUTCOME OF THE MATTER We will only be entitled to receive payment for our professional fees and internal expenses from you in the event that you obtain a successful outcome in this matter. The successful outcome of the matter, as agreed with you, is a verdict, judgment, settlement, financial recovery, non-monetary compensation or any other arrangement entitling you to any relief, remedy or benefit, including by way of negotiation, mediation or court process. In the event that you accept an offer, made by or on behalf of the other party, for compensation of your claims or any non-monetary compensation or otherwise elect not to maintain this matter or fail to do so, or if you or we terminate this Conditional Costs Agreement in accordance with its terms, our legal costs will become immediately due and payable notwithstanding any clause to the contrary. We will ask you to pay us, in advance, an amount to enable payment of our disbursements to complete the various stages of your matter. Notwithstanding any clause to the contrary, in the event that we, in our absolute sole discretion, pay a disbursement without securing the disbursement amount in trust and/or do not invoice you for, or pass onto to [sic] you, the disbursement prior to the successful outcome of this matter, the disbursement will form part of our legal costs under this Agreement. … D. DISBURSEMENTS AND ADMINISTRATIVE EXPENSES Disbursements 1. We will either charge you or pass on to you for payment, within thirty (30) days of invoice, all out-of-pocket expenses which we may incur. This could include… barristers' fees, courier and filing fees, postage and other delivery charges, searches and travelling costs where applicable. You authorise us to pay from trust monies held on your behalf, expenses which we have incurred for your benefit or to reimburse ourselves for such outlays in advance of our accounting to you. 2. We will request from you payment in advance of an amount sufficient to cover our reasonably anticipated disbursements and you will meet that request within fourteen (14) days of receipt by paying the request sum into our trust account. … 1. The Conditional Costs Agreement also contains provision for the charging of "Administrative Expenses" which are described as charges for photocopying, facsimiles, telephone charges and law stationer's fees at specified rates, along with costs incurred for the recovery of files from outside storage. I interpret these to be the "internal expenses" to which reference is made in section B of the Conditional Costs Agreement. 2. In the Conditional Costs Agreement, professional fees are estimated to be $600,000 (with no uplift), disbursements are estimated to be $300,000 and administrative expenses are estimated to be $10,000 (all amounts excluding GST). 3. Accordingly, if the Conditional Costs Agreement is in operation, whether or not there is a successful outcome of these proceedings for the lead plaintiffs and Group Members, they will be liable to pay Levitt Robinson for disbursements which are incurred, either payable 14 days in advance or 30 days after they are invoiced, estimated to be $300,000. After the event insurance 1. The lead plaintiffs also relied on evidence that through Levitt Robinson unsuccessful attempts have been made to obtain after the event insurance (ATE insurance) to insure the lead plaintiffs against any adverse costs orders in the proceedings. The evidence demonstrated the following: 1. On 31 July 2024, Levitt Robinson submitted a draft application for ATE insurance to James Walker, an insurance broker from JMD Ross Insurance Brokers Pty Ltd (a copy of which is not in evidence). 2. On 14 August 2024, Levitt Robinson submitted a final draft proposal form to Mr Walker (a copy of which is not in evidence). 3. On 19 August 2024, Levitt Robinson submitted an executed application and proposal form to Mr Walker (a copy of which is not in evidence). 4. On 4 September 2024, during a telephone call with Levitt Robinson, Mr Walker said words to the effect that none of the underwriters on his panel were interested in the application or inclined to offer any policy for the risk. 5. On 19 September 2024, Mr Walker sent Levitt Robinson emails dated 27 and 29 August 2024 and 4 September 2024 from different underwriters declining to offer ATE insurance. 1. There is evidence that a rough estimate of the minimum non-refundable portion of the ATE insurance premium for the lead plaintiffs in these proceedings would be $270,000. 2. In the course of oral submissions, Mr Seskin submitted that I should give limited weight to the evidence of the prospects of the lead plaintiffs obtaining ATE insurance, and that the lead plaintiffs did not meet the onus of establishing that ATE insurance is not available to them (T38–39). I do not agree. Although I do not have all of the documents relevant to the applications made for ATE insurance by Mr Walker on behalf of the lead plaintiffs, I am satisfied that the lead plaintiffs have demonstrated that the prospect of them obtaining ATE insurance in these proceedings is remote. ISSUE 1: WHETHER TO MAKE AN ORDER FOR SECURITY FOR COSTS Legal principles 1. There are multiples bases on which the court has jurisdiction to award security for costs in proceedings before it, arising from particular statutory provisions and the inherent jurisdiction of the court. 2. Rule 42.21 of the Uniform Civil Procedure Rules 2005 (NSW) (UCPR) relevantly states: 42.21 Security for costs (1) If, in any proceedings, it appears to the court on the application of a defendant— … (d) that there is reason to believe that a plaintiff, being a corporation, will be unable to pay the costs of the defendant if ordered to do so, or (e) that a plaintiff is suing, not for his or her own benefit, but for the benefit of some other person and there is reason to believe that the plaintiff will be unable to pay the costs of the defendant if ordered to do so, … … the court may order the plaintiff to give such security as the court thinks fit, in such manner as the court directs, for the defendant's costs of the proceedings and that the proceedings be stayed until the security is given. (1A) In determining whether it is appropriate to make an order that a plaintiff referred to in subrule (1) give security for costs, the court may have regard to the following matters and such other matters as it considers relevant— (a) the prospects of success or merits of the proceedings, (b) the genuineness of the proceedings, (c) the impecuniosity of the plaintiff, (d) whether the plaintiff's impecuniosity is attributable to the defendant's conduct, (e) whether the plaintiff is effectively in the position of a defendant, (f) whether an order for security for costs would stifle the proceedings, (g) whether the proceedings involves a matter of public importance, (h) whether there has been an admission or payment in court, (i) whether delay by the plaintiff in commencing the proceedings has prejudiced the defendant, (j) the costs of the proceedings, (k) whether the security sought is proportionate to the importance and complexity of the subject matter in dispute, (l) the timing of the application for security for costs, (m) whether an order for costs made against the plaintiff would be enforceable within Australia, (n) the ease and convenience or otherwise of enforcing a New South Wales court judgment or order in the country of a non-resident plaintiff. (1B) If the plaintiff is a natural person, an order for security for costs cannot be made merely on account of his or her impecuniosity. (2) Security for costs is to be given in such manner, at such time and on such terms (if any) as the court may by order direct. (3) If the plaintiff fails to comply with an order under this rule, the court may order that the proceeding on the plaintiff's claim for relief in the proceedings be dismissed. (4) This rule does not affect the provisions of any Act under which the court may require security for costs to be given. 1. Section 1335 of the Corporations Act 2001 (Cth) also confers a power to order security for costs in circumstances where a corporation is a plaintiff, relevantly providing as follows: (1) Where a corporation is plaintiff in any action or other legal proceeding, the court having jurisdiction in the matter may, if it appears by credible testimony that there is reason to believe that the corporation will be unable to pay the costs of the defendant if successful in his, her or its defence, require sufficient security to be given for those costs and stay all proceedings until the security is given. … (2) The costs of any proceeding before a court under this Act are to be borne by such party to the proceeding as the court, in its discretion, directs. 1. A further source of power to award security for costs is contained in s 67 of the Civil Procedure Act 2005 (NSW) (CPA) which provides: Subject to rules of court, the court may at any time and from time to time, by order, stay any proceedings before it, either permanently or until a specified day. 1. The court may, for example, make an order pursuant to s 67 that proceedings before it be stayed until security for costs is given. In De Jong v Carnival PLC [2016] NSWSC 347, in relation to s 67 of the CPA as a source of implied power to award security for costs in representative proceedings, Beech-Jones J at [45] said the following: The second source is s 67 of the CPA, which confers on the Court a power, subject to the rules, to order a stay of any proceedings either permanently or until a specified date. In Philips Electronics Australia Pty Ltd v Matthews [2002] NSWCA 157; 54 NSWLR 598 at [47] ("Philips Electronics"), Hodgson JA held that the former s 156 of the District Court Act 1973 (NSW) conferred on the District Court a power to make an order staying proceedings unless and until security for costs was given. His Honour held that the power was not limited by the District Court Rules which specified circumstances in which it was appropriate to make such an order against an individual (at [50] to [52]). However, his Honour added (at [53]) that the existence of such rules meant that a "strong case" would need to be made out that it was necessary in the interests of justice to stay proceedings until security for costs was provided, although it was not necessary to demonstrate that the proceedings were an abuse of process (at [47]). Mason P agreed with Hodgson JA and stated that the circumstances in which the power to order a stay conditional upon the grant of security in categories falling outside those prescribed by the rule would be exercised were "exceptional" (at [13]). 1. The court also has an inherent jurisdiction to order security for costs. In De Jong, Beech-Jones J at [48] described the inherent jurisdiction in the following way: The third is the "inherent jurisdiction of the Supreme Court to make orders for security for costs" in circumstances other than those prescribed by the rules (Philips Electronics at [52] per Hodgson JA; Green at [33] per Hodgson JA, Campbell JA agreeing; Charara v Integrex Pty Ltd [2010] NSWCA 342 at [15] per McColl JA; Byrnes at [17] per Simpson J; Rajski v Computer Manufacture & Design Pty Ltd [1982] 2 NSWLR 443 at 447). In Green at [45] Hodgson JA specifically instanced a plaintiff "bring[ing] a case for the benefit of others (albeit not solely for their benefit as apparently required by UCPR 42.21(1)(e))" as a circumstance that would warrant this Court exercising its inherent power to award security for costs. Further, his Honour stated the following concerning the principles that govern the exercise of this power (Green at [46]): In my opinion, it would be an oversimplification to say that underlying these guidelines is a broader principle that defendants should be protected against being unable to collect costs ordered against plaintiffs unless this would stultify the litigation. Certainly, these are relevant considerations; but in my opinion also relevant are the considerations that there should not be undue inhibitions on less wealthy persons from seeking vindication of their rights against more wealthy persons, and that there could be such inhibitions if it was in every case open to defendants to apply for security for costs on the basis of some evidence (or even on the basis of fishing notices to produce) suggesting inability to pay costs, and to claim that security should be given unless the plaintiff can prove it would stultify the litigation. In my opinion these considerations make it desirable that guidelines be adhered to, even though the question is ultimately for the court's discretion. (emphasis added) 1. Section 181 of the CPA prevents the court from awarding costs against a group member other than a representative party and is in the following terms: Despite section 98, in any representative proceedings, the Court may not award costs against a person on whose behalf the proceedings have been commenced (other than a representative party) except as authorised by ss 168 and 169. 1. In summary, s 98 of the CPA gives the court the power to determine who should pay the costs of any proceedings and the amount of those costs. 2. Section 168 of the CPA concerns the determination of questions which are not common to all group members, which is not relevant to the determination of the present applications. 3. Section 169 of the CPA concerns the liability of an individual group member for the costs associated with the determination of a question which only relates to the claims of that member. That provision is also not relevant to the determination of these applications. 4. In De Jong, Beech-Jones J at [6] summarised the position of a court ordering security for costs in representative proceedings in the following way: For the reasons that follow, I conclude that this Court has the power to order security for costs against the representative party in representative proceedings, but not against group members. I also find that it can stay the proceedings in the event that security is not provided, although the Court might order that the proceedings no longer continue as representative proceedings before ordering a stay. The power to order security for costs is to be exercised in the manner stated by Carr J in Bray v F Hoffman-La Roche Ltd (2003) 130 FCR 317 ("Bray") at [141] namely by balancing the policy reflected in s 181 of the CPA against the risk of injustice to a defendant. In circumstances where the representative party is impecunious, but is neither suing on behalf of a person with assets who seeks to avoid a costs liability nor supported by an external funder, then a determination of whether security will be ordered and, in particular, whether an order for security will stifle the proceedings requires that consideration be given to the financial circumstances of group members. If a reasonably strong case for security is made out then it may, and often will, be appropriate to ascertain the capacity and willingness of group members to contribute to a fund to meet any order for security that is made against the representative party. 1. In De Jong, Beech-Jones J at [51]–[53] accepted that s 181 of the CPA operates so that no order for security for costs can be made against a group member, but rejected the argument that s 181 of the CPA means that no order for security can be made against a representative party, which his Honour said "is not supported by any of the text of s 183 [which gives the court power to make any order that the court thinks appropriate or necessary to ensure that justice is done in the proceedings], the structure of the CPA as a whole or relevant authority." I agree. 2. As repeated in De Jong by Beech-Jones J at [24], the longstanding general rule is that security will not be ordered against a natural person solely on the grounds of their impecuniosity, subject to an exception arising where an impecunious plaintiff sues for the benefit of others. 3. In De Jong, Beech-Jones J at [24]–[27] analysed the authorities concerning the equivalent provisions of r 42.21 of the UCPR and s 181 of the CPA in ss 56 and 43(1A) of the Federal Court of Australia Act 1976 (Cth) (FCAA), delineating at [26] the following five propositions applicable to representative proceedings arising from the decisions of the Full Court of the Federal Court in Bray v F Hoffman-La Roche Ltd (2003) 130 FCR 317; [2003] FCAFC 153 and Madgwick v Kelly (2013) 212 FCR 1; [2013] FCAFC 61 (citations omitted): 1. An order for security against the representative party does not affect the immunity conferred by s 43(1A) of the FCAA. 2. The fact that an impecunious plaintiff brings proceedings for the benefit of represented persons may be a significant factor in favour of an order for security. 3. To obtain an order for security it is not necessary to demonstrate that the representative party had been deliberately selected to shield group members with substantial means for whose benefit the proceedings were brought. 4. The party resisting security on the basis that it will stultify the proceedings bears the onus of proof of that fact. 5. The financial circumstances of group members are relevant to an application for security, especially the contention that an order for security would stultify the proceedings. 1. In Bray, Carr J (with whom Branson and Finkelstein JJ agreed or substantially agreed) at [141] canvassed the balancing of the policy in s 43(1A) of the FCAA that in representative proceedings the group members not be burdened with joint and several liability for a very substantial costs order at the end of the hearing against the risk of injustice to a defendant who has no chance of recovering very substantial costs from the plaintiff if it is successful in defending the proceedings, concluding at [142] that: Much would depend upon the number of group members involved, their financial circumstances and in particular whether an order for security for costs might stifle the proceedings. … 1. In De Jong, Beech-Jones J at [27] considered that the decision in Madgwick also stood for the proposition that solicitors conducting proceedings on the basis that they would only be paid in the event of a successful judgment or settlement were not to be equated with litigation funders; i.e. they were not to be treated as a person standing behind the plaintiff or as a person on whose behalf the proceedings were brought. 2. In Eades v Endeavour Energy [2018] NSWSC 801, Garling J at [54]–[59] considered the applicable legal principles in the context of determining whether to order security for costs in representative proceedings, quoting the summary of the principles set out in De Jong by Beech-Jones J at [6] and then saying as follows: [57] The particular factors mentioned in De Jong are not the only potentially relevant ones. [58] As Madgwick notes, factors which may be potentially relevant include not just whether a plaintiff is impecunious, but whether that impecuniosity was caused by conduct which is the foundation for the action; the promptness of the application, including the stage of the proceedings at which the application was made; whether the plaintiff had been deliberately selected as a "man of straw" so as to preclude the defendants recovering costs if ultimately successful; the characteristics of the group members, including whether security would have been ordered if the action was a separate stand-alone proceeding; and the strength of the plaintiff's case. [59] The matters to which I have earlier referred are not mandatory considerations in each case, nor are they the only considerations which it is open to the Court to take into account. The Court is obliged to take all relevant factors into account. … 1. The principles set out in De Jong at [26] were expressly approved in Abbott v Zoetis Australia Pty Ltd (No 2) [2019] FCA 462; (2019) 369 ALR 512 by Lee J at [14], who also said at [15]: Critically, however, context is everything, and nothing in Bray or Madgwick should be seen as delimiting or attenuating the broad discretion the Court has to order, or decline to order, security. It is a discretion to be exercised judicially, having regard to a consideration of the particular facts of the case: Merribee Pastoral Industries Pty Ltd v Australia and New Zealand Banking Group Ltd (1998) 193 CLR 502; 155 ALR 1; 28 ACSR 103; [1998] HCA 41. If they are relevant, the factors that may be taken into account are unrestricted, and the weight to be given to them depends upon the fact's own intrinsic persuasiveness and its impact on other circumstances which have to be weighed: see Southern Cross Exploration NL v Fire & All Risks Insurance Co Ltd (1985) 1 NSWLR 114; Morris v Hanley [2000] NSWSC 957 at [11]–[21]; Acohs Pty Ltd v Ucorp Pty Ltd (2006) 155 FCR 181; 236 ALR 143; 59 ACSR 225; [2006] FCA 1279 at [12]. 1. The position of an individual lead plaintiff who is a member of a class on whose behalf representative proceedings have been brought was the subject of particular consideration in Its Eco Pty Ltd v BPS Financial Ltd [2022] FCA 842, Derrington J saying at [3]: As a preliminary issue it is appropriate to note that Ms McManus is an individual and, so it might be assumed, will be many of the members of the class on whose behalf the action is being conducted. As a general rule orders for security for costs have not been made against individuals in "bilateral litigation": Harpur v Ariadne Australia Ltd [1984] 2 Qd R 523: and there are good reasons of principle as to why that is so. However, those principles are inapt in the context of the modern phenomena of class actions. In particular, class actions are pursued on behalf of the group members who stand to gain from the litigation but who, by reason of s 43(1A) of the Federal Court Act, are immune from an order for costs if it is unsuccessful. Although the policy decision in s 43(1A) is to be respected it is, nevertheless, a significant factor in the Court's exercise of discretion on the question of whether security for costs ought to be ordered. It necessarily creates asymmetrical opportunities for the recovery of costs in class actions. On one side of the record the applicants usually have recourse against the respondents or their insurers to substantial recovery in respect of their own claims and the claims of others as well as indemnity, either partial or whole, in respect of their costs. Those costs are usually massively increased because the litigation is being carried on for the benefit of a large number of class members or, perhaps more accurately, that is the proffered reason for the increase. In particular, a regular feature of class actions is the inordinate amount claimed for undertaking disclosure the cost of which, so it is said, is increased due to the large number of class members. On the other side of the litigation, the respondents are limited to recovering costs from the lead applicants to the extent to which their assets permit. This is an important contextual issue in which the discretion to order security for costs in class actions is to be exercised and it is more than sufficient to displace the Court's natural reluctance to decline to order security for costs against individual litigants. Indeed, the fact that an impecunious individual brings a representative proceedings on behalf of a number of represented persons may well be a significant factor in favour of making an order for the provision of security: Abbott v Zoetis Australia Pty Ltd (No 2) (2019) 369 ALR 512 , 517 [14] (Abbott v Zoetis (No 2) ) per Lee J approving Beech‐Jones J in De Jong v Carnival PLC [2016] NSWSC 347 [26]. 1. These considerations were expanded upon in greater detail later in Its Eco, Derrington J stating at [38]–[39]: [38] Although it is not necessary to decide, there are strong policy reasons for Courts adopting a predisposition in favour of making an order for security for costs in class actions where the lead applicants are impecunious in the sense that they are not in a position to meet an adverse order for the costs of the application. Not only do the lead applicants seek to recover an amount which is, in terms of quantum, usually more for the benefit of others than themselves, they incur costs vastly in excess of the amount which is usually incurred in bilateral litigation. This latter point is significant. In the course of class action litigation, the costs incurred by the lead applicants include the costs claimed by their solicitors in dealing with the members of the class, including advertising the class action, contacting the potential class members, obtaining information from them, and providing them with details about the litigation. The size of discovery and the cost involved in it are greatly increased by reason of the existence of the class members. Experience reveals that the fees generated by the applicants' solicitors are greater by orders of magnitude than those which might be incurred in the course of ordinary litigation and the costs of dealing with the class members is provided as the justification for it. It follows that, although the lead applicants are the only persons against whom a costs order might be made, the litigation is carried on for the benefit of others in respect of whom substantial costs are incurred, and which costs may be recovered from the respondents. Although it is said that there is a relative passivity to the role of the class members, that does not alter the fact that the costs of the proceedings are greatly increased by reason of their presence. [39] Necessarily, such circumstances strengthen the justification for making an order for security for costs as, not only is the action carried on for the class members who might recover judgment, additional costs are incurred for their benefit, yet they remain immune from an adverse costs order. As this particular point was not raised in the course of the hearing, it is not one which is taken into account in the exercise of the discretion. 1. Where there is an impecunious corporate plaintiff, in the exercise of the discretion attention turns to those who stand behind the corporation and stand to benefit from the outcome of the litigation. In Pioneer Park Pty Ltd (in liquidation) v Australia and New Zealand Banking Group Ltd (2007) 65 ACSR 383; [2007] NSWCA 344, Basten JA at [52] said that: … a reason for not ordering security, may arise where all those who seek to benefit from the litigation are willing to step out from behind the corporate shield and offer undertakings in relation to an adverse costs order in the event of failure. … 1. If those standing behind an impecunious corporate plaintiff offer personal undertakings to pay the costs of the defendant if the proceedings are unsuccessful, then their respective financial positions are not relevant: Jazabas Pty Ltd v Haddad (2007) 65 ACSR 276; [2007] NSWCA 291, Basten JA at [32]. 2. The absence of evidence of the financial position of a person standing behind an impecunious corporation who offers no personal undertaking to pay the costs of the defendant is a fundamental matter, which weighs heavily in favour of making an order for security: Jazabas, McClellan CJ at CL (with whom Mason P and Basten JA agreed) at [91]. 3. An impecunious plaintiff who opposes security being ordered on the basis that the conduct of the defendant applying for security caused the impecuniosity must substantiate that claim. In Broadway Plaza Investments v Broadway Plaza Pty Ltd; In the matter of Combined Projects (Arncliffe) Pty Ltd [2019] NSWSC 1082, Ward CJ in Eq (as the President then was) at [196] said: A plaintiff who opposes the provision of security for costs on the basis that there is a causal connection between the plaintiff's impecuniosity and a defendant's conduct must substantiate that claim by appropriate evidentiary material; mere assertion or submission being insufficient (see Ninan v St George Bank Ltd [2012] FCA 905; (2012) 294 ALR 190 at [37]). This requires proof of "a real causal connection between the conduct and the impecuniosity which, in the exercise of the Court's discretion, would make it unjust to require security" (see Dalma Formwork Pty Ltd (Administrator Appointed) v Concrete Constructions Group Ltd [1998] NSWSC 472 (Rolfe J)). It must be shown that the defendant's conduct is the material contributor to or cause of the plaintiff's impecuniosity (see The Owners – Strata Plan 87265 v Saaib [2019] NSWSC 289 (Saaib)). Stevenson J noted in Saaib (at [45]) that this factor usually requires "consideration of whether the matters complained of in the proceedings caused the plaintiff to be, when the proceedings were commenced, without the means to meet a costs order". Without evidence of the financial position of the plaintiff prior to the alleged wrongdoing by the defendants, in the Ingot litigation the Court was unable to satisfy itself of that causal connection (see Ingot Capital Investments Pty Ltd v Macquarie Equity Capital Markets Ltd [2002] NSWSC 609 at [96]). 1. In essence, an impecunious plaintiff has the onus of proving its financial position before their dealings with the alleged wrongdoers and that the alleged wrongdoers' actions have caused or at least materially contributed to the plaintiffs' inability to meet an order for security for costs: Jazabas, McClellan CJ in Eq at [94]–[95]. 2. Among the foregoing principles, the issue of stultification looms large. It is an issue which frequently arises in non-representative proceedings. 3. Stultification is one of several factors to which a court exercising the discretion whether to order security for costs under r 42.21 of the UCPR may have regard, although it is a powerful factor: Live Board Holdings v Cody Live Pty Ltd [2017] NSWCA 302, Bathurst CJ, Leeming JA and Barrett AJA at [92]. It is expressly referred to in r 42.21(1A)(f) of the UCPR. 4. In Dae Boong International Co Pty Ltd v Gray [2009] NSWCA 11, Hodgson JA considered the relevant approach where a corporate plaintiff contends that an order for security will stultify the proceedings at [23]–[27] as follows: [23] On the question of the approach to be taken to contentions that the requirement of security will stultify proceedings where the litigant is a company, it was stated by the full Federal Court in Bell Wholesale Co Limited v Gates Export Corporation [1984] FCA 34; [1984] 2 FCR 1 at 4 as follows: In our opinion a court is not justified in declining to order security on the ground that to do so will frustrate the litigation unless a company in the position of the appellant here establishes that those who stand behind it and who will benefit from the litigation if it is successful (whether they be shareholders or creditors or, as in this case, beneficiaries under a trust) are also without means. It is not for the party seeking security to raise the matter; it is an essential part of the case of a company seeking to resist an order for security on the ground that the granting of security will frustrate the litigation to raise the issue of the impecuniosity of those whom the litigation will benefit and to prove the necessary facts. [24] That statement has been approved in a number of cases, including Pioneer Park Pty Ltd (in Liq) v Australia and New Zealand Banking Group Ltd [2007] NSWCA 344. [25] The effect of the passage is that, where a company resists an order for security on the ground that the order would stultify litigation, that company does have the onus to show that persons who stand behind it, and who would benefit from the litigation if it is successful, are without means. [26] Of course the court has a general discretion whether or not to order security for costs, and failure to prove stultification in this way does not necessarily mean that an order will be made; but Bell Wholesale does indicate that if a company wishes to have the benefit of a finding that litigation will be stultified, the company must prove that the persons who substantially stand to benefit are unable to provide the security. If that is not proved, it does not necessarily make the impecuniosity of the company and difficulties with providing security irrelevant; and if it can be shown that those persons are reasonably unwilling, even though possibly able, to provide the security, that may be a factor that would be taken into account. [27] Ultimately it seems to me the question to be determined by the court is whether it is fair that the person being sued by the company should be in the position of having to incur substantial costs, in this case perhaps tens of thousands of dollars of costs, and being at risk of liability for the company's costs, and yet have no real chance of recovering costs even if the action is unsuccessful, when there are persons who would benefit from the proceedings, who face no risk of liability for costs themselves and are either unwilling or unable to provide security. 1. In LRSM Enterprise Pty Ltd v Zurich Australian Insurance Limited [2014] NSWCA 88, Barrett JA (with whom McColl and Macfarlan JJA agreed) considered that the relevant question in demonstrating impecuniosity concerns inability and not mere unwillingness to provide security, stating at [36]–[37]: [36] It may be accepted that, in Bell Wholesale Co Pty Ltd v Gates Export Corp (above), the Full Federal Court said that, if a corporate plaintiff seeks to resist an application for security for costs on the ground that the making of the order would frustrate the litigation, that plaintiff must establish "that those who stand behind the action and who will benefit from the litigation if it is successful ... are also without means". According to this formulation, a plaintiff seeking to resist an application for security for costs has to demonstrate a state of impecuniosity on the part of not only itself but also those "standing behind it" who will "benefit from the litigation if it is successful". The focus is on the inability, as distinct from mere unwillingness, of relevant persons to give financial assistance – the lack of financial capability or means, as distinct from lack of willingness. [38] As was noted in Ariss v Express Interiors Pty Ltd (1995) 13 ACLC 1585, however, the question of lack of means is, in such cases, merely an aspect of a more broadly based inquiry whether, if an order for security is made, the order cannot be met with the result that the litigation will be brought to a premature end. It is the ability of the plaintiff to meet an order for security that is in issue; and, just as the inability of persons standing behind it to give it financial support will be relevant to the inquiry, so too may be unwillingness of those persons (despite ability) and all other reasons for the unavailability of their support. A finding of stultification becomes available only to the extent that the reasons of relevant persons other than the plaintiff itself for not giving financial support truly reflect an inability, rather than unwillingness, of the plaintiff to marshal the relevant financial resources. It is for this reason that unwillingness of other persons is viewed differently from their inability. 1. In Live Board Holdings, Bathurst CJ, Leeming JA and Barrett AJA at [90] considered the necessary evidence to satisfy the onus of proving stultification, stating as follows: Candour in a case such as this involves the impecunious claimant which seeks to avoid an order for security for costs presenting evidence of those persons who stand to benefit from the litigation and their own capacity to fund it including by meeting any adverse costs orders. The obligation is not satisfied by providing a limited account in an affidavit, and leaving it to the cross-examiner to elicit details (if indeed cross-examination is sought and is permitted). One work states that if it is said that an order will stultify a claim, "the precise financial circumstances of the litigant and of those behind it will need to be set out": J Delany, Security for Costs (Law Book Company Ltd 1989, p 118). … 1. The need for the plaintiff asserting stultification to address the issue by proving the necessary facts which establish the financial position of those who stand behind it and who will benefit from the litigation if it is successful is constantly emphasised in the authorities, including recently in Carrano Investment Holding Pty Ltd v Siennamia Investments Pty Ltd [2022] NSWCA 262, by Gleeson JA (with whom Basten and Griffiths AJJA agreed) at [12]. 2. The subjective unwillingness of group members to contribute to the costs of the proceedings in the absence of evidence of their means, so that the court can determine the matter objectively, is either not sufficient (Madgwick, Jessup J at [160]) or is not irrelevant, but the question of the reasonableness of any unwillingness to contribute must be considered in determining what is fair in all the circumstances: Madgwick, Allsop CJ and Middleton J at [83]. 3. In Abbott, Lee J at [42]–[43] decided not to take into account the responses given by group members to a "survey" undertaken of them as to whether they would be willing to provide any security, taking the view that there had been contentious and loaded introductory remarks made to them before they gave their answers and that the sampling of them was "entirely unscientific". 4. Where the issue of stultification is raised by an impecunious corporate plaintiff, the failure to prove the financial resources of those standing behind it who do not offer a personal undertaking to pay the defendant's costs is significant: Jazabas, Basten JA at [32]; Carrano Investment, Gleeson JA at [21]. 5. Recently, in Metro Environmental Logistics Pty Ltd v Newcastle Port Corporation (No 5) [2024] NSWSC 714, Stevenson J noted at [13] that although r 42.21(1A)(f) of the UCPR uses the expression "would stifle the proceedings", it is customary for the court to address the issue of stultification by reference to whether it is "likely" that an order for security would bring the proceedings to an end. 6. In Flip Out Thornton Pty Ltd v Flip Out – Trampoline Arena Franchises Pty Ltd [2023] NSWSC 1094, Stevenson J made an order for further security for costs where representative proceedings were funded by a litigation funder from the outset but later repudiated by the litigation funder, stating at [74]–[79]: [74] … the proceedings have only been brought about and prosecuted because, until very recently, they were externally funded. [75] It is only for that reason that the plaintiffs had been able to provide security to date; which security would not otherwise have been able to be provided. [76] The Court is more ready to order security where a non-party with no interest in the vindication of the particular rights agitated in the proceedings, such as the Funder, stands to benefit from the proceedings: Green (as liquidator of Arimco Mining Pty Ltd) v CGU Insurance Ltd [2008] NSWCA 148 at [51] (Hodgson JA). [77] The Court should also be more ready to order security where a party without the means to meet an adverse cost order brings proceedings supported by a litigation funder, but where the Funder for some reason not associated with the manner in which the defendants having conducted of the proceedings, withdraws that support. Or, where the funding agreement is, for some reason, again not associated with the manner in which the defendants have conducted the proceedings, brought to an end. [78] That is the position here. As I have explained, the dispute between Mr Levitt and the Funder evidently relates to what Mr Levitt described in his 28 June 2023 letter as the "budget for this matter". [79] Now that the proceedings, at least for the moment, are unfunded, it appears to me that it would be most unjust to allow the proceedings to continue without giving the defendants the protection of appropriate security. 1. The Flip Out proceedings also involved Galactic as the litigation funder and Levitt Robinson as the solicitors acting for the lead plaintiffs. Submissions of Fogo Brazilia and Mr Dresner 1. The submissions of Fogo Brazilia and Mr Dresner can be summarised as follows: 1. Laith & Fadi is an impecunious corporation. It must establish that an order for security would stultify proceedings and must establish that those who stand behind it and who will benefit from the litigation if it is successful are also without means, citing Pioneer Park amongst other authorities. 2. Mr Hana is an individual who is a lead plaintiff in representative proceedings such that the general rule that security is not to be ordered against an individual in bilateral litigation is inapt and displaced, citing De Jong at [26], Abbott at [14] and Its Eco at [3]. The fact that an impecunious individual brings a representative proceeding on behalf of a number of represented persons can be a significant factor in favour of security, citing De Jong at [26], Abbott at [14] and Its Eco at [3]. 3. The proceedings were commenced and prosecuted by the lead plaintiffs with the support of a litigation funder, Galactic, pursuant to the Funding Agreement. Previous security was paid into court when the proceedings were funded. Galactic terminated the Funding Agreement citing a series of material breaches of it by the lead plaintiffs as reasons for the termination. This is a strong factor in favour of security, otherwise the lead plaintiffs would benefit from their breaches of the Funding Agreement and the defendants would suffer the consequences of being denied security for their costs. 4. Before the termination of the Funding Agreement, the lead plaintiffs accepted that further security up to the close of trial was payable but disputed the quantum. Following termination of the Funding Agreement, the lead plaintiffs continue to accept that the threshold question for the making of security has been met, there being reasons to believe they will be unable to meet an adverse costs order. This is a strong factor in favour of ordering security, citing Flip Out at [7]. 5. In circumstances where the lead plaintiffs were only able to commence and prosecute the proceedings because they had external funding, it is a strong factor in favour of security that the funder withdrew its support or terminated the Funding Agreement for a reason not associated with the manner in which the defendants have conducted the proceedings and it would be unjust for the proceedings to continue without the defendants having the protection of appropriate security, citing Flip Out at [77] and [79]. Flip Out concerned the same law firm, the same funder and the same circumstances in which the Funding Agreement was terminated for reasons not attributable to the defendants' conduct. Flip Out is also very similar to the present case because in that case the funding of the proceedings by an external funder was not made clear to the defendant until late in the proceedings (at [71]). In the present case the funding of the proceedings was only made known when the Funding Agreement was produced on subpoena. 6. Galactic stands to benefit from the successful prosecution of these proceedings because it is likely to be entitled to recover amounts it has advanced for costs, disbursements and security by operation of cll 1.1, 6.1 and 6.2 of the Funding Agreement and it appears that Galactic is also seeking to claim its commission, citing Flip Out at [58]. It is a strong factor in favour of security that third party with no interest in the vindication of the particular rights agitated the proceedings, such as Galactic, stands to benefit from the proceedings, citing Flip Out at [76]. 7. The proceedings will be stultified even if no security for costs is ordered. The lead plaintiffs cannot afford to meet their own obligations. There is no credible evidence that Levitt Robinson is acting on a speculative or conditional basis but, even if they are, that speculative basis is subject to disbursements being paid as and when they fall due. There is no evidence as to how the group members that Levitt Robinson does not act for will fund the proceedings. The Conditional Costs Agreement provides that the lead plaintiffs will be charged for all "out-of-pocket expenses", which are estimated to be approximately $300,000. There is no evidence as to how this $300,000 will be paid. Even though Mr Levitt has been paying counsel's fees personally since the termination of the Funding Agreement, he has not committed to paying those fees into the future and nor has he committed to pay all other disbursements. 8. Although the lead plaintiffs have sought to obtain ATE insurance, the lead plaintiffs do not have the means to pay the non-refundable premium for it. 9. The lead plaintiffs are not only running these representative proceedings for themselves but also for the Group Members. Evidence in relation to 7 of the 17 franchises has been filed, which would not have been filed unless the proceedings extended beyond the lead plaintiffs. The lead plaintiffs are seeking to advance these proceedings which, if successful, will benefit the Group Members whose assets are not presently exposed to an adverse costs orders and in circumstances where the Group Members are immune from a costs order by operation of s 181 of the CPA, a significant factor in favour of ordering security, citing Its Echo at [37]–[39]. 10. The lead plaintiffs have failed to discharge their onus by establishing that the persons standing behind them and who will benefit if the litigation is successful are unable to provide security, citing Flip Out at [59]. The focus is on the inability and not mere unwillingness to provide security, citing LRSM at [36]. The position of each of those persons is as follows: 1. Galactic: The litigation funder will stand to benefit from the successful prosecution of these proceedings because it is likely entitled to recover amounts it has advanced for costs, disbursements and previous security. 2. Levitt Robinson: The law firm will receive payment of their past fees and future fees, estimated to exceed an amount of $1 million and there is no evidence Levitt Robinson is prepared to fund the proceedings generally. 3. Mr Hana: Mr Hana has not given an undertaking to pay the defendants' costs in the event that these proceedings are unsuccessful. There is a lack of evidence of Mr Hana's financial position in support of a contention that it is not possible to reasonably conclude that Mr Hana is unable to provide security, as opposed to unwilling. There is no direct evidence of Mr Hana's financial position, just hearsay evidence with vague assertions and conclusions. There is an absence of evidence concerning Mr Hana's income in the years prior to and following 2023 and bank accounts, except the estimated $40,000 in savings. Mr Hana has not met the standard of candour that is required of him, because Mr Hana has not given any direct evidence on his own financial position and several of his property acquisitions were left out of the evidence of Mr Hana's financial position. The evidence of the lead plaintiffs is also unreliable because it provides an incomplete account of Mr Hana's financial position and fails to disclose that Mr Hana sold three residential properties, the sale proceeds of which amount to more than $4.5 million. There is no evidence that Mr Hana has tried to secure a loan, either personally or in the name of one of his many corporate vehicles, to pay security for the defendants' costs. The financial position of Mr Hana is unclear, including because the financial positions of the corporate vehicles in which he has an interest are unclear. Particular considerations in this regard are: 1. there is no evidence from any accountant or other expert valuer as to the value of House of Finance Group or House of Finance Aus; 2. there is no evidence of the taxable income in any financial year of any of House of Finance Group, House of Finance Aus or the other seven SPVs with which Mr Hana is associated; 3. Mr Hana could provide cash in the total amount of $205,000 (being $125,000 of net proceeds from the sale of the second Wurmbea Way property, $40,000 of his savings and $50,000 from House of Finance Aus) and he has $150,000 in equity, yet there is no evidence explaining why this $355,000 could not be used to pay security by either securing a loan, or paying the ATE insurance premium; 4. House of Finance Group, of which Mr Hana is 50% shareholder and co-director, earned $2.6 million in revenue in the financial year ended 2023; 5. House of Finance Aus, of which Mr Hana is sole shareholder and director makes approximately $1 million per annum and has a significant cash surplus which is loaned out to the various property development vehicles in which Mr Hana has an interest; 6. House of Finance Aus has a monthly surplus of cash of $25,083 to $30,583, which is loaned to Mr Hana and invested in the various SPVs, but it is unclear whether the entirety of this amount is absorbed by the loan or there is a remaining cash surplus. There is no evidence as to whether any of those loans have been repaid; and 7. Mr Hana has so far borrowed $2.2 million from House of Finance Aus to contribute to the SPVs and there is no evidence of the return Mr Hana is likely to make from any of the seven property development projects. 1. Mr Youssef: The absence of evidence in relation to Mr Youssef's financial position weighs heavily in favour of the making of an order for security because he is a person standing behind Laith & Fadi who stands to benefit from the litigation (citing Jazabas at [91]). The two attempts by Levitt Robinson to contact Mr Youssef were insufficient and further attempts could have been made by approaching him at his home or place of business. Mr Youssef has not given an undertaking to pay the defendants' costs in the event that these proceedings are unsuccessful. The court cannot be satisfied that Mr Youssef is unable to pay a contribution to the security. 2. Group Members: In circumstances where stultification is claimed in proceedings involving a closed group that is relatively modest, evidence explaining the financial position of each Group Member is required. Such evidence has not been provided for half of the Group Members, and their refusal or failure to respond demonstrates their unwillingness, rather than inability, to provide security. Only two Group Members (Mrs Jammula and Mr Akavaram) have made offers to contribute a minimal amount of $1,000 as security. The remaining Group Members have expressed a blanket unwillingness to contribute any amounts to security. There has been a refusal of many Group Members to speak to Levitt Robinson. Many Group Members hold equity in real estate totalling about $663,000 and hold cash or own assets totalling $308,000, which totals $971,000 in assets. Some Group Members operate companies which appear to generate revenue. 1. The lead plaintiffs have a very weak case against Fogo Brazilia and Mr Dresner, as evidenced by the following matters canvassed in the pleadings and arising from the lead plaintiffs' evidence: 1. the absence of evidence in relation to 10 out of the 17 franchises in the opt out notice; 2. the claims against Fogo Brazilia and Mr Dresner are statute barred; 3. each franchisee's warranty that they received independent legal and financial advice prior to entering into the agreements, or election not to do so; 4. the pre-contractual representations were different to different franchisees, directors and guarantors and were made on reasonable grounds; 5. the presence of entire agreement and pre-contractual negotiation clauses negating the existence of any pre-contractual representations; 6. the franchise agreements and disclosure documents did not breach the CCA and even if they did (which is denied), any such contravention did not cause any loss to the lead plaintiffs or the Group Members; 7. the lead plaintiffs have pleaded allegations against the franchisor who is not a party to these proceedings; 8. the existence of inter-company arrangements between Fogo Brazilia and the franchisor permitting the provision of access or knowledge in relation to operational systems and processes; 9. the franchisor was not insolvent, including because of Fogo Brazilia's efforts in ensuring that the franchisor remained solvent; 10. the irreconcilable allegations in the pleadings where the lead plaintiffs allege that Fogo Brazilia did not issue the invoices, but is said to have made representations by issuing those same invoices (being the only contravening conduct pleaded against Fogo Brazilia); 11. the pleading of accessorial liability against Fogo Brazilia and Mr Hana is hopeless in its current form because it fails to address the relevant principles on which such a case can be made; and 12. contributory negligence by the lead plaintiffs and Group Members in poorly operating and managing their franchises. 1. At this stage the outcome of the proceedings is impossible to predict, even in a broad way (citing Flip Out at [22]). Only the lead plaintiffs have filed evidence and it is not possible to form a meaningful view on the strength or weakness of their claims. 2. The lead plaintiffs have failed to adduce evidence to establish that Fogo Brazilia and Mr Dresner have caused the impecuniosity of the Group Members. 3. Security would be ordered against Laith & Fadi if it ran a separate claim, although security might not be ordered against Mr Hana if he brought a separate claim. Submissions of Mr Seskin 1. Mr Seskin adopted the submissions made by Fogo Brazilia and Mr Dresner. In summary, Mr Seskin also made the following submissions: 1. The lead plaintiffs have merely asserted that their impecuniosity was caused by the conduct of the defendants but have failed to prove with appropriate evidence any causal connection between their impecuniosity and the alleged wrongdoing of the defendants, including by failing to provide any evidence of their financial position before the alleged wrongdoing, citing Broadway Plaza at [196] and Ingot Capital at [96]. 2. The lead plaintiffs' submission that an order for security would stultify the proceedings must be rejected because they have failed to prove that those who stand behind them and who would benefit from the litigation if it is successful are also without means as opposed to merely unwilling to provide security, citing Bell Wholesale at 4 and LRSM at [36]. The Group Members stand behind the lead plaintiffs and would benefit from the litigation, and the lead plaintiffs have failed to prove that the Group Members are without means, with many of the Group Members not having provided any information about their financial position. The evidence indicates that attempts to obtain financial information from the Group Members were made in May and June 2024 and then no further attempts were made until September 2024. 3. The proceedings will be stifled in any event as there is no evidence as to how the lead plaintiffs will fund their own legal fees and disbursements, given that at the very least $300,000 is required to be paid upfront by way of disbursements. 4. The ultimate question to be determined is whether it is fair that the person being sued by the company should be in a position of having to incur substantial costs and yet have no real chance of recovering costs even if the action is successful and being at risk of the company's costs, when the persons who would benefit from the proceedings face no risk of liability for costs themselves and are either unwilling or unable to provide security, citing Dae Boong at [27], applied in Madgwick at [82]. 5. The court should be more ready to order security where a party without the means to meet an adverse costs order brings proceedings supported by a litigation funder but where the funding agreement is, for some reason not associated with the manner in which the defendants have conducted the proceedings, brought to an end, citing Flip Out at [77]. It would be most unjust to allow the proceedings to continue without giving the defendants the protection of appropriate security, citing Flip Out at [79]. 6. The lead plaintiffs have not discharged their onus of demonstrating that ATE insurance is unavailable, as they do not provide any evidence of the draft or executed applications given to the brokers for ATE insurance nor Mr Walker's qualifications, and little weight should be given to their evidence on this issue. 7. The costs to the defendants of defending the proceedings are significant as these proceedings are factually and legally complex. This is a factor favouring an order for security, referring to Porter v Gordian Runoff Limited [2004] NSWCA 171, Bryson JA (Sheller and Giles JJA agreeing) at [13]. 8. A conditional costs agreement must be signed by the client (s 181(3)(a) of the Legal Profession Uniform Law 2014 (NSW) (LPUL)), and unlike an ordinary costs agreement, it cannot be accepted by other conduct (s 180(3) of the LPUL). The Conditional Costs Agreement has not been signed by the lead plaintiffs or any of the other Group Members. Submissions of Lazarus Legal 1. In summary, Lazarus Legal made the following submissions: 1. The lead plaintiffs paid an initial tranche of $20,000 for security up to the close of pleadings. Lazarus Legal's acceptance of this initial tranche was premised on the understanding that further security would be paid at a later date. In the discussions between the lead plaintiffs and Lazarus Legal on security since October 2022, it was not in dispute that an amount of security would be provided, and the sole issue was one of quantum. 2. After the termination of the Funding Agreement on 22 April 2024, the lead plaintiffs abruptly changed their position, now arguing that the proceedings would be stultified by reason of an inability to pay security. Had these proceedings not been funded or had there been an indication from the lead plaintiffs that the provision of any further security would be in dispute, Lazarus Legal would have adopted a more robust approach to security and may not have accepted the lead plaintiffs' offer to pay an initial tranche prior to determining the issue of security for the entire proceedings. 3. In circumstances where the Funding Agreement has come to an end for reasons unrelated to the defendants' conduct of the proceedings, it would be unfair for the proceedings, which could not have been commenced and continued to date without funding, to continue without the provision of security for the defendants' costs, citing Flip Out at [69]–[79]. This is especially so in circumstances where Laith & Fadi and many corporate Group Members are special purpose vehicles incorporated for the sole purpose of running the franchise businesses which are now at an end. 4. A court is not justified in declining to order security on the ground that to do so will frustrate the litigation unless a company establishes that those standing behind it and who will benefit from the litigation if successful are also without means, citing Carrano Investment at [12]–[13]. This onus is not satisfied by providing a limited account in an affidavit; the precise financial circumstances of the litigant and of those behind it need to be set out, citing Live Board Holdings at [90]. The focus is on inability not mere unwillingness to provide security, citing LRSM at [36]. There is insufficient evidence for the court to conclude that the plaintiffs and those who stand to benefit from the litigation (Mr Hana, Mr Youssef and the Group Members) are incapable of at least funding the ATE insurance premium of $270,000. 5. Mr Hana has a significant interest in a number of corporate entities, including a finance brokerage business (House of Finance Group) and there is no evidence of the asset position of the corporate group, nor have any financial statements been provided for any of the companies in which Mr Hana has an interest. The court should not accept that Mr Hana is impecunious, having sold multiple properties in his own name in May 2021, March 2024 and June 2024, which were not disclosed in the lead plaintiffs' evidence and there is no evidence as to the proceeds of those sales. While Mr Hana's notice of assessment for the 2023 financial year is in evidence, tax documents relating to previous financial years are not. Although Mr Hana has an undisclosed interest in seven other SPVs which each conduct a property development business, there is no evidence as to his ability to offer his interests in those businesses as security for the purposes of obtaining ATE insurance or otherwise providing security. The defendants should not be required to piece together what they can about Mr Hana's assets in the absence of complete and candid disclosure of his financial position. 6. There is no evidence as to Mr Youssef's financial position. Yet the lead plaintiffs' pleaded case relies upon evidence from Mr Youssef and an affidavit has been made by Mr Youssef setting out his evidence of reliance which has been served by the lead plaintiffs. This is a misrepresentation case based on pre-contractual statements and statements made in the franchise agreement and disclosure documents to franchisees. At [390] of the commercial list statement, it states that both Mr Hana and Mr Youssef executed the franchise agreement, and at [415]–[416] of the commercial list statement it is pleaded that Mr Hana and Mr Youssef relied upon representations made by the defendants. 7. The financial positions of the Group Members are relevant where the lead plaintiff is impecunious and it is asserted that an order for security will stifle the proceedings, citing De Jong at [26]. There is no documentary support for the financial position of the other Group Members or any evidence about what questions they were asked, including whether sufficient funds can be raised to cover the ATE insurance premium of $270,000. The evidence provided is largely conclusory and does not meet the standard required. The evidence of the inquiries made of the Group Members is lacking. Many Group Members did not respond to inquiries. In circumstances where the Group Members are a closed class, and the Group Members are known to those who represent the lead plaintiffs, that level of evidence is insufficient to meet the onus on the lead plaintiffs. At the stage where opt out notices have been issued and the evidence has closed, with a number of the Group Members having put on affidavits which are relied upon by the lead plaintiffs in these proceedings, it would be expected, at least in respect of those Group Members, to see a more fulsome account of their financial position. Taking an approach similar to that in Abbott at [42]–[43], as there is no evidence as to the nature of the questions that were put to Group Members, the evidence of their responses should not be taken into account. 8. The failure of Mr Hana and Mr Youssef to offer an undertaking to meet any costs liability personally is a significant matter in favour of ordering security, citing Carrano Investment at [21]. 9. The lead plaintiffs carry the onus of establishing both the adequacy of their financial position before their dealings with the defendants and that the defendants' actions have caused or at least materially contributed to the lead plaintiffs' inability to meet an order for security for costs, citing Jazabas at [94]–[95]. Mr Hana's four properties were purchased and sold after the franchise business had ceased trading in February 2018. In those circumstances and in the absence of adequate financial disclosure, it cannot be seriously suggested that Mr Hana's impecuniosity was caused by the defendants' conduct. The evidence as to the other Group Members is also insufficient to discharge their onus on this issue. 10. Although the court will not embark on a detailed examination of the merits of the claim, the prospects of the claim remain relevant to the determination of the application, citing Live Board Holdings at [102]. The position of Lazarus Legal differs to the other defendants because the substantive claim against the other defendants involves allegations of misrepresentations about the nature of the franchise system that the franchisor had in place, the nature of marketing activities carried out by the franchisor, the solvency of the franchisor and, most significantly, the predicted revenue and establishment costs for the franchise businesses. None of those claims involve Lazarus Legal. The claim against Lazarus Legal is narrow and in the proposed amended commercial list statement has become even more narrow: now only knowing involvement as the franchisor's legal representative in several pre-contractual misrepresentations, including as to current or future management. This is a "no transaction" loss and damage case which is the same for all of the alleged misrepresentations, not just those in which Lazarus Legal is alleged to have been knowingly involved, to the effect that if the lead plaintiffs had not relied on the alleged misrepresentations they would not have entered into the franchise agreement and incurred certain costs. There is a real question whether the misrepresentations in which Lazarus Legal is alleged to have been knowingly involved will sound in any damages. There is a reasonable prospect of a court finding that they are technical misrepresentations only that did not result in any loss. 11. Given the paucity of evidence that is before the court and the lack of disclosure of the financial position of each of Mr Hana and Mr Youssef, the court is not even in any practical position to fix upon some amount of security less than the full quantum sought by the defendants that would be fair in all of the circumstances in this case. Submissions of the lead plaintiffs 1. In summary, the lead plaintiffs submit that an order for security should not be made for the following reasons: 1. Applying De Jong at [6] and Endeavour Energy at [54], [57] and [58], the relevant matters are not just whether the lead plaintiffs are impecunious but whether that impecuniosity was caused by conduct which is the foundation for the action; the promptness of the application, including the stage of the proceedings at which the application was made; whether the plaintiff had been deliberately selected as a "man of straw" so as to preclude the defendants recovering costs if ultimately successful; the characteristics of the Group Members, including whether security would have been ordered if the action was a separate stand-alone proceeding; and the strength of the lead plaintiffs' case. 2. The impecuniosity of Laith & Fadi was caused by the conduct which is the foundation of the action. While Mr Hana is ordinarily resident in the jurisdiction, has assets, is of modest income which he uses to support his family and has a real risk to adverse costs orders, he is also unable to pay the defendants' costs if so ordered. 3. The application has been filed after the plaintiffs filed and served their evidence in chief. 4. There is no question that this is a prima facie regular case, with reasonable to good prospects of success which weigh in favour of denying the order for security. While the nature of the claims are wide ranging, the gist of the Group Members' complaint is that they were told the franchise would be profitable but the franchise business did not have the trading history, the research, or the systems and processes necessary to justify those financial predictions. The claims are for misleading or deceptive conduct and unconscionable conduct in relation to marketing this franchise through the franchisor, which is now in liquidation, in circumstances where the franchisor was undercapitalised and underinvested. There were inadequate investments in developing systems and processes necessary for the franchise to deliver value to each franchisee and the franchisor. Particular matters in the commercial list statement and the commercial list responses which demonstrate that the claim is regular are as follows: 1. It is common ground that Mr Dresner gave an introduction to the franchise system to each prospective franchisee, told them about the estimated likely costs of establishing a new franchised store and acquiring the existing franchise, and told them about the estimated likely annual revenue that the franchise might make as compared to current stores in similar locations if the franchise was operated correctly (Fogo Brazilia and Mr Dresner commercial list response at [58]–[61]). 2. It is common ground that the franchise agreements did imply that the franchisor would have some systems for having suppliers that would meet the standards for quality, reliability and product control as determined by the franchisor from time to time and would provide the supplied items at general commercial rates or better (Fogo Brazilia and Mr Dresner commercial list response at [85] and [87]). 3. It is alleged that the franchisor, Fogo Brazilia, Mr Dresner and Mr Seskin did not perform any financial modelling or demographic modelling in respect of any of the store locations for the franchise store proposed to be granted to the prospective franchisee prior to the time that Mr Dresner gave revenue projection information to that prospective franchisee (commercial list statement at [162] and [164]). Fogo Brasilia and Mr Dresner deny that they did not perform any financial modelling while admitting that no formal demographic modelling was performed by them, and say that Mr Dresner had awareness of relevant demographics based on his experience (Fogo Brazilia and Mr Dresner commercial list response at [162] and [164]). 4. It is alleged that the franchisor, Fogo Brazilia, Mr Dresner and Mr Seskin did not perform any business demand modelling in respect of any of the store locations for the franchise store proposed to be granted to the prospective franchisee prior to the time that Mr Dresner gave revenue projection information to that prospective franchisee (commercial list statement at [166]), which is admitted by Fogo Brasilia and Mr Dresner, although it is said that Mr Dresner responded to each query by an individual prospective franchisee including with respect to business demand by providing the information requested (Fogo Brazilia and Mr Dresner commercial list response at [166]). 5. It is alleged that there were no reasonable grounds for the franchisor or Mr Dresner making the cost of goods sold representations (commercial list statement at [205]), which is denied (Fogo Brazilia and Mr Dresner commercial list response at [205]). 6. It is alleged that the franchisor had not developed or maintained a confidential operations manual (commercial list statement at [211]), but Fogo Brazilia and Mr Dresner say that they have requested a copy of the confidential operations manual and the lead plaintiffs have not provided it, which is a curious response (Fogo Brazilia and Mr Dresner commercial list response at [211]). 7. It is alleged that the franchisor represented to a prospective franchisee that its marketing fund was audited each financial year (defined as the Fund Audit Representation), which was made in trade or commerce within the meaning of the ACL and the franchisor did not have its marketing fund audited each financial year, which is misleading or deceptive or likely to mislead or deceive (commercial list statement at [293]–[296]). There is an admission that the representation was made by Fogo Brasilia and Mr Dresner and an admission that there was no audit of the marketing fund, but a denial that this was misleading or deceptive or likely to mislead or deceive (Fogo Brazilia and Mr Dresner commercial list response at [293]–[296]). 8. It is alleged that the franchisor did not maintain a separate bank account with a financial institution for payments to the marketing fund by franchisees (commercial list statement at [316]). Fogo Brasilia and Mr Dresner have responded by saying the marketing contribution was paid into a consolidated account maintained by Fogo Brazilia for the franchisor and that the marketing contributions were identified in that consolidated account, admitting they were not maintained in a separate bank account (Fogo Brazilia and Mr Dresner commercial list response at [316]). 9. It is alleged that each of Mr Seskin and Lazarus Legal were involved in the misleading or deceptive conduct and unconscionable conduct by Fogo Brazilia (commercial list statement at [532]–[551]). 1. The statements made in Its Eco by Derrington J at [3], [38] and [39] are matters of policy rather than matters of principle. The court should be guided by what was said in Capic v Ford Motor Company (No 2) [2016] FCA 1178 by Perram J at [14]–[19], approved in Abbott at [17], about assessing the onus of proving stultification in representative proceedings, which can be captured in the following three propositions: 1. There is a recognised difficulty of obtaining financial information from group members in representative proceedings. 2. There is a perceived injustice or difficulty that arises if some group members cannot afford or are reasonably unwilling to contribute to a fund from which security can be paid, meaning that there is an unequal sharing of a financial burden by some group members and not others. 3. It is still relevant to ask whether or not group members are opportunistically sheltering behind an impecunious plaintiff, in effect a nominal plaintiff. 1. Mr Hana is not a nominal plaintiff or man of straw. Like all of the Group Members, he is an aspirational business owner who has lost a substantial proportion of his wealth. 2. The Funding Agreement has only recently been terminated and there is no question that the plaintiffs have not been selected as persons of straw. 3. There are no other Group Members who could act as the plaintiff and who hold sufficient assets to meet any costs order that may be made at the conclusion of the proceedings if the claim is unsuccessful. Those who have either expressly or impliedly refused to contribute any amount to security have done so because they are financially unable and reasonably unwilling to contribute. 4. The lead plaintiffs do not have the benefit of a litigation funder and the defendants do not submit that the lead plaintiffs failed to discharge their onus with respect to obtaining funding from an external third party litigation funder. The true characterisation of the breaches which gave rise to the termination of the Funding Agreement are that they arose out of the lead plaintiffs' attempts to comply with s 56 of the CPA by making an open offer to give the minimum amount payable even on the lead plaintiffs' own evidence. The lead plaintiffs are not trying to take advantage of their own wrongdoing; to the contrary, they have acted fairly in this litigation in accordance with their statutory obligations. It is accepted that the Funding Agreement was not terminated by reason of anything that the defendants have done. 5. In response to the defendants' submission that Galactic may still have an entitlement to recover a funding commission in the event of a successful outcome or a settlement of these proceedings, the correspondence between Mr Purcell and Mr Rappaport contains no admission that Galactic has an entitlement to a commission after termination of the Funding Agreement, and that question turns on the construction of the Funding Agreement. What others think of that interpretation is not relevant. Ordinarily the effect of the termination of an agreement would be that an obligation of future performance is discharged. In those circumstances, the better view is that the lead plaintiffs do not have an obligation to pay future sums of money to Galactic after termination of the Funding Agreement. Further, it is reasonably open to find that Galactic is not going to put money into the security for costs, and that was one of the reasons why Galactic terminated the Funding Agreement. 6. Levitt Robinson are acting for the lead plaintiffs on a speculative basis without funding and no uplift is sought. If it is found that the Conditional Costs Agreement was not entered into by the lead plaintiffs and Levitt Robinson, Mr Levitt has given a unilateral undertaking to charge on a speculative basis. It is accepted that Levitt Robinson could assert a solicitor's lien over the fruits of the litigation, so in that sense they are not an ordinary creditor, but there is no expectation that Levitt Robinson would have the commercial incentive to fund these proceedings merely because they may be a secured creditor of the fruits of the litigation. 7. In relation to the defendants' submission that these proceedings would be stultified in any event because there is an obligation in the Conditional Costs Agreement on the part of the lead plaintiffs to pay $300,000 to Levitt Robinson for disbursements, there is flexibility as to the timing of that payment by the lead plaintiffs and it should not be read as an obligation to pay the full amount of the disbursements. In any event, there is evidence that Mr Hana does have some money, so there is one source of funds to pay the disbursements. 8. The lead plaintiffs' case will determine common issues and each other Group Member will need to prove reliance and loss including quantum. The extent to which the lead plaintiffs are suing for other people's benefit is limited to a procedural advantage of determining common questions, but no other person obtains a direct or indirect pecuniary gain. 9. The nature of the Group Members and their claims must be considered in assessing the basis on which they might be asked to contribute to an order for security for costs, with such difficulties providing a reason not to order security where there is not a principled approach for the determination of a security for costs application when such an order would not ordinarily be made in individual proceedings, applying Endeavour Energy at [89]–[96]. Many corporate group members were incorporated for the sole purpose of the franchise, became impecunious because of the conduct which is the foundation of the action and are not rich. The Group Members are otherwise individuals running small businesses. They are not institutional investors or people of wealth. Further, those Group Members who have been uncontactable are unlikely to respond to any call to contribute to security, and therefore the assets of those Group Members will not be available to the lead plaintiffs to marshal a fund for the payment of security. 10. If these proceedings were not a class action, Mr Hana would not be required to pay security because he is a natural person and Laith & Fadi as the corporate co-plaintiff would not be required to pay security, citing the decisions of Brereton J in Di Francesco v Pioneer Energy Pty Limited (No 2) [2014] NSWSC 1923 at [27] and Derrington J in General Trade Industries Pty Ltd (in liquidation) v AGL Energy Limited (No 2) [2023] FCA 556 at [37] respectively. If each group member had commenced proceedings individually they would not be required to pay security, because each franchisee is made up of a set of corporate franchisees and a natural person as a guarantor. Applying the reasoning in Abbott at [34], all of the Group Members are suing for their own benefit, the defendants could not realistically expect to obtain an order for security in an individual case brought by such plaintiffs and it would be intuitively odd that the lead plaintiffs should somehow be in a worse position with regard to security because they have taken the step of adopting a procedure which makes prosecution of the claims feasible and should cause them to be advanced in a way which best promotes the overarching purpose, being the just resolution of the disputes according to law and as quickly, inexpensively and efficiently as possible. Further, applying Abbott at [35], there is no expectation that group members would be the ones funding a representative action. 11. Mr Hana has already exposed his assets to an adverse costs order by personally being a party to the proceedings. 12. It would be contrary to Part 10 of the CPA if an order for security were made. Mr Hana and the Group Members would effectively be denied access to justice for themselves by virtue of having brought representative proceedings, merely because the common questions would be determined for the benefit of the Group Members, rather than in individual proceedings where they would not be required to pay security. 13. The lead plaintiffs and the Group Members are unable to provide the security sought by the defendants and any such order for security will stultify these proceedings. The lead plaintiffs accept that they have failed to provide evidence of the financial positions of each Group Member prior to their current position, but the court can consider the current wealth of each Group Member to make a finding that the claim provides a meaningful recovery for them. 14. There are no other Group Members who could act as the lead plaintiff and who hold sufficient assets to meet any costs order, and the express or implied refusal of any Group Members to contribute any amount for security is on the basis they are financially unable and reasonably unwilling to contribute. The fact that some Group Members cannot be contacted means that there is reason to believe that the lead plaintiffs cannot provide any funding for an order for security for costs. 15. The decision in Flip Out is distinguishable because it is clear from [71] that Stevenson J found that there was a concealment of the funding of the proceedings from the defendant, which is not the case in these proceedings. Further, the consideration at [77] of Flip Out (that the court should also be more ready to order security where a party without the means to meet an adverse cost order brings proceedings supported by a litigation funder who withdraws for a reason not associated with the defendant's conduct) is not a rule but simply a matter to weigh in the balance. This is especially so in circumstances where the consideration in [82] of Flip Out (that stultification will provide an incentive to locate an alternative funder) does not apply in this case. Consideration 1. For the reasons expressed below, in each of the applications before me, I am of the view that on balance the exercise of my discretion requires me to make an order that the lead plaintiffs provide security for the costs of the defendants, payable in instalments at particular stages of the proceedings as they progress. All of the applications made by the defendants can be dealt with together as there are no factors which are relevant to a single application that have any particular overriding weight that would require it to be dealt with separately. 2. As outlined in Abbott at [15], I am reminded that in determining whether to make an order for security of the defendants' costs, I am exercising a broad discretion judicially and must have regard to the particular facts of this case. Whilst I have drawn out the principles from various authorities, I have applied them to the unique combination of circumstances that exist in these applications. 3. In the present case, the power to order security is enlivened on multiple bases: in particular, by the operation of r 42.21(1)(d) and (e) of the UCPR because Laith & Fadi is an admittedly impecunious corporation and the lead plaintiffs are suing not only for their own benefit, but also for the benefit of the other Group Members and those who stand behind them. 4. The fact that these are representative proceedings brought under Part 10 of the CPA draws into view further considerations which are not present when an application is made in the more regular circumstance of a plaintiff suing for their own benefit alone. There are policy considerations which loom large in representative proceedings such as the present case, where the representative parties are impecunious and raise the issue of stultification, so that particular factors become more relevant in the balancing of the justice of the circumstances between the lead plaintiffs and the defendants, as recognised in De Jong at [6], [24]–[27] and [50]–[52], Bray at [141]–[142], Endeavour Energy at [54]–[59] and Its Eco at [3] and [38]–[39]. 5. On the question of impecuniosity (r 42.21(1A)(c) of the UCPR), it is not in dispute that Laith & Fadi is impecunious, with no assets of any sort to meet an adverse costs order should it be made against the lead plaintiffs in these proceedings. Although the evidence of the financial position of Mr Hana is problematic (about which I say more below), it would appear that he is also impecunious in the relevant sense that the evidence does not reveal that he could meet an adverse costs order in favour of all of the defendants. Applying De Jong at [26], Abbott at [14] and Its Eco at [3], the relevant impecuniosity of both Laith & Fadi and Mr Hana is a significant factor in favour of awarding security to the defendants on their applications. 6. The lead plaintiffs argue that because Mr Hana is suing in his own capacity and by being a party to the proceedings has already exposed his assets to an adverse costs order, I should treat him in the same way as I would an impecunious plaintiff suing in non-representative proceedings where the longstanding general rule is that security for costs would not be ordered, as recognised in De Jong at [24]. I reject that submission because Mr Hana is not suing in his own capacity alone but is suing for the benefit of others in proceedings which involve more than just his interests. As stated in De Jong at [24], there is an exception to the general rule where the impecunious plaintiff is suing for the benefit of others. Further, these proceedings are already more complex, more factually involved and therefore more costly than would be proceedings in which Mr Hana might be suing in his own interests alone, in keeping with the usual experience of costs increasing in representative proceedings as observed in Its Eco at [3]. The fact that the lead plaintiffs' evidence extends to affidavits provided by other Group Members and deals with the franchises beyond those in which Laith & Fadi and Mr Hana had an interest amply demonstrates that fact. I simply cannot ignore the important consideration that Mr Hana is suing for the benefit of others, the costs which will be incurred in the proceedings by the defendants will significantly increase and the Group Members will be immune from costs orders being made against them by reason of the operation of s 181 of the CPA, which will result in potential injustice to the defendants. 7. It was submitted by the lead plaintiffs that their impecuniosity was caused by the conduct of the defendants (r 42.21(1A)(d) of the UCPR). But that submission fails at the outset because, applying the matters stated in Broadway Plaza at [196], the lead plaintiffs did not provide any evidence of a causal connection between the impecuniosity and the defendants' conduct to substantiate that claim. In particular, the lead plaintiffs did not provide any evidence of their respective financial positions prior to the alleged wrongdoing of the defendants, a matter of particular relevance to the causal connection that the lead plaintiffs were required to establish to make good their submission, as referred to in Ingot Capital at [96]. 8. The applications for security were brought in a timely fashion by the defendants (r 42.21(1A)(l) of the UCPR) at a point in time when previous security had already been provided by the lead plaintiffs on a consensual basis, in light of the fact that Galactic was funding the proceedings pursuant to the Funding Agreement. Initially, the applications were only contested by the lead plaintiffs on the basis of the quantum of security sought in each application. But once the Funding Agreement was terminated on 22 April 2024, the contest over the applications for security widened considerably to encompass the much broader considerations with which I am dealing in this judgment. 9. The issue of the termination of the Funding Agreement is also relevant to my discretion in the present case. Like the circumstances in Flip Out, the lead plaintiffs had funding for these proceedings until Galactic terminated the Funding Agreement. To that point, the defendants had received security for costs in their favour by consent of the lead plaintiffs and therefore were not at risk of not being able to recover costs if they successfully defended the proceedings. The termination of the Funding Agreement by Galactic was entirely unrelated to any conduct of the defendants and expressed by Galactic to be based on material breaches by the lead plaintiffs, although I make no finding that that was in fact the case. The termination of the Funding Agreement now puts the defendants at risk of not receiving their costs if further security is not ordered. Such an outcome would be unjust to the defendants. The absence of funding for the lead plaintiffs strongly favours the awarding of security in the defendants' favour, applying the considerations set out in Flip Out at [7], [77] and [79]. 10. All of the parties raised the issue of the prospects of success or the merits of the proceedings and their genuineness (r 42.21(1A)(a) and (b) of the UCPR) as operating in their favour in the exercise of discretion. I have considered all of the matters raised by each of the parties on their respective prospects and have concluded that none of them operates to tip the balance in one direction or the other, in relation to the discretion whether to order security, but are neutral. It is not necessary for me to embark on a detailed examination of those prospects but they are relevant, as emphasised in Live Board Holdings at [102]. I consider the claims which are made are regular on their face. There are undoubtedly pleading issues with the expression of the lead plaintiffs' claims of knowing involvement against Mr Dresner, Mr Seskin and Lazarus Legal in the commercial list statement (and the proposed amended commercial list statement), but I consider that they are not ones which are incapable of cure. The best that can be said at this stage is that the lead plaintiffs appear to have a reasonably arguable case against the defendants, but that the outcome of the proceedings is impossible to predict, even in the broadest way. 11. I now turn to the substantive issue raised by the lead plaintiffs that their claims are likely to be stultified if I make an order for security for costs in favour of the defendants (r 42.21(1A)(f) of the UCPR). Stultification of genuine claims would work an injustice on the plaintiffs. There are multiple relevant considerations in assessing that issue but it is abundantly clear that the lead plaintiffs bear the onus of establishing stultification and must do so by demonstrating with candid evidence that those who stand behind the lead plaintiffs and stand to benefit from the litigation if it is successful lack the financial ability, rather than mere unwillingness, to provide the security: De Jong at [26], Dae Boong at [23]–[27], LRSM at [36]–[37], Live Board Holdings at [90] and Carrano Investment at [12]. 12. I have concluded that the lead plaintiffs did not lead sufficient evidence to demonstrate stultification of their claims. These evidentiary failures are numerous. 13. First, there was no evidence at all about the financial position of Mr Youssef, the other 50% shareholder of Laith & Fadi, with Mr Hana, who stands to benefit from success in these proceedings by the lead plaintiffs. Instead, there is evidence that unsuccessful attempts to contact Mr Youssef were made by telephone in June and September 2024. Those attempts are unsatisfactory, particularly in light of the fact that Mr Youssef is mentioned in the commercial list statement as a person who relied on representations made by the franchisor and has made an affidavit on which the lead plaintiffs intend to rely at the final hearing of the proceedings. No explanation is given as to why an email or a letter has not been sent to Mr Youssef to request details of his financial position or a visit made to his home or his workplace to do the same. Mr Hana is a 50% shareholder in Laith & Fadi with Mr Youssef, yet it appears that no attempt has been made by Mr Hana to contact him. 14. Secondly, there are multiple glaring omissions about the financial position of Mr Hana, which appears to be intricately tied to the financial positions of House of Finance Aus and House of Finance Group and the numerous SPVs which have been established to enable him to make property investments. On these applications, the full financial position of Mr Hana is opaque and incomplete. The hearsay assertions which are made about his financial position are not matched with documents which would enable a full objective analysis of it to be undertaken. In particular, there are no financial statements of House of Finance Group or House of Finance Aus in evidence to establish their financial positions, there is no expert evidence which would enable a valuation of Mr Hana's interests in House of Finance Group or House of Finance Aus to be made, there are no statements of any bank accounts held by Mr Hana in evidence, there are no income tax assessment documents either side of the 2023 financial year in evidence, and the returns which have been made by Mr Hana from the property investments of the SPVs are not in evidence. The fact that Mr Hana was not completely candid in detailing his financial position and it was left to the defendants to discover various properties which he had bought and sold but had not disclosed in evidence on these applications is not to his advantage. In applications such as these where stultification is central to the basis on which the lead plaintiffs resist an order for security, there is no place for the vague and convoluted evidence on the topic of Mr Hana's financial position which was presented. 15. Thirdly, as I have indicated above, I attach very little weight to the unsatisfactory evidence given about the financial positions of each of the Group Members, particularly in light of the fact that they are a closed class of 48 (16 of which are corporations, being the Franchisee Group Members) across 17 franchises, can all be readily identified and are not so numerous as to make the task of marshalling evidence about the financial position of each of them an onerous undertaking. There is no transparency in the questions that they were asked that gave rise to the hearsay assertions in evidence. There is no documentary evidence to support any of the hearsay assertions given on behalf of those Group Members for whom financial details were given. There are only financial details given for 25 of the 48 Group Members, with nothing provided in relation to the balance. 16. When a case for stultification of the lead plaintiffs' claims is submitted, I cannot be put in a position of being left to guess whether the identified people who will benefit from the litigation are of financial means or not. Yet the lead plaintiffs have done precisely that by their failure to provide the evidence required to make out a case for stultification. The lead plaintiffs have failed to meet their onus. On the evidence that the lead plaintiffs have chosen to present, I am not satisfied that the lead plaintiffs have proved that their claims are likely to be stultified. 17. I note that none of Mr Hana, Mr Youssef or any of the Group Members has given a personal undertaking to pay the costs of the defendants in the event that an adverse costs order is made against the lead plaintiffs. Applying the principle in Jazabas at [32] and [91], this failure is a further factor which tends in favour of ordering security for the defendants' costs. 18. In relation to the issue of the ATE insurance, as I have found above, I am satisfied that the lead plaintiffs have demonstrated that the prospects of them obtaining ATE insurance in these proceedings is remote. I do not consider the failure to obtain ATE insurance to be a basis on which the lead plaintiffs could be criticised or a factor weighing in the discretion against them. 19. Much was made by the defendants of the likelihood that the lead plaintiffs' claims will be stultified in any event because the evidence does not reveal that Levitt Robinson and the lead plaintiffs have agreed that Levitt Robinson will charge the lead plaintiffs on a speculative basis and, even if the terms of the Conditional Costs Agreement are assumed to be agreed and Levitt Robinson will charge on a speculative basis, the lead plaintiffs are required to fund at least $300,000 for disbursements. The evidence put forward by the lead plaintiffs about the basis on which they will be charged fees and disbursements by Levitt Robinson is exceptionally unsatisfactory because the Conditional Costs Agreement has not been signed by the lead plaintiffs, as it must be in accordance with s 181(3)(a) of the LPUL, and the lead plaintiffs have not proved the basis on which they have been charging fees and disbursements to the plaintiffs before the termination of the Funding Agreement. In any event, even if Levitt Robinson are charging on a speculative basis, in accordance with the principle in De Jong at [27], they will not be considered as persons standing behind the lead plaintiffs who will benefit if the proceedings are successful. I am simply not able to reach a conclusion about whether the lead plaintiffs will be able to fund their own legal costs in the proceedings. 20. Submissions were also directed to the suggestion that there is evidence that Galactic will seek commission if there is a successful outcome of the proceedings for the plaintiffs and therefore Galactic is also a party which stands to benefit if that eventuates. I am not satisfied that Galactic is entitled to such commission but even if I were so satisfied I do not know what I would make of this factor in relation to the discretion for ordering security. 21. In circumstances where the lead plaintiffs accept that they are unable to meet an adverse costs order, they are suing for the benefit of others and I am unable to make a finding of the inability, rather than the unwillingness, of Mr Hana, Mr Youssef and the Group Members to contribute towards an order for security, I consider that the risk of injustice to the defendants in incurring substantial costs without having appropriate security for those costs outweighs all other considerations relevant to the exercise of my discretion. ISSUE 2: QUANTUM OF SECURITY FOR COSTS 1. I consider that it is not appropriate to refer the determination of quantum of the security for costs I propose to order to a referee as this will contribute to greater delay and costs in determining this issue. 2. I am of the view that it is appropriate to determine the quantum of the security on each of the defendants' applications in turn, noting that the parties do not contest the legal principles I am to apply to that task. 3. I have endeavoured to deal with the quantum of the security to be ordered in each application by recognising that there will be distinct phases of the proceedings in which the defendants will incur categories of costs for which the security should be provided in advance. This approach reflects the balancing of justice to the lead plaintiffs by them not having to pay security for the totality of the proceedings well in advance of them concluding, while also ensuring that the recovery of the defendants' costs is protected before they commence to incur them on each phase. Legal principles 1. In Louise Haselhurst v Toyota Motor Corporation Australia Ltd t/as Toyota Australia [2020] NSWSC 1607, Sackar J at [12]–[19] helpfully summarised the relevant principles to be applied in determining the quantum of security for costs, stating as follows: [12] In determining the quantum of an order for security the Court does not set out to give a complete and certain indemnity to a defendant and there is no principle that entitles a defendant to be given security for the whole of its recoverable costs (CBX2 Pty Ltd v National Australia Bank (No 2) [2015] NSWSC 1969 at [54] and [55]). [13] Rather the Court embarks on a process of estimation which embodies to a considerable extent, necessary reliance on the "feel" of the case after considering relevant factors (see, e.g., Bryan E Fencott & Associates Pty Ltd v Eretta Pty Ltd (1987) 16 FCR 497 at 515 (French J)). [14] Whilst the Court requires some evidentiary basis for the estimate of costs, a precise estimate is not required. The Court is not fixing a gross sum amount, and should not decline to act on the evidence before it because the evidence was not the "best evidence" available to support the application (Pathway Investments Pty Ltd & Anor v National Australia Bank Limited [2012] VSC 97 at [35]-[38]; DIF III Global CoInvestment Fund LP v BBLP LLC [2015] VSC 484). Although a discount for exigencies may be required (see, e.g., Pathway Investments Pty Ltd & Anor v National Australia Bank Limited [2012] VSC 97 at [55]). [15] Further the Court is to stand back from the amounts claimed and the precise assessment of costs to consider the case on its particular facts and will make an order that is just and reasonable in the circumstances (Wollongong City Council v FPM Constructions Pty Ltd [2004] NSWSC 523 at [50]). [16] In embarking on such a process the Court is not required to attempt its own detailed costs assessment but can take a "broad brush" approach having regard to the information before it, seeking to prevent (on the one hand) prejudice to the party paying costs by overestimating the costs and (on the other hand) injustice to the party recovering costs by adopting an arbitrary "fail safe" discount across the board on the costs claimed (see, e.g., Allstate Life Insurance Co v ANZ Banking Group Ltd (1995) 134 ALR 187 at 199–201; Ashington Capital Pty Ltd v Parissen Capital (Project X) Pty Ltd [2012] NSWSC 410 at [17]–[18]; Pathway Investments Pty Ltd & Anor v National Australia Bank Limited [2012] VSC 97 at [25]). [17] An important factor informing the exercise of the Court's power to order security for costs where a person such as a litigation funder stands behind the plaintiff is that those who seek to benefit from litigation should bear the risks and burdens that the process entails (see, e.g., Fiduciary Ltd v Morningstar Research Pty Ltd (2004) 208 ALR 564 at 584 [83] (Austin J)). [18] However in Allen Dodd as Trustee for the Dodd Superannuation Fund v Shine Corporate [2018] QSC 40 Martin J noted that the involvement of a funder may loosen slightly the stringency which normally attaches to the calculation of the appropriate security amount. [19] It has also been accepted that where multiple defendants have a common interest but are separately represented the Court has a discretion to make an order having the effect that the unsuccessful plaintiff does not pay full costs in respect of all defendants. That may be achieved by disallowing the costs of the additional defendants or reducing the costs payable by the plaintiff in respect of each defendant (ACN 115 918 959 Pty Ltd v Hoeys Lawyers Pty Ltd & Ors (Costs Ruling) [2018] VSC 508 at [39]; see also Local Democracy Matters Inc v Infrastructure NSW (No 2) [2019] NSWCA 118 at [21]-[23]; Andrianakis v Uber Technologies (Ruling No 1) [2019] VSC 850). Quantum of security for costs of Fogo Brazilia and Mr Dresner 1. The lead plaintiffs, Fogo Brazilia and Mr Dresner agreed on the amount of $110,000 to be paid as security for costs up to the close of pleadings, which was paid into court by the lead plaintiffs on 23 March 2022. 2. At the hearing of this application, the lead plaintiffs have agreed with the quantum sought by Fogo Brazilia and Mr Dresner in relation to several categories of costs and on the application of a 30% reduction to be applied on all actual costs to arrive at a party/party amount, but other categories of costs are in dispute between them. I have made my calculations based on a 30% deduction. 3. In making my calculations there appears to be discrepancies in the calculations made by Fogo Brazilia and Mr Dresner and the lead plaintiffs in arriving at their respective total costs with a 30% deduction submitted in this application. Fogo Brazilia and Mr Dresner submitted that their total costs with a 30% deduction are $1,549,993.52, but my calculation of the amounts submitted by Fogo Brazilia and Mr Dresner for their total costs with a 30% deduction is $1,581,581.02 (as set out in the table below). The lead plaintiffs submitted that Fogo Brazilia and Mr Dresner's costs with a 30% deduction are $700,000.00, but my calculation of the amounts submitted by the lead plaintiffs for Fogo Brazilia and Mr Dresner's total costs with a 30% deduction is $672,911.68 (as set out in the table below). 4. The respective positions of the parties on the categories of costs which are agreed and disputed using a 30% deduction and correcting the discrepancies in the calculations submitted by Fogo Brazilia and Mr Dresner and the lead plaintiffs are set out in the table below: Category Description Fogo Brazilia/Mr Dresner ($) Lead plaintiffs ($) Difference ($) Top up of security up to the close of pleadings 39,173.93 39,173.93 0 Close of pleadings to 12 February 2024 34,023.19 30,408.70 3,614.49 Review the plaintiffs' lay evidence 169,561.70 51,700.00 117,861.70 Respond to the plaintiffs' lay evidence 254,590.00 22,575.00 232,015.00 Review the plaintiffs' reply lay evidence 31,587.50 24,126.75 7,460.75 Review the third and fourth defendants' lay evidence 56,520.50 0 56,520.50 Respond to the third and fourth defendants' lay evidence 41,580.00 0 41,580.00 Review the plaintiffs' expert evidence 4,492.90 0 4,492.90 Respond to the plaintiffs' expert evidence 89,285.00 89,285.00 0 Review the third and fourth defendants' expert evidence 8,233.80 4,116.90 4,116.90 Respond to the third and fourth defendants' expert evidence 37,940.00 0 37,940.00 Review the plaintiffs' reply expert evidence 1,828.80 1,828.80 0 Supplementary expert reports/joint expert reports 46,620.00 0 46,620.00 Discovery, notices to produce and subpoenas 37,030.00 32,715.00 4,315.00 Directions hearings 8,715.00 6,500.00 2,215.00 Interlocutory applications 12,635.00 6,317.50 6,317.50 Correspondence 14,000.00 14,000.00 0 Trial preparation 139,650.00 69,825.00 69,825.00 Trial on liability and quantum 493,360.00 246,680.00 246,680.00 Disbursements between now and the end of trial 29,166.20 29,166.20 0 Total costs (30% reduction) 1,581,581.02 672,911.68 908,669.34 Total costs submitted (30% reduction) 1,549,993.52 700,000.00 849,993.52 rounded up from $680,686.68 Actual costs 2,214,276.46 1. On the calculations of the amounts containing the 30% reduction put forward by Fogo Brazilia and Mr Dresner, it would appear that their total actual costs are $2,214,276.46. On the amounts using the 30% deduction, the difference between Fogo Brazilia and Mr Dresner's total costs as submitted by them and calculated by me compared to Fogo Brazilia and Mr Dresner's total costs as submitted by the lead plaintiffs and calculated by me is $908,669.34 (approximately $900,000.00). 2. The manner in which the parties have approached the calculation of the costs for each different stage of the proceedings is the antithesis of the approach I am required to take. I am not required to deal with granular arguments or with lengthy supporting evidence, as though I am dealing with an assessment of the estimated costs. The matters raised include such things as the number of pages of evidence served by the lead plaintiffs, the reduction of small cost items, very small differences on modest items, whether the defendants need to review the evidence served by other defendants and respond to it, who would engage the joint expert, the degree of preparation required for the trial and the likely length of the trial. 3. To the extent that there are matters on which I have made a determination, my findings are: 1. The cost estimates of Fogo Brazilia and Mr Dresner are a better guide than the cost estimates of the lead plaintiffs for doing the same work. 2. The lead plaintiffs' lay evidence is substantial and requires a thorough review of all of it to prepare a response to it, which has been largely underestimated by the lead plaintiffs in their calculations. 3. The lay evidence of Fogo Brazilia and Mr Dresner is likely to be substantial. 4. It is likely to be necessary for Fogo Brazilia and Mr Dresner to review and respond to the lay and expert evidence of the other defendants, although in my view the costs estimated by Fogo Brazilia and Mr Dresner for doing so are overstated. 5. Discovery is likely to be substantial. 6. The likely length of the trial involving liability and quantum issues will be in the order of 4–5 weeks and therefore the costs estimated by Fogo Brazilia and Mr Dresner for the trial are overstated and the costs estimated by the lead plaintiffs are understated. 1. On my broad brush assessment of the points raised by the lead plaintiffs and the feel of the relevant circumstances of the case, most of them cannot be sustained. Based on those points made by the lead plaintiffs which I favour, I consider that the costs of Fogo Brazilia and Mr Dresner for which security should be ordered ought to be reduced from $1,581,581.02 to $1.3 million, a reduction of about $280,000.00, which is less than the approximately $900,000.00 reduction on the amounts contended for by the lead plaintiffs. 2. I propose to order that the amount of $1.3 million be paid in instalments in advance of major milestones to be met by the defendants to ameliorate the financial impact on the lead plaintiffs. The major milestones for the payment of these instalments would appear to be the review of all lay evidence and the responses of Fogo Brazilia and Mr Dresner to that evidence, the review and the preparation of all expert evidence and the preparation for and conduct of the trial. The amounts of each payment for those milestones based on the percentages expressed below should be: 1. Lay evidence (40%) – $520,000.00 (payable within 14 days of this judgment); 2. Expert evidence (20%) – $260,000.00 (payable 7 days prior to the date of the service of the lead plaintiffs' first expert report); and 3. Trial (40%) – $520,000.00 (payable 28 days prior to the date of the commencement of the trial). Quantum of security for costs of Mr Seskin 1. The lead plaintiffs and Mr Seskin agreed on the amount of $50,000 to be paid as security for costs up to the close of pleadings, which was paid into court by the lead plaintiffs on 24 June 2022. 2. At the hearing of this application, the lead plaintiffs did not agree with the quantum sought by Mr Seskin in relation to any of the categories of costs but did agree on the application of a 33% deduction to be applied on all actual costs to arrive at a party/party amount. I have made my calculations based on a 33% deduction for each category. 3. In making my calculations, I discovered discrepancies in the calculations made by Mr Seskin and the lead plaintiffs in arriving at their respective total costs with a 33% deduction submitted in this application. Mr Seskin submitted that his total costs with a 33% deduction are $956,000.00 but my calculation of the amounts put forward by Mr Seskin for his total costs with a 33% deduction is $907,118.11 (as set out in the table below). The lead plaintiffs submitted that Mr Seskin's costs with a 33% deduction are $486,500.00 but my calculation of the amounts submitted by the lead plaintiffs for Mr Seskin's total costs with a 33% deduction is $386,913.28 (as set out in the table below). 4. The respective positions of the parties on the categories of costs, all of which are disputed, using a 33% deduction and correcting the discrepancies in the calculations submitted by Mr Seskin and the lead plaintiffs are set out in the table below: Category Description Mr Seskin ($) Lead plaintiffs ($) Difference ($) Top up of security up to the close of pleadings 48,958.78 0 48,958.78 Close of pleadings to 31 July 2023 56,261.66 0 56,261.66 Review the plaintiffs' lay evidence 53,727.30 7,705.00 46,022.30 Respond to the plaintiffs' lay evidence 119,025.50 61,774.00 57,251.50 Review the plaintiffs' expert evidence 18,461.85 16,600.93 1,860.93 Respond to the plaintiffs' expert evidence 111,756.00 53,600.00 58,156.00 Review the plaintiffs' expert evidence in reply 13,671.35 5,527.50 8,143.85 Discovery 53,616.75 17,587.50 36,029.25 Subpoenas 11,128.70 0 11,128.70 Directions hearings 26,900.50 5,025.00 21,875.50 Correspondence 29,480.00 7,035.00 22,445.00 Preparation for trial and trial 390,978.50 212,058.35 178,902.15 Disbursements 22,110.00 0 22,110.00 Total costs (33% deduction) 907,118.11 386,913.28 520,204.84 Total costs submitted (33% deduction) 956,000.00 486,500.00 469,500.00 Actual costs 1,426,980.43 1. On the calculations of the amounts containing the 33% reduction put forward by Mr Seskin, it would appear that his total actual costs are $1,426,980.43. On the amounts using the 33% deduction, the difference between Mr Seskin's total costs as submitted by him and calculated by me compared to Mr Seskin's total costs as submitted by the lead plaintiffs and calculated by me is $520,204.84 (approximately $520,000.00). 2. As in the case of the submissions made in respect of the costs of Fogo Brazilia and Mr Dresner, the approach of the parties to the calculation of the quantum of security that should be ordered for the costs of Mr Seskin are at a level of detail which does not reflect the task I must undertake. 3. To the extent that there are matters on which I have made a determination, my findings are: 1. Mr Seskin is entitled to additional costs to the close of pleadings and from the close of pleadings until 31 July 2023. 2. The expert costs consultant evidence of Lydia Fogl supports the position that hourly rates charged for the work undertaken by APA Lawyers (the solicitors for Mr Seskin) are fair and reasonable, as are the rates of the senior and junior counsel briefed in the proceedings on behalf of Mr Seskin, and the work to be performed by APA Lawyers, senior counsel and junior counsel is necessary, fair and reasonable in light of the complexity of the matter. I agree. 3. Ms Fogl expresses the view that the overall deduction of 33% applied by Mr Seskin to his estimated fees is generous and a lower reduction would likely be made on assessment. I agree. 4. The lead plaintiffs' lay evidence is substantial and requires a thorough review of all of it to prepare a response to it, which has been largely underestimated by the lead plaintiffs in their calculations. 5. The lay evidence of Mr Seskin is likely to be substantial. 6. Discovery is likely to be substantial. 7. The likely length of the trial involving liability and quantum issues will be in the order of 4–5 weeks, which is more than Mr Seskin and the lead plaintiffs have estimated. 8. Splitting the difference between costs estimates, as the lead plaintiffs submitted in respect of several categories, is not of itself a principled basis for arriving at an amount for an estimated costs category. 1. On my broad brush assessment of the points raised by the lead plaintiffs and the feel of the relevant circumstances of the case, none of them can be sustained. I consider that the costs of Mr Seskin for which security should be ordered ought to be reduced to $900,000, a minimal reduction of $7,118.11, which is significantly less than the approximately $520,204.84 reduction on the amounts contended for by the lead plaintiffs. 2. I will adopt the same approach to the payment of the security in advance of major milestones and the percentages that I have outlined above in respect of the security to be ordered for Fogo Brazilia and Mr Dresner. As a result, the amounts of each payment for those milestones based on the percentages expressed below should be: 1. Lay evidence (40%) – $360,000.00 (payable within 14 days of this judgment); 2. Expert evidence (20%) – $180,000.00 (payable 7 days prior to the date of the service of the lead plaintiffs' first expert report); and 3. Trial (40%) – $360,000.00 (payable 28 days prior to the date of the commencement of the trial). Quantum of security for costs of Lazarus Legal 1. The lead plaintiffs and Lazarus Legal agreed on the amount of $20,000 to be paid as security for costs up to the close of pleadings, which was paid into court by the lead plaintiffs in April 2022. 2. At the hearing of this application, the lead plaintiffs did not agree with the quantum sought by Lazarus Legal in relation to any of the categories of costs, but did appear to agree on the application of a 30% reduction to be applied on all actual costs to arrive at a party/party amount. I have made my calculations based on a 30% reduction. 3. In making my calculations, I discovered discrepancies in the calculations made by Lazarus Legal and the lead plaintiffs in arriving at their respective total costs with a 30% deduction submitted in this application. Lazarus Legal submitted that their total costs with a 30% deduction are $887,591.50 but my calculation of the amounts put forward by Lazarus Legal for their total costs with a 30% deduction is $719,971.70 (as set out in the table below). The lead plaintiffs submitted that Mr Lazarus Legal's costs with a 30% deduction are $462,700 but my calculation of the amounts submitted by the lead plaintiffs for Lazarus Legal's total costs with a 30% deduction is $335,105.40 (as set out in the table below). 4. The respective positions of the parties on the categories of costs, all of which are disputed, using a 30% deduction are set out in the table below: Category Description Lazarus Legal ($) Lead plaintiffs ($) Difference ($) Close of pleadings to date 77,142.80 0 77,142.80 Review the plaintiffs' lay and expert evidence 23,163.00 20,440.00 2,723.00 Respond to the plaintiffs' lay evidence 30,265.90 5,670.00 24,595.90 Respond to the plaintiffs' expert evidence 35,385.00 15,345.40 20,039.60 Review the plaintiffs' expert evidence in reply 7,448.00 4,795.00 2,653.00 Discovery, subpoenas and notices to produce 92,187.90 15,995.00 76,192.90 Directions hearings and interlocutory disputes 11,543.00 4,550.00 6,993.00 Correspondence 10,959.90 5,670.00 5,289.90 Preparation for trial 194,376.00 93,240.00 101,136.00 Trial 226,065.00 169,400.00 56,665.00 Post trial 4,049.50 0 4,049.50 Lazarus Legal's costs application 7,385.70 0 7,385.70 Total costs (30% reduction) 719,971.70 335,105.40 384,866.30 Total costs submitted (30% reduction) 887,591.50 462,700.00 424,891.50 Actual costs 1,028,531.00 1. On the calculations of the amounts without the 30% reduction put forward by Lazarus Legal, it appears their total actual costs are $1,028,531.00. On the amounts using the 30% deduction, the difference between Lazarus Legal's total costs as submitted by them and calculated by me compared to Lazarus Legal's total costs as submitted by the lead plaintiffs and calculated by me is $384,866.30 (approximately $385,000.00). 2. As in the case of the submissions made in respect of the costs of Fogo Brazilia, Mr Dresner and Mr Seskin, the approach of the parties to the calculation of the quantum of security that should be ordered for the costs of Lazarus Legal are at a level of detail which does not reflect the task I must undertake. 3. To the extent that there are matters on which I have made a determination, my findings are: 1. Lazarus Legal is entitled to costs from the close of pleadings to date. 2. The lead plaintiffs' lay evidence is substantial and Lazarus Legal have only allowed for a very modest amount to conduct a review of it. 3. The lead plaintiffs' expert evidence is likely to be substantial and will likely require considerable work to be undertaken to respond to it. 4. The lay evidence of Lazarus Legal is likely to be substantial, which has been underestimated by the lead plaintiffs in their calculations. 5. Discovery is likely to be substantial. 6. I will not allow for post-trial costs and costs of this application in the amount of the security to be ordered. 7. The likely length of the trial involving liability and quantum issues will be in the order of 4–5 weeks, which is more than Lazarus Legal and the lead plaintiffs have estimated. 1. On my broad brush assessment of the points raised by the lead plaintiffs and the feel of the relevant circumstances of the case, all of them cannot be sustained. I consider that the costs of Lazarus Legal for which security should be ordered ought to be reduced from approximately $719,971.70 to $700,000, a reduction of $19,971.70, which is less than the approximately $384,866.30 reduction contended for by the lead plaintiffs. 2. I will adopt the same approach to the payment of the security in advance of major milestones and the percentages that I have outlined above in respect of the security to be ordered for Fogo Brazilia, Mr Dresner and Mr Seskin. As a result, the amounts of each payment for those milestones based on the percentages expressed below should be: 1. Lay evidence (40%) – $280,000.00 (payable within 14 days of this judgment); 2. Expert evidence (20%) – $140,000.00 (payable 7 days prior to the date of the service of the lead plaintiffs' first expert report); and 3. Trial (40%) – $280,000.00 (payable 28 days prior to the date of the commencement of the trial). ORDERS 1. For the reasons set out above, I propose to make the following orders: 1. The plaintiffs are to pay into court the following amounts on the following dates as security for the costs of the first and second defendants in the proceedings: 1. $520,000.00 to be paid within 14 days of the date of these orders; 2. $260,000.00 to be paid 7 days prior to the date of the service of the first expert report proposed to be relied upon by the plaintiffs; and 3. $520,000.00 to be paid 28 days prior to the date fixed for the commencement of the trial of the proceedings. 1. If the plaintiffs fail to pay any of the amounts by any of the dates stated in order (1) above, the proceedings are stayed as against the first and second defendants until such time as the payment is made. 2. The plaintiffs are to pay into court the following amounts on the following dates as security for the costs of the third defendant in the proceedings: 1. $360,000.00 to be paid within 14 days of the date of these orders; 2. $180,000.00 to be paid 7 days prior to the date of the service of the first expert report proposed to be relied upon by the plaintiffs; and 3. $360,000.00 to be paid 28 days prior to the date fixed for the commencement of the trial of the proceedings. 1. If the plaintiffs fail to pay any of the amounts by any of the dates stated in order (3) above, the proceedings are stayed as against the third defendant until such time as the payment is made. 2. The plaintiffs are to pay into court the following amounts on the following dates as security for the costs of the fourth defendant in the proceedings: 1. $280,000.00 to be paid within 14 days of the date of these orders; 2. $140,000.00 to be paid 7 days prior to date of the service of the first expert report proposed to be relied upon by the plaintiffs; and 3. $280,000.00 to be paid 28 days prior to the date fixed for the commencement of the trial of the proceedings. 1. If the plaintiffs fail to pay any of the amounts by any of the dates stated in order (5) above, the proceedings are stayed as against the fourth defendant until such time as the payment is made. 2. The plaintiffs are to pay the costs of the first and second defendants in relation to their notice of motion filed 12 February 2024. 3. The plaintiffs are to pay the costs of the third defendant in relation to his notice of motion filed 12 February 2024. 4. The plaintiffs are to pay the costs of the fourth defendant in relation to its amended notice of motion filed 19 April 2024. ********** DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 28 November 2024