Hirshman v Dixon-Smith

[2015] NSWSC 1958

Supreme Court of NSW|2015-12-02|Before: Robb J

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Court

Supreme Court of NSW

Decision date

2015-12-02

Before

Robb J

Source

Original judgment source is linked above.

Judgment (26 paragraphs)

[1]

Introduction

These reasons for judgment deal with two primary issues that are in dispute between the parties. The first concerns an application by the plaintiffs for the discovery of certain categories of documents by the defendants and a related company. The second concerns the costs order that the court should make in relation to an application by the plaintiffs to amend their statement of claim, which has, to this point, not been successful. A subsidiary issue is whether the plaintiff's notice of motion seeking leave to amend should now be dismissed.
I declined the plaintiffs' application for leave to amend their statement of claim in reasons for judgment published on 29 October 2015: see Hirshman v Dixon-Smith [2015] NSWSC 1599. The relevant facts, and a description of the issues between the parties that the plaintiffs sought to raise in their draft second further amended statement of claim (the draft pleading), are set out in some detail in that judgment. I will not repeat them here, save to the extent necessary to explain my present reasons.

[2]

Background

I will simplify the background facts. I will not distinguish, unless necessary, between the individual plaintiffs and the individual defendants.
The plaintiffs allege that they and the defendants invested in a joint venture involving land at Byron Bay. The Byron Bay land is divided into two parcels called the Eastside Land and the Westside Land. The joint venturers also operated a sand quarry on the land (the Quarry). Both parcels of land are owned by the one company, Crisjoy Pty Ltd (Crisjoy), as trustee of the Lighthouse Unit Trust. The Quarry is operated by another company called Leadshine Pty Limited (Leadshine).

[3]

Issues relevant to application for discovery

Mr Dixon-Smith affirmed an affidavit in these proceedings on 24 April 2014. In paragraphs 359 to 361, and pars 470 and 471 (the latter in reply to part of an affidavit of Mr Hirshman), Mr Dixon-Smith deposed to a number of events relevant to the activities of the Byron Bay venture.
It is these events that prompted the plaintiffs to seek leave to file their draft pleading, and which has led to the present application for discovery.
The relevant events are set out in pars 60D to 60K of the draft pleading (see par 105 of my earlier reasons for judgment).
There are two relevant aspects of those allegations. The first concerns a demand made by Balmoral Broken Head Pty Ltd (Balmoral) on 13 March 2012 on Townway as guarantor for the obligations of Crisjoy under a loan agreement called the Mezzanine Facility Agreement for $2,961,252.96. The debt owed to Balmoral had been accumulating at a default interest rate since its maturity on 16 December 2008.
It is necessary to interpolate that the third defendant to the draft pleading is a company called Oriday Pty Ltd (Oriday). Oriday is a company controlled by Mr Dixon-Smith and his wife. Oriday is not presently a party to these proceedings.
The plaintiffs allege that Mr Dixon-Smith caused Oriday to advance a total of $1,910,319.55 to Crisjoy to enable that company to repay Balmoral.
The next claim is the one that is relevant for present purposes. The plaintiffs allege that Mr Dixon-Smith caused Leadshine to borrow $1 million from Paul Ramsay Holdings Pty Ltd (Paul Ramsay). Leadshine lent $950,000 of that money to Mr Dixon-Smith. Mr Dixon-Smith paid the $950,000 to Balmoral in discharge of the guarantee given by him in respect of the Mezzanine Facility Agreement. Consequently, Mr Dixon-Smith obtained for himself by subrogation at least part of the benefit of the security held by Balmoral over the Eastside Land.
It will be appropriate at this point to collect together a number of threads of these allegations. The plaintiffs claim that Crisjoy's borrowing from Balmain under the Mezzanine Facility Agreement related solely to the development of the Eastside Land. Crisjoy was the borrower. Mr Dixon-Smith was a guarantor. Townway was also a guarantor. The Mezzanine Facility Agreement matured on 16 December 2008, but was allowed to accumulate default interest for almost 3 ½ years until 13 March 2012. Balmoral served a demand for repayment. The loan was repaid. Almost $2 million was repaid by Mr Dixon-Smith causing Oriday to advance that amount to Crisjoy. Most of the balance was raised by Leadshine borrowing $1 million from Paul Ramsay. That money was not advanced directly to Crisjoy, but $950,000 of it was advanced to Mr Dixon-Smith, which he used to directly reduce his exposure as a guarantor, by paying that sum to Balmoral. As a result, he became subrogated to Balmoral's security over the Eastside Land.
It may be accepted that the structure of these transactions is not entirely straightforward, and to that extent it may be unusual. The evidence that is presently available does not explain why this particular structure was adopted. While perhaps unusual, it does not follow that it is likely to be improper. First, if the 6 February 2007 agreement is put aside for the moment, it appears that Townway and the other joint venturers had interests in both Crisjoy and Leadshine. Consequently, it is not necessarily strange that Leadshine, which operated the Quarry, was used to assist in the repayment of the loan to Balmoral. Secondly, there is a basis for inferring that the Byron Bay venture may have been in a state of some financial distress, because otherwise it would be improbable that the joint venturers would have allowed the Mezzanine Facility Agreement to accumulate at default interest rates for almost 3 ½ years. It is accordingly quite possible that the particular structure that was adopted was chosen because it was the best means available of repaying Balmoral in circumstances that presented some difficulty.
Be all this as it may, the fact of the existence of the 6 February 2007 agreement has generated suspicion on the part of the plaintiffs. That suspicion flows out of the use of Leadshine to borrow money for the ultimate purpose of repaying part of the debt owed by Crisjoy to Balmoral, which was only secured by the Eastside Land. That, so to speak, mixes up the part of the Byron Bay venture in which the plaintiffs were to share, with the part in which they would not benefit. Thus, even though there may have been a sensible commercial reason for Leadshine's participation; for example, it may have had equity in the Quarry that would provide adequate security to Paul Ramsay in order to borrow $1 million, and even though the joint venturers collectively may have had good reason to employ their interest in Leadshine to relieve the Eastside Land from the security granted to Balmoral, the plaintiffs apparently fear that the involvement of Leadshine might disadvantage them when the time finally comes for implementing the 6 February 2007 agreement.
The plaintiffs also express concern about the aspect of the transaction in which Leadshine advanced $950,000 to Mr Dixon-Smith, which exposes Leadshine to the risk of default by him. The plaintiffs are also concerned about the fact that Mr Dixon-Smith now has a security over the Eastside Land by subrogation to Balmoral's security.
The second aspect of the transaction whereby the Mezzanine Facility Agreement was repaid apparently involves transactions set out in pars 60I to 60K of the draft-pleading. The plaintiffs assert that these transactions are related to that which is outlined above whereby Leadshine borrowed $1 million and advanced $950,000 to Mr Dixon-Smith; because that is the way it appears from the small amount of evidence given on the subject in Mr Dixon-Smith's 24 April 2014 affidavit. The plaintiffs do not actually know that the two transactions were connected, and accordingly were not able to allege in their draft pleading what the connection was.
The plaintiffs allege that on 28 June 2012 Mr Dixon-Smith caused Crisjoy to issue Oriday with 9900 fully paid shares in Crisjoy, and an unknown number of units in the Lighthouse Unit Trust. He also caused Leadshine to issue to Oriday 900 fully paid shares in Leadshine. These transactions had the following consequences. Oriday became the holder of 99% of the issued shares in Crisjoy, and Townway's shareholding was diluted from 20% to 0.2%. Oriday became the holder of 90% of the issued shares in Leadshine, so Townway's interest in Leadshine was diluted from 20% to 2%. Oriday became the holder of 90% of the units in the Lighthouse Unit Trust, and Townway's unit holding was diluted from 40% to 4%. The plaintiffs' interests in the various shares and units were proportionally reduced.
The plaintiffs wished to allege by their draft pleading that these transactions involved Mr Dixon-Smith, and Oriday, by reason of its participation in the transactions with all of the knowledge of Mr Dixon-Smith, having breached various duties that were owed to the plaintiffs.
The plaintiffs faced the difficulty, however, that they did not know what consideration, if any, Oriday provided to Crisjoy and Leadshine for the issue of these shares and units, or whether that consideration was adequate in relation to the value of the securities that were issued. The plaintiffs also did not know whether the circumstances in general justified the issue of the securities to Oriday. As I have said, they also did not know whether, and if so how, these transactions were connected with the transactions whereby the debt owed to Balmoral was repaid.
Nonetheless, the plaintiffs sought to allege that they had suffered damage as a result of the participation of Mr Dixon-Smith and Oriday in all of the transactions. They could not, however, particularise their loss, or even describe its nature accurately.
This lack of information on the part of the plaintiffs, and the consequences it had for the drafting of the draft pleading was one of the reasons why I declined to give the plaintiffs leave to file the draft pleading.
This is the reason why the plaintiffs have now sought discovery of certain categories of documents from the defendants and Oriday, so that they can properly revise the draft pleadings.

[4]

Earlier requests by plaintiffs for discovery

By their notice of motion filed on 20 August 2014, the plaintiffs sought discovery from the defendants in the following terms in relation to their Byron Bay venture claim: 10 documents recording communications between any of the Defendants and Oriday Pty Ltd in respect of the land owned by Crisjoy Pty Ltd located on Broken Head Road, Suffolk Park NSW and the quarry business operated by Leadshine Pty Ltd in the period March 2012 to December 2012; 11 documents recording communications between any of the Defendants and any or all of Paul Ramsay and Paul Ramsay Holdings Pty Ltd in respect of the $1,000,000 loaned to Leadshine Pty Ltd in the period March 2012 to December 2012.
I have been told that the defendants refused to give this discovery, on the ground that it sought disclosure of documents that were not relevant to any issues raised by the pleadings as they stood at the date the notice of motion was filed. In response to this refusal, the plaintiffs deferred pressing their claim for discovery at that time, and instead did their best to draft the first version of their draft pleading.
As I explained at par 12 of my earlier reasons for judgment, on 30 June 2015 the plaintiffs effectively withdrew that draft, and said they would propound a revised draft pleading. They did so, and it was that second draft that I refused to give the plaintiffs leave to file in my judgment published on 29 October 2015.
In the interim, on 24 July 2015, the plaintiffs' solicitors sought discovery of certain classes of documents in a letter to the defendants' solicitors, in order to enable the plaintiffs to revise their draft pleading. By letter dated 27 July 2015, the defendants' solicitors declined to give the discovery, for various reasons, including, again, that the categories of documents were not relevant to any issues raised by the current pleadings. Again, the plaintiffs did not issue the claim for discovery, but rather made a second attempt to amend their pleading, unsuccessfully as it has turned out.
I will return to the significance of these attempts by the plaintiffs to obtain discovery from the defendants in order to properly amend their pleadings below, when I come to consider the dispute between the parties as to the costs order that should be made.
The plaintiffs, having decided on two occasions not to pursue their claim for discovery to aid the revision of their pleadings, have now pursued that issue in order to permit them to try again to revise their draft pleading to cure the deficiencies that led the court to decline their application for leave to amend.

[5]

The plaintiffs' present claim for discovery

The claim that is now before the court for an order that the defendants and Oriday give discovery to the plaintiffs of certain categories of documents has not been made by any formal process. The categories for discovery now sought are not the same as those in the plaintiffs' notice of motion filed on 30 August 2014. On 17 November 2015, I made directions for the parties to exchange submissions. The categories of documents for which the plaintiffs seek discovery are set out in par 12 of the plaintiffs' submissions dated 23 November 2015. The defendants responded by written submissions dated 30 November 2015.
The parties have made submissions concerning the legal principles that the court should apply in deciding what, if any, discovery the defendants and Oriday should be ordered to make to the plaintiffs at this stage of the proceedings.
The proceedings have been on foot since 4 February 2013, and, as I understand it, the parties have exchanged a substantial quantity of evidence on the basis of the existing pleadings. Mr Dixon-Smith's 24 April 2014 affidavit prompted the plaintiffs' desire to further amend the pleadings, in the way that I have described above. The information given by Mr Dixon-Smith in his affidavit has not been sufficient to enable the plaintiffs to amend their existing pleadings in a manner that satisfies the rules of pleading. They now apply for discovery in order to enable them to do so. This is not, therefore, an application for discovery before suit. It is an application for discovery during the course of a suit, to enable the plaintiffs to plead a proper response to new information of which they have learned as a result of receiving the defendants' evidence.
As will be seen, the defendants have not absolutely resisted the plaintiffs' claim. They have agreed to give some discovery; they have agreed to give discovery of other categories sought by the plaintiffs, provided the description of the categories is revised; and they have declined to give discovery of other categories.
This is not, therefore, a necessary or appropriate occasion for the court to fully consider the principles that should be applied in circumstances such as the present, but where the application for discovery in order for a party to amend its pleadings is entirely resisted by the other party.
It will be sufficient for me to note that the plaintiffs urged on the court the submission that the effect of ss 56 to 60 of the Civil Procedure Act 2005 (NSW) was to widen the circumstances in which the court could order a party during the course of proceedings to give discovery to the other to enable that other to perfect its pleadings. The plaintiffs relied on various authorities, but particularly the decision of Warren J (as her Honour then was) in Computershare v Perpetual Registrars (2000) 1 VR 626 at [28], where her Honour made the following observations concerning discovery of documents by the defendants in that case prior to the closure of pleadings pursuant to O 29.07 of the Supreme Court (General Civil Procedure) Rules 2005 (Vic): [28] It was urged by Mr Archibald QC that I should read into O 29.07 a requirement that Computershare demonstrate exceptional circumstances. O29.07 was a novel rule introduced by Statutory Rule No 99 of 1986. Prior to its introduction discovery between parties was governed by O 31.12. The latter rule vested in a judge the broad discretion to order discovery at any stage, either generally or limited to certain classes of documents, as the court in its discretion sought fit. O29.07 essentially codified the position at common law but in doing so left the matter entirely at the discretion of the court. There was not a prerequisite inserted in the new rule requiring an applicant for early discovery to satisfy the court of exceptional circumstances. In my view the imposition of the requirement of making out exceptional circumstances sets too high an obstacle for an applicant and, furthermore, in particular circumstances may well frustrate the very purpose for which the rule was inserted. In determining whether or not to exercise the discretion under O29.07 it will be necessary for a court to assess the circumstances in each case. In this matter I am satisfied that the discretion ought be exercised on three grounds. Firstly, Computershare has demonstrated a pre-existing relationship between it and the first and second defendants. Secondly, Computershare has a strong and unrebutted suspicion as to the use of information that it regards as confidential. Thirdly, the statement of claim filed by the plaintiff has already been the subject of attack by the Perpetual interests. A summons was issued returnable before me by the Perpetual interests seeking to strike out the plaintiff's claim or, alternatively, particular paragraphs of the statement of claim. The summons was not pursued before me and Mr Archibald indicated that his client would be satisfied to have the summons dismissed or dealt with at another time. Be that as it may, the plaintiff is reasonably entitled to regard itself in a position where its statement of claim is potentially under attack and it requires information to enable it to further plead and particularise its case in circumstances where the relevant matters are exclusively within the province of knowledge of the defendant. In the circumstances, therefore, I consider it appropriate that the defendants provide discovery pursuant to O29.07. (Emphasis added)
Order 29.07 authorises the court to order that a party to proceedings make discovery of documents to any other party notwithstanding that the pleadings between any parties are not closed. The plaintiffs relied upon her Honour's statement that O 29.07 essentially codified the position at common law, so that the plaintiffs would be entitled to make a similar application for discovery by the defendants before closure of the pleadings at general law. The plaintiffs also submit that the three reasons for granting discovery upon which Warren J relied apply to the present case.
Although, as I have said, the defendants' resistance to the plaintiffs' application was qualified, they made two principle submissions concerning the basis upon which the court should decide the differences between the parties. First, the defendants submitted that the court should treat the plaintiffs' application as if it was, in substance, an application for discovery before suit. Accordingly, the defendants say, the court should have regard to the principles relevant to an application made for preliminary discovery under UCPR r 5.3. The defendants submit that the court should be cautious in approaching the task of deciding whether the defendants should be ordered to give discovery in respect of any category of documents that is not relevant to existing issues in the proceedings.
Secondly, the defendants submit that the court should not forget that Oriday is not a party to the proceedings. Oriday is clearly associated with Mr Dixon-Smith, but it should not be regarded merely as his alter ego, because his wife has a separate interest in the company.
In all of these circumstances, I propose to adopt the following approach. The present application is not strictly an application for discovery before suit. It is an application made after the commencement of the proceedings for limited discovery in order to enable the plaintiffs to properly plead an amendment to their existing pleadings to deal with the consequences of information that came to their notice in an affidavit served by the defendants. While the plaintiffs learnt of that information in that way, the disclosure of the information did not automatically entitle the plaintiffs to the discovery they now seek. The information may be peripheral to the defendants' case. The information appears to be incomplete, and it is doubtful that it would prove anything of significance by itself. A party is not entitled to discovery of documents from the other party, simply because that other party serves evidence it proposes to rely upon. Nonetheless, the new information is capable of having relevance to the rights that the plaintiffs seek to enforce in their proceedings as they stand. However, the nature of that relevance is not clear. It is, at present, uncertain whether the new information, and the additional information now sought by the plaintiffs, is irrelevant. It would be too extreme to describe the plaintiffs' present application as being mere fishing. However, it is a real possibility that the suspicion that the new information has engendered in the plaintiffs' minds might be illusory.
I have approached the dispute on the basis that I should deal with the application in a practical way. I should be conservative, and restrict the discovery that should be ordered to be given to categories that are limited to what should be necessary to give the plaintiffs the information that they require to decide whether an amendment to their pleadings is necessary, and to permit them to draft any amendments properly. I should deal with the risk that it may turn out that the plaintiffs will receive inadequate information by giving them leave to make further, precisely defined, claims for further discovery, if that is necessary to fill any unexpected gaps in the information disclosed by the discovery that will be given. I should not order that discovery be given by Oriday, if it is reasonable to assume that sufficient information can be given by discovery by the existing defendants.

[6]

General observations concerning need for discovery

I will make the following general observations before I consider the categories of documents for discovery sought by the plaintiffs.
First, I think that the need for further discovery is much less obvious in the case of Leadshine's involvement in the repayment of the Balmoral loan than it is in relation to the transactions that have diluted Townway's interests in the Byron Bay venture.
While Leadshine's involvement in the repayment of the Balmoral loan may be considered to be in some respects unusual, I do not think that it is particularly suspicious. When the time came to repay Balmoral, the joint venturers probably had to raise the necessary funds by whatever means were available. It is likely that Leadshine participated because it had assets that were sufficient to secure part of the funding required. It is true that Leadshine advanced $950,000 to Mr Dixon-Smith, rather than lending the money directly to Crisjoy. As I have noted, that gives rise to the risk that Mr Dixon-Smith may not be able to repay the loan. It is also possible that the transaction may have had the result that Mr Dixon-Smith has a security interest in the Eastside Land, that he would not otherwise have had. That should not be of concern to the plaintiffs, because the effect of the 6 February 2007 agreement was that they gave away their entitlement to share in any profit from the development of the Eastside Land. Furthermore, and more importantly, the accounting exercise the subject of the 6 February 2007 agreement can only be conducted after the Byron Bay venture is concluded. It is only when it is known whether there are any profits from the development of the Eastside Land, the development of the Westside Land, and the operation of the Quarry, that it will be meaningful to undertake the accounting exercise to determine the basis upon which the profits should be divided under the agreement. I infer that the Byron Bay venture is some time, perhaps a considerable time, away from completion. Profits may never be made. It is not clear why, even if Leadshine's participation in the repayment of the Balmoral debt may diminish the likelihood that it will ultimately be profitable to the joint venture, that adjustments for Leadshine's participation could not be made as part of the accounting exercise required by the agreement.
The position is somewhat different in relation to the transactions that have led to the dilution of Townway's interests in the Byron Bay venture. The effects of that dilution will be real, so that if any profits are made from any components of the joint venture, the amount that will be received by Townway in absolute terms will be reduced. If the 6 February 2007 agreement is then implemented, there will be a real proportionate reduction in the amounts that the plaintiffs will receive.
As I said at par 243 of my earlier reasons: "The transactions involving Oriday are plainly on their face extraordinary, and cry out for a proper explanation".
The connection between Leadshine's participation in the repayment of the Balmoral debt and the transactions that led to the dilution of Townway's interests in the Byron Bay venture is not clear. As stated above, on 13 March 2012 Balmoral's solicitors made a demand on Townway, as a guarantor of the debt owed by Crisjoy, to pay $2,961,252.96. The dilution transactions occurred on 28 June 2012. The plaintiffs asserted in their draft pleading that Oriday advanced $949,435 to Crisjoy in the financial year ending 30 June 2012 and $960,884.55 in the financial year ending 30 June 2013 (see par 60F). Leadshine borrowed the $1 million from Paul Ramsay on 25 October 2012. Mr Dixon-Smith said in his affidavit (par 361) that Leadshine and Crisjoy "obtained finance and fully repaid the amounts owing to Balmoral, but in the process granted security over their assets and issued new shares and units causing Townway's interest in Leadshine and the Lighthouse Unit Trust to be diluted to 4% and its interest in Crisjoy to be diluted to 0.4%". Mr Dixon-Smith said (par 470) that Oriday provided loans and fresh equity to the Lighthouse Unit Trust and Leadshine of approximately $1,600,000, but this was not enough to repay the Balmoral debt, so that it was necessary for the additional $1 million to be borrowed by Leadshine.
The plaintiffs did not disclose the rationale for selecting the categories of documents for which they seek discovery in their submissions, in the sense of explaining how the expected contents of each category of documents would yield information that would, with all of the other information sought, explain the issues of concern to the plaintiffs. That inhibits the ability of the court to determine the categories of documents that should be necessary and sufficient to enable the plaintiffs to ascertain whether Leadshine's involvement in the repayment of the Balmoral debt, and the transactions that diluted Townway's interests in the Byron Bay venture, were justified or not.

[14]

Category (g)

The defendants submit that they should not be obliged to give discovery of the following category of documents. They say that the use of both the words "recording" and "reasons" is problematic. They say that the other categories of documents should be sufficient, and that this category should not be required to enable the plaintiffs to decide whether or not they have a proper basis for alleging a cause of action. The plaintiffs submit that the category is not as wide or indefinite as the defendants suggest, and that the use of the word "recording" will naturally act to confine the documents required to be discovered. (g) Documents recording the reasons for the issue of shares or units referred to in paragraph (a) or (b).
I agree with the defendants' submission that this category is likely to be problematic. What is meant by the word "reasons"? Is it subjective, being the reasons for the grantor companies issuing the securities? Does it extend to the objective reasons for the grantors entering into the transactions? Does it encompass the underlying facts that led to the transactions being entered into? Even the word "recording" may be more elastic in meaning than the plaintiffs suggest. At one extreme, it may only catch a document if it explicitly records the reasons for the transaction. It would arguably extend, however, to documents which record facts that make up part of the mosaic that might constitute the reasons for the transactions.
The defendants have already told the plaintiffs that the transactions were entered into in order to permit Crisjoy, or one of its guarantors, to repay parts of the debt Crisjoy owed to Balmoral. The plaintiffs are entitled to discovery of documents that confirm that purpose. They are entitled to discovery of documents that show the consideration paid to the issuers by Oriday. They are also entitled to documents sufficient to enable them to decide whether or not consideration paid was proper. That step may be difficult, if the grantor companies' financial statements record the value of the companies' assets on an historical basis.
I have concluded that at this stage of the proceedings I should not order the defendants to give discovery in terms of category (g).

[18]

Categories (k), (l) and (m)

The defendants submit that they should not be ordered to give discovery of the documents in categories (k), (l) and (m). It will be convenient to deal with these three categories together. The defendants submit that there is nothing in the draft pleading which supports the proposition that the transactions referred to in these categories are connected with the transactions which diluted Townway's interests in the Byron Bay venture. They then submit that it is to be expected that documents such as company minutes in relation to the issue of the shares and units will disclose the relationship (if any) between those transactions and the transactions the subject of these categories. The defendants submit that these transactions occurred in October 2012 while the dilution transactions happened in June 2012. They say that the documents sought will involve confidential commercial information of a third party, Paul Ramsay. Finally, they submit that the documents in these categories are not required to allow the plaintiffs to decide whether or not they have a proper basis for alleging a cause of action in relation to the issues of shares and units as part of the dilution transactions. (k) Minutes of Leadshine which referred to: i. the loan of monies to Stuart Dixon-Smith; and ii. the loan of monies from Paul Ramsay Holdings Pty Ltd (Paul Ramsay). (l) loan agreement between Leadshine and Paul Ramsay. (m) loan agreements between Leadshine and Stuart Dixon-Smith.
In my view, the plaintiffs are entitled to discovery of certain documents within these categories. They are entitled to information limited to that which gives them some basis for understanding why Leadshine borrowed money for the purpose of allowing Crisjoy to repay its debt to Balmoral, and why the $950,000 was advanced to Mr Dixon-Smith, rather than to Crisjoy. However, I accept that the description of the categories should be confined, because the plaintiffs have not articulated any reasons why these transactions are likely to involve a breach of the 6 February 2007 agreement, or any other breach of duty owed to the plaintiffs.
I will order the defendants to give discovery in terms of category (k) with the word "record" being substituted for the words "referred to". I will not order discovery in terms of category (l), as the plaintiffs have not justified a requirement for disclosure of the confidential loan agreement between Leadshine and Paul Ramsay. I will order discovery in terms of category (m).

[25]

Costs

The defendants submit that the court should order that the plaintiffs' notice of motion of 29 April 2015 be dismissed, and that the plaintiffs pay the defendants' costs of and incidental to that notice of motion.
The plaintiffs submit that the court should not dismiss their notice of motion at this time; that the court should give the plaintiffs an opportunity to propound a further draft pleading after the discovery dealt with in these reasons for has been given; and for that purpose the court should allow the plaintiffs an opportunity to further amend their notice of motion.
The plaintiffs further submit that the court should not deal with the question of costs until after the proposed amendment has finally been dealt with.
Alternatively, if the court is persuaded to deal with the issue of costs now, it should order that they be costs in the cause.
I am prepared to accept the plaintiffs' submission that I should not finally dismiss their notice of motion seeking leave to file a second further amended statement of claim at this stage. I will stand the notice of motion over to a further date for directions, as part of the orders that I will make consequentially upon these reasons for judgment.
I reject the plaintiffs' submission that the court should order that the costs of the notice of motion to date be costs in the cause.
I accept the defendants' submission that fairness requires the court to now make an appropriate order for costs in relation to the two failed attempts by the plaintiffs to get leave to file a second further amended statement of claim.
The plaintiffs say that the 2012 transactions first came to light because they were referred to in Mr Dixon-Smith's affidavit, and that by including this evidence in the affidavit, the defendants considered these transactions were relevant to the proceedings. This submission may be correct, so far as it goes, but it plainly does not follow that whenever a party introduces evidence into the proceedings, whatever the significance of that evidence might be, the party invites the other to seek to amend its pleadings in circumstances that, whatever the fate of the attempt to amend may be, the party introducing the evidence must bear its own costs of the exercise.
The plaintiffs submit that they sought discovery of documents relating to the transactions, being categories 10 and 11 of the categories sought in their discovery motion filed on 20 August 2014. The defendants resisted these categories on the basis that they were irrelevant to the pleaded issues, and by agreement between the parties the issue of whether discovery should be given of these categories was deferred.
The plaintiffs nonetheless attempted to plead their draft pleading, which led to the events that occurred at the first hearing on 30 June 2015.
Following that hearing, the plaintiffs sought production of further documents and the defendants refused to provide any of them. The categories of documents sought were set out in paragraphs 1 to 10 of the plaintiffs' solicitor's letter dated 24 July 2015. I will not set out the terms of those categories. The categories were described in different terms to the categories set out in the plaintiffs' written submissions dated 23 November 2015.
By their letter of 27 July 2015, the defendants' solicitors again declined to provide discovery in terms of the categories requested. In outline, the defendants said that the plaintiffs had not submitted a further draft pleading within 21 days after the 30 June 2015 hearing, as suggested on that date, and the categories sought did not relate to any matter in issue in the proceedings.
The plaintiffs did not pursue their request for further discovery, and instead formulated the draft pleading that was dealt with at the hearing on 27 August 2015, and is the subject of my reasons for judgment published on 29 October 2015.
The plaintiffs say that the defendants' earlier failure to give discovery as requested was partially responsible for the inability of the plaintiffs to be able to draft a second further amended statement of claim in proper form, so that the defendants should bear some cost consequences of their actions. The plaintiffs submitted that the defendants have not complied with their obligation to cooperate to ensure that the real issues between the parties are brought forward for determination.
The plaintiffs submitted that the observations made by Allsop P (as his Honour then was) in Baulderstone Hornibrook Engineering Pty Ltd v Gordian Runoff Ltd [2008] NSWCA 243 at [161] and the earlier observations made by the same judge in White v Overland [2001] FCA 1333 at [4] justify an order that the parties bear their own costs of the application for leave to amend. I do not agree. It must be accepted now that the parties in civil proceedings have a statutory duty to assist the court to further the overriding purpose to facilitate the just, quick and cheap resolution of the real issues in dispute and to participate in the processes of the court to that end. This principle may possibly have some application when the time comes to consider what order should be made in relation to the plaintiffs' application for discovery from the defendants. I do not think it has the effect that the defendants should be ordered to bear their own costs of their successful resistance to the plaintiffs' application for leave to amend, when the plaintiffs elected to seek leave to file the two versions of their amended pleading without first resolving their claim for the discovery they now seek in order to revise their pleading properly.
I have decided that the proper course is to order the plaintiffs to pay the defendants' costs of their consideration of the draft pleadings that were before the court on 30 June 2015 and 27 August 2015, and also the appearances on those two dates, as well as costs directly related to those two matters. I will reserve the costs of the hearing on 2 December 2015 that is the subject of these reasons for judgment.
My first reason for taking this course is that I consider that it was a matter for the plaintiffs to decide whether they could properly plead their second further amended statement of claim without having the discovery that they requested for that purpose. The plaintiffs agreed to defer their initial request for discovery, and did not press their second request, after it was rejected by the defendants on 27 July 2015. I consider that the plaintiffs ought to have appreciated that they could not properly amend their pleadings until they had that discovery.
Secondly, as my reasons for judgment published on 29 October 2015 demonstrate, I have concluded that there are many flaws in the versions of the draft pleading that the plaintiffs have propounded to date, and many of those flaws cannot be attributed to the absence of discovery by the defendants. The issue is too complex to deal with in these reasons, but the reasons should be reasonably apparent from a consideration of my earlier judgment.
It will be sufficient for me to note briefly that there are strong reasons for concluding that the plaintiffs' proposed claim for breach by the defendants of the 6 February 2007 agreement is premature, as the Byron Bay venture has not been completed, and there are no means of knowing now whether or not any of the components of that venture will generate profits, or whether there has been any breach of the agreement, and if there has, what loss has been suffered by the plaintiffs. Furthermore, if the essence of the agreement is that it requires an adjustment on an accounting basis of the distribution of the profits earned from different components of the venture, there is no apparent reason why Mr Dixon-Smith was required actually to manage the whole venture in a manner consistent with the underlying premise of the 6 February 2007 agreement, to the potential disadvantage of the other parties interested in the venture. I add that, although I adhere to the view that I expressed in my earlier reasons for judgment that the transactions that led to the dilution of Townway's interests in the Byron Bay venture cry out for explanation, it does not follow that it is likely that those transactions were improper.
I will invite the parties to bring in short minutes to reflect these reasons for judgment, and also to provide for directions concerning the future conduct of these proceedings.