Auto Net v Tyler
[2020] NZHC 2459
•21 September 2020
IN THE HIGH COURT OF NEW ZEALAND HAMILTON REGISTRY
I TE KŌTI MATUA O AOTEAROA KIRIKIRIROA ROHE
CIV-2019-419-327
[2020] NZHC 2459
BETWEEN AUTO NET
Plaintiff
AND
M S TYLER
Defendant
Hearing: 4 June 2020 Appearances:
G Simms for the Plaintiff
KI Bond & Ms UB Keller for the Defendant
Judgment:
21 September 2020
JUDGMENT OF ASSOCIATE JUDGE SMITH
This judgment was delivered by me on 21 September 2020 at 3pm pursuant to r 11.5 of the High Court Rules
Registrar/Deputy Registrar
Solicitors:
Wynn Williams, Auckland
Braun Bond Lomas, Hamilton
Auto Net v Tyler [2020] NZHC 2459 [21 September 2020]
Introduction – the parties and the dispute
[1]This is an application by the plaintiff (Auto Net) for summary judgment.
[2] Auto Net is a company incorporated in the Cayman Islands. It is one of a number of companies around the world owned by interests associated with Mr Robert Stone on the one hand, and Mr Hohua Hemi on the other. In the case of Auto Net, the ultimate beneficial owners are Ms Luciane De Souza Fernandes (Mr Stone’s wife), and interests associated with Mr Hemi.
[3] Mr Stone and Mr Hemi have conducted international business enterprises together for a number of years, in a number of countries. One of their enterprises is a business under which a Japanese-registered company, IBC Japan Limited (IBC), sells Japanese cars to New Zealand buyers. Until recently, IBC sold the cars to a New Zealand member of the Hemi/Stone commercial group, Auto Terminal New Zealand Limited (ATNZ).
[4] Mr Stone and Mr Hemi have now fallen out, and there is litigation in a number of jurisdictions, including New Zealand, between them and/or companies or entities with which they are associated.
[5] The defendant, Mr Tyler, is the sole director of ATNZ. Mr Tyler has fallen out with Mr Hemi, who now controls IBC, and ATNZ no longer purchases vehicles from IBC. Litigation is pending in this Court between IBC and ATNZ, and between Mr Hemi and Mr Tyler.
[6] Mr Tyler is the registered legal owner of all of the shares in ATNZ, but Auto Net says that Mr Tyler holds the ATNZ shares on a bare trust for it. It has issued this proceeding to compel Mr Tyler to transfer the ATNZ shares to it.
[7] Auto Net contends that Mr Tyler’s only obligation under the bare trust was to act on its directions, as both settlor and beneficiary of the trust, and that Mr Tyler has failed to transfer the ATNZ shares to it when so directed. In the alternative, Auto Net
says that it is entitled to wind up the trust of the shares under the rule known as the rule in Saunders v Vautier.1
[8] Auto Net asks for orders for specific performance directing Mr Tyler to enter Auto Net’s name in ATNZ’s share register as the owner of all of the shares in ATNZ, and/or an order under s 91 of the Companies Act 1993 (the Act) rectifying the share register to record that Auto Net is the legal owner of 100 per cent of the shares in ATNZ.
[9] Mr Tyler accepts that he holds the ATNZ shares on trust for Auto Net, but he denies that he has any obligation to transfer the shares to it. He says that the case is not appropriate for summary judgment, for the following reasons:
(1)There are factual disputes regarding the terms of the trust, including disputes about who the proper beneficiaries of the trust are and whether there are restrictions on Mr Tyler transferring the shares. (Mr Stone has contended that the arrangements under which Mr Tyler holds the ATNZ shares contained a provision that he would not transfer the shares without the consent of both Mr Stone and Mr Hemi). The disputes arise from an extremely complex factual background, spanning more than a decade, and they involve a number of different entities forming part of the global corporate structure set up by Mr Hemi and Mr Stone.
(2)Mr Tyler has an arguable defence based on rights of indemnity arising at law and by agreement, which take priority over Auto Net’s beneficial interest in the shares.
(3)The present proceeding appears to be part of a proxy battle between Mr Hemi and Mr Stone, forming part of a wider commercial war spanning multiple jurisdictions. Other parties will be affected by the decision the Court is asked to make on Auto Net’s summary judgment application, and those parties are not before the Court. This is one of the rare cases where, even if the Court were to find that Mr Tyler has not established
1 Saunders v Vautier (1841) Cr & Ph 240; 41 ER 482 (Ch).
an arguable defence, the Court should exercise its residual discretion to refuse to order summary judgment.
[10] Auto Net applied under r 7.32 of the High Court Rules 2016 for leave to refer to a number of affidavits sworn by Mr Tyler and Mr Stone in various other proceedings, in which Auto Net was not a party. That application was not opposed by Mr Tyler, and I have considered the affidavits in the other proceedings in reaching my conclusions on the summary judgment application.
Summary judgment applications by a plaintiff – legal principles
[11]Rule 12.2 of the High Court Rules 2016 materially provides:
12.2 Judgment when there is no defence or when no cause of action can succeed
(1)The court may give judgment against a defendant if the plaintiff satisfies the court that the defendant has no defence to a cause of action in the statement of claim or to a particular part of any such cause of action.
…
[12] The proper approach to be taken to a plaintiff’s application for summary judgment was considered by the Court of Appeal in Krukziener v Hanover Finance Ltd, where the Court said:2
The question on a summary judgment application is whether the defendant has no defence to the claim; that is, that there is no real question to be tried: Pemberton v Chappell [1987] 1 NZLR 1 at 3 (CA). The Court must be left without any real doubt or uncertainty. The onus is on the plaintiff, but where its evidence is sufficient to show there is no defence, the defendant will have to respond if the application is to be defeated: MacLean v Stewart (1997) 11 PRNZ 66 (CA). The Court will not normally resolve material conflicts of evidence or assess the credibility of deponents. But it need not accept uncritically evidence that is inherently lacking in credibility, as, for example where the evidence is inconsistent with undisputed contemporary documents or other statements by the same deponent, or is inherently improbable: Eng Mee Young v Letchumanan [1980] AC 331 at 341 (PC). In the end the Court’s assessment of the evidence is a matter of judgment. The Court may take a robust and realistic approach where the facts warrant it: Bilbie Dymock Corp Ltd v Patel (1987) 1 PRNZ 84 (CA).
2 Krukziener v Hanover Finance Ltd [2008] NZCA 187, [2010] NZAR 307 at [26].
[13] The Supreme Court has confirmed that the fact that the Court may be required to determine questions of law does not preclude summary judgment.3
Bare trusts, the rule in Saunders v Vautier, and a trustee’s right to indemnity – the law
Bare trusts
[14]There was no dispute between counsel over the broad principles to be applied.
[15] A bare trustee has no interest in the trust assets other than those which exist by reason of the office of trustee and the holding of legal title. The trustee has no active duties to perform – the trust property simply awaits transfer to the beneficiaries, or awaits some other disposition at their direction.4
[16] The trustee’s obligation is simply to transfer the trust property at the direction of the beneficiary, assuming the beneficiary is of full age and capacity, and therefore able to give a valid direction and receipt, and that the trust property is capable of transfer by the trustee in the manner directed. The obligation to transfer to the beneficiary is also subject to any unsatisfied right the trustee may have to indemnity from the trust assets.5
[17]In Burns v Steel, Randerson J said:6
[62] Although consideration of whether the trustees are “bare trustees” may be helpful in some contexts, there is a risk of becoming overly concerned with nomenclature to the point where the nature of the duties and discretions of the trustees may be obscured. Where the expression “bare trustee” is used in statute, the Courts are of course obliged to give some meaning to it. But in the absence of a statutory reference of this kind, the real task is to ascertain the nature and extent of the trustees’ obligations and discretions by reference to the terms of the instrument establishing the trust, assessed in the context of all the relevant surrounding circumstances and the obligations imposed on trustees by the general law or by statute.
3 Zurich Australian Insurance Ltd v Cognition Education Ltd [2014] NZSC 188, [2015] 1 NZLR 383 at 404.
4 Commerce Commission v Harmoney Ltd [2018] NZHC 1107, [2019] 2 NZLR 81 at [42], citing
CGU Insurance Ltd v One.Tel Ltd (in liq) [2010] HCA 26, (2010) 242 CLR 174 at [36].
5 Lynton Tucker, Nicholas Le Poidevin QC and James Brightwell Lewin on Trusts (20th Ed, Sweet & Maxwell, London 2020 at [1-037].
6 Burns v Steel [2006] 1 NZLR 559 (HC) at [62].
The rule in Saunders v Vautier
[18] The rule in Saunders v Vautier provides that where there is only one beneficiary of a trust, that beneficiary may bring the trust to an end by directing the trustees to transfer the trust property to that beneficiary, despite any directions to the contrary in the trust document.7 The rule derives from the fact that the sole beneficiary, as the person ultimately entitled to the trust property, is, in equity, the absolute beneficial proprietor of the trust property.8 The effect is to convert the trust into a bare trust of the property called for.9 As with a bare trust, however, a beneficiary may be unable to demand a full distribution of the trust property if the trustee is entitled to retain any or all of the trust fund to satisfy his or her entitlement to an indemnity.
Trustee indemnity
[19]Section 38 of the Trustee Act 1956 materially provides:
38 Implied indemnity of trustees
…
(2)A trustee may reimburse himself or pay or discharge out of the trust property all expenses reasonably incurred in or about the execution of the trusts or powers; but, except as provided in this Act or any other Act or as agreed by the persons beneficially interested under the trust, no trustee shall be allowed the costs of any professional services performed by him in the execution of the trusts or powers unless the contrary is expressly declared by the instrument creating the trust:
provided that the court may on the application of the trustee allow such costs as in the circumstances seem just.
[20] Section 38(2) reflects the trustee’s common law right to be indemnified for his or her costs and expenses, properly incurred in discharging the obligations of trustee. However the terms of the trust may exclude, restrict or enhance a trustee’s right of indemnity out of the trust property.10 Only the settlor at the time of establishing the trust may act to vary the trustee’s proprietary right of indemnity in respect of the trust assets.
7 Gough v Strahl [2013] NZHC 3184, (2013) 3 NZTR 23-019 at [19], referring to Saunders v Vautier, above n 1.
8 Lewin on Trusts, above n 5 at [22-014].
9 At [22-017].
10 At [19-008].
[21] A trustee has a first charge, or lien, conferring an equitable interest in the trust fund, in respect of the liabilities, costs and expenses covered by the right of indemnity.11 That lien takes priority over the claims of the beneficiaries, so that a beneficiary, even if absolutely entitled, cannot compel a transfer of the trust fund to himself or herself, until the trustee’s just demands have been met.12
[22] The trustee’s right to retain trust assets extends to contingent or future liabilities for which he or she may become accountable as trustee.13 However the risk of contingent or future liabilities must be more than a fanciful one.14 It is for the trustee to make proper enquiries as to what the contingent and future liabilities consist of, and the extent of his or her potential liability, at the time the trustee asserts the right to retain the trust funds to satisfy the lien.15
[23] The trustee is only permitted to retain a sufficient part of the trust assets to meet the liability.16 The retention should be calculated on the basis of what is, on reasonable but not fanciful assumptions, the worst case.17 If the amount calculated is less than the whole trust fund, the balance should be distributed.18
[24] In addition to the proprietary indemnity just described, a trustee may also have a contractual right of indemnity against a beneficiary of the trust or a third party who has expressly agreed to indemnify the trustee. However an indemnity of that sort is a personal indemnity against the beneficiary or third party, and it does not confer any legal or equitable interest in the trust property.
11 At [19-044].
12 At [19-044] footnote [195].
13 Hayman v Equity Trustees Ltd [2003] VSC 353, (2003) 8 VR 557 at [62] and [65]; and Augusta Pty Ltd v Official Trustee in Bankruptcy [2008] NSWSC 685 at [35].
14 Concord Trust v The Law Debenture Trust Corporation plc [2005] UKHL 27, [2005] 1 WLR 1591 at [34].
15 Wester v Borland [2007] EWHC 2484 (Ch), [2007] All ER (D) 204 at [13], [16] and [17].
16 Re Knox’s Trusts [1895] 2 Ch 483 (CA).
17 Concord Trust v The Law Debenture Trust Corporation plc, above n 13, at [34].
18 Re Knox’s Trusts, above n 15, and Hayman v Equity Trustees Ltd, above n 12, at [65].
Evidence for Auto Net in support
[25] The evidence for Auto Net was given by one of its directors, Mr Michael Pearson. Mr Pearson is based in the Cayman Islands, and he is one of two directors of Auto Net (the other director is Mr Christopher Rowland).
[26] Mr Pearson confirmed that the ultimate beneficial owners of Auto Net are now Ms Fernandes and Mr Hemi. He said that he understood Mr Stone transferred his shares and interest to Ms Fernandes in 2016.
[27]Mr Pearson described the current ownership of Auto Net as follows:
(a)50 per cent of the shares are held by GTC Nominees Limited, a fiduciary company incorporated in the Cayman Islands (associated with Ms Fernandes); and
(b)50 per cent of the shares are held by NPLH (NZ) Limited (NPLH), a company associated with Mr Hemi.
[28] At least in the past, there has been some dispute about who is the beneficial owner of the shares in ATNZ. Mr Pearson said that Mr Rowland and he have not had access to ATNZ’s share register, but he has reviewed the documents registered at the Companies Office. Prior to April 2009, the Companies Office records showed that the sole shareholder of ATNZ was either “Autonet” or “Autonet Ltd”.
[29] A particulars of share changes document registered on 21 April 2009 recorded a change in shareholding from “Autonet” to the present plaintiff, Auto Net. Eight days later, a share transfer document was registered showing the change in the shareholding from Auto Net to Mr Tyler, in respect of all 10,000 ATNZ shares. Mr Tyler has remained the registered shareholder of all ATNZ shares since that date.
[30] Mr Pearson referred to affidavits sworn by Mr Tyler in a number of Court proceedings in this country, in which Mr Tyler has said that he received the ATNZ shares in 2009 as a bare trustee for Auto Net.19 Mr Pearson said that he understood that Mr Stone and his interests have also always operated on the basis that 100 per cent of the shares in ATNZ are held on a bare trust for Auto Net.
[31] Mr Hemi has been more equivocal in his position. In an affidavit sworn on 2 April 2018,20 Mr Hemi said: “Mr Tyler holds his shares in ATNZ on trust for Auto Net.” More recently, however, he has maintained that 50 per cent of the shares in ATNZ were held on a bare trust for him.21
[32] Mr Hemi now appears to have reverted to his original position on this issue. On 21 October 2019, he, Auto Net and NPLH entered into a deed (the October Deed) recording, among other things, that:
…Auto Net is, and has been since March 2001, the owner of shares in ATNZ…
[33] By the October Deed, the issue of any competing claim by Mr Hemi to ownership of the shares in ATNZ was resolved, and Mr Pearson said no other party is alleging any ownership interest in the shares. He concluded that all parties then accepted that 100 per cent of the shares in ATNZ were held by Mr Tyler on a bare trust for Auto Net.
[34] Mr Pearson acknowledged that he was not involved at the time the ATNZ shares were transferred to Mr Tyler in 2009. However he has had access to some relevant documents, and he produced a copy of a form of agreement dated 31 March 2009 signed by Mr Tyler (the March 2009 Document), which referred to Mr Tyler as the “nominee”. The March 2009 Document recited that Mr Tyler wished to record in
19 For example, in an affidavit sworn on 21 January 2019 in this Court in proceeding CIV-2019-419- 243, Mr Tyler said: “I accept that I am a bare trustee of [the ATNZ] shares. I hold those shares for Auto Net …”.
20 Referred to by Mr Tyler in an affidavit sworn by him on 21 January 2019 in proceeding CIV-2018- 419-243 (the Hemi proceeding).
21 In his original statement of claim filed in proceeding CIV-2018-419-243 (a proceeding against Mr Tyler), Mr Hemi said: “On or about 31 March 2019, at Mr Hemi and Mr Stone’s direction, Autonet transferred its shares in ATNZ to Mr Tyler as nominee and bare trustee for Mr Hemi as to 50% and Mr Stone as to 50% on the basis that he would exercise all rights in respect of such shares on both Mr Stone and Mr Hemi instructions and would transfer their shares as and when directed by them.”
writing that he held the shares in ATNZ in trust for Auto Net. It was not signed on behalf of Auto Net.
[35] The operative part of the March 2009 Document provided that the ATNZ shares were to be held by Mr Tyler for and on behalf of Auto Net, and that he was to attend all meetings of ATNZ and vote in accordance with instructions given to him in writing by Auto Net. Mr Tyler was required under the March 2009 Document to obtain written authorisation before entering into contracts in the name of Auto Net, and he was to hold all dividends received by him in respect of the ATNZ shares in trust for Auto Net.
[36]Clauses 5 and 6 of the March 2009 Document provided:
5.Transfer of Shares
[Mr Tyler] shall transfer the shares in the ATNZ to any person, firm or corporation at any time when called upon to do so by [Auto Net].
6.Indemnity
The above shares are held by [Mr Tyler] on trust on the basis that [Auto Net and its assigns] will at all times indemnify and keep indemnified [Mr Tyler] from all action, claims and liabilities which he may incur by reason of holding such shares and all costs and expenses incurred by him, his executors, administrators and assigns in respect of the trust hereby created.
[37] Mr Pearson referred in his affidavit to certain correspondence with Mr Tyler in which Mr Tyler has referred to an indemnity granted to him by Auto Net, and it may be that Mr Tyler was referring to the March 2009 Document. Mr Tyler has not produced or referred to any document executed by Auto Net which gave him any indemnity.
[38] Mr Pearson said that he and Mr Rowland have recently come to the view that Auto Net should have representation on the board of ATNZ. In order to facilitate the appointment of new directors, Mr Rowland and Mr Pearson have been trying to arrange for the transfer of the ATNZ shares from Mr Tyler to Auto Net. Mr Pearson considered that should not be a difficult matter after Mr Hemi completed the October Deed, in which he abandoned any competing claim to shares in ATNZ, but that has not proved to be the case.
[39] Mr Pearson produced copies of correspondence in which he and Mr Rowland have endeavoured to obtain a transfer of the ATNZ shares to Auto Net. Mr Braun became involved as solicitor and counsel for Mr Tyler in October 2019, and on 17 October 2019 Mr Braun asked for any relevant documents Auto Net might have that would assist him to come to grips with the matter.
[40] On 18 October 2019 Auto Net’s lawyers responded, referring to Mr Tyler’s previous evidence given in Court proceedings that he holds 100 per cent of the ATNZ shares on a bare trust for Auto Net. The letter referred to Mr Pearson and Mr Rowland having been appointed as independent directors of Auto Net about six months earlier, and their subsequent decision that further non-executive directors should be appointed to the board of ATNZ. The letter noted that that decision was not supported by Mr Stone.
[41] Auto Net’s solicitors went on to advise that they had heard that Mr Tyler might have some concerns about transferring the ATNZ shares. They said that they were not sure what those concerns were, given Mr Tyler’s previous statements that he holds the shares on trust for Auto Net. They asked Mr Braun to let them know what objection Mr Tyler had to transferring the shares.
[42] Before Mr Braun could respond, Auto Net entered into the October Deed with Mr Hemi and NPLH. Auto Net’s lawyers emailed Mr Braun enclosing a copy of the October Deed, with a share transfer form for Mr Tyler to execute.
[43] Mr Braun provided a substantive reply on 24 October 2019. Mr Braun’s letter included the following:
(i)The October Deed resolved some of the claims Mr Tyler was facing;
(ii)Mr Tyler took his shareholding in ATNZ subject to an indemnity;
(iii)Mr Tyler has to date been insulated from liability by being in control of ATNZ; and
(iv)Mr Tyler wants “comfort that he will not be subject to further litigation, and that he has an effective indemnity for any litigation”. Only then would Mr Tyler relinquish his control over ATNZ.
[44] In his affidavit, Mr Pearson expressed concern that the indemnity now being sought by Mr Tyler is much broader than that provided for in the March 2009 Document. Mr Pearson also expressed concern that Mr Tyler may have been using ATNZ funds to fund his defence of litigation brought against him personally.
[45] Correspondence followed between the lawyers, but no agreement was reached. On 31 October 2019 Auto Net’s lawyers enquired whether Mr Tyler would be willing to take steps to appoint Mr Pearson and Mr Rowland as directors until the share ownership issue was resolved. Mr Braun replied on 1 November 2019. The essence of his letter was that Mr Tyler was not obliged to transfer the shares until he had been given an indemnity. He did not agree to Mr Pearson and Mr Rowland joining the ATNZ board pending resolution of Auto Net’s claim to legal ownership of the ATNZ shares.
[46] On 5 November 2019, Auto Net’s solicitors advised Mr Braun that Auto Net would not resile from the indemnity that exists as a matter of law and equity for all costs properly and reasonably incurred in relation to Mr Tyler’s trusteeship of the shares, but any indemnity would not extend to broad-ranging claims against Mr Tyler for alleged breaches of fiduciary duties in relationship to his management of ATNZ and another company within the wider Hemi/Stone group, IComm. The solicitors contended that Mr Tyler had no lawful basis to refuse to transfer the shares to Auto Net.
[47] No progress was made in the correspondence after that, and Auto Net then issued its present claim.
[48] Mr Pearson said that, once Auto Net has legal title to the ATNZ shares, it intends to appoint himself and Mr Rowland as directors of ATNZ. Mr Pearson expressed concern that Mr Tyler was continuing to run ATNZ on a “business as usual” basis when he knows that the share register does not reflect the ownership of the shares, and he knows that Auto Net is demanding the appointment of two directors to the board.
[49] Mr Pearson said that Auto Net is not aware of any costs that Mr Tyler has incurred that could be subject of the indemnity he is seeking. While the indemnity that exists as a matter of law is one that will cover Mr Tyler’s reasonable and proper expenses in his role as a trustee of the shares, the various pieces of litigation in which Mr Tyler is involved do not concern the trusteeship of the ATNZ shares.
Evidence for Mr Tyler
[50]Two affidavits were filed in opposition, one by Mr Tyler and one by Mr Stone.
Mr Tyler’s affidavit
[51] In his evidence, Mr Tyler accepted that he holds all of the ATNZ shares on trust for Auto Net. However he said that he did not believe that he was required to transfer the shares to Auto Net until he was provided with reasonable security in the form of an indemnity for claims which have arisen not only from his role as trustee/shareholder of ATNZ, but also from his role as ATNZ’s sole director. He said that an indemnity of that sort had been promised by Auto Net, ATNZ, and/or the ultimate beneficial owners of Auto Net.
[52] Mr Tyler agreed that Mr Stone’s interests in the Hemi/Stone commercial group are now represented by his partner, Ms Fernandes, and that the interests of Ms Fernanes and Mr Stone are aligned. He said that Mr Stone holds a power of attorney for Ms Fernandes.
[53] Mr Tyler said that he has found himself stuck in the middle of the dispute between Mr Stone and Mr Hemi, and Auto Net itself is not isolated from the issues facing the wider group; indeed it is now at the heart of the wider global issues. There
is now a “significant multitude of proceedings”, involving numerous issues and significant factual complexity, pending in New Zealand, Japan, and the Philippines. He said that the complexity includes the ownership of, and agreements relating to, the shares in ATNZ.
[54] Mr Tyler briefly described the arrangements between ATNZ and IBC. IBC was set up by Mr Hemi and Mr Stone in Japan in 1991 to export vehicles from Japan, and ATNZ was a New Zealand-based customer of IBC. ATNZ is a substantial debtor of IBC under vehicle supply agreements entered into between IBC and ATNZ.
[55] Until 2017, IBC was effectively controlled by Mr Stone as its “representative director”. However Mr Hemi and his wife secured control of the board of IBC in May 2018, and ousted Mr Stone from his position as representative director. The litigation in Japan, the Philippines, and New Zealand followed, relating to various aspects of the Stone/Hemi dispute. The majority of these actions are ongoing.
[56] Mr Tyler listed the following Court proceedings that are pending in New Zealand:
(1)CIV-2018-419-294: ATNZ v IBC (the ATNZ proceeding). This proceeding commenced with an application by ATNZ for an interim injunction. That application was unsuccessful, but the proceeding has carried on as an ordinary proceeding, in which ATNZ seeks damages for alleged breach of contract arising from various supply agreements between the parties. The proceeding has now been consolidated with a separate proceeding by IBC against ATNZ, in which IBC claims amounts said to be payable under the vehicle supply agreements, and damages.
(2)CIV-2018-419-243: Hemi v Tyler (the Hemi proceeding). The Hemi proceeding was commenced by Mr Hemi against Mr Tyler in 2018. Mr Hemi initially claimed in this proceeding that Mr Tyler held the shares in ATNZ as a bare trustee for Mr Stone and Mr Hemi. He alleged breaches of fiduciary duty by Mr Tyler. Mr Hemi has recently amended
his claim in this proceeding. He now accepts that Mr Tyler holds the ATNZ shares on trust for Auto Net. However he continues to allege that Mr Tyler has breached fiduciary duties. Mr Tyler denies that he is in breach of any fiduciary duties owed to either Auto Net or Mr Hemi.
(3)CIV-2019-419-69: IBC v ATNZ (the liquidation proceeding). IBC applied to liquidate ATNZ on just and equitable grounds. That application failed.
(4)CIV-2019-419-231: ATNZ v IBC (the statutory demand proceeding). After the application to liquidate ATNZ on just and equitable grounds failed, IBC issued a statutory demand to ATNZ for over $33 million, being an amount said to be owing under the vehicle supply agreements.
ATNZ applied to set aside the statutory demand.22
[57] In addition to those proceedings, Mr Tyler described the following proceedings in other jurisdictions:
(1)There are proceedings in the Philippines in which IBC is suing Mr Tyler in his capacity as president and director of the company iComm International Inc (iComm), a part of the wider Hemi/Stone group. There are other claims in the Philippines, including a claim for declaratory relief by iComm’s corporate secretary, to which IBC, Mr Hemi, Mr Stone/Ms Fernandes and Mr Tyler are all respondents. There is also a proceeding in which IBC alleges that Mr Tyler executed a falsified document for iComm in 2018. Mr Stone is also a respondent in that proceeding.
(2)There is litigation ongoing in Japan, including three actions by Mr Stone against Mr Hemi. First, Mr Stone seeks to have a court inspector appointed to investigate alleged falsification of IBC’s financial records and alleged breaches of fiduciary duty by Mr Hemi. Secondly, there is
22 That application was successful: Autoterminal New Zealand Ltd v IBC Japan Ltd [2020] NZHC 843.
a derivative action for alleged breach of duty by Mr Hemi and his wife, as directors of IBC. Thirdly, there is an application to dissolve IBC on just and equitable grounds, in which Mr Stone alleges impropriety by Mr Hemi and his wife, resulting in a breach of trust among the two shareholders (Mr Hemi and Mr Stone).
[58] Mr Tyler accepted that he has described himself in various affidavits filed in the Court proceedings as holding the shares in ATNZ on trust for Auto Net. He further accepted that he has used the words “bare trust” to describe the nature of the trust. However he said that none of those proceedings have focussed on the terms of the trust on which he has held the ATNZ shares. The trust arrangement was entered into following discussions with Mr Hemi and Mr Stone, who were the ultimate beneficiaries of Auto Net. The terms of the trust are important, but Mr Hemi has changed his story multiple times and Mr Stone also now says that he and Ms Fernandes reserve their position on the party or parties for whom Mr Tyler holds the ATNZ shares. (Mr Stone says that when the ATNZ shares were transferred by Auto Net to Mr Tyler, there was an agreement that Mr Tyler would not transfer them out of his name without the express consent of Mr Hemi and Mr Stone.) Ms Fernandes has expressly said that she does not agree to the shares being transferred to Auto Net in the current circumstances.23
[59] Mr Tyler confirmed that ATNZ does have a share register, and that the shareholdings shown in it reflect the legal ownership of the shares as recorded on the Companies Office register.
[60] To illustrate his point that Mr Hemi has taken inconsistent positions on the beneficial ownership of ATNZ, Mr Tyler referred to the following passage from the judgment of Davison J on Mr Tyler’s unsuccessful protest to the New Zealand jurisdiction in the Hemi proceeding:24
23 Mr Tyler produced a copy of a letter dated 25 February 2020 from a firm of solicitors acting for Ms Fernandes, in which an undertaking was sought that Mr Tyler would not transfer the ATNZ shares to Auto Net. The solicitors said that Ms Fernandes considers that the directors of Auto Net are acting in breach of their duties to her (as a shareholder in Auto Net), and that she has no confidence that they will act in ATNZ’s best interests if the shares are transferred to Auto Net.
24 Hemi v Tyler [2019] NZHC 1114 at [21].
[Counsel for ATNZ] notes that [Mr Hemi] has not filed evidence in support of his claim that [Mr Tyler] holds the shares in ATNZ on a bare trust for him, and he has not filed any evidence contesting [Mr Tyler’s] evidence in his affidavit filed in support of his notice of opposition, in which he says that the shares are held on bare trust for Auto Net. Nor has [Mr Hemi] attempted to explain the inconsistency of his affidavit evidence in other legal proceedings filed in this Court, and related to the on-going dispute between [Mr Hemi] and Mr Stone, in which he stated that, “Mr Tyler holds his shares in ATNZ on trust for Auto Net”.
[61] Mr Tyler said that he is faced with competing claims by Mr Hemi, Auto Net and Mr Stone, all of whom have claimed at one time or another to have rights in relation to the ATNZ shares that he holds. Mr Tyler expressed concern that, if he did transfer the shares to Auto Net, he would face potential proceedings from both Mr Hemi and Mr Stone, and would have lost a major part of the protection of the indemnity that Mr Hemi and Mr Stone promised him when he took on the directorship and later the shareholding of ATNZ.
[62] Mr Tyler said that he became sole director of ATNZ on or about 31 May 2004. At that time he was living in the Philippines. Mr Stone and Mr Hemi asked him if he would step in as the director of ATNZ, and he agreed to do that on the basis that they would give him an indemnity for taking on the new role.
[63] In 2008, Mr Stone and Mr Hemi asked Mr Tyler to leave his role in the Philippines and return to New Zealand fulltime to manage ATNZ during the global financial crisis. At the time, both ATNZ and the group as a whole were losing a significant amount of money, and there was a large build-up of stock (over 6,000 cars) with large overheads and significant investment required to purchase ongoing stock. Mr Tyler said that ATNZ was all but insolvent, and completely reliant on IBC for its continued ability to trade.
[64] Mr Tyler said that both Mr Stone and Mr Hemi promised him that they would look after him if things went badly for ATNZ. However before returning to New Zealand to run ATNZ, Mr Tyler insisted that Mr Stone, Mr Hemi and the entities they controlled give him full control over all aspects of ATNZ’s business operation, and all decision making relating to the business. He referred to the “precarious state” of
ATNZ’s business, and the risk of personal liability he would have as a director of a company that was only surviving with the support of its major supplier.
[65]Mr Tyler then said:
Mr Hemi and Mr Stone both promised me a full and complete indemnity backed up by themselves and the entities they controlled.
[66] Mr Tyler said that an indemnity was common within the group, and had been given to other people for similar roles when Mr Hemi and Mr Stone asked them to accept directorship and trustee roles, where they would be exposed to risk. Given the circumstances, Mr Tyler said he wanted to ensure that the indemnity he was being given was even wider than normal, and covered him for absolutely any liability he might incur as a result of the position he was taking on with ATNZ. He said:
… The indemnity we agreed was never documented largely because at the time the business was at a very critical phase, and fires were being fought every minute of every day. Our focus was only protecting the business, and we were all very busy. However, I have no doubt that we all agreed on the nature of the indemnity that I was being given. This indemnity was crucial to my agreeing to be involved as a director of the New Zealand operation given the risk I was taking on.
[67] At some point in early 2009 ATNZ’s auditors advised that ATNZ would be required to file annual financial statements with the Companies Office, because it was 100 per cent foreign-owned. Mr Hemi and Mr Stone were not happy about that, as they did not wish ATNZ’s accounts to be publicly available to the market, including IBC’s customers, suppliers and banks (the accounts would disclose the extent of IBC’s exposure to ATNZ, which was by far the largest of IBC’s debtors). To meet this concern, it was agreed that the ATNZ shares would be transferred into Mr Tyler’s name on the basis that he would hold the shares on trust for Auto Net.
[68] Mr Tyler said that it was around this time that Mr Hemi and Mr Stone asked him to prepare a trust agreement in relation to the ATNZ shares. In response, Mr Tyler prepared the March 2009 Document. He signed and dated the March 2009 Document, and sent it to Auto Net. He said that he did not receive a copy back signed by Auto Net, but assumed at the time that it had been executed because the ATNZ shares were later transferred to him.
[69] Mr Tyler said in his affidavit that when he prepared the March 2009 Document, it was on similar terms to those he had discussed with Mr Hemi and Mr Stone when he became a director of ATNZ. However he also described the March 2009 Document as “just a formality”, that did not cover the full scope of what he had agreed with Mr Hemi and Mr Stone.
[70] He said that the indemnity at clause 6 of the March 2009 Document was in line with what Mr Hemi, Mr Stone and he had discussed when he became a director of ATNZ, but the clause 6 indemnity was only in respect of Auto Net. When Mr Tyler took on the role as director and later shareholder/trustee, he was assured by Mr Stone and Mr Hemi that there would be no risk to him in taking on those roles, and that they and their various entities would ensure that he was fully indemnified. Mr Tyler said that he received no director’s fees or increase in salary by taking on these roles – it was just something he accepted as part of his employment within the organisation.
[71] At the time Mr Tyler signed the March 2009 Document, ATNZ had negative equity of at least $15 million.25 He said that IBC was then in an even larger financial hole, with negative equity of over $50 million. Mr Tyler said that Mr Stone and Mr Hemi were under a lot of financial pressure at the time, and they started to have disagreements about the best way to navigate the group out of its financial trouble. He said that there was a delicate balance of power between Mr Stone and Mr Hemi, and that they were careful about maintaining that balance. Accordingly, Mr Tyler understood that when the ATNZ shares were transferred to him, Mr Stone and Mr Hemi agreed that they would both have to agree before Mr Tyler would transfer them out of his name.
[72] After Mr Tyler signed the March 2009 Document, he rarely heard from Auto Net in relation to anything to do with ATNZ. Auto Net was then represented by Mr David Roberts, but Mr Roberts did not request much information about ATNZ. There was no discussion with Mr Roberts about Mr Tyler’s role as trustee of the ATNZ shares. There was never any discussion about ATNZ paying dividends, and none were ever paid.
25 Mr Tyler said that ATNZ has since recovered financially, to the point where it now has positive equity.
[73] Mr Tyler asserted that the reality in respect of the indemnity is that Mr Stone, Mr Hemi and Auto Net are all based overseas, and they are “all but judgment proof”. The only asset in New Zealand available to meet the indemnity is the shareholding in ATNZ, and the shares are therefore his only real security against the costs he will have to incur defending himself against the existing and threatened claims by Mr Hemi and Auto Net, and the threatened claim by Mr Stone. It was the security of having the shares that gave Mr Tyler the comfort to take on the roles he assumed without the indemnity agreements being formally documented and signed up front. He thought he would have the value of the ATNZ shares to fall back on.
[74] Mr Tyler then addressed potential claims and liabilities he considered had already arisen resulting from his roles at ATNZ. First, he referred to an audit of ATNZ conducted by the Commissioner of Inland Revenue in 2014. The Commissioner initially considered that, as a result of the share transfer in 2009, there was a loss of continuity of ownership of ATNZ. The Commissioner sought to remove $15 million of tax losses ATNZ had sought to deduct from its profit for the tax year. That issue appeared to have been resolved when the Commissioner accepted that only $6 million of the losses should be disallowed, but Mr Tyler considered that there remains a risk to him given the disputed nature of his ownership of the ATNZ shares. If that ownership ultimately changes as a result of one of the many disputes between Mr Hemi and Mr Stone/Ms Fernandes, he could be personally liable in respect of the $9 million in tax losses that were accepted by the Commissioner.
[75] Mr Tyler next expressed concern that if ATNZ’s assets were to be realised on a fire sale basis, there would not be enough funds to repay IBC in full. Mr Hemi currently controls IBC, and he has shown that he intends to pursue Mr Tyler personally for whatever he can. Mr Tyler expressed concern that if he were to relinquish control of ATNZ by transferring the shares to Auto Net, Auto Net would either voluntarily liquidate ATNZ or would not oppose IBC’s efforts to liquidate ATNZ. IBC could then pick a liquidator of its choice, and fund the liquidator to pursue Mr Tyler as the sole director.
[76] Mr Tyler said that he has told Mr Pearson and Mr Rowland that he would be happy to include them in all correspondence, provide them with all information about the affairs of ATNZ that directors would receive, and to consult with them about decisions that he made as the sole director. However he wishes to retain ultimate control of ATNZ because of the concerns set out above.
[77] Mr Tyler expressed concern that Mr Pearson and Mr Rowland already appeared to be discussing with Mr Hemi what they proposed to do with ATNZ, before they were even directors, or had a full understanding of ATNZ’s business and financial position. If Mr Hemi has struck a deal with Mr Rowland and Mr Pearson, there is a clear and obvious risk that there will be claims against Mr Tyler as a result of his position with ATNZ.
[78] Thirdly, Mr Tyler addressed the actual claims made against him. He noted that, while Mr Hemi has discontinued his cause of action in the Hemi proceeding in which he alleges breach of trust in relation to the ATNZ shareholding, he has not discontinued his claims of breach of fiduciary duty. Mr Hemi appears to be still intending to argue that there was some deeper trust relationship, and other obligations owed by Mr Tyler beyond those of a “bare trustee” for Auto Net.
[79] On the question of appointing new directors of ATNZ, Mr Tyler referred to ATNZ’s constitution, which provides that either the shareholders or the board may appoint directors. As matters presently stand, Auto Net is neither a shareholder nor on the board.
[80] In response to Mr Pearson’s evidence that Auto Net would honour the indemnity that exists as a matter of law for expenses reasonably and properly incurred by Mr Tyler in his capacity as a trustee of the shares, Mr Tyler said that that was a much narrower indemnity than he had been promised. Also, it would probably be very difficult for him to enforce against an entity based in the Cayman Islands whose financial position is unclear.
[81] In response to Mr Pearson’s evidence that he is not aware of any costs incurred by Mr Tyler that could be subject to an indemnity, Mr Tyler referred to the Hemi proceeding and this proceeding, both of which directly affect his position as the director and shareholder of ATNZ. He noted that if he had not opposed the Hemi litigation in the early days, 50 per cent of the ATNZ shares would have been transferred to Mr Hemi at the expense of Auto Net. He said that he had no confidence that he would have any protection for his costs given that Auto Net has expected him to cover his own costs in defending its interests in an adverse claim.
[82]Mr Tyler summarised his position as follows:
[70]In short, my position is that I took on the directorship and shareholding of ATNZ on the basis of assurances from Mr Hemi and Mr Stone (then controlling 100% of the shares in Auto Net) that I would be indemnified against any and all liabilities that I incurred as a result. I insisted on having full control of ATNZ to ensure that this indemnity had substance. If the ATNZ shares are to be transferred I want to be provided comfort that I will have the protection of an indemnity of substance here in New Zealand.
[71]I understand that Mr Hemi and Mr Stone agreed at the time that I was not to transfer the ATNZ shares out of my name unless they both agreed. Mr Stone has now expressly forbidden me from transferring the shares to Auto Net.
Mr Stone’s affidavit
[83] Mr Stone confirmed that he transferred his interest as one of the ultimate beneficial owners of Auto Net to Ms Fernandes in 2013. However he confirmed that he does hold a power of attorney from Ms Fernandes to assist her in managing the current dispute, and he has been intimately involved in the events leading up to the filing of this proceeding.
[84] Mr Stone accepted that Mr Tyler holds the shares on trust for Auto Net, “and ultimately for the beneficial shareholders of Auto Net, being Mr Hemi and now Ms Fernandes”. However Ms Fernandes and he are opposed to the transfer of the ATNZ shares to Auto Net. They want the shares to remain in Mr Tyler’s name. They feel that is critical to the viability of the ATNZ business while the overall disputes remain before the Courts.
[85] Mr Stone confirmed that he and Mr Hemi asked Mr Tyler to return to New Zealand from the Philippines in 2008 to take over ATNZ. He said that ATNZ had been experiencing some significant challenges, both financially and operationally. He described ATNZ’s financial position at the time as “effectively under water”. It was only able to avoid insolvency because Mr Stone issued guarantees as IBC’s representative director, allowing ATNZ to return to profitability and to repay IBC the debts that were then owed.
[86] Mr Tyler agreed to return to New Zealand in late 2008 to take over ATNZ, on condition that he would be indemnified from any risk as a director by Mr Hemi, Mr Stone, and the various entities controlled them.
[87] Mr Stone said that in 2009, he and Mr Hemi asked Mr Tyler to hold the shares on trust on behalf of Auto Net. He confirmed that the reason for this was that leaving the ATNZ shares in Auto Net’s name would have negative implications for IBC.
[88] Mr Hemi and Mr Stone then agreed that the indemnities that applied to Mr Tyler in his capacity as a director would extend to him in his role as a shareholder. They asked Mr Tyler to prepare a document to record the change of shareholding. Mr Tyler then sent the March 2009 Document, which he had signed.
[89] Mr Stone confirmed that the March 2009 Document was not circulated to Auto Net’s director at the time, Mr Roberts, because all parties, including Mr Tyler, Mr Hemi and Mr Stone, considered the agreement they already had (and about which Mr Roberts had been notified) was binding. The documentation was only a formality.
[90] Mr Stone said that the indemnities were offered by Mr Hemi and himself as the ultimate beneficial owners of Auto Net, with the assurance that Mr Tyler would remain a resident of New Zealand and that he would continue to hold the ATNZ shares and act as a director for ATNZ. Mr Stone said that it was expressly agreed that any change to that arrangement would require both Mr Hemi’s and his approval. Mr Roberts was informed of the arrangement and did not object, but no formal agreement between Mr Tyler or Auto Net was ever signed.
[91] Mr Stone explained the absence of a formal document by referring to the high degree of trust that existed between Mr Hemi, Mr Tyler and himself.
[92] Mr Stone said that he and Mr Hemi had not agreed on the direction of the IBC operation, nor of the overall Hemi/Stone group, for some time. He referred to the balance of power which he and Mr Hemi maintained within the group structure until 2018, when the situation in Japan changed. One of the directors of IBC died, providing an opportunity for Mr Hemi to take the role of representative director. The litigation which has followed in Japan, the Philippines, the Cayman Islands, the British Virgin Islands, and New Zealand reflects a struggle between Mr Hemi and Mr Stone for control of the wider group.
[93] Mr Stone referred to the claims that have been made previously by Mr Hemi (before he signed the October Deed) that the ATNZ shares have been held in trust for Mr Hemi and Mr Stone personally. Mr Stone then said:
My view is that Mr Hemi’s previous claim reflects the spirit of the original agreement, which is that it was Mr Hemi and I as the ultimate beneficial shareholders who appointed [Mr Tyler] and promised him indemnities and guarantees.
[94]Mr Stone then said:
[14] Given the uncertainty of the situation, the risk that Mr Hemi may change his story again, and the multiple, complex proceedings in numerous jurisdictions that involve Mr Hemi, me and entities that we have set up over many years in business together, I wish to reserve my position on the beneficial ownership of [the ATNZ] shares. I do not agree that they should be transferred to Auto Net, particularly given that it appears that Mr Hemi has done some deal with the directors of that company, given his sudden change of position. Mr Hemi clearly wants to use ATNZ as leverage in the wider dispute. I want [Mr Tyler] to continue holding the ATNZ shares until the global disputes are resolved or agreement is reached between Mr Hemi and me about ownership of ATNZ. I repeat that when the shares were transferred to [Mr Tyler], Mr Hemi and I agreed that they would remain in his name until he and I both agreed that they could be transferred to someone else. Neither I nor Ms Fernandes agree to the ATNZ shares being transferred to someone else, particularly not Auto Net.
[95] Mr Stone said that he was “continuing to consider [his] position in respect of the ownership of the shares in Auto Net”.
Reply evidence for Auto Net
[96]Mr Pearson provided an affidavit in reply.
[97] Mr Pearson said that both he and Mr Rowland were truly independent, with no vested interests or prior associations with any of the ultimate beneficial owners or their companies. He and Mr Rowland considered that a transfer of the ATNZ shares to Auto Net would be in the best interests of both Auto Net and ATNZ, so that the latter company could have at least one independent director (given that Mr Tyler appears to have aligned himself with Mr Stone and acted on his instructions).
[98] Mr Pearson confirmed that this proceeding has not been instigated by Mr Hemi. He said that he and Mr Rowland are just taking steps in the best interests of Auto Net (and another company in the Hemi/Stone group to which they have been appointed directors, Autoterminal International, a BVI company).
[99] Mr Pearson said that Auto Net remains willing to indemnify Mr Tyler in relation to any reasonable and necessary expenses he has incurred as a trustee of the ATNZ shares. However, he expressed the belief that there should be no costs to charge against that indemnity, because Mr Tyler has been meeting his expenses out of ATNZ resources. That allegation was made in a letter dated 31 December 2019 to Mr Tyler’s solicitors, and it has not been denied in subsequent correspondence from Mr Tyler’s solicitors.
[100] Mr Pearson referred to a number of requests made by Auto Net to Mr Tyler that he appoint Mr Pearson and Mr Rowland as directors of ATNZ. These requests have been refused by Mr Tyler.
[101] In response to Mr Stone’s affidavit, Mr Pearson referred to an affidavit sworn by Mr Stone on 3 October 2019 in the ATNZ proceeding. In that affidavit, Mr Stone explained why Mr Tyler became the owner on the record for ATNZ as follows:
[8]I confirm Mr Tyler’s evidence that it was me who instructed him to have him as the owner on the record for ATNZ and not Autonet, to keep ATNZ’s financial and other information off the public record. According to New Zealand Companies Office regulations, any
company with foreign ownership has to have all of its financial and other records accessible to the public via its website.
[9]To begin with, the intention of recording [Mr Tyler] as the owner was to keep the ATNZ information from IBC’s competitors, but after the [Global Financial Crisis (GFC)] it was even more important given ATNZ’s less than stellar financial position. Post-GFC access to ATNZ’s financial records would have led to IBC’s banks ceasing their support of IBC and consequent winding-up of IBC would have resulted without question. The request was made of [Mr Tyler] to protect IBC and ATNZ from its competitors, and it ended up protecting IBC and its shareholders from having IBC liquidated, by keeping ATNZ’s financial information private and buying time to allow ATNZ to trade out of its dire financial position post-GFC. The strategy was successful as ATNZ returned to profitability, IBC repaid its debts to the banks, and both entities have prospered as a result.
[102] In response to Mr Tyler’s evidence, Mr Pearson rejected the view that this proceeding is ultimately a partnership dispute between Mr Hemi and Mr Stone, and that Auto Net is not isolated from the issues facing the wider group. He reiterated that he and Mr Rowland are not aligned to any faction, but are only acting in what they consider to be the best interests of Auto Net and ATNZ. Auto Net has not sided with either Mr Stone or Mr Hemi, and is focussed solely on acting in the best interests of the companies.
[103] In response to Mr Tyler’s evidence that Mr Hemi has previously changed his position regarding the basis on which the shares in ATNZ are held by Mr Tyler, Mr Pearson said that the issue was resolved when Mr Hemi signed the October Deed.
[104] Mr Pearson said that, now that he and Mr Rowland have concerns about the management of ATNZ, they consider it to be in Auto Net’s interests for them to adopt a more involved, supervisory role in ATNZ. Mr Pearson and Mr Rowland have no intention of removing Mr Tyler from his role on the board of ATNZ; his local knowledge would be retained. What Messrs Pearson and Rowland want is oversight, to ensure that the business is being properly run.
[105] Mr Pearson denied having stated to Mr Hemi that once he and Mr Rowland were appointed directors of ATNZ, IBC would immediately be repaid all the money that is due to it. What was said, was that it made sense for there to be independent directors controlling the relevant entities, so that if Mr Pearson and Mr Rowland
controlled PAC (one of the other companies within the Hemi/Stone group) they should also control ATNZ. No undertaking was given to Mr Hemi.
[106] Mr Pearson said that he and Mr Rowland have not predetermined what they will do if appointed to the board of ATNZ. Specifically, they have no intention of winding up ATNZ. Their first acts would likely be to change the banking signatories to have dual signing requirements, and to undertake a forensic investigation into the affairs of ATNZ. In so doing, they would not be acting on Mr Hemi’s instructions, but would be acting in the best interests of ATNZ.
[107] In response to a suggestion by Mr Tyler that an application by counsel for Mr Hemi for access to the Court file in this proceeding shows that there has been an inappropriate sharing of information with Mr Hemi. Mr Pearson said that the reason Mr Hemi’s counsel had to apply to the Court for access to the Court’s documents is because Auto Net refused to provide the documents to them.
[108] Finally, Mr Pearson referred to the terms on which Auto Net would be willing to permit Mr Tyler to retain 24 per cent of the shares in ATNZ as security. The terms, as set out in an email from Auto Net’s solicitors dated 6 March 2020, were:
(1)Auto Net does not accept that any indemnity exists beyond that which Mr Tyler has as a matter of law and reserves its rights on the indemnity. This is on the basis of a lack of any records and it may be necessary to resolve this at a subsequent time.
(2)The shares would be retained as security for Mr Tyler’s role as a shareholder trustee. The scope of the indemnity Mr Tyler states exists now is that outlined in [the March 2009 Document].
(3)Notwithstanding all of the above, Auto Net remains committed to indemnifying Mr Tyler pursuant to his indemnity that exists as a matter of law for any cost reasonably and necessarily incurred in his role as a trustee. No costs have been claimed as chargeable this indemnity.
The issues to be decided
[109]The following are the issues to be decided:
(1)Is it reasonably arguable for Mr Tyler that the ATNZ shares are held in trust for Mr Hemi and Mr Stone personally (and not for Auto Net)?
(2)Is it reasonably arguable for Mr Tyler that the basis on which he holds the ATNZ shares includes a requirement that he is not to transfer the shares to anyone (including Auto Net) without the consent of both Mr Hemi and Mr Stone?
(3)Is it reasonably arguable for Mr Tyler that he is entitled to an equitable lien over the ATNZ shares, having priority over Auto Net’s claim to the shares, for the amounts of any current, future or contingent claims that have been or might be made against him?
(4)If the answer to Issue (3) is “yes”, is it arguable for Mr Tyler that the total amount secured by the equitable lien may equal or exceed the value of the ATNZ shares?
(5)If the answer to Issue (3) is “yes”, but the answer to Issue (4) is “no”, does Mr Tyler have an arguable defence that he is entitled to retain some of the ATNZ shares to satisfy the equitable lien? If so, how many shares should he be allowed to retain?
(6)If Mr Tyler does not have an arguable defence under any of Issues (1) to (5) above, should the Court nevertheless exercise its residual discretion to refuse summary judgment?
[110]I will address each issue in turn.
Issue (1) – Is it reasonably arguable for Mr Tyler that the ATNZ shares are held in trust for Mr Hemi and Mr Stone personally (and not for Auto Net)?
[111]In my view it is not.
[112] As far as the evidence shows, the ATNZ shares in early April 2009 were owned (legally and beneficially) by Auto Net. There is no evidence that Auto Net transferred its beneficial interest in the ATNZ shares to Mr Stone and Mr Hemi, nor any evidence that either of them provided any consideration for the shares to Auto Net at or about the time the shares were transferred to Mr Tyler. Absent any evidence to the contrary, the only available inference is that Mr Tyler has been holding the shares for Auto Net.
[113] Consistent with that, Mr Tyler, Mr Stone and Mr Hemi have all said on oath, either directly or by implication, that the shares are held for Auto Net. Mr Tyler has said it directly, and so has Mr Hemi.26 And the only sensible inference from Mr Stone’s evidence described at [83] of this judgment, read with his evidence in the other proceeding referred to by Mr Pearson in his reply affidavit,27 is that Mr Stone, despite “reserving his position”, does not deny that Mr Tyler holds the ATNZ shares for Auto Net.
[114] The only contrary view that has been expressed appears to be that of Mr Hemi in his original claim in the Hemi proceeding28, but the relevant allegation was inconsistent with earlier sworn evidence of Mr Hemi, and it has now been withdrawn (in the October Deed).
[115] For those reasons, I find for Auto Net on Issue (1): it is not reasonably arguable for Mr Tyler that the ATNZ shares are held in trust for Mr Hemi and Mr Stone personally. The shares are held for Auto Net.
Issue (2) – Is it reasonably arguable for Mr Tyler that the basis on which he holds the ATNZ shares includes a requirement that he is not to transfer the shares to anyone (including Auto Net) without the consent of both Mr Hemi and Mr Stone?
[116] I do not think I can put much weight on the March 2009 Document itself on the issue of the terms of the trust. Mr Stone says it was never provided to Mr Roberts, and I think that statement has to be accepted for the purposes of this summary judgment application. Mr Tyler and Mr Stone both say that the terms of the trust were
26 In Mr Hemi’s affidavit sworn on 2 April 2018, referred to at [30] above.
27 Reproduced at [100] of this judgment.
28 The relevant passage is reproduced at footnote 21 above.
agreed orally,29 and Mr Roberts as the director of Auto Net at the time had to be part of the agreement. If he didn’t see the March 2009 Document he could only have been operating on the basis of his understanding of an oral agreement that had been relayed to him, which he was content to go along with.
[117] It is not clear that Mr Tyler was a party to any express agreement between Mr Hemi, Mr Stone and Auto Net that the ATNZ shares were not to be transferred out of Mr Tyler’s name without the consent of Messrs Stone and Hemi. When he drafted the March 2009 Document, he included within it an unqualified obligation on himself to transfer the ATNZ shares to any person firm or corporation “at any time when called upon to do so by Auto Net”. And in his affidavit filed in this proceeding he seems to have stopped short of saying that he was a party to an express agreement that the ATNZ shares could not be transferred out of his name without the consent of Messrs Stone and Hemi.
[118] But there is evidence that Mr Tyler expected to obtain full control of ATNZ, including rights as its sole legal shareholder, when he moved from the Philippines to New Zealand to run ATNZ in 2009. By the time he was asked by Mr Stone and Mr Hemi to move to New Zealand and run ATNZ on a fulltime basis, the global financial crisis had hit, and ATNZ was clearly in a degree of financial trouble. Mr Tyler said that, before agreeing to return to New Zealand to run ATNZ, he insisted that Mr Stone, Mr Hemi and the entities they controlled give him full control over all aspects of ATNZ’s business operation and all decision making relating to the business.
[119] Mr Tyler would not have had “full control” of ATNZ if he were effectively obliged to hand full ownership of the ATNZ shares back to Auto Net on demand by it. Furthermore, it seems at least arguable that Mr Hemi and Mr Stone may have intended that he was to have that level of control. Mr Stone said in his evidence that the indemnities Mr Tyler was offered by Mr Stone and Mr Hemi in their capacities as ultimate beneficial owners of Auto Net were given:
29 Mr Tyler said in his evidence that “[the March 2009 Document] was just a formality and did not cover the full scope of what I had agreed with Mr Hemi and Mr Stone”.
… with the assurance that Mr Tyler would remain a resident of NZ and continue to hold the ATNZ shares and act as a director for ATNZ. We expressly agreed that any change to that arrangement would require both Mr Hemi’s and my approval.
(emphasis added)
[120] Mr Stone went on to say that Mr Roberts was informed of this arrangement and did not object to it. He said the agreement that Mr Tyler would remain the shareholder and director of ATNZ until both Mr Hemi and he both agreed otherwise, was and remains binding.
[121] No affidavits were provided by Mr Hemi or Mr Roberts, but it seems from what Mr Stone has said, and from what Mr Hemi alleges in his amended statement of claim in the Hemi proceeding, that back in 2009 Mr Roberts may have been accustomed to defer to any joint instructions concerning the operations of Auto Net that Mr Hemi and Mr Stone gave him. For example, Mr Hemi says in his second amended statement of claim, dated 22 October 2019, in the Hemi proceeding:
Mr Hemi and Mr Stone reposed significant trust and confidence in Mr Tyler in allowing Auto Net to transfer to him legal ownership of the shares in ATNZ as trustee.
(emphasis added)
[122]Mr Pearson cannot say what was or was not agreed by Auto Net back in 2009
– he was not involved at all at that stage, and no document recording the terms of the trust was executed at the time by Auto Net. All Mr Pearson could do was draw inferences from the documents he has had access to, including the various affidavits he has referred to. Certainly there are a number of statements made by the parties at various times that Mr Tyler has been holding the shares as a “bare trustee” for Auto Net, but I am not sure that the use of that expression in different contexts is inconsistent with the existence of an understanding that the approval of Messrs Hemi and Stone would be required before Auto Net called for the shares.
[123] I think in those circumstances it would be dangerous to conclude that it is beyond reasonable argument for Mr Tyler that when he agreed to come to New Zealand it was on the basis that he would have full control of ATNZ, including in his capacity as the sole legal shareholder of ATNZ.
[124] Whether an understanding that Mr Tyler would have full control of the ATNZ shares (acceded to by Mr Roberts on behalf of Auto Net) was arguably qualified by the requirement contended for by Mr Stone, namely that Mr Tyler would not transfer the shares (to Auto Net or anyone else) without the consent of Mr Hemi and Mr Stone, cannot be determined on a summary basis, particularly in the absence of evidence from Mr Hemi and Mr Roberts. It is enough for present purposes to say that I do not consider Mr Stone’s evidence on the point to be inherently implausible.
[125] On the evidence so far produced in this proceeding, the reasons for the transfer of the shares from Auto Net to Mr Tyler appear to have had as much to do with protecting the perceived interests of IBC as they did with protecting any interests of ATNZ or Auto Net. Making ATNZ’s financial statements publicly available (which would follow if the shares were transferred back to Auto Net) would be detrimental to IBC’s position in the market – ATNZ’s financial weakness at the time would have been exposed for all to see, and IBC’s position as a very substantial creditor of ATNZ may well have been of real concern to IBC’s bankers and suppliers.
[126] So it does make some commercial sense that Mr Stone and Mr Hemi would have wanted to have the final say if any question arose about a transfer of the shares back to Auto Net. Auto Net would have had no direct interest in 2009 in how publicity about ATNZ’s financial position might affect IBC, but Mr Stone and Mr Hemi would have been keenly interested in that subject because of their concern for the broader interests of the group, and particularly the interests of IBC.
[127] Mr Simms countered Mr Tyler’s argument on this Issue by saying that, even if there was a condition on Auto Net’s entitlement to demand delivery of the shares as Mr Stone says there was, that entitlement would be trumped by the rule in Saunders v Vautier. Under that rule, the beneficiary is entitled to demand delivery of the trust assets, even where it will defeat known intentions of the settlor.30
[128] The problem with that argument is that Auto Net was not just the settlor – it was also the beneficiary. It is not clear to me that the rule applies in circumstances where the beneficiary itself has accepted a restriction on its entitlement to call for
30 Lewin on Trusts, above n 5 at [22-016].
delivery of the trust property (as Mr Roberts may have done on Auto Net’s behalf in this case). And to the extent Auto Net relies on an entitlement to delivery of the shares under a bare trust, I am mindful of the view expressed by Randerson J in Burns v Steel that the “real task is to ascertain the nature and extent of the trustees’ obligations and discretions by reference to the terms of the instrument establishing the trust, assessed in the context of all of the relevant circumstances”.31 We simply do not have enough evidence of the “surrounding circumstances” in 2009, when the trust was established, to justify the entry of summary judgment.
[129] I conclude that the answer on this Issue is “yes”. Even allowing for Mr Tyler’s apparent uncertainty on the precise terms of what was agreed in 2009, there is no clear basis on which I could reject, on a summary basis, Mr Stone’s evidence that the shares were transferred to Mr Tyler on the basis that they would not be transferred out of his name without his approval and that of Mr Hemi. Nor is there any clear basis on which I could summarily reject Mr Stone’s evidence that Mr Roberts was aware of the arrangements (and impliedly accepted them for Auto Net by transferring the shares of Mr Tyler). Those are all properly matters for trial.
[130] That conclusion is enough to resolve the matter in favour of Mr Tyler. The summary judgment application will therefore be refused. However, as the issues relating to Mr Tyler’s claim to a lien over the ATNZ shares was fully argued, I will set out below my conclusions on those issues. I do not think it necessary to express any view on the last issue, relating to the exercise of the Court’s residual discretion to refuse summary judgment.
Issue (3) – Is it reasonably arguable for Mr Tyler that he is entitled to an equitable lien over the ATNZ shares, having priority over Auto Net’s claim to the shares, for the amounts of any current, future or contingent claims that have been or might have been made against him?
[131] First, I have not noted any evidence that the wide-ranging indemnities said to have been given by Mr Stone and Mr Hemi (for themselves and for the group entities controlled by them) when Mr Tyler became a director of ATNZ, and when he later became the sole legal shareholder, were supported by any lien or other charge over the
31 Burns v Steel, above n 6, at [62].
ATNZ shares. Any rights of indemnity Mr Tyler might have against Mr Hemi and Mr Stone, or the entities owned and/or controlled by them (including Auto Net) under those indemnities, would be rights in personam against the indemnifiers.
[132] Any understanding that the shares would not be transferred out of Mr Tyler’s name without the agreement of Mr Stone and Mr Hemi could not change that position. If Auto Net demanded delivery of the shares, and Mr Hemi and Mr Stone both agreed, Mr Tyler would have had no option but to transfer the shares back to Auto Net (subject only to his entitlement to the ordinary trustee’s lien over trust assets for costs, expenses and liabilities incurred in discharging the role of trustee). That scenario is not consistent with the existence of an express agreement conferring on Mr Tyler a more wide-ranging lien or other security over the shares.
[133] So Mr Tyler is limited to arguing for the proprietary lien over trust assets to which any trustee is entitled in respect of his or her costs, expenses or liabilities (actual, contingent or future) incurred in discharging the office of trustee. In this case, that means costs, expenses and liabilities Mr Tyler may have incurred (or may in future incur) arising from his holding the ATNZ shares as trustee for Auto Net. It would not extend to any liabilities he may have incurred in performing his role as director of ATNZ, or under any fiduciary obligations to Mr Hemi or Mr Stone that he may have separately undertaken.
[134] I have considered Mr Hemi’s amended statement of claim in the Hemi proceeding. While Mr Hemi asserts that the transfer of the ATNZ shares to Mr Tyler occurred at the direction of himself and Mr Stone, that is only one of a number of factors pleaded in support of a broad allegation that Mr Hemi and Mr Stone reposed trust and confidence in Mr Tyler, sufficient to give rise to fiduciary obligations owed by him to Mr Hemi and Mr Stone. The breaches of the fiduciary obligations which Mr Hemi then alleges do not appear to be breaches associated with Mr Tyler’s discharge of his duties as trustee of the ATNZ shares, and in those circumstances I do not think the evidence is sufficient to show an arguable case that Mr Tyler might have a liability to Mr Hemi (falling within the statutory trustee’s proprietary lien over the shares) on the allegations in the Hemi proceeding. Nor could Mr Stone and Ms Fernandes’ “reservation” of rights in respect of the shares provide any basis for an equitable lien.
Ms Fernandes could have no rights in the shares that Mr Stone did not have before her, and he has consistently said that the shares are held on trust for Auto Net (subject to Mr Hemi and Mr Stone approving any transfer).
[135] Nor do I think Mr Tyler has produced sufficient evidence that he does or might have a personal liability in respect of the tax losses claimed by ATNZ and allowed by the Commissioner. This contention has not been adequately explained, and I think it was incumbent on Mr Tyler to do so. On the face of it, the evidence suggests that the Commissioner was satisfied at the time that there was no relevant change in the ownership of ATNZ, and that was presumably on the basis of confirmation from Mr Tyler that he was no more than a bare trustee of the shares for Auto Net. It was not explained by Mr Tyler how any order in this proceeding (directing that the shares be transferred to Auto Net) might cause the Commissioner to revisit the earlier decision, and there does not now appear to be any claim from Mr Hemi or Mr Stone that the position in respect of ownership of the shares is anything other than that presumably put to the Commissioner when the tax losses were allowed.
[136] Mr Tyler also expresses concern over what might happen if ATNZ is put into liquidation, whether voluntarily or on an application by IBC. But any personal liability Mr Tyler might have if that were to occur would presumably arise out of his acts or omissions as a director of ATNZ. There is presently no reason to suppose that a liquidation might somehow trigger a personal liability arising out of Mr Tyler’s role as trustee of the shares.
[137] The remaining indemnity claims Mr Tyler might have that would arguably be covered by the equitable lien, would be his claims for legal costs, both in the Hemi proceeding (at least while Mr Hemi was still contending that the ATNZ shares were held by Mr Tyler for him and Mr Stone in equal shares) and in this proceeding. But Mr Tyler has not provided any evidence of those costs, and he has failed to respond to an allegation by Auto Net that ATNZ has been funding his defences in the two proceedings. To the extent that may have occurred, Mr Tyler’s entitlement to be indemnified from the trust assets would presumably have already been satisfied.
[138] Mr Tyler may have some unpaid bills for legal work carried out for him in the two proceedings, and his lawyers may also have some unbilled work in progress. Beyond that possibility, Mr Tyler has not provided any evidence of costs, expenses or liabilities in respect of which he is arguably entitled to the statutory trustee’s indemnity and the equitable lien. He has provided no evidence of the quantum of any unpaid legal fees/work in progress.
[139] However it is clear that he will incur ongoing costs in this litigation, and it is not clear that he will be reimbursed for those costs by ATNZ or anyone else. In those circumstances it must be reasonably arguable that he will be entitled to a lien over the shares covering those costs. The answer to this Issue (on the evidence so far presented) is therefore “yes, but only to the extent of future fees billed to him in respect of this proceeding”.
Issue (4) – If the answer to Issue (3) is “yes”, is it arguable for Mr Tyler that the total amount secured by the equitable lien may equal or exceed the value of the ATNZ shares?
[140] There is no sufficient evidence of either the extent of any liabilities (present or future) which could be the subject of a lien over the shares, or the value of the ATNZ shares (other than Mr Tyler’s assertion that ATNZ now has positive equity).
[141] In those circumstances, I do not think it is possible to say that Mr Tyler has no arguable case on this Issue. If this case proceeds to trial, it is clear that Mr Tyler will incur very substantial further legal costs, running into the tens of thousands of dollars and possibly running into six figures. I have held that I think it arguable for him that those costs will qualify as expenses incurred by him in the discharge of his role as trustee of the shares (on the basis that they are concerned with establishing the terms on which he holds the shares).
[142] So there might be future expenses of, say, $100,000, in respect of which Mr Tyler would arguably be entitled to claim a lien over the shares. Against that, there is no clear evidence that the current net value of the ATNZ shares exceeds that amount.
[143] In an affidavit sworn by Mr Tyler in the ATNZ proceeding on 25 September 2018, he said that ATNZ then had net assets of $43 million plus a property valued at
$2.5 million over book value. An affidavit sworn by Mr Tyler on 30 October 2019 in the statutory demand proceeding, referred to an agreed figure of $43,075,737, subject to adjustments, owing to IBC as at 31 December 2018. But it is not clear how ATNZ’s financial position may have changed since then. Specifically, it is not clear whether the “positive equity” to which Mr Tyler referred in his affidavit in this proceeding will exceed the amount he will incur in legal costs in defending this proceeding.
[144] I accept Mr Simms’ submissions based on Wester v Borland 32 that it was for Mr Tyler to make proper enquiries as to the extent of his potential future liabilities (that are or might be covered by the indemnity and lien over the shares). He may not have done that, but for summary judgment purposes I do not think it beyond the ability of the Court to form a broad view of the expenses Mr Tyler might incur in defending this proceeding, and that is the only expense, cost or liability (that might be covered by the lien) that has been sufficiently identified on the evidence so far produced.
[145] On the other side of the ledger, it is impossible to form any useful view of the value of the ATNZ shares. Neither party produced the most recent financial statements for ATNZ (although Auto Net, as the beneficial owner of the shares, has presumably had access to them), and the value of the shares might be significantly affected by the outcome of the litigation between IBC and ATNZ. If that is right, it would probably have been difficult for any chartered accountant to form a clear view of the value of the shares.
[146] Having regard to those considerations, I do not consider this Issue is suitable for determination on a summary judgment application. On the meagre evidence available, it is arguable for Mr Tyler that future legal fees in this proceeding will be secured by the equitable lien, and it would be unsafe to conclude that the amount of that lien will not exceed the value of ATNZ’s shares. The answer to Issue (4) is therefore “yes”.
32 Wester v Borland, above n 14.
Issue (5) – If the answer to Issue (3) is “yes”, but the answer to Issue (4) is “no”, does Mr Tyler have an arguable defence that he is entitled to retain some of the ATNZ shares to satisfy the equitable lien? If so, how many shares should he be allowed to retain?
[147]In view of my answer to Issue (4) there is no need to address this Issue.
Issue (6) – If Mr Tyler does not have an arguable defence under any of Issues (1) to (5) above, should the Court nevertheless exercise its residual discretion to refuse summary judgment?
[148] In view of my answers to Issues (1) and (4), there is no need to address this issue.
Result
[149]Auto Net’s application for summary judgment is refused. Costs are reserved.
[150] Mr Tyler is directed to file and serve his statement of defence by 12 October 2020.
[151] The Registrar is directed to allocate a case management conference for the first practical time and date after 26 October 2020.
Associate Judge Smith
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