Autoterminal New Zealand Ltd v IBC Japan Ltd
[2020] NZHC 843
•30 April 2020
IN THE HIGH COURT OF NEW ZEALAND HAMILTON REGISTRY
I TE KŌTI MATUA O AOTEAROA KIRIKIRIROA ROHE
CIV 2019-419-231
[2019] NZHC 843
BETWEEN AUTOTERMINAL NEW ZEALAND LTD
Applicant
AND
IBC JAPAN LTD
Defendant
Hearing: 13 November 2019 Appearances:
MD Branch and J Matena for Applicant
JA MacGillivray and K Brady for Respondent
Judgment:
30 April 2020
RESERVED JUDGMENT OF ASSOCIATE JUDGE SMITH
This judgment was delivered by me on 30 April 2020 at 10am pursuant to r 11.5 of the High Court Rules
Registrar/Deputy Registrar
Solicitors:
Harkness Henry, Hamilton Tompkins Wake, Hamilton
Autoterminal New Zealand Ltd v IBC Japan Ltd [2019] NZHC 843 [30 April 2020]
[1] The applicant Autoterminal New Zealand Ltd (ATNZ) applies to set aside a statutory demand issued by the respondent IBC Japan Ltd (IBC) on 16 August 2019. The statutory demand claimed the sum of Japanese Yen (JPY) 2,308,199,872 (NZ$33,749,892.33 as at 16 August 2019) – “the statutory demand amount” – said to be due for vehicles supplied by IBC to ATNZ under a Vehicle Supply Agreement (VSA) between IBC and ATNZ.
[2] In its affidavits filed in opposition to the setting aside application, IBC accepted that ATNZ was entitled to offset two amounts against the statutory demand amount, totalling $604,760.43. IBC sought to have the statutory demand upheld in the statutory demand amount less that sum.
Background
[3] There had been an earlier attempt by IBC to put ATNZ into liquidation. On 6 August 2019 I gave judgment (“the strike-out judgment”) striking out a liquidation proceeding (“the liquidation proceeding”) brought by IBC against ATNZ on just and equitable grounds.1
[4] I summarised the background of the various disputes between the parties at paragraphs 6-27 in the strike-out judgment, and it is not necessary to repeat all of that background in this judgment. Nevertheless, I do not think I can do better by way of introduction than repeating the following paragraphs from the “background” section of the strike-out judgment:
[6] The liquidation claim is the latest in a number of Court cases in several jurisdictions which have followed the breakdown of the relationship between Mr Hohua Hemi (Mr Hemi) of IBC and his former business partner, Mr Robert Stone (Mr Stone).
[7] Mr Hemi and Mr Stone decided to go into business together in about 1991, for the purposes of purchasing used cars in Japan and exporting them for sale in New Zealand and elsewhere. Mr Hemi and Mr Stone were 50/50 partners in the enterprise, and the business operated through what Mr Hemi described in his evidence as a complex structure of corporate entities incorporated in various jurisdictions around the world.
1 IBC Japan Ltd v Autoterminal NZ Ltd [2019] NZHC 1834.
[8] IBC was the first entity formed by Mr Hemi and Mr Stone. It was incorporated in Japan, and structurally it sits at the top of the global business. Mr Hemi and Mr Stone each holds 50 per cent of the shares in IBC. Under Japanese law, the business of a company is conducted by a "representative director". Until May 2018 IBC's representative director was Mr Stone. Thereafter, Mr Hemi became the representative director.
[9] The business enterprise grew, and Mr Hemi and Mr Stone set up a large number of other entities to carry out functions within the overall global business (including companies carrying out vehicle appraisals and inspections, import distribution, and shipping and logistics). All of the entities within what Mr Hemi described as "the business partnership" are ultimately owned directly or beneficially by Mr Stone and Mr Hemi or their respective interests in equal shares. However, the various other incorporated entities are not subsidiaries of IBC — IBC has no shareholding in the other entities within the wider "partnership".
[10] ATNZ was incorporated in New Zealand at the instigation of Mr Hemi and Mr Stone, on 5 April 2000. From its incorporation in 2000 until January 2019, ATNZ operated as IBC's representative/sales agent in New Zealand. Its role was to sell and distribute cars imported into New Zealand by IBC, for and on behalf of IBC.
[5] There were initially issues as to who is the beneficial owner of the shares in ATNZ, all of which are registered in the name of Mr Michael Steven Tyler. However, the parties have fairly recently accepted that Mr Tyler holds the shares as trustee for a Cayman Islands company called AutoNet. Half of the shares in AutoNet are owned by Mr Hemi’s family trust, while the other 50% is owned by Mr Stone or his partner.
[6] Mr Tyler took over the management of ATNZ in 2008, acting as Chief Executive Officer.
[7] The relationship between Mr Stone and Mr Hemi has now broken down irretrievably, and Mr Hemi says that Mr Tyler has taken Mr Stone’s side in the dispute, refusing to cooperate with reasonable requests Mr Hemi has made for information about ATNZ’s business. As noted in the strike-out judgment at [27], Mr Tyler has taken the view that Mr Hemi had no standing to seek the information he had sought as a shareholder of ATNZ. AutoNet is the sole shareholder, and Mr Tyler has contended that any requests for information would have to come from it.
[8] ATNZ began importing vehicles from IBC soon after its incorporation in early 2000. The arrangements were eventually formalised on 1 July 2014, when the parties entered into the VSA.
[9]In the strike-out judgment, I said the following about the VSA:
[19] A copy of the VSA was not produced in evidence, but ATNZ did not take issue with the following description of its contents given in Mr Hemi's evidence:
(i) After shipment of the vehicles, IBC was to send to ATNZ a sales invoice for the shipment of the vehicles. ATNZ was required to pay IBC for the vehicles when ATNZ received payment from its own New Zealand customers.
(ii) ATNZ agreed to make various necessary payments on IBC's behalf in New Zealand (for matters such as freight costs and charges by the Ministry for Primary Industries) and then invoice IBC for the amounts paid.
(iii) The parties agreed that they would work closely together to develop the market in New Zealand for both companies' benefit. IBC granted ATNZ the exclusive right to represent IBC, and to act on IBC's behalf and use IBC's name in New Zealand for the purposes of marketing, promotion, customer service and sales.
[20] Mr Hemi said:
56. The VSA does not contain any terms protecting IBC as the party permitting ATNZ to "represent IBC, act on IBC's behalf and use the IBC name in New Zealand" in the event of the relationship between the parties coming to an end – e.g. any restraint of trade – the type of protective terms that you would expect in an arms' length relationship.
57. In the CIV-2018-419-294 proceedings, ATNZ alleged for the first time there were two subsequent vehicle supply agreements dated 1 July 2016 and 1 July 2017 between IBC and ATNZ. I had never seen those documents before and they had never been referred to before by Mr Tyler or Mr Stone.
[21] When Mr Hemi took over as representative director of IBC in May 2018, he became concerned at what he considered was a large sum of money owing by ATNZ to IBC under the VSA. He said in his evidence that he had serious doubts that ATNZ was meeting its repayment obligations as required under the VSA, and he estimated the amount owing at about $40 million. He formed the view that it was not sustainable for IBC to keep funding vehicle purchases for ATNZ on the basis of potentially open-ended credit to ATNZ, unless the flow of cash back to IBC improved.
[10] In his evidence given in the liquidation proceeding, Mr Hemi said that pending the resolution of the dispute as to the obligations of ATNZ under the VSA, IBC took the position that it was no longer required to extend open-ended credit to ATNZ for vehicles it shipped to ATNZ under the VSA, at least without any co-operation or agreement between the parties as to the terms on which the vehicles would be onsold
by ATNZ in New Zealand. IBC considered that ATNZ had an implied obligation under the VSA to provide IBC, on request, records disclosing and verifying when payments had been received from third parties for vehicles shipped by IBC and onsold by ATNZ in New Zealand, and that ATNZ was acting in ongoing breach of that obligation. ATNZ denies that it had any such obligation.
[11] In or about early November 2018, IBC commenced a proceeding in this Court (the summary judgment proceeding),2 in which it sought a declaration that the VSA contained an implied term requiring ATNZ to provide information to IBC on demand, and recovery of sums said to be due and/or damages under the VSA. Initially, IBC sought summary judgment, but the summary judgment application was withdrawn in May 2019. The summary judgment proceeding has continued as a claim for debt / damages (including the statutory demand amount).
[12] IBC endeavoured to reach agreement with ATNZ on a shipment-by-shipment basis, and arrangements were made between November 2018 and January 2019 for shipment of cars from Japan on three vessels. IBC says that these were interim arrangements for the three specific shipments, and did not affect ATNZ’s existing payment obligations under the VSA. Mr Hemi said that IBC had no option but to make arrangements of this sort while ATNZ was refusing to tell him what amounts it had collected from its customers, and what credit terms it had given to its customers.
[13] ATNZ says that it was effectively forced into the interim arrangements just referred to. It says that, in breach of the VSA, IBC demanded additional payments ($1,500,000 per month) from ATNZ that ATNZ was not required to make, and said that if the additional payments were not made it would cut supplies of cars to ATNZ.3
[14] An argument arose over one of the three shipments, and on 5 January 2019 ATNZ wrote accusing IBC of breaches of the VSA. It notified IBC that it would henceforth stop purchasing vehicles from IBC, and source its vehicles from another
2 Proceeding CIV-2018-419-355.
3 Mr Hemi had a rather different view. He said in his evidence that he demanded the extra payment because he was sure that ATNZ had not been paying what it was obliged to pay to that point.
supplier. ATNZ said it would withhold further payments due or to become due under the VSA, to offset against its claim for damages.
[15] Since the 5 January 2019 letter, neither side has purported to cancel the VSA, but ATNZ has purchased no further vehicles from IBC. Nor has it paid any further money to IBC for cars purchased and onsold by it.
[16] IBC says that, as at the end of December 2018, the parties agreed that the total balance that would become payable by ATNZ to IBC was, subject to adjustments, NZ$43,075,737 (“the December Amount”). There were issues to be resolved between the parties as to what adjustments, if any, would be necessary, and how much of the December Amount had actually fallen due for payment (bearing in mind ATNZ was not required to make payment under the VSA until it had collected the proceeds of onsales of vehicles made by it to its New Zealand customers).
[17] In April 2019 IBC filed the liquidation proceeding. The strike-out judgment was given on 31 July 2019.
The statutory demand and the covering letter from IBC’s solicitors
[18] The statutory demand was wrongly dated 16 August 2018 – it is common ground that the demand was issued on 16 August 2019. The statutory demand amount was claimed “for vehicles sold by [IBC] to [ATNZ] and for which payment has been collected by you in accordance with clause 7.1 of [the VSA] and for which payment has not been made to [IBC]”.
[19] The covering letter from IBC’s solicitors dated 16 August 2019 provided some further basis for the claim, as follows:
Our client has now been able to ascertain for itself from records available to it through Trakker4 the vehicles which were sold by your client prior to 31 December 2019 and therefore for which the obligation under cl 7.1 of the VSA was triggered.
…
4 An IT system used to keep track of the cars sold by IBC to ATNZ. ATNZ also used Trakker to keep track of cars it sold to its own customers.
To calculate the amount owing, IBC has taken as its starting point the amount that Mr Tyler has agreed is the minimum amount owing (but not necessarily due) for payment as at 31 December 2018 of [the December Amount]. IBC has calculated the amount that ATNZ has collected from customers in respect of vehicles sold to it by IBC. Taking a conservative approach, IBC has not taken account of part payments from customers but has only taken into account collections for vehicles for which payment has been collected in full and, therefore, for which payment is undoubtedly due. This information has been calculated from Trakker.
…
As you know, IBC has been seeking information in relation to ATNZ’s collections for many months now, but this has been consistently refused or rebuffed (and previously steps were taken to block IBC’s access to the relevant information in Trakker). This approach has prevented any sensible discussion taking place in relation to the timing of payments of amounts owing from ATNZ to IBC.
IBC’s view is that the ATNZ has not been acting in good faith by consistently disputing the entire debt without providing any information about the amount owing and instead has been leveraging the present position to place as much financial pressure on IBC as possible as part of the wider dispute between Mr Stone and Mr Hemi.
…
The statutory demand only relates to the amount up until 31 December 2018. In addition, our client is currently determining which vehicles ATNZ has received payment for since December 2018 and when this information is available further amounts collected will be added to the amount needing to be paid. ATNZ has paid nothing since the start of the year, more than 8 months of selling and collecting.
Lastly, we note that the information now available in relation to ATNZ’s collections indicates that ATNZ was not paying IBC in accordance with the terms of the VSA in the period leading up to your 5 January 2019 letter.
ATNZ’s evidence
Mr Tyler
[20] Mr Tyler provided a fairly short affidavit in support of the application to set aside the statutory demand. With IBC’s consent, time was allowed for him to consider the matter further, and file a second affidavit, before IBC filed its affidavits in opposition.
[21] In his second affidavit, Mr Tyler characterised the VSA as a working capital facility provided by IBC to ATNZ. He said that IBC’s breaches of the working capital facility necessarily meant that ATNZ does not have $33,000,000 to pay IBC. ATNZ was required by IBC’s breach of the VSA in the latter part of 2018 to use its funds to purchase cars from other suppliers.
[22] Mr Tyler said that it was business as usual between the parties throughout June and July of 2018. ATNZ provided updates about what was owing and what was being paid.
[23] There was some correspondence between Mr Tyler and Mr Hemi between July and September of 2018, on whether or not IBC had access to all of the information in Trakker that it was entitled to in terms of the VSA. Mr Tyler took the position that IBC had all the information it needed to manage the ATNZ account in Trakker, being data loaded by IBC’s own accounts staff.
[24] The essence of ATNZ’s position was captured in the following passage from an email dated 20 August 2018 sent by Mr Tyler to Mr Hemi:
The funds ATNZ owes IBC are not a term loan that must be repaid, it is a trading facility that allows ATNZ to trade. The figure you have agreed ATNZ owes IBC of JPY1,618,589,737 or around NZ$22m is an accounts receivable balance. You know the amount of vehicles ATNZ is purchasing from IBC each month totals around JPY 500,000,000 on average. The total amount owing is just over 3 months sales. Given the time it takes to ship the units, get them complied and delivered to customers and for customers on terms to pay for the vehicles this seems very reasonable. This AR funding provided by IBC allows ATNZ to continue to purchase and sell IBC vehicles. The only way this balance is repaid is if ATNZ stops selling IBC vehicles, collects the outstanding funds and remits them to IBC. This receivable balance is not overdue under the VSA.
[25] Mr Tyler said that what Mr Hemi wanted was not only for ATNZ to pay for the cars when payment was received by it, but also to pay an additional $1,500,000 per month. That was unachievable because there was simply no $1,500,000 available.
[26] In response, Mr Hemi asked Mr Tyler why ATNZ was not sending details of when it was paid, to synchronise those receipts with its payment obligations under the VSA. Mr Hemi said that if ATNZ continued to refuse to provide its collection reports and confirmation of payments, ATNZ’s sales activity would be restricted.
[27] Mr Hemi continued to demand access to ATNZ’s customer collection reports. Mr Tyler maintained the view that they were its property, and that it was entitled to withhold them. No agreement was reached on ATNZ providing its customer collection reports, and the summary judgment proceeding was commenced by IBC.
[28] Mr Tyler said that new payment terms were agreed in November 2018. Mr Hemi had required ATNZ to collect funds from its customers and to send those funds to IBC when the shipments arrived in New Zealand (in accordance with an agreed schedule). On that basis, Mr Tyler considered that ATNZ’s obligation under the VSA to pay when paid ceased – funds that would have been applied to payments for onsold vehicles under cl 7.1 of the VSA would be used to meet the costs of each new shipment as it arrived. Mr Tyler said that he thought that would be less beneficial to IBC than the existing arrangement, but the trade-off for IBC would be that, from that point on, the “pay when paid” feature would cease to exist.
[29] Mr Tyler said that the new payment terms were agreed in an email exchange between himself and Mr Hemi and Mr Nambiar, chief accountant of IBC, on 26 and 27 November 2018.
[30] Mr Tyler’s 26 November email to Mr Nambiar set out certain requirements on which he sought confirmation from IBC. Once ATNZ had confirmation of those matters, Mr Tyler said it would pay the sum of $1,000,000 collected from IBC customers to IBC the following day. He then set out details of further payments ATNZ would make to IBC relating to shipments on specific vessels between 5 December 2018 and 31 January 2019.
[31] Mr Tyler concluded this email by saying that the arrangement proposed would provide “some certainty to both businesses and gives us time. In the meantime we will work on proposed variations to the VSA that must be mutually agreed”.
[32]On 27 November 2018, Mr Nambiar sent the following email to Mr Tyler:
Hi Mike As Agreed Agreement:
ATNZ will:
1. Pay the $1m to IBC’s NZD account … tomorrow am Tues Nov 27th.
2. Based on [Mr Hemi’s] request pay from the funds collected for IBC the amounts below on the following dates:
a. Dec 5 – the total OFS and FOB for the vehicles arriving on the Walrus Ace.
b. Dec 10 – the total OFS for the vehicles arriving on the Istra Ace.
c. Dec 17 – the total OFS for the vehicles arriving on the Violet Ace.
d. Dec 28 – the total OFS for the vehicles arriving on the Adria Ace.
e. Jan 4 – the total FOB for the vehicles arriving on the Istra Ace.
f. Jan 18 – the total FOB for the vehicles arriving on the Violet Ace.
g. Jan 31 – the total FOB for the vehicles arriving on the Adria Ace.
3. OFS includes EBS and HT to be paid in NZD to Jacanna. HT rebate of $50 will be credited against ATNZ account upon full payment of OFS and FOB.
IBC will:
1. Release the AKL vehicles tomorrow am.
2. Based on the payment schedule above IBC will release all future shipments on arrival.
3. In the meantime, pending the outcome of further discussions regarding possible variations to the VSA, allow:
a. ATNZ buy trips to resume as normal.
b. ATNZ customers to purchase vehicles as normal without interference from IBC.
Please confirm by replying to this email. Thanks.
Tom
[33] Mr Tyler responded by agreeing to Mr Nambiar’s wording, with one change (relating to a shipment on 28 December 2018). Mr Hemi confirmed his agreement to that later the same day. For convenience, I will refer to the agreement in this and the preceding paragraph of this judgment as “the November 2018 agreement”.
[34] Addressing the statutory demand, Mr Tyler said that he received no contact from IBC before it issued the statutory demand. There was no invoice, nor any prior indication from IBC of what it believed was the amount payable. Furthermore, the statutory demand was based on contract terms that no longer applied. Mr Tyler asserted that ATNZ was in fact current with its payments as at 31 December 2018 “on the basis of the new agreement”. He said that payment from ATNZ was not due until the next vessel from Japan came in January 2019. However, intervening breaches by IBC meant that payment did not fall due.
[35] Mr Tyler did not accept IBC’s figures, pointing out that the statutory demand and the covering letter contained no details of IBC’s analysis.
[36] Mr Tyler said that the December Amount included all vehicles that ATNZ was waiting to be paid for, and all vehicles which were still on the water en route to New Zealand. It was not possible for ATNZ to have already collected $33,000,000 of that amount and failed to pay IBC that sum, by 31 December 2018. Mr Tyler asserted that ATNZ was in fact in credit with IBC as at 31 December 2018.
[37] Mr Tyler provided the following “calculation of what may have been due to IBC had [Mr Hemi] not changed the payment terms”:
1.
The total funds collected since the last payment to IBC to 31 December 2018
$7,800,000.00
2.
Less GST
($1,100,000.00)
3.
Less deposits paid for arriving vehicles
($1,100,000.00)
4.
Less non-car receipts, e.g. compliance work
($100,000.00)
5.
Less payments to IBC for freight
($1,500,000.00)
6.
Less payments to IBC, being Japanese Yen payments received by ATNZ
($500,000.00)
7.
Less volume rebates due under the VSA to 30 November 2018
($2,230,864.00)
8.
Less freight paid on behalf of IBC
($922,375.00)
9.
Claims pending on IBC vehicles
($2,192,302.00)
Balance owing (in credit)
($1,845,541.00)
[38] Mr Tyler also contended that ATNZ has its own claim against IBC that it is entitled to set off against the statutory demand amount. He said that IBC’s breach of the VSA “pay when paid” arrangement:5
necessarily meant that ATNZ does not have $33m to pay to IBC. It was required by IBC’s breach to use those funds to purchase cars from other suppliers and until that working capital facility can be replaced, it needs to be retained as it is the remedy for IBC’s breach.
5 Clause 7.1 of the VSA provided:
“7.1 After shipment of the cars, IBC shall send to ATNZ the Sales Invoices per shipment of vehicles made. ATNZ shall pay IBC for the vehicles upon collection of payment”.
IBC’s evidence in opposition
Mr Nambiar
[39] The principal evidence on the calculation of the amount claimed in the statutory demand was given by IBC’s chief accountant, Mr Prabhakar Nambiar.
[40] Mr Nambiar said that on 26 September 2018 he was instructed by Mr Hemi to complete a reconciliation of ATNZ’s account up to 30 June 2018. At the time, IBC could not access information to calculate what ATNZ had collected from its customers, and Mr Tyler was not willing to provide this information. Mr Nambiar said that he and Mr Tyler nevertheless corresponded back and forth to review the rolling balance and the credits, to calculate an amount owing.
[41] Mr Nambiar said that he and Mr Tyler agreed that, since IBC had ATNZ’s 31 March 2016 balance sheet, the reconciliation would proceed using numbers derived from that balance sheet. ATNZ’s total debt to IBC as adopted in that balance sheet was NZ$38,323,967. Mr Nambiar added subsequent purchases by ATNZ to that figure, and made adjustments for subsequent payments and claims as they were shown in IBC’s system. He arrived at a figure of NZ$39,970,126 as at September 2018. That figure was accepted by Mr Tyler on 5 December 2018.
[42] Further exchanges followed between Mr Nambiar and Mr Tyler on the reconciliation exercise, and on 30 March 2019 Mr Tyler confirmed the amount ATNZ owed IBC as at 31 December 2018 was the December Amount. Mr Nambiar said that a credit of NZ$1,642,264 for volume rebates to 30 June 2018 was given to ATNZ in the December Amount, although IBC contended that no volume rebates had been agreed. ATNZ’s entitlement to this credit would be resolved later.
[43] Mr Nambiar was also responsible for calculating the Japanese Yen figures in the statutory demand amount. The statutory demand amount represented that part of the December Amount that IBC considered it could establish had been collected by ATNZ from its customers by 31 December 2018.
[44] Mr Nambiar and his staff used the Trakker IT system to calculate the December Amount and later the statutory demand amount. The Trakker system was used to store a lot of information, including the following:
(1)The prices for which IBC sold cars to ATNZ;
(2)The rolling balance of the account between IBC and ATNZ, with records of any debits or credits. (Debits and credits included such things as debits for the cost of cars purchased by IBC for ATNZ at auctions, credits for payments made by ATNZ to IBC for cars, credits for payments made on behalf of IBC, and credits for any rebates agreed by IBC).
(3)For each customer of ATNZ:
(i)the vehicles that had been sold to the customer;
(ii)the price at which each vehicle was sold to a customer;
(iii)details of when ATNZ made its “AT Release”6 in relation to vehicles sold to customers.
(4)Details of vehicles purchased by ATNZ which had not yet been onsold to a customer.
[45] What IBC did not know in March 2019 (when agreement was reached on the December Amount) was how much of the December Amount had been recovered on onsales made by ATNZ to its New Zealand customers. It was the onsales that triggered the obligation to pay under cl 7.1 of the VSA.
6 Before a car could be registered in New Zealand, an MR2A form had to be issued confirming that the car complied with applicable standards. ATNZ did not release this form to customers until it had been paid for a car, or payment was imminent. Mr Nambiar noted that withholding this form until payment was made was like a form of security; without the MR2A form, ATNZ’s customers could not register vehicles purchased from ATNZ. In the Trakker system, confirmation of when the MR2A form had been released was shown by an “AT Release” being recorded with the chassis number of the car.
[46] Mr Nambiar said that IBC did not obtain access to information about onsales made by ATNZ until 12 April 2019. The Trakker system had previously been managed for IBC by iComm, a service company based in Cebu in the Philippines which was controlled by Mr Tyler. iComm denied IBC access to information in Trakker relating to ATNZ’s side of the business, until 12 April 2019. On that date, IBC took over direct control of the IT system, and it was then able to access reporting data in Trakker which included information about which cars ATNZ had sold and been paid for, and which cars were still unsold.
[47] Once IBC had access to these additional data, Mr Nambiar instructed his staff to do a “reverse calculation”, starting from the December Amount and deducting IBC invoices which were not, as at 31 December 2018, due to be paid to IBC under the VSA. The deductions related either to vehicles which had not been onsold by 31 December 2018 (“the unsold vehicles”), or to vehicles which had been sold by ATNZ but for which it had not collected full payment (“the sold-unreleased vehicles”). The balance after those deductions was the statutory demand amount.7
[48]Mr Nambiar explained how he reached his figure for “Unsold cars” as follows.
[49] At Mr Nambiar’s direction, IBC’s IT staff ran a report in the Trakker database of vehicles in ATNZ’s unsold vehicles report (using the chassis numbers as the vehicle reference), to extract the price (CIF) at which each of those vehicles had been sold by IBC to ATNZ. The data from that report were then extracted into an excel spreadsheet, with all cars shipped on the vessel Glovis Compressor removed (the Glovis Compressor shipment was one of the three shipments on which disputes arose near the end of 2018, and the vehicles shipped on it were not in the end delivered to ATNZ).
[50] The result was a net “unsold vehicles” figure of JPY 2,003,582,500 as at 31 December 2018, representing vehicles sold and delivered to ATNZ that ATNZ had yet to on-sell to a customer as at 31 December 2018.
7 Mr Nambiar put the matter this way: “If ATNZ had been paying in accordance with the VSA, then the amount after deducting from the December Amount “cars sold but payment not collected” and “unsold vehicles” should have been nil as at 31 December 2018.”
[51] Mr Nambiar then explained how he made allowance in the statutory demand amount for the sold unreleased vehicles. As with the unsold vehicles, IBC ran a report on the Trakker database to extract its export prices of the cars in ATNZ’s “sold and outstanding payment list”. The list of vehicles on that report was then checked against the list of ATNZ customers in respect of which no AT Release had been issued.
[52] Mr Nambiar calculated that the total of IBC’s sale prices for sold unreleased vehicles was JPY 867,884,693. As with the unsold vehicles amount, that amount was deducted from the December Amount to calculate the statutory demand amount.
[53] Mr Nambiar produced a number of screenshots from Trakker databases, and spreadsheets compiled from those databases, to support his calculations. Unfortunately, one of his intended exhibits, a screenshot showing IBC’s export prices for vehicles listed in ATNZ’s “sold with outstanding payment list”, was mistakenly omitted from his affidavit. Mr MacGillivray applied after the hearing to submit a further affidavit from Mr Nambiar attaching the missing exhibit, but that application was opposed by Mr Branch. I will address that issue later in this judgment.
Mr Hemi
[54] Mr Hemi gave evidence about the background to the relationship between the parties, generally as set out above. He said that, by mid-2018, ATNZ was only making sporadic payments for cars supplied by IBC. It was paying rounded sums, which Mr Hemi considered could not represent payments collected by ATNZ from its customers. Mr Hemi demanded that ATNZ pay an extra $1,500,000 per month to pay down the overall debt to IBC. He was sure ATNZ had not been paying what it was obliged to pay.
[55] On 19 November 2018 Mr Hemi sent an email to Mr Tyler setting out two alternative settlement proposals. Mr Hemi said that Mr Tyler did not respond to these proposals, except to say that ATNZ was meeting its payment obligations.
[56] Mr Hemi said that by late 2018 the parties were endeavouring to negotiate amendments to the VSA. The negotiations were unsuccessful. Mr Hemi denied that the effect of the 27 November 2018 agreement was to suspend, or bring to an end, the
VSA requirement that ATNZ pay IBC as soon as it received payment from its own customers. He said that was never agreed. The November 2018 agreement was made because IBC did not believe that ATNZ was paying what was due under the VSA, and in those circumstances it was not prepared to provide further credit. ATNZ would have to agree to pay for each of the agreed new shipments soon after it arrived. That arrangement continued in place up to the end of 2018. Terms of payment were agreed on a ship-by-ship basis.
[57] Mr Hemi said that ATNZ’s obligation to pay when it received payment from its customers continued to apply in respect of all shipments of cars made before 27 November 2018. The intention of the “ship-by-ship” arrangements was simply to stop the debt position becoming any worse, and the November 2018 agreement was no more than an interim agreement, entered into to allow IBC and ATNZ to keep trading while they tried to re-negotiate the VSA.
[58] Mr Hemi said no agreement was reached about upcoming shipments by 20 December 2018. IBC then took the position that vehicle bookings on the vessels Glovis Compressor and Euro Spirit, which were the next car-carrying ships scheduled to leave Japan, would be suspended unless agreement was reached on amendments to the VSA. Terms for the shipment of cars on the Glovis Compressor were subsequently agreed with Mr Tyler, but no terms were agreed for shipping vehicles on the Euro Spirit.
[59] Mr Hemi said that ATNZ defaulted in making a payment of $2,914,486, being the FOB price for vehicles shipped on the vessel Istra Ace. On 5 January 2019, ATNZ sent the letter to IBC alleging breach of the VSA by IBC, and saying that it would not make any more purchases.
[60] Mr Hemi referred to IBC’s application for summary judgment in the summary judgment proceeding, which was subsequently abandoned. He said that summary judgment was sought only in respect of some specific transactions, in which IBC alleged that ATNZ had wrongly obtained credits on its account with IBC for making certain payments, allegedly on IBC’s behalf. Mr Hemi said that the claims related to
non-existent insurance payments made by IBC, when the money allegedly paid made its way through a third party, back to ATNZ.
[61] ATNZ filed a statement of defence in the summary judgment proceeding on 10 May 2019, contending that it did not in fact receive the claimed credits – corresponding debits were entered in Trakker which reversed the credits. IBC then withdrew its summary judgment application, accepting that there was a factual dispute over the claimed credits. These credits and correcting debits were allowed for by Mr Nambiar in calculating the statutory demand amount.
[62] Mr Hemi acknowledged that IBC does have a broader claim in the summary judgment proceeding, in which it claims the entire amount owing under the VSA. However at the time the broader claim was filed, IBC did not have access to the Trakker information that enabled it to calculate exactly what amount was due and payable to it under the VSA.
[63] On the question of volume rebates referred to by Mr Tyler, Mr Hemi drew attention to cl 10 of the VSA, which provides that any volume rebates would be at the discretion of IBC. He said that IBC has not agreed to any rebates. The position would be no better for ATNZ if the 2016 supplementary agreement, for which ATNZ contends, applied – it required the parties’ mutual agreement to all rebates, and there has never been any mutual agreement.
ATNZ’s evidence in reply
[64] Mr Tyler contended that IBC accepted that there was a legitimate dispute about whether the information had to be provided, when it gave up its application for a summary judgment order (made in the summary judgment proceeding), directing ATNZ to provide the information IBC had demanded. He contended that discovery in the summary judgment proceeding (now consolidated with a proceeding commenced by ATNZ against IBC in late 20188) will make the need to access Trakker, which Mr Tyler regards as unreliable, redundant. Trakker is not ATNZ’s accounting system, and
8 Proceeding CIV-2018-419-294.
to produce an accurate result Trakker would need to be checked against the documents to be discovered in the consolidated proceeding.
[65] Mr Tyler accepted that IBC did not have access to ATNZ’s information on Trakker when it filed the summary judgment proceeding, and that summary judgment was not sought for the full amount later demanded in the statutory demand. However, IBC did have access to ATNZ’s Trakker information when it abandoned the summary judgment application. Rather than abandoning the summary judgment application, IBC could have sought to expand it to include the statutory demand amount. Nor has IBC explained why the statutory demand amount was not immediately calculated in April 2019, when IBC gained access to ATNZ’s information on Trakker. Mr Tyler contended that Mr Hemi has been motivated by a desire to see ATNZ destroyed, to advance his position in the ongoing disputes with Mr Stone.
[66] Mr Tyler said that he thought it was imperative that ATNZ be given the chance to test the evidence of Mr Hemi and Mr Nambiar. He expressed a belief that Mr Nambiar’s evidence was based on incorrect source data, and was inaccurate on some key issues. He referred to the limited time available to him to fully investigate the claims made by Mr Hemi and Mr Nambiar in their affidavits, saying that if the information in their affidavits had been provided before the statutory demand was issued, or before Mr Tyler’s affidavit in support was filed, it could have been dealt with in his first affidavit.
[67] Mr Tyler said that ATNZ replaced Trakker with a new management tool in January 2019. Because of that, getting an accurate number as at 31 December 2018 from ATNZ’s own records will be difficult and time consuming. He said that he had not sought to do that, not only because there had not been time to do so, but also because the total sum owed at the cessation of business (not 31 December 2018) will be established in the summary judgment proceeding.
[68] Mr Tyler then pointed out that Mr Nambiar did not dispute Mr Tyler’s statement in his second affidavit that “there is just no way that the claim that $33 million was due and owing could ever have been correct …” Mr Tyler inferred that
the only conclusion was that there must be something drastically wrong with the data used by Mr Nambiar in his calculations.
[69] Mr Tyler accepted that the total debt payable by ATNZ to IBC depends on how much ATNZ has collected from customers in relation to the vehicles sold to ATNZ by IBC. That is the most appropriate method to determine the debt due, and the calculation done by Mr Nambiar is, at best, an estimate based on the wrong source data.
[70] The first area identified by Mr Tyler where Mr Nambiar had used the wrong source data, was the unsold vehicles report annexed to Mr Nambiar’s affidavit as Exhibit TN8. The report showed 244 vehicles unsold as at the end of December 2018. Mr Tyler said that number seemed low to him, as ATNZ’s stock report at the time showed over 300 vehicles. He then referred to five vehicles that were shown in ATNZ’s records as unsold at the end of December 2018, that were missing from Mr Nambiar’s Exhibit TN8.9
[71] Mr Tyler then drew attention to three vehicles included in Mr Nambiar’s Exhibit TN8 that were in fact sold by 31 December 2018. Mr Tyler said those purchases were subsequently cancelled by the customers, and the vehicles were put back into stock. Mr Tyler said that, while it was difficult to draw conclusions given the lack of time and the way the information had been presented, the analysis of these vehicles led him to believe that Mr Nambiar had run the unsold vehicles report as at the date the Trakker databases were accessed by IBC (April 2019), and not as at 31 December 2018. Obviously any additional unsold vehicles at 31 December 2018 would reduce the statutory demand amount, as ATNZ would not have been paid for these vehicles.
[72] Mr Tyler went on to address Mr Nambiar’s Exhibit TN12, which was a spreadsheet derived from a Trakker sold unreleased vehicles report, purportedly as at 31 December 2018. Mr Tyler said that, on a quick review, Exhibit TN12 is inaccurate, and lacks information. By way of example, he noted that the second ATNZ customer
9 Vehicle chassis numbers 1FMDU73E74ZB27184, 1J8HD6256Y150964, ACA33-5137926, ACA36-5018244, and ACM21-0069133.
listed in Exhibit TN12 (a company I will refer to as “G”) is shown in Exhibit TN12 as having eight vehicles sold unreleased, with a total IBC export price of JPY 16,032,300. Mr Tyler said that a review of ATNZ’s “historic AR reports” showed that, as at 31 December 2018, G had 29 vehicles sold unreleased, with a total price that would become payable to IBC of JPY 42,612,800. Mr Tyler said that he checked the missing vehicles, and found they were all paid for by G between January 2019 and 19 March 2019. Mr. Tyler inferred that the TN12 report used by Mr. Nambiar must have been a version setting out the position somewhere between 20 March 2019 and 31 March 2019. If that was right, and assuming the file Mr Nambiar used was accurate and not corrupted, all of the vehicles that ATNZ’s customers had paid for between 1 January 2019 and the date of the report must have been (wrongly) excluded from Mr Nambiar’s analysis.
[73] Mr Tyler said that ATNZ releases on average 700 to 800 vehicles a month. Assuming Mr Nambiar’s Exhibit TN12 stated the position as at the end of March 2019, there would potentially be 2,100 to 2,400 vehicles missing from the sold unreleased vehicle report relied upon by IBC. Any additional vehicles sold unreleased as at 31 December 2018 would have to come off the balance then due to IBC. If 2000 were taken as an estimate of the missing vehicles, with an average export value of $7,000, that would mean that Mr Nambiar’s sold unreleased vehicles figure was overstated by
$14,000,000. The statutory demand amount would have been overstated by the same sum.
[74] Mr Tyler contended that IBC must have known all along that the claimed figure of approximately $33,000,000 was nonsense. As at 31 December 2018, ATNZ had
$3,450,000 in cash and deposits, representing funds it was collecting to pay IBC as per the November 2018 agreement. The only other assets ATNZ had were stock, accounts receivable for vehicles due to be paid to it, and the property and other assets that have been funded in agreement with IBC. There were no other assets, and in particular no $33,000,000 sitting in cash or assets from funds collected by ATNZ but not paid to IBC.
[75] Mr Tyler denied the contention by Mr Hemi and Mr Nambiar that ATNZ accepted that the total amount owing (but not necessarily due) as at 31 December 2018 was the December Amount. He contended that the December Amount was only an agreed starting position. Both parties reserved their right to argue for adjustments (for example, Mr Hemi was still claiming that the amount owing was $50,000,000). The December Amount was agreed as the base figure for the funding facility, subject to adjustments and any rights ATNZ had as a result of IBC’s repudiation of the VSA.
[76]Mr Tyler also said:
54. The rolling facility was also not limited to being available to ATNZ to use for purchasing vehicles. One example of that is that IBC agreed to the purchase of the property that ATNZ operates from. That property has a value of $8 million. This purchase was approved by IBC and is well known to [Mr Hemi]. In addition, funds were used to pay rent for [Mr Hemi’s] property while living in New Zealand, vehicles to supply his family and friends, and related living costs while he was in New Zealand. In addition, funds were used to cover larger items such as GST and deposits which would eventually come back to ATNZ. It was a working capital facility.
[77] Mr Tyler said that he was confident that, as at the end of November 2018, ATNZ was up to date with IBC. Any funds then outstanding were either still to be collected by ATNZ or they were funds that IBC had authorised ATNZ to spend on assets for the business. However, Mr Tyler considered that proving that would be a huge exercise. He would need to go back through 20 years of trading history to prove when ATNZ collected payments, and when it paid IBC. There would be at least 60,000 vehicles involved, and $420,000,000 worth of payments.
[78]Mr Tyler then expanded on the various expenses ATNZ claims, as set out in
[37] of this judgment. It is not necessary for the purposes of this judgment to refer to this detail, or to evidence also given by Mr Tyler in support of ATNZ’s contention that IBC reneged on the November 2018 agreement.
[79] The only other part of Mr Tyler’s reply evidence I should mention related to the New Zealand dollar figure adopted in the statutory demand. The exchange rate used was that applicable as at the date of the statutory demand. Mr Tyler said that it was agreed with IBC that the December Amount would be calculated in New Zealand dollars at the exchange rate applicable on 31 December 2018. Any exchange rate
movements after that date would be for the account of IBC. Applying the correct exchange rate as at 31 December 2018, Mr Tyler calculated that the statutory demand amount, on the basis of Mr Nambiar’s workings, should have been $31,361,411.30, not the $33,749,892.00 claimed.
Applications to set aside statutory demands – legal principles
[80] A statutory demand is a demand, made in accordance with s 289 of the Companies Act 1993 (the Act), by a creditor in respect of a debt owing by a company to the creditor.10 The statutory demand must be in respect of a debt that is due and is not less than the prescribed amount (currently $1,000), and it must require the company to pay the debt, or enter into a compromise or otherwise compound with the creditor, or give a charge over its property to secured payment, to the reasonable satisfaction of the creditor, within 15 working days of the date of service of the demand.11 If a company fails to comply with a statutory demand, that failure provides prima facie proof that the company is unable to pay its debts – a ground on which the creditor may apply to put the company into liquidation.12
[81]Section 290 of the Act materially provides:
290 Court may set aside statutory demand
(1)The court may, on the application of the company, set aside a statutory demand.
(2)The application must be—
(a)made within 10 working days of the date of service of the demand; and
(b)served on the creditor within 10 working days of the date of service of the demand.
(3)No extension of time may be given for making or serving an application to have a statutory demand set aside, but, at the hearing of the application, the court may extend the time for compliance with the statutory demand.
(4)The court may grant an application to set aside a statutory demand if it is satisfied that—
(a)there is a substantial dispute whether or not the debt is owing or is due; or
10 Companies Act 1993, s 289(1).
11 Section 289(2).
12 Sections 287(a) and 241(4)(a).
(b)the company appears to have a counterclaim, set-off, or cross- demand and the amount specified in the demand less the amount of the counterclaim, set-off, or cross-demand is less than the prescribed amount; or
(c)the demand ought to be set aside on other grounds.
(5)A demand must not be set aside by reason only of a defect or irregularity unless the court considers that substantial injustice would be caused if it were not set aside.
(6)In subsection (5), defect includes a material misstatement of the amount due to the creditor and a material misdescription of the debt referred to in the demand.
(7)An order under this section may be made subject to conditions.
[82]Section 291 of the Act materially provides:
291 Additional powers of court on application to set aside statutory demand
(1)If, on the hearing of an application under section 290, the court is satisfied that there is a debt due by the company to the creditor that is not the subject of a substantial dispute, or is not subject to a counterclaim, set-off, or cross-demand, the court may—
(a)order the company to pay the debt within a specified period and that, in default of payment, the creditor may make an application to put the company into liquidation; or
(b)dismiss the application and forthwith make an order under section 241(4) putting the company into liquidation,—
on the ground that the company is unable to pay its debts.
(2)For the purposes of the hearing of an application to put the company into liquidation pursuant to an order made under subsection (1)(a), the company is presumed to be unable to pay its debts if it failed to pay the debt within the specified period.
[83] The onus is on the applicant for an order setting aside a statutory demand to show that there is a genuine and substantial dispute as to the existence of the debt. The dispute must be real and not fanciful or insubstantial; the applicant must show a fairly arguable basis upon which it is not liable for the amount claimed. The mere assertion that a dispute exists is not sufficient. An applicant must establish that any counterclaim or cross-demand is reasonably demandable in all the circumstances. The obligation is not to prove the actual claim; such an obligation would amount to the dispute itself being tried on the application.13
13 Howes & Ors Brookers Company and Securities Law (looseleaf ed, Brookers), at CA 290.02, citing North Harbour Equine Hospital Limited v Little HC Auckland CIV-2006-404-7585, 19 February 2007.
[84] If an application to set aside a statutory demand is made on the basis that the debt is disputed, proof of solvency is not determinative but will support the applicant’s case that the dispute is genuine.14
Counsel’s submissions
ATNZ
[85]For ATNZ, Mr Branch made four principal submissions:
(1)The statutory demand was an abuse of process.
(2)The sum claimed was not a “sum certain”.
(3)The November 2018 agreement meant there was no obligation on ATNZ to pay any collected sums, at least as at 31 December 2018.
(4)The November 2018 agreement was breached, and IBC repudiated the VSA. The repudiation gives rise to a claim by ATNZ that any obligation to repay the trading facility is suspended.
[86] On the abuse of process ground, Mr Branch submitted that the issue of the statutory demand was designed to put unfair pressure on ATNZ, when there was a parallel proceeding in this Court in which IBC was seeking judgment for the statutory demand amount (the summary judgment proceeding). He submitted that IBC’s ability to calculate the statutory demand amount existed prior to it abandoning its summary judgment application, and prior to it opposing ATNZ’s application to dismiss the liquidation proceeding. In both the summary judgment proceeding and the liquidation proceeding IBC expressly acknowledged that there was a dispute as to the sum due, while it now maintains that it always had the information which establishes the concrete position.
14 AMC Construction Limited v Frews Contracting Limited [2008] NZCA 389, (2008) 19 PRNZ 13 at [7].
[87] The issue of the statutory demand was also unfair, in that no detail was provided as to how the sum was made up, and no prior warning was given before the demand was served. The statutory demand process has not been used in a fair way, and the demand should be set aside on that basis alone.
[88] On his second argument (amount demanded not a “sum certain”), Mr Branch submitted that all ATNZ needed to do to have the demand set aside was raise sufficient doubt about the calculation of the sum due, so that the matter should be subject to separate proceedings and a detailed examination.15 It was not for ATNZ to prove the amount owing; all it needed to do was establish that the Court cannot be satisfied of a “sum certain”. Mr Branch relied on Mr Tyler’s reply affidavit in support of the submission that ATNZ has raised sufficient doubt over the calculation of the statutory demand amount.
[89] Mr Branch’s third argument related to the November 2018 agreement. He submitted that the effect of that agreement was that there was no obligation to pay any collected sums, at least as at 31 December 2018. The payment terms were varied by the 27 November 2018 agreement, and the “pay when paid” obligation no longer applied. Collections made by ATNZ after the November 2018 agreement could be used to pay for vehicles being shipped; they did not have to be remitted to IBC in terms of the VSA. On that basis, there was no default at all as at 31 December 2018.
[90] Mr Branch’s fourth argument relied on alleged breach by IBC of the November 2018 agreement. He submitted that the November 2018 agreement was breached, or that the VSA generally was repudiated by IBC, when IBC made a clear statement that no more vehicles were going to be supplied unless ATNZ agreed to vary the terms of the VSA. That threat was then made good by IBC.
[91] Mr Branch submitted that ATNZ’s remedy for that breach by IBC (or at least a defence to the claim by IBC for repayment) is, in addition to damages, an entitlement to resist repayment of the trade facility. Having repudiated the VSA, IBC cannot then be entitled to repayment of a facility which would have continued but for the
15 Referring to Blue Skys Agency Ltd v Commissioner of Inland Revenue, HC Auckland, CIV-2003- 404-3082, 10 August 2004.
repudiation. The result of IBC’s repudiation was that ATNZ’s obligations to repay the trade facility were suspended.
IBC
[92] For IBC, Mr MacGillivray submitted that there was no impropriety in IBC issuing the statutory demand. Its position is that, until recently, it did not have the necessary information to calculate the statutory demand amount. There is nothing in ATNZ’s contention that IBC had the necessary information at an earlier stage, but elected to pursue the summary judgment proceeding. That has been explained by Mr Hemi, who said in his evidence that the credits and debits relating to the summary judgment claim were allowed for in calculating the statutory demand amount. Any acceptance of a dispute in relation to the amount for which summary judgment was sought does not affect the statutory demand amount.
[93] On ATNZ’s limited time to apply to set aside the statutory demand, Mr MacGillivray noted that ATNZ sought and was given an additional three weeks beyond the 10 day statutory period for making the setting aside application, to provide further evidence to support its position that no debt was payable, or that it had a counterclaim or set-off that would extinguish any debt. Mr Tyler’s second affidavit was in fact filed over six weeks after service of the statutory demand.
[94] Mr MacGillivray submitted that the only point of disagreement between the parties has been over what part of the December Amount has been collected from ATNZ’s customers. ATNZ has broadly asserted throughout that nothing at all was due as at 31 December 2018, while at the same time refusing to provide any information about collections from its customers. That changed when IBC obtained access to the information on the Trakker system that enabled it to calculate how much was due and payable under the VSA. IBC has since provided evidence to support its calculation of both the December Amount and the statutory demand amount.
[95] ATNZ has failed to respond with evidence showing that there is a genuine and substantial dispute. It has not raised any genuine dispute over IBC’s methodology in calculating the statutory demand amount, and it has not provided any explanation of the nature of its alleged set-off or counterclaim, sufficient to show the set-
off/counterclaim figure might amount to a figure that is equal to or within $1,000 of the statutory demand amount. No documents have been produced to support the claimed set-off or counterclaim.
[96] Mr MacGillivray disagreed with Mr Branch’s submission that it is enough for a statutory demand recipient to merely “raise doubt” over the amount demanded. Clear and persuasive grounds must be shown for any counterclaim or set-off: a mere assertion will not do.16 The applicant to set aside a statutory demand must give evidence of the basic components of any counterclaim on which it relies, going beyond bare unparticularised assertion. And there must be evidence to support the contention that the counterclaim or set-off would reduce the demand to less than $1,000.
[97] On the calculation of the statutory demand amount, Mr MacGillivray submitted that IBC has simply relied on the December Amount and ATNZ’s own business records. IBC has started with the December Amount (agreed with Mr Tyler), and then made deductions for ATNZ’s unsold vehicles as at 31 December 2018, and the value of cars sold by ATNZ for which payment had not been fully collected as at
31 December 2018. Mr MacGillivray put the position this way in his written submissions:
… the evidence shows that ATNZ agreed that it purchased from IBC, but not yet paid for, cars with a “value” (in terms of price payable to IBC) of JPY3,379,667,065 as at the end of 2018. Its own business records show that as at the same date, it had either not sold or [had] not been paid in full for cars valued (again in terms of price payable to IBC) [at] only JPY1,071,467,193. The difference can only have been collected by ATNZ.
[98] This is a case where it is appropriate to draw the adverse inference that producing further evidence would not have assisted ATNZ’s position. It would have been a simple exercise for ATNZ to put forward its own evidence of its “unsold inventory” and “sold with balance unreleased” figures as at 31 December 2018, to support its contention that IBC’s figures are incorrect and that the whole of the December Amount was uncollected as at 31 December 2018, but it has not done so. ATNZ cannot justify its failure to provide relevant documentation on the basis that it had limited time to respond.
16 Covington Railways Ltd v Uni-Accommodation [2001] 1 NZLR 272; Manchester Securities Ltd v Body Corporate 172108 [2018] 19 CPR 502, at [27].
[99] Mr MacGillivray referred to Mr Tyler’s evidence that five chassis numbers in one of the reports used by Mr Nambiar in calculating the statutory demand amount related to vehicles that should have been in the unsold list as at December 2018. In response, Mr MacGillivray first noted that two of the chassis numbers referred to were included in the “sold balance unreleased” report used by IBC, and were therefore excluded from the statutory demand amount. As for the other three vehicles, Mr MacGillivray submitted that Tyler’s evidence does no more than raise a question mark about three vehicles in the context of a demand for over $30,000,000.
[100] Mr MacGillivray noted that Mr Tyler also asserted, without supporting evidence, that the “sold with balance unreleased” report was missing some vehicles. But on Mr Tyler’s evidence, payment has since been collected for those missing vehicles. Under the VSA, the amounts due for those vehicles became due to IBC in any event when the payments were collected.
[101] In response to Mr Tyler’s evidence that ATNZ only had $3,450,000 in its bank account as at 31 December 2018 (and so could not have collected any sum in the vicinity of $33,000,000), Mr MacGillivray submitted that Mr Tyler’s reasoning involved a non-sequitur. If ATNZ had been running at a loss, or had simply used funds collected from customers for other purposes, it is entirely possible that it could have collected $33,000,000 from its customers but only retained $3,450,000 in its bank account.
[102] Mr MacGillivray then submitted that the set-off/counterclaim figures provided by Mr Tyler in his second affidavit were unsupported by any documentary evidence. No clear and persuasive foundation has been provided for the set-off claims, which are merely asserted. And even if the set-offs were taken at face value, they are still substantially less than the statutory demand amount.
[103] Responding to ATNZ’s argument based on the November 2018 agreement, Mr MacGillivray submitted that ATNZ’s construction of the relevant correspondence failed to pass the necessary threshold of credibility. The evidence is that IBC was refusing to provide ATNZ with further credit because it considered that ATNZ was in breach of its payment obligations under the VSA. In those circumstances, it would
have been a very remarkable thing for IBC to have agreed to suspend ATNZ’s obligations to pay under the VSA. Consistent with that, none of the correspondence recorded any agreement to suspend ATNZ’s obligation to pay under the VSA.
[104] ATNZ argues that IBC breached the November 2018 agreement (which IBC denies), but it has not so far pursued any claim against IBC in that regard. Nor has it provided in its submissions or evidence any explanation of the type of damage it says it has suffered as a result of the alleged breach, or how its loss would be calculated. It provides no basis for an assertion that any such claim could possibly amount to a figure within $1,000 of the statutory demand amount. The best claim ATNZ might conceivably make would be for the difference, if any, between the cost of buying vehicles from IBC under the VSA and the cost of buying vehicles through the alternative supply channels it has been using since January 2019. But there is no evidence of any such loss.
[105] In response to Mr Branch’s argument that breaches by IBC had the effect of suspending ATNZ’s obligations under the VSA, Mr MacGillivray noted that no authority was provided for that submission. He submitted that there is no such “suspension” remedy known to the law.
[106] ATNZ did claim in an amended statement of claim filed in the summary judgment proceeding on 27 February 2019 that it had suffered unparticularised and unquantified loss or damage as a result of IBC selling cars to ATNZ’s competitors. It asked for an enquiry into damages for losses caused to it as a result of what it said were IBC’s breaches of the VSA (as varied by the two alleged supplementary agreements). But ATNZ has provided no evidence or explanation of the type of damage it says it has suffered as a result of the alleged breaches of the VSA. Nor is there any indication of how its claimed loss would be calculated.
[107] Mr MacGillivray accepted that the statutory demand overlaps with IBC’s counterclaim in the summary judgment proceeding. But the issues in the summary judgment proceeding are much wider than the issue in this proceeding, and payment of the statutory demand amount would not resolve those issues – it would simply
reduce the quantum of IBC’s claim on one aspect of the summary judgment proceeding.
[108] As at the date of his written submissions (6 November 2019), Mr MacGillivray said that discovery in the summary judgment proceeding had not been agreed. ATNZ was asserting that information from its Trakker system should not be included in the discovery.
Discussion and conclusions
Defects in the statutory demand
[109] The statutory demand was wrongly dated 16 August 2018, and that date was also mistakenly included in the body of the demand as the date of the conversion of the Japanese Yen demand figure to the New Zealand dollar demand figure. Those are minor irregularities, and the fact that the demand was accompanied by a letter from IBC’s solicitors dated 16 August 2019 made it plain that the intended year was 2019, not 2018. The irregularities could not have prejudiced ATNZ still less caused “substantial injustice” to ATNZ in terms of s 290(5) of the Act. They do not affect the validity of the statutory demand.
Was the issue of the statutory demand an abuse of process?
[110]I do not think it was.
[111] Certainly there was a proceeding on foot when IBC issued the demand (the summary judgment proceeding), but when that proceeding was issued and summary judgment was sought (for part only of the total amount said to be owing), IBC did not have access to the relevant information ATNZ had loaded on Trakker, namely the dates and details of cars onsold by ATNZ and the amounts received by it on the onsales. It did not obtain that information until April 2019, and when it did gain access to it, was also able to determine that the amounts for which it had sought summary judgment were open to reasonably arguable defences for ATNZ.
[112] If a party commences a civil proceeding because it has insufficient information to be sure of the amount owing by the defendant, and it then ascertains that amount by means other than discovery in the proceeding, I see no reason why that party should wait months or years for the proceeding to be heard and determined before it becomes entitled to issue a statutory demand (assuming, of course, that the plaintiff is satisfied, based on the new information, that the defendant can raise no genuine and substantial defence to the claim). Certainly Mr Branch did not refer me to any authority suggesting that a plaintiff in those circumstances is required to wait for the determination of the civil proceeding before it can access the Companies Act procedures.
[113] The liquidation proceeding was also commenced before the Trakker information became available to IBC in April 2019, and it was based substantially on different grounds from the debt claimed in the statutory demand. Also, the liquidation proceeding was dismissed before the statutory demand was issued. If IBC was contemplating amending its claim in the liquidation proceeding to add allegations based on liability for the statutory demand amount, it would not have had the benefit of the presumption of insolvency created by a debtor’s failure to comply with a statutory demand, and the road to proving inability to pay debts would necessarily have been harder. I do not think IBC can be criticised for at least waiting to see the result of the strike-out judgment before deciding what to do with the new information it got from Trakker. And when the liquidation proceeding was dismissed the point became academic – there was no remaining liquidation proceeding in which liability for the statutory demand amount could have been raised.
[114] ATNZ complains about the lack of detail of the statutory demand amount that was given in or with the statutory demand. It refers to the absence of any preliminary correspondence from IBC setting out the calculation of the amount owing, submitting that the issue of the statutory demand in such circumstances would put unfair pressure on ATNZ, motivated by Mr Hemi’s desire to secure a tactical advantage in the commercial war apparently being carried on between him and Mr Stone.
[115] First, I do not think IBC’s motivation for issuing the statutory demand can be a significant consideration, at least if the demand was otherwise properly issued. I am primarily concerned here with the parties’ legal rights, and in particular whether ATNZ has shown that there is a genuine and substantial dispute over the amount demanded.
[116] The second point about the “lack of notice of the calculations” argument is that this is a situation where the one party who should have known precisely what was owing to IBC at any given time, was ATNZ itself. Until IBC obtained access to the Trakker information in April 2019, only ATNZ knew what cars it had sold on the New Zealand market, the sale prices for those vehicles, and when payments were received by it. And the data IBC eventually obtained from Trakker in April 2019 which enabled it to calculate the values of onsales by ATNZ and amounts collected, assuming the data were not corrupted, had to have been uploaded to Trakker by ATNZ itself. While Mr Tyler said ATNZ moved to a new IT system in early 2019, I did not understand him to say that ATNZ lost all access to the relevant databases previously stored in Trakker. If that had been the case, ATNZ would presumably have been in the position of having to “recreate” relevant ledgers from sale and purchase documents, bank statements and other “first entry” bookkeeping documents, in order to run its business. The evidence did not go so far as to establish any such situation, and I am not satisfied on the evidence produced that ATNZ’s difficulties in understanding and responding to the demand were as great as it has contended.
[117] Finally on this issue, if ATNZ had genuine difficulty in responding to the affidavits of Mr Hemi and Mr Nambiar, it could have made an urgent application for an extension of time to file reply affidavits (and even an adjournment of the fixture if it was sufficiently embarrassed by the volume of material to which it had to respond). It did not take either of those steps.
[118] For all of those reasons, I do not accept Mr Branch’s submission that the statutory demand should be set aside as an abuse of process.
Sum claimed not a “sum certain”
[119] I note first that a material overstatement of the amount that is actually due to the creditor, will not provide a ground to set aside a statutory demand, so long as the
Court is not satisfied that a substantial injustice would be caused if the demand were not set aside. That is the effect of ss (5) and (6) of s 290 of the Act, and the Courts routinely uphold statutory demands in lower amounts than those appearing in the demands themselves.17 Even if there has been a significant miscalculation in the amount demanded, the demand may nevertheless be upheld for any lower amount over which there is no genuine and substantial dispute (at least if doing so would not cause a substantial injustice).18
[120] Mr Branch relied on the judgment of Associate Judge Faire in Blue Skys Agency Ltd v The Commissioner of Inland Revenue.19 That was a case in which the Commissioner issued a statutory demand for unpaid GST, PAYE, income tax, ACC levies and Student Loan Employment levies, in the total sum of $78,782.44. The judgment appears to have been an orthodox application of the principle that a setting aside application must raise a genuine and substantial dispute over the amounts demanded. The Associate Judge went through the applicant’s arguments on each component of the statutory demand, rejecting most but accepting that some did raise a genuine and substantial defence. The result was that the statutory demand was upheld in the lower amount of $69,839.36.
[121] One of the issues in Blue Skys Agency Ltd was the correctness of the Commissioner’s calculations for interest and penalties that had been applied (no precise schedule was produced evidencing the exact dates of payments and the dates when penalties and interest were said to have attached). The passage from the judgment of Associate Judge Faire on which Mr Branch placed particular reliance reads:20
All that is required is a consideration of whether or not the applicant has established that there is a sufficient doubt about the calculation of the sum due so that the matter should be the subject of separate proceedings and a detailed examination.
17 See for example 21st Century Investments Ltd v ANZ National Bank Ltd, [2011] NZCA 548 at [41]
- [43].
18 United Homes (1988) Ltd v Workman [2001] 3 NZLR 447 (CA) at [46], referred to in 21st Century Investments Ltd v ANZ National Bank Ltd, above n 16, at [42].
19 Blue Skys Agency Ltd v The Commissioner of Inland Revenue, above n 13.
20 At [32].
[122] In this case, Mr Tyler first raised certain claimed defences in his second affidavit, which he quantified at $9,040,780.56. While IBC did not accept these defences as valid, Mr Nambiar pointed out that even if they were allowed, there would still be $24,104,351.33 owing by ATNZ to IBC. On that basis, the demand could still be upheld in the sum of $24,104,351.33.
[123] When he swore his first two affidavits, Mr Tyler had not seen the various schedules derived from Trakker that Mr Nambiar relied upon in calculating the statutory demand amount – they had not been provided in correspondence between the solicitors, and they were not provided with the statutory demand.
[124] In his reply affidavit, Mr Tyler challenged some of the entries in these schedules, using these challenges as a basis to cast doubt on all of the figures in the relevant schedules. He suggested that some of the schedules did not show data current as at 31 December 2018, but appeared to show the position some months later as at April 2019, when IBC gained full access to the relevant files in Trakker.
[125] I accept that if there is a genuine and substantial basis for ATNZ’s challenge to the reliability of the schedule figures as a whole, that may justify an order setting aside the statutory demand. The Court in those circumstances would be unable to conclude that any particular sum was clearly due and payable to IBC.
[126] In his evidence, Mr Tyler first sought to argue that the December Amount was merely a starting point for negotiations, and was not a binding figure. I accept that the December Amount was agreed by the parties to be “subject to adjustments”, but in my view the “subject to adjustments” agreement was never intended to permit ATNZ to trawl back through approximately 20 years’ of records to see whether any additional claims could be “resurrected” against IBC (for example, in respect of claims relating to vehicles with defects or vehicles which were not compliant with New Zealand regulations). The parties’ starting point was ATNZ’s own balance sheet as at 31 March 2016, and Mr Nambiar and Mr Tyler worked forward from there, adding each new IBC invoice and subtracting payments received from ATNZ or made by ATNZ on IBC’s behalf. A figure was agreed in early December 2018 for the amount payable to IBC for vehicles supplied up to 30 September 2018 ($39,970,126), although that
figure, like the December Amount, recorded that the nett figure allowed a volume rebate credit to ATNZ of $1,642,264 which IBC was disputing. If that dispute was resolved in favour of IBC, both the 30 September 2018 figure and the December Amount would be increased by the $1,642,264.
[127] Further, in a letter dated 14 March 2019 to Mr Nambiar, Mr Tyler quantified precisely the “adjustments” ATNZ required to the December Amount. The “adjustments” totalled $5,345,541, and if accepted they would reduce the December Amount to $37,730,196.
[128] Mr Tyler provided a number of tables setting out the breakdown of the claimed adjustments. A substantial item in Mr Tyler’s proposed adjustments was a claim of
$1,803,303 for “pending claims based on current market value”. This item was described in Mr Tyler’s covering letter as relating to losses allegedly suffered by ATNZ in respect of defective or non-complying vehicles, which had not previously been the subject of any claims by ATNZ. Mr Tyler said in his covering letter:
Note that this process has identified that the previous process of identifying and claiming to IBC was not as robust as it should have been so I am reviewing all of the past year’s sales and preparing a file of all the IBC claims vehicles ATNZ has sold for IBC where credits have not previously been claimed. I will present this file to you when it is complete so that this can also be credited to the ATNZ account.
[129] ATNZ has had approximately six months to provide this more detailed vehicle claim figure, but as far as I am aware it has not done so. In my view, it has not established that it has any genuine and substantial defence relating to the “pending claims based on current market value - $1,803,303”. All there is in the evidence is Mr Tyler’s stated intention to review the transactions between the parties going back many years, in an attempt to find additional or increased claims.
[130] If the $1,803,303 were removed from ATNZ’s claimed “adjustments”, then (subject to IBC’s arguments) the December Amount would be reduced to approximately $39,530,000.
[131] Both parties understood that the December Amount, less any adjustments the Court might accept, did not represent an amount actually due and payable by ATNZ as at 31 December 2018. As IBC said in its notice of opposition, and Mr Tyler accepted in his reply affidavit, the appropriate method to determine the actual debt due depended on how much ATNZ had collected from customers in relation to the vehicles sold to it by IBC. Mr Tyler contended in his reply affidavit that Mr Nambiar’s calculation was, at best, an estimate that was based on incorrect source data.
[132] Mr Tyler said in his reply affidavit that he was confident that, as at the end of November 2018, ATNZ was up to date in meeting its obligations to IBC. He said that any funds outstanding were either still to be collected by ATNZ, or they were funds that IBC had authorised ATNZ to spend on assets for the business. He said that “ultimately those assets could be realised and the funds repaid to IBC”. Mr Tyler went on to say that, because of the nature of the trading relationship, proving that would be a huge exercise which would require him to go back through 20 years of trading history to prove when ATNZ collected payments and when it paid IBC. At least 60,000 vehicles and $420,000,000 worth of payments would have to be considered.
[133] Mr Tyler expressed the view that the “rolling facility” was not limited to use by ATNZ for purchasing vehicles. He characterised the VSA generally as a working capital facility. He said that one example of that was that IBC agreed to purchase the property in New Zealand that ATNZ operates from, which was said to be worth at least
$8,000,000. Mr Tyler said the purchase was approved by IBC and was well known to Mr Hemi. Mr Tyler said that funds were also used to pay rent for Mr Hemi’s property while he was living in New Zealand, for vehicles to supply Mr Hemi’s family and friends, and for related living costs. In addition, funds were used to cover larger items such as GST and deposits which would eventually come back to ATNZ.
[134] That may have been how Mr Tyler and ATNZ viewed the facility, but the fact remains that clause 7.1 of the VSA required ATNZ to pay IBC for each vehicle when ATNZ collected payment in full from its customer. Absent specific proof of authorisation by IBC to apply collected funds elsewhere, and ATNZ has provided no
sufficient proof of any such authorisations,21 ATNZ was not entitled to spend the amounts collected for its own purposes.
[135] So the critical question remains how much of the December Amount (less any adjustments accepted by the Court) has been recovered by ATNZ from its customers and become payable to IBC under clause 7.1 of the VSA.
[136] IBC says that, once access to the relevant databases on Trakker was available, calculating this was a relatively simple exercise. All you had to do was subtract from the December Amount the following sums:
(1)IBC’s export prices of vehicles supplied by IBC to ATNZ which remained unsold by ATNZ as at 31 December 2018 (the unsold vehicles); and
(2)IBC’s export prices of vehicles which, although onsold by ATNZ, had not by 31 December 2018 been paid for in full by ATNZ’s customers (the sold unreleased vehicles).
[137] Subtracting IBC’s export prices for the unsold vehicles and the sold unreleased vehicles from the December Amount produced the statutory demand amount.
[138] ATNZ did not attack that reasoning. Rather, Mr Tyler contended that the Trakker information relied upon by IBC relating to ATNZ’s inventory, sales, and collections from customers was a “management tool” only, and was unreliable.
[139] Mr Tyler supported this “unreliability” argument by checking some of the entries in the Trakker reports relied upon by IBC against other records held by ATNZ
21 No documents were provided to support the contention that IBC lent ATNZ $8,000,000 to acquire its New Zealand business premises, and there is no evidence whatsoever of the terms on which any such advance was made (including interest rate, and how and when the sum was to be repaid). There is no evidence on the critical issue of whether IBC specifically authorised ATNZ to divert collections made by it from its customers (which were required to be paid to IBC under the VSA) to the acquisition of the premises. No details were provided of how much is said to have been spent by ATNZ on the other matters raised by Mr Tyler, which appear to relate to Mr Hemi’s personal living circumstances while living in New Zealand. Any advances that might have been made by ATNZ to Mr Hemi would presumably be advances for which he would be liable personally, not IBC.
which were said to record its inventory and the dates and amounts of payments made by its customers. He said that he found the following anomalies.
[140] His first challenge was to Mr Nambiar’s unsold vehicles report as at 31 December 2018. The report listed a total of 244 vehicles which were said to have been sold by IBC to ATNZ, but not yet onsold by ATNZ to its customers as at 31 December 2018. Mr Tyler said that ATNZ’s stock report at the time showed that there were over 300 unsold vehicles. Mr Tyler noted that any additional vehicles held by ATNZ in stock would necessarily reduce the statutory demand amount, as ATNZ would not have been paid for those vehicles.
[141] Mr Tyler next noted that Exhibit TN8 included three vehicles which ATNZ had in fact sold by 31 December 2018. The fact that these vehicles were included in the unsold vehicles report as at 31 December 2018 suggested to Mr Tyler that Mr Nambiar’s Exhibit TN8 must have captured ATNZ’s stock position at a later date, probably in April 2019 when IBC obtained access to the ATNZ information on Trakker.
[142] Mr Tyler also challenged Mr Nambiar’s sold unreleased vehicles report as at 31 December 2018 (Exhibit TN12). He said that he had found it difficult to review this report, and he noted the original screenshots of the report as it appeared on Trakker were mistakenly omitted from Mr Nambiar’s affidavit.22 However Mr Tyler did carry out some checking on the Excel spreadsheet Mr Nambiar had derived from the missing sold unreleased vehicles report. He concluded that the database file that Mr Nambiar had been working from to produce his sold unreleased vehicles list must have been a version created somewhere between 20 March 2019 and 31 March 2019.
[143] Assuming Mr Nambiar had been using an accurate file, which was not corrupted, Mr Tyler reasoned that the sold unreleased vehicles report relied on by IBC would have missed all vehicles that had been paid for by ATNZ’s customers between 1 January 2019 and the date of the database file Mr Nambiar was working from. If
22 Mr Nambiar said in his affidavit that the original screenshots were annexed as Exhibit TN11, but Exhibit TN11 was a copy of the unsold vehicles report which Mr Nambiar had produced as Exhibit TN8.
there were, say, 2000 missing vehicles, at an average export value of $7000 Mr Nambiar’s calculations would have overstated the December Amount, and consequently the statutory demand amount, by approximately $14,000,000.
[144] In his submissions, Mr MacGillivray strongly criticised ATNZ for not producing documents that it obviously had, to support Mr Tyler’s challenges to the reports relied upon by IBC. Mr Tyler elected not to produce ATNZ’s stock report, which he said showed that ATNZ had over 300 vehicles in stock as at December 2018, and he did not produce the “historic AR reports” relied upon in support of his claim that the sold unreleased vehicles report was not what it purported to be.
[145] Mr MacGillivray also noted that two of the five vehicles identified by Mr Tyler as missing from the unsold vehicles report as at 31 December 2018 were in fact included in the sold unreleased vehicles report as at that date. The export prices of vehicles listed in the sold unreleased vehicles report were not included in the statutory demand amount, so picking up those two vehicles as having been wrongly excluded from the unsold vehicles report cannot assist ATNZ. At best, Mr Tyler has identified three vehicles out of several hundred that were wrongly excluded from the unsold vehicles list.
[146] Mr MacGillivray then submitted that the screenshot produced by Mr Nambiar (Exhibit TN8) was a screenshot of only a part of the total unsold vehicles report. He submitted that Mr Nambiar’s Exhibit TN10 was the report relied upon to calculate the statutory demand amount, and it showed 376 vehicles in ATNZ’s unsold vehicles list. On that basis, he submitted that IBC’s evidence was consistent with Mr Tyler’s assertion about the number of unsold vehicles ATNZ had on hand at 31 December 2018.
[147] I confess I do not follow Mr MacGillivray’s submissions based on Mr Nambiar’s Exhibit TN10. Mr Nambiar produced as Exhibit TN7 a series of screenshots from ATNZ’s Trakker system, showing the unsold vehicles as at 31 December 2018. He said that IBC’s staff then ran a report in Trakker’s database of the cars shown in that report (using vehicle chassis numbers as references), to extract IBC’s export price (CIF) for each of the vehicles. Exhibit TN8 comprised screenshots
of the results of that exercise. I do not understand Mr Nambiar to have said that the unsold vehicles report (Exhibit TN8) was somehow incomplete in showing the unsold vehicles picture as at 31 December 2018.
[148] Nor does reference to Mr Nambiar’s Exhibit PN10 assist this submission. Mr Nambiar said that his unsold vehicles report (Exhibit TN8) was extracted into an excel spreadsheet, with all cars listed in Exhibit TN8 which had been shipped on the vessel Glovis Compressor removed (the vehicles shipped on the Glovis Compressor were not delivered to ATNZ). Exhibit TN10 was in fact Mr Nambiar’s final “unsold vehicles report”, and the total export prices of the vehicles shown in Exhibit TN10 was the first of the two items deducted from the December Amount to reach the statutory demand amount.23
[149] Mr MacGillivray submitted that Mr Nambiar’s Exhibit TN10 showed that there were 376 vehicles in the unsold vehicles list. I think that submission must have been in error, as Mr Nambiar’s evidence appears to make it clear that the number of vehicles in his Exhibit TN10 had to be lower than the 244 vehicles shown in the unsold vehicles list produced as Exhibit TN8 (lower, because the Glovis Compressor vehicles had been removed). Consistent with that, my rough tally of the number of vehicles shown in Mr Nambiar’s Exhibit TN10 was only 229.
[150] Pausing there, the position appears to be that ATNZ might be able to show that some of the adjustments to the December Amount that it has sought are reasonably arguable, but I do not think I could conclude that it has met the “genuine and substantial dispute” threshold on more than a relatively small proportion of the statutory demand amount. Presumably Mr Tyler had reviewed the matter thoroughly by 14 March 2019, and the adjustments then identified and sufficiently quantified by him totalled only $5,345,541. The more substantial issue is over how many vehicles ATNZ has onsold, and what it has done with the proceeds of the onsales.
23 That is, the amount referred to in paragraph [136] and [137] of this judgment.
[151] The reality appears to be that ATNZ did not remit all of the proceeds of the onsales to IBC – Mr Tyler frankly acknowledged that, on occasion, money was spent for ATNZ’s own benefit, including the acquisition of its business premises for some
$8,000,000. The issue will be whether expenditure of that sort was authorised by IBC.
[152] No evidence of any such authorities has been provided beyond Mr Tyler’s uncorroborated assertion that IBC knew of and approved the payments. Again, I would not be prepared to say that ATNZ has met the “genuine and substantial dispute” test on the authority issue. Such payments would have been expressly contrary to ATNZ’s obligations under cl 7.1 of the VSA, and one would have expected any authorities to be in writing if they existed (especially in respect of a transaction as large as the
$8,000,000 said to have been paid for ATNZ’s premises).
[153] But I think ATNZ has produced enough to show that the various Trakker reports relied upon by IBC in its calculations cannot be safely relied upon, at least on the evidence I have before me. If Mr Tyler is right on the deficiencies in the unsold vehicles report, it appears to me that the number of vehicles in this report could be out by somewhere in the order of 30%. I think evidence of a discrepancy of that magnitude does create a genuine and substantial issue as to what may be owing.
[154] I accept that, on the face of it, ATNZ appears to have deliberately refrained from putting in all of the evidence it could have put in, leaving the Court with no clear basis to determine any amount for which the statutory demand might be upheld. But Mr Tyler has made the statements he made in his reply affidavit on oath, and with knowledge that discovery of ATNZ’s stock report and its historic AR reports either had been or probably would be sought in one or more of the other proceedings between the parties. It seems improbable in those circumstances that Mr Tyler would have exposed himself to the risk of perjury charges by falsely stating that ATNZ’s stock report and its historic AR reports show information that they do not in fact show. I note too that Mr Tyler’s assertion that there were “over 300 units” in stock at ATNZ as at 31 December 2018 seems broadly consistent with what he said in an email to Mr Hemi dated 19 December 2018. Mr Tyler said in that email:
… you will be pleased to know that the overall ATNZ’s stock numbers have dropped considerably from over 600 units in stock to below 400 and continuing to drop.
[155] Addressing Mr Tyler’s challenge to the reliability of the sold unreleased vehicles report, Mr MacGillivray submitted that the challenges cannot avail ATNZ. As the missing vehicles were all paid for by G by 19 March 2019, ATNZ then had an obligation under the VSA to pay the amounts collected to IBC. The same logic applies to any other vehicles missing from the sold unreleased vehicles report where ATNZ may have collected full payment before IBC issued the statutory demand in August 2019. That may be right, but I am left with a serious concern that reports produced by Mr Nambiar purporting to show the position as at 31 December 2018 may have in fact showed the position some two to three months later. How did that happen? That is a further matter that raises a question over the integrity of the reports themselves.
[156] It may be that there is a very substantial amount owing by ATNZ to IBC, but what is the Court to do when a creditor’s proof establishing the debt appears to be unreliable (to an unknown extent), and there is no clear line below which it can be said that there is clearly no genuine and substantial dispute over liability?
[157] In the end, I do not consider that it is for the Court to come up with some arbitrary figure. That might be possible in some cases, but I think in cases where there is sufficient evidence to call into question the integrity of important “building blocks” in the creditor’s proof of its debt, that must infect the entire basis for the statutory demand. I conclude that this is such a case, and that the doubts over the integrity of the calculation of the sum due are such that the correct figure should be left for determination in the existing proceedings between the parties.
[158] Before leaving the “sum certain” issue, I add that I am not prepared to admit the further affidavit of Mr Nambiar which Mr MacGillivray filed on 22 November 2019, some nine days after the hearing. No leave was initially sought to file the affidavit, and Mr Branch opposed its admission.
[159] Mr Nambiar’s further affidavit simply attached the Exhibit TN11 that had been mistakenly omitted from his earlier affidavit.
[160] This is a matter that could have been attended to at the hearing, and material parts of the proposed evidence appear in any event to have been included within Mr Nambiar’s Exhibit TN12. IBC’s application under s 98 of the Evidence Act 2006 to file the additional affidavit is refused accordingly.
[161] That is enough to dispose of the application in favour of ATNZ. There will be an order setting aside the statutory demand accordingly.
The remaining grounds advanced for ATNZ
[162] In case the matter should go further, I will address briefly the other matters raised by ATNZ in support of its application.
[163] First, I would not have held that ATNZ has raised a genuine and substantial dispute when it contended the VSA was effectively replaced by the November 2018 agreement, and/or that IBC’s refusal to make anticipated shipments after Christmas 2018 somehow relieved ATNZ of its obligation to pay amounts that had become due and payable to IBC before the parties entered into the November 2018 agreement.
[164] The November 2018 agreement was made on 27 November 2018. The most recent correspondence before that date (between Mr Hemi and Mr Tyler) appear to have been emails dated 19 November 2018. In his email to Mr Tyler timed at 8.58pm on 19 November 2018, Mr Hemi clearly addressed separately (i) arrangements for shipments on vessels scheduled to sail in the next few months, and (ii) the recovery of what he referred to as “receivables” (the very substantial amount he considered that ATNZ had failed to remit to IBC to date, in breach of clause 7.1 of the VSA). Mr Hemi put forward options to resolve the immediate situation, and (separately) invited Mr Tyler to propose a repayment plan for the “receivables”. There is nothing to suggest IBC ever abandoned its claim to the receivables, and I think the November 2018 agreement has to be read in that context.
[165] That element of context is reinforced by the fact that IBC had recently commenced a proceeding in this Court (the summary judgment proceeding) relating to what it said were ATNZ’s breaches of the VSA. A third contextual factor is that IBC considered ATNZ had defaulted in paying a weekly sum to IBC (under an agreement
the parties had reached for ATNZ to remit funds to IBC on a weekly basis), on 16 November 2018.
[166] IBC’s claims in respect of the receivables were not mentioned at all in the November 2018 agreement.
[167] In my view, the November 2018 agreement was quite clearly an interim agreement only, concerned with specific payments to be made in respect of specific shipments on specific vessels between 5 December 2018 and 31 January 2019. In the meantime, as Mr Tyler made clear in an email on 26 November 2018, the parties would work on proposed variations to the VSA. If the November 2018 agreement was not extended by agreement, it would run its course when the particular identified shipments had been sent. The November 2018 agreement said nothing about what might or might not have then been due and payable by ATNZ to IBC before it was entered into. That issue was simply “parked” while the parties dealt with the specific arrangements to cover shipments in December 2018 and January 2019, and continued to discuss possible variations to the VSA.
[168] The limited scope of the November 2018 agreement was confirmed by Mr Tyler in an email to Mr Hemi dated 21 December 2018, in which Mr Tyler said:
We put in place a variation to cover the shipments over the Dec/Jan period.
You are breaching this agreement …
[169] I see nothing in the subsequent correspondence between Mr Tyler and Mr Nambiar that might have elevated those interim arrangements to an ongoing payment regime which was intended to replace entirely clause 7.1 of the VSA.
[170] I accept that the November 2018 agreement did permit ATNZ to use monies collected from its New Zealand customers (which it otherwise would have been required to remit to IBC) to fund the agreed shipments in December 2018 and 2019. But I do not consider it arguable for ATNZ that any existing liability of ATNZ to IBC somehow disappeared. The most that I think could be said for ATNZ is that, for a short period covering the December 2018/January 2019 shipments, the parties arguably agreed that ATNZ’s obligation under the VSA to remit all of its collections to IBC was
postponed. It follows that any breach of the November 2018 agreement, which was limited in scope as set out above, could not have had the effect of (apparently indefinitely) suspending ATNZ’s obligations to pay for amounts which were due and payable before the November 2018 agreement was entered into. I would also have accepted Mr MacGillivray’s submission that, if there was a substantial breach by IBC of either the VSA or the November 2018 agreement, such that ATNZ became entitled to cancel one or both agreements, ATNZ had to make an election. If it did not elect to cancel the agreements, it remained obliged to perform its own obligations under them (subject to any set-offs to which it might have being entitled for damages).24
[171] I would have concluded that ATNZ’s argument that the November 2018 agreement meant that there was no further obligation to pay any collected sums (at least as at 31 December 2018) does not raise any genuine and substantial defence. If there was a pre-existing obligation to pay collected sums prior to the November 2018 agreement which had not been discharged, that obligation did not disappear. It may have been partially suspended for the duration of the period December 2018/January 2019, but when the November 2018 agreement had run its course, and ATNZ elected not to exercise any right it might have had to cancel the VSA, ATNZ’s obligation to pay the pre-existing indebtedness to IBC must have been reinstated.
[172] If IBC breached its obligations under the November 2018 agreement, that could not have somehow had the effect of “suspending” ATNZ’s continuing obligations under the VSA, including its obligation to pay any sums that it may have wrongly failed to pay IBC before the November 2018 agreement was made. There could be no argument of IBC “relying on its own default” in attempting to enforce at least that liability.
[173] Turning to other arguments that were mentioned, Mr Tyler did suggest in his affidavits that ATNZ had suffered losses as a result of IBC’s alleged breaches of the VSA and the November 2018 agreement, and he contended that ATNZ is entitled to a set-off in respect of those losses. However, the losses were not quantified in the evidence, and Mr Branch did not rely on any set-off defence in his submissions. He
24 Property Ventures Investments Ltd v Regalwood Holdings Ltd [2010] NZSC 47, [2010] 3 NZLR 231 at [72], referring to Holmes v Booth (1993) 2 NZ ConvC 191,633 at 191,649 – 191,650.
did refer to a claim for (unquantified) damages as one remedy, but his principal submission on alleged breach by IBC was that IBC’s repudiation gave rise to a claim that the repayment of the trade facility was suspended. I see nothing in the set-off argument that was sufficiently articulated and quantified, that would have raised any genuine and substantial dispute.
[174] I should mention two other matters raised by ATNZ. First, it referred to an award of costs made in its favour against IBC for approximately $13,000, which had not been paid at the time the setting aside application was filed. There is no longer any issue about this. The costs were paid on 5 September 2019, shortly after the setting aside application was filed.
[175] Secondly, Mr Tyler mentioned in his evidence a dispute over the Japanese Yen/New Zealand dollar exchange rates applicable as at 31 December 2018 and the date of the statutory demand. Mr Branch did not address this argument in his submissions. IBC invoiced ATNZ in Japanese Yen, and the statutory demand was made in Japanese Yen. However, Mr Tyler did say in his evidence that it was agreed that any exchange rate movements after 31 December 2018 when the December Amount was fixed were to be to the account of IBC, and the parties did choose to express the December Amount in New Zealand dollars. Mr Tyler said that that reflected the fact that by the time the December Amount was agreed, the trading relationship between the parties was finished, and all ATNZ’s debtors were required to pay it in New Zealand dollars. Mr Tyler said that the JPY/NZD exchange rate at 31 December 2018 was 73.60. By the time the statutory demand was issued, it appears that the New Zealand dollar had gone down against the Japanese Yen – Mr Nambiar said that the August 2019 rate was 68.39.
[176] Mr Nambiar said that when he calculated the statutory demand amount using the exchange rate applicable at 31 December 2018, he came up with a New Zealand dollar value of statutory demand amount of $28,533,565.88.
[177] It appears that Mr Nambiar was not involved in IBC’s decision to issue the statutory demand amount using the 68.39 rate for the demand as expressed in New Zealand dollars, but he accepted that the lower rate was used in calculation of the
$33,749,892.33 referred to in the statutory demand.
[178] Mr Tyler said that in getting to his figure of $28,533,565.88 for the statutory demand amount, Mr Nambiar must have used a rate higher than Mr Tyler’s own 31 December 2018 rate – he calculated that Mr Nambiar must have used a rate of 80.83.
[179] Mr Tyler’s position was that the correct rate was 73.60, and applying that rate would have produced a statutory demand amount of $31,361,411.30.
[180] The fact that Mr Nambiar used a 31 December 2018 exchange rate (even if it was the wrong one) arguably lends some support to Mr Tyler’s position, and I think ATNZ has raised a genuine and substantial issue on the question of whether the parties agreed that any liability ATNZ might have was to be paid in New Zealand dollars, using whatever was the correct exchange rate as at 31 December 2018. If it were necessary, I would have held that ATNZ had established a genuine and substantial dispute on the currency issue, in addition to its arguments on the “sum certain” issue, to the extent of $2,388,481.
Result
(1)The application to set aside the statutory demand is granted.
(2)ATNZ is entitled to costs, which I fix on a 2B basis, with disbursements to be fixed by the Registrar.
Associate Judge Smith
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