Autoterminal New Zealand v IBC Japan Limited

[2021] NZHC 1654

IN THE HIGH COURT OF NEW ZEALAND HAMILTON REGISTRY

I TE KŌTI MATUA O AOTEAROA KIRIKIRIROA ROHE

CIV-2018-419-294

[2021] NZHC 1654

BETWEEN

AUTOTERMINAL NEW ZEALAND LIMITED
Plaintiff/Counterclaim Defendant

AND

IBC JAPAN LIMITED

Defendant/Counterclaim Plaintiff

Hearing:

15-16 March; 18-19 March; 22-23 March 2021

Further submissions received 30 April 2021

Counsel:

M D Branch and K F Shaw for plaintiff/counterclaim defendant J A MacGillivray and M K Brady for defendant/counterclaim plaintiff

Judgment:

6 July 2021

RESERVED JUDGMENT OF TOOGOOD J

This judgment was delivered by me on 6 July 2021 at 9.00am, pursuant to r 11.5 of the High Court Rules

Registrar/Deputy Registrar Date:

Solicitors:

Harkness Henry, Hamilton Tompkins Wake, Hamilton

AUTOTERMINAL NEW ZEALAND LTD v IBC JAPAN LTD [2021] NZHC 1654 [6 July 2021]

Introduction  [1]

Historical background  [4]

Michael Tyler – working relationship with Robert Stone  [10]

The commercial relationship between IBC and ATNZ  [13]

Vehicle supply agreements  [19]

The extent of the parties’ adherence to the terms of the VSA  [24]

The flexible arrangements between Mr Stone and Mr Tyler  [28] iComm International, Inc and the Trakker accounts management system  [37] Mr Hemi’s attempts to alter the flexible arrangements  [37]

Trakker  [39]

Termination of Mr Hemi’s access to ATNZ’s collections information  [47]

Implied term  [52]

IBC’s position  [56]

ATNZ’s position  [58]
Conclusions on the implication of a contractual term requiring disclosure  [61]

Declaration about implied term  [72]

The agreements reached in November and December 2018  [74]

The variation agreement or ship-by-ship agreement  [85]

Mr Hemi’s attempts to renegotiate the terms of the VSA  [92]

The December ship-by-ship agreement  [97]
The second Euro Spirit shipment  [99]

ATNZ’s decision not to make the 4 January 2019 payment  [108]

IBC’s response to ATNZ’s refusal to make the 4 January 2019 payment  [112]

IBC’s claim for immediate payment under the VSA – ATNZ’s defences  [118]

Did either IBC or ATNZ breach the ship-by-ship agreements or the VSA?  [118] What is the effect of ATNZ’s breach and IBC’s response?  [123] Is ATNZ entitled to withhold payment of the receivable from IBC?  [127] The heat treatment rebate  [131]

Conclusions  [133]

Orders  [134]

Costs  [137]

Introduction

[1]                  This proceeding concerns a dispute between Mr Robert Stone, an American, and Mr Hohua (known as Jojo) Hemi, a New Zealander, who are the effective owners and directors of a global enterprise established in 1991 for the principal purpose of purchasing used cars in Japan and exporting them to New Zealand and elsewhere for sale. They are equal partners in the venture. The business of the partnership now comprises a complex structure of corporate entities incorporated in various jurisdictions, but there is no overarching partnership or joint venture agreement and it appears that, initially, the business relationship between the two men was founded on mutual respect and trust. In this judgment, therefore, I use the term “partnership” to describe the relationship in a general and not legally significant sense. The personal relationship between the two businessmen faltered, however, and is now broken down; irretrievably it seems.

[2]                  The issues for determination concern claims by one of the entities, Autoterminal New Zealand Limited (ATNZ), against a Japanese company which is also part of the global venture, IBC Japan Limited (IBC), arising from the supply of vehicles into the New Zealand market and a counterclaim by IBC for the immediate payment to it of more than NZD $38 million which ATNZ says is not due for payment until 30 June 2022.

[3]                  As pleaded, and as initially addressed by the openings of counsel and the evidence, some 16 issues arise under ATNZ’s claim and IBC’s three counterclaims. Through the diligence of counsel and a realistic approach taken by the parties during the hearing, the issues for determination are now confined to only four. My findings appear at [133].

Historical background

[4]                  It is necessary to explain the context in which the issues arise by referring to the history of the unusual relationship between the parties and the protagonists.

[5]                  IBC was the first partnership entity established by Mr Hemi and Mr Stone. It was incorporated in Japan with Mr Hemi and Mr Stone or their interests each holding 50 per cent of the shares. The board comprised Mr Hemi; Mr Stone; Mr Hemi’s wife and a Mr Tanjiri. Mr Stone’s appointment by the board as the representative director of the company, a powerful position under Japanese law,1 had significant implications which are discussed more fully below.

[6]                  The business interests of the partnership grew on a global scale to include companies carrying out vehicle appraisals and inspections, import distribution and shipping and logistics. A service company incorporated in Cebu City, Philippines – iComm International, Inc (iComm) – features in the narrative of this case. All of the entities within the partnership were ultimately  owned directly or beneficially by    Mr Hemi and Mr Stone, or their respective interests, in equal shares. None of the other incorporated entities is a subsidiary of IBC.

1 See discussion at [12].

[7]                  Mr Hemi and Mr Stone incorporated ATNZ in New Zealand on 5 April 2000. The company’s role was to buy, sell and distribute vehicles that IBC imported into New Zealand. Previously, IBC’s customer service centre acted as an importer and distributor of vehicles from IBC and handled claims and vehicle returns. The purpose of ATNZ’s incorporation was to have vehicles ready for sale in the New Zealand market; to increase IBC’s sales; and limit its exposure to non-payment from customers who demanded terms of sale after the imported vehicles had been cleared from the wharf. The new arrangement meant that the credit risk would be borne by ATNZ, which was much better placed to assess and handle it.

[8]                  Further, the volume of vehicles that ATNZ agreed to import and distribute into New Zealand gave IBC critical mass and allowed it to achieve economies of scale which reduced its own shipping and logistics costs. It also increased the overall IBC stock that was being purchased for customers in New Zealand, giving IBC a consistency of supply into New Zealand which provided stability for its business in Japan.

[9]                  Mr Hemi’s brother, Mr Apihai Hemi, was employed to manage the business of ATNZ in New Zealand, and to act as its director, from its incorporation in 2000. Apihai Hemi also held the shares of the company as a bare trustee for Mr Stone and Jojo Hemi. In March 2001, under direction from Mr Stone and Jojo Hemi, Apihai Hemi transferred his shares in ATNZ to Auto Net, a Cayman Island company, the ultimate beneficial shareholders of which were Jojo Hemi’s family trust and Mr Stone, in equal shares.

Michael Tyler – working relationship with Robert Stone

[10]              Mr Michael Tyler replaced Apihai Hemi as the director of ATNZ in May 2004. At that time, Mr Tyler was living in Cebu in the Philippines and working for iComm. IBC was continuing to sell vehicles directly into the New Zealand market so ATNZ represented only about 25 per cent of IBC’s overall business in this country.

[11]              The ATNZ chief executive in New Zealand from 2004 to 2007 was Mr Michael Smith, who was appointed as a second director of the company in 2006. He resigned in February 2007, however, and was replaced as chief executive by Mr Andrew Hill.

In 2008, Mr Stone and Jojo  Hemi  asked  Mr Tyler  to  relocate  from  Cebu  to  New Zealand to take over complete responsibility for the management of ATNZ’s operations. By that time the effects of the 2007 – 2009 global financial crisis were being felt by ATNZ and IBC. ATNZ had built up an inventory of over 6,000 cars in New Zealand, spread across seven sales yards. Mr Tyler describes the New Zealand operation as having “crippling overheads and a huge ongoing investment in the inventory”. He said that the business had lost, and was losing, a significant amount of money.

[12]              Mr Tyler and Mr Stone, in his role as IBC’s representative director, worked closely together to address the difficulties faced by both IBC and ATNZ  in the    New Zealand market. Under Japanese law, Mr Stone had effective control of IBC, with the power and legal authority, without board approval, to represent IBC officially, enter into binding contractual commitments on IBC’s behalf and make operational decisions for the company. He was in a position, therefore, to act flexibly and he appears to have taken a pragmatic approach to assisting ATNZ to address its financial problems. Although, as Mr Branch emphasised in the course of the hearing, ATNZ and IBC had a debtor/creditor relationship, they did not trade with each other at arm’s length, at least until mid-2018. During the period in which Mr Stone was representative director of IBC, the dealings between the two companies were founded much less on the contractual arrangements than on the close co-operation between Mr Stone and Mr Tyler, who focused on what they perceived to be the best commercial outcomes for both companies.

The commercial relationship between IBC and ATNZ

[13]              Like almost all of the other entities formed by Mr Hemi and Mr Stone “downstream” of IBC, ATNZ’s purpose was to support IBC’s car export business. Through its bank borrowings in Japan, IBC carried the major debt burden for the whole global business, much, if not most, of which related to the cost of vehicles supplied to ATNZ, according to Mr Hemi. Significantly, ATNZ was not required to pay IBC for the vehicles ATNZ purchased from IBC until after they had been shipped to New Zealand and sold to dealers, and payment had been collected from the dealers by

ATNZ.2 Moreover, the terms of trade with the New Zealand customers were set by ATNZ rather than IBC which had no control over the credit terms or the dates when payments were due. Although IBC and ATNZ had no formal agency arrangement, ATNZ used IBC’s brand name in its dealings with New Zealand customers, assisting IBC to build up its customer base in New Zealand.

[14]              Mr Hemi says that before Mr Stone and he fell out, Mr Tyler used to act as ATNZ’s chief executive under instructions from both Mr Hemi and Mr Stone. Mr Tyler would report to Mr Hemi on ATNZ’s performance whenever Mr Hemi was in New Zealand, but after Mr Hemi started raising critical questions about ATNZ’s operations and the level of its expenses, Mr Tyler turned to Mr Stone for support.

[15]              In 2010, Mr Stone and Mr Hemi directed that Auto Net’s shareholding in ATNZ should be transferred to Mr Tyler as trustee. Mr Hemi says that the independent directors of Auto Net have now asked Mr Tyler to transfer the ATNZ shares back to Auto Net so that independent directors could be appointed to ATNZ. He says Mr Tyler has refused the transfer on the grounds that he is entitled to retain the shares as security for an indemnity that had been agreed with Mr Stone, and on the basis that Mr Stone and Mr Tyler had agreed that the shareholding in ATNZ would not be transferred to any other person without Mr Stone’s agreement. The disagreement over ownership of the ATNZ shares is the subject of other litigation and the issue is not material to this proceeding, except as background information. It is conceded by Mr Hemi that, at all material times, Mr Tyler has been and remains in control of ATNZ with Mr Stone’s blessing.

[16]              Mr Tyler explained that the level of control he sought over ATNZ in 2008 was necessary because IBC, at that time, had a “terrible” reputation in the New Zealand marketplace. He said that customers refused to purchase vehicles from IBC and the market in general viewed IBC as providing inferior vehicles. Mr Tyler said that the entire New Zealand business of IBC was re-engineered in Japan under instruction and guidance from ATNZ. The website was re-done, the IBC sales team was taught how to buy and sell vehicles in New Zealand to support the business activity; the IBC

2 Clause 7.1 of the vehicle supply agreement between ATNZ and IBC, quoted at [19] below.

vehicle inspection process was enhanced to improve quality control, the administration system was overhauled and streamlined to make it easier to use, and all communication with the New Zealand market was prepared and communicated by ATNZ. The changes rebranded ATNZ to IBC, giving customers the feeling they were dealing directly with the exporter while getting the benefits of services provided in New Zealand.

[17]              A few years after Mr Tyler returned to New Zealand, the focus of the New Zealand operation changed because of an assessment that the wholesale business model of importing unsold vehicles and holding them for resale to dealers was difficult and that it was preferable to sell directly to New Zealand customers.

[18]              The changed arrangements meant that vehicles were pre-sold before importation and that the customers bore the cost of holding the stock. Although IBC provided credit to the New Zealand market, it was done by extending the credit to ATNZ who, in turn, supplied vehicles to dealers. This enabled ATNZ to have more effective control over the credit assessment of customers, the management of accounts and securing titles to vehicles after importation.

Vehicle supply agreements

[19]              Although Mr Tyler said ATNZ had always had a vehicle supply agreement (VSA) with IBC as part of IBC’s tax audit process, the earliest VSA produced into evidence is a document dated 1 July 2014 (the 2014 VSA). The provisions of the 2014 VSA that are relevant to this proceeding are these:

1.Scope.

This Agreement shall apply to all purchases of vehicles made by ATNZ or its divisions, outlets, subsidiaries, affiliates or operations, whereever located, and accepted by IBC during the Term of this Agreement.

2.Term.

The term of this Agreement shall commence on execution of this Agreement by IBC and ATNZ (the “Effective Date”) and shall continue for twelve months, one year (“Initial Term”). This Agreement shall automatically be renewed for another twelve month, one year period (the “Extended Term”). This agreement can only be

cancelled by mutual agreement of both parties unless either party gives written notice of termination at least ninety (90) days before the end of the Term or unless sooner terminated in accordance with the provisions hereof. “Term” shall mean the Initial Term and the Extended Term, if applicable. The terms of this agreement shall continue after cancellation where they relate to the payment of vehicles and collection of funds.

3.Purchasing.

3.1.ATNZ, through its Director or duly authorized representative or purchasing staff, shall order vehicles by choosing from the different vehicles displayed by IBC at its website ( from its inventory of vehicles for sale or from the various Japan auction houses through online bidding on iDirect, online auction system, or through other sources agreed.

3.2.IBC shall sell and transfer the units to ATNZ at Stand-In Value (SIV) which is computed as the lower of Purchase Price, Car Cost, or the price negotiated plus all necessary and incidental costs, including but not limited to administrative fees, transport costs, inland transport costs, ocean freight, maritime insurance, and a margin based on a scale that is agreed from time to time. For the purchases of this agreement the initial margin scale shall be JPY 45,000 for every JPY 249,999 with increments of JPY 400 for every JPY 10,000 price increase and shall remain in place until changed by agreement of both parties.

3.3.IBC shall show its computation of costs to ATNZ on request, and the latter has the right to audit and verify the fees and charges. For this purpose, IBC shall present to ATNZ its market scale, and all costs of components that figure into the IBC pricing for verification and inspection of ATNZ.

…

5.Delivery.

IBC shall use its best endeavor to deliver the vehicles ordered as soon as possible on the next available vessel. All deliveries shall be made Cost, Insurance and Freight (CIF) to Lytteton [sic], Auckland or Wellington in New Zealand unless another port or destination is agreed upon by the parties subject to adjustment of freight costs, if any.

6.Compliance

ATNZ warrants that it will maintain or provide access to facilities in New Zealand for IBC’s customers that allow for the compliance of vehicles supplied by IBC.

7.Payment.

7.1.After shipment of the vehicles, IBC shall send to ATNZ the Sales Invoice per shipment of vehicles made. ATNZ shall pay IBC for the vehicles upon collection of payment.

7.2.Payment shall be made by bank transfer to the following bank accounts of IBC Japan Ltd. or to such other accounts as may be requested by IBC:

…

8.Claims Policy.

8.1.IBC warranties [sic] that the vehicles will arrive in the condition described on the checklist. ATNZ must notify IBC of any claimable defect or fault that should have been detected at the time of inspection and shown on the vehicle checklist.

8.2.All vehicle claims shall be submitted to IBC monthly and all approved claims will be credited to the ATNZ account.

8.3.IBC warranties that the vehicles will meet the estimated costs profile agreed by IBC and ATNZ to prepare the vehicle ready for sale in NZ. IBC agrees to cover any estimated costs overruns (ECO). The ECO will be determined for all vehicles during IBC’s financial year and any credits will be applied to ATNZ’s account at that time.

8.4.Neither party shall be liable for any delay or failure in performance hereunder caused by acts of God or other causes beyond the parties’ control and without the parties’ fault or negligence.

9.Payments on Behalf

From time to time IBC will have payments that need to be made in NZD including freight, NZTA and MPI charges and other related New Zealand based costs. Upon request by IBC, ATNZ agrees to pay these amounts on IBC’s behalf and then to invoice monthly to IBC the GST exclusive cost of these payments. All such payments made will be credited to ATNZ’s account.

…

13.Confidential information

13.1.ATNZ acknowledges that all information disclosed or transferred by IBC to ATNZ comprises proprietary and confidential information and [sic] subject to the obligations of confidentiality. ATNZ agrees to restrict access to such confidential information to those employees, contractors or consultants of ATNZ and agrees to establish adequate internal safeguards and otherwise use reasonable care in restricting the use and dissemination of any such confidential information in

order to protect against its unauthorized use or disclosure to any third party.

13.2.ATNZ shall exercise the same degree of care to prevent unauthorized use or disclosure of the confidential information to others as it takes to preserve and safeguard its own confidential information, but in any event, no less than a reasonable degree of care.

14.Relationship of Parties.

The parties agree that they will work closely together to develop the market in New Zealand for both companies benefit. IBC grants ATNZ the exclusive right to represent IBC, act on IBC’s behalf and use the IBC name in New Zealand for the purposes of marketing, promotion, customer’s service and sales.

…

16.Miscellaneous Provisions.

16.1.This Agreement constitutes the entire agreement between the parties with respect to the subject matter hereof and supersedes all prior proposals, negotiations and communications, oral or written between the parties with respect to the subject matter hereof as well as any and all other vehicle supply agreements previously entered into by the parties hereto. Except, as stated herein, wherein updates or modifications are made to certain provisions on the IBC website in which case, the latter shall govern, no other deviations from these provisions or amendments shall be binding unless in writing and signed by the parties.

16.2.Except as specifically set forth herein, all rights and remedies conferred under this Agreement or by any other instrument or law shall be cumulative and may be exercised singularly or concurrently. Failure by either party to enforce any provision shall not be deemed a waiver of future enforcement of that or any other provision.

16.3.In the event that any portion of this Agreement shall be held to be unenforceable, the remaining portions of this Agreement shall remain in full force and effect and the parties shall negotiate substitute provisions for those provisions held to be unenforceable that most nearly affect the parties’ intent in entering into this Agreement.

[20]              Supplementary VSAs were entered into on 1 July 2016 (the 2016 VSA) and  1 July 2017 (the 2017 VSA). A significant change was made to cl 2 of the 2014 VSA which was amended by the 2016 VSA as follows:

The parties agree to extend the term of the VSA outlined in clause 2 for a further period of three years. The VSA will automatically renew at the expiry

of each three year period for further rolling three years [sic] periods. The VSA can only be cancelled by mutual agreement of both parties or by one party giving the other twelve (12) months written notice of termination before the end of the term or the subsequent renewal term. The termination of the agreement to take place at the end of the term or the subsequent renewal term.

[21]              It is common ground that neither party has purported to terminate the VSA by giving notice under this new provisions and that the agreement between the companies will expire on 30 June 2022, that being the end of the second renewal term after 2016.

[22]              The 2016 VSA also changed the pricing mechanism provided in cl 3.2 of the 2014 VSA. The details of the new arrangements are not relevant for the purposes of this judgment, but they include an agreement about the need for a degree of co-operation between ATNZ and IBC to ensure “consistency in the [New Zealand] marketplace”.

[23]              In the 2017 VSA, additional clauses were inserted to accommodate additional co-operative arrangements between IBC and ATNZ related to shipping volumes, purchasing priority, competitive pricing and terms, purchasing budgets and buying trips to Japan for New Zealand customers. In this judgment, a reference to “the VSA” refers to the agreement currently in force, as constituted by the 2014 VSA and the 2016 and 2017 amendments.

The extent of the parties’ adherence to the terms of the VSA

[24]                Taken at face value, the terms of the VSA reflect a relatively straightforward willing buyer/willing seller or debtor/creditor relationship between ATNZ and IBC. ATNZ would order vehicles selected from those displayed by IBC for sale,3 and IBC would sell the vehicles to ATNZ at a price calculated in accordance with cl 3.2. IBC would arrange delivery of the vehicles to a New Zealand port on a “Cost, Insurance and Freight” (CIF) basis,4 and would then invoice ATNZ for each shipment of vehicles.5 ATNZ was not required to make any payment on IBC’s invoices until it had collected payment from its customers.6 The transactions were conducted in Japanese

3      Clause 3.1.

4      Clause 5.

5      Clause 7.1.

6      Clause 7.1.

yen. The price included the recovery by IBC of administrative fees, transport costs (including inland transport), ocean freight, maritime insurance “and a margin based on a scale that [was] agreed from time to time”.7

[25]              The VSA contemplates that certain deductions would be made from the price otherwise payable by ATNZ under cl 7 to meet the cost of:

(a)any claimable defect or fault that should have been detected at the time of inspection in Japan and shown on the vehicle checklist;8

(b)any overrun of the estimated costs of preparing a vehicle ready for sale in New Zealand;9

(c)any costs required to be made in New Zealand dollars including freight and charges levied by the New Zealand Transport Authority (NZTA) and the Ministry of Primary Industries, as  well  as  other  related  New Zealand-based costs.10

[26]              If IBC requested ATNZ to pay such fees, it would do so and invoice IBC monthly, exclusive of GST. The payments thus made by ATNZ would be credited in ATNZ’s account with IBC.

[27]              Had those arrangements been implemented by parties trading at arm’s length, there would be no reason for ATNZ’s receivables account with IBC to have reached a now-agreed figure of over $38 million, after taking account of agreed credits and other adjustments and forgoing any claim by IBC to interest. Mr Stone accepted that the figure represents the amount collected from customers to whom vehicles supplied by IBC were sold, with the exclusion of around $600,000 worth of vehicles held by ATNZ in New Zealand unsold.

7      Clause 3.2

8      Clause 8.1.

9      Clause 8.3.

10     Clause 9.

The flexible arrangements between Mr Stone and Mr Tyler

[28]              The explanation for the large-scale indebtedness lies in the way  in  which  Mr Tyler and Mr Stone, while he was representative director of IBC, managed the financial arrangements between the two companies. In brief, Mr Stone and Mr Tyler regarded the withholding from IBC of funds collected from ATNZ customers as a “rolling facility” that enabled ATNZ to trade its way out of the extreme financial difficulties caused by the GFC and then to provide what was effectively working capital for ATNZ. From time to time, Mr Stone authorised write-offs from ATNZ’s account with IBC where he considered that to be appropriate. It is not suggested by IBC that he was not entitled to do that. Their approach was a matter of considerable contention between Mr Stone and Mr Tyler on the one hand and Mr Hemi on the other, and one that was addressed by Mr Hemi when he succeeded Mr Stone as representative director of IBC on 31 May 2018.11

[29]              Mr Tyler accepted that ATNZ’s contractual obligation under the VSA was to pay the price of IBC’s sale invoices for cars supplied when ATNZ collected the payment for the on-sale of those cars. He explained, however, that Mr Stone and he recognised that, out of the funds collected, ATNZ was paying the IBC expenses referred to in the agreement, such as freight. From time to time it was also making payments of Mr Hemi’s personal expenses during the period when he was living in New Zealand. Mr Tyler said that the money collected from customers included not only IBC’s money but also GST on ATNZ’s profit margin. Out of the collections, ATNZ was required to meet the costs of repairs and compliance, as well as ensuring that ATNZ had enough money in the bank to meet its obligations to pay rent, wages and suppliers. He said that Mr Stone and he looked at the collections and the payments to IBC “on a global basis” and adopted an overall cash flow management approach. ATNZ made payments to IBC monthly after Mr Tyler had looked at the amounts collected and considered what bills ATNZ would have to meet. He would then make a payment to IBC of an amount which took account of ATNZ’s cash flow and IBC’s needs.

11 Mr Hemi took advantage of the death of the fourth director of IBC, Mr Tanjiri, an event which effectively left Mr Hemi and his wife in control of the IBC board, to take Mr Stone’s place as representative director.

[30]              It was put to Mr Tyler in cross-examination that ATNZ did not send payments to IBC based on what it was obliged to pay in terms of cl 7.1, less the amounts that it was entitled to withhold under the VSA to pay for IBC’s expenses or to account for allowable credits. Mr Tyler conceded that they never applied the amounts collected from time to time by reconciling them against particular vehicle sales. He said it was not possible to determine how much of each sum collected was payable to IBC by reference to individual vehicles.

[31]              Mr Stone acknowledged that approach. He said, however, that he could see whether the total accounts receivable were increasing or decreasing and, having regard to the sales volumes which fluctuated based on market conditions and currency rates, he could tell whether IBC and ATNZ were making progress or whether things had stagnated. He said that “just like any creditor”, he was more concerned with the turnover and the total amount outstanding than he was worried about whether a particular vehicle had been released and IBC had received payment for it. Mr Stone did not want IBC to have to pay for expenses that were being met in New Zealand dollars, such as ocean freight and maritime insurance amounting to around $1,000 per car paid by ATNZ in New Zealand dollars, and he did not want IBC to incur an exchange loss by collecting the New Zealand dollars, changing them to Japanese yen and then changing the sum back to New Zealand dollars.

[32]              Mr Stone said that he considered that the agreements put in place clearly outlined that there was a rolling facility that had been provided to ATNZ and that that facility was good so long as the agreement remained in effect. In his view, the effect of the VSA was to leave that facility in place until the agreement expired in June 2022.

[33]              Mr Stone considered that, although the receivable owed by ATNZ was a significant sum, IBC was also benefiting from the increased sales and making an extra profit from them. He said payments were sometimes paid monthly and sometimes bi-monthly because he would ask Mr Tyler to hold payment pending a more favourable currency position and other “extenuating circumstances within the facility” negotiated between Mr Tyler and him.

[34]              Mr Stone decided as representative director of IBC that it was appropriate to write down the value of ATNZ’s accounts receivable in IBC’s books periodically on the basis that he considered that ATNZ could not afford to pay all of that sum. He said that he did not need ATNZ’s approval to do that but kept Mr Tyler informed. Notably, at one point the accounts receivable figure was around NZ$25-30 million when the currency dropped overnight so that the amount  owing ballooned to $50 million.    Mr Stone said the write-offs were made to correct historic losses in an environment where all of the other Autoterminal companies that IBC was dealing with in other jurisdictions had ceased to trade because of the GFC and it was only ATNZ that was left trading.

[35]              Mr Tyler’s view was that, in a situation where IBC was in what Mr Tyler described as a “$NZD80 million hole”, of which ATNZ was carrying around NZ$30 million, there was no point in undertaking a reconciliation that might result in the accounts receivable figure being reduced by only a few million New Zealand dollars. The way in which the debt was managed underlined what Mr Tyler agreed was the principal goal of the arrangement: to buy cars and sell them in New Zealand in order to give IBC consistent volume from which it could make a profit. Although ATNZ traded with a view to making its own profit, it was acknowledged that ATNZ never paid a dividend.

[36]              A notable example of the facilitative approach which Mr Stone and Mr Tyler took to ATNZ’s obligations to pay “upon collection” was the use of IBC’s money, with Mr Stone’s approval, to purchase a building in 2014 using about $4.3 million of IBC’s money. The sum was not recorded in ATNZ’s accounts as a separate loan advance, even though Mr Tyler said it was money that ATNZ recognised as being due and payable to IBC. He said the idea was to invest the money in the property in the hope that it would increase in value and that that “would be another part of filling the hole” that ATNZ owed to IBC. Mr Tyler acknowledged, however, that when the building was sold in 2020 for $10 million, no catch-up payment of the $4.3 million was made to IBC and the money from the sale of the business was invested in the purchase of more stock.

iComm International, Inc and the Trakker accounts management system

Mr Hemi’s attempts to alter the flexible arrangements

[37]              After he was appointed representative director on 31 May 2018, Mr Hemi sought to have the provisions of cl 7 of the VSA complied with by having ATNZ send its accounts to IBC’s accounts department on a daily basis, with a report on the amounts collected by ATNZ, so that a proper record could be kept of payments by both IBC and ATNZ. Mr Hemi accepted that the provisions of cl 7.1 did not require ATNZ to reconcile its collections on a vehicle-by-vehicle basis, but he directed that payments from collections should be made weekly rather than monthly. Mr Hemi requested that weekly vehicle release reports, detailing the vehicles that had been released to customers following collection of the purchase price, should be provided to IBC and payments made at the end of each week for all vehicles released during that week. Mr Tyler responded by saying that the VSA did not require any such reporting or payment scheme. He told Mr Hemi, however, he was prepared to make payments of what ATNZ could afford, based on the cash flow needs of his business, on a weekly rather than monthly basis.

[38]              Mr Hemi also complained that, from the time he became representative director of IBC in 2018, Mr Tyler cut off his access to ATNZ’s financial information, including information about the collection of payments from ATNZ’s customers. That meant that he could not rely on information available within ATNZ’s accounting system to monitor whether ATNZ was complying with its obligations under cl 7.1 of the VSA.

Trakker

[39]              To understand Mr Hemi’s complaint, and the nature of the argument about the extent to which ATNZ was required to make available the information sought by IBC by the implication of a contractual term to that effect, it is necessary to understand something about the account management system operated by the parties in respect of the transactions conducted under the VSA.

[40]              iComm was formed in 2003 to provide a range of corporate services to IBC and companies within the group, including ATNZ. The services included information technology for IBC’s Trakker accounts management system. In 2005, Mr Tyler relocated to Cebu to become a director and chief executive officer of iComm, with primary responsibility for the accounting and financial side of the business.

[41]              Trakker was used to record and manage trading transactions with IBC customers. Each customer of IBC, including ATNZ, was allocated its own customer identification number and its own account in Trakker to record three types of transactions: shipments, payments and adjustments.

[42]              Shipment entries recorded cars purchased by the customer. On the day of the departure of the vessel carrying the vehicles from Japan, the chassis number of each vehicle, along with the price and other details, were loaded into Trakker as a debit against the customer’s account. The sale price was referred to as the “export price”. Payment entries recorded payments received by IBC from the customer which were credited to the customer’s account. Payments from customers, including ATNZ, were loaded into Trakker by IBC’s accounting staff based on funds received into the bank account from ATNZ.

[43]              Adjustments were either credit or debit entries other than shipment or payments that were made in Trakker for a number of different reasons. For example, ATNZ’s account might be credited to reflect the fact that it had paid freight bills on behalf of IBC in New Zealand or the costs incurred by ATNZ for fixing defective vehicles supplied by IBC. Debit adjustments would be made where payments were made for vehicle parts or where funds were transferred to a different customer.

[44]              Trakker comprised two different modules. The export module had the version of the customer account that was seen by IBC’s customers when accessing it through IBC’s website using a unique identifier and a password. The sales module version of each customer account was not accessible to customers, however, and was used solely by IBC. ATNZ operated its own accounts with its own New Zealand customers through a separate part of Trakker, which was also managed by iComm.

[45]              It appears that during  Mr Stone’s  time as  representative director of IBC,  Mr Stone and other authorised IBC executives had access to ATNZ’s accounts that would enable them to view ATNZ’s transactions with its customers. Mr Hemi said that, until he replaced Mr Stone as IBC’s representative director in 2018, he also had access to whatever information he required about any part of the IBC group, including ATNZ’s part of Trakker. He said that he could access reports that included a daily payment report showing payments received by ATNZ from customers and reports from the ATNZ inventory manager module. That module showed the stage that each vehicle supplied by IBC had reached in the sales process, such as whether it had passed compliance checks; whether it was sold or remained unsold; and, if sold, whether the vehicle had been paid for in full, was part-paid or remained unpaid.

[46]              Information in the export module of Trakker automatically mirrored the information in ATNZ’s customer account. IBC used the sales module, however, to record its own accounting adjustments to customer trading accounts for its own purposes without changing the details of the customer account in the export module. These adjustments were known as “B level” adjustments that would show up only in the sales module without being visible to customers in the export module. Mr Stone and Mr Tyler had access that would enable them to make “B level” adjustments, as did a limited number of senior employees. It appears that Mr Stone used the B level access to make the adjustments in ATNZ’s account in the sales module that reflected the flexible arrangements Mr Tyler and he had made in order to facilitate ATNZ’s continued trading. Such adjustments did not appear in the export module to which IBC had access.

Termination of Mr Hemi’s access to ATNZ’s collections information

[47]              In 2014, Mr Hemi raised complaints about Mr Stone taking funds out of iComm for his personal expenses, a move which Mr Hemi said resulted in Mr Stone instructing iComm management to restrict Mr Hemi’s access to the iComm network and to refuse to respond to information requests. Mr Hemi says that iComm ceased to send him monthly financials and iComm’s managers refused to meet with him to provide information about the operational and financial issues within the business partnership, including to ATNZ.

[48]              Mr Tyler acknowledges that, when Mr Hemi became representative director of IBC in 2018, he instructed iComm staff that Mr Hemi’s ability to obtain access to the information in Trakker about ATNZ’s financial position should be removed. He said this decision was precautionary because he believed Mr Hemi was hostile to ATNZ as a result of his falling out with Mr Stone. He alleged Mr Hemi had taken information he had been given by iComm, provided it to the Bureau of Inland Revenue in the Philippines and used it to persuade them to investigate Mr Stone’s personal expenses. Mr Tyler says that led to an audit of iComm that cleared the company of any wrongdoing relating to Mr Stone’s expenses but led to penalties being assessed against the company for other unrelated matters.

[49]              It is unnecessary for me to determine whether Mr Tyler was justified in restricting Mr Hemi’s access in that way. For the purposes of the proceeding, it is sufficient to note that the parties agree that Mr Hemi’s access to some of the information to which he had previously had access was cut off. The effect of the restriction was that Mr Hemi was deprived of the ability to determine through Trakker when ATNZ had collected payments from customers to whom it had sold vehicles in New Zealand. Mr Stone, however, continued to have full access to the ATNZ database.

[50]              Mr Tyler says that, after he revoked Mr Hemi’s access permission, Mr Hemi could continue to see what ATNZ was buying from IBC and what ATNZ was paying, but he could no longer access that part of Trakker that would tell him when ATNZ collected payments from its customers. Mr Tyler says, however, that Mr Hemi was able to obtain information about the dates or approximate dates of collections by tracing the registration of the vehicles through the NZTA’s vehicle registration system. It was not until after a payment was collected from the customer that ATNZ would release the vehicle by processing the change of registered owner through the vehicle register. Mr Tyler says IBC could track individual vehicles sold in New Zealand by entering the chassis numbers into the NZTA database. He acknowledged, however, that that was cumbersome and that the simplest way for Mr Hemi to have access to the same information previously available to him would have been through Trakker.

[51]              The collections information Mr Hemi had been seeking since about July or August 2018 was eventually provided to IBC by discovery in the litigation. But IBC seeks a declaration that it is entitled to that information as of right.

Implied term

[52]              IBC pleads, therefore, that it is an implied term of the VSA that ATNZ will provide to IBC, on request, records that disclose and verify when payments have been received or collected from third parties in respect of vehicles sold by IBC to ATNZ under the VSA.

[53]              IBC claims that this term should be implied into the VSA because the plain and simple wording of cl 7.1 does not adequately address the mutual intention of the parties and that it is obvious from the other terms of the agreement. Clause 7.1 bears repeating:

After shipment of the vehicles [supplied by IBC], IBC shall send to ATNZ the Sales Invoice per shipment of vehicles made. ATNZ shall pay IBC for the vehicles upon collection of payment.

[54]              On its face, the reference in cl 7.1 to ATNZ paying IBC for the vehicles supplied “upon” collection of payment implies that the payment would be made at or soon after the date of collection. But the VSA contemplates that ATNZ would or might make certain payments on behalf of IBC in relation to any shipment and that ATNZ would be credited from time to time in its account with IBC for various costs.12

[55]              Plainly, some time would be required to take those adjustments into account. It would be expected also that not all of the vehicles comprising a particular shipment would be on-sold to New Zealand customers within the same period. Mr Stone acknowledged the practical difficulties imposed by the wording when he accepted that the agreement was “from an actual operational standpoint rather poorly worded” because it should have said “payments should be made from collections, not upon collections”.

12 See cls 3, 5, 8 and 9 of the VSA at [19] above.

IBC’s position

[56]              IBC accepts that the arrangement reached between Mr Stone and Mr Tyler to account monthly for payments due to IBC from collections made during the relevant period was one to which Mr Stone was lawfully entitled to agree. Nevertheless, IBC argues that the terms of the VSA imposed on ATNZ an implied obligation to provide IBC either at the time of each payment under cl 7.1, or upon request by IBC, information which would enable IBC to identify the collections to which the payments related.

[57]              Mr MacGillivray argues that BP Refinery (Westernport) Pty Ltd v Shire of Hastings continues to provide the relevant test for the implication of terms, and that the test is met in this case.13

ATNZ’s position

[58]              For ATNZ, however, Mr Branch submits that, as formulated by IBC, the implied term is not capable of enforcement because it does not identify the “records” IBC says it is entitled to receive. ATNZ submits further that the “entire agreement” provision in cl 16.1 of the VSA contradicts the proposition that the term should be implied into the agreement. Recognising, however, that whether an entire agreement clause has that exclusionary effect is a question of construction, Mr Branch notes the express provision that, apart from updates or modifications made to certain provisions on the IBC website, “no other deviations from these provisions or amendments shall be binding unless in writing and signed by the parties”.

[59]              Mr Branch argues that it is clear on the evidence that Mr Hemi and IBC had access to relevant information within Trakker so that the implied term was unnecessary to give business efficacy to the contract. Mr Branch also points out that cl 3.3 of the VSA required IBC to show its computation of costs for inclusion in the purchase price of the vehicles on the request of ATNZ and that ATNZ had a right to audit and verify the fees and charges. That obligation, under which IBC was required to present to ATNZ its market scale and all costs of components that could be verified and inspected

13     BP Refinery (Westernport) Pty Ltd v Shire of Hastings (1977) 180 CLR 266 (PC).

by ATNZ, was an obligation that could have been reciprocated in ATNZ’s obligations if the parties had wished. Mr Branch argues that it should be inferred from the absence of a reciprocal provision, therefore, that the parties did not intend ATNZ to be under the disclosure obligation which IBC now asserts.

[60]              Further, Mr Branch submits that cl 13 of the VSA imposes a confidentiality obligation on ATNZ only. He says that, because there is no reciprocal confidentiality obligation on IBC, it cannot have been contemplated by the parties that ATNZ would be providing its commercially sensitive information to IBC.

Conclusions on the implication of a contractual term requiring disclosure

[61]              Consistently with the current law in New Zealand for the implication of contractual terms,14 I apply the well-known test formulated in BP Refinery,15 requiring that the term:

(a)must be reasonable and equitable;

(b)must be necessary to give business efficacy to the contract, so that no term will be implied unless, without it, “the contract would lack commercial or practical coherence”;16

(c)must be so obvious that “it goes without saying”;

(d)must be capable of clear expression; and

(e)must not contradict any express term of the contract.

[62]I also have regard to the explanatory observations of Lord Hoffman in

Attorney-General of Belize v Belize Telecom Ltd,17 noting that:

14     Mobil Oil New Zealand Ltd v Development Auckland Ltd [2016] NZSC 89, [2017] 1 NZLR 48 at [81]; The Malthouse Ltd v Rangatira Ltd [2018] NZCA 621 at [56] and [57].

15     BP Refinery (Westernport) Pty Ltd v Shire of Hastings, above n 13, at 283.

16     Marks & Spencer PLC v BNP Paribas [2015] UKSC 72 at [21] per Lord Neuberger.

17     Attorney-General of Belize v Belize Telecom Ltd [2009] UKPC 10, [2009] 1 WLR 1988 at [21]– [27].

(a)in every case in which it is said that some provision ought to be implied in an instrument, the question for the court is whether such a provision would spell out in express words what the instrument, read against the relevant background, would reasonably be understood to mean;

(b)in considering what the instrument would have meant to a reasonable person who had knowledge of the relevant background, it is appropriate to take into account the practical consequences of deciding that it means one thing or the other: would a different construction frustrate the apparent business purpose of the parties?

(c)it is not enough to consider that the implied term expresses what it would have been reasonable for the parties to agree to; the Court must be satisfied that it is what the contract actually means;

(d)the implication must be necessary to give effect to the reasonable expectations of the parties; and

(e)although the agreement does not expressly say so, the term to be implied is what a reasonable person would understand it to mean.

[63]              I am satisfied that the provision IBC seeks to have implied into the VSA reflects what the contract actually means and is consistent with the mutual intentions of the parties. I agree with Mr MacGillivray that the proposed term is capable of clear expression. Although I accept Mr Branch’s observation that Mr Hemi sought more information from ATNZ than that covered by the proposed implied term, that is not relevant to determining IBC’s implied right to disclosure. The “records that disclose and verify when payments have been received or collected from third parties in respect of vehicles sold by IBC to ATNZ” are those available to ATNZ in the relevant module of Trakker, or its equivalent, that disclose when collections have been made. It may be arguable that, to give effect to the purpose of the disclosure obligation – which is to enable IBC to know whether and how ATNZ is meeting its part of the bargain regarding payment upon collection – the obligation should include disclosure not only of the dates of the collections but also the amounts collected and in respect of which

vehicles. IBC does not argue for that extension, however, because of the information that is available to it in those parts of Trakker to which it continued to have access after Mr Hemi became representative director.

[64]              It is clear that the proposed term does not contradict any other express term in the VSA. Further, I agree with Mr MacGillivray that it is consistent with the nature of the relationship between the parties, exemplified by cl 14 of the VSA which notes the agreement of the parties that they will work closely together to develop the market in New Zealand for the benefit of both companies.

[65]              I also accept that, given that it is ATNZ’s obligation to pay IBC as and when it is paid by the New Zealand customers, it is obvious that IBC is entitled to be informed when ATNZ has received payments. Otherwise, IBC would be required simply to rely on ATNZ’s good faith and assume its compliance with cl 7.1. Until Mr Hemi was appointed representative director, the obligation was met by giving IBC (through   Mr Stone and Mr Hemi) access to ATNZ’s release data in Trakker. As Mr Hemi said, there was probably no need to express the obligation in the VSA because the availability of the collections information to IBC was the assumed norm at the time Mr Stone and Mr Tyler agreed on the terms. When Mr Hemi became representative director, however, Mr Tyler’s conscious decision to remove his access deprived IBC of the ability to confirm from within Trakker whether ATNZ was paying IBC upon collection as required by cl 7.1 of the VSA. That may not have presented any difficulty while Mr Stone was representative director of IBC and working in close co-operation with Mr Tyler, but Mr Tyler took the position that IBC was not entitled to the collections information in terms of the VSA. As this case demonstrates, in the absence of the implied term ATNZ could refuse to provide information on collections and IBC would have no ability to ascertain whether the contract was being performed, short of undertaking a search, vehicle by vehicle, through public records or by seeking discovery in legal proceedings.

[66]              Leaving IBC with no ability to monitor ATNZ’s compliance with its obligations regarding payments under cl 7.1 is unreasonable, inequitable and commercially incoherent. Moreover, the implied term imposes no significant onus on

ATNZ; it simply requires ATNZ to say when vehicles were paid for by third parties and provide supporting evidence to IBC if requested.

[67]              I am not persuaded by Mr Branch’s argument that the implication of a term obliging ATNZ to disclose the collection dates is precluded by the “entire agreement” provisions of cl 16.1. As the wording of the clause indicates, the focus of the limitation is on extrinsic material such as “prior proposals, negotiations and communications, oral or written” and previous VSAs. An implied term simply spells out expressly what the contract, read against the relevant background, would reasonably be understood to mean.18 It has generally been held that an entire agreement clause does not preclude the implication of terms as a matter of construing the agreement, especially when it is necessary to give business efficacy to the contract.19

[68]              Mr Branch relies on the Court of Appeal’s judgment in White v Reserve Bank of New Zealand,20 in which the Court of Appeal declined to hold that the employment contract of former executives of the bank contained an implied term requiring regular reviews of, and adjustments to, that part of salaries on which superannuation rights were based. The Court said:21

… any attempt to imply terms [into the contracts at issue] must confront the express language, which specifies unambiguously that superable salary may be changed by agreement, and that the contracts contain the parties’ entire agreement.

[69]              It is by no means clear that the decision in that case turned on the provisions of the entire agreement clause. As the Court said, the implied term proposed by the employees failed “almost all the traditional tests for implication”.22 In those circumstances, the Court was not required to address whether the entire agreement clause precluded the implication of a term in circumstances where application of the

18 Attorney-General of Belize v Belize Telecom Ltd, above n 17.

19 See, for example, Axa Sun Life Services PLC v Campbell Martin Ltd [2011] EWCA Civ 133, [2012] Bus L R 2003; Compass Group UK and Ireland Ltd v Mid-Essex Hospital Services NHS Trust [2012] EWHC 781 (QB), [2012] 2 All ER (Com) 300; Barden v Commodities Research Unit [2013] EWHC 1633 (Ch); Barclays Bank PLC v Unicredit Bank AG [2014] EWCA Civ 302 at

[27] and [28] per Longmore LJ. Pernod Ricard New Zealand Ltd v Lion – Beer, Spirits and Wine (NZ) Ltd [2012] NZHC 2801 at [202].

20     White v Reserve Bank of New Zealand [2013] NZCA 663.

21     At [33] (footnotes omitted).

22 At [35].

“traditional tests” supports it. I regard White v Reserve Bank of New Zealand as distinguishable and not applicable to this case.

[70]              I am not persuaded either that the last sentence of cl 16.1 assists ATNZ’s argument. Although it provides that “no … deviations from these provisions or amendments shall be binding unless in writing and signed by the parties”, the term that I am satisfied should be implied as a matter of construction of the VSA does not amount to either a deviation from, or an amendment to, the express words of the VSA.

[71]              Mr Branch argued also that the effect of the implied term would be to place on ATNZ an obligation to provide confidential information to IBC and that the absence of a provision that imposes confidentiality obligations on IBC (such as cl 13 which is binding on ATNZ) militates against the implication of the term. I do not consider that the information that would be required to be disclosed by the implied term could be regarded as confidential information as between ATNZ and IBC. All that is required to be disclosed is information about the dates on which ATNZ has collected payments, thereby triggering an obligation to make payments to IBC in accordance with the express terms of the VSA. Mr Hemi’s attempts to obtain other information which ATNZ might properly have regarded as confidential or commercially sensitive are not relevant to the exercise of implying a term having a much narrower scope.

Declaration about implied term

[72]              Mr Branch questioned whether the Court should exercise its discretion to make a declaration about the implied term because no useful purpose would be served by doing so. Mr MacGillivray acknowledged that a clear expression of the implied term in the course of the Court’s reasoning, and a finding that the implied term exists, might be sufficient for IBC’s purposes but he sought the declaration nevertheless.

[73]              I am satisfied that it is appropriate to make the declaration. The contract remains on foot and, although the prospect of the parties resuming a trading relationship may be remote, it is at least possible. A declaration also serves to justify Mr Hemi’s insistence that ATNZ was bound to disclose sufficient information to enable him to ascertain whether ATNZ was meeting its obligations under cl 7.1 and supports his criticism of Mr Tyler’s refusal to provide the information. His frustration

about that contributed to the stalemate that led to the collapse of the trading relationship. Those matters provide at least a background to the issues about the repudiation of the VSA by IBC and ATNZ’s claim that the amount of the receivables that would otherwise be due to IBC do not fall due until June 2022.

The agreements reached in November and December 2018

[74]              To understand the legal implications of the breakdown of the relationship between IBC and ATNZ, it is necessary to return to the narrative of exchanges between Mr Hemi and Mr Tyler over the operation of the VSA and Mr Hemi’s claims that ATNZ is due to pay IBC a substantial sum on account of the receivable that had accumulated.

[75]              In an email sent to Mr Tyler by Mr Hemi on 29 May 2018, in anticipation of the 31 May board meeting at which Mr Stone would be replaced as representative director by Mr Hemi, Mr Hemi began seeking information from ATNZ which he said he required to undertake “a complete review of the service contract between IBC and ATNZ and its receivables”. Mr Hemi told Mr Tyler that he expected the information he sought to be provided by 1 June 2018. The listed information was detailed; it included financial and operational material some of which, such as ATNZ’s customer information, would have been commercially sensitive. Mr Tyler refused to provide it.

[76]              Mr Hemi also sought a payment schedule outlining weekly payments to be made to IBC and ATNZ’s overall plan for the full payment of the current amount owing by ATNZ to IBC. He asked Mr Tyler to note that if ATNZ could not satisfy IBC on payments, IBC would stop supplying cars to ATNZ and appoint another agent in New Zealand to handle the New Zealand market for IBC and file for ATNZ’s liquidation to recover IBC’s receivables.

[77]              What was clearly a formal request for the provision of information by ATNZ to Mr Hemi, as a 50 per cent shareholder in both companies, indicated a remarkably different approach to the relationship between the two companies from that which had existed while Mr Stone was representative director. It included a threat that IBC would cease supplying cars to ATNZ, “appoint another agent” in New Zealand to handle the New Zealand market for IBC, and take steps to liquidate ATNZ to recover the

receivables. That was a clear signal that the relationship between IBC and ATNZ would thereafter be conducted very much on an arm’s length basis.

[78]              Mr Tyler declined a request by Mr Hemi to facilitate a visit by him to meet iComm’s managers in Cebu. He provided a more detailed response to Mr Hemi’s letter on 4 June 2018 in which he said that the signalled change in direction would be met with resistance from IBC and ATNZ customers in New Zealand and concern from ATNZ staff. He said that he would take advice on how to respond to Mr Hemi’s threats in a constructive way, noting that ATNZ was independent from IBC and that the information it was required to share was limited by the service agreement. Mr Tyler referred to indications that Mr Hemi was taking legal action against ATNZ but said that his plan was for ATNZ to continue to trade as it had been doing for 18 years.

[79]              In reply, Mr Hemi indicated that ATNZ should continue to trade as it had until he demanded otherwise, provided ATNZ maintained regular payments to IBC as it had been doing. He said he expected an average payment of at least $1 million per week “without fail”.

[80]              Lawyers became involved. On 26 July 2018, IBC’s solicitors wrote to the solicitors for ATNZ  noting that ATNZ  had failed to provide the information that   Mr Hemi had requested. The letter indicated that Mr Hemi was concerned that the status quo involved a significant departure from the contract and was not in IBC’s interests. It was said that IBC required some comfort that ATNZ was taking reasonable steps to collect payment from its New Zealand customers, including operating on reasonable terms as to credit. That was said to be relevant to IBC’s position on any proposal for the repayment of the amount outstanding and any willingness to relax the terms of payment from ATNZ in the future. ATNZ’s proposals for resolving these issues were sought. The response from ATNZ’s solicitors made it clear that ATNZ considered it was not required to provide all of the information asked for by Mr Hemi and that there was no implied term in the VSA to the contrary. ATNZ maintained it was complying with the agreement.

[81]              It is unnecessary to traverse the  details  of  the  many  exchanges  between Mr Hemi and Mr Tyler that followed. It is sufficient to say that neither party changed position on the fundamental issues.

[82]              Mr Hemi’s assertion that IBC and ATNZ were not operating the trading relationship in accordance with the VSA is correct. Although Mr Tyler said that the “pay when paid” requirement in the VSA “had effectively provided ATNZ with a rolling trading facility”, that is not the case. The facility was provided by Mr Stone, on behalf of IBC, allowing ATNZ considerable leeway to avoid making the payments that fell due “upon collection of payment” from ATNZ’s customers.

[83]              Mr Tyler may be right that the arrangement under which Mr Stone and he had operated the trading relationship was practical, in that it meant that ATNZ was able to continue acquiring vehicles through IBC using IBC’s funds as working capital and increasing the level of sales in New Zealand to the ultimate benefit of IBC. But the arrangement was not predicated on the terms of the VSA.

[84]              By about mid-October 2018, under pressure from Mr Hemi, Mr Tyler accepted that the prior arrangement under which ATNZ would pay IBC monthly should be changed to one involving weekly payments. Mr Hemi continued to ask ATNZ to provide the financial information he was seeking and to make significant repayments of the large debt. Mr Tyler resisted Mr Hemi’s attempts to coerce ATNZ into changing the terms of the VSA. A stalemate existed.

The variation agreement or ship-by-ship agreement

[85]              Matters came to a head when the vessel Euro Spirit arrived in New Zealand around 21 November 2018 and Mr Hemi refused to authorise the release of the shipment of vehicles from the port unless ATNZ met his demands for a different payment regime and other new terms. Mr Tyler maintained that ATNZ’s ability to pay money to IBC depended upon the sale to customers of the vehicles on board the  Euro Spirit. IBC’s accountant Tom Nambiar and Mr Tyler exchanged emails near the end of November 2018 which resulted in an agreement relating to four vessels which were either on the water or leaving Japan with vehicles destined for New Zealand: the Walrus Ace, the Istra Ace, the Violet Ace and the Adria Ace. The agreement regarding

these shipments was set out  in  an  exchange  of  emails  between  Mr Tyler  and  Mr Nambiar on 26 and 27 November 2018, the terms of which are set out below.23 Part of the arrangement involved the payment of $1 million by ATNZ to IBC and the release of the vehicles on the Euro Spirit.

[86]In the agreement, the following relevant acronyms are used:

(a)OFS – Ocean Freight Service. A fixed amount that includes freight, local transportation from any New Zealand port to a customer’s compliance centre or their yard, insurance on the vehicle plus customs entry charge and GST. IBC and ATNZ agreed a fixed fee of $1,285 for OFS per vehicle. The OFS for each shipment was the number of vehicles on each ship multiplied by the OFS fee. This fee was paid to IBC’s agent in New Zealand, Jacanna Holdings Limited.

(b)FOB – Free On Board. The price of the vehicle – auction· price, auction fees and local transportation costs (up to ¥7,000) of the car in Japan (for example, from the auction house to IBC’s yard) plus IBC’s fixed fees. IBC and ATNZ agreed a fixed fee of ¥65,000 plus the price of the vehicle. The price and the fee were to be paid directly to IBC.

(c)HT – Heat Treatment. At certain times of the year (starting October and finishing. around April/May) vehicles entering New Zealand are required to be heat treated prior to entry. IBC and ATNZ agreed on a fixed fee for heat treatment of $250 per vehicle although rebates were available dependent on volume.

[87]The final terms agreed on 27 November 2018 (the November agreement) were:

ATNZ will:

1.Pay the $1m to IBC’s NZD account with Hifx tomorrow am Tues Nov 27th.

2.Based on Jojos request pay IBC (OFS in NZD and balance in JPY), from the funds collected for IBC, the amounts below:

23 At [87].

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 31 – 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 EBS24 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 any interference from IBC

[88]The Adria Ace was subsequently replaced by the Frontier Ace.

[89]              Mr Tyler’s description of these arrangements as a “variation agreement” reflects his view that the arrangements amounted to a variation of the VSA. I do not agree that the arrangements are properly described in that way. Having regard to the stalemate between the parties over Mr Hemi’s attempts to vary the VSA and the terms of the November agreement, the arrangements were comprised in a separate ship-by- ship agreement that was discrete and intended to apply only to the four shipments

24     Emergency Bunker Surcharge.

concerned. There was no reference in the email exchange to altering any provision in the VSA. As Mr Nambiar put it, the November agreement was a way in which IBC and ATNZ could continue to trade while the parties tried to sort out the disagreement over payment of the amounts owing under the VSA for previous shipments. That was what Mr Tyler had also said to Mr Nambiar during the discussions over the scheduled payments: the pending shipments were sorted so that there would be no dispute about getting the vehicles released and paid for and that “in the meantime” the parties would work on proposed variations to the VSA. Mr Tyler confirmed in cross-examination that in reaching those agreements, he was not giving up any position on the overall dispute between Mr Hemi and him about proposed changes to the VSA.

[90]              As Mr Tyler said, ATNZ had a VSA with IBC that could only be changed by mutual agreement. He considered that, subject to any variations he agreed to, the VSA continued and if nothing was agreed on a ship-by-ship basis, there was no other choice than to go back to the original way they were doing things. I am satisfied, therefore, that the VSA was not amended by the November agreement. The operation of it was simply suspended by agreement between the parties while the named shipments were made on the terms separately agreed and set out in the November agreement. At that stage, the ship-by-ship agreement addressed the arrangements that were to apply to “all pending shipments”, but not to all unidentified future shipments.

[91]              The $1 million that ATNZ agreed to pay on 27 November 2018 was paid as required, albeit a day late.

Mr Hemi’s attempts to renegotiate the terms of the VSA

[92]              On 29 November 2018, Mr Hemi sent an email to Mr Tyler saying that they needed “to resume discussions on terms moving forward to make it work for IBC and ATNZ”. He attached a memorandum on new provisions for a VSA between IBC and ATNZ. The memorandum began in terms which reinforce my view that the parties had not intended to amend or vary the VSA in the November agreement:

Mike

It was good that we reached an agreement on specific payments of coming shipments for the time being.

However please note that this agreement was based on the holiday seasons coming. After this period IBC will expect (unless we have a new agreement) for all shipments to have OFS paid upon arrival and FOB paid before arrival of the next vessel. IBC also expects ATNZ to clear off what is owing to IBC.

[93]              Mr Hemi also set out the new terms and conditions proposed for IBC to continue supplying vehicles to ATNZ as an independent volume customer and to help ATNZ pay off its debt to IBC gradually.

[94]              The payment arrangements proposed were markedly different from those set out in the existing VSA. They required the OFS payment of NZ$1,370 per vehicle to be paid to Jacanna Holdings Limited, IBC’s agent in New Zealand, upon arrival of the vessel and the FOB payment to be made to IBC in Japanese yen within two weeks after the arrival and before the arrival of the next vessel. Payments to IBC would no longer be deferred until ATNZ collected funds from its customers. Mr Hemi proposed that ATNZ  was to cease using the name IBC  NZ and was to  represent itself in   New Zealand. Both IBC and ATNZ were to be free to approach any customers in New Zealand and ATNZ was to be responsible for its own business model and operation, with all fiscal responsibility being on an arm’s length basis with IBC. In addition to those and other arrangements proposed by Mr Hemi, related to future purchases, ATNZ was expected to commit to paying IBC an additional amount each month to gradually clear off the current outstanding balance. Mr Hemi said that NZ$2 million per month should be paid off the outstanding debt, suggesting that it would take about 20 to 24 months to clear off the debt completely.

[95]              It is clear that Mr Hemi had decided, by the end of November 2018 if not earlier, that he did not wish the status quo to continue. Mr Hemi proposed alternatively that if Mr Tyler wished to keep the terms/payment arrangements under the current VSA, Mr Tyler had to accept the position that ATNZ, IBC and iComm were all related; that ATNZ was acting for IBC in New Zealand and that Mr Tyler was acting on trust for Mr Hemi’s 50 per cent shareholding in iComm and ATNZ. He said that everything about ATNZ’s and iComm’s operations had to be provided on a 100 per cent transparency basis with a full accounting system, including unrestricted access to staff in order for IBC to accurately assess ATNZ’s ability to honour its payment obligations to IBC. That included a full audit by IBC over ATNZ’s and iComm’s accounts and

operations, followed by IBC or Mr Hemi having control over operation budgets and business plans moving forward. Mr Hemi said:

The current relationship is completely broken and unless an agreement can be reached that satisfies IBC’s requirements IBC will have no choice but to cease supplying vehicles to ATNZ, claim what is owed and relaunch a new sales module in NZ without ATNZ.

[96]              As Mr Tyler said in evidence, either proposal would have radically changed the terms of trade between the parties.

The December ship-by-ship agreement

[97]              On 5 and 19 December 2018, payments were made  by  ATNZ for  the Walrus Ace, and on 10 December 2018 payments were made for the Istra Ace. Although Mr Hemi and Mr Tyler held face-to-face discussions in New Zealand in mid-December 2018 on a “without prejudice” basis and without legal advisers present, nothing flowed from that meeting and no agreement was reached about any amendment to the terms of the VSA. Payments relating to the Violet Ace were entered into Trakker on 9 January 2019.

[98]              On 22 December 2018, Mr Hemi proposed that for on-going purchases beyond the ones that had been addressed in the November agreement, ATNZ would have to pay for OFS upon arrival and FOB in full before the arrival of the next vessel.       Mr Hemi said that if Mr Tyler did not agree to that formula, he would not ship the vehicles on the next pending shipment, which was on the Glovis Composer. Mr Tyler was not prepared to give that undertaking but,  after further discussions  between   Mr Nambiar and him, it was agreed that the OFS payment for the Glovis Composer would be made upon arrival of the vessel on 13 January 2019 and that the FOB payment would be made before the second arrival of the Euro Spirit, which was intended  to  be  on  8 February  2019.  Mr Hemi   endorsed  that  arrangement   on 26 December 2018 (the December agreement) and said that he had given instructions that day to proceed with shipping the Glovis Composer. Mr Hemi, however, requested Mr Tyler to confirm that day the terms that he had previously emailed, saying:

… otherwise no more vehicles will be consigned to any further vessels from tomorrow and IBC will have to suspend ATNZ’s purchases until all of the issues are cleared …

The second Euro Spirit shipment

[99]              Mr Tyler acknowledged that the effect of the December agreement was that the Glovis Composer was taken out of Mr Hemi’s demand for a revised payment formula for future shipments. Mr Nambiar subsequently contacted Mr Tyler to attempt to arrange further specific terms for the next Euro Spirit shipment. After their telephone discussion, Mr Tyler sent Mr Nambiar an email,  at 4.07 am New Zealand time on  28 December 2018, in these terms:25

Tom

Below is the schedule of payments I have made based on your requests when IBC wants to get paid.

You can see the difficulty in projecting for the Euro Spirit two months ahead when we do not even know how many units are going to be shipped. The below payments total $15m. As you know from ATNZs payment history this is at the maximum total payments ATNZ makes to IBC each month – ie we need to have our best months of collections in order to meet these amounts.

I have estimated Euro Spirit at 300 units and set payment date at 28 February to enable time to collect the funds to make the payment.

As you know ATNZ does not have the funds to make these payments unless we collect them from the IBC customers, so trying to guess who is going to pay us what for vehicles that have not left Japan is high risk. The below is based on the best estimates.

Mike

[100]           Below that was a schedule relating to shipments on the Istra Ace, the Frontier Ace (formerly the Adria Ace), the Glovis Composer, the Violet Ace and the Euro Spirit as follows:

Date	Description	Units	Amount
4 January 2019	FOB for the Istra Ace	402	2,914,486
5 January 2019	OFS for the vehicles arriving on the Frontier Ace	448	575,680
15 January 2019	OFS for the vehicles arriving on the Glovis Composer	260	334,100
18 January 2019	FOB for the Violet Ace	309	2,254,361
31 January 2019	FOB for the Frontier Ace	448	4,017,557
8 February 2019	FOB for the Glovis Composer	260	2,306,383
8 February 2019	OFS for the vehicles arriving on the Euro Spirit	300	385,500
28 February 2019	FOB for the Euro Spirit	300	2,250,000
TOTAL	15,038,067

25 Emphasis added.

[101]           Mr Tyler suggested in cross-examination that his email simply recorded the agreement that Mr Nambiar and he had reached. I do not accept that as correct; his email was no more than a proposal that followed an inconclusive telephone discussion. In coming to that view, I note:

(a)Mr Tyler said that he was setting out a schedule of payments based on Mr Nambiar’s “requests when IBC wants to get paid”;

(b)he referred to the difficulty in “projecting for the Euro Spirit two months ahead”;

(c)he “estimated” that there would be 300 units or vehicles on the

Euro Spirit;

(d)he said he had “set” a payment date at 28 February 2019, rather than referring to it as an agreed date; and

(e)he said the schedule was based on “the best estimates”.

[102]           Responding to the email from Mr Tyler, Mr Nambiar made no comment about the specific proposals in the schedule but simply observed that in February IBC would again face a “money crunch” as it would not have enough money to buy vehicles. He then suggested that the OFS payment should be made on arrival for all vessels, with the FOB payment being made prior to the arrival of the next vessel, to avoid having to agree vessel by vessel. In my view, Mr Nambiar’s complaint about the money crunch in February indicates that he had not agreed to the arrangements set out in  Mr Tyler’s schedule.

[103]           Mr Tyler responded at 7.30 am by saying that IBC’s money crunch was not ATNZ’s fault and that he would not change ATNZ’s payment terms as they already had an agreement in place that stated when IBC should pay.

[104]           In reply, Mr Nambiar said he understood Mr Tyler’s position but reminded him that Mr Hemi had outlined a basis for payment involving OFS being paid on arrival and FOB being paid before the arrival of the next vessel. He said that the ship-by-ship

arrangements were taking too much time and involved unnecessary hassles and that talking about every shipment was not going to work. He said:

… starting January 2019 lets decide on some pattern for ATNZ units. New year new tasks.

[105]           At 11.41 am, Mr Tyler responded to Mr Nambiar’s rejection of a continued ship-by-ship arrangement and his suggestion that the payment of OFS on arrival and FOB before the arrival of the next vessel should be the default arrangement. He said:

The whole situation is untenable. With the current approach by IBC I cannot see any future with IBC.

[106]           He then asked whether the Euro Spirit units had been re-assigned to make the shipment. Mr Nambiar replied that the Euro Spirit had not been assigned and that they needed to end the problem or it will keep going.

[107]           There is nothing in Mr Tyler’s response on 30 December 2018 to indicate that he considered IBC to have breached an agreement for the Euro Spirit shipment predicted to arrive in New Zealand on 8 February 2019.

ATNZ’s decision not to make the 4 January 2019 payment

[108]           Despite the November agreement, in which Mr Tyler had committed ATNZ to paying FOB for the Istra Ace on 4 January 2019, Mr Tyler decided not to make that payment. Instead, on the due date, Mr Tyler sent an email to Mr Hemi replying to  Mr Hemi’s email of 26 December 2018 in which the ship-by-ship agreement for the Glovis Composer had been confirmed. Mr Hemi had reminded Mr Tyler of his ultimatum about the acceptance of alternative terms to those in the VSA. Mr Tyler said that IBC’s “decision to refuse to ship ATNZ vehicles” made it clear that IBC had no intention of complying with the VSA and agreements in place with ATNZ and that the various breaches by IBC gave ATNZ no choice but to stop purchasing vehicles from IBC and instead source them from alternative suppliers. He said ATNZ expected IBC to honour the remaining commitments it had “under the VSA” to ship and release the purchased vehicles sitting in Japan and to release those purchased vehicles arriving into New Zealand under the terms of the November and December agreements.

[109]           As Mr Tyler acknowledged under cross-examination, a fair reading of his email of 4 January 2019 was that ATNZ would not make any further payment of the specific payments that had been agreed in the November and December agreements. Having received that indication, IBC reacted by stopping the release  of  the  Frontier Ace vehicles.26 What Mr Tyler proposed was that IBC should deliver the vehicles on the Frontier Ace and the Glovis Composer without further payment at that stage, on the basis that IBC would be paid as ATNZ made collections from its customers; in other words, he said they should apply the terms of the VSA. Mr Tyler accepted that he did not give Mr Hemi any guarantee that he would make the payment to IBC on 5 January 2019. Mr Hemi then responded by demanding payment of the

$2.9 million that he considered was due and said that he would load the vehicles onto the Euro Spirit once that payment was received. Mr Tyler said in evidence that he did not think that was a genuine offer because loading the Euro Spirit at that point was “impossible” and that, on the basis of Mr Hemi’s prior conduct, he had no confidence that a payment of $2.9 million would result in the release of the vehicles from either the Frontier Ace or the Glovis Composer.

[110]           Mr Tyler accepted that up to the point when ATNZ ceased making the payments under the November agreement, IBC had performed its part of that bargain. He referred, however, to the threats that Mr Hemi had made about not shipping cars and, in his view, “unassigning” vehicles which it had been agreed would be assigned to the second Euro Spirit voyage in February. Mr Tyler also acknowledged that although he had had the funds available to make a substantial payment (of up to

$4 million) on 4 January 2019, he made a commercial decision not to make that payment because, in his view, IBC had reneged on its agreement to ship vehicles on the Euro Spirit for a February delivery.

[111]           On 5 January 2019, Mr Tyler sent a letter addressed to the directors of IBC which replicated the matters addressed in his email to Mr Hemi of the previous day.

26     On 4 January 2019, Mr Nambiar told IBC’s shipping agent to stop the release of Frontier Ace

vehicles “until further notice”.

IBC’s response to ATNZ’s refusal to make the 4 January 2019 payment

[112]           On 7 January 2019, Mr Tyler sent an email to Mr Hemi referring to the instruction from Mr Nambiar to Jacanna to stop the release of the Frontier Ace and noting that Mr Nambiar had informed him that the Glovis Composer, arriving early the following week, would not be released and the remaining unshipped units in Japan would not be shipped. Mr Tyler referred to the consequences of those decisions in terms of commercial damage to both ATNZ and IBC. He then said that he required confirmation from Mr Hemi that he agreed to work with ATNZ on releasing the arriving vehicles to customers on terms which would guarantee payment to IBC on  8 January 2019.

[113]Mr Hemi’s reply email on 7 January 2019 was succinct:

Mike,

Send $2.9 mil payable on 4 Jan immediately and follow agreed payment schedule for on going vessels, vehicles will be released.

Conditions for us to load vehicles on Euro Spirit and for ATNZ to continue trading with IBC we have already sent you many times.

You need to confirm those and trading will resume.

[114]           On the same day, IBC’s solicitors wrote to ATNZ’s solicitors noting that an interim agreement had been reached for five shipments.27 The solicitors said:

From the next vessel (Euro Spirit) onwards, IBC and ATNZ will need to reach a new (interim or permanent) agreement on terms which they can continue to trade (and Mr Hemi has made clear in earlier correspondence IBC’s requirements). Until agreement is reached, IBC needs to protect its own interests and therefore will be suspending all sales to ATNZ and to mitigate its losses will sell directly to customers in New Zealand.

[115]           The solicitors repeated IBC’s agreement to releasing the vehicles in the agreed shipments upon payment of NZ$2.9 million as had previously been agreed.

[116]Mr Tyler replied promptly to Mr Hemi’s email:

27     The five shipments referred to were the four addressed in the November agreement and the addition of the Glovis Composer shipment in the December agreement.

Jojo

I note your attempt to revoke your wrongful decision to cease supplying vehicles to ATNZ and to stop shipment vehicles of the Euro Spirit. Unfortunately it is now too late, ATNZ has acted on this breach. Our customers have been informed that ATNZ will no longer be purchasing vehicles from IBC.

The agreement to make the $2.9m payment was conditional on IBC continuing to supply vehicles, an agreement you breached by stopping shipment of the Euro Spirit vehicles.

As you well know the terms you are insisting ATNZ accept as per your email received Dec 26 at 1.00am NZ time are not part of the trading relationship between IBC and ATNZ and will not be agreed to.

[117]           Although no damages claim has been pursued by ATNZ in this proceeding, the Court is required to determine, on the basis of the true construction of the VSA, whether ATNZ’s obligation to pay any amount owed to IBC under the VSA is deferred until 30 June 2022. Further, ATNZ argues that IBC cannot demand payment if it has itself breached the VSA.

IBC’s claim for immediate payment under the VSA – ATNZ’s defences

Did either IBC or ATNZ breach the ship-by-ship agreements or the VSA?

[118]           Although I have accepted that binding ship-by-ship agreements were reached in November and December 2018 for the five vessels identified, I have held that they were discrete agreements and not variations or amendments to the VSA which had last been amended in 2017. As I have said, I consider that the parties consciously put the VSA to one side because of the obvious difficulty in reaching agreement about the terms on which a general VSA should continue to apply. It follows, therefore, that if IBC breached any binding agreement by refusing to release vehicles from the Glovis Composer or the Frontier Ace, or by refusing to assign vehicles for loading onto the Euro Spirit for its February delivery, the breach would be of the November or December agreements and not a breach of the VSA.

[119]           The cancellation by IBC of the unloading of the Frontier Ace and Glovis Composer shipments was a response to Mr Tyler’s email of 4 January 2019 giving notice that ATNZ had no choice but to stop purchasing vehicles from IBC and that it would instead source them from alternative suppliers. That notice did not amount to

a breach of the VSA, which did not impose any obligation on ATNZ to order vehicles from IBC. Mr Tyler said in that email that he expected IBC to honour the remaining commitments it had to ship and release the purchased vehicles sitting in Japan and those arriving in New Zealand under the ship-by-ship agreements. That position was confirmed in the letter Mr Tyler sent to IBC’s board of directors on 5 January 2019.

[120]           But, as Mr Tyler acknowledged, he made a deliberate commercial decision not to make the FOB payment for the vehicles arriving on the Istra Ace, payment of which Mr Hemi had said correctly, in his email of 7 January 2019, was due immediately. Mr Tyler made it clear to Mr Hemi in response that the payment would not be made.

[121]           I consider that Mr Tyler was misguided in characterising Mr Hemi’s ultimatum as an attempt to revoke his wrongful decision to cease supplying vehicles to ATNZ and to stop shipment of the vehicles on the Euro Spirit. No contract for the second Euro Spirit shipment was agreed and Mr Tyler accepted in evidence that up to the time that he refused to make the 4 January 2019 payment that was due, IBC had complied with its obligations under the November and December agreements. By refusing to make the 4 January 2019 payment, Mr Tyler intended to protect ATNZ’s position by withholding those funds in the belief that Mr Hemi did not intend to release the vehicles following the payment. Mr Tyler was entitled to make that commercial judgement if he considered it to be in the best interests of ATNZ, but I am not persuaded that Mr Hemi did not intend to honour the ship-by-ship agreements if ATNZ paid what was due. If there was any breach of those agreements, therefore, it was by ATNZ through Mr Tyler’s refusal to make the payment that was due.

[122]           I regard the refusal to make the payment due on 4 January 2019 as a breach of an essential term of the November agreement because it represented a significant failure of consideration in an arrangement in which the cash flow implications for both parties were significant. The November agreement had been carefully constructed on a basis that enabled cash to flow from ATNZ to IBC periodically, the timing of the several payments having been agreed by ATNZ in reference to its ability to make sufficient collections to fund them. Mr Tyler had also made it clear that he did not

intend to honour the December agreement. That entitled IBC to cancel it.28 In those circumstances, IBC was entitled to respond to ATNZ’s default by cancelling the shipments that had been scheduled under the ship-by-ship agreements.29

What is the effect of ATNZ’s breach and IBC’s response?

[123]           It remains for me to determine whether IBC is correct that the VSA requires ATNZ to pay the agreed receivable of $38,648,006, or whether that sum does not become due for payment until the expiry of the VSA on 30 June 2022.

[124]           The agreed position of the parties is that the VSA remains in force but, since ATNZ is under no obligation to order vehicles from IBC, its decision not to do so after the complete collapse of the relationship in early January 2019 does not amount to a breach. Although ATNZ considered that IBC was in breach of the VSA and that it would have been entitled to cancel the VSA under ordinary principles,30 it would plainly not be commercially sensible to do so if it believed it could continue withholding the amount owing to  IBC  until  the  expiry  of  the  term.  Moreover, Mr Branch that ATNZ was precluded from cancelling the VSA by virtue of the wording of cl 2 of the 2014 VSA and cl 1 of the 2016 VSA respectively, both of which provide that the “VSA can only be cancelled by mutual agreement of both parties…”. I doubt that is a correct view of the proper construction of that provision. The clauses appear in conjunction with provisions related to the term of the agreement; it is not a provision addressing the remedies that might be available to a party in response to a breach by the other party. Also, the reference to cancellation is followed immediately by a reference to termination by notice or otherwise in accordance with the provisions of the VSA. It reads in full:

This agreement can only be cancelled by mutual agreement of both parties unless either party gives written notice of termination at least ninety (90) days before the end of the Term or unless sooner terminated in accordance with the provisions hereof.

[125]           That suggests that “cancelled” is used in the clause as an interchangeable synonym for “terminated”. Moreover, the clause also provides that the terms of the

28     Contract and Commercial Law Act 2017, s 36(1).

29     Kumar v Station Properties Ltd [2015] NZSC 34, [2016] 1 NZLR 99.

30     Contract and Commercial Law Act 2017, s 36(1).

agreement “continue after cancellation where they relate to the payment of vehicles and collection of funds”, a provision which would be unusual if “cancellation” was being used in the sense of a response to a repudiation by the other party.

[126]           It is unnecessary for me to make a finding on that point, however, because neither ATNZ nor IBC has purported to cancel the agreement on the grounds of repudiation by the other; the VSA remains in force.

Is ATNZ entitled to withhold payment of the receivable from IBC?

[127]           The remaining question, therefore, is whether the terms of the VSA entitle ATNZ to withhold the payment to IBC of sums which it acknowledges it has collected from its customers and out of which it is obliged by cl 7.1 to make payment to IBC on the sales invoices rendered for shipments of vehicles made under the agreement.

[128]           There is no foundation for the view of Mr Stone and Mr Tyler that the terms of the VSA created such an entitlement. I have already held that the accumulation of the accounts receivable to provide working capital for ATNZ was a construct out of the co-operative and flexible arrangements which applied during the period in which   Mr Stone was representative director of  IBC.  In the absence of an  amendment to   cl 7.1, those arrangements amounted to waivers of IBC’s right to timely payment.

[129]           There is no proper basis founded on the VSA, therefore, for the withholding of the funds collected which, in my view, are due and payable immediately.

[130]           Mr Branch argued that, if on a true construction of the VSA the amounts collected by ATNZ are due for payment to IBC immediately, ATNZ is entitled to resist payment of the outstanding debt on the grounds that IBC is in breach of the VSA.31 Since I have held that IBC is not in breach, the principles in Kumar do not apply. In any event, if I am wrong about that, Kumar is distinguishable on the grounds that the contract in that case was a one-off sale and purchase agreement for the acquisition of property and not a continuing supply agreement as in this case.

31     Kumar v Station Properties Ltd, above n 29.

The heat treatment rebate

[131]           The remaining question is whether ATNZ is entitled to claim the heat treatment rebate referred to in the November agreement. The relevant provision is in the third paragraph of the terms which reads:

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

[132]           I interpret the clause as meaning that the heat treatment rebate of $50 per vehicle would be credited in favour of ATNZ upon payment of both OFS and FOB in respect of each shipment. I rule, therefore, that in respect of any of the shipments referred to in the November agreement for which ATNZ paid IBC both the OFS and FOB payments in full, ATNZ is entitled to a credit for the heat treatment rebate of $50 per vehicle in that shipment.

Conclusions

[133]           The answers to the questions posed by the parties for determination, in accordance with the findings in this judgment, are:

(a)Did IBC breach the VSA or the November/December agreements by refusing to ship vehicles ordered by ATNZ? Answer: No.

(b)Is ATNZ entitled to claim the heat treatment rebate referred to in the November agreement? Answer: Yes, but only in respect of the vehicles in any shipment for which ATNZ made both the full OFS and FOB payments.

(c)Was it an implied term of the VSA that ATNZ will provide to IBC, on request, records that disclose and verify when payments have been received or collected from third parties in respect of vehicles sold by IBC to ATNZ under the 2014 VSA (“payment collection records”)? Answer: Yes.

(d)Is ATNZ’s obligation to pay any amount owing under the VSA deferred until 30 June 2022 on the basis of the true construction of the VSAs and is IBC precluded from demanding payment if it has itself breached the VSA? Answer: No. On the true construction of the VSA, ATNZ’s obligation is to pay on the sales invoices for each shipment upon the collection of payments from ATNZ’s customers for the relevant vehicle, after making appropriate deductions and allowances as provided in the VSA. Further, the principles described by the Supreme Court in Kumar v Station Properties Ltd do not provide a defence to ATNZ.

Orders

[134]           There shall be judgment for IBC in the sum of $38,648,006 (the agreed amount payable under the VSA by ATNZ) less a credit for the heat treatment rebate as agreed by the parties in accordance with this judgment. In the absence of agreement on the rebate, leave is reserved to the parties to apply to the Court for a determination of the amount of the credit.

[135]           ATNZ shall pay interest on the judgment sum, in accordance with the agreement of the parties, from the date of this judgment until the amount of the judgment, including all interest payable, is paid in full.

[136]           I declare that it is an implied term of the VSA that ATNZ will provide to IBC, on request, records that disclose and verify when payments have been received or collected from third parties in respect of vehicles sold by IBC to ATNZ under the VSA.

Costs

[137]           I regard IBC as having been the successful party in this proceeding, notwithstanding that ATNZ has been successful in its claim for a modest payment on account of the heat treatment rebates. The parties are encouraged to agree on costs in accordance with categorisation of the proceeding as category 2B for costs purposes.

[138]           If costs cannot be agreed, IBC shall have until 31 July 2021 to file and serve a memorandum seeking costs. ATNZ shall have 20 working days from service of IBC’s

memorandum to file and serve a memorandum in response. IBC may file a brief reply memorandum only by leave of the Court. Costs shall be determined on the papers unless the Court directs otherwise.

Toogood J