IN THE HIGH COURT OF NEW ZEALAND HAMILTON REGISTRY

I TE KŌTI MATUA O AOTEAROA KIRIKIRIROA ROHE	
CIV-2019-419-0069
[2019] NZHC 1834	

UNDER	the Companies Act 1993	
IN THE MATTER	of liquidation under s 241	
BETWEEN	IBC JAPAN LIMITED
Plaintiff	
AND	AUTOTERMINAL NEW ZEALAND LIMITED
Defendant	

Hearing:	10 July 2019	
Appearances:	J A MacGillivray and M K Brady for the Plaintiff M D Branch and K F Shaw for the Defendant	
Judgment:	31 July 2019	
Reissued:	6 August 2019	

RE-ISSUED JUDGMENT OF ASSOCIATE JUDGE SMITH

This judgment was delivered by me on 31 July 2019 at 2.30pm, pursuant to r 11.5 of the High Court Rules

Registrar/Deputy Registrar

Solicitors / Counsel: Tompkins Wake, Hamilton Harkness Henry, Hamilton

IBC JAPAN LTD v AUTOTERMINAL NEW ZEALAND LTD [2019] NZHC 1834 [31 July 2019]

[1]	On 31 July 2019 I issued the judgment that appears below, on a "counsel-only" basis. I invited counsel to advise within 48 hours whether they considered there remained any purpose or utility in certain  non-publication  orders  I had  made  on 11 April 2019. I indicated that I would re-issue the judgment on an 'open' basis if neither counsel advised any reason to the contrary. Neither counsel having advised any reason for the non-publication orders to remain in place, they are now revoked and this judgment is issued on an 'open' basis.

[2]	On 4 April 2019 the plaintiff (IBC) filed an application for an order putting the defendant (ATNZ) into liquidation. The application was not based on the usual ground that the defendant is unable to pay its debts,1 but on the ground that "it is just and equitable that the company be put into liquidation".2

[3]	ATNZ filed a statement of defence opposing the making of a liquidation order. ATNZ also filed an interlocutory application (the stay application) asking for the following orders:

(a)	Restraining publication of the advertisement required by Rule 31.9 or any other information relating to [IBC's] statement of claim; and

(b)	For an order staying any further proceedings in relation to the liquidation; and

(c)	Striking out the liquidation proceeding; and/or

(d)	Restraining [IBC] from advising any person that liquidation proceedings have been filed; and

(e)	For costs.

[4]	IBC filed a notice of opposition to the stay application, and on 11 April 2019 I directed that, pending further order of the Court, the liquidation application was not to be advertised and IBC was not to take any other steps to progress the liquidation. I also made an order by consent that IBC was to instruct its employees/agents not to advise any party that liquidation proceedings have been filed.3

1	Companies Act 1993, s 241(4)(a).
2	Companies Act 1993, s 241(4)(d).
3	Reserving to IBC the right to notify its bankers that the application had been filed.

[5]	Having received written submissions and heard from counsel orally, I now give judgment on the stay application.

Background

[6]	The liquidation claim is the latest in a number of Court cases in several jurisdictions which have  followed  the  breakdown  of  the  relationship  between  Mr Hohua Hemi (Mr Hemi) of IBC and his former business partner, Mr Robert Stone (Mr Stone).

[7]	Mr Hemi and Mr Stone decided to go into business together in about 1991, for the purposes of purchasing used cars in Japan  and  exporting  them  for  sale  in  New Zealand and elsewhere. Mr Hemi and Mr Stone were 50/50 partners in the enterprise, and the business operated through what Mr Hemi described in his evidence as a complex structure of corporate entities incorporated in various jurisdictions around the world.

[8]	IBC was the first entity formed by Mr Hemi and Mr Stone. It was incorporated in Japan, and structurally it sits at the top of the global business.   Mr Hemi and     Mr Stone each holds 50 per cent of the shares in IBC. Under Japanese law, the business of a company is conducted by a "representative director". Until May 2018 IBC's representative director was Mr Stone. Thereafter, Mr Hemi became the representative director.

[9]	The business enterprise grew, and Mr Hemi and Mr Stone set up a large number of other entities to carry out functions within the overall global business (including companies carrying out vehicle appraisals and inspections, import distribution, and shipping and logistics). All of the entities within what Mr Hemi described as "the business partnership" are ultimately owned directly or beneficially by Mr Stone and Mr Hemi or their respective interests in equal shares. However, the various other incorporated entities are not subsidiaries of IBC — IBC has no shareholding in the other entities within the wider "partnership".

[10]	ATNZ was incorporated in New Zealand at the instigation of Mr Hemi and Mr Stone, on 5 April 2000. From its incorporation in 2000 until January 2019, ATNZ

operated as IBC's representative/sales agent in New Zealand. Its role was to sell and distribute cars imported into New Zealand by IBC, for and on behalf of IBC.

[11]	There are issues over who beneficially owns the shares in ATNZ. On incorporation, the shares in ATNZ were held by Mr Hemi's brother, Apihai Hemi, as bare trustee for Mr Hemi and Mr Stone. However, in March 2001, at the direction of Mr Hemi and Mr Stone, Mr Hemi transferred his shares in ATNZ to a Cayman Islands company called AutoNet. Half of the shares in AutoNet are owned by Mr Hemi's family trust, while the other 50 per cent is owned by Mr Stone or his partner.

[12]	Mr Hemi's brother resigned as a director of ATNZ on 31 May 2004, and he was replaced as director by Mr Michael Tyler. Mr Tyler took over the management of ATNZ in 2008, acting as chief executive officer.

[13]	In 2010 the shares in ATNZ  were  transferred  from AutoNet  to  Mr Tyler. Mr Tyler accepts that he holds the ATNZ shares as a bare trustee, but there is a dispute as to who are the beneficiaries of the bare trust. Initially it appeared to be agreed between the parties that Mr Tyler holds the shares in trust for AutoNet, and in a proceeding filed in this Court last year 4 Mr Hemi accepted in the course of an interlocutory hearing that that was the position.5 In his affidavit filed in this proceeding, however, Mr Hemi said that he had thought that because AutoNet transferred the shares to Mr Tyler as trustee the intention was that Mr Tyler was to hold the shares for AutoNet. Mr Hemi said that he had reviewed the position, and now considered that when the shares were transferred from AutoNet (on the direction of Mr Stone and himself as beneficial owners) to Mr Tyler as trustee, the effect was that Mr Tyler became the trustee for Mr Hemi and Mr Stone, not trustee for AutoNet.

[14]	Mr Tyler maintains the position that the beneficial owner of the ATNZ shares is AutoNet. He refuses to accept that Mr Hemi has any rights in respect of the ATNZ shares, contending that he is answerable only to AutoNet as the beneficial owner of the shares in ATNZ. In response, Mr Hemi says that AutoNet, which is in effect owned

4	CIV-2018-419-294.
5	In a judgment given on the interlocutory application Woolford J recorded the position accordingly
— Autoterminal New Zealand Ltd v IBC Japan Ltd [2018] NZHC 2986 at [4].

on a 50/50 basis by himself and Mr Stone or their interests, is itself completely deadlocked following the breakdown of the business relationship between Mr Hemi and Mr Stone. He says that the result of the deadlock is that there is no effective shareholder supervision of Mr Tyler's activities as CEO of ATNZ.

[15]	AutoNet was incorporated in the Cayman Islands on 13 March 1997. Originally, the shareholders were Mr Hemi and Mr Stone.  In  1999  Mr Stone and Mr Hemi transferred legal ownership of their AutoNet shares to Mr David Roberts, a resident of Grand Cayman, as nominee and bare trustee. In July 2015, Mr Hemi arranged for his shareholding in AutoNet to be transferred to a New Zealand-registered company, NPLH Ltd. Mr Roberts continues to hold the other 50 shares in AutoNet on trust for Mr Stone or his partner, Luciane Fernandez.

[16]	Mr Hemi said that the affairs of AutoNet became deadlocked when the relationship between him and Mr Stone broke down. Mr Roberts resigned as a result of the deadlock. However, a new independent director, Mr Michael Pearson, has very recently been appointed, and he has instructed New Zealand solicitors, Wynn Williams, to act for AutoNet in relation to matters in New Zealand. By email dated  7 July 2019 to counsel for ATNZ, Wynn Williams advised that Mr Pearson intended to appoint himself and a colleague, Chris Rowland, to the board of ATNZ.

[17]	In their email, Wynn Williams referred to the adverse effect advertising of this proceeding would have on AutoNet. They suggested that, in light of Mr Pearson's appointment by both parties to act as director of AutoNet, the present application be adjourned for two months to allow Mr Pearson and Mr Rowland to be appointed and to assess the situation. However, the proposed adjournment application was not pursued by ATNZ at the hearing.

The Vehicle Supply Agreement

[18]	The  arrangements  under  which  IBC  exports  vehicles  from  Japan  to  New Zealand were documented in a Vehicle Supply Agreement (the VSA), on 1 July 2014. Prior to that, there had been no formal agreement recording the arrangements between IBC and ATNZ.

[19]	A copy of the VSA was not produced in evidence, but ATNZ did not take issue with the following description of its contents given in Mr Hemi's evidence:

(i)	After shipment of the vehicles, IBC was to send to ATNZ a sales invoice for the shipment of the vehicles. ATNZ was required to pay IBC for the vehicles when ATNZ received payment from its own New Zealand customers.

(ii)	ATNZ agreed to make various necessary payments on IBC's behalf in New Zealand (for matters such as freight costs and charges by the Ministry for Primary Industries) and then invoice IBC for the amounts paid.

(iii)	The parties agreed that they would work closely together to develop the market in New Zealand for both companies' benefit. IBC granted ATNZ the exclusive right to represent IBC, and to act on IBC's behalf and use IBC's name in New Zealand for the purposes of marketing, promotion, customer service and sales.

[20]	Mr Hemi said:

56.	The VSA does not contain any terms protecting IBC as the party permitting ATNZ to "represent IBC, act on IBC's behalf and use the IBC name in New Zealand" in the event of the relationship between the parties coming to an end – e.g. any restraint of trade – the type of protective terms that you would expect in an arms' length relationship.

57.	In the CIV-2018-419-294 proceedings, ATNZ alleged for the first time there were two subsequent vehicle supply agreements dated 1 July 2016 and 1 July 2017 between IBC and ATNZ. I had never seen those documents before and they had never been  referred to  before  by Mr Tyler or Mr Stone.

[21]	When Mr Hemi took over as representative director of IBC in May 2018, he became concerned at what he considered was a large sum of money owing by ATNZ to IBC under the VSA. He said in his evidence that he had serious doubts that ATNZ was meeting its repayment obligations as required under the VSA, and he estimated the amount owing at about $40 million. He formed the view that it was not sustainable for IBC to keep funding vehicle purchases for ATNZ on the basis of potentially open-ended credit to ATNZ, unless the flow of cash back to IBC improved.

[22]	Mr Hemi said that he tried to obtain from ATNZ details of the amounts it has collected from its customers, so that IBC could verify that ATNZ had remitted all the funds it had collected. He also tried to obtain details of the credit terms which ATNZ offers to its customers, but Mr Tyler refused to provide the information. In the end, IBC issued a proceeding in this Court (to which I refer later) to resolve the issue of the amount owing under the VSA. Mr Hemi said that from June 2018 there was a "trickle" of payments from ATNZ, but Mr Tyler continued to refuse to provide the information to show that it was meeting its obligations under the VSA to pay when it received payments from its customers.

[23]	Mr Tyler did not directly dispute that evidence in his reply affidavit, but he said that it did not portray the full picture: according to Mr Tyler, IBC reneged on its own obligations under the VSA, and Mr Hemi wrongly (in Mr Tyler's view) discontinued a proceeding IBC had brought against Mr Hemi and another party before Mr Hemi became representative director of IBC.

[24]	As at the end of December 2019, the parties have agreed that the total balance that is or will be payable by ATNZ to IBC is NZ$43,075,737. However, there remains an issue as to how much (if any) of that sum has fallen due for payment under the payment provisions of the VSA.

The breakdown in the relationship between Mr Stone and Mr Hemi

[25]	For various reasons with which I am not concerned in this proceeding, the relationship between Mr Stone and Mr Hemi began to break down from around 2008. The relationship worsened thereafter, and it is now common ground that it has broken down irretrievably.

[26]	Mr Hemi said that Mr Tyler has taken Mr Stone's side in the dispute, and that Mr Tyler has refused to cooperate with his requests for information about ATNZ's business, regardless of whether Mr Hemi's requests were made in his capacity as representative director of IBC, as someone with a beneficial interest in ATNZ, or as a 50 per cent owner of the Hemi/Stone group, and notwithstanding Mr Hemi's position as representative director of IBC.

[27]	Mr Tyler has taken the view that Mr Hemi has no standing to seek information as a shareholder in ATNZ, and that any requests for information (to which a shareholder would be entitled) needed to come from AutoNet.

Further evidence of Mr Tyler and Mr Hemi

Mr Tyler

[28]	In his evidence, Mr Tyler acknowledged that ATNZ has been competing with IBC in the New Zealand market since early 2019. He considered that course was forced upon ATNZ by IBC's wrongful repudiation of the VSA.

[29]	Mr Tyler said that, in November and December 2018, IBC began trying to force ATNZ to sign a new VSA. ATNZ refused, taking the view that it did not have to agree to the proposed changes, and that it would have been unable to commit to the proposed revised payment terms. However, ATNZ was forced (on threat of IBC refusing to honour the VSA) to agree to payment of freight for vehicles before IBC would agree to ship.

[30]	Mr Tyler referred to a shipment arranged on the Euro Spirit, scheduled to leave Japan on 19 January 2019. Mr Tyler said that vehicles had been assigned as agreed to this vessel, but they were unassigned by IBC without notice to ATNZ. IBC refused to ship the vehicles, and refused to release vehicles already in New Zealand to ATNZ. IBC then went about completing sales of these vehicles directly to ATNZ customers who had agreed to purchase them from ATNZ.

[31]	By then, the trading position had become untenable for ATNZ. Mr Tyler said that it was left in the position of either finding an alternative supplier of vessels out of Japan, or ceasing to trade. ATNZ has since gained access to an alternative supplier.

[32]	Since then, Mr Tyler said that IBC has been making claims designed to undermine the credibility of Mr Tyler, including making  statements  to  ATNZ's  New Zealand customers that ATNZ is being liquidated and that Mr Tyler is going to jail for fraud.

[33]	Mr Tyler speculated as to why Mr Hemi "would destroy ATNZ when he claims to have 50% interest in ATNZ". He referred to Mr Hemi having gone about positioning entities which are  designed  to  take  over  ATNZ's  position  in  the  New Zealand marketplace (primarily, Pacific Auto Carrier (NZ) Ltd — "PAC"). He referred to a derivative action claim commenced by IBC in Japan in relation to the setting up of the corporate vehicle which Mr Hemi intends to use to replace ATNZ.

[34]	Mr Tyler then addressed ATNZ's financial position. He said that all of the company's creditors are current, and that if it owes IBC $43,075,737 as IBC claims (which Mr Tyler does not accept) then ATNZ has assets sufficient to cover all of its creditors.

[35]	Mr Tyler said that any advertising of the pending liquidation claim would be catastrophic for ATNZ. He said that one customer has already asked to change his trading terms and hold the vehicle release documents, in case ATNZ goes under and the customer's vehicles are impacted. Mr Tyler said that in ATNZ's business, reputation is everything. ATNZ has over 3,000 vehicles out on dealers' yards, and any threat of liquidation will cause every one of those dealers to worry about what will happen with the vehicles and the terms on which they are being held for sale. Customers would be afraid to purchase, believing that vehicles might not be delivered. Some ATNZ customers are already starting to purchase from IBC, and IBC has been using the threat of liquidating ATNZ as leverage, to gain business. Also, once suppliers become aware of this situation, it will likely jeopardise ATNZ's payment terms with them.

[36]	Mr Tyler confirmed the contents of ATNZ's statement of defence in this proceeding. The statement of defence includes the following:

(i)	A denial that the commercial relationship  between  Mr Hemi  and  Mr Stone can be categorised as a "business partnership".

(ii)	An assertion that any deadlock within AutoNet is solely the fault of Mr Hemi, and he should not be able to use the deadlock to support this proceeding.

(iii)	A denial that Mr Tyler took instructions from  Mr Hemi  —  it  was Mr Stone he consulted over important decisions.

(iv)	An assertion that since 2015 Mr Hemi has actively sought to harm ATNZ, including by unlawfully establishing PAC to take over ATNZ's customers and business.

(v)	A denial that IBC has reposed significant trust and confidence in ATNZ, or that there exists any fiduciary relationship between IBC and ATNZ. The VSA governs the relationship between the parties.

(vi)	An assertion that IBC's business interests in New Zealand are now conducted by PAC, which competes directly with ATNZ. IBC is affected because, due to its repudiatory conduct, ATNZ now sources its vehicles from another Japanese exporter.

(vii)	An assertion that it is Mr Hemi who has been hostile towards both ATNZ and Mr Tyler.

(viii)	A pleading that Mr Hemi acknowledged in proceeding CIV-2018-419-243 that the sole shareholder of ATNZ is AutoNet, and that Mr Hemi has no legal interest in AutoNet.

(ix)	An assertion that ATNZ has always competed with IBC in the New Zealand market. The only thing that has changed is that, due to IBC's repudiation of the VSA, ATNZ is no longer purchasing vehicles from IBC.

(x)	Confirmation that, when he has been asked, Mr Tyler has said that he is the sole shareholder of ATNZ. He has also stated that ATNZ ended its supply relationship with IBC, and that it will be continuing to compete with IBC. Mr Tyler did approach some disaffected staff of IBC, but none of the staff mentioned in the statement of claim have been employed by ATNZ.

(xi)	An admission that ATNZ has ceased remitting to IBC any further amounts collected by it in respect of vehicles shipped by IBC under the VSA.

Mr Hemi

[37]	Mr Hemi said that ATNZ and IBC were never intended to and never did operate as separate, arm's length businesses who were merely in a contractual trading relationship.  He said that ATNZ  was under the ultimate control of Mr Hemi and   Mr Stone (until their relationship broke down), and ATNZ was run as if it were simply one division of a single business within IBC.

[38]	ATNZ was not required to pay IBC for cars imported into New Zealand until those cars had been on-sold by ATNZ and it had received payment, and Mr Hemi characterised the terms of the relationship between IBC and ATNZ as not being remotely like commercial terms. Mr Stone and Mr Hemi had decided to fund the group business from IBC's borrowings in Japan, and there was no need for ATNZ to have to borrow in New Zealand. There were no contract terms in place to control the credit terms that ATNZ could offer to its customers, or to regulate how long ATNZ would have to collect the money from its customers before it had to pay IBC. As the two businesses  were  initially  operating  transparently  and  collaboratively,  and  Mr Stone and Mr Hemi were ultimately in control, that did not initially provide a cause for concern.

[39]	Mr Hemi said that when he took over as representative director of IBC in May 2018 he had concerns over what he considered to be a large sum of money (thought to be around $40 million) owing by ATNZ to IBC. He said he had serious doubts that ATNZ was meeting its repayment obligations as required under the VSA, and he considered it unsustainable for IBC to keep funding vehicle purchases for ATNZ on the basis of potentially open-ended credit to ATNZ, unless the flow of cash back to IBC improved.

[40]	Mr Hemi said that he tried to obtain from ATNZ details of the amounts it had collected from customers so that IBC could verify that ATNZ had remitted to it all the amounts it had collected. He also tried to obtain disclosure of the credit terms ATNZ

was offering its customers. His evidence was that Mr Tyler refused point blank to provide access to any of that information. In the end, IBC issued a court proceeding in this Court against ATNZ (proceeding CIV-2018-419-294) to resolve the issue of the amount owing from ATNZ to IBC.

[41]	Mr Hemi said that in June 2018 no funds at all were remitted by ATNZ to IBC. He raised the matter with Mr Tyler, suggesting that the situation was untenable. Over the next few months, ATNZ made some payments, but it refused to provide the information Mr Hemi had sought that would show that ATNZ was meeting its obligations under the VSA.

[42]	Pending resolution of the dispute as to the obligations of ATNZ under the VSA, and determination of the amount owing to IBC under the VSA, IBC has taken the position that it is not required to extend open-ended credit to ATNZ and to ship vehicles to ATNZ under the VSA without any co-operation or agreement between the parties as to terms on which vehicles are on-sold by ATNZ. It considers that ATNZ has been in ongoing breach of its obligations under the VSA, including breach of an implied obligation to provide to IBC on request records that disclose and verify when payments have been received or collected from third parties in respect of vehicles shipped to ATNZ under the VSA.

[43]	Instead, Mr Hemi said that IBC has endeavoured to reach agreement with ATNZ on payment and other terms, on a shipment-by-shipment basis. Interim arrangements were made between November 2018 and January 2019 for the shipment of cars from IBC to ATNZ on three vessels, but these arrangements did not resolve the overall dispute. Mr Hemi agreed that the interim payment arrangements were outside the terms of the VSA, but he said that IBC was effectively driven to make new arrangements when Mr Tyler refused to provide information about amounts collected from ATNZ's customers and the credit terms that were offered to the customers. Given the unsatisfactory cash flow back to IBC, he contended that it had to negotiate specific payment arrangements to cover ongoing shipments to ATNZ.

[44]	Mr Hemi said that ATNZ failed to comply with the interim arrangements. In particular, it failed to pay the sum of $2,914,486 for a shipment of cars on the vessel

Istra Ace in January 2019. And on 5 January 2019 ATNZ gave notice to IBC alleging that IBC was in breach of the VSA, and that ATNZ had "no choice but to stop purchasing vehicles from IBC and instead source them from alternative suppliers". The letter said that ATNZ would instead be taking steps to purchase vehicles from alternative suppliers in Japan, and it would be withholding further payments due to IBC under the VSA, to offset against a claim it asserted it had for damages.

[45]	Mr Hemi then instructed IBC's solicitors to write to ATNZ's solicitors in relation to ATNZ's decision to suspend payment under the interim agreements. The solicitors' letter set out terms for a new agreement that would need to be reached for the next vessel. The letter said that, until agreement was reached for that vessel, IBC was suspending its sales to ATNZ.

[46]	Although ATNZ has not purported to cancel the VSA, since the start of January 2019 it has not purchased any vehicles from IBC.

[47]	Mr Hemi asserted that he has no wish to destroy ATNZ. He said that since he took over as representative director of IBC in May 2018 his aim has been to reduce and control the degree to which ATNZ was indebted to IBC, and to ensure that ATNZ was being operated in a sustainable manner, particularly in respect of credit terms being offered to its customers. Until ATNZ  set up in open competition with IBC,  Mr Hemi's approach was to keep the trading relationship functioning, while debt and share ownership issues were resolved by the Court.

[48]	Mr Hemi set out the basis for IBC's liquidation claim on just and equitable grounds as follows:

… ATNZ is now acting in a way that is the exact opposite to the purpose for which it was created and in a way that is outside anything contemplated by its shareholders (whether that is me and Mr Stone directly, or AutoNet). In doing so, it stands to do enormous harm to IBC's business. By the time issues relating to the beneficial ownership of ATNZ and the size of the debt are resolved through ordinary proceedings, the damage could be irreparable. IBC says that it is unjust and inequitable for Mr Tyler to take advantage of his status as sole director and shareholder and of unresolved disputes about who he holds the shares for, to have ATNZ act in a way that is entirely outside the purpose for which it was created.

Mr Tyler in reply

[49]	Mr Tyler said that since he became a director, ATNZ has always operated as a separate arm's length business from IBC. Fees were negotiated with IBC, and ATNZ ran its own operation, employed its own staff, developed its own customer base, and made its own decisions. For the whole period of ATNZ's operation in New Zealand, IBC was in the market place selling vehicles in competition with ATNZ. Due to the nature of the relationship and the funding there was always an open and transparent relationship with IBC, but ATNZ was never run as a division of IBC.

[50]	The VSA was a commercial arrangement, with benefits to both parties. ATNZ could buy more cars if it was able to offer its customers credit terms, and there are other similar operations in New Zealand, where the New Zealand importer on-sells vehicles on terms under which it is not required to pay its supplier until it is paid.

[51]	Mr Tyler said that until recently ATNZ and IBC did work  closely  in  the New Zealand market, but that was no longer possible when IBC started aggressively targeting ATNZ's customers, and made purchasing vehicles impossible.

[52]	Mr Tyler frankly acknowledged that he has aligned himself with Mr Stone in the dispute between Mr Hemi and Mr Stone. He said that he had no confidence in  Mr Hemi's business acumen, and was of the view that Mr Hemi would ultimately destroy IBC. He referred to IBC supplying vehicles to a company called 2 Cheap Cars in an effort to have that company replace ATNZ as IBC's customer in the New Zealand market. He also accused IBC of trying to operate an unsustainable business model in New Zealand, and of attempting to liquidate ATNZ as one means of salvaging that situation.

[53]	Mr Tyler denied that he has received any form of reward for his actions in relation to IBC and the VSA, and said that he has been acting to protect the interests of ATNZ. He said that his salary reflects the fact that he performs as a full time CEO of a company turning over $100 million per annum and employing 25 staff and a similar number of contractors.

[54]	Mr Tyler acknowledged the overall group structure, and that members of the group may have interlocking business concerns, but said that he regarded the issue as being the legal relationship between IBC and ATNZ within that group structure.

[55]	Mr Tyler said that ATNZ has no plans to purchase any shares in a competitor of IBC. Any action that turned out to be contrary to IBC's interests would be a result of IBC making it impossible to purchase vehicles from it. He reiterated ATNZ's position that if it wanted to remain in business it had no option but to source vehicles from another supplier.

[56]	Mr Tyler expressed the view that ATNZ should continue in business until the various disputes between Mr Stone and Mr Hemi are resolved. In the meantime, the profit that ATNZ makes is accruing for the group as a whole.

[57]	Mr Tyler said that all recent actions taken by ATNZ (vis a vis IBC) have flowed from the decision made by Mr Hemi to refuse to ship ATNZ's vehicles. Mr Stone was not involved in that decision, which was taken by Mr Hemi alone.

[58]	On the issue of ATNZ's solvency, Mr Tyler said that ATNZ's balance sheet overstates the sum actually owed to IBC.   That view was recorded in a letter dated   2 May 2019 from ATNZ's solicitors to IBC's solicitors, in which the solicitors said that Mr Tyler was in the process of having the ATNZ balance sheet updated to reflect the correct liability to IBC. The letter referred to ATNZ's net assets of $43 million, and a property valued at $2.5 million over book value. ATNZ was said to have net assets of approximately $3.7 million, without any allowance for goodwill.

[59]	All of that said, Mr Tyler did not accept that any sum of money is actually due for payment to IBC. On that basis, IBC's total claim is disputed.

The parties' financial positions

[60]	There are allegations of insolvency on both sides. Mr Hemi denies that IBC is insolvent, although he acknowledges that ATNZ's decision to cease making payments to it, and to compete with it in the New Zealand market, has put IBC under financial pressure. However, IBC continues to trade profitably.

[61]	Mr Hemi asserted that ATNZ is at least balance sheet insolvent. He referred to the last full set of financial statements for ATNZ that he had received (for the year ended 31 March 2016), showing that ATNZ had a negative equity of $11.8 million.

[62]	Further financial information provided as at 31 July 2018 showed an excess of liabilities over assets totalling $12.8 million. ATNZ has refused to provide its most up-to-date financial statements, contending that the onus is on IBC to prove insolvency.

IBC is a prospective or contingent creditor of ATNZ

[63]	It is common ground that IBC is a prospective or contingent creditor of ATNZ, and as such had standing under s 241 of the Act to file the liquidation claim. However, Mr MacGillivray acknowledged in his submissions that IBC will also need to qualify as a "creditor" when the liquidation claim is heard — if before that date a determination is made that no money is due and payable to IBC, IBC would no longer have standing to proceed with the liquidation claim.

The various other court proceedings

[64]	On 20 August 2018 Mr Hemi filed a proceeding in this Court against Mr Tyler personally,6 seeking a declaration that Mr Tyler holds the ATNZ shares on trust for Mr Hemi and Mr Stone. The proceeding also alleges various breaches of fiduciary duties said to have been committed by Mr Tyler in his capacity as director and shareholder of ATNZ and as a director and CEO of another company within the Hemi/Stone group, iCOMM International Inc (Icomm).

[65]	The issue of who is the beneficial owner of the shares in ATNZ remains unresolved, and is expected to be determined in the proceeding filed in August 2018.

[66]	Next, there are proceedings in each direction between IBC and ATNZ. First, IBC commenced proceeding CIV-2018-419-355 against ATNZ. In this proceeding, IBC seeks a declaration that the VSA contains an implied term requiring ATNZ to provide information to IBC on demand, and recovery of sums said to be due, and/or

6	CIV-2018-419-243.

damages, under the VSA. Initially IBC sought summary judgment, but the summary judgment application was abandoned and the proceeding continues as a claim for debt and damages. ATNZ commenced proceeding CIV-2018-419-294 against IBC, in which it sought an interim injunction to preserve what it contended was its position as a preferred recipient of cars from IBC. The interim injunction application was dismissed by Woolford J in a judgment given on 19 November 2018.7 Woolford J recorded  that  IBC  has  always  made  significant  sales  to  other  customers  in New Zealand, and that there is no specific clause in the VSA (or in the supplemental agreements that ATNZ contends were entered into) prohibiting IBC from selling cars direct to other customers in New Zealand.8 His Honour considered that damages would be an adequate remedy if ATNZ were to succeed at trial. Proceeding CIV-2018-419-294 has continued as a claim for damages, on the basis that the trading relationship between ATNZ and IBC no longer exists.

[67]	Proceedings CIV-2018-419-355 and CIV-2018-419-294 were consolidated by order of the Court made on 9 July 2019.

[68]	The next set of proceedings were two proceedings (the Latumbo proceedings) commenced in this Court by Melanie Latumbo against PAC — proceedings CIV-2018-419-45 and CIV-2018-419-113. Ms Latumbo is a financial controller employed by Icomm, a company based in Cebu in the Philippines that provides accounting, "back office" and other services to the companies within the Hemi/Stone group. Her first proceeding was an application for leave to bring a derivative action on behalf of PAC against Mr Hemi and another individual relating to certain transactions made in PAC's name. In her second proceeding, Ms Latumbo sought (by way of summary judgment) a declaration that she is a director of PAC, plus ancillary orders. The applications for leave to bring the derivative action and for summary judgment were both dismissed by van Bohemen J in a judgment given on 23 October 2018,9 however leave has been granted to appeal the judgment.

7	Autoterminal New Zealand Ltd v IBC Japan Ltd [2018] NZHC 2986.
8	At [36].
9	Latumbo v Pacific Auto Carrier (NZ) Ltd [2018] NZHC 2773.

[69]	There is also an interpleader proceeding brought by a company called Jacanna Holdings Ltd against PAC and others in this Court (CIV-2018-419-229). Jacanna collects funds from car vehicle sale operations in New Zealand, and there is a dispute as to whether funds held by it (now around $11.4 million) are to be dealt with at the direction of PAC or IBC.

[70]	In other jurisdictions, I was told that proceedings either have been or will soon be filed in the Cayman Islands and Japan, for the liquidation of AutoNet and IBC respectively. Mr Hemi has also commenced a proceeding in the Philippines against Mr Stone and Mr Tyler relating to Icomm.

The specific relief claimed by IBC in its statement of claim

[71]	The particular matters that are said to justify the making of a liquidation order on just and equitable grounds are identified by IBC as follows:

61.	In all the circumstances, it is just and equitable that the defendant company be placed into liquidation. In particular:

(a)	In deciding to commence business as a competitor of IBC, [ATNZ] has departed radically from the purpose for which it was incorporated by Mr Hemi and Mr Stone. It was incorporated to serve IBC's interests and now proposes to compete with IBC and to act in a way that is hostile to IBC's interests;

(b)	[ATNZ] was incorporated (and Mr Tyler was appointed director and CEO as a trustee shareholder) on the basis of a relationship of trust and confidence between [ATNZ] and its management and both business partners, and on the basis that both business partners would be able to play a role in overseeing the conduct of the business of [ATNZ];

(c)	There is no longer any relationship of trust and confidence between the business partners and there is no longer a relationship of trust and confidence between Mr Tyler and Mr Hemi. Mr Hemi is no longer being permitted to play any role in the conduct of the business of [ATNZ];

(d)	[ATNZ] was incorporated (and Mr Tyler was appointed director and CEO as a trustee shareholder) on the basis that there would be open collaboration between IBC and [ATNZ];

(e)	IBC and [ATNZ] have ceased to work together in a collaborative way as contemplated by the business partners and by the terms of the VSA;

(f)	It would be unjust and inequitable to permit [ATNZ] to take advantage of the relationships it has developed as IBC's representative in New Zealand to now compete against IBC against the wishes of one of the business partners responsible for its creation;

(g)	[ATNZ] is balance sheet insolvent and IBC is its largest creditor;

(h)	As [ATNZ] has ceased to serve the purpose for which it was incorporated by the business partners and as there is no agreement and no prospect of agreement between them as to the future conduct of [ATNZ's] business, it is appropriate for the affairs of [ATNZ] to be wound up and investigated by a liquidator.

Counsel's submissions

ATNZ

[72]	Mr Branch submitted:

(a)	The most extreme of situations would be required in order for a creditor to liquidate a company on just and equitable grounds, and even more so where the debt is disputed and/or where the company is able to meet its debts as they fall due.

(b)	The relationship between IBC and ATNZ can only arise from its contractual relationship and that is primarily one of customer and client, ie debtor and creditor, and those claimed breaches are already being pursued by IBC in extant proceedings.

(c)	Even if IBC's claim that IBC and ATNZ are "members of the same business partnership" is correct (which is denied), that does not make IBC and ATNZ partners or give rise to any other fiduciary obligations between IBC and ATNZ.

(d)	Therefore there is no possible basis on which IBC, as a creditor, or contracting party in dispute, could make out the basis for a liquidation on just and equitable grounds.

(e)	Alternatively, even if the required relationship is arguable (which is denied):

(i)	there is, in fact, no claim by IBC of a breakdown of trust and confidence between IBC and ATNZ,10 and IBC cannot say that it has justifiably lost trust and confidence in ATNZ; and/or

(ii)	liquidation is not the only appropriate method of bringing the relationship to an end; and/or

(iii)	the alleged breakdown of the relationship (on which the just and equitable ground is based) and, importantly, whether IBC (and Mr Hemi) have clean hands, is already the subject of other proceedings in multiple jurisdictions.

(f)	On that basis, this proceeding:

(i)	should be struck out as it is an abuse of process; or

(ii)	should be stayed until the proceedings already commenced by Mr Hemi and Mr Stone (or related parties) have been determined as:

(1)	they are ordinary proceedings, well underway, which is the appropriate type of proceedings in which to decide disputed, and complicated, matters of fact; and/or

(2)	the appropriate parties are joined to, or covered by, those proceedings; and/or

(iii)	the interim orders in place in relation to the stay on advertising and on IBC advising other parties of the liquidation proceedings

10	The only loss of trust and confidence pleaded is that between Mr Hemi and Mr Tyler.

should be continued but varied so as to cover, by name, IBC's representatives in the market.

[73]	IBC and ATNZ are not partners, but simply individual components of the Hemi/Stone business partnership. That is an insufficient basis for IBC to advance a claim that the original purpose of ATNZ's incorporation is no longer being followed. Even if that were the position (which is denied), IBC was not one of the incorporators of ATNZ, and any rights arising from a failure by ATNZ to adhere to its original purpose can only belong to the incorporating parties (Mr Stone and Mr Hemi). The relationship between IBC and ATNZ is nothing more than two parties having a contractual dispute.

[74]	IBC has not shown that liquidation on just and equitable grounds is the only appropriate method to bring the relationship to an end. The most appropriate way to bring the relationship to an end is for IBC to continue its claim for breach of the VSA, obtain judgment if it can, and then issue a statutory demand.

[75]	IBC does not come to Court with clean hands, an essential requirement for a liquidation claimant asking for a liquidation order on just and equitable grounds arising out of an alleged breakdown in confidence between the parties.11 IBC's complaint arises solely from its dealings with ATNZ and the fact that ATNZ is now competing with it. If that state of affairs is due to IBC's conduct, it cannot display the required clean hands. A determination on that issue is already the subject of a proceeding in this Court, and that proceeding should be determined rather than having a parallel determination in the liquidation proceeding.12 Beyond that, IBC's claim is really Mr Hemi's claim, but all of his claims are disputed and are the subject of other proceedings.

[76]	The real reason for the commencement of the liquidation claim is that ATNZ has now set up in open competition with IBC. Mr Hemi acknowledged that, but for that competition, he would have kept the trading relationship functioning while debt

11	Referring to Paul Heath and Mike Whale Insolvency Law in New Zealand (3rd ed, Lexis Nexis, Wellington, 2018).
12	Cowan v Sand Dune Ltd & Ors [2013] NZHC 1378 at [20] – [22].

and ownership issues were resolved by the Court. But the basis on which Mr Hemi relies to justify the change of position is still to be decided in another proceeding. A finding on that point should have been a pre-requisite to any liquidation application, and at the very least a stay should be granted until the issue is determined in the other proceeding.

[77]	The argument that the competition is outside of anything Mr Hemi, Mr Stone or AutoNet contemplated or expected is not an appropriate matter for determination in the liquidation claim. Not one of those three parties is a party in this proceeding, and their expectations cannot be imputed, transferred, or assigned to IBC for the purpose of liquidating a competitor.

[78]	On the balance of convenience (relevant to the stay application) Mr Branch submitted that ATNZ is presently generating income for the business partnership, and that would cease if a liquidation order were made.

IBC

[79]	Mr MacGillivray submitted that it cannot be said that IBC's liquidation claim has no prospect of succeeding, and it is not an abuse of process. The merits of the claim should be determined at a full defended hearing.

[80]	He acknowledged that the fact that the claim is brought by a creditor of ATNZ is an unusual feature in a claim brought on just and equitable grounds, but it reflects the highly unusual circumstances of the case. There are no settled categories or headings under which cases must be brought if the just and equitable ground is to apply.13

[81]	All of the entities within the business partnership are ultimately owned and controlled by Mr Stone and Mr Hemi, or  their  interests,  on  a  50/50  basis.  And Mr Tyler did not take issue with the description of ATNZ and IBC's relationship as "symbiotic", and Mr Hemi's evidence (referring to evidence given earlier by Mr Stone

13	Automatic Parking Coupons Ltd v Time Ticket International Ltd (1997) 10 PRNZ 600 (HC), at 603.

in another proceeding) that the relationship "was, and is, vital to IBC's overall performance in the New Zealand market".

[82]	There is no dispute that there has been a profound breakdown in the relationship between Mr Hemi and Mr Stone, between IBC and ATNZ, and between Mr Hemi and Mr Tyler. Mr Tyler now refuses to deal with Mr Hemi in relation to ATNZ's business, and Mr Tyler has gone to great lengths to prevent IBC and Mr Hemi from obtaining any information about ATNZ's business. Mr Tyler's decision to terminate ATNZ's business relationship with IBC, and to now compete against IBC (the company ATNZ was created to serve), was made over vehement opposition from Mr Hemi whose interests own 50 per cent of AutoNet. And AutoNet is itself deadlocked at shareholder level as a result of the breakdown in the Stone/Hemi relationship.

[83]	Mr Tyler's evidence that he has been acting as an independent director of ATNZ, merely attempting to act in the best interests of his company, rings hollow. The dispute involves significantly more than a simple one of two parties at arm's length being in a contractual dispute.

[84]	The issue for the Court to determine is whether in all the circumstances IBC has a sufficient interest to permit it to advance grounds that might ordinarily be expected to be advanced by a shareholder. Mr MacGillivray submitted that it does. Mr Tyler (and Mr Stone) are taking advantage of the deadlock at AutoNet to act free from any control by the beneficial owners of ATNZ, and ATNZ has departed from the purpose for which it was created within the overall business partnership. IBC is being directly prejudiced by that departure. At the very least in those circumstances, it cannot be said that the liquidation claim has no prospect of success.

[85]	As for the other Court proceedings, the pending proceedings between IBC and ATNZ in this Court will not determine whether it is just and equitable for ATNZ to be liquidated on account of its radical departure from the purpose from which it was created. The other proceedings will serve to determine what exact amounts are owing by ATNZ to IBC, and when those amounts must be paid. If ATNZ then paid its debt to IBC, the resolution of that proceeding would do nothing whatsoever to resolve the

ongoing circumstances that justify the application to liquidate. The application cannot be regarded as a short cut for a debt claim.

[86]	On the issue of whether IBC should be pursuing a general proceeding if it believes that ATNZ is acting unlawfully in competing with it in the New Zealand market, Mr MacGillivray submitted that the ultimate issue in the liquidation claim will not be whether ATNZ has acted in breach of the VSA, or otherwise unlawfully, but whether it is just and equitable to permit it to carry on doing so in all of the circumstances (regardless of its strict legal rights). Similarly, the proceeding against Mr Tyler personally may eventually have the effect of preventing him from continuing to conduct ATNZ's business as he has, but it will not resolve the underlying impasse at shareholder level. The existence of the other proceedings against Mr Tyler should not prevent IBC from pursuing the present liquidation claim.

[87]	IBC has a legitimate concern that it could suffer irreparable harm if the liquidation claim is stayed pending determination of the other proceedings.

Discussion and conclusions

Applications to strike out or stay liquidation claims

[88]	Rule 31.11 of the High Court Rules 2016 provides:

31.11	Power to stay liquidation proceedings

(1)	If an application for putting a company into liquidation is made under rule 31.3, the defendant company, or, with the leave of the court, any creditor or shareholder of that company or the Registrar of Companies, may, within 5 working days after the date of the service of the statement of claim on the defendant company, apply to the court—

(a)	for an order restraining publication of an advertisement required by rule 31.9 or any other information relating to that statement of claim; and

(b)	for an order staying any further proceedings in relation to the liquidation.

(2)	The court must treat an application under subclause (1) as if it were an application for an interim injunction and, if it makes the order sought, it may do so on whatever terms the court thinks just.

(3)	The inherent jurisdiction of the court is not limited by this rule.

[89]	In Nemisis Holdings Ltd v North Harbour Industrial Holdings Ltd, Wallace J noted that the jurisdiction to stay a winding up proceeding is an inherent one, to prevent abuse of process. There is no inflexible rule.14 The governing consideration will be whether the proceeding suggests unfairness or undue pressure. Wallace J confirmed that it is a serious matter to stay winding up proceedings, so the decision to do so is never made lightly. The onus is on the applicant for a stay, and it is normally necessary to demonstrate something more than the balance of convenience considerations which are usually considered on an application for an interim injunction. A defendant is required to show that there is a strong prima facie case of the existence of a genuine dispute on substantial grounds, or that there are (otherwise) clear and persuasive grounds for a stay.15 A stay order may also be made where the Court considers that the liquidation claim has been instituted for a collateral purpose.16

[90]	The foregoing approach is typically applied in liquidation claims that are based on an allegation that the defendant company is insolvent, but I think broad considerations such as whether or not the proceeding is an abuse of process, or suggests unfairness or undue pressure, must be equally applicable where the liquidation claim is made on just and equitable grounds.

[91]	The requirement that a defendant applying for a stay of a liquidation claim made on just and equitable grounds must establish a "strong prima facie case of the existence of a genuine dispute on substantial grounds" may be less important, at least where the contest is between shareholders — the very existence of the proceeding is likely to reflect a significant level of dysfunction in the management of the company, probably extending to a deadlock, where important decisions cannot be made. However, there is authority for the view that there may be little point in staying the

14	Nemisis Holdings Ltd v North Harbour Industrial Holdings Ltd (1989) 1 PRNZ 379 at 385.
15	At 385.
16	BNZ v Manor Inns Group Ltd HC Auckland M146/92, 30 November 1992 (HC).

liquidation claim in such cases, as opposed to dealing with the substantive issues on full evidence.17

[92]	In Automatic Parking Coupons Ltd v Time Ticket International Ltd, advertising of the liquidation claim was stayed in a complex proceeding being litigated in tandem with a substantive claim.

Liquidation applications made on just and equitable grounds — legal principles

[93]	Section 241(4) of the Act materially provides:

241	Commencement of liquidation

…

(4)	The court may appoint a liquidator if it is satisfied that—

…

(d)	it is just and equitable that the company be put into liquidation.

[94]	The just and equitable jurisdiction is most frequently invoked where there is dissention and/or deadlock between a company's shareholders. The leading authority is the decision of the House of Lords in Ebrahimi v Westbourne Galleries Ltd.18 In giving the principal speech in Ebrahimi, Lord Wilberforce said that it was impossible and wholly undesirable to define the circumstances in which an order ought to be made. The "just and equitable" provision has the effect of subjecting the exercise of legal rights to equitable considerations, namely considerations of a personal character which may make it unjust or inequitable to insist on legal rights or to exercise them in a particular way. Lord Wilberforce said:19
The superimposition of equitable considerations requires something more, which typically may include one, or probably more, of the following elements:

(i)	an association formed or continued on the basis of a personal relationship, involving mutual confidence — this element will often be found where a pre-existing partnership has been converted into a limited company;

17	Seapark Group Ltd v Convertech Group Ltd (1991) 5 NZCLC 66,975, and Automatic Parking Coupons Ltd v Time Ticket International Ltd, above n 13.
18	Ebrahimi v Westbourne Galleries Ltd [1973] AC 360.
19	At 379.

(ii)	an agreement, or understanding, that all, or some (for there may be "sleeping" members), of the shareholders shall participate in the conduct of the business;

(iii)	restriction upon the transfer of the members' interest in the company
— so that if confidence is lost, or one member is removed from management, he cannot take out his stake and go elsewhere.

[95]	In a concurring judgment in Ebrahimi, Lord Cross said:20

People do not become partners unless they have confidence in one another and it is of the essence of the relationship that mutual confidence is maintained. If neither has any longer confidence in the other so that they cannot work together in the way originally contemplated then the relationship should be ended — unless, indeed, the party who wishes to end it has been solely responsible for the situation which has arisen.

[96]	Lord Cross made it clear in Ebrahimi that an applicant seeking a liquidation order on the "just and equitable" ground must come to the Court with clean hands: if the breakdown in confidence between him and the other parties to the dispute appears to have been due to his misconduct he cannot insist on the company being wound up if they wish it to continue.21

[97]	The decision in Ebrahimi was followed by Heath J in Jenkins v Supscaf Ltd.22 After noting that Ebrahimi has been applied on many occasions in New Zealand, Heath J noted the dangers of invariably treating a closely held company as if it were a partnership. His Honour referred to the speech of Lord Wilberforce in O'Neill v Phillips, where Lord Hoffmann noted that the manner in which the affairs of a company may be conducted is closely regulated by rules to which the shareholders have agreed. Furthermore, company law has developed seamlessly from the law of partnership, which was treated by equity, like the Roman societas, as a contract of good faith.23

[98]	In Jenkins v Supscaf, Heath J considered that, to justify a liquidation order in the case before him, the applicant had to demonstrate both that their lack of trust and confidence in the other shareholder was justified, and that to liquidate the company

20	At 383 – 384.
21	At 387.
22	Jenkins v Supscaf Ltd [2006] 3 NZLR 264.
23	O'Neill v Phillips [1999] 2 All ER 961 (HL).

was the only appropriate method of bringing the commercial relationship between the shareholders to an end.24

[99]	On the broad approach to the making of a liquidation order on just and equitable grounds, Heath J noted that s 241(4)(d) of the Act places no fetter on the Court's discretion, either in relation to the factors that would justify an order, or in relation to circumstances in which an order must be refused. In those circumstances, His Honour proceeded on the basis that the Court should balance all relevant factors available for consideration at the time of the hearing to determine whether an order ought to be made.25

[100]	In Automatic Parking Coupons Ltd, the plaintiff applied to liquidate the defendant on the basis that it could not pay its debts, but also on the basis that its sole director was engaged in alienating the defendant's assets for his own benefit. There were concurrent civil proceedings seeking payment of $635,000 from the defendant. The case came before Tipping J on the defendant's application for an order striking out the liquidation claim as an abuse of process. The defendant alleged that the proceeding had been brought for ulterior purposes. Tipping J accepted that it would be wrong to create categories or headings under which applications for liquidation on the just and equitable ground must be brought. Room must always be left for a case which does not fit into any particular category, but which is nevertheless a suitable case for liquidation under the general words of the just and equitable ground.26

[101]	Tipping J noted that, for strike out purposes, it is elementary that allegations in the statement of claim must be treated as being capable of proof. On the facts pleaded, it could not be said that the plaintiff had no prospect of obtaining an order for liquidation on the just and equitable ground.27

[102]	The defendant in Automatic Parking Coupons Ltd submitted that the issue of the proceeding constituted unfair commercial pressure, and was an abuse on that basis. There was also a suggestion that the liquidation claim had been issued for an ulterior

24	Jenkins v Supscaf Ltd, above n 22, at [117].
25	At [134].
26	Automatic Parking Coupons Ltd v Time Ticket International Ltd, above n 13, at 603.
27	At 603.

purpose. On the pleadings and the evidence, the Judge accepted that those contentions were arguable, but they were not of such force that the Court could properly hold that the liquidation claim should be struck out as an abuse of process. His Honour considered that, on the plaintiff's view of the facts, there was a bona fide reason for wanting to have the defendant put into liquidation.

[103]	Tipping J acknowledged in Automatic Parking Coupons Ltd that the just and equitable ground is apt to be distinctly more open to dispute than the conventional ground for putting a company into liquidation, namely that the company is unable to pay its debts. And all of the factual propositions relied upon by the defendant in support of the abuse of process argument were the subject of dispute between the parties, either as to the facts themselves or as to the inferences to be drawn from them. The Judge concluded that the defendant had fallen short of establishing that the plaintiff's liquidation claim was an abuse of process.

[104]	Tipping J went on to deal with the clear overlap between the liquidation proceeding and the ordinary civil proceeding. His Honour recorded that, after discussion, the parties accepted that if the liquidation proceeding was not struck out the two proceedings should be consolidated and/or managed together, so that both proceedings could be heard by the same Judge in the one hearing.

[105]	In Cowan v Sand Dune Ltd, Collins J considered that the existence of a parallel civil proceeding is a factor to be taken into account when assessing the merits of an application to liquidate on just and equitable grounds.28 A proceeding was pending in the Family Court between the two shareholders, who had been in a personal relationship. Collins J considered that the Court should not consider Mr Cowan's application to liquidate the companies until the Family Court had determined key issues relating to the nature of the parties' relationship and their respective interests in any relationship property they might have had. His Honour noted that liquidation on just and equitable grounds should only be pursued as a last resort, and that Mr Cowan had yet to exhaust potential remedies available to him.29

28	Cowan v Sand Dune Ltd, above n 12, at [17].
29	At [21].

[106]	In Strachan v Denbigh Property Ltd,30 Associate Judge Gendall affirmed the view that an order for liquidation on just and equitable grounds is to be seen as something of a last resort. If another remedy, such as an order under s 174 of the Act requiring the purchase of shares were appropriate and available, that would be preferred.31 But on the facts the Associate Judge considered that, in view of the bitter, acrimonious and uncertain circumstances of the company and the parties, it was unrealistic to regard one party buying the other out as a realistic possibility. An order was made putting the defendant into liquidation.

[107]	Finally, under this heading, I mention the decision of Menhennitt J in Re Tivoli Freeholds Ltd, in which the Judge, sitting in the Supreme Court of Victoria, noted that it has been recognised that it may be just and equitable to wind up a company if the company engages in acts which are entirely outside what can fairly be regarded as having been within the general intention and common understanding of the members when they became members.32

Application of the law in this case

[108]	In Automatic Parking Coupons Ltd, Tipping J said:33 "I am still left with the view that [the plaintiff] on its view of the facts has a bona fide reason for wanting to have [the defendant] put into liquidation". Similarly, in this case, it seems to me that Mr Hemi probably does consider that IBC has a bona fide reason for wanting to have ATNZ put into liquidation. The ultimate ownership of the two companies is the same, and the reason  for  the  establishment  of  ATNZ was  to  represent  IBC  in  the New Zealand market. The VSA appears to have conferred on ATNZ very favourable commercial terms, and the New Zealand operation, which until recently appears to have been effectively funded by borrowings made by IBC in Japan, now operates in competition with IBC. ATNZ was obliged to account to IBC for sales made and for expenses paid on IBC's behalf, and it appears that IBC has shipped vehicles worth in excess of $40 million to ATNZ for which it has not been paid.

30	Strachan v Denbigh Property Ltd (2011) 10 NZCLC 264,813 (HC).
31	At [57].
32	Re Tivoli Freeholds Ltd [1972] VR 445 at 468.
33	Automatic Parking Coupons Ltd v Time Ticket International Ltd, above n 13, at 604.

[109]	It can also be said in IBC's favour that there is no dispute that the ultimate owners of the worldwide business enterprise, which includes ATNZ, can no longer work together.  On ATNZ's  own case, the breakdown in the relationship between  Mr Hemi and Mr Stone had the effect that ATNZ's shareholder (AutoNet) was incapable of providing the ordinary input a shareholder might be expected to provide.34

[110]	So I do not think it can be said that, in issuing the liquidation claim, Mr Hemi did not have a bona fide belief that the circumstances justified the making of the liquidation order which is sought. But I am satisfied that that view was misconceived.

[111]	This is not a case like Automatic Parking Coupons Ltd, where an application to liquidate a company on just and equitable grounds could be expected to bring all of the real protagonists before the Court. The fundamental problem with the liquidation claim in this case is that it purports to raise issues which are really the concern of the shareholder or shareholders of ATNZ, without that shareholder or those shareholders being joined in the liquidation proceeding. In other circumstances that might perhaps be addressed by an order directing service of the liquidation claim on the shareholder or shareholders, but even that is problematic in this case because of the dispute over who is (or are) the beneficial owner(s) of the shares in ATNZ. And there is already a proceeding on foot (Mr Hemi's claim against Mr Tyler) which is designed to provide an answer to that question.

[112]	I do not think it can be said that there are no circumstances in which a prospective or contingent creditor might apply to liquidate a company on just and equitable grounds, but in my view the relevant equities must relate to the relationship between the contesting parties, and not to equities arising in relationships between others (in this case, the shareholder or shareholders of ATNZ, and/or the ultimate owners of the group).

34 It remains to be seen whether the very recent appointment of new directors to the board of ATNZ will affect matters, given that there presumably remain a deadlock at shareholder level within their appointor, AutoNet.

[113]	Questions such as whether ATNZ is acting in accordance with the purposes for which it was incorporated are issues for the incorporators, or at least for the current shareholder or shareholders, not for IBC. IBC is not a shareholder of ATNZ, and I accept Mr Branch's submission that it cannot be treated as if it were.  IBC is itself   50 per cent owned by Mr Stone, and in those circumstances I do not think it would be appropriate to allow Mr Hemi to unilaterally use IBC to raise issues which are ultimately issues between himself and Mr Stone.

[114]	Where IBC does have a legitimate interest in the conduct of ATNZ, is in the relationship between the two parties under the VSA (and the supplemental agreements if they are binding). Mr Branch submitted that the relationship is purely a contractual one, and IBC has chosen to raise the issues under the VSA in a separate proceeding which is already pending in this Court. The question arises as to what changed to justify IBC then deciding to issue a liquidation proceeding.

[115]	Mr MacGillivray's answer was that ATNZ began competing with IBC in the New Zealand market, by importing cars from a rival Japanese exporter. But it appears that IBC has been supplying vehicles to other parties in New Zealand, not just ATNZ, for some years, and it is not at all clear to me that the change in 2019 (when ATNZ began to import vehicles from another Japanese supplier) made such a qualitative difference to the whole situation that liquidation on just and equitable grounds became necessary or appropriate. Up to then, the parties appear to have treated the relationship between them as an ordinary commercial relationship. For example, IBC's claim against ATNZ in proceeding CIV-2018-419-355 relies on alleged breaches of express terms of the VSA and of an alleged implied term as to the supply of information by ATNZ to IBC, not on a broad fiduciary obligation to provide that information. If (under the VSA or otherwise) ATNZ was not entitled to import vehicles from another Japanese supplier, that could presumably have been an ordinary claim added to IBC's proceeding CIV-2018-419-355.

[116]	Nor is it clear on the evidence I have seen that IBC was entitled to unilaterally change the payment terms for shipment of vehicles to ATNZ, as it appears to have done towards the end of 2018. It is not necessary for me to make any finding about that, and I refrain from doing so. I note only that it seems likely that there will be a

substantial dispute between the parties over the circumstances leading up to ATNZ's decision, presumably made by Mr Tyler on its behalf, to source vehicles from an alternative supplier in Japan.

[117]	Mr MacGillivray did not challenge Mr Branch's submission that every matter raised as a ground for liquidating ATNZ in the exercise of the "just and equitable" jurisdiction is already in issue in one or more of the other proceedings. And Mr Hemi has said that, at least until ATNZ began competing with IBC by importing vehicles to New Zealand from an alternative Japanese exporter, he was content for the various issues to be resolved in the civil proceedings issued for that purpose. It appears that Mr Hemi did not then consider that IBC had reached the "last resort" stage, where liquidation on just and equitable grounds was believed to be the only remaining option.

[118]	I am not satisfied that the change in ATNZ's market behaviour in 2019 which has caused particular concern to IBC is not something that can also be dealt with in an ordinary civil proceeding. If Mr Hemi considers that there is urgency in having some or all of the various civil proceedings determined, then appropriate applications can be made to the relevant Courts asking for priority fixtures. And if IBC considers that irreparable damage might be caused by permitting ATNZ to continue to import into New Zealand vehicles obtained from another Japanese supplier, and there is a serious issue to be tried as to whether ATNZ is entitled to do that, then it may be that relief could be sought by way of an interlocutory application for an interim injunction.

[119]	But in circumstances where Mr Tyler says that ATNZ is paying its debts as they fall due, and has assets to pay IBC if and when it is called upon to do so, I do not consider it reasonably arguable for IBC that the position has reached the "last resort" stage, where a liquidation order would be appropriate on just and equitable grounds.

[120]	Mr MacGillivray submitted that the liquidation claim should be allowed to go to a defended hearing, so that all of the facts can be considered. I accept that any consideration of whether there are just and equitable grounds for a liquidation order will usually require a detailed consideration of the facts, but no new facts seem capable of changing the following:

(i)	IBC is not a shareholder in ATNZ, and issues such as whether ATNZ has departed radically from the purpose for which it was incorporated by Mr Hemi and Mr Stone are fundamentally shareholder issues, or issues between Mr Hemi and Mr Stone. Neither Mr Hemi, Mr Stone, nor AutoNet (if it is the shareholder) are before the Court; and

(ii)	IBC has made its election to have claims that are clearly vigorously defended, resolved in separate civil proceedings. Those proceedings appear to raise all of the issues now raised in support of the liquidation claim. The only material thing that has changed since those civil proceedings were issued is that the supplier/customer relationship between IBC and ATNZ has broken down, and ATNZ has commenced obtaining vehicles from an alternative supplier. Those are matters capable of being addressed perfectly well in a separate civil proceeding.

[121]	Specifically addressing IBC's grounds for a liquidation order that are reproduced at paragraph [71] of this judgment, IBC says that ATNZ has departed radically from the purpose for which it was incorporated. It was incorporated, and Mr Tyler was appointed director and trustee shareholder, on the basis of a relationship of trust and confidence between ATNZ and its management and both business partners, and on the basis that both business partners would be able to play a role in overseeing the conduct of the business of ATNZ. Those are issues between the incorporators and/or the current shareholder or shareholders: they are not issues for IBC to pursue. Similarly, the alleged breakdown in trust  and  confidence between  Mr Hemi and  Mr Stone is a matter more appropriately dealt with in other proceedings. In my view IBC should not be used as a vehicle for Mr Hemi to ventilate his personal concern at his exclusion from playing a role in the management of ATNZ.

[122]	Whether IBC and ATNZ have ceased working together as contemplated by the terms of the VSA, and whether it would be unjust to now allow ATNZ to compete with IBC in the New Zealand market, are matters which are or will be in issue in separate proceedings between the parties. Given the other circumstances to which I have alluded, I do not consider it appropriate that those issues be canvassed separately in a

liquidation claim (even if it were to be consolidated with the other proceedings or some of them).

[123]	IBC says that ATNZ has ceased to serve the purpose for which it was incorporated by the business partners, and that there is no agreement (and no prospect of agreement) between them as to the future conduct of ATNZ's business. That may be so, but the fundamental problem is that it is an issue to be resolved between the business partners. It is not appropriate for Mr Hemi to be using IBC as a vehicle to have his disagreements with his business partner determined in this proceeding.

[124]	Mr MacGillivray submitted that the dispute involved significantly more than a simple conflict between two contracting parties in a commercial dispute. That is no doubt true as far as it goes, but the submission does not address the point as to whose disputes have really been put in issue by the liquidation claim. In substantial part, they are disputes not between IBC and ATNZ, but disputes over the management and control of ATNZ in respect of which IBC has no direct interest. I consider, in the circumstances disclosed by the pleadings and the affidavits, that it is not reasonably arguable that IBC  has  a sufficient interest  to permit  it  to advance  grounds that  Mr MacGillivray acknowledged might ordinarily be expected to be advanced by a shareholder.

[125]	I do not need to address Mr Branch's argument based on "clean hands". That would not in any event have been something to be determined on a summary application such as this.

[126]	I have considered whether the proceeding should be stayed, rather than struck out, but if the proceeding were to be stayed the question would arise "stayed until when?". There is no clear answer to that. One could await determination of Mr Hemi's proceeding against Mr Tyler, for a determination as to the beneficial ownership of the ATNZ shares. But that would solve nothing, as the deadlock situation would remain, whoever the shareholder(s) was/were. Nor is there any indication that the Hemi v Tyler proceeding is likely to be resolved within the near future. Similarly, a judgment on IBC's claim for money said to be due under the VSA will not necessarily resolve the substantial issues that have been raised in the liquidation claim. If ATNZ were to

simply pay any sum of money found to be owing by it to IBC, the concerns such as the alleged "radical departure" from the purpose for which ATNZ was incorporated would still be there.

[127]	The possibility of either IBC or AutoNet being liquidated might provide at least part of a solution to the wider problem within the group. For example, if AutoNet were determined to be the beneficial owner of the shares in ATNZ, a liquidator of AutoNet could presumably cause ATNZ to be sold as a going concern, thereby maximising the recovery for the group and its ultimate owners. But there is no evidence of whether, and if so when, any liquidation of AutoNet might occur. And of course any liquidation of AutoNet might turn out to have no direct effect on IBC and ATNZ if the beneficial owners of the ATNZ shares turn out to be Messrs Hemi and Stone (or their interests) personally.

[128]	In the end, I do not think staying the liquidation claim is the answer. I consider that the liquidation claim is fundamentally flawed, in that Mr Hemi cannot in my view use IBC as a vehicle to raise what are substantially shareholder concerns when it is not a shareholder of ATNZ. And to the extent the issues raised in the liquidation claim do arise between IBC and ATNZ, they are issues which have already been raised in separate civil proceedings. I conclude that a stay is not an appropriate outcome, and that the liquidation claim should be struck out.

[129]	I conclude that the appropriate course is to strike out IBC's claim.

Result

[130]	I make the following orders:

(1)	Striking out IBC's liquidation claim.

(2)	ATNZ is entitled to costs on its application, and on the liquidation proceeding. In the ordinary course those costs would be on a 2B basis, but I did not hear detailed submissions from counsel on costs. If the parties are unable to agree, ATNZ may file a costs memorandum within 15 working days, and IBC may reply within 10 working days after

service of ATNZ's memorandum. I will then issue a judgment for costs on the papers.

Associate Judge Smith