emissions for the 2.5L turbo engine in an M35 is not eligible to pass the post 2004 ADR changes. This means that the engine has to be retested with things like a retuned ECU, a different AFM, or a different catalytic converter etc. Which is a lengthy process as it has to go back and forth between the testers and the workshop, and once the data is submitted to wait on a response from dotars etc.
I'm not too well informed about your case Muz, but of what little I know, didn't the compliancer offer to buy the car off you and reimburse you for all costs incurred at that point in time about 6 months ago, and you chose not to take that option? Fairly sure if you were to take legal action you can't be compensated for any losses made since that offer was made.
Also if you're going to look at re-exporting and auctioning off the car, its a lot cheaper to send it to NZ, as the shipping, transport and auction fees are a lot cheaper to there than Japan. There's also more demand for good clean M35's in NZ than in Japan, so financially its more viable.