Harjai v Shaun Robert Fraser in his capacity as joint and several receiver and manager of Pacific Street Properties Pty Ltd

Mr Harjai's arguments before the primary judge and on appeal

1. Before the primary judge the issue as to ownership of the fit out and stock was addressed at a general level in the sense that no attempt was made to differentiate between any parts of the stock, for the purpose of determining its ownership. Although it was part of Mr Harjai's case that some of the stock had been transferred from the Canberra store, no attempt was made to identify the particular stock transferred, if that was possible. Mr Harjai also suggested that some of the stock may have predated the alleged sale to him of the two businesses in about January 2011. Again no attempt was made to identify that stock.
2. The primary judge summarised Mr Harjai's contentions at [26]: As to the stock, Mr Harjai's case appears to depend on three contentions. The first is that the stock, or at least some of it, is partnership property and, as a result, he has an interest in it. That contention must depend on his claim that some of the stock from Melbourne found its way to the Shops, presumably via the Canberra store. Second, and connected to the first point, Mr Harjai submits that the setting up of Adia Holdings, the transfer of the Arpelle and ASW businesses to Mr Harjai and then to Mr Gogia were "phoenix transactions" which were designed to defraud the liquidators of Gogia Multi and Gogia Holdings. For that reason, the stock cannot belong to either Mr Gogia or Adia Holdings. Third, Mr Harjai says that he is not bound by the MOU or the Stock Agreement.
3. It is convenient to deal with the primary judge's conclusions in relation to these contentions in the context of the grounds of appeal which address them.

Whether stock from Arpelle Melbourne was transferred to one or other of the Shops via the Canberra store (ground 10)

1. Mr Harjai's argument proceeded as follows. Stock of Arpelle Melbourne was owned by the partnership. Mr Gogia's suggestion that it was held on consignment for Gogia Holdings, or later Adia Holdings should be rejected. On this issue the primary judge was prepared to accept that "the partnership owned at least some stock which was sold through Arpelle Melbourne": [30]. Accepting (in the sense of assuming) that at least some of the stock in the Canberra store came from Arpelle Melbourne, the primary judge was not satisfied that any of that stock had ended up in either of the Arpelle or ASW Shops: [31].
2. Ground 10 is directed to the rejection of this argument. However it is misconceived. Although the primary judge found that some of the stock in Arpelle Melbourne may have belonged to the partnership and may have ended up in the Canberra store, he did not find that any of it ended up in the Shops: [31]. In the face of that finding, which is not challenged, the error asserted is not made out and the ground must be rejected.

The effect of the MOU (ground 5)

1. The MOU provided: 1. It is mutually agreed between AH and SG, that they shall, both jointly and severally, provide any such guarantees, personal and company guarantees, which may be required by them from Brands on Sale, either pursuant to a licence agreement or a formal lease in respect of the Shop Premises. 2. It is acknowledged by AH that the stock and fit-out in respect of the Shop Premises is the absolute property of AH, and JH hereby covenants that he shall maintain no right to any management decisions relating to the day to day business of the aforementioned shops, and concedes all management decisions in favour of AH and SG. 3. JH will use his best endeavours to ensure that Brands on Sale, or its designated manager, will transfer any lease or licence currently existing in favour of AH. 4. AH, for its part, shall stand responsible for the execution of any lease or licence agreement presented to AH, and/or SG, and will execute any further documentation to give effect to that arrangement. 5. AH, for its part, shall be responsible for any liability in relation to the current lease or licences granted to the Shop Premises from their respective dates of commencement.
2. The primary judge held that the "MOU imposes obligations or contains acknowledgements binding on both parties. [Their] respective obligations and acknowledgements provide consideration" and in "those circumstances, Mr Harjai is bound by the acknowledgment it contains": [32]. Ground 5 challenges that holding.
3. I agree with his Honour's conclusion that cl 2 of the MOU is to be read as an acknowledgment by Mr Harjai (treating the first reference to AH as an obvious error and as being a reference to JH) that he does not have any ownership interest in the stock and fit out in the Shops. His submission that the MOU was unenforceable because it was "vague, evasive and indefinite" was rightly rejected. On the face of it, the document purports to record legally enforceable obligations and acknowledgements and consideration is provided by the mutual promises made by the parties. Accordingly ground 5 is rejected.
4. However the MOU does not establish, other than as between the parties to it, that the stock and fit out were owned by Adia Holdings. It does not purport to record that it was owned by Mr Gogia.

The effect of the Stock Agreement (grounds 6 and 7)

1. The Stock Agreement provides: RE: OUTSTANDING STOCK This letter will serve to confirm that all outstanding stock issues between Sunny Gogia and Jitender Harjai shall be resolved upon the following basis: 1. That stock to the value of $50,000 shall be provided by Adia Holdings Pty Ltd to Jitender Harjai to be assessed upon the basis of the old invoice cost for each item. 2. Such stock will be ready for delivery to Jitender Harjai by 2 September 2013. 3. Upon the delivery of the stock at the level agreed, Jitender Harjai will have no further claim right or action against Adia Holdings Pty Ltd or Sunny Gogia.
2. The primary judge regarded any agreement recorded by this document as of little relevance because it was not concerned with the ownership of the stock in either of the Shops. Although it required Mr Gogia or Adia Holdings to deliver stock to the value of $50,000 to Mr Harjai, it did not record that stock in the Shops to that value was owned by Mr Harjai. His Honour also observed that non-performance of that obligation sounded only in damages, and did not give Mr Harjai any interest in stock in either of the Shops: [33].
3. Grounds 6 and 7 are directed to these conclusions. First, and curiously, it is contended that the primary judge erred in holding that the appellant was bound by the agreement. In the alternative, it is said he erred in not holding that the agreement entitled him to $50,000 worth of stock from the Shops. Only the second of these arguments (made by ground 7) assists Mr Harjai's argument for an ownership interest in part of the disputed stock. Ground 6 should nevertheless be rejected. The agreement is signed and purports to record, again in a formal way, the terms on which Mr Harjai would have no further claim against Adia Holdings and Mr Gogia in relation to "stock issues".
4. As to ground 7, the Stock Agreement does not in terms identify any particular stock which is to be delivered, or provide that in the absence of delivery Mr Harjai is entitled to stock to that value from one or other of the Shops. The consequence of non-delivery was that Adia Holdings and Mr Gogia did not have the benefit of the release from any "further claim, right or action". Mr Harjai would then be free to press any other claims he had to or in relation to stock. The primary judge was correct to conclude that non-performance of this agreement did not give Mr Harjai any ownership interest in the disputed stock. Each of these grounds should be rejected.

The effect of any sub-lease or licence of the Shops undertaken in Mr Harjai's name (ground 8)

1. The documents provided by Mr Gogia to the letting agent in June 2012 included sub-leases purporting to be between Gogia Holdings and Mr Harjai from the dates of the respective contracts of sale of business: [9]. By ground 8, Mr Harjai relies on the fact of those sub-leases, and the subsequent licences of the Shops to him, as being consistent with his having an ownership interest in those businesses and, for that reason, in the disputed stock and fit out.
2. It does not appear that this argument was made to the primary judge, who at [25] recorded Mr Harjai's position as being: … that he never had an interest in the businesses carried on at those shops and that the documents that suggest otherwise were forged. He did license the Shops for a period of six months, but it is not contended that those licences remain on foot or that he obtained a right to the fit out as a result of them. The real dispute concerns the stock.
3. That makes it difficult for Mr Harjai to make the contrary argument on appeal. More significantly, this argument does not, on analysis, assist his claim to ownership.
4. The fact that Mr Harjai may have entered into a sub-lease or licence did not justify the conclusion that he held any ownership interest in the businesses. On each party's case, if ownership of the ASW and Arpelle businesses was transferred to Mr Harjai, it was subsequently transferred to Mr Gogia or Adia Holdings.
5. Mr Gogia's evidence was that in August 2011 Mr Harjai on-sold the businesses and stock to him. In return Mr Gogia agreed to pay the same consideration as was originally paid by Mr Harjai and to assume liability for rent and expenses: [11]. In response to this claim and Mr Gogia's reliance on the MOU and Stock Agreement, Mr Harjai's position was as pleaded in paragraph 14 of his Amended Points of Claim, which is extracted by the primary judge at [22]: On a commercial basis, in consideration of previous debts arising between the First Defendant and the Third Defendant business done around Australia and the transfer of the business of ASW and Arpelle, the Third Defendant agreed to accept a transfer $50,000 worth of stock from the business of ASW and Aprelle [sic] to be delivered to the Third Defendant by 2 September 2024 … The value of the stock to be transferred was to be assessed based upon the old invoice cost for each item. …
6. More significantly, the effect of cl 2 of the MOU was that, as between the three interested parties, it was agreed that the stock and fit out was owned by Adia Holdings.
7. The primary judge did not err in concluding that Mr Harjai had no ownership interest. Ground 8 is rejected.

The purported sales of the businesses to Mr Harjai (grounds 4, 9 and 11)

1. These three grounds challenge the correctness of the primary judge's holding, as declared by order 1, that the stock and fit out belonged to Mr Gogia and Adia Holdings.
2. Ground 9 argues that the primary judge erred in not holding that Mr Harjai had ownership of the disputed stock because the relevant businesses were sold to him and there was no evidence of any on-sale of the businesses to Mr Gogia.
3. The difficulty for this argument is that I do not read his Honour's reasons as including a finding which resolves the contest between the evidence of Mr Gogia and that of Mr Harjai as to whether there was any sale of the relevant businesses to Mr Harjai. In considering that evidence the primary judge recorded Mr Harjai's claim that the purported transactions were designed to hide assets from the liquidators of Gogia Multi and Gogia Holdings. Having referred to that evidence, the primary judge records that he did not consider it necessary to resolve that issue: [28]. He did not thereafter make any affirmative finding as to whether the transactions occurred as Mr Gogia asserted.
4. The primary judge was justified in taking that position in view of the terms of the MOU which, as between the parties, resolved the question of ownership of the stock in favour of Adia Holdings. That being the position was also consistent with the evidence of Mr Gogia and the earlier evidence of Mr Harjai that if the businesses had been sold, they had subsequently been on-sold to Mr Gogia or Adia Holdings.
5. It is a sufficient basis for rejecting ground 9 that it was no part of Mr Harjai's evidence or case before the primary judge that the sale to which this ground refers actually occurred.
6. There remains however a question as to whether the primary judge erred in making an affirmative declaration that the Gogia interests owned the disputed property. Ground 4 raises this question generally and ground 11 raises it on the basis that some of the stock may have been owned by Gogia Holdings or Gogia Multi because it had been acquired before January 2011.
7. As the interpleader proceedings were conducted, it was not necessary for the primary judge to decide whether Gogia Holdings and Gogia Multi owned any of the stock. Although ASIC was named as a party, it did not actively participate and contend for any position on behalf of those companies. As between the two active claimants, the issue was as to which of them was entitled to possession and control of the property.
8. His Honour's principal finding was that as between them, Mr Harjai did not have any ownership interest in the fit out and stock. At [34] he observed: … The stock now forms part of the business operated by Mr Gogia and as between him and Adia Holdings on the one hand and Mr Harjai on the other, the stock belongs to Mr Gogia and Adia Holdings.
9. Having made that observation, his Honour accepted the possibility that some part of the stock might be owned by the partnership which had conducted the Arpelle Melbourne business. There also remained the unresolved question as to whether Gogia Holdings or Gogia Multi had any interest in the stock which pre-dated their ceasing to be involved in the business. Each of these considerations meant that an unqualified declaration could not be made as to the Gogia interests' ownership of the disputed property.
10. The relief that in my view was appropriate in these circumstances was a declaration that Mr Harjai had no interest in the disputed property and a declaration that as between the three claimants, Mr Gogia and Adia Holdings were entitled to delivery and possession of it.
11. In that very limited respect, the appeal should be allowed.
12. It is appropriate there be no order as to costs. The appeal has been allowed in a limited respect that does not result in the relief sought by Mr Harjai. Both parties are self-represented. Whereas the appellant has represented himself throughout the appeal, the third and fourth respondents have only been self-represented since May 2016. To the extent that they have incurred costs in respect of earlier applications, and at times when they were legally represented, costs orders have been made in their favour. However, the Court record does not suggest that those respondents should otherwise have incurred significant legal costs or expenses. They did not appear on the hearing of the appeal or at the directions hearings leading to it. Their short written submissions responding to Mr Harjai's argument were not prepared with legal assistance.

Conclusion

1. For these reasons, the orders I propose are:
2. Appeal allowed in part.
3. Set aside the declaration in order 1 made on 16 October 2015.
4. Declare that Mr Harjai did not have any ownership interest in the stock and fit out located in shops 226, 232 and 233 "Brands on Sales, Discount Factory Outlets Centre, 32 Queens Street, Campbelltown, New South Wales.
5. Declare that as between the appellant and the third and fourth respondents the third and fourth respondents were entitled to possession of the property described in order 3.
6. Subject to existing orders as to costs, there be no order as to the remaining costs of the appeal.

DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 25 August 2016