Harjai v Fraser

[2015] NSWCA 415

Court of Appeal

Supreme Court

New South Wales

Medium Neutral Citation:	Harjai v Fraser [2015] NSWCA 415
Hearing dates:	18 December 2015
Decision date:	21 December 2015
Before:	Beazley P
Decision:	Notice of motion dismissed with costs.
Catchwords:	PRACTICE AND PROCEDURE – interlocutory injunction pending appeal – limited prospects of success
Legislation Cited:	Supreme Court Act 1970 (NSW)
Cases Cited:	Australian Broadcasting Corporation v Lenah Game Meats Pty Ltd [2001] HCA 63; 208 CLR 199 Australian Broadcasting Corporation v O'Neill [2006] HCA 46; 227 CLR 57
Category:	Principal judgment
Parties:	Jitender Harjai (Appellant) Shaun Robert Fraser in his capacity as joint and several receiver and manager of Pacific Street Properties Pty Ltd (Receivers and Managers Appointed) ACN 128 479 274 and Campbelltown Factory Outlet Pty Ltd (Receivers and Managers Appointed) ACN 122 073723 (First Respondent) Joseph David Hayes in his capacity as joint and several receiver and manager of Pacific Street Properties Pty Ltd (Receivers and Managers Appointed) ACN 128 479 274 and Campbelltown Factory Outlet Pty Ltd (Receivers and Managers Appointed) ACN 122 073723 (Second Respondent) Sunny Gogia (Third Respondent) Adia Holdings Pty Ltd (Fourth Respondent)
Representation:	Counsel: In person (Appellant) B Koch (First and Second Respondents) L Goodchild (Third and Fourth Respondents)   Solicitors: In person (Appellant) Sydun & Co Solicitors (Third and Fourth Respondents)
File Number(s):	2015/321674
Decision under appeal	Court or tribunal: Supreme Court Citation: [2015] NSWSC 1508 Date of Decision: 16 October 2015 Before: Ball J File Number(s): 2014/170416

Judgment

1. BEAZLEY P: The dispute in this matter concerned the entitlement to stock and fit-out at three clothing shops at a factory outlet centre in Campbelltown (the shops). In his judgment given on 16 October 2015, Ball J declared that the stock and fit-out belonged to the first and second defendants, namely Mr Sunny Gogia and Adia Holdings Pty Ltd.

2. Mr Jitender Harjai, who was the third defendant in the Court below, has appealed against that order and seeks that it be stayed pending the determination of the appeal. However, it should be noted that the matter in issue on the notice of motion was the question of ownership of or entitlement to the stock.

3. The proceedings below were brought by way of interpleader by the receivers of Pacific Street Properties Pty Ltd (Receivers and Managers Appointed) ACN 128 479 274 073 and Campbelltown Factory Outlet Pty Ltd (Receivers and Managers Appointed), which owned the premises in which the outlet centre was conducted and in which the stock and fit-out items are stored. The receivers claimed no entitlement in the stock or fit-out. They did not seek to be heard in relation to the substantive proceedings but appeared in order to oppose the stay, as the premises have been sold and settlement of the sale transaction is to take place in mid-March. The premises will have to be cleared of all goods and fit-out items some weeks prior to that.

4. As will be apparent, the real contest in these proceedings is between Mr Jitender Harjai on the one hand and Mr Gogia and Adia Holdings Pty Ltd on the other.

5. The commercial background to the dispute is complicated and involves a number of companies which had gone into liquidation and were deregistered at the time of the interpleader proceedings. The Court was informed that some of those companies have since been restored to the register.

6. The relevant transactions and circumstances leading to the present dispute, as found by the trial judge, were, in brief, as follows.

7. From some point prior to January 2011, ASW Arpelle Shoe Warehouse (ASW) and Arpelle Clothing (Arpelle) operated shoe and clothing retail businesses from the shops.

8. From about 2008, a partnership was formed between Great Australian Leather Company Pty Ltd, Gogia Holdings Pty Ltd and Simple Star Pty Ltd of which Mr Gogia, Mr Harjai and Mr Dhindsa were the respective principals.

9. ASW and Arpelle were not owned or controlled by the partnership. They were initially controlled by Mr Gogia through Gogia Holdings and Gogia Multi. Gogia Holdings and Gogia Multi faced financial difficulties and Mr Harjai contended that Mr Gogia was concerned about the possibility, which eventuated, that liquidators would obtain control of the businesses they carried on, including ASW and Arpelle.

10. In December 2010 and January 2011, prior to the liquidation of Gogia Holdings and Gogia Multi, Arpelle and ASW were purportedly sold to Mr Harjai for $20,000 ($10,000 each), which Mr Gogia said he lent to Mr Harjai. Gogia Holdings granted a sublease of the shops to Mr Harjai. The sale included the stock of the businesses. Mr Harjai contended that his signature on the documents giving effect to those transactions was forged.

11. Mr Gogia contended that Gogia Holdings had previously sold the “Arpelle” brand name to him, and that he had intended to start a new company which would licence the “Arpelle” brand from him. He further contended that Mr Harjai was interested in being involved with this plan, and that Adia Holdings had been set up in May 2011 with that intent, with Mr Harjai as sole shareholder and director. However, on Mr Harjai’s inability to come up with the necessary capital, Mr Gogia became Adia Holdings’ sole shareholder and director.

12. Following the sale or purported sale of ASW and Arpelle to Mr Harjai, there was a period in which neither business traded. Mr Gogia contended that this was because Mr Harjai was having difficulty raising working capital, and that as a result he and Mr Harjai entered into an oral agreement in July or August 2011 that Mr Harjai would sell the businesses back to Mr Gogia in cancellation of the $20,000 debt. The sale included the stock and fit-out. The primary judge found, contrary to Mr Harjai’s submission, that the evidence was that Mr Gogia and Adia Holdings carried on the businesses from the shops: at [14].

13. In July 2012 and April 2013 Mr Harjai was granted licences to occupy the shops by the centre. Mr Gogia gave various explanations for why the licences were not granted to him: see primary judgment at [12].

14. The relationship between Mr Harjai and Mr Gogia began to break down from early 2013, with various disputes arising in relation to shops in which the parties had interests in partnership in Canberra and Melbourne. Relevantly, a Melbourne store was closed. At trial, there was a dispute about whether the stock from that store ended up in the shops.

15. On 22 August 2013, following negotiations between the parties, two documents were brought into existence:

1. A “Memorandum of Understanding” (MOU), which included an acknowledgment that the stock and fit-out in the stores was the property of Adia Holdings, and provided for the transfer any leases or licences associated with the shops from Mr Harjai to Adia Holdings; and

2. A “Stock Agreement” which provided that Adia Holdings would provide Mr Harjai with stock to the value of $50,000 and that Mr Harjai would have no further claim against Adia Holdings or Mr Gogia.

Findings below

16. In the proceedings before the primary judge, Mr Harjai claimed an entitlement to “approximately $200,000 worth of stock” or otherwise a reasonable sum in respect of his entitlement to the disputed stock. The primary judge identified the bases upon which Mr Harjai advanced his claim as follows.

17. First, and principally, Mr Harjai contended that the stock was partnership property, because it was from the closed Melbourne store, which was run in partnership. The trial judge found that there was insufficient evidence for this contention to be made out, and particularly was not satisfied that any of the stock from the Melbourne store ended up at the shops: at [30]-[31]. He also considered that even if the stock belonged to the partnership, the appropriate remedy would be an account between the partners, not an order that the stock be delivered up to Mr Harjai.

18. Secondly, Mr Harjai contended that the setting up of Adia Holdings and the transfer of Arpelle and ASW to him were “phoenix transactions” designed to defraud the liquidators of Gogia Holdings and related companies. The trial judge held that it was not necessary to determine if that was the case.

19. Thirdly, Mr Harjai contended that he was not bound by the acknowledgment in the MOU. The trial judge found otherwise at [32]. He also noted that, if Mr Gogia had breached his part of the Stock Agreement, Mr Harjai might have a claim against him, but would not have an interest in the stock in the shops.

20. His Honour considered that Mr Harjai had not established any basis for entitlement to the stock. His Honour made the declaration as to ownership to which I have referred. Mr Harjai was ordered to pay the other parties’ costs.

The appeal

21. Mr Harjai contends, in summary:

1. That the court below was biased against him because it found in favour of Mr Gogia and was selective about its use of evidence, including the fact that the shop licences or leases were in his name;

2. The court below erroneously dealt with the matter in a summary way;

3. The court below erred in finding that the MOU and the Stock Agreement were binding;

4. The court below should have found that there was a sale of the businesses to him, with stock and fit-out, and no re-conveyance to Mr Gogia or Adia Holdings;

5. The court below accepted that some of the stock and fit-out in the shops belonged to the partnership and should have accordingly given judgment in Mr Harjai’s favour;

6. In the alternative, if the Stock Agreement was binding, the court erred in failing to declare that he was at least entitled to $50,000 worth of stock;

7. In the alternative, the court should have found that the stock should have gone to the liquidators of Gogia Holdings and Gogia Multi, because Mr Gogia had engaged in “phoenix transactions”.

Current motion

22. Mr Harjai seeks a stay of the orders against him, including the costs orders. He seeks that it be dealt with on an urgent ex parte basis in chambers. However, whilst the matter has been dealt with urgently, it has been heard in open court on a fully contested basis.

23. In his affidavit in support of the notice of motion, Mr Harjai contended that, absent a stay, Mr Gogia may cause the stock and fit-outs to be “misappropriated, embezzled or misused.”

24. On 14 December 2015, Tobias AJA ordered a stay pending the hearing of the motion on 18 December 2015.

25. During the course of the hearing of Mr Harjai’s notice of motion, a question was raised as to whether the form of the declaration made by his Honour was accurate in that it declared Mr Gogia and Adia Holdings to be owners of the stock and fit out. However, that is not a matter that impacts upon the question whether an order ought to be made on the notice of motion.

Legal principles

26. In his notice of motion, Mr Harjai sought a stay of the primary judge’s orders. However, as the substantive order made by his Honour was a declaration, the appropriate form of relief, if granted, would be an order, by way of injunction, restraining the removal of the claimed goods or otherwise preserving them pending the determination of the appeal. In this regard, the Supreme Court Act 1970 (NSW), s 66 provides a power for this Court to grant an injunction, as follows:

“…

(4)   The Court may, at any stage of proceedings, on terms, grant an interlocutory injunction in any case in which it appears to the Court to be just or convenient so to do.”

27. Notwithstanding the apparent width of the terms in which the power granted by s 66(4) is stated, its exercise is conditioned by the principles relating to the court’s pre-existing equitable powers: Australian Broadcasting Corporation v Lenah Game Meats Pty Ltd [2001] HCA 63; 208 CLR 199 at [10] per Gleeson CJ, [60], [88]-[92].

28. In Australian Broadcasting Corporation v O'Neill [2006] HCA 46; 227 CLR 57 at [65], Gummow and Hayne JJ considered interlocutory injunctions in the following terms:

“The relevant principles in Australia are those explained in Beecham Group Ltd v Bristol Laboratories Pty Ltd (1968) 118 CLR 618. This Court (Kitto, Taylor, Menzies and Owen JJ) said that on such applications the court addresses itself to two main inquiries and continued [at 622-623]:

‘The first is whether the plaintiff has made out a prima facie case, in the sense that if the evidence remains as it is there is a probability that at the trial of the action the plaintiff will be held entitled to relief ... The second inquiry is ... whether the inconvenience or injury which the plaintiff would be likely to suffer if an injunction were refused outweighs or is outweighed by the injury which the defendant would suffer if an injunction were granted.’

By using the phrase ‘prima facie case’, their Honours did not mean that the plaintiff must show that it is more probable than not that at trial the plaintiff will succeed; it is sufficient that the plaintiff show a sufficient likelihood of success to justify in the circumstances the preservation of the status quo pending the trial. That this was the sense in which the Court was referring to the notion of a prima facie case is apparent from an observation to that effect made by Kitto J in the course of argument [at 620]. With reference to the first inquiry, the Court continued … [at 622]:

‘How strong the probability needs to be depends, no doubt, upon the nature of the rights [the plaintiff] asserts and the practical consequences likely to flow from the order he seeks.’”

29. These principles, which are not relevantly different in any substantial way to the principles governing the grant of a stay, nonetheless need to be appropriately adapted to the circumstances where the injunction is sought pending the determination of an appeal. By that stage, there has already been a final determination of the rights of the parties, subject only to the appeal. The party in whose favour judgment has been given is entitled to the ‘fruits’ of the judgment, in whatever form the judgment takes. Importantly, the filing of a notice of appeal does not operate as a stay of the orders made in the Court below.

30. In the present case, the Court made a declaration, relevantly, as to the ownership of the goods. The practical effect of the declaration so made is that Mr Harjai has no ownership interest in the goods and it has not been asserted that he has any other entitlement in respect of them.

Should the Court make an order in this case?

31. In my opinion, Mr Harjai has failed to establish a basis upon which he ought to be granted any relief by way of a stay, or as I consider is more appropriate, an injunction pending the hearing of the appeal for the following reasons.

32. First, on the material before the primary judge, it appears that the stock was not ever owned by Mr Harjai personally. Rather, the stock was owned by a partnership of a number of corporate entities. Whilst it may be that the principals of those corporate entities have not always maintained a clear distinction between property they owned, property owned by individual corporate entities or property owned by the partnership comprised of a number of corporate entities, the Court is required to act upon proper legal principle. In those circumstances, as the primary judge found at [34], the appropriate remedy would be an accounting between the parties.

33. Secondly, to the extent that the relevant transaction between the parties that gives Mr Harjai personal rights to any property is the document described in the Points of Claim as the “stock agreement”: see judgment at [20], I consider that his Honour was correct in finding that any breach of that agreement would give rise to a claim in damages and that it did not give him an entitlement to stock that had been stored in the shops. Further, I am of the opinion that a court would not grant specific performance of that agreement.

34. Thirdly, the evidence of potential prejudice to Mr Harjai, should an injunction not be granted, was not strong. He contended, orally, that the goods might be moved off-shore, but provided no evidence to support that claim. Further, there was no suggestion that monetary damages would not be a sufficient remedy even if the goods were to be removed, and there was no evidence of an inability of Mr Gogia, who has a number of business ventures in this country, to satisfy a money claim.

35. For those reasons, the notice of motion should be dismissed with costs.

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Decision last updated: 21 December 2015