The $1.2 million Auckland property sale collapsed. Disappointed vendor, Helio Development Ltd, then later assigned the right to sue on its contract across to Ee Kuoh Lau, member of a consortium which had lent $400,000 to Helio Development. These assigned rights could not be enforced, the High Court ruled.
As assignee, Mr Lau’s main target was a $128,000 deposit, repaid to the purchaser, but if recovered by legal action taken in Helio’s name would count as part-repayment of Helio’s borrowing.
The High Court was told Helio Development agreed in October 2021 to sell a property on Dominion Road in Papakura for $1.2 million. Companies Office records describe Helio as a property developer. Purchaser Chenshu Sun paid the required $128,000 deposit into his solicitors’ trust account.
It transpired that Helio did not hold title to the property. Mr Sun cancelled, alleging misrepresentations by Helio.
Eight months after the $128,000 deposit was returned to Mr Sun, Helio Development signed a deed of assignment transferring to its creditor Mr Lau all rights on the cancelled Dominion Road sale agreement.
Mr Lau sued, claiming damages from Mr Sun for alleged unlawful cancellation and claiming damages from his solicitors for allegedly wrongly refunding the deposit paid.
Associate judge Brittain struck out both claims.
Courts are wary of assignments taken over litigation rights. There have been instances of assignments taken for malicious purposes, to harass or bankrupt a foe.
English courts developed a general rule that there must be a ‘genuine commercial interest’ in the subject matter of an assignment before the courts will enforce the assignment.
At its heart, Helio had no property right to assign. It did not hold title to Dominion Road. There was no evidence before the court of an earlier contract for Helio to buy Dominion Road in advance of on-selling. At best, Helio was assigning a ‘bare’ cause of action; the right to sue in contract.
Mr Lau did not provide any evidence linking his prior loan to the subsequent assignment such as to establish a genuine commercial interest in the cancelled contract, Judge Brittain ruled.
By contrast, financial institutions making commercial loans commonly ensure rights arising under any future contract form part of the security taken at the time a loan is advanced, allowing them to later seize any money due under the later contract.
Mr Lau did not appear in court to challenge the strike-out application.
Lau v. Righteous Law & Sun – High Court (30.04.24)
24.110