Lau v Righteous Law
[2024] NZHC 1006
•30 April 2024
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE
CIV-2023-404-907
[2024] NZHC 1006
BETWEEN EE KUOH LAU
Plaintiff
AND
RIGHTEOUS LAW
First Defendant
CHENSHU SUN
Second Defendant
Hearing: 16 April 2024 Counsel:
No appearance for the Plaintiff
D P Turnbull for the First Defendant S Wroe for the Second Defendant
Judgment:
30 April 2024
JUDGMENT OF ASSOCIATE JUDGE BRITTAIN
This judgment was delivered by me on 30 April 2024 at 4 pm Pursuant to Rule 11.5 of the High Court Rules.
…………………..
Registrar/Deputy Registrar
Solicitors:
McElroys, Auckland Wilson Du, Auckland
LAU v RIGHTEOUS LAW [2024] NZHC 1006 [30 April 2024]
Introduction
[1] The plaintiff, Mr Lau, claims to be the assignee of the vendor’s rights under an agreement for sale and purchase between Helio Development Ltd (Helio) as vendor and the second defendant, Mr Sun, as purchaser (the agreement).
[2] Mr Sun cancelled the agreement. The first defendant, Righteous Law, was then instructed to act for Mr Sun. Righteous Law came to hold the deposit of $128,000 paid by Mr Sun under the agreement. Righteous Law returned the deposit to Mr Sun.
[3] In this proceeding, Mr Lau, in his capacity as assignee of the vendor’s rights, claims:
(a)loss of bargain damages from Mr Sun for unlawful cancellation of the agreement; and
(b)damages from Righteous Law for the amount of the deposit, for an alleged breach of duty as stakeholder.
[4] Righteous Law applies for summary judgment or strike out, and in the alternative, for security for costs. Mr Sun applies for strike out, or alternatively, for security for costs.
[5] Mr Lau is self-represented. He has not filed a notice of opposition to the applications and he did not appear at the hearing.
Background
[6] The agreement is dated 3 October 2021. The subject property was 117 Dominion Road, Papakura. The price was $1,280,000 including GST and the deposit payable was $128,000.
[7] Clause 2.1 of the agreement required Mr Sun to pay the deposit to the vendor or the vendor’s agent as stakeholder. However, by agreement the deposit was paid to Mr Sun’s then solicitors, Clover Law, as stakeholder. Under cl 2.4 of the agreement,
Clover Law was required to hold the deposit as stakeholder until one of various specified events occurred, including cancellation of the agreement.
[8] The Record of Title for the property confirms that Helio was never registered as owner. At the time of the agreement, the registered owner was an unrelated third- party. The sale by Helio to Mr Sun appears to have been a sub-sale. Helio’s agreement to purchase the property (the Helio agreement) is not in evidence.
[9] On 12 April 2022, Mr Sun cancelled the agreement on the grounds that Helio was in breach of the agreement, and that Mr Sun had been induced to enter into the agreement by misrepresentations made by Helio or its agent. Helio responded, asserting that the purported cancellation was unlawful and a repudiation of the agreement.
[10] The Record of Title confirms that the next day, 13 April 2022, the property was transferred to Fei Wang. There is no evidence of any connection or relationship between Fei Wang and Helio. Helio’s controlling director is Weiquiang Feng. The inference that can be drawn from the transfer of the property to Fei Wang is that the Helio agreement had been terminated.
[11] At the time of Mr Sun’s cancellation of the agreement, Clover Law held the deposit. By 24 May 2022, Mr Sun had instructed Righteous Law. Righteous Law uplifted the file from Clover Law, and the deposit was transferred from Clover Law’s trust account to Righteous Law’s trust account.
[12] On 25 July 2022, Mr Lau and two other parties executed a loan agreement as lenders, recording an advance of $400,000 to Helio and two other parties (the loan agreement). The advance was guaranteed by Mr Feng and two other parties. Repayment of the advance is stated to be due on 27 July 2025.
[13] The Record of Title records that the property was transferred by Fei Wang to Wonglin Wu and Ziding Ma on 26 July 2022. There is no evidence of the underlying
transaction. Again, the inference that can be drawn from the transfer is that the Helio agreement had been terminated.
[14]On 1 August 2022, Righteous Law returned the deposit of $128,000 to Mr Sun.
[15] On 11 April 2023, Helio and Mr Feng, as assignors, and Mr Lau, as assignee, executed a deed of assignment. The recitals record that Helio and Mr Feng, defined as “Feng”, had entered into an agreement for sale and purchase to acquire the property and the sub-sale to Mr Sun. Clause 2.1 of the deed of assignment provides:
2Assignment
2.1 Assignment: In consideration of and subject to signing by LAU to this deed and from the Effective Date:
(a)Feng assigns absolutely to LAU all its right, title and interest under the sales and purchase agreements under 117 Dominion Road, papakura and onsold sales and purchase agreement with onsold purchaser
(b)Feng transfers by way of assignment to LAU all interest including any litigation rights in respect of sales and purchase agreements under 117 Dominion Rd, papakura and onsold sales and purchase agreement with onsold purchaser
[16] Relying on that assignment, Mr Lau commenced this proceeding on 19 April 2023. Helio and Mr Feng are not parties. There is no evidence that Helio or Mr Feng have any interest in the outcome of this proceeding.
[17] The primary argument of Righteous Law and Mr Sun is that the purported assignment to Mr Lau of Helio’s rights under the agreement is an invalid assignment of bare causes of action or other personal actions of Helio.
Legal principles
Strike out principles
[18] Pursuant to r 15.1(1) of the High Court Rules 2016 (HCR), the Court may strike out all or part of a pleading if it:
(a)discloses no reasonably arguable cause of action; or
(b)is likely to cause prejudice or delay; or
(c)is frivolous or vexatious; or
(d)is otherwise an abuse of the process of the Court.
[19] The principles governing strike-out applications are summarised in the Court of Appeal decision in Attorney-General v Prince:1
(a)A strike-out application is to proceed on the assumption that the facts pleaded in the statement of claim are true unless those pleaded facts are entirely speculative and lack any foundation.
(b)It is only where, on the facts alleged in the statement of claim, however broadly they are stated, no private law claim of the kind or kinds advanced can succeed that it is appropriate to strike out the proceedings at a preliminary stage.
(c)The threshold for strike out is high. Before a proceeding may be struck out the causes of action must be so clearly untenable that they cannot possibly succeed.
(d)The jurisdiction is one to be exercised sparingly, and only in a clear case where the Court is satisfied it has the requisite material.
(e)The fact that an application to strike out raises difficult questions of law, and requires extensive argument, does not exclude the jurisdiction.
1 Attorney-General v Prince [1998] 1 NZLR 262 (CA) at 267.
Summary judgment principles
[20] Rule 12.2(2) of the HCR provides that the Court may enter judgment against a plaintiff if the defendant satisfies the Court that none of the causes of action in the plaintiff’s statement of claim can succeed.
[21] The test for defendant summary judgment was summarised by the Court of Appeal in Stephens v Barron:2
(a)The defendant has the onus of proving on the balance of probabilities that the plaintiff cannot succeed. Usually this will arise where the defendant can offer evidence which is a complete defence to the plaintiff’s claim.
(b)An application for summary judgment will be inappropriate where there are disputed issues of material fact or where material facts need to be ascertained by the Court and cannot confidently be concluded from affidavits. It may also be inappropriate where ultimate determination turns on a judgment able to be properly arrived at only after a full hearing of the evidence.
(c)The Court must be satisfied that none of the claims can succeed. It is not enough that they are shown to have weaknesses. The assessment is not to be arrived at on a fine balance of the available evidence as would be appropriate at a trial.
(d)The residual discretion of the Court to refuse summary judgment would be properly invoked to avoid the oppression which would otherwise result if an application by a defendant for summary judgment would pre-empt a plaintiff exercising the right to amend the pleadings.
(e)Summary judgment should not be applied for unless the substantive merits of the case are clear and capable of summary disposal.
Assignments
[22] Assignment of a debt is permissible and specifically provided for in s 50 of the Property Law Act 2007, even where litigation will be necessary to recover the debt.3
2 Stephens v Barron [2014] NZCA 82 at [9] (footnotes omitted) citing Westpac Banking Corp v M M Kembla New Zealand Ltd [2001] 2 NZLR 298 (CA).
3 Camdex International Ltd v Bank of Zambia [1998] QB 22 (CA); PricewaterhouseCoopers v Walker [2017] NZSC 151, [2018] 1 NZLR 735 at [78].
[23] The vendor under an agreement for sale and purchase may assign the right to receive the purchase money, provided the assignee accepts and carries out the liabilities of the vendor to transfer title to the purchaser.4
[24] However, assignments of bare causes of action in tort and other personal actions are, with certain exceptions, not permitted in New Zealand.5 The recognised exceptions are an assignment to a party with an antecedent commercial relationship with the assignor, or an assignment by a liquidator.6
[25] When determining whether there has been an impermissible assignment of a bare cause of action, the Court should look at the totality of the transaction.7 If the cause of action is ancillary to a property right that has been assigned, then it is not an assignment of a bare cause of action.8
[26] An assignment may be impermissible when the substance of the transaction is analysed even if the form of the transaction is “dressed up” as an assignment of debt.9
[27] There is no simple test in the common law to identify whether an assignee has an antecedent — or, to adopt the term used in the United Kingdom, a “genuine” — commercial interest in the subject of the transaction. However, the general approach towards assignments has liberalised.10 A court must look for “something more” over and above the assignee’s right in acquiring the cause of action.11
4 HEB Contractors Ltd v Verrissimo [1990] 3 NZLR 754 (HC) at 762.
5 Waterhouse v Contractors Bonding Ltd [2013] NZSC 89, [2014] 1 NZLR 91 at [57].
6 PricewaterhouseCoopers v Walker, above n 3, at [77].
7 Trendtex Trading Corporation v Credit Suisse [1982] AC 679 (HL) at 703.
8 At 703.
9 Camdex International Ltd v Bank of Zambia, above n 3, at 38–39; PricewaterhouseCoopers v Walker, above n 3, at [79].
10 Rachael Mulheron The Modern Doctrines of Champerty and Maintenance (Oxford University Press, Oxford, 2023) at 197.
11 At 197.
[28] An antecedent commercial interest may arise out of the debtor-creditor relationship. Professor Mulheron’s recent comments are instructive:12
A genuine commercial interest arises where there is a pre-existing debt owed by the assignor debtor to the assignee creditor prior to the assignment’s occurring, where the assignee has involvement in the transaction which gave rise to assignor’s particular grievance against the defendant, and where the cause of action for which the defendant is being sued is intricately connected to the commercial relationship between assignor and assignee.
Analysis
The claim against Righteous Law
[29] Counsel for Righteous Law submitted that the evidence supports a finding that Righteous Law did not receive the deposit as stakeholder. I do not accept that submission. On 24 May 2022, Righteous Law sent an email to Clover Law stating:
We are willing to hold the deposit funds on the same wordings of the current undertaking, should the current undertaking is acceptable to us.
[30]Clover Law responded:
We are unclear of the undertakings that you are asking for.
Since we are now having your trust account number, we will arrange the deposit that we are holding in our trust account released to you this afternoon by same day cleared payment and send you a confirmation of such payment.
[31] It is arguable that Righteous Law became stakeholder by agreeing to accept the deposit in circumstances where Righteous Law knew that it was held for vendor and purchaser, notwithstanding that Righteous Law had not expressly accepted what it described as “undertakings” associated with the role of stakeholder.
[32] It is not possible to determine whether Mr Sun’s cancellation of the agreement was lawful based on the limited affidavit evidence presently before the Court. If Mr Sun’s cancellation of the agreement was unlawful then Helio has an arguable claim against Righteous Law for wrongful release of the deposit to Mr Sun.
12 At 203.
[33] That leaves Righteous Law with its primary argument: that Helio’s assignment of its cause of action against Righteous Law to Mr Lau is invalid. That is the same argument advanced by Mr Sun in respect of the claim against him for breach of the agreement.
Is the assignment from Helio to Mr Lau invalid?
[34] The purported assignment was effective on 11 April 2023. Prior to that date, all elements of the causes of action by Helio against Righteous Law and Mr Sun had accrued.
[35] Most significantly, the property had been owned by unrelated third parties since April 2022. Helio was not able to take title to the property or to convey title to Mr Sun. Therefore, Helio was not able to assign the right to receive the benefit of the purchase price.
[36] As at the date of the purported assignment on 19 April 2023, Helio only possessed causes of action against Righteous Law and Mr Sun. Assignment of the causes of action to Mr Lau was not ancillary to assignment of a property right.
[37] Mr Lau has not pleaded any direct interest in the agreement. There is no evidence or pleading that:
(a)Mr Lau received the assignment of Helio’s causes of action as agent for the lenders under the loan agreement, namely Mr Lau and two other parties; or
(b)Mr Lau received the assignment of Helio’s causes of action in exercise of rights as a secured party or agent for a secured party.
[38] There is no pleading of a sufficient antecedent commercial relationship between Helio as assignor and Mr Lau as assignee. Accordingly, on the case as pleaded Mr Lau has no standing to sue, and the pleading is amenable to strike out.
[39]It is not necessary to determine the applications for security for costs.
Orders
[40] All causes of action by the plaintiff against the first defendant and the second defendant are struck out.
[41] The plaintiff shall pay the first defendant costs of $12,428 and disbursements of $610 as sought.
[42]The plaintiff shall pay the second defendant costs of $7,170 as sought.
Associate Judge Brittain
0
3
1