What's in an assignment - are pre-existing claims included

What you need to know

• Ordinarily, a party's personal right to sue another party (a 'bare right of action') is not assignable to an unrelated third party.
• One exception to this general rule is if the assignee has a genuine and substantial interest, or a genuine commercial interest, in enforcing the claim to be assigned that is separate or distinct from the assignment itself.
• In Billabong Gold Pty Ltd v Vango Mining Ltd [No 2] [2023] WASCA 58, the WA Court of Appeal held that the commercial interest supporting the assignment of a right of action need not be 'pre-existing' at the time of assignment.  What is required is that the interest be distinct from the assignment itself, not that it necessarily predate it.
• This decision clarifies earlier cases which seemed to suggest that the separate commercial interest needed to predate the assignment.

What you need to do 

• Parties looking to take an assignment of rights under a contract should carefully consider whether any pre-existing or potential claims connected with that contract (for example, for breaches that may have occurred) will be included in and are enforceable following the assignment.
• Assignees need to ensure the assignment falls into one of a number of well‑recognised categories of cases which are exceptions to the general rule prohibiting the assignment of a bare right of action.
• Counterparties to contracts which have been assigned should carefully consider whether assignees looking to enforce claims arising in respect of the relevant contract before the assignment can do so.

Executive Summary

Subject to limited and defined exceptions, the law does not usually permit a party to assign a 'bare right of action' to another party.  For example, where Party B breaches the terms of its contract with Party A, Party A cannot usually assign to a third party (Party C) its right to sue Party B for unliquidated compensatory damages for that breach.  This prohibition is presently justified by the public policy interest of avoiding otherwise unrelated and uninterested third parties meddling in litigation and propagating disputes. 

One of the well-recognised exceptions to this prohibition arises where the purported assignee of the right of action (i.e. Party C) can establish that it has a genuine and substantial interest, or a genuine commercial interest, in enforcing the claim to be assigned (with that interest being distinct and separate from the interest merely derived from the assignment itself).  In that situation, Party C is not an unrelated or uninterested third party and the policy reasons justifying the prohibition against assignment do not arise. 

Against that background, WA's Court of Appeal in Billabong Gold Pty Ltd v Vango Mining Ltd [No 2] [2023] WASCA 58 (Billabong Gold) concluded that the relevant commercial interest did not need to arise or exist prior to the assignment.  This decision suggests broader availability of the ability to assign rights of action, and should be borne in mind by parties taking assignments of contracts where there may be existing or potential claims or causes of action connected with those contracts that have not yet been made or litigated.  

Dispute Between Billabong and Vango

In the primary proceedings, Billabong Gold Pty Ltd (Billabong) sued Vango Mining Ltd (Vango) and Dampier (Plutonic) Pty Ltd  (Dampier) in relation to alleged breaches of an Ore Treatment Agreement dated 23 September 2014 (OTA).  

Importantly, Billabong was not a party to the OTA when it was formed.  Rather, the OTA was originally between Northern Star Resources Ltd (Northern Star), on the one hand, and, on the other hand, Vango and Dampier who were joint venture partners under the Plutonic Dome JV.  The Plutonic Dome JV held a number of tenements, including tenements from which gold was produced at a deposit.  The OTA relevantly granted Northern Star a 'right of first refusal' in relation to any transfer of the tenements subject to the Plutonic Dome JV. 

On 11 May 2016, Vango and Dampier executed an agreement under which Vango agreed to acquire all of Dampier's interest in the tenements held by the Plutonic Dome JV (May 2016 Vango/Dampier Sale Agreement). 

On 12 August 2016, Northern Star entered into an asset sale and purchase agreement with Billabong (Billabong Sale and Purchase Agreement) under which Northern Star agreed to sell its gold mining operations, including its tenements, to Billabong.  As part of this process, Northern Star and Billabong also entered into a General Deed of Assignment and Assumption dated 11 October 2016 (Billabong Assignment Deed) which included an assignment by Northern Star to Billabong of its rights under the OTA. 

Subsequently, on 24 August 2016, Vango acquired all of the shares in Dampier, and Dampier became a wholly owned subsidiary of Vango.

Relevantly, two important questions arose in the primary proceedings:

1. Did Vango and Dampier breach the right of first refusal clause under the OTA by failing to give Northern Star the option to acquire the tenements the subject of the May 2016 Vango/Dampier Sale Agreement; and
2. if so, did the Billabong Assignment Deed assign Northern Star's right to sue for that breach of the OTA to Billabong? 

With respect to those two questions, the trial judge found that: 

1. Vango/Dampier breached the right of first refusal clause by failing to provide offers for the transfer of tenements to Northern Star; and
2. that cause of action in favour of Northern Star arising from that breach was a 'bare right of action' which was not assignable to Billabong as Billabong had no genuine commercial interest in enforcing the right of action for this breach of contract.  

Billabong appealed and the right of action was held to be assignable

On appeal, among other things, Billabong challenged the primary judge's conclusion that Northern Star's right of action in respect of Vango/Dampier's breach of the first refusal clause under the OTA could not be assigned to Billabong by the Billabong Assignment Deed. 

The Court's analysis of the principles concerning the assignability of a 'bare right of action'

The Court commenced its analysis by noting that the rule prohibiting the assignment of bare rights of action is justified by the public policy notions related to the doctrines of maintenance and champerty.  Maintenance refers to an unconnected third-party assisting to maintain litigation, commonly by providing financial assistance.  Champerty is a form of maintenance whereby the third-party provides financial assistance in return for a share of the proceeds. 

(It is worth noting that legal causes of action are assignable at law under s 20 of the Property Law Act 1969 (WA) and its equivalents in the other States.  However, a bare right of action is not considered to be a legal chose in action, even though it is sometimes confusingly referred to as one.)

A number of well-recognised exceptions to this general rule were then identified.  

• First, a right of action can be assigned if it is annexed to or ancillary to a property right being assigned. 
• Secondly, the rule does not apply if the assignee of the subsisting cause of action itself has a genuine and substantial interest, or a genuine commercial interest, in enforcing the claim that is otherwise distinct or separate from the interest merely derived from the assignment itself.  The requirement that the commercial or other interest be 'distinct or separate' exists because, were it otherwise 'the exception would swallow the rule because the assignment itself would always provide the commercial interest'. 
• Thirdly, there is no prohibition on an assignee taking an assignment of a cause of action to support and enlarge a right already acquired. 
• Fourthly, where the benefit of a contract is assigned, there is no impediment to the assignee pursuing a cause of action for breach which has occurred after the date of assignment.

Does the relevant commercial interest need to pre-exist at the time of assignment?

The appeal was focussed on the second exception.  The Court noted that in every case, the totality of the transaction must be considered and the concept of a genuine commercial interest is to be applied in a broad and practical way.  

The Court looked at a number of earlier cases which appeared to suggest that the relevant commercial interest must exist prior to the assignment.  

The Court found there was no such requirement and set out five reasons why the commercial interest need not pre-date the assignment.

• First, the need for a pre‑existing commercial interest does not appear to have been established by the High Court of Australia in Equuscorp Pty Ltd v Haxton [2012] HCA 7.  Equuscorp was authority for the proposition that the relevant commercial interest can at least arise contemporaneously with the assignment at issue.
• Secondly, this question had been left open by the New South Wales Court of Appeal in the earlier case of Bakewell v Anchorage Capital Master Offshore Ltd [2019] NSWCA 199. 
• Thirdly, a number of other earlier authorities only concluded that the supporting commercial interest needed to be distinct or separate from the interest acquired under the assignment itself. While this requirement is usually satisfied in circumstances where that commercial interest pre-dates the assignment, that did not constitute a strict legal criterion in itself.
• Fourthly, the Court reviewed persuasive authority from the United Kingdom's House of Lords and concluded that the approach adopted in that jurisdiction did not require that the supporting commercial interest be pre-existing. 
• Fifthly, and finally, the Court concluded that nothing in the policy justification of the rule, being the avoidance of trafficking in litigation, required that the relevant commercial interest always predate the assignment.    

For those reasons, the court held that the relevant commercial interest need not be pre-existing to the assignment of the cause of the action.  

In any event, Billabong had a 'sufficient commercial interest' to justify assignment of Northern Star's right of action for breach of the OTA

Notwithstanding the analysis outlined above, the Court also concluded that, in any event, Billabong did hold a pre-existing commercial interest sufficient to support the assignment of the causes of action for breach of the OTA.  

In summary, this was because the Billabong Sale and Purchase Agreement (which was dated 12 August 2016 and pre-dated the Billabong Assignment Deed, which was dated 11 October 2016) gave Billabong a genuine and substantial interest or a genuine commercial interest in enforcing the relevant breaches of the OTA, beyond the assignment of the OTA itself.

Implications for contracting parties

This decision is relevant to parties taking assignments of contracts (or who are counter-parties to a contract under which rights are being assigned) where there may be existing or potential claims or causes of action connected with those contracts that have not yet been made or litigated.  

Parties looking to take an assignment of rights under a contract should actively consider whether the proposed assignment will include rights to sue or enforce pre-existing or potential claims under or in connection with the contract.

Unless the rights fall into one of a number of well‑recognised categories of cases which are exceptions to the general rule prohibiting the assignment of a bare right of action, the rights will not 'follow the assignment'. 

In cases where the proposed assignee is looking to rely on the exception involving a separate and distinct commercial interest in suing or enforcing the claim, this decision helpfully confirms that a pre-existing commercial interest is not strictly required. 

On the other hand, counterparties to contracts which have been assigned who are facing claims by the assignee should carefully consider whether the assignee can still enforce or sue on such claims, especially in respect of claims which arose before the assignment occurred.

One final point

As the Court of Appeal noted, the rule prohibiting the assignment of bare rights of action has historically been justified by the public policy notions related to the doctrines of maintenance and champerty.  

For those State jurisdictions where the tort of maintenance and champerty have been abolished (including, recently, Western Australia by virtue of s 36 of the Civil Procedure (Representative Proceedings) Act 2022 (WA) although the abolishment only applies to causes of action accruing after the provision came into operation), the underlying justification has now fallen away.  

It remains to be seen whether courts will revisit the continued application of the rule prohibiting the assignment of bare rights of action.  If the rule is also abolished, it will remove the need for contracting parties to grapple with the complexities of the exceptions to the rule.     

Authors: Adrian Chai, Partner; Charles Dallimore, Senior Associate and Max Evangelisti, Graduate.