Lipkin Gorman v Karpnale Ltd

A legal owner may trace property at common law into an identifiable substitute and recover money from a recipient who has been unjustly enriched. A recipient of stolen money who gives no value is liable in personal restitution. Void gaming contracts, the chance of winning and the issue of casino chips supply no valuable consideration.

English law recognises a defence of change of position where a good-faith recipient’s circumstances have so changed that full restitution would be inequitable. Mere expenditure is insufficient if it would ordinarily have occurred. The defence operates only to the extent of the qualifying change. Where stolen money funds a series of bets, winnings paid to the gambler may be brought into account, leaving the casino liable for the net stolen funds retained.

A partner in the appellant solicitors’ firm misappropriated £222,908.98 from its client account and gambled substantial sums at the respondent’s casino. The casino’s agreed net winnings were £174,745, of which at least £154,695 derived from the solicitors’ property, including a banker’s draft for £3,735.

Alliott J dismissed the claim against the casino for money had and received but upheld the claim for conversion of the draft: [1987] 1 WLR 987. The Court of Appeal, by a majority, dismissed the solicitors’ appeal concerning the money. It unanimously dismissed the casino’s cross-appeal concerning the draft: [1989] 1 WLR 1340.

The central issues were whether the solicitors could establish title through common-law tracing, whether the casino gave valuable consideration, whether change of position afforded a defence, and whether the solicitors had sufficient title to sue for conversion of the draft.

1. Disposition. The House unanimously allowed the solicitors’ appeal and dismissed the casino’s cross-appeal. Judgment was entered for £154,695, comprising £150,960 in cash and the £3,735 banker’s draft. Questions of interest and costs were deferred unless agreed.

2. Common-law tracing and restitution. Per Lord Goff, the solicitors’ bank balance was a chose in action constituting their legal property. Although the cash drawn without authority initially vested in the dishonest partner, the solicitors could trace their chose in action into its identifiable direct product. Their claim for money had and received was personal and rested on the casino’s unjust enrichment, rather than on wrongdoing or an equitable proprietary claim. Lord Bridge, Lord Griffiths and Lord Ackner agreed with Lord Goff’s reasons.

3. No valuable consideration. Per Lord Templeman and Lord Goff, the gaming agreements were void under section 18 of the Gaming Act 1845. The chips were merely counters or receipts facilitating gambling. Their issue and redemption did not provide value for the stolen money. Nor did the chance of winning or the casino’s payment of winnings constitute valuable consideration. Payments pursuant to the honour-only gaming arrangements were gifts in law. The casino therefore stood no better than an innocent donee.

4. Change of position. Per Lord Goff, English law recognises a defence where a recipient’s position has changed in good faith so that restitution, or full restitution, would be inequitable. Restitution remains a matter of legal right governed by principle, rather than an unrestricted discretion. Mere spending does not suffice where the expenditure would ordinarily have occurred. Bad-faith changes are excluded; the position of wrongdoers and the defence’s wider boundaries were left for later development. Lord Bridge and Lord Ackner expressly agreed, and the remaining members agreed with Lord Goff’s reasons.

5. Application to repeated bets. The casino could bring into account winnings paid during the series of bets. It could not retain stakes merely because it had incurred the risk of paying winnings. Restitution was therefore limited to the net stolen money retained, namely £150,960 apart from the draft.

6. Banker’s draft. Per Lord Goff, because the draft was payable to the solicitors, they had an immediate right to possession and sufficient title to sue in conversion. The casino had given no value and could not be a holder in due course under section 38(2) of the Bills of Exchange Act 1882. The cross-appeal accordingly failed.

1. House of Lords: The solicitors’ appeal was allowed and the casino’s cross-appeal dismissed. Judgment was entered for £154,695.
2. Court of Appeal: By a majority, the court dismissed the solicitors’ appeal concerning money had and received. It unanimously dismissed the casino’s cross-appeal concerning the banker’s draft: [1989] 1 WLR 1340.
3. High Court: Alliott J dismissed the claim against the casino concerning the cash but held it liable in conversion for the banker’s draft: [1987] 1 WLR 987.