Lipkin Gorman v Karpnale [1992] 2 AC 548

KEY POINTS

• In the context of a thief gambling in a club casino and incurring substantial losses, the assessment involves whether a claim for "money had and received" can be pursued under a void contract. The central concern revolves around the status of gaming chips obtained with stolen money, questioning whether they constitute valuable consideration and whether the club, unaware of the money's illicit origin, accepted it in good faith.

• The legal framework includes the Gaming Act of 1845, specifically Section 18, which is instrumental in determining the legal ramifications of gaming transactions involving stolen money within the club. 

• A critical legal consideration arises concerning conversion, particularly whether the true owner retains title to a banker's draft after it was dishonestly endorsed to the club. Examining the club's status as a holder in due course and its potential liability for conversion depends on interpreting relevant provisions, notably Section 29(1)(b) of the Bills of Exchange Act 1882.

• The pivotal role of Section 29(1)(b) of the Bills of Exchange Act 1882 focuses on determining the club's liability in the context of a stolen banker's draft. This legal provision delineates the conditions under which a party may be deemed a holder in due course and elucidates potential consequences regarding the true owner's rights.

FACTS

• C (‘Defendant’) a partner in a solicitor firm Lipkin Gorman (‘Plaintiffs’) secretly withdrew cash from the client's account to fund his gambling at a club. He exchanged the cash for chips at the club, which, despite being used as currency, remained the club's property. 

• C obtained a banker's draft using the firm's cashier, paying for it with a cheque from the client's account. Convicted of theft, C. prompted the solicitors to sue the club and bank for recovery.

• The court found the contracts for money-chip exchanges void under the Gaming Act 1845. Despite this, it ruled the solicitors couldn't recover funds from the club as "money had and received." 

• The club wasn't considered a holder in due course for the draft, making them liable for conversion. The bank, found in breach of duty, was held as a constructive trustee of stolen funds. 

• The Court of Appeal dismissed the solicitors' appeal and the club's cross-appeal but allowed the bank's cross-appeal.

JUDGEMENT

• The appeal was allowed, establishing that an innocent recipient of stolen money must repay the true owner if full consideration was lacking, preventing unjust enrichment.

• Despite having no proprietary rights in the money, the solicitors, as owners of the choice in action due to the bank's indebtedness, could trace and reclaim the funds drawn from their account by C., even after passing through the club.

• The use of chips at the club, not constituting valuable consideration, didn't validate gaming and wagering contracts under the Gaming Act 1845. In restitution claims, the solicitors could recover funds equal to the club's winnings from C., considering the totality of bets.

• The cross-appeal was dismissed as the club provided no value for the banker's draft, preventing it from becoming the holder in due course. The draft, payable to the solicitors, gave them immediate possession rights, allowing an action for damages for its conversion. A per curiam statement emphasised that the defence of change of position in good faith, available against restitution claims, shouldn't be conclusively defined now, allowing for case-by-case development.

COMMENTARY

• In this case, a solicitor misused firm funds for gambling at a club, resulting in void contracts under the Gaming Act 1845. The solicitors' attempts to recover funds from the club were unsuccessful. The club, not a holder in due course, was held liable for conversion, while the bank was considered a constructive trustee for stolen funds.

• The Court of Appeal dismissed the solicitors' and the club's appeals but allowed the bank's. Using chips at the club did not constitute valuable consideration, so gaming contracts were not validated under the Gaming Act 1845.

• In restitution claims, the solicitors could recover funds equal to the club's winnings from the solicitor, considering the totality of bets. The club's appeal was dismissed as it provided no value for the banker's draft, preventing it from becoming a holder in due course. A per curiam statement emphasised that the defence of change of position in good faith, available against restitution claims, shouldn't be conclusively defined, allowing for case-by-case development.

ORIGINAL ANALYSIS

• A solicitor at the firm, Plaintiff, stole from the firm’s client account, changed it for chips at the gambling club, Defendant, and lost it.

• The firm then claimed for unjust enrichment, there being no consideration for the money that he gave the club.

• The law was that where a victim sought to recover money from an innocent third party, the law was that the third party had to restore it unless he had given full consideration for it.

• Since Gaming contracts were illegal at the time, it claimed that the consideration it gave was in the form of the chips.

• HL said that the chips were not consideration since (1) they were inherently worthless (no different to Chappell) and were merely a means of facilitating gambling and therefore held no value in themselves

  • (just as the wrappers in Chappell were simply a means of marketing). Clear contradiction with Chappell, which isn’t even mentioned in the ratio of HL. 

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