#6828 - Lipkin Gorman V. Karpnale Ii - Restitution of Unjust Enrichment BCL

Lipkin Gorman v. Karpnale

Facts

Cass was a partner in the appellant firm of solicitors, Lipkin Gorman ("the solicitors"). Cass withdrew 323,222.14 from the solicitors' bank account. The sum of 100,313.16 was replaced, recovered or accounted for, but the balance of 222,908.48 was money which Cass stole from the solicitors and proved to be irrecoverable from him. Cass staked 561,014.06 at the gaming tables of the Playboy Club, a licensed casino owned and operated by the respondent, Karpnale Ltd. ("the club"). Cass won 378,294.06. After making adjustments for certain cheques, the club agreed that the club won and Cass lost overall, in a matter of months, the sum of 174,745. The parties also agreed that the maximum gross personal resources of Cass amounted to 20,050 and that at least the sum of 154,695 won by the club and lost by Cass was derived from money stolen from the solicitors. The club acted innocently throughout and was not aware that the club had received 154,695 derived from the solicitors until the solicitors claimed restitution.

Holding

Lord Templeman

Explanation for why a bona fide purchaser for value does not enrich

An innocent recipient of stolen money may not be enriched at all; if Cass had paid 20,000 derived from the solicitors to a car dealer for a motor car priced at 20,000, the car dealer would not have been enriched. The car dealer would have received 20,000 for a car worth 20,000. But an innocent recipient of stolen money will be enriched if the recipient has not given full consideration. If Cass had given 20,000 of the solicitors' money to a friend as a gift, the friend would have been enriched and unjustly enriched because a donee of stolen money cannot in good conscience rely on the bounty of the thief to deny restitution to the victim of the theft.

Did the Club pay consideration?

The club claims that the club gave consideration for the sum of 154,695 by allowing Cass to gamble and agreeing to pay his winnings and therefore the club was not enriched or, alternatively, was not unjustly enriched.

Argument: The club argues that when Cass paid, for example, 5,000 in cash to the cashier or to the croupier, there came into existence a contract which was not a gaming contract. In consideration for 5,000 paid by Cass, the club agreed to cash any chips retained, won or otherwise acquired and at any time presented for payment. This was a contract, so it was said, in contemplation of gaming and not a contract by way of gaming. If Cass staked a chip and the croupier accepted the stake and played the game, there came into existence a second contract.

Rejected: But in the present case the club retained some of the stolen money. The club cannot as against the solicitors retain the stolen money save by relying on the gaming contracts which, as between the club and Cass, entitled the club to retain the solicitors' money which Cass lost at the gaming table. Those gaming contracts were void. The club remains unjustly enriched to the extent of 154,695.

Another way of analysing the situation is this. When Cass entered the club as a member, the club made to him a revocable offer to gamble with him in the manner and upon the terms dictated by the club. Those terms required Cass to pay his gambling stakes in advance and to allow the club to pay their gambling losses in arrears. The revocable offer by the club was accepted by Cass when he staked a chip and became irrevocable when the croupier accepted the chip as a stake. There was only one contract and that was a gaming contract.

Conclusion

My conclusion is that the club has no right to retain stolen money received by the club from the thief. Repayment by the club to the victim, limited to the net amount of stolen money which the club retains, will not inflict a net loss on the club as a result of the transactions between the club and the thief. In the present case money stolen from the solicitors by Cass has been paid to and is now retained by the club and ought to be repaid to the solicitors.

What is the Unjust Factor? The fact that money was stolen?

When Cass lost and paid 154,695 to the club as a result of gaming contracts, he made to the club a completed gift of 154,695. The club received stolen money by way of gift from the thief; the club, being a volunteer, has been unjustly enriched at the expense of the solicitors from whom the money had been stolen and the club must reimburse the solicitors.

Lord Goff

Whether the solicitors had legal title to the money is decisive

The first ground is concerned with the solicitors' title to the money received by Cass (through Chapman) from the bank. It is to be observed that the present action, like the action inClarke v.Shee and Johnson, is concerned with a common law claim to money, where the money in question has not been paid by the appellant directly to the respondents - as is usually the case where money is, for example, recoverable as having been paid under a mistake of fact, or for a consideration which has failed. On the contrary, here the money had been paid to the respondents by a third party, Cass; and in such a case the appellant has to establish a basis on which he is entitled to the money. This (at least, as a general rule) he does by showing that the money is his legal property, as appears from Lord Mansfield's judgment inClarke v.Shee and Johnson. If he can do so, he may be entitled to succeed in a claim against the third party for money had and received to his use, though not if the third party has received the money in good faith and for a valuable consideration. The cases in which such a claim has succeeded are, I believe, very rare: see the cases, including Clarke v. Shee and Johnson, collected in Goff and Jones, The Law of Restitution, 3rd ed. (1986), p. 64, note 29. This is probably because, at common law, property in money, like other fungibles, is lost as such when it is mixed with other money. Furthermore, it appears that in these cases the action for money had and received is not usually founded upon any wrong by the third party, such as conversion; nor is it said to be a case of waiver of tort. It is founded simply on the fact that, as Lord Mansfield said, the third party cannot in conscience retain the money - or, as we say nowadays, for the third party to retain the money would result in his unjust enrichment at the expense of the owner of the money.

Personal action not action for proprietary right: So, in the present case, the solicitors seek to show that the money in question was their property at common law. But their claim in the present case for money had and received is nevertheless a personal claim; it is not a proprietary claim, advanced on the basis that money remaining in the hands of the respondents is their property. Of course there is no doubt that, even if legal title to the money did vest in Cass immediately on receipt, nevertheless he would have held it on trust for his partners, who would accordingly have been entitled to trace it in equity into the hands of the respondents. However, your Lordships are not concerned with an equitable tracing claim in the present case, since no such case is advanced by the solicitors, who have been content to proceed at common law by a personal action, viz. an action for money had and received. I should add that, in the present case, we are not concerned with the fact that money drawn by Cass from the solicitors' client account at the bank may have become mixed by Cass with his own money before he gambled it away at the club. For the respondents have conceded that, if the solicitors can establish legal title to the money in the hands of Cass, that title was not defeated by mixing of the money with other money of Cass while in his hands…. the only question is whether the solicitors can establish legal title to the money when received by Cass from the bank by drawing cheques on the client account without authority.

Did the Solicitor firm have title to the money in Cass’s hands?

Objection: They show that, where a banker's cheque payable to a third party or bearer is obtained by a partner from a bank which has received the authority of the partnership to pay the partner in question who has, however, unknown to the bank, acted beyond the authority of his partners in so operating the account, the legal property in the banker's cheque thereupon vests in the partner. The same must a fortiori be true when it is not such a banker's cheque but cash which is so drawn from the bank by the partner in question… Even so, I am satisfied that the solicitors are able to surmount this difficulty, as follows.

Solicitors can trace their property through the chose in action they held in the bank to its product i.e. the money held by Cass

It is well established that a legal owner is entitled to trace his property into its product, provided that the latter is indeed identifiable as the product of his property.

Before Cass drew upon the solicitors' client account at the bank, there was of course no question of the solicitors having any legal property in any cash lying at the bank. The relationship of the bank with the solicitors was essentially that of debtor and creditor; and since the client account was at all material times in credit, the bank was the debtor and the solicitors...