#6870 - Lipkin Gorman V. Karpnale Iv - Restitution of Unjust Enrichment BCL

Lipkin Gorman v. Karpnale

Facts

The appellants, Lipkin Gorman ('the solicitors'), are a firm of solicitors. Norman Barry Cass was a partner in the firm from 1978 to 1980. He had the authority of his partners to draw upon the solicitors' client account, on his signature alone.

Cass proved to be a compulsive gambler. He gambled regularly at the casino at the Playboy Club ('the club') which was owned by the respondents, though he also gambled elsewhere. Such was his addiction to gambling that he found his own resources insufficient; and so he helped himself to money in the client account. Without his partners' knowledge, between March and November 1980 he misappropriated large sums of money from the client account.

At the club, Cass would present cash either at the cash desk or at the gaming tables. At the cash desk, he would be given a so-called 'cheque credit slip' in exchange for cash: he would then exchange the slip for plastic chips of various denominations. If he presented cash at a gaming table, he would be given chips in exchange for the cash. These chips at all times remained the property of the club. Bets were normally made by putting down chips at the gaming table, but cash could be put down at the gaming table and if so would be accepted for bets, without any chips being used. Chips could also be accepted in lieu of cash for refreshments at the club; but their actual use for this purpose at the club appears to have been very rare, and there was no evidence that Cass ever used them for that purpose. Any unused chips, together with chips representing sums won in gaming, could be exchanged either for cash or a 'winnings cheque' drawn on the club's bank.

Solicitors claim: The solicitors commenced proceedings against both the respondents and the bank. Their claim against the respondents was for the recovery, on various grounds, of the money taken by Cass from the current account and gambled away at the club.

The club’s argument was that to the extent that they had paid out the winning bets by Cass they have in good faith changed their position and therefore that the claim must be discounted to that extent.

Holding

Lord Goff

Whether change of position is, or should be, recognised as a defence to claims in restitution is a subject which has been much debated in the books. It is however a matter on which there is a remarkable unanimity of view, the consensus being to the effect that such a defence should be recognised in English law. I myself am under no doubt that this is right.

Justifications to expand estoppel to change of position

First, estoppel normally depends upon the existence of a representation by one party, in reliance upon which the representee has so changed his position that it is inequitable for the representor to go back upon his representation. But, in cases of restitution, the requirement of a representation appears to be unnecessary. It is true that, in cases where the plaintiff has paid money directly to the defendant, it has been argued (though with difficulty) that the plaintiff has represented to the defendant that he is entitled to the money; but in a case such as the present, in which the money is paid to an innocent donee by a thief, the true owner has made no representation whatever to the defendant.

Secondly, again, it was held by the Court of Appeal in Avon County Council v. Howlett that estoppel cannot operate pro tanto, with the effect that if, for example, the defendant has innocently changed his position by disposing of part of the money, a defence of estoppel would provide him with a defence to the whole of the claim. Considerations such as these provide a strong indication that, in many cases, estoppel is not an appropriate concept to deal with the problem.

In these circumstances, it is right that we should ask ourselves: why do we feel that it would be unjust to allow restitution in cases such as these? The answer must be that, where an innocent defendant's position is so changed that he will suffer an injustice if called upon to repay or to repay in full, the injustice of requiring him so to repay outweighs the injustice of denying the plaintiff restitution. If the plaintiff pays money to the defendant under a mistake of fact, and the defendant then, acting in good faith, pays the money or part of it to charity, it is unjust to require the defendant to make restitution to the extent that he has so changed his position.

In other words, bona fide change of position should of itself be a good defence in such cases as these. The principle is widely recognised throughout the common law world.

Scope of the defence

I am most anxious that, in recognising this defence to actions of restitution, nothing should be said at this stage to inhibit the development of the defence on a case by case basis, in the usual way. It is, of course, plain that the defence is not open to one who has changed his position in bad faith, as where the defendant has paid away the money with knowledge of the facts entitling the plaintiff to restitution; and it is commonly accepted that the defence should not be open to a wrongdoer. These are matters which can, in due course, be considered in depth in cases where they arise for consideration. They do not arise in the present case.

Here there is no doubt that the respondents have acted in good faith throughout, and the action is not founded upon any wrongdoing of the respondents. It is not however appropriate in the present case to attempt to identify all those actions in restitution to which...