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You are here: BAILII >> Databases >> United Kingdom House of Lords Decisions >> Lipkin Gorman v Karpnale [1988] UKHL 12 (06 June 1991)
URL: http://www.bailii.org/uk/cases/UKHL/1988/12.html
Cite as: [1991] 3 WLR 10, [1991] 2 AC 548, [1988] UKHL 12

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JISCBAILII_CASE_TRUSTS

    Parliamentary Archives,
    HL/PO/JU/18/251

    Judgment: 6.6.91

    HOUSE OF LORDS

    LIPKIN GORMAN (A FIRM)
    (ORIGINAL APPELLANTS AND CROSS-RESPONDENTS)

    v.

    KARPNALE LIMITED

    (FORMERLY PLAYBOY CLUB OF LONDON LIMITED)
    (ORIGINAL RESPONDENTS AND CROSS-APPELLANTS)

    AND OTHERS

    Lord Bridge of Harwich
    Lord Templeman
    Lord Griffiths
    Lord Ackner
    Lord Goff of Chieveley


    LORD BRIDGE OF HARWICH

    My Lords,

    I have had the advantage of reading in draft the speeches
    of my noble and learned friends Lord Templeman and Lord Goff of
    Chieveley. I agree with their conclusion that the appeal should be
    allowed and the cross-appeal dismissed with the consequence that
    the appellants become entitled to judgment for the principal sum
    of £154,695 inclusive of the sum to which the cross-appeal relates.
    All questions with respect to the amount of interest to be awarded
    on this principal sum and with respect to the costs of the
    proceedings must, unless the parties are able to agree, be deferred
    to enable counsel to make further submissions.

    With respect to the view that prevailed in the Court of
    Appeal I cannot see that the respondents are in any better position
    to resist the appellants' claim to recover the money which Mr.
    Cass stole from them and gambled away in the casino by reason
    of the fact that cash was exchanged for gaming chips before being
    wagered at the gaming tables. The respondents were nevertheless
    mere volunteers who gave no consideration for the stolen money.
    This was the common sense view expressed in the dissenting
    judgment of Nicholls L.J. Both my noble and learned friends have
    thoroughly analysed this issue and I agree with the reasoning in
    both their speeches.

    I agree with my noble and learned friend Lord Goff of
    Chieveley that it is right for English law to recognise that a claim
    to restitution, based on the unjust enrichment of the defendant,
    may be met by the defence that the defendant has changed his
    position in good faith. I equally agree that in expressly
    acknowledging the availability of this defence for the first time it
    would be unwise to attempt to define its scope in abstract terms,
    but better to allow the law on the subject to develop on a case
    by case basis. In the circumstances of this case I would adopt the
    reasoning of my noble and learned friend Lord Templeman for the
    conclusion that the respondents can only rely on the defence to

    - 1 -

    the extent that it limits their liability to the appellants to the
    amount of their net winnings from Mr. Cass which must have been
    derived from the stolen money.

    The respondents submitted that the appellants' claims failed
    on the ground that they had no title to the money which was the
    subject of the appeal or to the banker's draft which was the
    subject of the cross-appeal. The arguments in support of this
    submission are examined in the speech of my noble and learned
    friend Lord Goff of Chieveley. I agree with his reasons for
    rejecting them.

    LORD TEMPLEMAN

    My Lords,

    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. Conversion does
    not lie for money, taken and received as currency: see Orton v.
    Butler
    (1822) 5 B. & Ald. 652 and Foster v. Green (1862) 7 H. &
    N. 881. But the law imposes an obligation on the recipient of
    stolen money to pay an equivalent sum to the victim if the
    recipient has been "unjustly enriched" at the expense of the true
    owner. In Fibrosa Spolka Akcyjna v. Fairbairn Lawson Combe
    Barbour Ltd.
    [1943] AC 32, 61, Lord Wright said:

    "It is clear that any civilised system of law is bound to
    provide remedies for cases of what has been called unjust
    enrichment or unjust benefit, that is to prevent a man from
    retaining the money of or some benefit derived from
    another which it is against conscience that he should keep."

    The club was enriched as and when Cass staked and lost to the
    club money stolen from the solicitors amounting in the aggregate
    to £300,000 or more. But the club paid Cass when he won and in
    the final reckoning the club only retained £154,695 which was
    admittedly derived from the solicitors' money. The solicitors can
    recover the sum of £154,695 which was retained by the club if
    they show that in the circumstances the club was unjustly enriched
    at the expense of the solicitors.

    - 2 -

    In the course of argument there was a good deal of
    discussion concerning tracing in law and in equity. In my opinion
    in a claim for money had and received by a thief, the plaintiff
    victim must show that money belonging to him was paid by the
    thief to the defendant and that the defendant was unjustly
    enriched and remained unjustly enriched. 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. Complications
    arise if the donee innocently expends the stolen money in reliance
    on the validity of the gift before the donee receives notice of the
    victim's claim for restitution. Thus if the donee spent £20,000 in
    the purchase of a motor car which he would not have purchased
    but for the gift, it seems to me that the donee has altered his
    position on the faith of the gift and has only been unjustly
    enriched to the extent of the secondhand value of the motor car
    at the date when the victim of the theft seeks restitution. If the
    donee spends the £20,000 in a trip round the world, which he
    would not have undertaken without the gift, it seems to me that
    the donee has altered his position on the faith of the gift and that
    he is not unjustly enriched when the victim of the theft seeks
    restitution. In the present case Cass stole and the club received
    £229,908.48 of the solicitors' money. If the club was in the same
    position as a donee, the club nevertheless in good faith allowed
    Cass to gamble with the solicitors' money and paid his winnings
    from time to time so that when the solicitors' sought restitution,
    the club only retained £154,695 derived from the solicitors. The
    question is whether the club which was enriched by £154,695 at
    the date when the solicitors sought restitution was unjustly
    enriched.

    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. The solicitors claim that
    the club acquired £154,695 under void contracts and that as
    between the club and the solicitors from whom the money was
    derived, the club is in no better position than an innocent donee
    from the thief, Cass. The resolution of this dispute depends on
    the true construction of section 18 of the Gaming Act 1845, an
    analysis of the relationship between the club and Cass and the
    consideration of the authorities dealing with gaming and the
    authorities dealing with unjust enrichment.

    Section 18 of the Gaming Act 1845, so far as material,
    provides:

    "all contracts or agreements, whether by parole or in
    writing, by way of gaming or wagering, shall be null and
    void; and that no suit shall be brought or maintained in any
    court of law or equity for recovering any sum of money or
    valuable thing alleged to be won upon any wager, or which

    - 3 -

    shall have been deposited in the hands of any person to
    abide the event on which any wager shall have been made .

    . . "

    The club contends that the club received money from Cass
    under a contract with him which was not a contract "by way of
    gaming or wagering" and is not rendered null and void by section
    18 of the Act of 1845. Alternatively, even if the club received
    the money under a contract by way of gaming nevertheless, it is
    argued, the club was not unjustly enriched because, in the belief
    that the money tendered by Cass was his own personal money, the
    club accepted the money and altered the position of the club to
    the detriment of the club by allowing Cass to gamble and by
    paying his winnings when he won; the club, it is said, was
    enriched, but not unjustly enriched, and may retain the money
    which the club fairly and lawfully won. It is well settled that
    section 18 of the Act of 1845 does not enable a gambler to
    recover money which he has lost and paid.

    The club was a proprietary club and Cass was a member.
    Cass was not bound to gamble but if he contemplated doing so he
    was bound to advance cash. Cass could pay cash to the club
    cashier. In return for cash the cashier issued credit vouchers with
    a face value equal to the money received. If Cass tendered a
    credit voucher to a croupier at a gaming table, Cass would be
    issued by the croupier with plastic chips amounting to the face
    value of the voucher. Cass could, if he wished, instead of
    tendering a voucher to a croupier, pay cash to a croupier and
    receive plastic chips for cash. Gaming on the table was conducted
    with chips. Cass was not bound to gamble and the croupier was
    not bound to allow Cass to stake a chip at the table. If Cass
    staked and lost, the croupier kept the chip which had been staked.
    If Cass staked and won. the croupier paid out the winnings with
    chips. If Cass paid cash for a credit voucher which he did not
    exchange for chips, he could cash the credit voucher with the
    cashier. If Cass changed a credit voucher for chips or if Cass
    paid a croupier for chips, then the cashier would cash any chips
    which Cass did not stake. If Cass acquired chips by winning at a
    table or acquired chips from a fellow member, the cashier would
    cash the chips for Cass. If Cass ordered refreshments at the club,
    he could pay in chips. Thus within the club chips were treated as
    currency and on leaving the club Cass could exchange chips for
    money whenever he chose to do so. The chips themselves were
    worthless and at all times remained the property of the club but
    the club would redeem them for cash.

    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. For example, if the game were
    roulette, in consideration of the club promising to pay Cass if the
    ball fell into a red pocket, Cass promised to pay the club if the
    ball did not fall into a red pocket. When Cass lost he forfeited
    his staked chip and forfeited the right to the money represented

    - 4 -

    by that chip. When Cass won he was entitled to the return of his
    staked chip and to his winnings in chips. But there were,
    according to the club, two separate contracts. By the first
    contract, Cass exchanged cash for chips and that was not a
    contract by way of gaming.

    My Lords, when Cass paid money to the cashier, he was
    issued with a receipt in the form of a credit voucher and then in
    the form of a chip. The chip did not oblige Cass to avail himself
    of the facilities of the club and did not oblige the club to allow
    Cass to gamble or take advantage of any other facilities of the
    club. If a thief deposits stolen money in a building society, the
    victim is entitled to recover the money from the building society
    without producing the pass book issued to the thief. As against
    the victim, the building society cannot pretend that the building
    society gave good consideration for the acceptance of the deposit.
    The building society has been unjustly enriched at the expense of
    the victim. Of course the building society has a defence if the
    building society innocently pays out the deposit before the building
    society realises that the deposit was stolen money. 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.

    If Cass had been gambling with his own money, the gaming
    system operated by the club would have ensured that Cass paid his
    gambling losses contemporaneously and that the club paid their
    gambling losses in arrears. The gaming contracts were void but
    section 18 of the Act of 1845 does not, as between gamblers,
    prevent a gambling loss from being paid contemporaneously or in
    arrears. A gambling loss, whenever paid, is a completed voluntary
    gift from the loser to the winner. But Cass was gambling with
    the money of the solicitors who have never gambled and never
    made a voluntary gift to the club.

    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.

    The club claims that even if the only consideration given by
    the club was a gambling consideration, nevertheless the club
    altered its position to its detriment because the club allowed Cass
    to gamble and the club paid his winnings. This is another way of
    relying on a void gaming contract justifying the retention of the
    solicitors' money. The club has not suffered any detriment. If
    the club pays £154,695 to the solicitors as a result of this appeal,
    the club will be in exactly the same position which would have
    obtained if Cass had not gambled away the solicitors' money. It
    is true that the club would have been in a better position if Cass
    had been gambling away his own money, but that plaintive

    - 5 -

    observation does not entitle the club to retain the solicitors'
    money by which the club remains unjustly enriched to the extent
    of £154,695.

    Cass staked with the club money which he had stolen from
    the solicitors. The solicitors have been content to assume that in
    addition Cass staked £20,050 of his own money. Cass also staked
    money which from time to time he won from the club during the
    course of his doomed gambling. At the date when the solicitors
    claimed restitution the club had recovered all its own money and
    were left with £174,745 net winnings. The club is entitled to
    assert and the solicitors cannot disprove that £20,050 of the net
    winnings was money which had belonged to Cass. There remained
    £154,695 which must have been money stolen from the solicitors.
    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. The solicitors will recover part of their stolen money
    and the club will only lose the winnings the club was not entitled
    to make out of the solicitors' money.

    Counsel produced a number of relevant authorities which
    must be considered. In Miller v. Race (1758) 1 Burr. 452, a bank
    note made out to bearer and payable on demand was treated as
    currency. Conversion did not lie because there is no property in
    currency. Lord Mansfield said, at pp. 457-458:

    "So, in the case of money stolen, the true owner cannot
    recover it, after it has been paid away fairly and honestly
    upon a valuable and bona fide consideration: but before
    money has passed in currency, an action may be brought for
    the money itself."

    In the present case the money was received by the club
    fairly and honestly but not upon a valuable and bona fide
    consideration.

    In Clarke v. Shee and Johnson (1774) 1 Cowp. 197 a servant
    stole money from his master and bought lottery tickets. Lotteries
    were illegal and void under the Lottery Act 1772. The master
    recovered from the defendants who were the holders of the lottery
    and had innocently received the stolen money. The defendants
    unsuccessfully argued that there was no contract between the
    master and the defendants and that the defendants had given
    consideration for the receipt of the money. It was argued that
    though the defendants were fortunate in that the lottery tickets
    issued for the stolen money were not winning tickets, the
    defendants ran the risk "and therefore performed their part of the
    agreement: consequently, there is no foundation for an action to
    recover back the money paid." Lord Mansfield said, at p. 200:

    "Here the plaintiff sues for his identified property, which
    has come to the hands of the defendants iniquitously and
    illegally in breach of the Act of Parliament. Therefore
    they have no right to retain it; and consequently the
    plaintiff is well entitled to recover."

    - 6 -

    Mr. Lightman, who appeared on behalf of the club, sought
    to distinguish this authority on the ground that the Lottery Act
    1772 made the contract between the servant and the defendants
    illegal and not merely void and imposed a criminal penalty for
    breach of the statute. For present purposes, however, it does not
    seem to me to matter whether the contract upon which the
    defendant relies as affording consideration for receipt of stolen
    money is illegal as provided by the Lottery Act 1772 or void as
    provided by the Gaming Act 1845. In each case the contract
    cannot be relied upon to support the retention by the defendant of
    stolen money derived from the plaintiff.

    In Aubert v. Walsh (1810) 3 Taunt. 277 there was a wager
    on 15 September 1808 that the war with France would end before
    1 July 1810. One party to the wager withdrew in October 1808
    and was held entitled to recover his stake from the other party.
    Lord Mansfield said, at p. 283:

    "why should not a man say, you and I have agreed so and
    so, but the agreement is good for nothing; I cannot bind
    you, and you cannot bind me, therefore I desire, before the
    event happens, that you will pay me back my money:"

    In the present case Cass could not bind the solicitors so
    both before and after the event, they can recover their money to
    the extent that as between the club and the solicitors, the stakes
    unjustly enriched the club and were retained by the club.

    In Hudson v. Robinson (1816) 4 M. & S. 475, a partner
    fraudulently contracted in the names of the partnership to sell
    goods to the plaintiff. The fraud received the purchase price from
    the plaintiff and defaulted in delivery of the goods. It was held
    that the plaintiff could recover the purchase price from the fraud
    as money had and received. Lord Ellenborough C.J. said, at p.
    478:

    "It is said that an action for money had and received is not
    maintainable in this case. But an action for money had and
    received is maintainable whenever the money of one man
    has, without consideration, got into the pocket of another.
    Here the money of the plaintiffs has got into the pocket of
    the defendant; and the question is whether this has been
    without any consideration. The consideration was the
    supposed right of the defendant to dispose of the goods as
    partnership property, which was the inducement to the
    plaintiffs to give this bill, under which they have been
    obliged to pay the money. The defendant had no such right;
    therefore the absence of any consideration entitles the
    plaintiffs to maintain this action, and still more so where
    the money has got into the defendant's pocket through the
    medium of a fraud."

    Here the money of the solicitors got into the pocket of the
    club without any consideration.

    In Bainbrigge v. Browne (1881) 18 ChD 188, the plaintiff
    children, under the influence of their father, charged by deed their
    reversionary interest under a settlement as security for advances

    - 7 -

    made by the defendants to the father. Fry J. held, at p. 197,
    that undue influence:

    "operates against the person who is able to exercise the
    influence (in this case it was the father) and in my
    judgment, it would operate against every volunteer who
    claimed under him, and also against every person who
    claimed under him with notice of the equity thereby created
    or with notice of the circumstances from which the court
    infers the equity."

    On the facts the defendants who were not volunteers did
    not have the requisite notice and were entitled to enforce their
    security. In the present case the club is in the same position as a
    volunteer.

    In Shoolbred v. Roberts [1899] 2 QB 560, an undischarged
    bankrupt played a match at billiards for £100 a side, the money
    being deposited with stakeholders. The bankrupt was the winner.
    It was held that the trustee in bankruptcy of the winner was
    entitled to recover from the stakeholder the bankrupt's stake of
    £100 but not the stake of the loser. Phillimore J. held, at p. 564,
    that on the authorities:

    " ... I am bound now to hold . . . that where people
    embark in a perfectly lawful game and contest of skill, not
    trusting to fortune but to skill, to ascertain the comparative
    eminence of the two persons, the sums which they deposit
    to make a joint award are to be considered by the law as
    sums deposited by way of wagering, the contract is null and
    void, and the winner cannot recover the fund."

    A fortiori, the club, as against the solicitors, is not entitled
    to retain the solicitors' money on the grounds that the club might
    have lost and paid its wager with Cass.

    Phillimore J. also held in Shoolbred v. Roberts, at pp. 564-
    565, that the £100 staked by the bankrupt was his money and was
    part of his property which his trustee in bankruptcy had a right to
    recover from the stakeholder. If the bankrupt at any time
    received from the stakeholder the stake of £100 which had been
    deposited by the loser, that receipt "must be in the eye of the
    law a voluntary gift by the stakeholders" or by the loser or
    possibly by both to the bankrupt; and if the loser should receive it
    of the bounty of the winner or of the bounty of the stakeholders
    or at the bounty of both, so far it would not go to the trustee in
    bankruptcy.

    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.

    In Black v. S. Freeman & Co. (1910) 12 C.L.R. 105, the
    High Court of Australia held that money stolen by a husband and
    handed over to his wife by way of gift to her could be recovered
    by the victim. O'Connor J. said, at p. 110:

    - 8 -

    "Where money has been stolen, it is trust money in the
    hands of the thief, and he cannot divest it of that
    character. If he pays it over to another person, then it
    may be followed into that other person's hands. If, of
    course, that other person shows that it has come to him
    bona fide for valuable consideration, and without notice, it
    then may lose its character as trust money and cannot be
    recovered. But if it is handed over merely as a gift, it
    does not matter whether there is notice or not."

    Although the decision in this case went on the grounds of
    trust, the reasoning applies equally to a claim for money had and
    received.

    In Banque Beige pour l'Etranger v. Hambrouck [1921] 1 K.B.
    321, money stolen by a thief was paid, by way of gift, into the
    bank account of a woman with whom he was living. When the
    victim made a claim against the woman and her bankers, there
    stood to her credit the sum of £315 representing part of the
    money stolen from the victim. The victim was held entitled to
    the £315. In that case the woman, as a donee, had become
    unjustly enriched by the receipt of money stolen from the victim
    and retained £315, part of that money. She was bound to
    reimburse the victim. It was argued in favour of the woman, who
    had no notice of the theft, that she obtained a good title to the
    money because it was a gift to her from the thief and the fact
    that she had paid the money into her banking account prevented
    any following of the money and that an action for money received
    would therefore not lie. Bankes L.J. said, at p. 327:

    "To accept either of the two contentions with which I have
    been so far dealing would be to assent to the proposition
    that a thief who has stolen money, and who from fear of
    detection hands that money to a beggar who happens to
    pass, gives a title to the money to the beggar as against
    the true owner - a proposition which is obviously impossible
    of acceptance."

    The judgments deal with the case on the basis of following trust
    assets but Atkin L.J. said, at p. 335:

    "as the money paid into the bank can be identified as the
    product of the original money, the plaintiffs have the
    common law right to claim it, and can sue for money had
    and received."

    In my opinion the club in the present case are in no better
    position than the donee in the Banque Beige case.

    In Transvaal & Delagoa Bay Investment Co. Ltd, v. Atkinson
    [1944] 1 All E.R. 579, money stolen from a company was paid by
    the thief into a bank account of his wife. All the money was
    expended, mostly by being returned to the husband. The difficult
    questions which arise when a donee innocently disposes of stolen
    money do not arise in the present case where the stolen money
    has been retained by the club.

    In the instant case Alliott J. declined to extend the
    categories of quasi contract so as to enable the owner of stolen

    - 9 -

    property to recover the stolen money from the person to whom
    the thief has lost it gambling: see [1987] 1 W.L.R. 987, 992-993.
    But the contracts under which the club received the stolen money
    were void under section 18 of the Act of 1845 and the club was
    in no better position than a donee. On principle and on authority
    a donee is bound to reimburse the victim for stolen money
    received and retained by the donee and, in the circumstances, the
    club was unjustly enriched to the extent that the solicitors' money
    was retained by the club. The decision of Alliott J. was upheld
    by the Court of Appeal (May and Parker L.JJ., Nicholls L.J.
    dissenting) [1989] 1 W.L.R. 1340. May L.J. held that the club
    gave valuable consideration for the stolen money when the club
    issued Cass with chips which enabled him to gamble and when the
    club undertook to cash the chips. Parker L.J. considered that a
    contract by the club to pay cash for gaming chips was
    consideration for the payment by Cass of cash for the use of
    gaming chips. The judgments of the majority appeared also to
    rely on the power of Cass to purchase refreshments with chips.
    But neither the power to purchase refreshments nor the exercise
    of that power could constitute consideration for the receipt of
    £154,695. In my opinion the chips transaction was part of a single
    contract by virtue of which Cass gambled away money stolen from
    the solicitors. If there was a separate chips contract it was a
    contract which was designed and effective to enable money to be
    gambled, won, lost and paid and as such it was a contract by way
    of gaming. Nicholls L.J. said, at p. 1383:

    "the chips were not money or money's-worth; they were
    mere counters or symbols used for the convenience of all
    concerned in the gaming. As tokens, the chips indicated
    that the holder had lodged cash with the club or, when a
    cheque had been used, had been given credit by the club, to
    the extent indicated by the tokens. It is as though the
    customer had been given a series of receipts in respect of
    the money handed over by him prior to beginning to play.
    The money was to go to the winners, or be returned to the
    customer if not spent on gaming. When the customer
    played at the table he was playing with the money he had
    brought with him to the casino, just as much as if he had
    used the banknotes themselves rather than the chips for
    which he had exchanged the banknotes preparatory to the
    start of play. I do not believe that this internal,
    preliminary, preparatory step, of issuing chips for cash,
    adopted for considerations of practical convenience, can
    have the effect in law that the club gave valuable
    consideration for the money it received, when the position
    in law under the statute is that if money rather than tokens
    had been used at the table, the club would not have given
    valuable consideration. I find such a conclusion repugnant
    to common sense."

    I agree and would allow the appeal.

    Included in the sum of £154,695 is £3,735 representing a
    banker's draft made out to the solicitors and indorsed by Cass to
    the club for chips which Cass then gambled and lost. The Court
    of Appeal held that the club had not become holders of the draft
    in due course and gave judgment for the solicitors. In this House
    the club cross-appealed. In my opinion the draft represented

    - 10 -

    money derived from the solicitors which has unjustly enriched the
    club. There is no difference between the cash and the draft
    received by the club and the cross-appeal must be dismissed.

    In the result I would order judgment to be entered for the
    solicitors for the sum of £154,695.

    LORD GRIFFITHS

    My Lords,

    I have had the advantage of reading the speeches of your
    Lordships. I agree that for the reasons given by Lord Templeman
    and Lord Goff of Chieveley the appellate solicitors can recover
    the sum of £150,960 from the respondent club as representing
    money stolen from the solicitors and the proceeds of the banker's
    draft lost by Cass in gaming at the respondent club.

    I agree that for the reasons given by Lord Goff of
    Chieveley, the club converted the banker's draft made out to the
    solicitors' and that the cross-appeal fails.

    LORD ACKNER

    My Lords,

    I have had the advantage of reading in draft the speeches
    of my noble and learned friends. Lord Templeman and Lord Goff
    of Chieveley. I agree that the appeal should be allowed for the
    reasons set out in both these speeches. I have also had the
    advantage of reading in draft the speech of my noble and learned
    friend, Lord Bridge of Harwich. I agree with the views which he
    expresses as to the availability of the defence of change of
    position to a claim for restitution based on unjust enrichment as
    developed by my noble and learned friend, Lord Goff of Chieveley
    in his speech.

    I also agree that for the reasons given by my noble and
    learned friend, Lord Goff of Chieveley the cross-appeal should be
    dismissed.

    LORD GOFF OF CHIEVELEY

    My Lords,

    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. The account
    was held at the branch of Lloyds Bank ("the bank") at 62 Brook
    Street, London W.1.

    - 11 -

    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.

    Cass used various methods to lay his hands on the money in
    the client account. His principal method was to have a cheque
    made out by the solicitors' cashier (a man named Chapman who,
    as the judge found, had been suborned by Cass), drawn on the
    client account and made payable to cash; Cass would then sign the
    cheque and Chapman would cash it at the bank and hand the cash
    to Cass. In addition, Cass caused building society accounts opened
    by him in the name of the solicitors to be credited with cash
    drawn from the client account by means of cheques made payable
    to various building societies; a total of £40,000 was credited to
    building societies in this way, during the relevant period. Cass
    then drew cash from the building society accounts. When Cass
    finally absconded, there was only £600 left in the building society
    accounts (excluding interest). Lastly, on one occasion Cass
    procured the issue of a banker's draft for £3,735 ("the banker's
    draft") drawn on the bank in favour of the solicitors; this he did
    by issuing a cheque in favour of the bank drawn on the client
    account. Chapman took delivery of the draft and passed it to
    Cass. By these means Cass dishonestly acquired a total of
    £323,222.14 from the client account. From time to time,
    however, he paid back into the client account various sums,
    totalling £100,313.16, to cover up shortfalls caused by his
    withdrawals, leaving a net shortfall of £222,908.98. It is accepted
    that a substantial part of the money so misappropriated by Cass,
    or of sums derived from it, was exchanged by Cass for gaming
    chips at the club, as was the banker's draft. In other words,
    these sums were gambled away by Cass. Indeed the total sum
    staked by Cass at the gaming tables of the club was no less than
    £561,014.06. This sum included some money of his own; but it
    was no doubt so large because of his restaking sums which he won
    from time to time, his total winnings amounting to £378,294.06.
    It has been agreed by the club that the net sum won by the club
    and lost by Cass over a period of about 10 months was £174,745.
    Over that period, the maximum resources of Cass were £20,050.
    On the basis that credit is given for the whole of that sum, it has
    been agreed that at least £154,695 won by the club and lost by
    Cass was derived from money obtained by Cass from the solicitors'
    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

    - 12 -

    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. Cass however returned to the club all the
    winnings cheques he received, receiving in their place fresh cheque
    credit slips which he then exchanged for chips for the purposes of
    gaming.

    Cass absconded to Israel. In due course he was extradited
    from Israel; and on 8 June 1984 he was convicted at the Central
    Criminal Court on 21 counts of theft of money from the solicitors'
    client account and sentenced to three years imprisonment.

    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. They
    also claimed damages for conversion of the banker's draft. Their
    claim against the bank was for damages for conversion or for
    breach of contract, or alternatively as constructive trustees.
    Before Alliott J., the solicitors' claim against the respondents
    failed, except for the claim for damages for conversion of the
    banker's draft [1987] 1 W.L.R. 987. Their claim against the bank
    succeeded in part. In the Court of Appeal the solicitors' appeal
    from the judge's decision dismissing their claim against the
    respondents in respect of the money was dismissed by a majority
    (May and Parker L.JJ., Nicholls L.J. dissenting) [1989] 1 W.L.R.
    1340. I shall refer in due course to the grounds for this decision;
    though I wish to record at this stage that Nicholls L.J. would have
    held the respondents liable in damages for conversion of the
    money. The respondents' cross-appeal in respect of the banker's
    draft was also dismissed, but the cross-appeal of the bank
    succeeded. Your Lordships' House has been concerned only with
    the appeal of the solicitors from the dismissal of their claim
    against the respondents, and the respondents' cross-appeal in
    respect of the banker's draft. The solicitors' claim against the
    bank has no longer been pursued.

    Before the Court of Appeal, and again before your
    Lordships' House, the solicitors' claim against the respondents was
    for the full sum of £222,908.98 as money had and received. It
    was not a claim for conversion of the money; and, despite the
    view expressed by Nicholls L.J. in his dissenting judgment, I do not
    consider that such an alternative claim was open to the solicitors.
    Before the Court of Appeal, though not before the judge, the
    solicitors relied strongly on Clarke v. Shee and Johnson (1774) 1
    Cowp. 197, Lofft. 756, in support of their claim. The majority of
    the Court of Appeal however distinguished that case and rejected
    the solicitors' claim on the ground that the respondents received
    the money in good faith and for valuable consideration, such
    consideration arising first (per May and Parker L.JJ.) from the
    fact that the club supplied chips in exchange for the money, the
    contract under which the chips were supplied not being avoided as
    a contract by way of gaming or wagering under section 18 of the
    Gaming Act 1845; and second (per Parker L.J.) from the fact that,
    although the actual gaming contracts under which Cass gambled
    away the money were void under the Act, nevertheless he obtained
    in exchange for the money the chance of winning and of then

    - 13 -

    being paid and so received valuable consideration from the club.
    So far as the solicitors' claim for conversion of the banker's draft
    was concerned, the Court of Appeal rejected a contention by the
    club that they could escape liability on the ground that they were
    holders in due course of the draft. I shall consider first the
    solicitors' appeal in respect of the money, and then the
    respondents' cross-appeal in respect of the draft; though, as will
    appear, the appeal and cross-appeal share certain common features.

    The solicitors' appeal

    I turn then to the solicitors' appeal in respect of the
    money, which they claim from the respondents as money had and
    received by the respondents to their use. To consider this aspect
    of the case it is, in my opinion, necessary to analyse with some
    care the nature of the claim so made.

    The solicitors' claim is, in substance, as follows. They say,
    first, that the cash handed over by the bank to Chapman in
    exchange for the cheques drawn on the solicitors' client account
    by Cass was in law the property of the solicitors. That is
    disputed by the respondents who say that, since the cheques were
    drawn on the bank by Cass without the authority of his partners,
    the legal property in the money immediately vested in Cass; that
    argument was however rejected by the Court of Appeal. If that
    argument is rejected, the respondents concede for present purposes
    that the cash so obtained by Cass from the client account was
    paid by him to the club, but they nevertheless resist the solicitors'
    claim on two grounds: first, that they gave valuable consideration
    for the money in good faith, as held by a majority of the Court
    of Appeal; and second that, in any event, having received the
    money in good faith and having given Cass the opportunity of
    winning bets and, in some cases, recovering substantial sums by
    way of winnings, it would be inequitable to allow the solicitors'
    claim.

    At the heart of the solicitors' claim lies Clarke v. Shee and
    Johnson
    (1774) 1 Cowp. 197, Lofft. 756. In that case the
    plaintiff's clerk received money and negotiable notes from the
    plaintiff's customers, in the ordinary course of the plaintiff's trade
    as a brewer, for the use of the plaintiff. From the sums so
    received by him, the clerk paid several sums, amounting to nearly
    £460, to the defendant "upon the chances of the coming up of
    tickets in the State Lottery of 1772," contrary to the Lottery Act
    1772. The Court of Queen's Bench held that the plaintiff was
    entitled to recover the sum of £460 from the defendant as money
    had and received by him for the use of the plaintiff. The
    judgment of the court was delivered by Lord Mansfield. He said,
    1 Cowp. 197, 199-201:

    "This is a liberal action in the nature of a bill in equity;
    and if, under the circumstances of the case, it appears that
    the defendant cannot in conscience retain what is the
    subject matter of it, the plaintiff may well support this
    action . . . the plaintiff does not sue as standing in the
    place of Wood his clerk: for the money and notes which
    Wood paid to the defendants, are the identical notes and
    money of the plaintiff. Where money or notes are paid
    bona fide, and upon a valuable consideration, they never

    - 14 -

    shall be brought back by the true owner; but where they
    come mala fide into a person's hands, they are in the
    nature of specific property; and if their identity can be
    traced and ascertained, the party has a right to recover. It
    is of public benefit and example that it should; but
    otherwise, if they cannot be followed and identified, because
    there it might be inconvenient and open a door to fraud.
    Miller v. Race, 1 Burr. 452: and in Golightly v. Reynolds
    (1772) Lofft. 88 the identity was traced through different
    hands and shops. Here the plaintiff sues for his identified
    property, which has come to the hands of the defendant
    iniquitously and illegally, in breach of the Act of
    Parliament, therefore they have no right to retain it: and
    consequently the plaintiff is well entitled to recover."

    It is the solicitors' case that the present case is indistinguishable
    from Clarke v. Shee and Johnson. In each case, the plaintiff's
    money was stolen - in that case by his servant, and in the present
    case by a partner - and then gambled away by the thief; and the
    plaintiff was or should be entitled to recover his money from the
    recipient in an action for money had and received. It is the
    respondents' case that the present case is distinguishable on one or
    more of the three grounds I have mentioned. I shall consider
    those three grounds in turn.

    Title to the money

    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 in Clarke
    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 in Clarke 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.

    - 15 -

    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. On this aspect of
    the case, therefore, 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.

    Before your Lordships, and no doubt before the courts
    below, elaborate argument was advanced by counsel upon this
    issue. The respondents relied in particular upon two decisions of
    the Privy Council as showing that where a partner obtains money
    by drawing on a partnership bank account without authority, he
    alone and not the partnership obtains legal title to the money so
    obtained. These cases. Union Bank of Australia Ltd, v. McClintock
    [
    [1922] 1 A.C, 240 and Commercial Banking Co. of Sydney Ltd, v.
    Mann
    [1961] AC 1, were in fact concerned with bankers' cheques:
    but for the respondents it was submitted that the same principle
    was applicable in the case of cash. The solicitors argued that
    these cases were wrongly decided, or alternatively sought to
    distinguish them on a number of grounds. I shall have to examine
    these cases in some detail when I come to consider the
    respondents' cross-appeal in respect of the banker's draft; and, as
    will then appear, I am not prepared to depart from decisions of
    such high authority as these. 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.

    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. Thus, in Taylor v.
    Plumer
    (1815) 3 M. & S. 562, where Sir Thomas Plumer gave a
    draft to a stockbroker for the purpose of buying exchequer bills,
    and the stockbroker instead used the draft for buying American
    securities and doubloons for his own purposes, Sir Thomas was able

    - 16 -

    to trace his property into the securities and doubloons in the hands
    of the stockbroker, and so defeat a claim made to them by the
    stockbroker's assignees in bankruptcy. Of course, "tracing" or
    "following" property into its product involves a decision by the
    owner of the original property to assert his title to the product in
    place of his original property. This is sometimes referred to as
    ratification. I myself would not so describe it; but it has, in my
    opinion, at least one feature in common with ratification, that it
    cannot be relied upon so as to render an innocent recipient a
    wrongdoer (cf. Bolton Partners v. Lambert (1889) 41 ChD 295,
    307, per Cotton L.J. - "an act lawful at the time of its
    performance [cannot] be rendered unlawful, by the application of
    the doctrine of ratification.")

    I return to the present case. 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 ail material times in credit, the bank was the
    debtor and the solicitors were its creditors. Such a debt
    constitutes a chose in action, which is a species of property; and
    since the debt was enforceable at common law, the chose in
    action was legal property belonging to the solicitors at common
    law.

    There is in my opinion no reason why the solicitors should
    not be able to trace their property at common law in that chose
    in action, or in any part of it, into its product, i.e. cash drawn by
    Cass from their client account at the bank. Such a claim is
    consistent with their assertion that the money so obtained by Cass
    was their property at common law. Further, in claiming the
    money as money had and received, the solicitors have not sought
    to make the respondents liable on the basis of any wrong, a point
    which will be of relevance at a later stage, when I come to
    consider the defence of change of position.

    Authority for the solicitors' right to trace their property in
    this way is to be found in the decision of your Lordships' House in
    Marsh v. Keating (1834) 1 Bing. (N.C.) 198. Mrs. Keating was the
    proprietor of £12,000 interest or share in joint stock reduced 3 per
    cent. annuities, standing to her credit in the books of the Bank of
    England, where the accounts were entered in the form of debtor
    and creditor accounts in the ledgers of the bank. Under what
    purported to be a power of attorney given by Mrs. Keating to the
    firm of Marsh, Sibbard & Co., on which Mrs. Keating's signature
    was in fact forged by Henry Fauntleroy, a partner in Marsh,
    Sibbard & Co., an entry was made in the books of the Bank of
    England purporting to transfer £9,000 of Mrs. Keating's interest or
    share in the stock to William Tarbutt, to whom, on the
    instructions of Henry Fauntleroy, the stock had been sold for the
    sum of £6,018 15s. In due course, the broker who conducted the
    sale accounted for £6,013 2s.6d. (being the sale price less
    commission) by a cheque payable to Marsh & Co. Upon the
    discovery of the forgery, Mrs. Keating made a claim upon the
    Bank of England; and the bank requested Mrs. Keating to prove in
    the bankruptcy of the partners in Marsh & Co. in respect of the
    sum so received by them. Mrs. Keating then commenced an
    action, pursuant to an order of the Lord Chancellor, for the

    - 17 -

    purpose of trying the question whether the partners in Marsh &
    Co. were indebted to her, in which she claimed the sum so
    received by Marsh & Co. as money had and received to her use.
    The opinion of the judges was taken, and their opinion was to the
    effect that Mrs. Keating was entitled to succeed in her claim.
    Your Lordships' House ruled accordingly. It must follow a fortiori
    that the solicitors, as owners of the chose in action constituted by
    the indebtedness of the bank to them in respect of the sums paid
    into the client account, could trace their property in that chose in
    action into its direct product, the money drawn from the account
    by Cass. It further follows, from the concession made by the
    respondents, that the solicitors can follow their property into the
    hands of the respondents when it was paid to them at the club.

    Whether the respondents gave consideration for the money

    There is no doubt that the respondents received the money
    in good faith; but, as I have already recorded, there was an acute
    difference of opinion among the members of the Court of Appeal
    whether the respondents gave consideration for it. Parker L.J.
    was of opinion that they did so, for two reasons:

    (1) The club supplied chips in exchange for the money.
    The contract under which the chips were supplied was a separate
    contract, independent of the contracts under which bets were
    placed at the club; and the contract for the chips was not avoided
    as a contract by way of gaming and wagering under section 18 of
    the Gaming Act 1845.

    (2) Although the actual gaming contracts were void under
    the Act, nevertheless Cass in fact obtained in exchange for the
    money the chance of winning and of then being paid and so
    received valuable consideration from the club.

    May L.J. agreed with the first of these two reasons.
    Nicholls L.J. disagreed with both.

    I have to say at once that I am unable to accept the
    alternative basis upon which Parker L.J. held that consideration
    was given for the money, viz. that each time Cass placed a bet at
    the casino, he obtained in exchange the chance of winning and
    thus of being paid. In my opinion, when Cass placed a bet, he
    received nothing in return which constituted valuable consideration.
    The contract of gaming was void; in other words, it was binding in
    honour only. Cass knew, of course, that, if he won his bet, the
    club would pay him his winnings. But he had no legal right to
    claim them. He simply had a confident expectation that, in fact,
    the club would pay; indeed, if the club did not fulfil its obligations
    binding in honour upon it, it would very soon go out of business.
    But it does not follow that, when Cass placed the bet, he received
    anything that the law recognises as valuable consideration. In my
    opinion he did not do so. Indeed, to hold that consideration had
    been given for the money on this basis would, in my opinion, be
    inconsistent with Clarke v. Shee and Johnson (1774) 1 Cowp. 197,
    Lofft 756. Even when a winning bet has been paid, the gambler
    does not receive valuable consideration for his money. All that he
    receives is, in law, a gift from the club.

    - 18 -

    However, the first basis upon which Parker and May L.JJ.
    decided the point is more difficult. To that I now turn.

    In common sense terms, those who gambled at the club
    were not gambling for chips: they were gambling for money. As
    Davies L.J. said in C.H.T. Ltd, v. Ward [1965] 2 Q.B. 63, 79:

    "People do not game in order to win chips; they game
    in order to win money. The chips are not money or
    money's worth; they are mere counters or symbols used for
    the convenience of all concerned in the gaming."

    The convenience is manifest, especially from the point of view of
    the club. The club has the gambler's money up front, and large
    sums of cash are not floating around at the gaming tables. The
    chips are simply a convenient mechanism for facilitating gambling
    with money. The property in the chips as such remains in the
    club, so that there is no question of a gambler buying the chips
    from the club when he obtains them for cash.

    But this broad approach does not solve the problem, which

    is essentially one of analysis. I think it best to approach the

    problem by taking a situation unaffected by the impact of the
    Gaming Acts.

    Suppose that a large department store decides, for reasons
    of security, that all transactions in the store are to be effected
    by the customers using chips instead of money. On entering the
    store, or later, the customer goes to the cash desk and obtains
    chips to the amount he needs in exchange for cash or a cheque.
    When he buys goods, he presents chips for his purchase. Before he
    leaves the store, he presents his remaining chips, and receives cash
    in return. The example may be unrealistic, but in legal terms it
    is reasonably straightforward. A contract is made when the
    customer obtains his chips under which the store agrees that, if
    goods are purchased by the customer, the store will accept chips
    to the equivalent value of the price, and further that it will
    redeem for cash any chips returned to it before the customer
    leaves the store. If a customer offers to buy a certain item of
    goods at the store, and the girl behind the counter accepts his
    offer but then refuses to accept the customer's chips, the store
    will be in breach of the contract for chips. Likewise if, before he
    leaves the store, the customer hands in some or all of his chips
    at the cash desk, and the girl at the cash desk refuses to redeem
    them, the store will be in breach of the contract for chips.

    Each time that a customer buys goods, he enters into a
    contract of sale, under which the customer purchases goods at the
    store. This is a contract for the sale of goods; it is not a
    contract of exchange, under which goods are exchanged for chips,
    but a contract of sale, under which goods are bought for a price,
    i.e. for a money consideration. This is because, when the
    customer surrenders chips of the appropriate denomination, the
    store appropriates part of the money deposited with it towards the
    purchase. This does not however alter the fact that an
    independent contract is made for the chips when the customer
    originally obtains them at the cash desk. Indeed that contract is
    not dependent upon any contract of sale being entered into; the
    customer could walk around the store and buy nothing, and then be

    - 19 -

    entitled to redeem his chips in full under the terms of his
    contract with the store.

    But the question remains: when the customer hands over his
    cash at the cash desk, and receives his chips, does the store give
    valuable consideration for the money so received by it? In
    common sense terms, the answer is no. For, in substance and in
    reality, there is simply a gratuitous deposit of the money with the
    store, with liberty to the customer to draw upon that deposit to
    pay for any goods he buys at the store. The chips are no more
    than the mechanism by which that result is achieved without any
    cash being handed over at the sales counter, and by which the
    customer can claim repayment of any balance remaining of his
    deposit. If a technical approach is adopted, it might be said that,
    since the property in the money passes to the store as depositee,
    it then gives consideration for the money in the form of a chose
    in action created by its promise to repay a like sum, subject to
    draw-down in respect of goods purchased at the store. I however
    prefer the common sense approach. Nobody would say that the
    store has purchased the money by promising to repay it: the
    promise to repay is simply the means of giving effect to the
    gratuitous deposit of the money with the store. It follows that,
    by receiving the money in these circumstances, the store does not
    for present purposes give valuable consideration for it. Otherwise
    a bank with which money was deposited by an innocent donee from
    a thief could claim to be a bona fide purchaser of the money
    simply by virtue of the fact of the deposit.

    Let me next take the case of gambling at a casino. Of
    course, if gaming contracts were not void under English law by
    virtue of section 18 of the Gaming Act 1845, the result would be
    exactly the same. There would be a contract in respect of the
    chips, under which the money was deposited with the casino; and
    then separate contracts would be made when each bet was placed,
    at which point of time part or all of the money so deposited
    would be appropriated to the bets.

    However, contracts by way of gaming or wagering are void
    in English law. What is the effect of this? It is obvious that
    each time a bet is placed by the gambler, the agreement under
    which the bet is placed is an agreement by way of gaming or
    wagering, and so is rendered null and void. It follows, as I have
    said, that the casino, by accepting the bet, does not thereby give
    valuable consideration for the money which has been wagered by
    the gambler, because the casino is under no legal obligation to
    honour the bet. Of course, the gambler cannot recover the money
    from the casino on the ground of failure of consideration; for he
    has relied upon the casino to honour the wager - he has in law
    given the money to the casino, trusting that the casino will fulfil
    the obligation binding in honour upon it and pay him if he wins his
    bet - though if the casino does so its payment to the gambler will
    likewise be in law a gift. But suppose it is not the gambler but
    the true owner of the money (from whom the gambler has perhaps,
    as in the present case, stolen the money) who is claiming it from
    the casino. What then? In those circumstances the casino cannot,
    in my opinion, say that it has given valuable consideration for the
    money, whether or not the gambler's bet is successful. It has
    given no consideration if the bet is unsuccessful, because its
    promise to pay on a successful bet is void; nor has it done so if

    - 20 -

    the gambler's bet is successful and the casino has paid him his
    winnings, because that payment is in law a gift to the gambler by
    the casino.

    For these reasons I conclude, in agreement with Nicholls
    L.J., that the respondents did not give valuable consideration for
    the money. But the matter does not stop there; because there
    remains the question whether the respondents can rely upon the
    defence of change of position.

    Change of position

    I turn then to the last point on which the respondents relied
    to defeat the solicitors' claim for the money. This was that the
    claim advanced by the solicitors was in the form of an action for
    money had and received, and that such a claim should only
    succeed where the defendant was unjustly enriched at the expense
    of the plaintiff. If it would be unjust or unfair to order
    restitution, the claim should fail. It was for the court to consider
    the question of injustice or unfairness, on broad grounds. If the
    court thought that it would be unjust or unfair to hold the
    respondents liable to the solicitors, it should deny the solicitors
    recovery. Mr. Lightman, for the club, listed a number of reasons
    why, in his submission, it would be unfair to hold the respondents
    liable. These were (1) the club acted throughout in good faith,
    ignorant of the fact that the money had been stolen by Cass; (2)
    although the gaming contracts entered into by the club with Cass
    were ail void, nevertheless the club honoured all those contracts;
    (3) Cass was allowed to keep his winnings (to the extent that he
    did not gamble them away); (4) the gaming contracts were merely
    void not illegal; and (5) the solicitors' claim was no different in
    principle from a claim to recover against an innocent third party
    to whom the money was given and who no longer retained it.

    I accept that the solicitors' claim in the present case is
    founded upon the unjust enrichment of the club, and can only
    succeed if, in accordance with the principles of the law of
    restitution, the club was indeed unjustly enriched at the expense of
    the solicitors. The claim for money had and received is not, as I
    have previously mentioned, founded upon any wrong committed by
    the club against the solicitors. But it does not, in my opinion,
    follow that the court has carte blanche to reject the solicitors'
    claim simply because it thinks it unfair or unjust in the
    circumstances to grant recovery. The recovery of money in
    restitution is not, as a general rule, a matter of discretion for the
    court. A claim to recover money at common law is made as a
    matter of right; and even though the underlying principle of
    recovery is the principle of unjust enrichment, nevertheless, where
    recovery is denied, it is denied on the basis of legal principle.

    It is therefore necessary to consider whether Mr. Lightman's
    submission can be upheld on the basis of legal principle. In my
    opinion it is plain, from the nature of his submission, that he is in
    fact seeking to invoke a principle of change of position, asserting
    that recovery should be denied because of the change in position
    of the respondents, who acted in good faith throughout.

    Whether change of position is, or should be, recognised as a
    defence to claims in restitution is a subject which has been much

    - 21 -

    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.

    Historically, despite broad statements of Lord Mansfield to
    the effect that an action for money had and received will only lie
    where it is inequitable for the defendant to retain the money (see
    in particular Moses v. Macferlan (1760) 2 Burr. 1005), the defence
    has received at most only partial recognition in English law. I
    refer to two groups of cases which can arguably be said to rest
    upon change of position: (1) where an agent can defeat a claim to
    restitution on the ground that, before learning of the plaintiff's
    claim, he has paid the money over to his principal or otherwise
    altered his position in relation to his principal on the faith of the
    payment; and (2) certain cases concerned with bills of exchange, in
    which money paid under forged bills has been held irrecoverable on
    grounds which may, on one possible view, be rationalised in terms
    of change of position: see, e.g. Price v. Neal (1762) 3 Burr. 1354,
    and London and River Plate Bank Ltd, v. Bank of Liverpool [1896]
    1 Q.B. 7. There has however been no general recognition of any
    defence of change of position as such; indeed any such defence is
    inconsistent with the decisions of the Exchequer Division in
    Currant v. Ecclesiastical Commissioners for England and Wales
    (1880) 6 QBD 234, and of the Court of Appeal in Baylis v.
    Bishop of London
    [1913] 1 Ch 127. Instead, where change of
    position has been relied upon by the defendant, it has been usual
    to approach the problem as one of estoppel: see, e.g. R. E. Jones
    Ltd, v. Waring and Gillow Ltd.
    [1926] A.C. 670, and Avon County
    Council v. Hewlett
    [1983] 1 W.L.R. 605. But it is difficult to see
    the justification for such a rationalisation. 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. Again, it was held by
    the Court of Appeal in Avon County Council v. Hewlett 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,

    - 22 -

    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. Likewise, on facts such as
    those in the present case, if a thief steals my money and pays it
    to a third party who gives it away to charity, that third party
    should have a good defence to an action for money had and
    received. 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. It is
    recognised in the United States of America (see Restatement of
    Restitution,
    para. 142, and Palmer on Restitution, vol. III, para.
    16.8); it has been judicially recognised by the Supreme Court of
    Canada (see Rural Municipality of Storthoaks v. Mobil Oil Canada
    Ltd.
    (1975) 55 D.L.R. (3d) 1); it has been introduced by statute in
    New Zealand (Judicature Act 1908, section 94B (as amended)), and
    in Western Australia (see Western Australia Law Reform (Property,
    Perpetuities and Succession) Act 1962, section 24, and Western
    Australia Trustee Act 1962, section 65(8)), and it has been
    judicially recognised by the Supreme Court of Victoria (see Bank
    of New South Wales v. Murphett
    [1983] 1 V.R. 489). In the
    important case of Australia and New Zealand Banking Group Ltd,
    v. Westpac Banking Corporation
    (1988) 78 A.L.R. 187, there are
    strong indications that the High Court of Australia may be moving
    towards the same destination (see especially at pp. 162 and 168,
    per curiam). The time for its recognition in this country is, in my
    opinion, long overdue.

    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 change of position may be a defence. A
    prominent example will, no doubt, be found in those cases where
    the plaintiff is seeking repayment of money paid under a mistake
    of fact; but I can see no reason why the defence should not also
    be available in principle in a case such as the present, where the
    plaintiff's money has been paid by a thief to an innocent donee,
    and the plaintiff then seeks repayment from the donee in an
    action for money had and received. At present I do not wish to
    state the principle any less broadly than this: that the defence is
    available to a person whose position has so changed that it would
    be inequitable in ail the circumstances to require him to make
    restitution, or alternatively to make restitution in full. I wish to
    stress however that the mere fact that the defendant has spent
    the money, in whole or in part, does not of itself render it
    inequitable that he should be called upon to repay, because the
    expenditure might in any event have been incurred by him in the
    ordinary course of things. I fear that the mistaken assumption
    that mere expenditure of money may be regarded as amounting to

    - 23 -

    a change of position for present purposes has led in the past to
    opposition by some to recognition of a defence which in fact is
    likely to be available only on comparatively rare occasions. In
    this connection I have particularly in mind the speech of Lord
    Simonds in Ministry of Health v. Simpson [1951] A.C. 251, 276.

    I wish to add two further footnotes. The defence of change
    of position is akin to the defence of bona fide purchase; but we
    cannot simply say that bona fide purchase is a species of change
    of position. This is because change of position will only avail a
    defendant to the extent that his position has been changed;
    whereas, where bona fide purchase is invoked, no inquiry is made
    (in most cases) into the adequacy of the consideration. Even so,
    the recognition of change of position as a defence should be
    doubly beneficial. It will enable a more generous approach to be
    taken to the recognition of the right to restitution, in the
    knowledge that the defence is, in appropriate cases, available; and
    while recognising the different functions of property at law and in
    equity, there may also in due course develop a more consistent
    approach to tracing claims, in which common defences are
    recognised as available to such claims, whether advanced at law or
    in equity.

    I turn to the application of this principle to the present
    case. In doing so, I think it right to stress at the outset that the
    respondents, by running a casino at the club, were conducting a
    perfectly lawful business. There is nothing unlawful about
    accepting bets at a casino; the only relevant consequence of the
    transactions being gambling transactions is that they are void. In
    other words, the transactions as such give rise to no legal
    obligations. Neither the gambler, nor the casino, can go to court
    to enforce a gaming transaction. That is the legal position. But
    the practical or business position is that, if a casino does not pay
    winnings when they are due, it will simply go out of business. So
    the obligation in honour to pay winnings is an obligation which, in
    business terms, the casino has to comply with. It is also relevant
    to bear in mind that, in the present case, there is no question of
    Cass having gambled on credit. In each case, the money was put
    up front, not paid to discharge the balance of an account kept for
    gambling debts. It was because the money was paid over, that the
    casino accepted the bets at all.

    In the course of argument before your Lordships, attention
    was focused upon the overall position of the respondents. From
    this it emerged, that, on the basis I have indicated (but excluding
    the banker's draft) at least £150,960 derived from money stolen by
    Cass from the solicitors was won by the club and lost by Cass.
    On this approach, the possibility arose that the effect of change
    of position should be to limit the amount recoverable by the
    solicitors to that sum. But there are difficulties in the way of
    this approach. Let us suppose that a gambler places two bets
    with a casino, using money stolen from a third party. The
    gambler wins the first bet and loses the second. So far as the
    winning bet is concerned, it is readily understandable that the
    casino should be able to say that it is not liable to the true owner
    for money had and received, on the ground that it has changed its
    position in good faith. But at first sight it is not easy to see how
    it can aggregate the two bets together and say that, by paying
    winnings on the first bet in excess of both, it should be able to

    - 24 -

    deny liability in respect of the money received in respect of the
    second.

    There are other ways in which the problem might be
    approached, the first narrower and the second broader than that
    which I have just described. The narrower approach is to limit
    the impact of the winnings to the winning bet itself, so that the
    amount of all other bets placed with the plantiff's money would be
    reoverable by him regardless of the substantial winnings paid by
    the casino to the gambler on the winning bet. On the broader
    approach, it could be said that, each time a bet is accepted by
    the casino, with the money up front, the casino, by accepting the
    bet, so changes its position in good faith that it would inequitable
    to require it to pay the money back to the true owner. This
    would be because, by accepting the bet, the casino has committed
    itself, in business terms, to pay the gambler his winnings if
    successful. In such circumstances, the bookmaker could say that,
    acting in good faith, he had changed his position, by incurring the
    risk of having to pay a sum of money substantially larger than the
    amount of the stake. On this basis, it would be irrelevant
    whether the gambler won the bet or not, or, if he did win the
    bet, how much he won.

    I must confess that I have not found the point an easy one.
    But in the end I have come to the conclusion that on the facts of
    the present case the first of these three solutions is appropriate.
    Let us suppose that only one bet was placed by a gambler at a
    casino with the plaintiff's money, and that he lost it. In that
    simple case, although it is true that the casino will have changed
    its position to the extent that it has incurred the risk, it will in
    the result have paid out nothing to the gambler, and so prima
    facie it would not be inequitable to require it to repay the amount
    of the bet to the plaintiff. The same would, of course, be equally
    true if the gambler placed a hundred bets with the plaintiff's
    money and lost them all; the plaintiff should be entitled to
    recover the amount of all the bets. This conclusion has the merit
    of consistency with the decision of the Court of King's Bench in
    Clarke v. Shee and Johnson (1774) 1 Cowp. 197, Lofft. 756. But
    then, let us suppose that the gambler has won one or more out of
    one hundred bets placed by him with the plaintiff's money at the
    casino over a certain period of time, and that the casino has paid
    him a substantial sum in winnings, equal, let us assume, to one
    half of the amount of all the bets. Given that it is not
    inequitable to require the casino to repay to the plaintiff the
    amount of the bets in full where no winnings have been paid, it
    would, in the circumstances I have just described, be inequitable,
    in my opinion, to require the casino to repay to the plaintiff more
    than one half of his money. The inequity, as I perceive it, arises
    from the nature of gambling itself. In gambling only an occasional
    bet is won, but when the gambler wins he will receive much more
    than the stake placed for his winning bet. True, there may be no
    immediate connection between the bets. They may be placed on
    different occasions, and each one is a separate gaming contract.
    But the point is that there has been a series of transactions under
    which all the bets have been placed by paying the plaintiff's
    money to the casino, and on each occasion the casino has incurred
    the risk that the gambler will win. It is the totality of the bets
    which yields, by the laws of chance, the occasional winning bet;
    and the occasional winning bet is therefore, in practical terms, the

    - 25 -

    result of the casino changing its position by incurring the risk of
    losing on each occasion when a bet is placed with it by the
    gambler. So, when in such circumstances the plaintiff seeks to
    recover from the casino the amount of several bets placed with it
    by a gambler with his money, it would be inequitable to require
    the casino to repay in full without bringing into account winnings
    paid by it to the gambler on any one or more of the bets so
    placed with it. The result may not be entirely logical; but it is
    surely just.

    For these reasons, I would allow the solicitors' appeal in
    respect of the money, limited however to the sum of £150,960.

    The respondents' cross-appeal in respect of the banker's draft

    The Court of Appeal unanimously affirmed the decision of
    the judge that the respondents were liable in damages for the
    conversion of the banker's draft. Two main issues arose on this
    aspect of the case. The first issue was whether the legal title to
    the draft was vested in the solicitors so as to enable them to
    claim that the draft was converted by the respondents, or that
    they were alternatively liable, on the basis of waiver of the tort
    of conversion, to pay to the solicitors the amount of the draft
    received by them from the bank as money had and received for
    the use of the solicitors. The second issue was whether, if such
    legal title was vested in the solicitors, the respondents could then
    defeat their claim on the ground that they were holders in due
    course and so protected by section 38(2) of the Bills of Exchange
    Act 1882. The judge held that the banker's draft, having been
    originally obtained for a lawful purpose and then improperly
    indorsed by Cass, was at all material times the property of the
    solicitors. He further held that, on the facts of the case, the
    respondents did not become holders in due course. He therefore
    held the respondents liable in damages for conversion [1987] 1
    W.L.R. 987, 994-995. In the Court of Appeal, May L.J. upheld the
    judge's decision, expressly affirming his conclusion that on the
    facts the respondents were not holders in due course [1989] 1
    W.L.R. 1340, 1360; and Parker L.J. likewise upheld the judge's
    decision, expressly affirming his conclusion that the solicitors
    obtained a good title to the draft. Nicholls L.J. agreed with
    Parker L.J., at p. 1387 that, for the reasons given by him, the
    solicitors obtained a good title to the draft; and he further held
    that, since (as with the cash exchanged for chips) the respondents
    did not give value for the draft, they could not become holders in
    due course under the Act.

    I wish to say at once, in agreement with Nicholls L.J. and
    for the reasons I have already given, that the respondents never
    gave value for the draft, any more than they gave valuable
    consideration for the solicitors' money paid to them by Cass. It
    follows that the respondents were never holders in due course of
    the draft. The only question remaining is whether the solicitors
    obtained title to the draft.

    On this aspect of the case, the respondents relied strongly
    on the decision of the Judicial Committee of the Privy Council in
    Commercial Banking Co. of Sydney v. Mann [1961] AC 1, in
    which the Board consisted of Viscount Simonds, Lord Reid, Lord
    Radcliffe, Lord Tucker and Lord Morris of Borth-y-Gest, the

    - 26 -

    advice of the Board being given by Viscount Simonds. In that
    case, the respondent Mann carried on his profession as a solicitor
    in Sydney in partnership with a man called Richardson. Mann and
    Richardson maintained a "trust account" in the name of the
    partnership with a branch of the Australian and New Zealand Bank
    in Sydney ("the A.N.Z. bank"). Under the partnership agreement,
    all the assets of the partnership were the property of Mann, but
    cheques might be drawn on the partnership bank account by either
    partner, Mann having given the necessary authority to the A.N.Z.
    bank to enable Richardson to draw on the partnership account with
    it. Richardson, in purported exercise of that authority, drew a
    number of cheques on that account, in each case there being
    inserted, after the word "Pay" in the printed form of cheque, the
    words "Bank cheque favour H. Ward" or "Bank cheque H. Ward;" he
    also filed application forms for bank cheques in favour of H. Ward
    to a like amount, purporting to sign them on behalf of the firm.
    He took the documents to the A.N.Z. bank, which in each case
    debited the firm's account and issued a bank draft of an equal
    amount in the form "Pay H. Ward or bearer." Each cheque was
    then taken by Ward to a branch of the appellant bank, and cashed
    over the counter. In due course, each of the cheques was paid by
    the A.N.Z. bank to the appellant bank. From first to last the
    part played by Richardson was fraudulent; Ward was not a client
    of the partnership, nor had any client authorised the payment to
    him of any money held in the trust account. Mann then sued the
    appellant bank for conversion of the bank cheques, or alternatively
    to recover the sums received by it from the A.N.Z. bank as money
    had and received to his use. He succeeded in his claim before the
    trial judge, whose decision was affirmed by the Court of Appeal of
    New South Wales. The Privy Council however allowed the appeal,
    holding (1) that Mann never obtained any title to the cheques, and
    (2) that he could not obtain title by ratifying the conduct of
    Richardson in obtaining the cheques from the A.N.Z. bank, without
    at the same time ratifying the dealings in the cheques by Ward
    and the appellant bank (a conclusion which could, in my opinion,
    have been reached on the alternative basis that Mann could not,
    by ratifying the conduct of Richardson in obtaining the cheques,
    thereby render the innocent appellant bank a wrongdoer). It
    followed that Mann's claim for damages for conversion failed, and
    that his alternative claim for money had and received also failed.
    In so holding, the Board applied the previous decision of the Privy
    Council in Union Bank of Australia Ltd, v. McClintock [1922] 1
    A.C. 240, which they held to be indistinguishable on both points
    from the case before them.

    It was the submission of the respondents in the present
    appeal that both cases are indistinguishable from the present case,
    and accordingly that in the present case the solicitors never had
    sufficient title to the banker's draft to found an action for
    damages for conversion against the respondents (or a claim for
    money had and received), and further that they could not make
    good their title by ratification of Cass's action in obtaining the
    money from the solicitors' client account at the bank without also
    ratifying his action in using the money for gambling at the club.

    It is of some interest to record the process of reasoning by
    which the Board in Mann's case reached their conclusion on the
    issue of title. Viscount Simonds said [1961] AC 1, 8:

    - 27 -

    "It is important to distinguish between what was
    Richardson's authority in relation on the one hand to the
    A.N.Z. bank and on the other to Mann. No question arises
    in these proceedings between Mann and the A.N.Z. bank. It
    is clear that Mann could not as between himself and the
    bank question Richardson's authority to draw cheques on the
    trust account. The position as between Mann and
    Richardson was different. Richardson had no authority,
    express or implied, from Mann either to draw cheques on
    the trust account or to obtain bank cheques in exchange for
    them except for the proper purposes of the partnership. If
    he exceeded those purposes, his act was unauthorised and
    open to challenge by Mann. It is in these circumstances
    that the question must be asked whether, as the judge held,
    the bank cheques were throughout the property of Mann. It
    is irrelevant to this question what was the relation between
    Richardson and Ward and whether the latter gave any
    consideration for the bank cheques that he received and at
    what stage Mann learned of the fraud that had been
    practised upon him. The proposition upon which the
    respondent founds his claim is simple enough: Richardson
    was his partner and in that capacity was able to draw upon
    the trust account and so to obtain from the bank its
    promissory notes: therefore the notes were the property of
    the partnership and belonged to Mann, and Richardson could
    not give a better title to a third party than he himself
    had."

    He then referred to the previous decision of the Privy Council in
    McClintock's case [1922] 1 AC 240 and continued, [1961] AC 1,

    10-11:

    "This is a direct decision that, if the acts of McClintock
    were unauthorised in the relevant sense of that word, the
    bank cheques did not when issued become the property of
    the plaintiffs. It appears to their Lordships that the
    majority of the full court in McClintock's case erred in
    regarding as decisive the fact that as between the plaintiffs
    and the bank McClintock was authorised to obtain bank
    cheques, whereas the relevant question was whether
    McClintock was as between the plaintiffs and himself
    authorised to obtain the particular cheques that were
    converted. Upon the verdict of the jury that he was not so
    authorised, they should have come to the opposite
    conclusion. In the same way in the present case the judge,
    having found that Richardson obtained the bank cheques in
    question in fraud of Mann and without his authority, should
    have gone on to hold that they did not become the property
    of Mann. Whether they became his by his subsequent
    ratification of the acts of Richardson is another question,
    which their Lordships will examine just as it was examined
    in McClintock's case. Upon what has been called the main
    question they observe that they could not hold that the
    respondent acquired a property in the bank cheques without
    directly contradicting a decision which has in 40 years been
    the subject of no adverse comment. And they would add
    that it appears to be in accordance with principle. They
    agree with the analysis of the transaction which was
    submitted by counsel for the appellant. In effect

    - 28 -

    Richardson, by means of unauthorised cheques,
    misappropriated moneys in the trust account and used them
    to acquire bank cheques from the A.N.Z. bank which bound
    that bank to pay Ward or bearer out of its own money the
    amounts specified in the cheques. Their Lordships were not
    referred to any case in which in such circumstances
    property so acquired has been held to belong automatically
    to the party defrauded. In the present case, as in
    McClintock's case, counsel sought to rely on such cases as
    Cundy v. Lindsay [(1878) 3 App. Cas. 459, H.L.], but it
    appears to their Lordships as it must have done to the
    Board in McClintock's case, that the principle that the
    purchaser of a chattel takes it, as a general rule, subject to
    what may turn out to be informalities of title has no
    application to a case of misappropriation of funds by an
    agent and their subsequent application for his own purposes.
    That there is a remedy, perhaps more than one, available to
    the person defrauded is obvious, but that is not to say that
    the property so acquired at once belongs to him so that he
    can sue in conversion a third party into whose hands it has

    come."

    In the Court of Appeal, Parker L.J. stated that he had great
    difficulty in following the reasoning in the two cases [1989] 1
    W.L.R. 1340, 1371 F-G. I feel bound to say that I find the
    reasoning in the passage I have quoted completely clear. Before
    your Lordships, Mr. O'Brien for the solicitors was bold enough to
    suggest that your Lordships should hold that these cases were
    wrongly decided. It would take a great deal to persuade me to do
    so, having regard to the distinction of the judges involved; and I
    have heard no argument that persuades me to do so. In my
    opinion, the crucial question is whether, on the facts of the
    present case, the solicitors have succeeded in distinguishing Mann's
    case [1961] AC 1 on acceptable grounds.

    The judge distinguished the case as follows. He held that
    the draft was originally obtained by Cass for a lawful purpose; he
    therefore received the draft with the authority of his partners, and
    the draft then became the property of the solicitors. This finding
    was strongly challenged by the respondents, both before the Court
    of Appeal and before your Lordships, on the ground that the point
    was never pleaded, and that there was in any event no evidence to
    support the judge's conclusion. Parker L.J. simply rejected the
    respondents' argument on this point without reasons; but having
    heard full argument upon it, I am satisfied that the respondents
    are justified in their complaint. It is plain that the point was
    never pleaded; indeed the solicitors' pleaded case was that the
    draft was obtained by Cass as part of his fraudulent design to loot
    money from the solicitors' client account for his own purposes. If
    the point had been pleaded, it would have been a matter for
    investigation at the trial whether the draft had indeed been
    obtained for a proper purpose, for example for the purpose of
    completion of a conveyancing transaction. As it was, there was
    no investigation of this point, and there was no evidence to
    support the judge's finding.

    Parker L.J. sought to distinguish Mann's case [1961] AC 1
    on another ground, viz. that the draft had been obtained from the
    bank by Chapman and then handed by him to Cass; and that when

    - 29 -

    Chapman received the draft, it was his duty to hand it to the
    solicitors and the property therefore passed to the solicitors when
    he obtained possession of it. The difficulty with this approach is
    that it appears to proceed on the assumption that Chapman was
    acting innocently in obtaining the banker's draft from the bank and
    handing it to Cass; whereas the judge held that he had been
    suborned by Cass: see [1987] 1 W.L.R. 987, 1018. In my opinion,
    the receipt by Chapman of the banker's draft was no different
    than the receipt by Cass himself, and the introduction of Chapman
    into the picture makes no difference.

    However, before your Lordships Mr. O'Brien for the
    solicitors submitted that Mann's case could be distinguished from
    the present case because the banker's cheques in that case were
    made payable to a third party (Ward) or bearer, whereas in the
    present case the banker's draft was made payable to the solicitors.
    Now it is true that, in Mann's case, it cannot have been the
    intention of the A.N.Z. bank that the property in the banker's
    cheques should, on delivery to Richardson, immediately pass to
    Ward. Even so, the point seems to me to be of crucial
    importance. For the effect of the banker's draft in the present
    case having been made payable to the solicitors is, in my opinion,
    that the solicitors had the immediate right to possession of the
    draft against any other person, including, of course, Cass. On this
    basis, as it seems to me, the solicitors had vested in them, as
    from the moment when the banker's draft was delivered to Cass
    (through Chapman) by the bank, sufficient title to enable them to
    bring an action for damages for conversion of the draft.
    Authority for this proposition is to be found in Bute (Marquess) v.
    Barclays Bank Ltd.
    [1955] 1 Q.B. 202. In that case one McGaw,
    the manager of three farms belonging to the plaintiff, applied to
    the Department of Agriculture for Scotland for certain subsidies in
    respect of the farms. After McGaw had left the plaintiff's
    employment, the department sent to him, in satisfaction of the
    application, three warrants in respect of the subsidies. The
    warrants were made payable to McGaw, but elsewhere on them
    appeared the words "for the Marquess of Bute." McGaw paid the
    warrants into his own personal account at a branch of defendant
    bank, which forwarded them for collection and paid the proceeds
    into his account, upon which he then drew. It was held by McNair
    J. that the plaintiff was entitled to succeed in an action against
    the defendant bank for damages for conversion. McNair J. held
    that the words "for the Marquess of Bute" had the effect that, in
    the circumstances, the warrants were payable to the Marquess of
    Bute through McGaw. He further held that, in order to succeed in
    an action for conversion, it was enough that the plaintiff could
    prove that, at the time of the alleged conversion, he was entitled
    to immediate possession; and that, as McGaw's employment had
    terminated before he received the warrants, the plaintiff would
    have been entitled to require McGaw to deliver the warrants to
    him when they were received. So also in the present case, as
    soon as the bank handed over the banker's draft, the solicitors
    were entitled to require its delivery to them, the draft being made
    payable to them and neither Chapman nor Cass having any right to
    retain it against them. It is of some interest to observe that,
    consistent with this approach, the banker's draft could not be
    transferred without indorsement by or on behalf of the solicitors;
    and that when Cass used the draft at the casino, he purported to
    indorse it on behalf of the solicitors, although of course he did so
    without authority.

    - 30 -

    For this reason, which constitutes another ground upon which
    Parker L.J. relied in the Court of Appeal, I am of the opinion
    that the solicitors had sufficient title to enable them to proceed
    in an action of conversion against Cass, or, in due course, against
    the respondents. It follows that since, for the reasons I have
    already given, the respondents cannot claim to have been holders
    in due course of the banker's draft, their cross-appeal must fail.

    I understand that (failing agreement between them) counsel
    for the parties will make submissions to your Lordships on interest
    and costs after judgment has been delivered.

    - 31 -


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