Lipkin Gorman v Karpnale [1988] UKHL 12 (06 June 1991)

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 Ch.D. 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 Q.B. 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 Ch.D. 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 Q.B.D. 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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