Lipkin Gorman v Karpnale [1988] UKHL 12

House of Lords

Lipkin GormanAppellantKarpnaleRespondent
Lord Bridge of HarwichLord TemplemanLord GriffithsLord AcknerLord Goff of Chieveley

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 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

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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.

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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

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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

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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

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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."

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Mr. Lightman, who appeared on behalf of the club, sought to distinguish this authority on the ground that the Lottery Act 1772 made the contract between the servant and the defendants illegal and not merely void and imposed a criminal penalty for breach of the statute. For present purposes, however, it does not seem to me to matter whether the contract upon which the defendant relies as affording consideration for receipt of stolen money is illegal as provided by the Lottery Act 1772 or void as provided by the Gaming Act 1845. In each case the contract cannot be relied upon to support the retention by the defendant of stolen money derived from the plaintiff.In Aubert v. Walsh (1810) 3 Taunt. 277 there was a wager on 15 September 1808 that the war with France would end before 1 July 1810. One party to the wager withdrew in October 1808 and was held entitled to recover his stake from the other party. Lord Mansfield said, at p. 283:
"why should not a man say, you and I have agreed so and so, but the agreement is good for nothing; I cannot bind you, and you cannot bind me, therefore I desire, before the event happens, that you will pay me back my money:"
In the present case Cass could not bind the solicitors so both before and after the event, they can recover their money to the extent that as between the club and the solicitors, the stakes unjustly enriched the club and were retained by the club.In Hudson v. Robinson (1816) 4 M. & S. 475, a partner fraudulently contracted in the names of the partnership to sell goods to the plaintiff. The fraud received the purchase price from the plaintiff and defaulted in delivery of the goods. It was held that the plaintiff could recover the purchase price from the fraud as money had and received. Lord Ellenborough C.J. said, at p. 478:
"It is said that an action for money had and received is not maintainable in this case. But an action for money had and received is maintainable whenever the money of one man has, without consideration, got into the pocket of another. Here the money of the plaintiffs has got into the pocket of the defendant; and the question is whether this has been without any consideration. The consideration was the supposed right of the defendant to dispose of the goods as partnership property, which was the inducement to the plaintiffs to give this bill, under which they have been obliged to pay the money. The defendant had no such right; therefore the absence of any consideration entitles the plaintiffs to maintain this action, and still more so where the money has got into the defendant's pocket through the medium of a fraud."
Here the money of the solicitors got into the pocket of the club without any consideration.In Bainbrigge v. Browne (1881) 18 ChD 188 , the plaintiff children, under the influence of their father, charged by deed their reversionary interest under a settlement as security for advances

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made by the defendants to the father. Fry J. held, at p. 197, that undue influence:
"operates against the person who is able to exercise the influence (in this case it was the father) and in my judgment, it would operate against every volunteer who claimed under him, and also against every person who claimed under him with notice of the equity thereby created or with notice of the circumstances from which the court infers the equity."
On the facts the defendants who were not volunteers did not have the requisite notice and were entitled to enforce their security. In the present case the club is in the same position as a volunteer.In Shoolbred v. Roberts [1899] 2 QB 560 , an undischarged bankrupt played a match at billiards for £100 a side, the money being deposited with stakeholders. The bankrupt was the winner. It was held that the trustee in bankruptcy of the winner was entitled to recover from the stakeholder the bankrupt's stake of £100 but not the stake of the loser. Phillimore J. held, at p. 564, that on the authorities:
" ... I am bound now to hold . . . that where people embark in a perfectly lawful game and contest of skill, not trusting to fortune but to skill, to ascertain the comparative eminence of the two persons, the sums which they deposit to make a joint award are to be considered by the law as sums deposited by way of wagering, the contract is null and void, and the winner cannot recover the fund."
A fortiori, the club, as against the solicitors, is not entitled to retain the solicitors' money on the grounds that the club might have lost and paid its wager with Cass.Phillimore J. also held in Shoolbred v. Roberts, at pp. 564- 565, that the £100 staked by the bankrupt was his money and was part of his property which his trustee in bankruptcy had a right to recover from the stakeholder. If the bankrupt at any time received from the stakeholder the stake of £100 which had been deposited by the loser, that receipt "must be in the eye of the law a voluntary gift by the stakeholders" or by the loser or possibly by both to the bankrupt; and if the loser should receive it of the bounty of the winner or of the bounty of the stakeholders or at the bounty of both, so far it would not go to the trustee in bankruptcy.When Cass lost and paid £154,695 to the club as a result of gaming contracts, he made to the club a completed gift of £154,695. The club received stolen money by way of gift from the thief; the club, being a volunteer, has been unjustly enriched at the expense of the solicitors from whom the money had been stolen and the club must reimburse the solicitors.In Black v. S. Freeman & Co. (1910) 12 C.L.R. 105, the High Court of Australia held that money stolen by a husband and handed over to his wife by way of gift to her could be recovered by the victim. O'Connor J. said, at p. 110:

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"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

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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

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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.

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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

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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

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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

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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 G off 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.

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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

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to trace his property into the securities and doubloons in the hands of the stockbroker, and so defeat a claim made to them by the stockbroker's assignees in bankruptcy. Of course, "tracing" or "following" property into its product involves a decision by the owner of the original property to assert his title to the product in place of his original property. This is sometimes referred to as ratification. I myself would not so describe it; but it has, in my opinion, at least one feature in common with ratification, that it cannot be relied upon so as to render an innocent recipient a wrongdoer (cf. Bolton Partners v. Lambert (1889) 41 ChD 295 , 307, per Cotton L.J. - "an act lawful at the time of its performance [cannot] be rendered unlawful, by the application of the doctrine of ratification.")I return to the present case. Before Cass drew upon the solicitors' client account at the bank, there was of course no question of the solicitors having any legal property in any cash lying at the bank. The relationship of the bank with the solicitors was essentially that of debtor and creditor; and since the client account was at ail material times in credit, the bank was the debtor and the solicitors were its creditors. Such a debt constitutes a chose in action, which is a species of property; and since the debt was enforceable at common law, the chose in action was legal property belonging to the solicitors at common law.There is in my opinion no reason why the solicitors should not be able to trace their property at common law in that chose in action, or in any part of it, into its product, i.e. cash drawn by Cass from their client account at the bank. Such a claim is consistent with their assertion that the money so obtained by Cass was their property at common law. Further, in claiming the money as money had and received, the solicitors have not sought to make the respondents liable on the basis of any wrong, a point which will be of relevance at a later stage, when I come to consider the defence of change of position.Authority for the solicitors' right to trace their property in this way is to be found in the decision of your Lordships' House in Marsh v. Keating (1834) 1 Bing. (N.C.) 198. Mrs. Keating was the proprietor of £12,000 interest or share in joint stock reduced 3 per cent. annuities, standing to her credit in the books of the Bank of England, where the accounts were entered in the form of debtor and creditor accounts in the ledgers of the bank. Under what purported to be a power of attorney given by Mrs. Keating to the firm of Marsh, Sibbard & Co., on which Mrs. Keating's signature was in fact forged by Henry Fauntleroy, a partner in Marsh, Sibbard & Co., an entry was made in the books of the Bank of England purporting to transfer £9,000 of Mrs. Keating's interest or share in the stock to William Tarbutt, to whom, on the instructions of Henry Fauntleroy, the stock had been sold for the sum of £6,018 15s. In due course, the broker who conducted the sale accounted for £6,013 2s.6d. (being the sale price less commission) by a cheque payable to Marsh & Co. Upon the discovery of the forgery, Mrs. Keating made a claim upon the Bank of England; and the bank requested Mrs. Keating to prove in the bankruptcy of the partners in Marsh & Co. in respect of the sum so received by them. Mrs. Keating then commenced an action, pursuant to an order of the Lord Chancellor, for the

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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.

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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

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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

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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

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debated in the books. It is however a matter on which there is a remarkable unanimity of view, the consensus being to the effect that such a defence should be recognised in English law. I myself am under no doubt that this is right.Historically, despite broad statements of Lord Mansfield to the effect that an action for money had and received will only lie where it is inequitable for the defendant to retain the money (see in particular Moses v. Macferlan (1760) 2 Burr. 1005), the defence has received at most only partial recognition in English law. I refer to two groups of cases which can arguably be said to rest upon change of position:(1) where an agent can defeat a claim to restitution on the ground that, before learning of the plaintiff's claim, he has paid the money over to his principal or otherwise altered his position in relation to his principal on the faith of the payment; and(2) certain cases concerned with bills of exchange, in which money paid under forged bills has been held irrecoverable on grounds which may, on one possible view, be rationalised in terms of change of position: see, e.g. Price v. Neal (1762) 3 Burr. 1354, and London and River Plate Bank Ltd, v. Bank of Liverpool [1896] 1 Q.B. 7. There has however been no general recognition of any defence of change of position as such; indeed any such defence is inconsistent with the decisions of the Exchequer Division in Currant v. Ecclesiastical Commissioners for England and Wales (1880) 6 QBD 234 , and of the Court of Appeal in Baylis v. Bishop of London [1913] 1 Ch 127 . Instead, where change of position has been relied upon by the defendant, it has been usual to approach the problem as one of estoppel: see, e.g. R. E. Jones Ltd, v. Waring and Gillow Ltd. [1926] A.C. 670, and Avon County Council v. Hewlett [1983] 1 W.L.R. 605. But it is difficult to see the justification for such a rationalisation. First, estoppel normally depends upon the existence of a representation by one party, in reliance upon which the representee has so changed his position that it is inequitable for the representor to go back upon his representation. But, in cases of restitution, the requirement of a representation appears to be unnecessary. It is true that, in cases where the plaintiff has paid money directly to the defendant, it has been argued (though with difficulty) that the plaintiff has represented to the defendant that he is entitled to the money; but in a case such as the present, in which the money is paid to an innocent donee by a thief, the true owner has made no representation whatever to the defendant. Again, it was held by the Court of Appeal in Avon County Council v. Hewlett that estoppel cannot operate pro tanto, with the effect that if, for example, the defendant has innocently changed his position by disposing of part of the money, a defence of estoppel would provide him with a defence to the whole of the claim. Considerations such as these provide a strong indication that, in many cases, estoppel is not an appropriate concept to deal with the problem.In these circumstances, it is right that we should ask ourselves: why do we feel that it would be unjust to allow restitution in cases such as these? The answer must be that, where an innocent defendant's position is so changed that he will suffer an injustice if called upon to repay or to repay in full, the injustice of requiring him so to repay outweighs the injustice of denying the plaintiff restitution. If the plaintiff pays money to the defendant under a mistake of fact, and the defendant then,

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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

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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

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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

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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

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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:

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"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

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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

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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.

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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.

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Cited in 1 later judgment