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action. The Court of Appeal accepted counsel's submission that the bank could not be liable as constructive trustee if it was not shown to be at least negligent. May LJ also asserted nothing less than actual knowledge should constitute a third party as constructive trustee. The Court further held that the bank had not been negligent, and thus could not be liable as constructive trustee. The Court noted the large number of cheques cleared daily, and that in this case only approximately one-seventh of the cheques drawn on the firm's account were fraudulent (and that the firm was one of over 2,800 customers of the bank branch). May LJ held "There is nothing ... express or implied, which could require a banker to consider the commercial wisdom or otherwise of the particular transaction. ... In my opinion any implied term requiring the banker to exercise care must be limited. To a substantial extent the banker's obligation under such a contract is largely automatic or mechanical. Presented with a cheque drawn in accordance with the terms of that contract, the bank must honour it save in what I would expect to be exceptional circumstances."
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which was owned by
Karpnale Ltd. Between March and November 1980, the club won £154,695 of the stolen money (the rest paid back to Mr Cass in ‘winnings’). Mr Cass fled to Israel, but was brought back and sentenced to three years prison for theft in 1984. Lipkin Gorman sued the club for return of the
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1 WLR 1340 at 1356A-B. He want on to expound: "it is, in my opinion, only when circumstances are such that any reasonable cashier would hesitate to pay a cheque at one and refer it to his or her superior, and when any reasonable superior would hesitate to authorise payment without inquiry, that a
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if they can show that in the circumstances the club was unjustly enriched at the expense of the solicitors… 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
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There were two broad claims against the bank: one as constructive trustee and other for negligence. Each alleged that the bank knew or ought to have known that Cass was drawing on the firm's bank account for the purposes of satisfying his personal gambling problem, and yet they failed to take any
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As a result, the defence of change of position was recognized for the first time in
English law and it succeeded as a partial defence here. Because the winnings have been paid out to Cass, the club has effectively changed its position and its liability is limited to the remaining sum of £150,960.
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Although the decision of the Court of Appeal is often overlooked because of the importance of the House of Lord's judgment, the judgments of the Court of Appeal on the issue of bank liability were not appealed, and remain the leading authority on the duty of care owed by a bank to its customer.
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relating to a bank draft). The House of Lords judged that the club had to repay Lipkin Gorman the proportion of the stolen money which the club had won from Mr Cass, thus enriching themselves. Lipkin Gorman were partially successful against their bank in the High Court, but lost in the Court of
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BCLC 325, being (1) actual knowledge, (2) shutting one's eyes to the obvious, (3) wilfully and recklessly failing to make such inquiries as a reasonable and honest man would, (4) knowledge of circumstances which would indicate the facts to a reasonable and honest man, and (5) knowledge of
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The trial at first instance lasted three weeks and came before Alliot J. The Court of Appeal noted that the trial judge had a particularly complex task, trying to reconcile a large number of different pleaded causes of action together with complex and sprawling allegations of fact.
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It was noted that there was a certain irony to this pleading, as the firm finally became aware of what was transpiring on 1 October 1980. Yet for nearly two months the firm did nothing as Cass continued to steal money from the firm for gambling. See 1 WLR 1340 at
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failed. Against the bank the judge made a stinging series of findings, including that "Mr Fox deliberately and systematically suppressed his knowledge of Cass' gambling from coming to his superior's notice", and that "Mr Fox deliberately lied to Mr Gorman."
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Unfortunately, the discussion of the issue in the Court of Appeal was complicated because of the way the plaintiff law firm's claim was pleaded and the offering of no evidence by the bank. Nonetheless the comments of the Court of Appeal are important.
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The House of Lords held that £150,960 should be repaid as money had and received, and the club was also liable for damages of £3,735 to the solicitors for conversion of a banker’s draft that had been used once for gambling, rather than cash.
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Although the judgment of Parker LJ considers the point in greater depth, the judgment of May LJ spends little over a page on this point ( 1340 at 1349D to 1350E) which would engaged the House of Lords at considerably greater
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334:. Although they accepted that gaming contracts were void, prior to the gambling the money was exchanged for chips, which were as good as cash inside the club for gambling or paying for drinks or other entertainment.
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Although the case is most famous for the transformative judgment handed down by the House of Lords in relation to restitution and unjust enrichment, the decision of the
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At first instance the claims were equally focussed upon the club and the firm's bankers (against whom the claimant solicitors pleaded both
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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.
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Alliot J gave judgment against the club, but only for conversion of a bank draft for a relatively small amount. The larger claim for
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dismissed the claims of the firm against the club for money had and received on the basis that the club had provided good
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dissenting), dismissed the majority of Lipkin Gorman's claims against the club (save only for a relatively small claim in
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Norman Barry Cass was a partner in a solicitors' firm called Lipkin Gorman. He was an authorised signatory at the firm’s
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owed by bankers to their customers. There was no appeal against that part of the decision to the House of Lords.
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Appeal on appeal and cross-appeal, and they abandoned their claim against the bank in the House of Lords.
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is also an important banking law decision in its own right, setting out key principles relating to the
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unanimously established that the basis of an action for money had and received is the principle of
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Overturned on this point by the House of Lords. However, the Court of Appeal noted that the
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stolen money. At the time, gambling contracts were contrary to public policy, and therefore
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cheque should not be paid immediately on presentation and such inquiry made.
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1 WLR 1340 at 1355D. Counsel considered the five stage scale set out by
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circumstances that would put a reasonable and honest man on inquiry.
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Lipkin Gorman (a firm) v (1) Karpnale Ltd, and (2) Lloyds Bank plc
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account. He took out £220,000 and used it for gambling at the
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said that the change of position defence was debated but
185:. This secured unjust enrichment as the third pillar in
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Carl-Zeiss
Stiftung v Herbert Smith & Co (No 2)
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322:all three judges gave reasoned judgments. Both
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672:Baden, Delvaux and Lecuit v Societe Generale
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583:Consequences of Impaired Consent Transfers
509:Belmont Finance Corp v Williams Ltd (No 2)
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535:Criterion Properties plc v Stratford LLC
443:Banque Belge pour L'Etranger v Hambrouck
362:the club must reimburse the solicitors.
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420:
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150:Unjust enrichment, change of position
357:said, the money could be recovered.
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302:" and offered no evidence.
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158:Lipkin Gorman v Karpnale Ltd
24:Lipkin Gorman v Karpnale Ltd
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456:Agip (Africa) Ltd v Jackson
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307:money had and received
163:[1988] UKHL 12
139:Lord Goff of Chieveley
123:Lord Bridge of Harwich
109:1 WLR 987 (High Court)
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292:constructive trustees
93:Full text from Bailii
723:House of Lords cases
433:(1826) 2 C&P 176
296:Jonathan Sumption QC
657:1 WLR 1340 at 1373D
191:law of obligations
183:change of position
615:1 WLR 987 at 1012
593:978-3-16-149790-2
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421:Ignorance sources
300:no case to answer
290:and liability as
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378:Significance
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230:Playboy Club
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99:Case history
76:4 All ER 331
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16:English case
262:Nicholls LJ
226:Lloyds Bank
187:English law
179:restitution
135:Lord Ackner
64:6 June 1991
707:Categories
522:Re Diplock
288:negligence
266:conversion
250:High Court
241:under the
169:case. The
89:Transcript
82:12 LDAB 73
606:1 WLR 987
367:Lord Goff
328:Parker LJ
273:Judgments
258:Parker LJ
80:1 LRC 730
69:Citations
580:(2009).
487:2 Ch 276
447:1 KB 321
387:See also
195:contract
145:Keywords
84:NLJR 815
78:3 WLR 10
74:2 AC 548
638:length.
539:UKHL 28
472:UKHL 12
318:In the
189:of the
72:UKHL 12
61:Decided
648:1359G.
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525:AC 251
499:Ch 264
459:Ch 265
324:May LJ
260:, but
254:May LJ
565:Notes
232:, 45
220:Facts
161:
41:Court
588:ISBN
546:See
326:and
256:and
239:void
199:tort
197:and
670:in
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414:e
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400:v
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