Lipkin Gorman (A Firm)(Appellants(Plaintiffs) v (1) Karpnale Ltd (formerly Playboy Club of London Ltd) (Respondent (2) Lloyds Bank Plc (Respondent(Defendant)

JurisdictionEngland & Wales
CourtCourt of Appeal
JudgeLORD JUSTICE MAY,LORD JUSTICE PARKER,LORD JUSTICE NICHOLLS
Judgment Date13 Oct 1988
Judgment citation (vLex)[1988] EWCA Civ J1013-8
Docket Number88/0812

[1988] EWCA Civ J1013-8

IN THE SUPREME COURT OF JUDICATURE

COURT OF APPEAL (CIVIL DIVISION)

ON APPEAL FROM THE HIGH COURT OF JUSTICE

QUEEN'S BENCH DIVISION

(Mr. Justice Alliott)

Royal Courts of Justice

Before:

Lord Justice May

Lord Justice Parker

and

Lord Justice Nicholls

88/0812

Between
Lipkin Gorman (a Firm)
Appellants(Plaintiffs)
and
(1) Karpnale Limited (formerly Playboy Club of London Ltd)
Respondent (Defendant)
(2) Lloyds Bank Plc
Respondent(Defendant)

MR. DERMOD P. O'BRIEN, Q.C., MR. THOMAS PUTNAM AND MR. SIMON GAULT (instructed by Messrs Reynolds Porter Chamberlain) appeared on behalf of the Appellants/Plaintiffs.

MR. GAVIN A. LIGHTMAN, Q.C. and MR. ALAN G. BOYLE (instructed by Messrs Clifford Chance) appeared on behalf of the Respondent/First Defendant.

MR. JONATHAN P. SUMPTION Q.C. and MR. RICHARD SLADE (instructed by Messrs Linklaters and Paines) appeared on behalf of the Respondent/Second Defendant.

LORD JUSTICE MAY
1

We have before us an appeal and cross-appeals against a judgment of Alliott J. given on 8th April 1986. For the sake of clarity I shall refer to the plaintiffs in the action as "the Solicitors". The first defendants were previously known as the Playboy Club of London Ltd.: as such they operated the Playboy Club in Park Lane and in this judgment I shall refer to them as "the Club" or "the Casino". Finally, I shall refer to the second defendants in the litigation as "the Bank". The basic facts of this case are simple. One Norman Barry Cass was a compulsive gambler. He was also from 1978 to 1980 a partner in the Solicitors and able to draw upon their clients' account on his signature alone. This account was maintained and operated at the Bank's branch in Brook Street, London W1. Cass's personal resources were insufficient to fund his addiction and consequently, from some time probably in July 1979, he began to use, and thus steal, monies from the Solicitors' clients' account. As the learned judge said, precise quantification of the sums which Cass took was difficult but the net loss to the clients' account, taking account of substantial recredits, cannot have been less than £222,908.98.

2

The causes of action relied on by the Solicitors in the court below were numerous. They succeeded, first, against the Club in conversion of a draft for £3,735, originally obtained by Cass for a proper purpose, but improperly accepted for the purposes of gaming by a servant of the Club. Secondly, they succeeded against the Bank as a constructive trustee of the monies in the Solicitors' clients' account on the ground of the want of probity of the Bank's Manager of the Brook Street Branch at least since 3rd July 1980. However the learned judge held that they discovered Cass's dishonesty and had only themselves to blame for any loss sustained by them after 1st October 1980. He computed the loss of the Solicitors over the short period from May to October 1980 as £87,187.34. In the result, after a three week trial and by a reserved judgment, the learned judge gave judgment for the Solicitors against the Club for £6,400, comprising the value of the draft of £3,735 with interest of £2,665 and half the Solicitors' costs of the action against the Club from 14th May 1985. He further gave judgment for the Solicitors against the Bank for £151,706.17, comprising the loss of £87,187.34 together with £64,518.83 interest and their costs of the action. On the Bank's counterclaim on an undertaking given in the relevant period by Cass, he gave judgment for them against the Solicitors for the sum of £5,000 plus interest of £3,700, a total of £8,700 and their costs of the counterclaim. The learned judge also gave leave to both the Club and the Bank to appeal on the question of costs.

3

Before this court the Solicitors contended that the Club were liable to them for the full amount of £222,908.98 as money had and received and that they were entitled to maintain their judgment for the conversion of the draft for £3,735. Against the Bank they claimed the full amount lost on the basis that the Bank had at all material times, not just for the limited period of six months, been a constructive trustee rendering knowing assistance to Cass in his dishonesty or in the alternative as damages for breach of contract. Early in the argument however counsel for the Solicitors accepted that if he could not succeed in breach of contract he could not do so on any basis that the Bank had constituted itself a constructive trustee. In the result the principal contest before us between the Solicitors and the Club has been on the claim based in money had and received; and between the Solicitors and the Bank on the allegation of breach of contract. Both the Club and the Bank have cross-appealed asking that each should have judgment against the Solicitors with costs. In the alternative, if they fail on the substantive points, they seek substantial variations in the orders for costs made at trial.

4

Although we heard the appeals between the Solicitors and the Bank first, in this judgment I deal at the outset with the Solicitors' claim against the Club. I do so because in my opinion there is a simple answer to it, namely that the latter took Cass's money bona fide, without notice of the defect in his title and for value. Save that is in respect of the claim on the draft for £3,375.

5

Counsel for the Solicitors sought to argue that the Club had not taken Cass's money for value because it had done so under a contract made void by the first limb of section 18 of the Gaming Act 1845. He submitted that Cass had exchanged his cash for the usual chips under a contract by way of gaming or wagering, that this was void under the statute and that consequently the Club had given no consideration for the exchange. However in Ellesmere v. Wallace [1929] 2 Ch.1 the court clearly held that the phrase a "contract by way of gaming or wagering" meant a contract for or of gaming or wagering (see e.g. Lawrence L.J. at page 33 and per Russell L.J. at page 48). Thus if on the exchange of money and chips there came into being a contract between Cass and the Club it was not one avoided by section 128 of the 1845 Act.

6

Faced with this authority, counsel alternatively submitted that on a realistic analysis (cf. Hill v. William Hill (Park Lane) Ltd. [1949] A.C.530 no contract between the two parties was made. All that happened, he contended, was that the parties treated cash on the one hand and chips on the other as interchangeable; there was no element of purchase for value. Thus he could trace the Solicitors' cash even into the Club's bank account. See Banque Beige Pour L'Etranger v. Hambrouck [1921] 1 K.B.321 and the discussion in the Law of Restitution, Third Edition, by Lord Goff of Chieveley and Professor Jones at pages 65 to 69. For my part, however, this is not a realistic analysis in this case: for his money, at the least, Cass obtained chips which enabled him to game; he could use them for cash when purchasing refreshment in the Club; it was implicit that the latter undertook to cash all his chips in when he wished it to do so and to give him the appropriate sum of money. Such an arrangement was clearly an agreement supported by valuable consideration moving from the Club and in my opinion must in law have been a contract—though not one by way of gaming or wagering.

7

In my opinion, therefore, the Solicitors' claim against the Club on the basis of "money had and received" had to fail, as the learned judge held, though on different grounds from those on which I would dismiss the claim.

8

In passing, I comment that one must not let one's mind be prejudiced by the gambling context that there is behind the Solicitors' claim against the Club. The latter was licensed under the relevant statutes and its gambling activities were entirely lawful. In such circumstances there was in my opinion no, or no sufficient element of "unfair enrichment" on the part of the Club to entitle the Solicitors to succeed against them.

9

As I have indicated, I think that this point is a short one and I know that I shall not be considered discourteous if I do not refer to the number of authorities and other arguments put before us on the issue.

10

Next, but subject to the preliminary point with which I now deal, the extent of the Bank's knowledge of Cass's conduct, principally by Mr. Fox, their Manager, actual or inferential which was material to the three allegations of want of probity, constructive trusteeship and negligence respectively, was argued both before us and the learned judge below with reference to the categorisation of the types of knowledge referred to in the judgment of Peter Gibson J. in Baden, Delvaux and Lecuit v. Societe Generale [1985] B.C.L.C.258, namely:

  • (1) actual knowledge;

  • (ii) wilfully shutting one's eye to the obvious;

  • (iii) wilfully and recklessly failing to make such inquiries as an honest and reasonable man would make:

  • (iv) knowledge of circumstances which would indicate the facts to an honest and reasonable man;

  • (v) knowledge of circumstances which would put an honest and reasonable man on inquiry.

11

However when counsel for the Solicitors began to open the appeal against the Bank, on the basis that its manager, Fox, was aware of Cass's fraudulent designs in one or other of the first three of the five senses listed by Peter Gibson J. and thus must have been a party to them, counsel for the Bank objected, as he had below, that such a contention was not open to the Solicitors on their pleadings. However we allowed counsel for the appellants to argue his contention that the Bank knew of Cass's dishonesty de bene esse, saying that we would deal with the objection taken on the pleadings in our judgment.

12

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