Lipkin Gorman (a firm) v Karpnale Ltd - PowerPoint PPT Presentation

Title: Lipkin Gorman (a firm) v Karpnale Ltd


1
The Structure of Property Law D42.2.2
Lipkin Gorman (a firm) v Karpnale Ltd 1991 2
AC 548
2
Lipkin Gorman v Karpnale Initial position

• B (the partners of a firm) have a bank account
  a personal right against Z Bank

Z Bank

• C (a partner of the firm) has the authority to
  withdraw money from the account

B
3
Lipkin Gorman v Karpnale Cs fraud
Payment
Payment
Z Bank
C
C2

• C, acting without the permission of the other
  partners, withdraws money for his own purposes

B
- C then gambles with that money in C2s casino
and loses
4
Lipkin Gorman v Karpnale Question 1
Payment
Payment
Z Bank
C
C2
- Does B have a direct right against C2?
B
- The House of Lords says Yes C2, by its
receipt of money from C, is unjustly enriched at
Bs expense
5
Lipkin Gorman v Karpnale Problems with the
decision?

• When C received money from Z Bank, that money
  belonged to C B had no property right in the
  money

• So it is hard to see how C2, when receiving the
  money from C, was unjustly enriched at Bs
  expense the money it received belonged wholly to
  C (see pp 294-5)

• but there may be an alternative explanation for
  the result

6
Lipkin Gorman v Karpnale Question 2
Payment
Z Bank
Cs right to the money
- Does B have a persistent right against Cs
right to the money?
- Yes C, by his receipt of the money, is
unjustly enriched at Bs expense (an equal sum is
validly deducted from Bs account). C is
therefore under a duty to B not to use the money
for Cs benefit so C holds its right to the
money on Trust for B
B
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Lipkin Gorman v Karpnale Question 2
C2s right to the money
Cs right to the money
Z Bank
- B has a power to impose a duty on C2
B
- It is crucial that, when C2 learns of Bs
initial persistent right, C2 still has the money
received from C or its traceable product
8
Lipkin Gorman v Karpnale Question 3
C2s right to the money
Cs right to the money
Z Bank
Defence for C2?
- Does C2 have a defence to Bs persistent right?
B
- No e.g. C2 was not a bona fide purchaser of
the money it provided nothing of legal value in
return for it
9
Lipkin Gorman v Karpnale An alternative
explanation

• When Z Bank paid money from the account to C, B
  had a persistent right against Cs right to the
  money and C2 has no defence to that right

• So, if C2 still has that money (or its traceable
  product) B has a power to impose a duty on C2 not
  to use that money for C2s own benefit (see pp
  295-8)

• This explanation may also be used in other cases
  such as Banque Belge pur lEstranger v Hambrouck
  and Agip v Jackson (see following slides)

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The Structure of Property Law D42.2.2
Banque Belge pur lEtranger v Hambrouck 1921 1
KB 321
11
Banque Belge v Hambrouck Initial position
B Bank

• X has an account with B Bank (Banque Belge)

X
12
Banque Belge v Hambrouck Cs fraud
Payment
Payment
B Bank
C
C2

• C, an employee of X, fraudulently obtains
  cheques drawn on Xs account with B Bank

- C presents those cheques and money is paid from
B Bank into Cs account at another bank
X
- C pays money from that account to C2s account
at a further bank
13
Banque Belge Court of Appeals decision

• As the money was obtained by Cs fraud it was
  never Cs property (per Scrutton LJ at 328,
  explaining the reasoning of the court below in
  finding in Bs favour) that money can now be
  traced to 315 in C2s bank account and so C2s
  bank can be made to pay 315 to B

14
Banque Belge Problems with the decision?

• Even if B Bank had paid specific notes to C, if
  Cs fraud does not cause B Bank to be mistaken as
  to Bs identity, it does not prevent a transfer
  of B Banks Ownership of the notes (see
  D12.2.2(ii))

• In a modern bank transfer, B Bank does not
  transfer its Ownership of any specific notes
  instead there is a debit to B Bank and a credit
  to Cs bank (see eg Agip (Africa) Ltd v Jackson
  later slides) so B Bank cannot show that C has
  received any property of B Bank

• but there may be an alternative explanation for
  the result

15
Banque Belge Question 2
Payment
B Bank
Cs right against Cs bank
- Does B have a persistent right against Cs
right?
- Yes C, by its receipt of the money, is
unjustly enriched at B Banks expense. C is
therefore under a duty to B Bank not to use his
right against C Bank for Cs own benefit so C
holds his right on Trust for B Bank (see
D43.2.2)
B Bank
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Banque Belge Question 2
Cs personal right against Cs bank
C2s personal right against C2s bank
B Bank
- B has a power to impose a duty on C2
- It is crucial that, when C2 learns of B Banks
initial persistent right, C2 still has the right
received from C or its traceable product (in this
case, C2s personal right to 315 from C2s bank)
B Bank
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Banque Belge Question 3
C2s right v C2s bank
Cs right v Cs bank
B Bank
Defence for C2?
- Does C2 have a defence to B Banks persistent
right?
B Bank
- No eg C2 was not a bona fide purchaser of
her right she provided nothing of legal value in
return for it
18
Banque Belge An alternative explanation

• When B Bank made the payment, C acquired a right
  against Cs bank C acquired that right at B
  Banks expense and, as C was a fraudster, there
  was no legal basis for C to have the benefit of
  that right

• As a result, C held his right against Cs bank
  on Trust for B Bank (a Resulting Trust)

• C2 acquired a right that depended on Cs right
  against Cs bank and C2 had no defence against
  B Banks pre-existing persistent right

• B Bank therefore had a power, which it
  exercised, to impose a duty on C2 to use for B
  Banks benefit her right to receive 315 from her
  bank

19
The Structure of Property Law D42.2.2
Agip (Africa) Ltd v Jackson 1991 Ch 547
20
Agip v Jackson Initial position

• B (the partners of a firm) have a bank account
  a personal right against Z Bank

Z Bank
B
21
Agip v Jackson A and Cs fraud
Cs personal right against Cs bank
Z Bank

• A, an accountant employed by B, changes the
  payee of cheques drawn on Bs account with Z Bank

- As a result, C acquires a personal right to
518,000 against Cs Bank and Bs account with Z
Bank is debited by 518,000
B
- Before the receipt of the 518,000, Cs account
with Cs Bank was empty
22
Agip v Jackson A and Cs fraud
Cs personal right against Cs bank
C2s personal right against C2s bank
Z Bank
- C then transfers the entire value of 518,000
to C2s account with the same bank

• C2s account was previously 7,000 in credit and
  so is now 525,000 in credit

B

• On Cs instructions, C2 then pays that money out
  to various parties nominated by C as a result,
  the credit in C2s account is reduced to 45,000

23
Agip v Jackson Bs claim

• C2s bank had already paid into court the
  remaining 45,000 credited to C2s account
  there was no objection by C2 to B taking that
  money

• B also brought a claim against C3 C4 (the two
  partners in C2) and C5 (an employee of C3 C4)

• Millett J found that none of C3, C4 and C5 had
  held any right on Trust for B none had received
  and held for his own benefit any part of the
  518,000 (1990 1 Ch 265 at 292 B did not
  appeal against that finding). But Millett J found
  that C and C2 had held on Trust for B and C3, C4
  and C5 had committed the wrong of dishonestly
  assisting C and C2 to breach their fiduciary
  duties, as trustees, to B (see D32.3.6)

24
Agip v Jackson the Court of Appeals decision

• C3, C4 and C5 appealed, arguing that neither C
  nor C2 had held any right on Trust for B and so
  C3, C4 or C5 could not have assisted in any
  breach of Trust

• but the Court of Appeal upheld Millett Js
  decision C3, C4 and C5 had committed the wrong
  of dishonestly assisting in a breach of Trust

25
Agip v Jackson the Court of Appeals reasoning

• The approach adopted by the Court of Appeal in
  Banque Belge cannot apply the credit to Cs
  account came from Cs Bank not from B so B
  cannot show that C or C2 has received Bs property

• However, it is possible for B to trace in
  equity to show that, in equity, the rights
  received by C and then C2 are the product of Bs
  initial right against Z Bank

• so C (and C2) held a right on Trust for B and
  C3, C4 and C5 dishonestly assisted in breaching
  that Trust by assisting C (and C2) to dispose of
  the value of that right

26
Agip v Jackson Question 2
Payment
Z Bank
Cs right against Cs bank
- Does B have a persistent right against Cs
right to the money?
- Yes C, by his receipt of the money, is
unjustly enriched at B Banks expense. C is
therefore under a duty to B Bank not to use his
right against C Bank for Cs own benefit so C
holds its right on Trust for B (see D43.2.2)
B
27
Agip v Jackson Question 2
Cs personal right against Cs bank
C2s personal right against C2s bank
Z Bank
- B has a power to impose a duty on C2
- C2 is under a duty to B when it acquires
sufficient awareness of Bs initial persistent
right ie when B makes a request for the return
of the money
B
28
Agip v Jackson Question 3
C2s right to the money
Cs right to the money
Z Bank
Defence for C2?
- Does C2 have a defence to Bs persistent right?
B
- No eg C2 was not a bona fide purchaser of
its right to the money it provided nothing of
legal value in return for it
29
Agip v Jackson The Court of Appeals decision

• It thus seems accurate to say, as the Court of
  Appeal did, that

i) C2 held its bank account on Trust for itself
and B
ii) C3, C4 and C5 assisted C2 in
breaching its duties, as trustee, to B

• So, given the finding of Millett J, upheld by
  the Court of Appeal, that C3, C4 and C5 were
  dishonest, each must have committed the wrong of
  dishonestly assisting C2 to breach its duties, as
  trustee, to B