Lipkin Gorman (a firm) v Karpnale Ltd [1991] 2 AC 548

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The Structure of Property Law: D4:2.2.2. Lipkin Gorman (a firm) v Karpnale Ltd [1991] 2 AC 548. Lipkin Gorman v Karpnale : Initial position. B (the partners of a firm) have a bank account: a personal right against Z Bank. Z Bank. - PowerPoint PPT Presentation

Transcript of Lipkin Gorman (a firm) v Karpnale Ltd [1991] 2 AC 548

  • Lipkin Gorman (a firm) v Karpnale Ltd [1991] 2 AC 548

    The Structure of Property Law: D4:2.2.2

  • Lipkin Gorman v Karpnale: Initial position Z Bank B B (the partners of a firm) have a bank account: a personal right against Z Bank C (a partner of the firm) has the authority to withdraw money from the account

  • Lipkin Gorman v Karpnale: Cs fraud Z Bank B C, acting without the permission of the other partners, withdraws money for his own purposesCPaymentC2- C then gambles with that money in C2s casino and losesPayment

  • Lipkin Gorman v Karpnale: Question 1 Z Bank BCPaymentC2Payment- Does B have a direct right against C2?- The House of Lords says Yes: C2, by its receipt of money from C, is unjustly enriched at Bs expense

  • Lipkin Gorman v Karpnale: Problems with the decision? 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) When C received money from Z Bank, that money belonged to C: B had no property right in the money but there may be an alternative explanation for the result

  • Lipkin Gorman v Karpnale: Question 2 Z Bank BCs right to the moneyPayment- 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

  • Lipkin Gorman v Karpnale: Question 2 Z Bank BC2s right to the money- B has a power to impose a duty on C2- It is crucial that, when C2 learns of Bs initial persistent right, C2 still has the money received from C or its traceable productCs right to the money

  • Lipkin Gorman v Karpnale: Question 3 Z Bank BC2s right to the money- Does C2 have a defence to Bs persistent right?- No: e.g. C2 was not a bona fide purchaser of the money: it provided nothing of legal value in return for itCs right to the moneyDefence for C2?

  • 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)

  • Banque Belge pur lEtranger v Hambrouck[1921] 1 KB 321

    The Structure of Property Law: D4:2.2.2

  • Banque Belge v Hambrouck: Initial position B Bank X X has an account with B Bank (Banque Belge)

  • Banque Belge v Hambrouck: Cs fraud B Bank X C, an employee of X, fraudulently obtains cheques drawn on Xs account with B BankCPaymentC2- C presents those cheques and money is paid from B Bank into Cs account at another bankPayment- C pays money from that account to C2s account at a further bank

  • 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

  • Banque Belge: Problems with the decision? 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 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 D1:2.2.2(ii)) but there may be an alternative explanation for the result

  • Banque Belge: Question 2 B Bank B BankCs right against Cs bankPayment- 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 D4:3.2.2)

  • Banque Belge: Question 2 B 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)Cs personal right against Cs bankC2s personal right against C2s bank

  • Banque Belge: Question 3 B Bank B BankC2s right v C2s bank- Does C2 have a defence to B Banks persistent right?- No: eg C2 was not a bona fide purchaser of her right: she provided nothing of legal value in return for itCs right v Cs bankDefence for C2?

  • 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

  • Agip (Africa) Ltd v Jackson[1991] Ch 547

    The Structure of Property Law: D4:2.2.2

  • Agip v Jackson: Initial position Z Bank B B (the partners of a firm) have a bank account: a personal right against Z Bank

  • Agip v Jackson: A and Cs fraud Z Bank B Cs personal right against Cs 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- Before the receipt of the $518,000, Cs account with Cs Bank was empty

  • Agip v Jackson: A and Cs fraud Z Bank B Cs personal right against Cs bankC2s personal right against C2s 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 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

  • Agip v Jackson: Bs claim B also brought a claim against C3 & C4 (the two partners in C2) and C5 (an employee of C3 & C4) 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 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 D3:2.3.6)

  • Agip v Jackson: the Court of Appeals decision 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 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

  • Agip v Jackson: the Court of Appeals reasoning 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 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 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

  • Agip v Jackson: Question 2 Z Bank BCs right against Cs bankPayment- 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 D4:3.2.2)

  • Agip v Jackson: Question 2 Z Bank B - 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 moneyCs personal right against Cs bankC2s personal right against C2s bank

  • Agip v Jackson: Question 3 Z Bank BC2s right to the money- Does C2 have a defence to Bs persistent right?- No: eg C2 was not a bona fide purchaser of its right to the money: it provided nothing of legal value in return for itCs right to the moneyDefence for C2?

  • Agip v Jackson: The Court of Appeals decisioni) C2 held its bank account on Trust for itself and B It thus seems accurate to say, as the Court of Appeal did, that: 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 ii) C3, C4 and C5 assisted C2 in breaching its duties, as trustee, to B