Lipkin Gorman v Karpnale Ltd  2 AC 548
Consideration and gaming contracts.
The plaintiffs were a firm of solicitors at which Cass was a partner. Cass was a compulsive gambler and dishonestly obtained money from the firm’s bank account to gamble at the defendant’s club. Out of £229,908 gambled he lost £154,695. Cass used the money to buy gambling chips from the club which were used to place bets and could be exchanged for winnings but were worthless in themselves and remained the property of the club. When Cass was convicted of theft the solicitors sought to recover the money from the club.
Under s.18 Gambling Act 1945 gaming contracts were rendered void. The plaintiffs argued that as a result there was no valuable consideration and the thief could not pass good title to the stolen money under the equitable tracing rules, even if the recipient was an innocent party. The club argued that it had given consideration for the chips and that they were an innocent recipient. They also argued that, as the money had been mixed with other money, it could not be traced.
Their Lordships found for the plaintiffs. The gaming contract was void under the 1945 Act and the chips were only a mechanism for facilitating gambling; the gambler did not buy them. Therefore, the club had not given valuable consideration. Under equitable tracing rules, an innocent person receiving stolen money only had to repay the owner if they had not given consideration for it. However, as it would have been unjust to require the defendants to repay money in reliance of which they had changed their position, they only had to repay the net amount lost by Cass, which was £154,695.