Giving money to family members on conditions

A recent decision from the New South Wales Court of Appeal highlights the complications that can come with giving money to family members on conditions without proper safeguards.

In Chong -v- Wu [2010] NSWCA 10, handed down on 2 March 2010, Mr Chong gave his sister over $5 million. Mr Chong, based in China, transferred the money to his sister’s bank account in Sydney.

Mr Chong gave evidence (which the trial court accepted) that the money was given to his sister on the condition she transfer it into his Australian bank account. Instead, the sister gave much of the money to her husband (Mr Wu) who lost most the money at the Star City and Crown Casinos.

Mr Chong sued both his sister and Mr Wu to recover the money. The trial court upheld the case against his sister but refused to allow recovery against Mr Wu. Mr Chong appealed to the New South Wales Court of Appeal.

The question for the Court of Appeal was whether Mr Wu should also be responsible for paying back the money he lost at the casinos.

The legal basis for Mr Chong’s claim against Mr Wu came from the English case of Lipman Gorman -v- Karpnale Ltd [1991] 2 AC 548. In that case a firm of solicitors successfully sued a gaming club for the return of money stolen from the firm’s trust account and lost at the club.

Mr Wu argued that his case was different to Lipman Gorman. In Lipman Gorman, the gaming club had accepted a cheque drawn on the firm’s trust account as payment for gaming chips. Mr Wu argued that, unlike the gaming club, he had no idea that the money belonged to Mr Chong and thought his wife was entitled to give it to him to do with as he pleased.

Also, in Lipman Gorman, the gaming club still had the money that had been stolen, but Mr Wu said that all the money he had received was gone, and that because it was lost in good faith, Mr Chong could not ask him to give it back.

The Court of Appeal ultimately decided for Mr Wu. The Court held that a person who loses someone else’s money is not liable to pay them back unless they knew that it was not theirs to lose.

Mr Chong was therefore presumably left with the choice of accepting a $5 million loss or enforcing a judgment and possibly bankrupting a sister.

The case demonstrates the importance of putting proper safeguards in place when providing money to anyone on conditions including family members. Otherwise, the chances of recovering the money may be slim.