Grosvenor Casinos Ltd v National Bank of Abu Dhabi

The basis for the claim in deceit is that the “paid” advice given by Mr Subhi to Miss Pattison in relation to Cheque A on 8 February 2000 was a fraudulent misrepresentation. The elements of the tort of deceit were usefully summarised by David Steel J in the recent case of Uzinterimpex JSC v Standard Bank plc [2007] EWHC 1151 (Comm); [2007] 2 Lloyd’s Rep 187 at para 106 as follows:

“It was common ground that Innovatsia's primary claim was in deceit. The elements of the tort are well established. I would summarise them as follows:

(a)

The defendant must have made a representation which can be clearly identified.

(b)

It must be a representation of fact.

(c)

The representation must be false.

(d)

It must have been made dishonestly in the sense that the representor has no real belief in the truth of what he states: this involves conscious knowledge of the falsity of the statement.

(e)

The statement must have been intended to be relied upon.

(f)

It must have in fact been relied upon: see Derry v Peek (1889) 14 App Cas 337, Angus v Clifford [1891] 2 Ch 449, Armstrong v Strain [1951] 1 TLR 856, The Kriti Palm [2007] 1 Lloyd's Rep 555.

In addition, all the elements must be established by reference to the heightened burden of proof as discussed in Hornal v Neuberger Products Ltd [1954] 1 QB 247, Re H (Minors) [1996] AC 563.”

Mr Stephen Phillips QC on behalf of Grosvenor contends that all these elements are satisfied in this case. In giving the paid answer Mr Subhi must have known and intended that a paid answer would be understood as confirmation that sufficient funds were available to honour the cheque, that steps were being taken to remit the funds and that the recipient of the advice could safely regard the cheque as paid and expect the funds to be remitted in due course. The true position, as Grosvenor points out and as Mr Subhi must have known was that, when the paid answer was given on 8 February 2000, there were nothing like sufficient funds available in Mr Al-Reyaysa’s account to honour the cheque and there is no evidence that any other facility was available from which sufficient funds could be transferred straightaway. In common with any other bank, NBAD would not honour a cheque unless and until sufficient funds were available in the account on which the cheque was drawn. Since those funds never arrived in the account, the cheque was never honoured.

Grosvenor also contends that Mr Subhi was aware that paid advices which he gave to Nat West were being passed on to its customer, even though he may not have known who that customer was, and that the customer would rely on the advice. It submits that the law is clear that provided that a third party is “within the class of persons within the [representor’s] contemplation as likely to be deceived” that is sufficient for the tort of deceit: see Clerk & Lindsell on Torts 19^th edition para 18-29. Equally, it is not necessary, to establish the tort, that the representor intended the claimant to act in the precise way in which it did in reliance on the representation. Grosvenor contends that it did rely on the “paid” advice in allowing Mr Al-Reyaysa to continue to use his CCF on 8 February and the ensuing days until 17 February 2000. This included the acceptance of Cheque B. I have already referred above to the alternative ways in which Grosvenor puts the quantum of its alleged loss.

NBAD’s case, as advanced by Mr Stephen Auld QC, is that when one looks at what was said in the conversation on 8 February 2000, Mr Subhi cannot have been representing that the funds were already in Mr Al-Reyaysa’s account and available to be remitted, otherwise why would he not have said that the funds would be remitted the following day as opposed to, potentially, almost a week later (“early next week”). NBAD submits that this “paid” answer like others meant no more than that the cheque was in order and that he was confident that funds would be made available in the near future by or on behalf of Mr Al-Reyaysa to honour the cheque. It is denied that Mr Subhi was dishonest. NBAD also denies that Grosvenor in fact relied upon the “paid” answer and says that, in any event, even if it did, Grosvenor did not suffer any loss as a consequence. On the contrary, NBAD contends that Grosvenor made a substantial profit from Mr Al-Reyaysa’s gambling during the relevant period.

The critical question of this part of the case is whether the “paid” answer given by Mr Subhi on 8 February 2000 was given dishonestly. It is clear from both Miss Pattison’s evidence and the Nat West records, that on that day, Mr Subhi did tell Miss Pattison that Cheque A (together with other cheques) was “paid”. It is also clear from her evidence that her understanding of what such a representation meant was that the cheque had been received by the collecting bank, in this case NBAD, that funds were available to honour the cheque and that the collecting bank was honouring the cheque. However, what matters here is not what Miss Pattison understood, but what Mr Subhi intended this “paid” answer to mean, as indeed Grosvenor accepted in its submissions.

Did he really intend it to mean that the funds were available and would be remitted as soon as possible, subject only to the internal vagaries of NBAD’s systems of money transfer? If he did, then he must have known that statement was not true, because on 8 February there were clearly insufficient funds available in the account to honour the cheque. Since NBAD admits in its Defence that he would have known that he was unable to provide a final irrevocable confirmation that funds were available and would thereafter be paid, if that is what he was representing, the representation was indeed fraudulent. Or did he mean, as NBAD contends, that the cheque was in order, that he was confident funds would be made available (as they had been in respect of earlier cheques) and once available would be remitted? If that is right, his statement was not dishonest.

In resolving the difficult issue whether there was a fraudulent misrepresentation, I have borne in mind the recent restatement of the law as to what constitutes dishonesty and the level of knowledge required to establish deceit by Rix LJ in The Kriti Palm [2006] EWCA Civ 1601;[2007] 1 Lloyd’s Rep 562 at paras 256-259. That case provides a salutary reminder to any judge as to the importance of not confusing fraud with incompetence, even if it amounts to gross negligence and as to the importance of being satisfied to the necessary heightened standard of proof that what is involved is dishonesty:

“As for the element of dishonesty, the leading cases are replete with statements of its vital importance and the warnings against watering down this ingredient into something akin to negligence, however gross. The standard direction is still that of Lord Herschell in Derry v Peek(1889) 14 App Cas 337 at 374

“First, in order to sustain an action in deceit, there must be proof of fraud and nothing short of that will suffice. Secondly, fraud is proved when it is shown that a false representation has been made (1) knowingly, (2) without belief in its truth, or (3) recklessly, careless whether it be true or false”.

In effect, recklessness is a species of dishonest knowledge, for in both cases there is an absence of belief in truth. It is for that reason that there is ‘proof of fraud’ in the cases of both knowledge and recklessness. This was stressed by Bowen LJ in Angus v Clifford [1891] 2 Ch 449 at 471 where he said ‘Not caring, in that context, did not mean not taking care, it meant indifference to the truth, the moral obliquity of which consists in a wilful disregard of the importance of truth, and unless you keep it clear that that is the true meaning of the term, you are constantly in danger of confusing the evidence from which the inference of dishonesty in the mind is to be drawn-evidence which consists in a great many cases of gross want of caution-with the inference of fraud, or of dishonesty itself, which has to be drawn after you have weighed all the evidence.’

And in Armstrong v Strain [1951] 1 TLR 856 at 871 Devlin J. after a full citation of passages in earlier authorities which stress the need for dishonesty (also called actual fraud, mensrea, or moral delinquency), said this about the necessary knowledge. ‘A man may be said to know a fact when once he has been told it and pigeon-holed it somewhere in his brain where it is more or less accessible in case of need. In another sense of the word a man knows a fact only when he is fully conscious of it. For an action of deceit there must be knowledge in the narrower sense, and conscious knowledge of falsity must always amount to wickedness and dishonesty. When Judges say, therefore, that wickedness and dishonesty must be present, they are not requiring a new ingredient for the tort of deceit so much as describing the sort of knowledge which is necessary.’

Moreover, whether it is in the matter of identifying the relevant misstatement or in the finding of a dishonest mind, it is necessary to bear in mind the heightened burden of proof which bears on the claimant, as discussed in cases from Hornal v Neuberger Products Ltd[1956] 3 All ER 970, [1957] 1 QB 247 toRe H (Minors) (sexual abuse standard of proof) [1996] 1 All ER 1, [1996] AC 563. In the latter case Lord Nicholls of Birkenhead said this (at 586):

"Built into the preponderance of probability standard is a generous degree of flexibility in respect of the seriousness of the allegation. Although the result is much the same, this does not mean that where a serious allegation is in issue the standard of proof required is higher. It means only that the inherent probability or improbability of an event is itself a matter to be taken into account when weighing the probabilities and deciding whether, on balance, the event occurred. The more improbable the event, the stronger must be the evidence that it did occur before, on the balance of probability, its occurrence will be established. Ungoed-Thomas J expressed this neatly in In re Dellow's Trusts [1964] 1 W.L.R. 451, 455: "The more serious the allegation the more cogent is the evidence required to overcome the unlikelihood of what is alleged and thus to prove it.””

In the present case, Grosvenor points to a number of matters in support of its case that Mr Subhi must have known that his “paid” answer would be understood as meaning that funds were available and would be remitted. First and foremost is the evidence of Miss Pattison herself, the person to whom any representation was made. Her firm and unshakeable evidence in her witness statement and in cross-examination was that on each occasion that she spoke to Mr Subhi, she made it perfectly clear to him in asking if a cheque was “paid” that the answer would be conveyed to her customer, so that in her mind there was no doubt that when he gave a paid answer, Mr Subhi was aware that she would tell her customer that the cheque was paid and the customer would expect payment on the value date within a reasonable timescale. She repeated that she was in no doubt that he understood what a “paid” answer meant and refuted any suggestion of confusion through language difficulties. This is obviously powerful evidence, but it is important to have in mind that she was not saying that she and Mr Subhi had had a specific discussion as to what a “paid” answer meant and, as she accepted in re-examination she was not concerned with the basis upon which he was able to tell her that a cheque was “paid”.

Next Grosvenor relies upon the evidence of Miss Pattison and of its banking expert Mr Sawyer in support of its contention that any experienced banker would know what a “paid” answer meant in relation to a cheque. Miss Pattison’s evidence was that over her career she had received about 11,000 verbal “paid” answers from other banks, including from a number of banks in the UAE and that Cheques A and B were the only cheques for which such an answer had been given where the funds had not been remitted. Mr Sawyer, who was a banker of considerable experience, said that requests for verbal “paid” answers are common in international cheque collections and that an experienced banker would know that a verbal paid answer was being sought for a specific reason. As he put it in cross-examination, many bankers worldwide would be familiar with the concept of “would be paid” and “paid” answers. However, his evidence fell short of supporting some universal international banking practice as to what was meant by a paid answer.

Grosvenor contends that when the collection instruction letter of 7 February 2000 asked for “Advice of fate” on the cheque, it only allowed for one or other of two answers, “paid” in the sense the letter contemplated, namely that funds were actually being remitted or “unpaid”. Reliance is placed on the words of the letter “if paid.....if unpaid” which it is said suggest only those two defined options as regards “fate”. It is said that approach is supported by one of the Oxford English Dictionary definitions of “fate” as “the ultimate condition.... of a thing” and by Article 26 of URC, which sets out rules for advising fate which it is said only contemplate advice of payment, of acceptance or of non-payment. However, it should be noted that from its terms it is clear that Article 26 is only dealing with written advices, not verbal ones.

Mr Phillips QC relies upon a number of other matters as demonstrating that Mr Subhi was a “rogue banker” prepared to tell lies in order to assist his friend and valued customer Mr Al-Reyaysa. First, he relies upon the other occasions when Mr Subhi would seem to have lied to Miss Pattison about why monies had not been remitted when he had said they would be or whether monies were on their way to Nat West, for example when he said there were problems with outgoing telexes on 27 January or when he said on 22 February that funds had already been sent to Habib Bank when they clearly had not. There is obviously much force in these points, although it does not seem to me that they prove that all the “paid” answers were to his conscious knowledge false.

Second, Grosvenor relies upon subsequent events as demonstrating Mr Subhi’s propensity to be dishonest when it came to assisting the cause of the Ruler of Ajman. In late July 2000, not long after the events with which this case is concerned, NBAD discovered that Mr Subhi had forged the signature of Mr Mangoosh, the branch manager, in his absence, on a letter dated 10 July 2000 required by the Ruler in relation to a business transaction with a US citizen, formerly Iranian. The Ruler was apparently pressing Mr Subhi for such a letter. When confronted with what had happened, Mr Subhi initially lied that the branch had not issued such a letter, apparently something said at the behest of the Ruler. Mr Tomalin the Chief Executive of NBAD was of the firm view Mr Subhi should be dismissed for forgery, he was not but was demoted and his signing authority revoked. This seems to have been because dismissal might offend the Ruler and lead him to take his business elsewhere.

However, in June 2001, Mr Subhi was involved in a further incident when he signed two letters of guarantee on behalf of NBAD despite the fact that he no longer had signing authority. NBAD’s pleaded case is that these had been issued at the request of the Ruler although it called no evidence to support this contention. On this occasion, in relation to which Mr Subhi also initially lied about his involvement, he was dismissed from NBAD’s employment. From the documents disclosed by NBAD in relation to these two incidents it appears that he had also acted improperly in the 1980s and had been given a warning, but no details are available about that incident.

Mr Phillips contends that this material demonstrates a propensity on Mr Subhi’s part to act dishonestly in the interests of his main client the Ruler of Ajman and, by extension of reasoning, in the interests of his other valued client Mr Al-Reyaysa, who of course acted as agent for the Ruler in relation to external investments. There is considerable force in this submission, but I consider the court must guard against merely concluding on the basis of this material that he was also dishonest on 8 February 2000 unless there is other cogent evidence to support that conclusion.

Furthermore, I rather suspect that the problems which undoubtedly occurred in remitting funds from Mr Al-Reyaysa’s account with NBAD after 3 February may have occurred because the Ruler discovered that Mr Al-Reyaysa was using funds for gambling and did not approve, which would suggest that whatever might have been the motive to give dishonest paid answers, if they were dishonest, it cannot have been a desire to assist the Ruler. I accept that is no more than speculation, but equally there is no material before the Court to suggest that in February 2000, Mr Subhi was acting dishonestly to assist the Ruler, so that the material about his subsequent conduct must be approached with caution.

Third, Mr Phillips relies upon the fact that none of the originals of the twelve cheques which were not honoured by NBAD has been disclosed by NBAD, which appears to have no record of their receipt. Of these, one, the photocopy cheque for £230,000 may fall into a different category from the others. Mr Varkey explained in his evidence that, if the collection letters were addressed to Mr Subhi personally, the cheques may have gone direct to him without a receipt stamp being put upon them by branch staff. He also said though that if the cheques were not processed for payment (which these cheques were not) then the originals should have been kept in a secure cabinet at the branch under the safekeeping of Mr Subhi and another bank employee.

Mr Phillips relies upon the fact that the originals cannot be produced and that the bank has no record of having received these cheques in circumstances where Mr Subhi had told Miss Pattison that all these cheques had been received as demonstrating that Mr Subhi was a “rogue banker”. Again there is force in this point, but one has to be cautious about placing too much reliance on it in my judgment. NBAD was first asked about Cheques A and B, in the letter from the Rank Group of 8 November 2001, more than 18 months after the events in question and after Mr Subhi had been dismissed, so that what became of the originals of those two cheques remains a mystery. So far as the other cheques are concerned, NBAD does not seem to have been asked to locate the originals until some years after the event.

I accept Mr Phillips’ submission that for the originals of the cheques to have been transferred to the other banks through which funds were in fact remitted by Mr Al-Reyaysa, would be contrary to the whole scheme of the URC and the principles of cheque collection between banks but, nonetheless, that may be what happened and, in any event, I do not find it that surprising that NBAD cannot locate those originals some years later. That they may simply have been mislaid given the passage of time, I regard as at least as likely as Mr Phillips’ suggestion that Mr Subhi had simply made off with the cheques for some reason.

Despite the force of the submissions made by Grosvenor, I do not consider that there is sufficient cogent evidence from which I could or should conclude that there was wickedness or dishonesty on Mr Subhi’s part in giving the paid answer on 8 February 2000. I have reached the conclusion that the case of deceit is not made out for a number of reasons.

First, a conclusion that the paid answer on 8 February was a fraudulent misrepresentation necessarily means that all the other paid answers Mr Subhi gave to Miss Pattison were equally fraudulent. Mr Phillips accepts this and does not seek to shy away from the consequences, not least because, as he points out, on each occasion when a paid answer was given, there were insufficient funds in Mr Al-Reyaysa’s account to honour the cheque. However, given that on that analysis, the very first paid answer Mr Subhi gave Miss Pattison on 10 January 2000 was fraudulent, my view is that the more likely explanation for these paid answers is a mismatch between Miss Pattison and Mr Subhi as to what a “paid” answer meant, as opposed to fraud on his part.

As I have already commented in setting out the course of events, I consider it inherently unlikely that he gave that very first “paid” answer on 10 January intending it be understood by her as meaning funds were in the account and were about to be remitted and knowing that this information was false. Whilst the motive for acting fraudulently is irrelevant when the Court has found that there is fraud, in assessing whether or not there has been fraud in the first place, it seems to me that the Court should ask itself whether or not there is a motive which points to fraud rather than some other explanation. This much is implicit in the passage from Lord Nicholls’ speech in In Re H quoted by Rix LJ in The Kriti Palm in the passage I set out earlier. Accordingly, the question arises what possible reason could Mr Subhi have had for making a fraudulent statement to someone with whom he had had no previous dealings, from the outset of their discussions?

Mr Phillips seeks to answer this question by submitting that Mr Subhi must have been motivated by a desire to help his friend and valued customer Mr Al-Reyaysa, in circumstances where to advise Miss Pattison of the true position, that the cheque in question was unpaid because funds were not available, would have unfortunate consequences for Mr Al-Reyaysa and, so far as Mr Subhi knew, the Ruler. However, in relation to the position on 10 January 2000, that really makes no sense at all, since the necessary funds arrived in the account within a few days, on 13 January 2000 and, if Mr Subhi really had the same understanding as Miss Pattison as to what a “paid” answer meant, it would have been easy enough to stall her and not give an answer at all until the funds arrived, without any lasting damage being done to Mr Al-Reyaysa. Furthermore, Mr Phillips’ submission as to Mr Subhi’s likely motive to act fraudulently from the outset seems to me to assume too much, in circumstances where there is no evidence that he knew that Nat West’s customer was a casino or that the cheques were in respect of gambling debts, let alone that they were accepted pursuant to the CCF extended by the Club. Indeed, on the contrary, the evidence suggests he did not know and that the Club and Nat West were anxious he should not find out.

Second, so far as concerns the collection instructions and the concept of advice of fate, there is considerable force in Mr Phillips’ submissions, but one has to recognise that English was not Mr Subhi’s first language. Despite Miss Pattison’s insistence in her evidence that he understood English perfectly well, when he spoke to him on 22 February 2000 Mr Mole was sufficiently concerned about Mr Subhi’s ability to understand English that he suggested Nat West should engage an Arabic speaker to discuss matters with him. Generally it seems to me fanciful to suggest that Mr Subhi would have had a clear knowledge and understanding of the meaning of the word “fate” as a matter of English language, especially since as Mr Auld pointed out, the word has a number of different meanings, not all of them obvious, even to a native English speaker.

Also, the concept of “an advice of fate” and verbal “paid” answers are not terms of art in international banking practice. One will search in vain in the recognised banking law textbooks for a definition of these expressions or any guidance as to their interpretation. Indeed on the contrary, it is accepted that the two 19^th century cases cited in the passage in Paget’s Law of Banking 13^th edition para 24.18 in support of the statement (in itself somewhat obscure and, in any event not helpful to Grosvenor in the present context): “Inquiry as to the fate of a cheque is of no help to anyone but the collecting bank….the inquiry is normally made by the collecting banker in his own interest and for his own benefit”, do not in fact support that statement. The best that Grosvenor could muster was a passage from Brindle & Cox: The Law of Bank Payments, 3^rd edition, para 7-059 about special presentations. However, that was in the context of the UK Cheque Clearing System and was of no assistance in the present context. It does not discuss verbal paid advices, let alone whether these have some recognised international significance or meaning.

Furthermore, the Nat West procedures manual did not contain any guidance about advices of fate or verbal paid answers which might have guided the draftsman of the collection instruction letter sent out by the casino unit with DHL couriered collections. I do not consider that the collection instruction letter from Nat West was clearly and unequivocally asking for only one of two answers. Quite apart from the fact that oral advices of fate are not dealt with by the URC to which the letter was expressly subject, I accept Mr Auld’s submission to the effect that there is a latent ambiguity in the instructions in this sense. If, as Grosvenor contends, the letter only allows for an answer “paid” or “unpaid” as defined, then a paid advice of fate would arguably be synonymous with a tested telex or SWIFT confirmation of payment. The fact that the letter seems to be asking for some telephone or fax “advice of fate” before that confirmation of payment is given at least might suggest to the recipient that advice is being sought of where a cheque is in the collection process. That ties in with possible gradations of where a cheque is in the collection process at any particular time, as Mr O’Brien said in his expert report, which a banker might intend by a paid answer.

It is certainly possible that someone in the position of Mr Subhi, not a native English speaker, working in an overseas bank might have interpreted that part of the instructions in that way, which points to confusion or misunderstanding rather than dishonesty. Also, although as I have said, I approached some of Mr O’Brien’s evidence with a certain amount of caution, he was able to say from experience, which in this regard Mr Sawyer could not match, that the concept of advice of fate was unusual in the UAE. There is also Mr Varkey’s lack of familiarity with the concept, which whilst it cannot be direct evidence of Mr Subhi’s knowledge, provides some guidance as to whether a banker in the UAE would have understood the instructions in the same way as a UK banker.

Third, whilst Mr Subhi’s other acts of dishonesty are obviously of some relevance in assessing whether, as Mr Phillips submits, he was a rogue banker (particularly in circumstances where I have not had the benefit of seeing him in the witness box) as I have already indicated, I do not regard the subsequent dishonesty in relation to the letter and the guarantees as cogent evidence that he made a knowingly false statement on 8 February 2000. There is no material before the Court to suggest that any such false statements were made to assist, let alone at the behest of, the Ruler.

Grosvenor complains that this is because NBAD has chosen not to call evidence from those (the Ruler, Mr Al-Reyaysa and Mr Subhi) who might cast light on what was really going on. However, given that this case of deceit was not even pleaded until more than 5 years after the events in question, I do not regard the absence of such evidence from witnesses, none of whom would be compellable, as in the slightest surprising. Also, the suggestion that the Ruler of Ajman or Mr Al-Reyaysa (against whom Grosvenor has had a default judgment for the amount of the two cheques for nearly seven years, which it has taken no steps to enforce) should have been called to give evidence has an air of unreality about it. Certainly I am not prepared to draw any adverse inference against NBAD from the failure to call such evidence.

Fourth, whilst what Mr Subhi said to Miss Pattison about why funds were delayed in remittance in the subsequent three weeks after 8 February, may well on occasion have been untrue, that may have been because of embarrassment that his valued customer was not transferring funds when he had always done so in the past, in circumstances where it is evident from Miss Pattison’s notes that Mr Al-Reyaysa was having a problem in procuring the transfer of funds into the account. It is also the case that Mr Subhi may on occasion have been passing on information given to him by Mr Al-Reyaysa and, in any event, that information was not always untrue. Thus, the statement that monies would be remitted though Habib Bank in London was correct at least as regards some of the funds. Further, it seems to me that concerns about the fact that funds previously readily available were no longer arriving in the account are the most likely explanation of the changed mood and behaviour of Mr Subhi in mid to late February 2000 which Mr Varkey described in his evidence, rather than as Mr Phillips seemed to be suggesting some realisation by Mr Subhi that his previous fraudulent statements were in the course of being exposed.

Fifth, in my judgment, the most likely explanation of the paid answers given by Mr Subhi is that he was stating that the cheque was received and in order and that he was confident that the customer would transfer the funds to the account to enable the value to be remitted. As I have said, that would seem to me the most probable explanation of the sequence of events during the first discussions between Miss Pattison and Mr Subhi on 10 January 2000, culminating in the paid advice he gave. Equally, it seems to me that if this was his understanding, it would explain the discussion he had with Miss Pattison on 1 February 2000 about the fact that the £2 million (on which he had given a paid answer on 26 January) had not been remitted the previous day as he had said, because two urgent transfers from Nat West had not been credited to Mr Al-Reyaysa’s account.

It can be said that some of what he told Miss Pattison points the other way, for example the explanation about the problems with telex machines which he gave on 27 January. Grosvenor can legitimately point to that and say, if that explanation was untrue, why would he provide it unless he was trying to hide from Miss Pattison that there were insufficient funds in the account to honour the relevant cheque, in the knowledge that she would have interpreted his earlier paid answer on that cheque as being a statement that there were sufficient funds. Of course, it is possible that what he said about the telexes was true. Furthermore, even if it were untrue, against it must be weighed the fact that, in saying what he did a few days later, on 1 February, about the urgent transfers not having arrived, he seems to have been quite open about the fact that the delay in remittance was because there were insufficient funds, which is really inconsistent with a fraudulent intent.

This explanation for what he meant by a “paid” answer is also consistent with the number of occasions on which he could not give a paid answer but then appears to have spoken to Mr Al-Reyaysa and, after whatever information he was given by his customer, he did then give a paid answer. Examples of this are on 10 January which I have already referred to and 4 February. If he was acting dishonestly, why did he not simply give Miss Pattison a paid answer in the first place? The fact that, when one looks more closely at the whole series of conversations between Miss Pattison and Mr Subhi it cannot be said with any confidence that whatever he was saying was, to his knowledge, untrue, militates against the conclusion that in giving any particular paid answer he was acting fraudulently and is more consistent with his having meant something different by a paid answer than did Miss Pattison or someone else working within the UK banking system.

Sixth, I see no reason to regard the paid answer given on 8 February 2000 in relation to Cheque A in a different light as somehow assuming a sinister connotation in which he knew he was misleading Miss Pattison. Although sufficient funds to cover this cheque never did come into Mr Al-Reyaysa’s account, there is nothing in the material before the Court to suggest he knew that at the time. Funds had been forthcoming for substantial payments as recently as 2 and 3 February, when the equivalent of £2.5 million was transferred into the account. This was only a few days before the allegedly fraudulent misrepresentation was made.

Furthermore, when one examines more closely the actual conversation (as recorded in Miss Pattison’s notes), the fact that he could not give an exact value date and said the funds would be remitted on Saturday/Sunday or “early next week” (which was nearly a week away) is not really consistent with the bank having sufficient funds already in the account and the bank’s internal systems being so inefficient that it would take that much time to effect a transfer to Nat West. Miss Pattison’s evidence was that it might take a branch of an overseas bank two or three days after a paid answer to send the paperwork to head office who would then remit the funds to Nat West, but that does not take as long as a week overall. It seems to me that what he said about when the funds would be remitted was more consistent with his paid answer being intended to mean to him that the cheque was received and in order, but that time was needed to collect the necessary funds into the account (which he was confident from past experience would happen) and then remit them.

Put at its lowest it seems to me that what he said was equivocal. Of course, that would not prevent the statement being fraudulent if he intended it to be understood in the way in which Miss Pattison understood it and used the ambiguity to deceive her into that misunderstanding. The law in this context was recently restated by Rix LJ in The Kriti Palm at paras 253 and 254 as follows:

“It is sometimes said that the necessary representation must be unequivocal. That is too broad a statement to be accurate. Because dishonesty is the essence of deceit it is possible to be fraudulent even by means of an ambiguous statement, but in such a case it is essential that the representor should have intended the statement to be understood in the sense in which it is understood by the claimant (and of course a sense in which it is untrue) or should have deliberately used the ambiguity for the purpose of deceiving him and succeeded in doing so: see Clerk & Lindsell on Torts, 19^th edition, 2006, at paras 18-23 and 18-33; Akerhielm v. De Mare [1959] AC 789. As Cotton LJ said in Arkwright v. Newbold (1881) 17 Ch D 301 at 324:

"In my opinion it would not be right in an action of deceit to give a plaintiff relief on the ground that a particular statement, according to the construction put on it by the Court, is false, when the plaintiff does not venture to swear that he understood the statement in the sense which the Court puts on it."

It remains true, however, that in any case of fraud the dishonest representation must be clearly identified.”

In the present case, there is nothing to suggest that Mr Subhi used any ambiguity in what he was saying deliberately to deceive Miss Pattison. Rather, as I see it, any ambiguity supports the case that what he was saying was not fraudulent at all. From the terms of what he did say on 8 February, I doubt whether he really knew that Miss Pattison would understand his paid answer as meaning that sufficient funds were already in the account and that it was only the vagaries of NBAD’s systems which meant that the funds would not be remitted for up to a week and that he could not give an actual value date.

Seventh, there is the absence of contemporaneous allegation of fraud. This has two aspects. Whilst it was said at the time (and is still said) by Nat West that there had never been a previous occasion when an overseas bank had not honoured a paid answer by remitting funds, it is striking that Nat West and Miss Pattison who had the relevant direct dealings with NBAD and Mr Subhi never suggested at the time (or since) that they had been deliberately misled by Mr Subhi. Miss Pattison accepted this in cross-examination.

Of some significance in this context is the letter from the Gaming Board to the British Casino Associationof 8 January 2001 from which it appears that there may have been several instances of casinos relying on “paid” advices from overseas banks where payment was not being remitted and the Board suggested amendment of the guidelines to provide that overseas cheques could not be regarded as paid until cleared funds were in the casino’s bank account. Because all the copies of the report by the Gaming Board seem to have been mislaid, the details of the investigations are unfortunately no longer available. Nonetheless, the picture which emerges, which seems to have involved a number of casinos and of overseas banks, is one of confusion rather than dishonesty.

Related to this is the fact that Grosvenor itself did not allege a case of deceit until October 2005 when a draft amended pleading was served, in the face of NBAD’s indication that it was going to apply to strike out the existing contract/custom and practice claim. Of course this is not conclusive but the fact remains that people who have been deliberately misled or deceived tend to say so once they know the relevant facts, as Grosvenor did once it had Nat West’s file notes in relation to the conversation with Mr Subhi on 8 February 2000 in November 2001, before Mr Tresser’s first letter to NBAD. However, it took Grosvenor another four years to formulate a case of fraudulent misrepresentation. I was left with the impression that this was a claim carefully put together to provide an arguable cause of action in circumstances where, on any rational basis the original cause of action in contract was vulnerable to being struck out, as indeed it duly was by Colman J. Having said that, I would not in any sense criticise Grosvenor’s legal advisers for taking this approach. Although, in the event, I have concluded there was no fraud, the case in deceit was an arguable one.

For all these reasons, in my judgment the claim in deceit fails, on the basis that Grosvenor has not established that Mr Subhi was dishonest in making the statements he did on 8 February 2000. It is therefore not strictly necessary to consider whether the other ingredients of the tort of deceit are made out but I do so in case the matter should go further.

I can deal with this point relatively briefly. In my judgment, whatever representation Mr Subhi made on 8 February, he intended it to be relied upon, not only by Miss Pattison but by her customer, even though he may not have known who that customer was. It must have been apparent to him from their previous conversations (as recorded in her notes) that the paid answers he gave her were passed on to her customer. She is recorded as having asked on occasion whether she could tell her customer the cheque was paid. It was also her evidence that she made it clear to him when asking if a cheque was paid that the information would be conveyed to her customer. It matters not that he may not have known for what precise purpose the customer would be relying on the answers.

Much of the cross-examination of Grosvenor’s witnesses by Mr Auld QC demonstrated very skilfully that Grosvenor had encouraged Mr Al-Reyaysa to gamble at the Club to such an extent that the amounts staked by him went way beyond those of any other customer at the Club at that time and that the Club had perhaps been less careful in guarding against its own exposure than it might have been, in extending to him the maximum in clearance limits which it did under the CCF. However, it was accepted on behalf of NBAD at the end of the evidence that, in a case of fraudulent misrepresentation, it is no answer for the defendant to say that the claimant’s reliance on the representation was unreasonable or that the claimant has been negligent: see Clerk & Lindsell para 18-35. It was also accepted that the only relevance of such evidence to the issues I have to decide is if it establishes that there was no reliance at all.

At the end of the trial, NBAD’s case was that even if there had been a fraudulent misrepresentation Grosvenor had not acted in reliance upon it because (a) Grosvenor had not drawn any distinction between “paid” and “would be paid” answers at the time and thus, as I understood it, NBAD contended that Grosvenor would have continued the CCF on the basis of the would be paid answer on 7 February (not pleaded as having been fraudulent) and (b) Grosvenor was falling over itself to grant higher and higher limits to Mr Al-Reyaysa and the real reason for this was the considerable amounts it was winning from Mr Al-Reyaysa rather than the answers received from NBAD.

It seems to me that the first of these points is misconceived. The mere fact that Grosvenor relied upon “would be paid” answers as well does not mean that it did not rely upon “paid” answers. In fact it is clear from the Club records and, specifically, the Record of Specially Authorised Cheques, that “would be paid” and “paid” answers were treated differently by the Club. Whereas the Club would be prepared to accept additional cheques in reliance on a “would be paid” answer increasing the amount over the maximum limit under the CCF, such an answer would not be relied upon to reduce the maximum in clearance. In contrast, when a paid answer was given, the Club relied on that not only in accepting further cheques, but the maximum in clearance figure would be reduced by the value of the cheque or cheques for which a paid answer had been given. This is demonstrated clearly by the first entry for 8 February 2000 in the Record of Specially Authorised Cheques.

The answer to the second point is essentially the same. The Club records show (as was confirmed by the evidence of Mr Boden and Mr Challis) that in reliance on the paid answer given on 8 February, the maximum in clearance was reduced and Mr Al-Reyaysa was allowed to cash further cheques. It makes no difference that the Club may also have been motivated by an understandable commercial desire to encourage Mr Al-Reyaysa to gamble more, in order to enable the Club to make more money out of him. The law is clear that the misrepresentation need not have been the only matter upon which a representee relied for sufficient reliance to be demonstrated: see for example Edgington v Fitzmaurice (1885) 29 Ch D 459. Furthermore, it is also clear from the evidence that if and when a cheque was dishonoured, the CCF was suspended, as it was on 18 January 2000. That seems to me to be fatal to any case that the Club would have gone on allowing Mr Al-Reyaysa to use the CCF and increase his limits, irrespective of whether or not the Club was receiving paid answers on cheques.

Thus, had I concluded that the paid answer was given dishonestly by Mr Subhi, the elements of intention and reliance would have been made out. However, as I have decided that in giving the answer, he was not acting dishonestly, the claim in deceit fails.

As a matter of principle, the logical starting point for any consideration of Grosvenor’s contention that the effect of the collection of Cheque A being made subject to the URC 522 is that a direct contractual relationship came into existence between Grosvenor and NBAD under which (pursuant to Article 9 of URC) NBAD owed Grosvenor a duty to act in good faith and to exercise reasonable care, must be the position as a matter of English common law. This is because, since it is accepted that any contract which existed was governed by English law, the question whether a contract did come into existence is itself governed by English law.

The common law position is clear, as Colman J recognised in striking out the contract claim based on alleged custom and practice: there is no privity of contract between the payee/customer of the remitting bank and the collecting bank. That principle was stated by Wright J in Calico Printers Association v Barclays Bank Limited (1931) 36 Com Cas 71, 197. The rationale for concluding that the collecting bank was not in privity of contract with the remitting bank’s customer was expressed by the learned judge as an example of the general principle that a sub-agent is not in privity of contract with the principal. As he put it:

“To create privity it must be established not only that the principal contemplated that a sub-agent would perform part of the contract, but also that the principal authorised the agent to create privity of contract between the principal and the sub-agent, which is a very different matter requiring precise proof.”

This general principle that there is no privity of contract between a sub-agent and the principal was endorsed and applied by the House of Lords in Henderson v Merrett Syndicates Limited [1995] AC 145. In that case, Lord Goff of Chieveley stated the principle as follows at 202D-G:

“It was submitted by Mr Eder on behalf of the members' agents before Saville J. and the Court of Appeal, and again before the Appellate Committee, that in cases involving indirect Names there was indeed a contractual relationship between the Names and the managing agents, under which the managing agents were contractually responsible for the proper performance of the underwriting for the Names. In this connection, Mr Eder relied in particular upon the fact that the recital to the sub-agency agreement recites that it has been arranged between the agent and the sub-agent that the sub-agent shall act as the sub-underwriting agent for the Names.

However, the substantive provisions of the sub-agency agreement (in particular, clauses 2, 3, and 5) make it perfectly clear that, although the sub-agent has power to underwrite for the agent's names, i.e. to bind the Names to contracts of insurance, nevertheless there is no contractual relationship between the sub-agent and the Names, the only relevant contractual relationship of the sub-agent being with the agent. In this connection the true position in law is, in my opinion, accurately stated by Professor F. M. B. Reynolds in article 36(3) Bowstead on Agency, 15th ed. (1985), p. 131, as follows:

"But there is no privity of contract between a principal and a sub-agent as such, merely because the delegation was effected with the authority of the principal; and in the absence of such privity the rights and duties arising out of any contracts between the principal and the agent, and between the agent and the sub-agent, respectively, are only enforceable by and against the immediate parties to those contracts. However, the sub-agent may be liable to the principal as a fiduciary, and possibly in other respects.”

What is clear from these citations is that, as a matter of English law, the Court will not conclude that there is privity of contract between a sub-agent and the principal merely because the principal is aware that his agent will delegate functions to a sub-agent and authorises such delegation; in other words here it is not enough that Grosvenor knew that Nat West would “delegate” collection of Mr Al-Reyaysa’s cheques to another collecting bank, here NBAD and consented to that usual commercial arrangement. Before a contract between Grosvenor and NBAD could be found to exist as a matter of English law, the Court would have to be satisfied not only that Grosvenor contemplated the involvement of NBAD as collecting bank, but in Wright J’s words, “authorised [Nat West] to create privity of contract between [Grosvenor] and [NBAD]”. As I see it, the communications between Grosvenor and Nat West as its bankers do not even begin to establish any such authority.

Thus, the question which arises here is whether that clear common law position of no privity of contract between Grosvenor and NBAD is displaced either by the collection letter dated 7 February 2000 sent by Nat West to NBAD, which sets out the instructions to NBAD or by the provisions of URC 522 to which the collection is made subject by that letter, so that it can be said that, contrary to the position at common law, there is now a direct contractual relationship between Grosvenor and NBAD, either on a bilateral basis or possibly on a tripartite basis also involving Nat West.

So far as the collection letter itself is concerned, leaving aside the incorporation of URC, there is nothing in the letter to support such a direct contractual relationship between Grosvenor and NBAD, as opposed to a traditional and normal contractual relationship between Nat West as remitting bank and NBAD as collecting bank. On the contrary, the letter is completely silent as to the identity of Nat West’s customer, the payee of the cheque which NBAD is asked to collect, scarcely surprising since the cheque was made out to “Bearer”. This is not a promising start for displacing the common law position. It follows that it must be the terms of URC 522 itself and nothing else that could be said to displace the common law position.

Before considering in detail the provisions of URC 522, I should deal with what might be described as two threshold points, one raised by each side. First, the suggestion by NBAD that the provisions of URC 522 concerning collection and specifically the fact that a collecting bank is party to a collection as defined do not apply to NBAD because it was a drawee under Article 3 b and thus cannot have also been a collecting bank under article 3 a iii. The short answer to this point is that there is nothing in the URC which makes the concept of drawee and collecting bank mutually exclusive. As examination of the URC makes clear, it encompasses a number of types of document collection where the “drawee” for example of a bill of exchange presented as one of a number of shipping documents will not be a collecting bank. However the mere fact that a bank which is the collecting bank under the relevant agreement with the remitting bank, which as I see it NBAD clearly was here, is also the drawee of the relevant cheque, does not preclude it also being a collecting bank under article 3 a iii and hence a party to the Collection. Whilst not fatal to the arguability of this point, the fact that it was not supported by NBAD’s own banking expert, Mr O’Brien, did not help NBAD’s cause.

Second, the reliance by Grosvenor on the decision of Rix J in Bastone & Firminger Limited v Nasima Enterprises (Nigeria) Limited[1996] CLC 1902 where the learned judge held that it was arguable that the URC had effected a change to the common law position and created privity of contract between the principal and the collecting bank. However, it should be noted that he did so in the context of a contested application to amend pleadings and to serve them out of the jurisdiction, so that he was only concerned with whether the point was sufficiently arguable at an interlocutory stage. Furthermore, the learned judge was concerned with an earlier version of the URC, URC 322. One of the matters which clearly influenced his conclusion was the fact that URC 322 made the principal liable to “the banks” for charges and expenses (see p 1908D-G). However, that is no longer the case under URC 522. In the circumstances, the decision in Bastone & Firminger is of limited assistance in determining after a full trial whether URC 522 does indeed alter the common law position.

Turning then to the provisions of URC 522 which are relevant to the issue whether URC creates privity of contract between the principal and the collecting bank, they are as follows:

“Article 1

Application of URC 522

The [URC 522] “shall apply to all collections as defined in Article 2 where such rules are incorporated into the text of the “collection instruction” referred to in Article 4 and are binding on all parties thereto unless otherwise expressly agreed…

Article 2

Definition of Collection

For the purposes of these Articles:

a “Collection” means the handling by banks of documents as defined in sub-Article 2(b), in accordance with instructions received, in order to:

i.

obtain payment and/or acceptance, or

ii.

deliver documents against payment and/or against acceptance; or

deliver documents on other terms and conditions.”

Article 3

Parties to a Collection

a For the purposes of these Articles the “parties thereto” are:

i.

the “principal” who is the party entrusting the handling of a collection to a bank;

ii.

the “remitting bank” which is the bank to which the principal has entrusted the handling of a collection;

iii.

the “collecting bank” which is any bank, other than the remitting bank, involved in processing the collection;

iv.

the “presenting bank” which is the collecting bank making presentation to the drawee.

b The “drawee” is the one to whom presentation is to be made in accordance with the collection instruction.

Article 4

Collection Instruction

a i All documents sent for collection must be accompanied by a collection instruction indicating that the collection is subject to URC 522 and giving complete and precise instructions. Banks are only permitted to act upon the instructions given in such collection instruction, and in accordance with these Rules.

…..

iii Unless otherwise authorised in the collection instruction, banks will disregard any instructions from any party/bank other than the party/bank from whom they received the collection.

Article 9

Good Faith and Reasonable Care

Banks will act in good faith and exercise reasonable care.

Article 11

Disclaimer For Acts of an Instructed Party

a Banks utilising the services of another bank or other banks for the purpose of giving effect to the instructions of the principal, do so for the account of and at the risk of such principal.

c A party instructing another party to perform services shall be bound by and liable to indemnify the instructed party against all obligations and responsibilities imposed by foreign laws and usages.

Article 21

Charges and expenses

a If the collection instruction specifies that collection charges and/or expenses are to be for account of the drawee and the drawee refuses to pay them, the presenting bank may deliver the document(s) against payment or acceptance or on other terms and conditions as the case may be without collecting cheques and/or expenses, unless sub-Article 21 (b) applies….

c In all cases where in the express terms of a collection instruction or under these Rules, disbursements and/or expenses and/or collection charges are to be borne by the principal, the collecting bank(s) shall be entitled to recover promptly outlays in respect of disbursements, expenses and charges from the bank from which the collection instruction was received, and the remitting bank shall be entitled to recover promptly from the principal any amount so paid out by it, together with its own disbursements, expenses and charges, regardless of the fate of the collection.”

The main submissions of Mr Phillips QC as to why URC 522 creates privity between the principal and the collecting bank can be summarised as follows:

Mr Auld QC for NBAD challenges these submissions. In summary, his submissions as to why the URC does not create privity of contract where there was none before are as follows:

Having considered the provisions of the URC and the parties’ respective submissions, I have reached the very firm conclusion that URC 522 does not create privity of contract between the principal and the collecting bank for the following reasons:

It follows that Grosvenor’s claim in contract also fails.

Since I have concluded that NBAD is not liable to Grosvenor either in deceit or in contract, it is not strictly necessary to deal with the issue of the quantum of Grosvenor’s claim. However, since the matter was fully argued and this case may go further, I will deal with the contentions raised.

The parties were agreed as to what are the legal principles in play here but there is a fundamental difference in approach as to how those principles should be applied in this case. In a claim in deceit, the leading case on assessment of damages is the decision of the House of Lords in Smith New Court Securities v Citibank NA [1997] AC 254. There it was held that where a contract was induced by fraudulent misrepresentation, the measure of damages was reparation for all the loss directly caused by entering the transaction, whether or not it was foreseeable, including consequential loss. The claimant has a duty to mitigate its loss, once aware of the fraud and has to give credit for any benefit received as a result of the transaction. This is no more than the recognition of the fundamental principle that damages, even in fraud, are only intended to be compensatory.

The principles applicable were summarised in that case by Lord Browne-Wilkinson (at p 266) as follows:

“The following principles apply in assessing damages payable where the plaintiff has been induced by fraud or misrepresentation

(1)

The Defendant was bound to make reparation for all the damage directly flowing from the transaction.

(2)

Although such damage may not have been foreseeable, it must have been directly caused by the transaction.

(3)

In assessing such damage the Plaintiff is entitled to recover by way of damages the full price paid by him but he must give credit for any benefit which he has received as a result of the transaction.

(4)

The general rule of benefits received by him include the market value of the property…

(5)

While the circumstances in which the general rule should not apply cannot be comprehensibly stated, it will only not apply when either (a) the misrepresentation has continued to operate after the date of the acquisition of the asset or (b) the circumstances of the case are such the Plaintiff is by reason of the fraud locked into the property.

(6)

In addition the Plaintiff is also entitled to recover consequential losses caused by the transaction.

(7)

The Plaintiff must take all reasonable steps to mitigate.”

Where the parties diverge in this case is as to what constitutes a “benefit which [Grosvenor] has received as a result of the transaction” on the facts, both in relation to what is “the transaction” for these purposes and in relation to what benefits result from it.

As I have already said, at the trial Mr Phillips maintained, that however his clients and their legal advisers may have presented the quantum of the claim in the past, the correct (indeed the only correct and principled) approach was Approach 1, that the loss suffered was the value of Cheque B, £3,610,000. Mr Auld QC naturally sought to make much forensic play of the fact that this involves a complete volte face by Grosvenor from the position on quantum it was still advocating as recently (in terms of the chronology of this case) as June 2007. He says that the only reason why the case is now being presented as it is, is that Grosvenor has realised that the approach which it had previously put forward as “the correct approach” would lead not to a loss but a gain.

It seems to me that this point about an ever changing case, whilst it has some validity, is of less significance in relation to quantum than on other aspects of the case, such as the lateness of the plea of deceit. I agree with Mr Phillips at least to this extent, that the Court does have to look at the questions of principle here (what is the “transaction” and what losses and benefits result from that transaction) untrammelled by what may have gone on before the trial.

Mr Phillips’ starting point is that the “transaction” is the granting of credit by the Club in allowing Mr Al-Reyaysa to cash cheques in reliance on the paid answer given on 8 February 2000. The only loss which results from that transaction is the loss of Cheque B for £3,610,000, the only cheque during the relevant period which remained unhonoured. Mr Phillips submits that when the Club accepts a cheque and gives the customer plaques to the face value of the cheque, there is a loan or the granting of credit for the amount of the cheque. He relies on the passage from Lloyd LJ’s judgment in Crockfords v Mehta [1992] 1 WLR 355 at 368 which I referred to at the outset of the judgment that the plaques are “the equivalent of money”. The loan is complete at that stage.

He relies on that case to counter the submission advanced on behalf of NBAD that the plaques were no more than worthless pieces of plastic, which could only be used for gaming. NBAD referred to the speech of Lord Templeman in Lipkin Gorman v Karpnale Ltd [1991] 2 AC 548 at 561 where his Lordship refers to chips in a casino as being “worthless”. It is quite clear from the context of that case, that what Lord Templeman meant was that the chips or plaques are worthless outside the casino. Clearly within the casino, they were treated as equivalent to money as is clear from the very sentence in which he says they were worthless and the previous sentence:

“Thus within the club chips were treated as currency and on leaving the club Cass could exchange chips for money whenever he chose to do so. The chips themselves were worthless and at all times remained the property of the club but the club would redeem them for cash.”

Thus, it seems to me that Mr Phillips is correct in principle when he says that at the time when Cheque B was accepted by the Club and Mr Al-Reyaysa received plaques to the value of £3,610,000, there was a loan of that amount. However, that does not answer the question whether the “transaction” here is as narrow as Grosvenor would wish the Court to conclude. It is fair to say that this point about the worthlessness of the plaques assumed less prominence in Mr Auld’s closing speech and, certainly, NBAD’s overall submission that the “transaction” is wider and encompasses the granting of credit under the CCF for the purposes of gaming during the entire period from 8 to 17 February 2000, when the CCF was effectively suspended, is not dependent upon the point. Mr Auld contends that when the real scope of the “transaction” is recognised, Grosvenor has to bring into account not only the losses it made (not just through the acceptance of Cheque B which was never honoured but through the money or money’s worth it had to pay Mr Al-Reyaysa by way of his winnings during the relevant gaming sessions) but the benefits it gained from having granted him the facility, namely all the money it made from Mr Al-Reyaysa by way of his losses at the gaming tables in the relevant period.

Mr Phillips sought to counter this by submitting that there was no legal requirement that Mr Al-Reyaysa had to use the credit he received for gaming. He gave the example of a customer of the Club who received 6 plaques each to the value of £500,000 in exchange for a cheque for £3 million. He gambles at the tables using one of the plaques and gets sufficiently lucky (or is sufficiently self-controlled) that he does not to use the other five. At the end of the evening all the plaques he has are indistinguishable from one another and he may choose to redeem the cheque (in whole or in part) although he cannot be obliged to do so or he may choose to take a winner’s cheque or cash. I understand the point being made, but I have to say I doubt very much whether, whatever the strict legal position, the Club would want to go on extending a CCF to a customer who asked for £3 million in cash at the end of the gaming session.

Accordingly, it is submitted by Grosvenor that the customer’s decision whether or not to use his plaques for gaming is a decision which is wholly independent of the transaction with the Club of the granting of credit and of the wrongdoing of NBAD. It is said that the granting of credit merely provides the opportunity for the customer to gamble if he chooses to do so. The gaming does not “arise out of the transaction”. Reliance was placed in support of this analysis upon the well-known passage in the judgment of Robert Goff J in The Elena D’Amico [1980]1 Lloyd’s Rep 75 at 87-90. Albeit that was a different factual context, the case sets out the principle that a benefit which flows from an independent decision, that is independent of the wrongdoing, does not arise out of the transaction and so is not brought into account in assessing damages.

In the context of this part of his case, Mr Phillips also relies upon a passage from the judgment of Toulson J in Komercni Banka AS v Stone & Rolls Ltd [2002] EWHC 2263 (Comm); [2003] 1 Lloyd’s Rep 383 at para 167, dealing with the application in practice of the third principle set out by Lord Browne-Wilkinson in Smith New Court:

“The question whether an alleged benefit should or should not be taken into account cannot be determined by mere application of the "but for" test. Where the wrongful conduct consists of causing the victim to enter into a venture or transaction which he would not otherwise have entered into, and the wrongdoer alleges that the victim has received a subsequent benefit which he would not have received but for entering into the venture or transaction, it seems to me that the question to be asked is whether the receipt of the benefit was not merely a result of the venture or transaction, in a historical sense, but was part of the complex of obligations and benefits intrinsic, ie belonging naturally, to the venture or transaction. Otherwise, it is hard to know where to draw the line.”

It is submitted on behalf of Grosvenor that the subsequent gaming by Mr Al-Reyaysa after the granting of credit is not intrinsic to the transaction. Mr Phillips submits that the conclusion that the loss resulting from the transaction is the value of Cheque B is not only correct in principle but avoids the practical difficulties that would otherwise be encountered in assessing what if any loss the Club had suffered. He says that because it is impossible to trace any particular plaques through a series of gaming transactions and into a customer’s winnings or losses and, in many cases, it will simply not be possible to say what is the source of funds from which winnings or losses derive. If, as a matter of law, the Club had to bring into account all the winnings and losses, then it would often be impossible for the Club to prove that it had suffered a loss. It was contended that for the Court to embark on such a task would be (as Toulson J put it in Komercni Banka) “like entering a jungle without a route map”.

These are formidable arguments, presented with style and panache by Mr Phillips. However, I agree with Mr Auld that at their heart lies a fundamental fallacy as to the “transaction” with which this dispute is concerned. Whilst it may be correct that a customer may in any particular session not use all his plaques on gaming at the tables, the fact remains that the CCF is a credit facility granted for the purposes of gaming. The Club is not a bank or a moneylender, but a casino and when it grants a cheque cashing facility to its customer it does so in order that the customer may gamble at the Club. That is precisely why Grosvenor was so careful to ensure that any CCF and whatever credit was granted fell strictly within what was permitted by section 16 of the Gambling Act 1968. At the relevant time, that section regulated the granting of any loan or credit “for enabling any person to take part in the gaming” [“on premises in respect of which a licence under this Act is for the time being in force”].

Thus, the gaming which took place was not somehow divorced or independent from the credit granted pursuant to the CCF. Mr Al-Reyaysa attended the Club to gamble, he used the CCF to a greater and greater extent over the two month period of his gambling spree to finance more and more gambling. Against that background, the correct analysis is that, if contrary to my conclusion above, the paid answer on 8 February was a fraudulent misrepresentation as Grosvenor contends, then what Grosvenor did in reliance on that misrepresentation is not merely accept Cheque B at the end of the gaming session on 9 February. To limit reliance in that way is wholly artificial. Rather, in reliance on the misrepresentation, Grosvenor continued to grant the cheque cashing facility to Mr Al-Reyaysa, for the purposes of gaming, during the entire period from 8 to 17 February 2000. This involved acceptance not only of Cheque B but of some 60 cheques overall during that period. In my judgment, the “transaction” was the granting of the CCF for the purposes of gaming during that period and the gaming which in fact took place in consequence is intrinsic to or arises out of that transaction.

The suggestion that somehow the enquiry as to whether and, if so, what loss Grosvenor has suffered in reliance on the alleged fraudulent misrepresentation can be limited exclusively to the granting of credit or a loan by the acceptance of Cheque B at the end of the gaming session on 9 February is misconceived. That enquiry must encompass all the cheques cashed and thus all the credit given during the relevant period 8 to 17 February and the gaming carried out in consequence. I am not dissuaded from reaching that conclusion by Mr Phillips’ plea in terrorem to which I alluded above, that the wider approach of looking at the totality of the credit and gaming in the relevant period would mean that the Club could not prove its loss. I agree with Mr Auld that (for reasons I shall elaborate below) the matter is nothing like as complicated or confused in the present case as Mr Phillips suggests; certainly it is not a jungle without a route map. I also accept that in general any difficulties of proof faced by casinos in other cases could be obviated by the keeping of proper records. Furthermore, the mere fact that a claimant may face difficulties in proving its claim should not excuse the Court from the application of the correct legal principles in assessing damages.

Nor do I consider that the position is altered by the example Mr Phillips gave of a situation where, during the relevant period of ten days, rather than the Club making a profit from Mr Al-Reyaysa’s gambling, he had made an enormous profit from the Club of say £35 million. The example is a somewhat fanciful one since, so I was told, British casinos on average make a profit of 20% from gambling by their customers. However, assuming for the purposes of the argument that such a profit was made, the answer is that, to the extent that it arose out of the transaction of granting the CCF for the purposes of gambling, it would be recoverable from NBAD as damages for the tort of deceit.

One of the other arguments which Mr Phillips deployed in favour of Approach 1 was that any other approach would give rise to the oddity that the damages recoverable for breach of contract here would be greater than those recoverable in deceit. Of course this argument assumes that there is some contractual relationship between Grosvenor as principal and NBAD as collecting bank, which I have held there is not. Accordingly, the supposed oddity is entirely academic. However, the answer to the point is that any theoretical anomaly arises because the damages recoverable in contract would depend upon issues of foreseeability, knowledge and remoteness which give rise to different considerations than in the tort of deceit.

Thus, if I had concluded that the URC gave rise to a contract between Grosvenor and NBAD and that NBAD was in breach of that contract by virtue of a breach of Article 9 of the URC, the damages recoverable would depend upon NBAD’s knowledge as to the consequences of such a breach at the time the relevant contract was made. If, as would have been the case on the facts of the present case, NBAD had no idea the other party to this supposed contract was running a casino or that the cheque on which an inaccurate paid answer was given would be relied upon to give credit to the drawer of the cheque in a casino, then obviously on the application of well-established principles, any loss the Club suffered by reason of the gambling as a consequence of granting the credit would be too remote. However, if NBAD had had the requisite knowledge as to Grosvenor’s business and what reliance would be placed on a paid answer, then it may well be that any loss suffered by reason of Mr Al-Reyaysa’s gambling at the Club would be recoverable as damages for breach of contract.

As I have said, I have come to the firm conclusion that the correct principles applicable to the quantum of any claim in deceit are those advocated by Mr Auld. Accordingly, in my judgment, Approach 1 of Grosvenor to its quantum, far from being the principled and only correct approach as Mr Phillips contended, is artificial and wrong.

The question remains whether in assessing what benefits are intrinsic to the transaction, the Court should have regard to all the gaming which took place during the period 8 to 17 February and thus conclude that the Club made a gain overall, as NBAD contends or whether I should adopt Grosvenor’s Approach 2, which involves leaving out of account secondary winnings (on re-gambled winners’ cheques). The overall parameters of the difference of approach between the parties are agreed by the accounting experts, Mr Luscombe for Grosvenor and Mr Lee for NBAD. If all the gambling undertaken by Mr Al-Reyaysa at the Club in the period 8 to 17 February 2000 is brought into account, as NBAD says it should be, Grosvenor made a profit (after taking account of gaming duty and the non-payment of Cheque B) of £1,595,360. On the other hand, if all the secondary winnings are left out of account, as Grosvenor contends they should be, the maximum loss suffered by Grosvenor is agreed to be £2,482,540.

The difference of approach between the parties concerns the treatment of the six winner’s cheques issued to Mr Al-Reyaysa by the Club during this period of ten days, which he subsequently re-gambled during the same period, as a consequence of which the Club made a profit from that re-gambling of £5,140,000. Grosvenor’s Approach 2 involves taking account of the payment out of the six winner’s cheques to Mr Al-Reyaysa in calculating the loss it alleges it has suffered, but not taking account of the fact that he re-gambled the winner’s cheques in question. The rationale for this approach is that it is said that the decision by Mr Al-Reyaysa to re-gamble with a particular winner’s cheque is a completely independent decision by him as to what to do with his winnings which “breaks the chain” in Mr Phillips’ words and which does not arise out of the transaction, even if the transaction is the granting of credit for the purposes of gaming during the period.

Grosvenor and its accounting expert Mr Luscombe then engage in an elaborate series of analyses in an endeavour to calculate the profit or (as Grosvenor would prefer it) loss by excluding the subsequent fruits of the winner’s cheques when re-gambled. As I pointed out during the course of Mr Luscombe’s evidence, this is really an impossible exercise, as the nature of the way the gaming is conducted at the Club does not enable particular plaques or chips to be traced back to any particular cashed cheque. Mr Phillips relies upon this impossibility as a demonstration that Approach 1 to quantum was the right approach all along.

Mr Auld points out that any impossibility or difficulty falls away if, as one should, one includes all the fruits of the winner’s cheques re-gambled in the calculation of the profit or loss. He contends that Grosvenor’s Approach 2 is an illogical and unfair approach, involving as it does, taking account as part of Grosvenor’s loss of the amount of the winner’s cheques paid out, but not giving a corresponding credit for the fact that the Club in fact suffered no loss as a consequence of the issue of these winner’s cheques, as Mr Al-Reyaysa promptly re-gambled them and lost even more than their value.

In my judgment, Grosvenor’s case on Approach 2 suffers from the same fallacy as affects Approach 1, that somehow Mr Al-Reyaysa was making independent decisions which did not arise out of the transaction when he decided to re-gamble the winner’s cheques. I agree with Mr Auld that these were no more independent decisions than his decision to re-gamble particular chips he had won or to redeem cheques. To isolate the winner’s cheques from other aspects of the gambling is totally artificial. Just as the issue of the winner’s cheques is intrinsic to the transaction, so also is their re-gambling. It is all part of the continuum of the gambling spree fuelled by and arising out of the granting of the CCF for the purposes of gambling, which in turn was (on this hypothesis) provided in reliance on the alleged fraudulent misrepresentation.

That this is the correct analysis is supported by a passage from the judgment of Moore-Bick LJ in MAN Nutzfahrzeuge v Freightliner [2005] EWHC 2347 (Comm). Albeit involving very different facts, that was a case of fraudulent misrepresentation. The judge said:

“the defendant will be liable for any further losses resulting from steps which the claimant was induced to take, even in part, by the original fraudulent statement and that actions taken in response to subsequent events cannot be regarded as truly independent of the fraud unless it played no significant part in inducing them.”

In the present case, the granting of credit for gambling between 8 and 17 February 2000 and all the gambling which took place in that period is not in any sense independent of the fraud. Whilst of course one cannot say with any certainty what would have happened if (on this hypothesis) NBAD had given the answer on 8 February that funds were not in the account to honour the cheque, on any view Mr Al-Reyaysa’s CCF would have been suspended. It is possible that (as had happened a few days previously) he would have gone off in high dudgeon and not gambled again at the Club in the relevant period. It is also possible that he might have come back to gamble, possibly after a gap, with other casino cheques or winner’s cheques or cash.

However, whilst one cannot say for sure exactly what would have happened, it is pretty clear that, without the CCF and the substantial limits it permitted, Mr Al-Reyaysa, even if he had gambled at the Club after 8 February, would have done so on a much smaller scale. I accept Mr Auld’s submission that all aspects of the gambling in that period have to be brought into account in assessing quantum, in which case Grosvenor has not suffered a loss at all.

In the event, I have decided that both the pleaded causes of action, in deceit and in contract on the basis of URC 522 fail. Even if I had concluded that liability on one or other basis had been established, I would still have concluded that Grosvenor had not suffered a loss. However the claim is viewed, it must be dismissed.