Mr Justice Flaux:
Introduction
- Ahmed Ibrahim Al-Reyaysa was an ostensibly wealthy businessman from Ajman in the United Arab Emirates. In 1999 and 2000 he was in London a fair amount, staying at the Dorchester Hotel and frequenting a number of casinos at which he gambled, including the Clermont Club ("the Club"), a small and exclusive casino in Berkeley Square owned and operated by Grosvenor Casinos Limited ("Grosvenor"), a company in the Rank Group. During a period of some two months between about 20 December 1999 and 17 February 2000, he engaged in what can only be described as a gambling spree at the Clermont, staking some £99 million, mainly on roulette, and losing over £18 million.
- The present case is concerned with the fall out from that activity. Two cheques which he presented to Grosvenor for respectively £3,070,000 ("Cheque A") and £3,610,000 ("Cheque B") remain dishonoured. These were "scrip" cheques (i.e. blank house cheques of the Club) drawn on Mr Al-Reyaysa's account with the National Bank of Abu Dhabi ("NBAD"), Ajman branch. Grosvenor obtained judgment in default against Mr Al-Reyaysa on the cheques in 2001 but the difficulties of enforcement in the UAE mean that the judgment remains unsatisfied. In those circumstances, Grosvenor has pursued the present claim against NBAD. I will need to consider how that claim has developed and changed in more detail hereafter, but for the present it is sufficient to note that the claim as it is now formulated is put in two ways: (i) deceit on the basis of an alleged fraudulent oral misrepresentation by Mr Mohammed Subhi Said Al Sarraj ("Mr Subhi"), the customer service manager at the Ajman branch of NBAD who dealt with Mr Al-Reyaysa's affairs, made to Miss Sara Pattison of the special Casino unit at the Mayfair branch of National Westminster Bank, Grosvenor's bank. The representation to her, which she communicated to Grosvenor, was that Cheque A was "paid"; and (ii) for breach of a contract said to have been made directly between Grosvenor and NBAD by virtue of the relevant cheque collection being undertaken pursuant to the Uniform Rules for Collection ("URC") 522.
The procedures adopted by Grosvenor for gaming at the Club
- Section 16(1) of the Gaming Act 1968 (now repealed but in force at the time of the events with which this case is concerned) prohibited gaming on credit. However, to enable lawful gaming to take place at licensed clubs, the section permitted a casino to give cash or tokens in exchange for a cheque provided that the cheque met the requirements of subsections (2) and (3): see per Lloyd LJ in Crockfords Club Ltd v Mehta [1992] 1 WLR 355 at 365F.
- One of the ways in which the Club ensured compliance with sections 16(2) and (3) of the Gaming Act was through granting customers a Cheque Cashing Facility ("CCF"), such as was granted to Mr Al-Reyaysa. This enabled a customer to cash cheques at the Club up to a set limit for gambling purposes. The amount of any cheque would be exchanged for tokens (known as plaques) of an equivalent value which the customer would then use at the gaming tables. The plaques were "the equivalent of money" (per Lloyd LJ in Mehta at 368B). They were available in denominations from £25,000 to £250,000 and could be exchanged at the table for gaming chips to the value of the plaque or plaques in question. Chips were available in denominations up to £500,000. In addition to the CCF (or where the CCF has been withdrawn or suspended), a customer could obtain plaques in exchange for cash or in exchange for a "winner's cheque" either from the Club or from another casino.
- The Club was open for gaming each day for 14 hours from 2 in the afternoon until 4 the following morning. Depending upon what course a gaming session took, a customer who won could take his winnings in more chips and carry on gaming. He might decide to use his winnings to redeem the cheque or cheques presented earlier under the CCF, although, because of the prohibition in section 16(1), he could not be required to redeem cheques. Accordingly, he might decide to take his winnings in one or more winner's cheques issued to him by the Club or in cash. Where a customer wanted to continue gaming but had used the plaques or chips he had obtained, he might cash more cheques, provided he was within his facility (subject to the operation of higher limits discussed below). Equally, he might substitute one cheque for a series of scrip cheques drawn earlier in a gaming session.
- Under section 16(3) of the Gaming Act 1968, all cheques had to be presented to the Club's bank within two banking days. The Club's bank would then arrange collection of the cheques from the customer's bank. As and when cheques cleared through the customer's bank, the amount available within the limit would increase correspondingly. In fact, the set limit provided to the customer was a lower limit and on occasion the Club had in its records (principally the CCF Limit Record Book) a higher maximum limit (which was not disclosed to the customer) up to which a customer would be permitted to cash cheques, in the event that the exigencies of gambling meant that the customer required more funds. Exceeding the set limit had to be approved by management of the Club and various levels of management could approve limits up to a certain figure, depending on the colour of licence the manager in question held from the Gaming Board. Above £500,000 the limit could only be increased with the approval of the Managing Director of the Gaming Division of the Rank Group, who at the time was Mr David Boden. Any request to increase the customer's set limit had to be entered on a Temporary Increase Request Form as required by the Club's manual.
- In addition to this maximum limit, an appropriate manager could permit cheques above the maximum limit to be cashed on a temporary basis up to an even higher limit set by reference to the maximum amount of cheques that the customer had in clearance at any particular time. Any such temporary additional facility had to be approved by an appropriate manager of the Club and, where the amount involved was in excess of £500,000, by Mr Boden. The reason for needing some scope for exceeding even the maximum limit for the keen gambler was evidently that, whereas in order to comply with the provisions of section 16 of the Gaming Act 1968 the Club had to present cheques to its Bank within two working days, those cheques (especially if drawn on an overseas bank) might take some time to clear and during that time the customer might wish to continue gambling. However, under the guidelines of the British Casino Association, which were given mandatory effect by the Club's manual, a cheque could only be accepted in excess of the maximum limit if Grosvenor had good grounds for believing it would be honoured on first presentation. Furthermore, the Club's manual required that any cheque accepted above the maximum limit was entered in the Record of Specially Authorised Cheques together with the reason for approving the relevant excess.
- The practice adopted by the Club was that the amount in clearance at any particular time was assessed not only by reference to whether cheques presented by the customer had actually cleared (in the sense that the Club's bank, Nat West, had received the funds from the customer's bank) but, where Nat West (or on occasion the Club itself) had received oral confirmation from the customer's bank that the relevant cheque was "paid", the amount of that cheque would then be deducted from the amount in clearance for the purposes of assessing whether the customer was within his limit (whether the set lower limit, the maximum limit or the maximum in clearance, as applicable).
- The understanding of Miss Pattison at Nat West and of the relevant Grosvenor personnel was that a "paid" answer from the customer's bank or other bank collecting the cheque meant that the cheque had been received, that funds were available to honour it and that it was being honoured by that bank, although (particularly with overseas banks) actual remittance of funds to Nat West might take a few days. This case turns in large measure on whether NBAD (and specifically Mr Subhi) had the same understanding or, at least, knew that Nat West (and its customer) had that understanding and deliberately misled them.
The factual witness evidence
- Before dealing in more detail with the relationship between the Club and Mr Al-Reyaysa and the discussions between the Club and its bank Nat West and between Nat West and NBAD, I should make some observations about the evidence which I heard. Miss Pattison gave evidence. She was clearly a straightforward witness and I have no doubt that, as a general proposition, her evidence about what she understood a "paid" answer to mean and about her discussions with Mr Subhi was true. Nevertheless, when it comes to the detail of conversations she had, she was being asked to recall events 8 years ago and, inevitably, it is only the overall thrust of her discussions with Mr Subhi that she recalls. In trying to assess what discussions took place, both with Mr Subhi and with the Club personnel and what occurred in consequence of those discussions, I have really been more assisted by the Club's own written records and by the written records Miss Pattison kept, both in manuscript and typed form of discussions and of the collection process for particular cheques. Nevertheless, I have borne in mind that the records do not necessarily record Mr Subhi's actual words when speaking to Miss Pattison. Unfortunately, the taped transcripts taken by Nat West of conversations are no longer available.
- NBAD did not call Mr Subhi, who was dismissed by the bank in 2001, in circumstances to which I shall return later, although unsuccessful efforts were apparently made to trace him recently through enquiry agents. Nor did NBAD call Mr Al-Reyaysa or the Ruler of Ajman on whose behalf Mr Al-Reyaysa apparently acted in relation to external investments. Also, NBAD produced no records of conversations either with its customer or Nat West, so that it was not in a position to challenge what is recorded in the various Nat West records. NBAD did call Mr Mukalel Varkey Varkey who has worked at the Ajman branch of NBAD since 1997 and who was an operations officer at the branch at the time and Mr Subhi's subordinate. He seemed to me to be an honest witness doing his best to assist the Court. However, apart from one conversation with Miss Pattison on 31 January 2000, he was not involved in the discussions between Miss Pattison and Mr Subhi and so could give no direct evidence about those discussions.
- So far as Grosvenor is concerned, the following witnesses gave evidence. Miss Caroline McIntyre was a cashier at the Club from 1986 until 2003. She now lives in rural Scotland and gave her evidence by video-link from the High Court in Edinburgh. She gave evidence about the procedures adopted and records kept by Grosvenor at the Club, to ensure not only that staff complied with the terms of the Club Cash Desk manual which were regarded as mandatory, but that Grosvenor complied with the Gaming Act 1968 and with the Guidelines laid down by the British Casino Association and the Gaming Board. Although the Guidelines had no legal force, they provided standards to which the Gaming Board expected the industry to adhere. Miss McIntyre struck me as a precise and conscientious person who did her job properly. Although Miss McIntyre obviously had day to day dealings with Mr Al-Reyaysa when he came into the Club and spoke to Miss Pattison at Nat West on a regular basis, it was other more senior Grosvenor witnesses who were responsible for authorising limits on his CCF and the excesses beyond those limits to which Grosvenor permitted him to go.
- Mr Anthony Burridge was the Cash Desk Manager at the Club at the time. His evidence was essentially confirmatory of Miss McIntryre's evidence about Club procedures and record keeping. He also gave evidence which might be thought self-evident that if a customer's CCF was suspended, he could only continue to gamble at the Club using cash, winner's cheques issued previously by the Club or other casino cheques.
- Mr Steve Challis was the assistant manager of the Club. He had authority to grant a CCF up to £50,000 and Mr Read the manager had authority up to £100,000. Mr Challis had frequent dealings with Mr Al-Reyaysa in 1999 and 2000 when he gambled at the Club, and found him charming, friendly and trustworthy. Mr Challis gave evidence about the operation of a CCF, including how the club treated "would be paid" and "paid" answers on a customer's cheques, both generally and specifically in relation to Mr Al-Reyaysa. He also dealt with the process by which an increase in the facility would be granted and recorded in the Club's records. He was a straightforward and fair witness.
- Mr Richard Mole was the London Operations Director of Grosvenor. He was authorised to approve the granting or reinstatement of a CCF or an increase in the facility up to £500,000 and did so in the case of Mr Al-Reyaysa in the early stages of his gambling. He was also involved with Mr Al-Reyaysa and Mr Subhi at the time that problems arose with remittance of funds in mid to late February 2000. Subsequently he assisted the Gaming Board in its investigation. On the whole, his evidence was fair and frank and there was only one area where I found it unconvincing, in relation to a fax dated 23 February to which I will return in more detail below.
- Mr David Boden was Managing Director of the Gaming Division and on the Executive Committee of the Rank Group at the time. It was he who approved all Mr Al-Reyaysa's limits under his CCF above £500,000, including the "maximum in clearance" limit which reached £11,500,000 at the height of Mr Al-Reyaysa's gambling spree. His evidence was that he would only be at the Club perhaps once a week or less frequently, so that when cheques had to be specially approved by him to permit Mr Al-Reyaysa to continue gambling during any particular session, Mr Boden would be telephoned by staff at the Club and would give his approval over the telephone. He would then sign or initial the relevant records (including the Record of Specially Authorised Cheques) on the occasion of his next visit to the Club. As regards treatment of "paid" and "would be paid" answers his recollection did not entirely accord with the Club's records. This is perhaps not surprising given the passage of time and I would not criticise him for it. Generally his evidence supported the Club's case on reliance.
- As a general observation about the Grosvenor witnesses who dealt with Mr Al-Reyaysa and with Nat West at the time, although they all seemed to me to be trying to assist, as with Miss Pattison, the reality is that the relevant events occurred 8 years ago and I consider that one gains a better picture of what influenced Grosvenor's conduct at the time from the contemporaneous records rather than what is inevitably reconstruction on the part of the witnesses.
- Grosvenor also called Mr Richard Wade, now the Head of Compliance. He was not employed by Grosvenor at the time of the events with which the case is concerned and so could give no direct evidence of those events. His evidence seemed to me essentially designed to bolster Grosvenor's case on the quantum of its loss. This was evident from his handling of the issue of gaming duty. He accepted in evidence that gaming duty was payable on net gaming profits, taking account of all wins and losses at Grosvenor's casinos. In about February 2006, he had prepared a schedule reflecting this principle, for Mr Al-Reyaysa's gambling in the period 8 to 21 February 2000. On the days when Mr Al-Reyaysa had been a net winner, a minus figure for gaming duty was shown, in order to arrive at the correct net figure for the period. However, when Mr Wade came to sign his witness statement on 31 May 2007, he attached to it a different version of the schedule he had prepared, which for the days when Mr Al-Reyaysa had been a net winner showed a figure of zero. This had the effect of overstating the gaming duty.
- Ultimately the accounting experts, Mr Luscombe for Grosvenor and Mr Lee for NBAD, were able to agree all figures for gaming duty on the correct net basis, so that reliance was not placed by Grosvenor on Mr Wade's schedule attached to his witness statement, at least at trial. Indeed a corrective witness statement from Mr Wade was produced (for which I gave permission) on the evening before he gave evidence. In cross-examination, he did not seem to have a very clear explanation for how the version of the schedule attached to his first statement had come to be produced and attached, rather than the schedule he had originally prepared in about February 2006, other than that this seems to have been done after internal discussions and internal legal advice within Grosvenor. I have to say that I found his evidence unsatisfactory, but (given the corrective statement) I accept that there was no question of either him or Grosvenor itself through his evidence deliberately misleading or trying to mislead the Court. Had Grosvenor continued to rely upon the schedule attached to his first statement at trial, I might have taken a much more serious view of its conduct.
- Finally Grosvenor called Mr Tim Adams, the senior inspector at the time for the Gaming Board. He had been one of the people responsible for an investigation carried out by the Board over several months in the second half of 2000 into the conduct of various London casinos including the Club in permitting gaming by Mr Al-Reyaysa. Unfortunately the detailed report he prepared has been mislaid by the Board and its successor. Since Grosvenor was never in fact provided with a copy of the report, there is nothing sinister in this. At this distance in time, there was little useful evidence Mr Adams could give.
- I should say that the Gaming Board concluded that Grosvenor had not acted in breach of the Guidelines. What is clear though is that the Board was concerned about casinos like Grosvenor relying upon "paid" answers from overseas banks to accept further cheques. A letter of 8 January 2001 from the Board to the British Casino Association referred to this and said that the guidelines needed amendment to make it clear such cheques could not be regarded as "paid" until cleared funds were in the casino's bank account.
The course of events
- Mr Al-Reyaysa was first granted a CCF at the Club of £50,000 on 15 February 1999. At that stage he completed a CCF Application Form. A reference was taken up by the Club with Crockfords. The limit granted to him was increased gradually until on 1 July 1999, it was set at £200,000, which was also the maximum limit recorded by the Club. This maximum limit was increased to £250,000 on 11 July 1999. Soon after this, there was a problem when two scrip cheques drawn by Mr Al-Reyaysa for £200,000 and £50,000 respectively were returned unpaid by his bank, Habib Bank in London, on 22 July 1999. Mr Al-Reyaysa was then out of the country and these two cheques were not paid until 27 September 1999. His CCF was suspended in the meantime, but he did not in fact gamble at the Club after 17 July 1999 until 20 December 1999.
- On 20 December 1999, the Club approved a new CCF with the same limit as before, £200,000. Mr Al-Reyaysa increased his gambling around this time and although the set limit remained at £200,000 until 26 January 2000, the maximum limit which the Club recorded in its own books increased to £800,000 on 5 January 2000. During the two month period after his return to the Club on 20 December 1999, his gambling at the Club increased dramatically. It was on 21 December 1999 that he first presented at the Club cheques drawn on NBAD. All such cheques were "bearer" cheques which did not identify Grosvenor as the payee. There was some evidence from Mr Mole that it was perfectly acceptable and normal in the casino industry for customers to present "bearer" cheques, although the Club manual did require cheques normally to be payable to Grosvenor. To the extent that it matters, Mr Al-Reyaysa may have made cheques out to "bearer" so that it would not be obvious to NBAD in Ajman that these cheques were all drawn for the purposes of gambling.
- During the period from 21 December 1999 to 16 February 2000, Mr Al-Reyaysa drew some 20 cheques on NBAD which he presented to the Club under his CCF, with a total value in excess of £28 million. These were all sent by the Club to the casino unit of Nat West for collection. Over half these cheques (including Cheque A in relation to which this claim arises) were then sent by the casino unit of Nat West to NBAD in Ajman by DHL courier, under cover of a letter (drafted by the casino unit for special collections).
- This form of letter in each case set out the amount of the collection and then provided as follows:
"Please process the enclosed cheque(s) for collection as instructed below:
Urgently advise fate by telephone/facsimile direct to Miss Pattison on the above telephone/facsimile number.
If paid remit proceeds direct to us by SWIFT/TELEX advice for the credit of NatWest Bank / Bearer account number 06213197 ourselves, quoting the above reference number.
PLEASE SEND PAYMENT BY MT100 QUOTING FULL BENEFICIARY DETAILS FOR ONWARD CREDIT TO NAT WEST BANK MAYFAIR BRANCH (SORT CODE 56-00-25).
ADVISE US BY SWIFT USING CODE NWBKGB2L OR BY TESTED / TELEX 885361
If you are unable to remit by MT100, please send MT199, as the instruction must [be] authenticated. Do not send MT400 as this is an Advice of Payment and is not authenticated and therefore does not authorise payment to our customer.
• If unpaid confirm by SWIFT/TELEX advice advising reason for non-payment.
• No protest for non-payment.
In order to protect both parties, voice recording equipment is in use at this office.
[Signed]
Subject to Uniform Rules for Collection (latest revision) International Chamber of Commerce publication."
- The remaining nine cheques (which included Cheque B) were sent for collection in the ordinary way for foreign cheques, namely the casino unit sent them to the Outward Cheques Department at the International section of Nat West in Birmingham. Outward Cheques then sent such cheques to NBAD in Ajman by first class post under cover of a standard collection letter which simply stated:
"Please process the enclosed cheque(s) for Collection as instructed below
For collection and remittance of proceeds only after final payment by sterling SWIFT MT400.
Do not protest for non-payment."
- Miss Pattison at Nat West first spoke on the telephone to Mr Subhi at NBAD on 10 January 2000, which seems to have been during Ramadan. This approach came about because Mr Al-Reyaysa had told the Club that Nat West should try to contact Mr Subhi "for a fate on his [outstanding] collections". Mr Subhi was 53 at the time and as customer service manager reported to the branch manager of the Ajman branch, Mr Mangoosh (for whom he would deputise in the latter's absence). Mr Subhi's main customers were the Ruler of Ajman and Mr Al-Reyaysa. The evidence of Mr Varkey was that Mr Subhi would visit the Ruler's guest reception room and obtain instructions on an almost daily basis and that the Ruler did not want anyone else at the Bank dealing with his affairs. Mr Varkey also said that Mr Subhi spoke frequently to Mr Al-Reyaysa on the phone and that they were friends as well as having a professional banker-customer relationship. When Mr Al-Reyaysa was in Ajman, he would often visit the branch and he and Mr Subhi would spend hours together.
- During the first conversation between Miss Pattison and Mr Subhi on 10 January 2000, Mr Subhi told her that a cheque for 3,056,300 UAE Dirhams (equivalent to £500,000) had been received and would clear through NBAD's London office the next day. She asked whether she could tell her customer that the cheque was paid and he said no. Later that day, after conversations between Club personnel and Mr Al-Reyaysa during which he said NBAD would send fax confirmation that the cheque was paid (which the bank did not in fact do) and, apparently, between Mr Al-Reyaysa and Mr Subhi, Mr Subhi confirmed to Miss Pattison that the cheque was "definitely paid, with settlement tomorrow". Of course, there is no evidence as to any discussion which took place between Mr Al-Reyaysa and Mr Subhi which led to this change of stance on Mr Subhi's part. However, what is clear from the bank statements is that on that day, there were not enough funds in Mr Al-Reyaysa's account with NBAD with which to honour the cheque.
- This is striking because it must follow that, if as Grosvenor contends, Mr Subhi knew that a "paid" answer would be understood by Miss Pattison as meaning that there were sufficient funds available and they were being remitted, then he cannot have been truthful in giving her a paid answer, since on that day there were nowhere near sufficient funds in the account to honour the cheque and sufficient funds were not available in Mr Al-Reyaysa's account until 3 days later on 13 January 2000, when indeed the funds were remitted by NBAD to Nat West.
- It seems to me inherently improbable that Mr Subhi was lying to Miss Pattison from the very first occasion on which they spoke. It is much more likely that when he said the cheque was definitely paid with settlement tomorrow, he meant something slightly different from what Miss Pattison meant and understood. It is possible that, following his conversation with Mr Al-Reyaysa, he was relying on assurances from Mr Al-Reyaysa, a valued customer with whom he had a close relationship, that funds would be made available so that they could be remitted the following day. This may be something he genuinely thought would happen, given Mr Al-Reyaysa's wealth and connection with the Ruler, although in the event the funds took three days to arrive in the account.
- In a subsequent letter addressed to the Manager of the Ajman branch of NBAD and provided to the Bank during a routine visit on 6 March 2000, the Ruler says that all transactions on the account Mr Al-Reyaysa had at the Ajman branch, whether deposits withdrawals or transfers, were done on behalf of the Ruler and Mr Al-Reyaysa was authorised to manage the Ruler's private investments outside the State. Although this does not explain why funds dried up and were not transferred to the account after 3 February 2000, it may go some way towards explaining why Mr Subhi may have been confident that funds would arrive in the account to cover whatever cheques had been drawn.
- Miss Pattison communicated the "paid" answer she received from Mr Subhi on 10 January 2000 to Mr Chris Read, the manager of the Club and to Miss Caroline McIntyre, the cashier. So far as one can tell from the Club's records, this did not lead to the Club allowing him to present more cheques above his maximum limit on that day. However, during the gaming session on 13 January 2000, Mr Al-Reyaysa was allowed to present a series of scrip cheques which took him in stages up to £800,000 above his maximum limit.
- The reasons for permitting this, as recorded in the Record of Specially Authorised Cheques signed at the time by Mr Challis and subsequently by Mr Boden who approved this increase, seem to have been a combination of Mr Al-Reyaysa's assurances that these cheques would be honoured on first presentation and his known financial wherewithal. Those scrip cheques were substituted with a cheque for £800,000 drawn on NBAD. The Club was evidently anxious to obtain an answer as to the fate of this cheque, since on 15 January 2000, Mr Subhi sent Mr Challis a fax stating that the cheque for £800,000 had not been received, but that when it was, it "will be paid from the account of [Mr Al-Reyaysa] on first presentation". This tallies with what Mr Al-Reyaysa was himself telling the Club.
- This assurance in the fax from NBAD of 15 January 2000 was given in the Record of Specially Authorised Cheques as the reason for approving a further cheque for £200,000 during the 15 January gaming session (which took Mr Al-Reyaysa to £1,642,000 above his maximum limit). The cheques presented by Mr Al-Reyaysa that day were all redeemed and the Club allowed him to draw further cheques during the gaming session on 16 January 2000 (in stages up to £2,242,000 above his maximum limit) still on the strength of the assurance that the cheque would be paid in the fax of 15 January 2000. In the event, a number of those scrip cheques presented on 16 January were redeemed later in that gaming session.
- On 17 January 2000, Miss Pattison spoke to Mr Mangoosh, the manager of the Ajman branch of NBAD who told her that this cheque for £800,000 had been received by NBAD and to ring back the next day for an answer (evidently to the question was the cheque paid). That afternoon the Club asked Nat West to telephone Mr Subhi as Mr Al-Reyaysa was saying Mr Subhi could give a "final answer" on the £800,000 cheque. NBAD in Ajman was closed so Miss Pattison spoke to Mr Subhi on his mobile. He told her that the cheque was paid, with value date 18 or 19 January. She told the Club that a paid answer had been given from his mobile. The notation "Paid 17/1/00" was written alongside the entries in the Record of Specially Accepted Cheques" for 13 January.
- At the beginning of the gaming session on 17 January 2000, Mr Al-Reyaysa was allowed to present further scrip cheques, up to £2,331,000 over his maximum limit, the reason given in the Record of Specially Authorised Cheques being "£800,000 drawn on 13/1/00 has been received in UAE today and advised paid". On 18 January 2000, a cheque drawn by Mr Al-Reyaysa on Habib Bank was not honoured and Grosvenor suspended his CCF. He did not gamble at the Club that day. The cheque was honoured the following day and his CCF was reinstated with the same limits in place. As recorded in the Record of Specially Authorised Cheques, since cheques had cleared that day, Mr Al-Reyaysa's "maximum in clearance" was reduced correspondingly and it was in fact agreed that he could reach similar levels as before, in the event £3,632,000 above his maximum limit by the end of the gaming session on 19 January 2000.
- On 20 January 2000, Mr Subhi confirmed receipt of two further cheques drawn by Mr Al-Reyaysa on NBAD for £1 million and £200,000 and requested Nat West to telephone on Monday 24 January. Miss Pattison pointed out that the funds for the £800,000 cheque had not yet been received by Nat West. Mr Subhi informed her that the funds would be received in one or two days. There had apparently been a delay in remitting funds but he did not explain to her what was causing the problem. Mr Read, the manager of the Club requested a faxed "would be paid" answer from NBAD on all outstanding cheques totalling £3,930,000. The cheques were faxed by Miss Pattison to Mr Subhi who confirmed on the telephone that they would all be paid, but declined to provide fax confirmation. She told him that Nat West would tell its customer who would probably tell Mr Al-Reyaysa that Mr Subhi would not carry out his request. His response was that he would try to confirm the telephone conversation by fax on 22 or 24 January.
- The Record of Specially Authorised Cheques records as the reason for allowing Mr Al-Reyaysa to exceed the maximum limit: "Overseas Clearance-verbal assurance from customer's bankers that all cheques currently going through on UAE a/c will be paid", a reference to the verbal confirmation given that day by Mr Subhi. This reason remained the reason, as recorded by Grosvenor in the Record of Specially Authorised Cheques, for permitting Mr Al-Reyaysa to exceed the maximum limit by up to £4,630,000 during the subsequent days' gaming sessions on 21, 22, 23, 24 and 25 January 2000.
- On 25 January 2000, Mr Subhi gave Miss Pattison a paid answer for the two cheques for £1 million and £200,000. When she said the £800,000 had not been received yet, he said the funds had not gone, but would be sent for value 27 January, although he would not explain the reason for the delay. On 26 January he told Miss Pattison that a further cheque for £2 million had been received and was paid. He asked her to telephone the next day for the value date of the payment. These paid answers were communicated to the Club. The first entry in the Record of Specially Authorised Cheques for 26 January gives as the reason for approving a cheque for £250,000 presented by Mr Al-Reyaysa: "Clearance of large cheque on Abu Dhabi today leaves this highly valued customer well within previous high permitted". This is evidently a reference to the cheque for £2 million for which a "paid" answer had been received that day. The "amount over the higher limit" shown in the Record is shown as reduced accordingly, reflecting a corresponding reduction of the maximum in clearance.
- The following day, 27 January 2000, Mr Al-Reyaysa's lower limit under his CCF was increased on a permanent basis to £1,500,000 (from £200,000) and the Club also increased his maximum limit on a permanent basis to £2,500,000. These increases were approved by Mr Boden with a code "E" being given as required by the Club manual, signifying that the increase was agreed as a consequence of the customer's reputation and financial wherewithal.
- Miss Pattison spoke to Mr Subhi that day to obtain a value date for the £2 million cheque. He told her that NBAD had been experiencing problems with their telexes when remitting payments out. Therefore he said he would send one payment of £2 million out on Saturday 29 January (for the £800,000, £1 million and £200,000 collections) and another payment of £2 million on Sunday 30 January. When she questioned why she had been told on 25 January that £2 million (covering the £800,000, £1 million and £200,000 collections) had been sent for value 27 January, he said that although the instructions were ready, due to problems with outgoing telexes, the funds had not been sent yet.
- This explanation, which seems to have been designed to give the impression that funds were in Mr Al-Reyasa's account to cover the cheques and the delay in remittance was due to internal technical problems within NBAD, may well have been untrue or at best only a partial explanation. NBAD has produced no evidence of any problems with its telex machines on the days in question and all Mr Varkey could say was that there were problems with telexes from time to time. What emerges from the bank statements on Mr Al-Reyaysa's account is that although £2 million (covering the £800,000, £1 million and £200,000 collections) was indeed debited to the account on 29 January, this only happened when sufficient funds to honour those cheques were credited to the account that day, which may be the real explanation for the delay.
- At the gaming sessions on 28 and 29 January, Mr Al-Reyaysa was allowed to cash cheques above the newly fixed higher limit, in the event up to £4,190,000 above that limit by the end of 29 January, on the basis, recorded in the Record of Specially Authorised Cheques that his recent history suggested this was within his means and that it was within levels previously agreed with him. On 30 January, the Club agreed with him that it would accept cheques in a series of stages of increase and he gambled on this basis on that day and the following day, reaching a level of £5,390,000 above his higher limit after he had presented three scrip cheques for £500,000, £500,000 and £1 million on 31 January. He substituted a cheque for £2 million drawn on NBAD for those three scrip cheques.
- On that day, which was a Monday, Miss Pattison spoke to Mr Subhi who told her that two payments of £2 million had been sent out on 29 and 30 January for value that day. He also said that a cheque collection for £500,000 had been received and funds would hopefully be remitted the following day. She asked if she could tell her customer that the cheque was paid, to which he said that the funds "should be sent tomorrow". Her typed notes say "we cannot accept this as a "paid" answer" but that he said that she could telephone him the following day for the final answer and confirmation that the funds had been remitted. During the same conversation he gave her "would be paid" answers for two cheques for £1,960,000 and £3,200,000 which NBAD had not yet received.
- This exchange with Mr Subhi on 31 January demonstrates that Mr Subhi was capable of drawing a distinction between "paid" and "would be paid" answers, the latter being given before the relevant cheque was received, which militates against any suggestion that he intended a "paid" answer to be the same as a "would be paid" answer. However, the exchange still begs the question what Mr Subhi understood by the giving of a "paid" answer.
- When Miss Pattison spoke to Nat West Inland Payments in Manchester later that day, they could not locate the funds which Mr Subhi said had been sent. She spoke again to Mr Subhi who handed her over to Mr Varkey whom her typed notes describe as the "Wire Transfer Department". The note says that he informed her that on Saturday 29 January he had remitted three payments totalling £2 million (£1 million, £800,000 and £200,000) and goes on "added £500,000 is scheduled to be remitted tomorrow". In cross-examination, he agreed that he had told her that the £2 million had been remitted, but denied that he had said anything about the £500,000 cheque collection. I am not sure that anything turns on this point.
- So far as Mr Al-Reyaysa's gambling at the Club on 31 January is concerned, although as I have said, he cashed cheques which took him to £5,390,000 above his maximum limit, Mr Boden was not prepared to authorise going to a higher level with cashed cheques in that session. This appears to have irritated Mr Al-Reyaysa as he then cancelled his CCF and his membership. He did not return to the Club until 4 February 2000, when he was admitted as the guest of another member.
- On 1 February 2000, Miss Pattison spoke to Mr Subhi who explained that the other £2 million (which he had said the previous day had been remitted on Sunday 30 January) had not been remitted. This was because two urgent transfers for £600,000 and £630,000 sent out by Nat West to NBAD Head Office in Abu Dhabi on 26 and 27 January had not been credited to Mr Al-Reyaysa's account and it was this failure to credit the account which was delaying the remittance of these funds. He said the £2 million would be remitted with the £500,000 the following day. What is striking about this exchange is that Mr Subhi appears to have been quite open about the fact that there were insufficient funds in Mr Al-Reyaysa's account to remit the £2 million, even though he had given Miss Pattison a paid answer on that cheque on 26 January. As I see it, this is more consistent with Mr Subhi meaning something different by a "paid" answer than Miss Pattison did, namely that funds would be available (because of Mr Al-Reyaysa's wealth and connections) to honour the cheque, even if at the time when the "paid" answer was actually given, those funds had not yet hit Mr Al-Reyaysa's account.
- On 2 February 2000, Mr Subhi told Miss Pattison that the £2 million would be sent that day and the remaining £500,000 would be sent either the following day or on Saturday 5 February. He confirmed receipt of a cheque for £1,960,000 and requested her to telephone on Saturday 5 February for a final answer, which as she noted in her typed notes, would mean phoning on Monday 7 February. On 3 February he requested that she did indeed telephone on Monday for a final answer on the cheque for £1,960,000.
- Sufficient funds to cover the £2 million were received into Mr Al-Reyaysa's account on 2 February and the £2 million was sent to Nat West that day as Mr Subhi had said. Further funds sufficient to cover the £500,000 cheque were transferred into the account on 2 and 3 February and £500,000 was transferred to Nat West on 3 February. In the event, those transfers into Mr Al-Reyaysa's account on 2 and 3 February were the last transfers of any substantial sums into the account during the relevant period, although there is nothing in the material before the court to suggest that Mr Subhi was aware at the time that no further funds would be forthcoming, whatever their source.
- On the morning of Friday 4 February, the Club asked Nat West to get a "fate" answer on the £1,960,000 cheque (notwithstanding that Mr Subhi had indicated that a final answer would not be given until the following Monday) and on further cheque collections for £3,200,000 and £2 million. Given that Mr Al-Reyaysa had cancelled his CCF and his membership, there was almost certainly some anxiety about the Club's exposure. Unfortunately Miss Pattison found that NBAD was closed and could not contact Mr Subhi on his mobile. Someone at the Club telephoned at 4.30 pm and requested Miss Pattison to contact Mr Subhi on his mobile, saying he would be expecting the call. This suggests that Mr Al-Reyaysa had been in contact with Mr Subhi at some stage before Miss Pattison rang him again that afternoon. When she did ring, he gave a "paid" answer on the cheque for £1,960,000, with a value date of 7 February. He also gave a "would be paid" answer on the cheques for £3.2 million and £2 million, although they were not received yet.
- Although Mr Al-Reyaysa was only admitted to the Club on 4 February as a guest, it appears that his membership and his CCF were reinstated during the gaming session on that day. A new maximum in clearance figure of £8,500,000 was agreed with him and recorded on the card records with his CCF Application Form. This increase was agreed by Mr Challis and Mr Boden again with the code "E", reputation and financial wherewithal. It is also recorded in the Club Cash Desk Diary. In the light of that increase having been agreed, he was allowed to cash four scrip cheques for a total of £3,070,000, which took the figure by which the cashed cheques exceeded his maximum limit (as recorded in the Record of Specially Authorised Cheques) to £6 million (thus equivalent to the new maximum in clearance agreed of £8,500,000). At the end of the session these scrip cheques were substituted by one cheque drawn on NBAD for £3,070,000, which is Cheque A.
- The following day, 5 February, he was allowed to cash three further cheques totalling £800,000 (taking the maximum in clearance to £9,300,000). The reason for approving these cheques as set out in the Record of Specially Authorised Cheques was "Having received bank's confirmation today that previous large amount will be paid on first presentation, this amount considered acceptable". This is evidently a reference to the "would be paid" answer on the cheque for £3.2 million given by Mr Subhi in a fax to "Mr Steve" (evidently Mr Challis) sent at 17.42 on 5 February. On 6 February, Mr Al-Reyaysa cashed another scrip cheque for £300,000 and the reason for approval in the Record of Specially Authorised Cheques is said to be "This amount still within the amount for which a 'will be paid on first presentation' advice was received yesterday". Another £200,000 cheque was then cashed in that session, the recorded reason for approving which was "Reasons as above-second stage of agreed increase for today".
- As required by the Club manual, the cashing of the cheques on those two days was approved by Mr Boden as director. In cross-examination, it was put to him that he had agreed to these increases in the maximum in clearance (which by the end of the 6 February gaming session stood at £9,800,000) on the strength of a "would be paid" answer rather than a "paid" answer. He said that when he gave such approval (which would have been over the telephone) he understood that these were "paid positions". I am not convinced that he can be right about that, since the maximum in clearance carried on going up (and was not reduced as it would have been if "paid" answers had been received on cheques) to the point where the total in clearance as at the end of the session was £9,800,000. This can only have been approved by Mr Boden. It seems to me that this increase had to be agreed precisely because, although Grosvenor was happy for Mr Al-Reyaysa to carry on gambling, only "would be paid" as opposed to "paid" answers had been received. That Grosvenor senior management was aware that an increase in the maximum amount in clearance was being permitted on the basis of would be paid answers also seems clear from the letters from Nat West to Grosvenor of 7 February 2000 referred to below.
- On 7 February 2000, Cheque A was couriered by DHL to NBAD in Ajman under cover of a Collection instruction letter from the Mayfair branch signed by the manager Ms Trudie Kenzie and by Miss Pattison. The letter was in the form set out at paragraph 25 above and was sent for the attention of Mr Subhi, described as "General Manager". The letter did not indicate anywhere who was Nat West's customer on whose behalf it was remitting the cheque or that the letter was from the casino unit. Equally, since the enclosed cheque was made out to "Bearer" it gave no clue as to the identity of the customer.
- There was evidently a concern within Grosvenor about large cheques drawn by Mr Al-Reyaysa not yet having been received by NBAD. Mr John Ward, one of the cashiers at the Club asked Miss Pattison whether there was any quicker way to get Cheque A to the UAE than DHL, to which Miss Pattison's answer was no, unless someone took the cheques personally on a plane. He also asked her to get a paid answer on a photocopy cheque for £230,000 (where the original had been mislaid) and "would be paid" answers on the cheques just sent.
- Accordingly, on the morning of Monday 7 February, Miss Pattison spoke again to Mr Subhi. In relation to the collection for £1,960,000 (for which he had given a paid answer with value date of 7 February on the previous Friday) he said it was paid, but the funds would be remitted the following day, with value date 8 February. In relation to cheque collections sent out that day for £3,070,000 (Cheque A) £800,000 and £500,000, Mr Subhi gave "would be paid" answers, adding that all cheques issued by Mr Al-Reyaysa would be paid, which may have genuinely reflected the confidence he had in his customer. There was also a discussion about the cheque for £230,000 where the original had been mislaid. Mr Subhi asked Miss Pattison to telephone the following day for an answer, saying he was due to meet Mr Al-Reyaysa the following day and would obtain his signed authority to pay against the photocopy. Miss Pattison spoke to Mr Read at the Club and conveyed this information to him. It is unclear whether Mr Subhi and Mr Al-Reyaysa did meet on 8 February. Mr Al-Reyaysa did not gamble at the Club on 7 February, so I suppose it is just possible there was a meeting.
- The concern at Grosvenor about large outstanding cheques was such that Miss Pattison was asked to confirm in writing her conversation with Mr Subhi on 7 February 2000 about the status of the various cheque collections. This she did in a letter to Mr Mole of Grosvenor the same day. She also wrote on 7 February 2000 to Mr Mike Press, Head of Audit and Control at Grosvenor, about the status of "would be paid" answers in terms which confirm (if any confirmation were needed) the understanding of Nat West as to the distinction between "paid" answers and "would be paid" answers:
"We have spoken to our Correspondent Banking International Division who have advised that they are unaware of any special arrangement by banks in the Middle East where a 'Would Be Paid' answer confirms that the cheque is 'Paid' upon receipt.
We have also spoken to the [NBAD] in London, who have advised that they have heard of some UAE banks 'earmarking' funds after giving a 'Would Be Paid' answer. However when we asked what would happen if a Stop was placed on the cheque after the 'Would Be Paid' answer was given they were unable to comment."
- On the morning of Tuesday 8 February 2000, Miss Pattison telephoned Mr Subhi and the conversation took place during which it is alleged Mr Subhi made the fraudulent misrepresentation upon which Grosvenor founds its claim in deceit. I will set out in full Miss Pattison's typed note of what Mr Subhi said:
"Mr Subhi confirmed that all the cheques he has received drawn on Mr Al-Reyaysa have now been paid. Said he received faxed authority to pay £230k from Mr A-Reyaysa and also paid are £2m 1Feb, £500k and £3,070,000 7 Feb.
Unable to give exact value date, as funds will be remitted either Saturday/Sunday or early next week as one large payment. This will include the £1,960,000 which should have been remitted today. Once the payment has been made, Mr Subhi will fax the payment instruction to this office".
- Miss Pattison passed on this information to the Club and all four cheques totalling £5,800,000 were recorded in the cash desk diary as "paid" with the notation next to them "funds expected to be sent Sat/Sun or early next week all in one payment which will include 1,960,000 paid 7/2". When Mr Al-Reyaysa attended the Club that evening (he had not been to the Club on 7 February) he was allowed to cash a number of scrip cheques. The reason given for approval in the Record of Specially Authorised Cheques is "Paid answer on large amount of cheques received today. Consequently this increase well within previous limit allowed". The "Amount over higher limit" shown for the first cheque for £1 million is £2,500,000, demonstrating that the maximum in clearance had been reduced by the amount of those paid cheques from £9,800,000 (which is where it stood at the end of the gaming on 6 February) to £4 million.
- In the Record of Specially Authorised Cheques for later on 8 February, next to a block of further approved cheques which took Mr Al-Reyaysa to £6,500,000 over his maximum limit (i.e. to £9 million maximum in clearance) is the notation: "Cheques of this date fall within a director authorised "in clearance" figure. Their exchange and redemption require subsequent entries to be made thus". Those cheques were all subsequently redeemed. At the end of the gaming session on 8 February, he had won £1,370,500. Of this amount, £1.2 million was by way of a credit transfer, £70,500 was in cash and £100,000 was by way of a winner's cheque. This was the first of six such cheques issued to him in the period between 8 and 17 February in relation to which there is a dispute of principle between the parties when it comes to quantum. This particular winner's cheque was re-gambled by Mr Al-Reyaysa in the 10 February gaming session.
- At the beginning of gaming on 9 February, Mr Al-Reyaysa was allowed to cash a cheque for £500,000, the reason given being "As yesterday's cheques were all redeemed it was decided that it is in order to continue today for the same reasons". This was also given as the reason for subsequent scrip cheques being approved during the gaming session on 9 February, which took him to £7,500,000 above his maximum limit, equivalent to £10 million maximum in clearance.
- Against the last entry for 9 February in the Record of Specially Authorised Cheques it also states "A new max in clearing authorised also". This is evidently a reference to a higher maximum in clearance of £10 million shown in the card records with the CCF Application Form without a date next to it, which must have been approved by Mr Boden. Also, at the end of the gaming session for 9 February (in fact at 6 minutes past 4 in the morning of 10 February, the session for 9 February having finished at 4 o'clock), the Club accepted a cheque for £3,610,000 drawn on NBAD, which is Cheque B, in substitution for two scrip cheques cashed earlier in the session for £1,110,000 (part of a cheque originally for £1,500,000, the balance having been redeemed) and £2,500,000.
- Some of the cheques cashed on 9 February having been redeemed, Mr Al-Reyaysa was back down to £5,110,000 over his maximum limit on 10 February and was allowed to cash two cheques for £500,000 and £1 million on the basis that this was "within newly authorised maximum in clearance". Similarly, on 11 February he was allowed to cash several more cheques, the reason given being "Within maximum in clearance director-approved limit". At one point on 11 February he was £8,110,000 over the maximum limit, but cheques were redeemed and he finished at the same level as at the beginning of 10 February. He also received winner's cheques for £40,000 and £1 million during the session on 11 February. The cheque for £40,000 was re-gambled during the same session and that for £1 million was re-gambled in the following day's session on 12 February.
- No discussions of any substance took place between Mr Subhi and Miss Pattison for the rest of that week after Tuesday 8 February. She tried to contact him on his mobile on Friday 11 February to seek confirmation of Mr Al-Reyaysa's statement to the Club that the collection for £3.2 million from 31 January had been paid. She was told that Mr Subhi had been ill for a couple of days and had been admitted to hospital. She informed the Club.
- During gaming sessions on the weekend of 12 and 13 February, Mr Al-Reyaysa was allowed to cash various cheques on the basis that he was within the "maximum in clearance director agreed" limit. On 12 February he not only re-gambled the winner's cheque for £1 million received at the previous day's session, but received another winner's cheque for £1.5 million, which he re-gambled in the same session. On 13 February, he received another winner's cheque for £1 million which he re-gambled in the same session. Other winner's cheques totalling £450,000 were not re-gambled.
- On the morning of Monday 14 February, Miss Pattison spoke to Mr Subhi. She told him that the Club were saying that cheques for £3.2 million from 31 January and £800,000 from 7 February were received and could Nat West get a "paid" answer. He said those cheques and the one for £3,610,000 were not received. When she asked about the £7,760,000 which NBAD should have sent at the weekend for paid collections, he said that they had not yet sent the funds but she should telephone the following day for a value date for payment. Curiously, her notes do not record him having given "would be paid" answers for the cheques totalling £7,610,000 not received, but the Club cash desk diary records these as all "WBP". When Mr Al-Reyaysa came to the Club on the evening of 14 February, Mr Boden in fact approved an increase in his "maximum in clearance" to £11,500,000, again on the basis of reputation and financial wherewithal. The entry in the Record of Specially Authorised Cheques against the first cheque approved for 14 February reflects this, stating: "Limit raised today (his bankers have given will be paid answers on some overseas cheques) entries to comply with procedures".
- On 15 February Miss Pattison spoke to Mr Subhi who confirmed receipt of the cheque for £3.2 million and gave a paid answer. He said that he had not yet remitted the outstanding proceeds but would send one payment including the £3.2 million (i.e. a total of £10,960,000) within the next 1-2 days. The following day, 16 February he said that he had not sent the funds because Mr Al-Reyaysa had said there were more cheques coming in for payment and to wait until all the cheques were received before making one payment. He said he was only following his customer's instructions but he would try to contact Mr Al-Reyaysa and telephone back.
- Miss Pattison wrote a letter to Richard Mole advising him of this conversation with Mr Subhi. In that letter she said amongst other things:
"We then discussed how we had received "paid" answers on the cheque collections as early as 4 February and that our customer is still waiting for the funds. However, unfortunately Mr Subhi stated that although the cheques have been paid, he is following his customer's instructions, adding that he would try to contact Mr Al-Reyaysa today."
- On Thursday 17 February, Miss Pattison spoke to Mr Subhi who said that the funds of £10,960,000 would be remitted via NBAD Knightsbridge for value 22 February. She queried why not 21 February as she had been told these were Mr Al-Reyaysa's instructions, to which Mr Subhi said Mr Richard Mole knew all about this. Miss Pattison then spoke to Mr Mole who confirmed that he had spoken to both Mr Al-Reyaysa and Mr Subhi about the outstanding collections for £10,960,000 and that he had agreed to accept a value date of 22 February.
- During the period from 15 to 17 February, Mr Al-Reyaysa was only permitted by the Club to cash cheques under his CCF on the basis that they were drawn on a London bank and presented for payment the following day. He also gambled on 16 February with a winner's cheque for £1.5 million which he had received that day. On each of the days from 13 to 17 February, he suffered significant losses to the Club, totalling about £12.5 million overall.
- On 18 February Mr Boden approved limits under the CCF of a maximum in clearance of £11,350,000 from overseas banks and £1,800,000 from London banks, as recorded in the card records with the CCF Application Form and the CCF Limit Record Book. In the event, Mr Al-Reyaysa did not use his CCF after 17 February. On the fourteen or so occasions on which he gambled at the Club again between 21 February 2000 and 9 May 2001 he used other casino cheques or non-gaming cheques not presented under the CCF. For all practical purposes, the CCF was suspended from 17 February 2000.
- On the morning of Monday 21 February 2000, Miss Pattison spoke to Mr Subhi again. He gave a paid answer on other cheques now received by NBAD including Cheque B and said funds would be remitted in 2-3 days time. This information was communicated to the Club. By this stage £21,590,000 was outstanding in cheques drawn on NBAD. The following day, 22 February when she enquired about these funds and asked for a value date for payment of the £21,590,000, he said that the funds had already been sent that day to Habib Bank in London and said he would fax payment details which he did not do. In fact, the statement that the funds had already been sent to Habib Bank was untrue, as funds had not been remitted, so, unsurprisingly, he was unable to fax payment details. Mr Mole told Miss Pattison later that day that Mr Subhi had told him that the funds had not yet been sent, as NBAD required documents from Mr Mole confirming what the funds are for, to which Mr Mole said he would require a written request.
- Miss Pattison relayed the events of those last few days, culminating in the request from Mr Subhi to Mr Mole in a telephone conversation the same day, 22 February, to Mr Alex Figgs of the Middle East Team of Correspondent Banking in Nat West in a telephone conversation on 22 February, followed by an internal letter also that day in which, having referred to Mr Subhi's request that Mr Mole confirm what the funds were for, she continued:
"Obviously Mr Subhi is unaware the funds are for a casino and thinks the beneficiary is Mr Mole…..
Mr Mole then contacted me to express his concerns over the language difficulties he had experienced whilst talking to Mr Subhi and requested Nat West to get an Arabic speaking employee to speak to Mr Subhi direct in order to clarify this matter finally….
As stated earlier it is essential that the NBAD do not know the funds are for a casino."
- On 23 February Mr Al-Reyaysa called Miss Pattison direct and discussed the documentation NBAD required from Mr Mole. He said that Mr Mole required a written request from Mr Subhi, then he would reply as "the Rank Group" so that NBAD did not know the funds were for a casino. After advice from Mr Figgs that Nat West should not get involved in disclosing what the funds were for, it was agreed she would fax Mr Subhi asking for written confirmation that all cheques had been paid. She spoke to Mr Mole, who said he would also send a fax to NBAD.
- The fax ostensibly to Mr Subhi from Mr Mole but signed by his secretary Joanna Wells dated 23 February 2000 is on the headed paper of Grosvenor, so that if it was sent to and received by Mr Subhi, it would have disclosed to him immediately that these outstanding funds were to be paid to a casino. The fax stated:
"Following a conversation with our respective client, Mr A Al-Reyaysa, on the evening of Tuesday 22nd February 2000, whereby he agreed that you should fax to me the paid answers already received verbally on a total amount of British sterling £20,560,000.
I look forward to receiving this by return in the hope that this will go some way to removing concerns currently being expressed by my executive directors."
- In cross-examination, Mr Mole said that he recalled dictating the fax to Miss Wells and that he had been there when she faxed it, so that to his knowledge it was sent. I am pretty sceptical about that evidence. If Mr Mole had been there when it had been typed and was about to be sent, why on earth did he not sign it himself? He did not have any real explanation for this in his evidence. I also doubt whether he could really remember being there after 8 years. Furthermore, the sending of a fax on Grosvenor headed paper disclosing that the outstanding funds were gambling debts is inconsistent with the desire not to disclose that these were gambling debts evident from the Nat West internal letter. I consider that it was probably decided not to send this fax, which is why there is no transmission report.
- On Monday 28 February 2000, Miss Pattison spoke to Mr Subhi saying that they had had neither faxed confirmation of paid cheques nor the payment instruction (which he had promised for the Saturday). He said that the funds had been remitted through what she records him as describing as the British Bank in Sharjah and that Mr Hamid at the British Bank was going to fax Nat West the payment instruction. When she asked why this was being done by the British Bank and not by NBAD itself as correspondent bank, he said there was a "big problem" and that "Mr Richard" (a reference to Mr Mole) knew about it. When Miss Pattison then spoke to Mr Mole he said that he had been trying to speak to Nat West to tell them not to phone Mr Subhi until instructed by Grosvenor to do so. He said that from conversations he had had with Mr Al-Reyaysa, he thought that Mr Al-Reyaysa had had "words" with his bank. Funds had been transferred to Habib Bank in London in a number of smaller payments for the outstanding collections. These would arrive over the course of that week and next, via Habib Bank drafts payable to Nat West and would quote the cheque number. Mr Mole gave permission for Nat West to contact Habib Bank in London direct.
- In the event, a number of outstanding cheques were paid over the next few weeks through funds from Habib Bank in London as Mr Al-Reyaysa had evidently told Mr Mole: cheques for £1,960,000 and £230,000 on 2 March, for £500,000 on 8 March and £1,000,000 on 17 March 2000. In accordance with Mr Mole's instructions, Miss Pattison had not contacted Mr Subhi after 28 February and the Outward Cheques Department of Nat West was told by the Mayfair branch on the same day not to contact NBAD. However, those instructions were overlooked by Outward Cheques who chased NBAD in relation to three cheques for £3,610,000 (Cheque B), £2,235,000 and £1,500,000 on 16, 22 and 23 March 2000 respectively. This led to an irate phone call from Mr Mole to Miss Pattison on 27 March. An apologetic letter was sent that day by the manager of the Mayfair Branch, Miss Kenzie, to Mr Mole saying that they had explained to Outward Cheques the "inconvenience and upset it has caused to both yourselves and Mr Al-Reyaysa." The other outstanding cheques (with the exception of Cheques A and B) were eventually honoured by Mr Al-Reyaysa over the next four or five months.
- Grosvenor commenced proceedings against Mr Al-Reyaysa in the High Court on 20 February 2001 claiming the value of the two cheques, £6,680,000 plus interest. On 30 May 2001, Grosvenor obtained judgment in default against him. That judgment has not been enforced, nor has it been honoured by Mr Al-Reyaysa.
- On 8 November 2001, Mr Tresser, the legal manager of the Rank Group wrote to Mr Michael Tomalin, Chief Executive of NBAD. This letter referred to the fact that Mr Subhi had given verbal "paid" advices for the two cheques for £3,070,000 and £3,610,000 and stated that, despite those advices, no funds had been received in settlement, so that presumably the instruments had been received by the Ajman branch. It went on to state that Grosvenor's subsequent dealings with Mr Al-Reyaysa had undoubtedly been influenced by NBAD's confirmation of payment of the cheques. It asked for a full explanation of how and why Mr Subhi had given paid answers on the cheques and also asked whether NBAD intended to compensate it for its loss. In reply NBAD said it was surprised by this as it had no record of the cheques ever having been presented for collection. Further correspondence ensued in which NBAD repeated this response.
- On 14 October 2003, Reed Smith, then acting for Grosvenor sent a letter before action to NBAD. That letter referred to the fact that "paid" answers had been given on both cheques, but funds had not been remitted nor the cheques returned dishonoured. It said that Grosvenor had no alternative but to commence proceedings for the recovery of £6,680,000, although it did not state the basis of the cause of action and certainly contained no allegation of dishonesty.
The history of these proceedings
- Grosvenor did not seek to advance any claim against NBAD further until April 2004, when it issued an application for pre-action disclosure against NBAD. This application was dismissed by Master Fontaine as a fishing expedition. Shortly before the hearing of that application, in a letter dated 28 April 2004, Grosvenor's solicitors intimated that the claim against NBAD would be framed in conspiracy and constructive trust on the basis of what was said to be Mr Subhi's complicity in a fraud perpetrated by Mr Al-Reyaysa. It was also suggested that Mr Al-Reyaysa had defrauded the Ruler and that Mr Subhi had conspired with him. On 7 September 2004, Grosvenor's solicitors provided draft Particulars of Claim which pleaded that Mr Subhi had conspired with Mr Al-Reyaysa to injure Grosvenor, that NBAD had knowingly assisted Mr Al-Reyaysa's dishonest scheme and that both he and Mr Subhi had been the subject of criminal proceedings for fraud in the UAE for extracting sums from the Ruler's accounts with NBAD. The unlawful means were alleged to include the provision by Mr Subhi of false information, evidently (although the draft pleading is somewhat obscure) consisting of the paid advices on the two cheques, which information it was alleged he knew or ought to have known was false. In the event, none of these allegations was pursued in the pleadings actually served by Grosvenor nor was any evidence to support such serious allegations put forward at the trial.
- The present proceedings were commenced on 12 May 2005, more than five years after the events in question. The basis of the claim as then formulated was a "custom and practice" operated between NBAD and Grosvenor, which was said to give rise to a contractual promise by NBAD to honour the cheques (the consideration for which was said to be Grosvenor's advance of monies to Mr Al-Reyaysa up to the value of Cheques A and B). It was alleged that "Representations" made by NBAD (evidently a reference to the paid answers, although that is by no means clear) were false because NBAD knew of reasons why the cheques would not be honoured on presentation. In consequence, NBAD was alleged to be in breach of express or implied terms of a contract between Grosvenor and NBAD, alternatively, NBAD was in breach of collateral warranties. The loss and damage claimed was the value of the two cheques, £6,680,000 plus interest. It is to be noted that there was no actual plea of fraud against NBAD and, consequently, no claim in deceit.
- NBAD indicated an intention to apply to strike out this claim. On 11 October 2005, Grosvenor served a proposed amended pleading which raised new claims, in addition to the existing "contract"/custom and practice claim, of (a) breach of a tripartite collection agreement under URC and (b) the tort of deceit. This is when the claims now pursued were first intimated. The primary damages claim remained the value of the cheques, but alternative claims were advanced relating to the financial consequences of allowing Mr Al-Reyaysa to continue gambling at the Club after the paid answers were given. These were said at that stage to be sums "advanced" to Mr Al-Reyaysa in reliance on the paid answers on 8 and 21 February 2000 of £3,500,000 and £705,300 respectively, together with a claim for the gaming duty on the gross gaming yield.
- NBAD issued its application to strike out on 9 December 2005, which was heard by Colman J on 2 February 2006. A judgment in draft was provided to the parties on 28 March 2006, in which the learned judge indicated that Grosvenor should produce a fresh draft of its Particulars of Claim which more coherently expressed the URC and deceit claims and the case on causation of loss in relation to each. Judgment was handed down on 7 April 2006. By that judgment ([2006] EWHC 784 (Comm)) Colman J struck out Grosvenor's contract claim in so far as it was advanced at common law, as opposed to pursuant to the URC, on the basis that at common law it was well-established that there was no direct contract between the payee or customer of the remitting bank and the collecting bank (see paragraphs 34 and 38). He held that the claim that the URC did create such a contractual relationship between Grosvenor and NBAD was one of potentially wide application in international banking law and should be considered at a full trial in the light of the trial judge's findings of fact. The claim in deceit was challenged by NBAD on grounds no longer pursued at trial and rejected by Colman J, so the claim in deceit was allowed to stand.
- In fact immediately prior to the handing down of the judgment, Grosvenor had produced a further revised draft pleading claiming losses resulting from the use of the CCF between 8 and 17 February 2000, calculated as the winnings paid to Mr Al-Reyaysa (£7,258,900) plus gaming duty of £6,649,920 less the cheques received from Mr Al-Reyaysa which were paid (£8,970,000). This gave a claim of £4,938,820. This draft was served under cover of a letter from Grosvenor's solicitors dated 6 April 2006, which stated in terms that:
"...the correct approach to the quantification of our client's losses both in tort and contract is to identify the amount by which the Casino was out of pocket as a result of gaming continuing through use of the [CCF] after 8 February 2000. That means calculating the difference between sums actually paid by the Casino (in the form of winnings cheques and Gaming Duty on the gross gaming yield) and sums actually paid to the Casino on cheques drawn by Mr Al-Reyaysa under his Facility.
That is precisely how the damages are pleaded at paragraph 29(3) of the draft Particulars of Claim."
- These Amended Particulars of Claim were formally served on 18 May 2006. Disclosure then took place in December 2006 and Grosvenor served its witness evidence between March and May 2007, including the statement of Mr Wade served on 31 May 2007 which put forward figures for the gaming duty and winnings paid to Mr Al-Reyaysa which differed from those in the Amended Particulars of Claim. On his calculations (including the schedule exhibited to his statement), the loss resulting from continued use of the CCF had increased to £7,734,700.
- At this stage the trial was due to commence in July 2007. In the light of the confusion in relation to Grosvenor's quantum, NBAD applied for an adjournment of the trial date. This application came before Andrew Smith J on 7 June 2007. He adjourned the trial and ordered Grosvenor to produce a statement of loss. That statement was produced on 22 June 2007 and set out a yet further version of Grosvenor's case on the quantum of its loss. This was supported by a detailed letter from Mr Peter Luscombe, who is Grosvenor's accounting expert and who gave evidence before me. That letter was effectively the substance of his expert report.
- On 12 July 2007 Grosvenor issued an application to re-amend the Particulars of Claim to bring the quantum of its claim into line with the statement of loss. The draft pleading now set out two different approaches to quantum. Approach 1 was a claim for the value of Cheque B on the basis that, in reliance on Mr Subhi's paid answer on Cheque A, Grosvenor had granted a legally enforceable loan to Mr Al-Reyaysa in the amount of that cheque. As I discuss in more detail below, at the trial Approach 1 was urged upon me by Mr Stephen Phillps QC for Grosvenor as being the correct legal analysis of the quantum both in tort and in contact.
- Approach 2 was calculated as before (in other words on what had been said to be the correct approach to quantum in April 2006), winnings paid to Mr Al-Reyaysa plus gaming duty less cheques received from him which were paid. This gave a loss of £2,482,540, but only if the gaming undertaken by Mr Al-Reyaysa using previously issued winner's cheques and the consequences thereof are excluded from that equation. If the winner's cheques element is included, Grosvenor in fact made a profit from Mr Al-Reyaysa's gaming during the period 8 to 17 February 2000 then calculated as £1,928,540 and hence did not suffer a loss. I will consider these two approaches to quantum and their consequences later in this judgment.
- NBAD resisted this proposed amendment to Grosvenor's pleading and the matter was the subject of a contested hearing before David Steel J on 29 and 30 October 2007. By his judgment dated 14 November 2007, the learned judge ruled that permission to amend should be granted, concluding:
"I have preliminary views as to the potential merit of the two formulations of the case which the Claimant wishes to plead but I am not persuaded, whether viewed as a matter of common sense or otherwise, that Grosvenor has failed to discharge the burden of demonstrating that their prospects of success on each are not just fanciful".
- It was on this basis therefore that the quantum of Grosvenor's claim was advanced at trial, with some relatively minor amendments as a consequence of agreement between the accounting experts to which I will return when I deal with the question what if any loss Grosvenor has suffered.
The expert banking evidence
- Before considering the parties' rival contentions on the liability issues concerning deceit and the "URC contract" claim, it is appropriate to summarise the expert banking evidence which was before the Court which has a bearing on both issues.
- Grosvenor called Mr Neville Sawyer, who had nearly 40 years of experience working for Barclays Bank, latterly ten years as manager of the guarantees and credits department, before his retirement in 2005. Mr Sawyer had not worked abroad but has considerable experience of dealing with overseas banks, including in the giving and receiving of verbal advices of fate. He was an impressive witness who gave his evidence in a fair and impartial manner.
- NBAD called Mr Vincent O'Brien, who has more than 30 years of experience of international trade finance and international banking. He started his working life with Ulster Bank (in fact part of the Nat West Group) in Dublin, but latterly has acted as an adviser on behalf of the ICC in relation to both URC 522 and UCP 600, the Uniform Custom and Practice for Documentary Credits, for which he was Chairman of the drafting group of the ICC Banking Commission of the UAE. It would be fair to summarise his experience as being of less "hands-on" banking than Mr Sawyer, but far more specific experience of dealing with banks and bankers in the UAE. He gave his evidence in an open and frank way.
- As one might expect from two experienced and fair-minded professional bankers, many issues were agreed between them, as is apparent from their Joint Memorandum. In particular, they were essentially agreed as to the purpose and effect of URC 522. Although, as they agreed, the question whether the URC creates a contractual relationship between principal and collecting bank is a question of law which is outside their expertise, it seems to me that none of what they did agree about the URC supported the existence of such a contract. For example they agreed that under collections pursuant to the URC the principal would give instructions to the remitting bank and the remitting bank would give separate instructions to the collecting bank.
- The most important respect in which they differed was as to the extent to which someone in the position of Mr Subhi would have known and intended that a verbal paid advice would be relied upon by Nat West and its customer, although neither expert sought to trespass on issues of fact. Mr Sawyer's view was that such advices are common in international cheque collections and an experienced banker would know that such an advice was being requested for a specific reason and would be relied upon.
- Mr O'Brien's view was that a reasonable banker would understand and expect a remitting bank only to act upon an authenticated advice of payment. Consistent with that view, he also put forward an analysis of a verbal "paid" answer as only a "snapshot", which was saying no more than that the collection process was under way. However, it is fair to say that in cross-examination he resiled somewhat from this position, accepting as he did that "in theory if someone says something is paid you assume that means paid". It seemed to me that his analysis rather evaporated in cross-examination. Having said that, it seems to me that the Court can still derive some assistance from his evidence as to banking practice in the UAE.
The claim in Deceit
Deceit-the law
- 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."
Summary of parties' contentions
- 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 19th 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.
Dishonesty
- 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, mens rea, 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 to Re 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.
Findings on the issue of dishonesty
- 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 19th century cases cited in the passage in Paget's Law of Banking 13th 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, 3rd 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, 19th 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 Association of 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.
Was the statement intended to be relied upon?
- 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.
Reliance
- 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.
Conclusion on the claim in deceit
- 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.
The claim in contract
- 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:
i) The URC is a general code designed to standardise the rights and obligations of the parties to a collection, which parties include the principal and the collecting bank. It would be inconsistent with this to interpret the Rules as precluding the principal from having direct recourse against another party to the collection.
ii) Article 4 contemplates a single collection instruction for each collection which dictates the terms of the collection for all parties. The instructions in question emanate from the principal and the overriding principle of the URC is that the principal's collection instructions should be complied with.
iii) A conclusion which excluded the principal from having direct rights against a collecting bank such as NBAD which had acted in bad faith or with a want of reasonable care in breach of Article 9 would render meaningless making the principal a party to the collection. In support of this submission, he relies on a passage in Benjamin's Sale of Goods 7th edition para 22-092 dealing with the disadvantageous position of the customer at common law.
- 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:
i) The URC is intended to create a regime which ensures a very formalised and structured approach to collections. This was the expert evidence of Mr O'Brien, accepted by Mr Sawyer. To permit the "creation" of a contract between the principal and the collecting bank would cut across and run contrary to that regime.
ii) The provision in Article 4 a iii that banks should disregard any instructions from a party other than the bank or party from whom they received the collection is inconsistent with there being a contract between the principal (who on this hypothesis is not the party from whom the collecting bank has received the instruction) and the collecting bank. Rather that provision mirrors the common law.
iii) The provisions in relation to charges and expenses demonstrate that (absent some specific provision in the collection instruction) the principal is not liable to the collecting bank for the latter's charges or expenses, which is wholly inconsistent with their being in a contractual relationship.
- 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:
i) I accept that collection of cheques and other documents is conducted between banks, specifically between the remitting bank and the collecting bank, in a highly structured and formalised manner and the URC is intended to reflect and support that approach and so far as possible achieve uniformity of collection practice across international boundaries. In my judgment, the setting out in Article 3 of the "Parties to a Collection" is intended to do no more than ensure that all those parties are bound by the Rules and foster uniformity of collection practice. The Article is simply not intended to create a contractual relationship between parties who would not otherwise be in such a relationship pursuant to the relevant local law, here English law. Put another way, URC is intended to govern existing contractual relationships, not create such relationships where they do not otherwise exist.
ii) In my judgment, there is simply nothing in the other Articles which would lead to a contrary conclusion. Quite the contrary. In particular, I consider that Mr Auld is right that Article 4 is a critical provision which militates strongly against Grosvenor's contentions. Absent some specific provision in the collection instruction entitling a collecting bank to take instructions from a principal (which might well be an example of the specific creation in a particular case of a contract between them), completely absent from the collection instruction in the present case which does not even identify or mention the principal, the collecting bank must disregard any instructions other than from the remitting bank from which it receives the collection. What a strange contract it would be if the collecting bank could not act upon instructions from the other party to the contract. This seems to me fatal to Grosvenor's case. For present purposes, Article 4 is simply emphasising that the relationship in a collection process is between the two banks.
iii) Furthermore the fact that Article 21 c contemplates that a principal will only be liable to the collecting bank for its charges and expenses where the collection instruction expressly so provides is wholly inconsistent with the URC having created privity of contract between them independently of the specific terms of the collection instruction. As I have already noted, this is a critical difference between the provisions of URC 522 and the earlier version of URC which Rix J was considering in Bastone & Firminger.
iv) At first blush, Mr Phillips' strongest point would appear to be the one about Article 9 but on analysis I do not consider that the Article is intended to create contractual (or for that matter tortious) duties where none exist under the local law. Certainly the ICC Commentary on the Article contemplates banks acting in accordance with local practice and local law, which suggests that the Article is not imposing some overarching obligation where there was not one before.
- It follows that Grosvenor's claim in contract also fails.
Quantum
- 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.
Conclusion
- 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.
