Crockfords Club Ltd v Prakash Mehta and Another
| Jurisdiction | England & Wales |
| Judge | LORD JUSTICE LLOYD,LORD JUSTICE STOCKER,LORD JUSTICE STUART-SMITH |
| Judgment Date | 31 October 1991 |
| Judgment citation (vLex) | [1991] EWCA Civ J1031-3 |
| Docket Number | 91/1002 |
| Date | 31 October 1991 |
| Court | Court of Appeal (Civil Division) |
[1991] EWCA Civ J1031-3
IN THE SUPREME COURT OF JUDICATURE
COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
(MR JUSTICE HENRY)
Royal Courts of Justice
Lord Justice Lloyd
Lord Justice Stocker
Lord Justice Stuart-Smith
91/1002
and
MR IAN B. GLICK, Q.C., and MISS SUSANNA FITZGERALD, instructed by Messrs Mullinger Banks, appeared for the Appellant (First Defendant).
MR NICHOLAS F. MERRIMAN, Q.C., and MR STEPHEN E. PHILLIPS, instructed by Messrs Lovell White Durrant, appeared for the Respondents (Plaintiffs.)
In this appeal we have been concerned with the construction of section 16 of the Gaming Act 1968. Since the question for decision is a pure question of law, I can deal with the facts very briefly.
The plaintiffs, Crockfords Club Limited, are a well-known gaming club licensed for gaming under Part II of the Gaming Act. The gaming which takes place on the premises of the club is lawful gaming. The first defendant, Mr Prakash Mehta, is or was a member of the club. On 4th October 1990 he visited the club for the purposes of gaming. He obtained tokens or chips to the value of £120,000. In exchange he signed three cheques to the same value drawn on the second defendant's account at a Panamanian bank in Luxembourg. Mr Mehta told the club that he was an authorised signatory on the company's account. On the morning of 5th October a member of Crockfords staff collected the cheques and flew to Luxembourg. He was told that the cheques would be met in due course. On the evening of 5th October Mr Mehta returned to the club. He signed a further cheque for £125,000 and received chips of equal value in exchange. All four cheques were dishonoured. The club has brought these proceedings against both defendants, but has not succeeded in serving the second defendant. Mr Justice Henry has given judgment against Mr Mehta, the first defendant, under Order 14 for £245,000 plus interest. There is now an appeal to this court.
There were three issues before the learned judge. In the first place it was said that the underlying loan was made to the company on whose account the cheques were drawn and not to Mr Mehta personally. Secondly it was said that if there was a loan to Mr Mehta the club accepted the cheques as unconditional payment. Thirdly it was said that the loan to Mr Mehta was illegal under section 16(1) of the Act, and any promise to repay, express or implied (an express promise is not suggested) was unenforceable.
Before us the first and second arguments were abandoned. But Mr Glick maintained the third argument, although only as an alternative. I will deal with the third argument first.
Assuming there was a loan to Mr Mehta, it was submitted that the loan was illegal by virtue of section 16(1) of the Act. At this point it is convenient to read the relevant subsections:
"16.-(1) Subject to the next following subsection, where gaming to which this Part of this Act applies takes place on premises in respect of which a licence under this Act is for the time being in force, neither the holder of the licence nor any person acting on his behalf or under any arrangement with him shall make any loan or otherwise provide or allow to any person any credit, or release, or discharge on another person's behalf, the whole or part of any debt,-
(a) for enabling any person to take part in the gaming, or
(b) in respect of any losses incurred by any person in the gaming.
(2) Neither the holder of the licence nor any person acting on his behalf or under any arrangement with him shall accept a cheque and give in exchange for it cash or tokens for enabling any person to take part in the gaming unless the following conditions are fulfilled, that is to say-
(a) the cheque is not a post-dated cheque, and
(b) it is exchanged for cash to an amount equal to the amount for which it is drawn, or is exchanged for tokens at the same rate as would apply if cash, to the amount for which the cheque is drawn, were given in exchange for them;
but, where those conditions are fulfilled, the giving of cash or tokens in exchange for a cheque shall not be taken to contravene subsection (1) of this section.
(3) Where the holder of a licence under this Act, or a person acting on behalf of or under any arrangement with the holder of such a licence, accepts a cheque in exchange for cash or tokens to be used by a player in gaming to which this Part of this Act applies, he shall not more than two banking days later cause the cheque to be delivered to a bank for payment or collection.
(4) Nothing in the Gaming Act 1710, the Gaming Act 1835, the Gaming Act 1845 or the Gaming Act 1892 shall affect the validity of, or any remedy in respect of, any cheque which is accepted in exchange for cash or tokens to be used by a player in gaming to which this Part of this Act applies."
Mr Glick's submission in a nutshell is as follows. Section 16(1) prohibits the club from making a loan or otherwise providing credit for enabling a person to take part in the gaming. Section 16(2) permits the club to accept a cheque in exchange for cash or tokens, provided it is not post-dated and is presented for payment within two days. Nothing in subsection (2) validates the underlying loan. This is confirmed by subsection (4), which provides specifically that the Gaming Acts 1710 to 1892 should not affect the validity of, or any remedy for, the cheque, but makes no mention of the underlying loan. If Parliament had intended to exempt the underlying loan from the prohibition contained in section 16(1) it would have said so.
I find that I cannot accept that submission. The legislative purpose of section 16 of the Act was to discourage gaming on credit. But consistently with that overall objective Parliament had to allow machinery for enabling lawful gaming to take place at licensed clubs. Otherwise those taking part in the gaming would have had to bring their own cash. The solution adopted was a neat one, and is to be found in section 16(1) and (2). Provided the cheque meets the requirements of subsection (2) and subsection (3), the giving of cash or tokens in exchange for the cheque does not contravene subsection (1).
The error in Mr Glick's argument is to treat section 16(2) as if it only validated the cheque. It does more than that. It validates the whole transaction. Subsection (1) is subject to subsection (2). Subsection (2) provides that the transaction -that is to say, the giving of the cash or tokens in exchange for the cheque—shall not contravene section 16(1). Provided the cheque complies with subsections (2) and (3) there is nothing in subsection (1) to prohibit the underlying loan.
What then was the purpose of section 16(4)? The explanation, like so much else in our law, is historical. The old legislation did not make loans for lawful gaming illegal. The 1710 Act is concerned with securities. It provides that all securities for repaying money knowingly lent for gaming should be "utterly void, frustrate and of none effect to all intents and purposes whatsoever". But this was found to work injustice on an innocent holder for value—that is to say, a third party to whom the security may have been negotiated without notice. So 125 years later, by the Act of 1835, Parliament amended the law so as to provide that the security should not be void, but should be deemed to have been given for an illegal consideration. Nothing in either Act affects the underlying loan.
The subsequent history is traced in the case of C.H.T. Ltd. v. Ward [1965] 2 Q.B. 63. It was argued that it would be absurd to invalidate the security, but to leave the contract of loan unaffected. That cannot have been Parliament's intention. This argument was accepted by the Divisional Court in the case of Carlton Hall Club Ltd. v. Laurence, best reported in (1929) 98 L.J.K.B. 305. It was held that the consideration for the security which was deemed to be illegal as between immediate parties under the 1835 Act tainted the loan itself.
It was to prevent this line of argument being resurrected that Parliament found it necessary, or at any rate desirable, to enact section 16(4). The source of the taint has now been removed. There is no longer, therefore, any basis for the argument that the underlying loan is illegal or unenforceable. Indeed, to turn the argument the other way, it would surely be absurd to hold that Parliament had, by the 1968 Act, made the cheque enforceable, but made it a criminal offence to enter into the underlying contract of loan.
In the normal case the cheque given in exchange for cash or tokens will be a cheque drawn on the member's own bank account. Here, the cheque was drawn on the company's account. Does that make any difference? In my opinion it does not. Indeed Mr Glick accepts that section 16(2) applies equally to cheques drawn on a third party account as to a cheque drawn on the member's account.
If, therefore, the underlying transaction was a contract of loan, as was conceded in the court below, then I would hold without hesitation that the contract of loan is enforceable. The club was not obliged to pursue its remedy on the cheque against the second defendant. It could sue the member instead. This was the conclusion at which Mr Justice Henry arrived in a conspicuously clear judgment. I agree with his conclusion and with his reasons.
But before us Mr Glick advanced a new argument not advanced in the court below; indeed he put it in the forefront of his case. The submission is that there never was here any contract of loan, so there is nothing which the club can enforce...
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