Grosvenor Casinos Ltd v National Bank of Abu Dhabi [QBD (Comm)]
| Jurisdiction | England & Wales |
| Judge | Flaux J. |
| Judgment Date | 17 March 2008 |
| Court | Queen's Bench Division (Commercial Court) |
| Date | 17 March 2008 |
Queen's Bench Division (Commercial Court).
Flaux J.
Stephen Phillips QC and James Evans (instructed by City Law) for the claimant.
Stephen Auld QC and Richard Handyside (instructed by Simmons & Simmons) for the defendant.
The following cases were referred to in the judgment:
AIC Ltd v ITS Testing Services (UK) Ltd (The Kriti Palm)UNK [2006] EWCA Civ 1601; [2007] 2 CLC 223.
Bastone & Firminger Ltd v Nasima Enterprises (Nigeria) Ltd [1996] CLC 1902.
Calico Printers Association v Barclays Bank LtdUNK (1931) 36 Com Cas 71.
Crockfords Club Ltd v MehtaWLR [1992] 1 WLR 355.
Edgington v FitzmauriceELR (1885) 29 Ch D 459.
Henderson v Merrett Syndicates Ltd [1994] CLC 918; [1995] 2 AC 145.
Koch Marine Inc v d'Amica Societa di Navigazione arl (The Elena d'Amico)UNK [1980] 1 Ll Rep 75.
Komercni Banka AS v Stone & Rolls Ltd [2002] EWHC 2263 (Comm); [2003] 1 Ll Rep 383.
Lipkin Gorman v Karpnale LtdELR [1991] 2 AC 548.
MAN Nutzfahrzeuge AG v Freightliner Ltd [2005] EWHC 2347 (Comm).
Smith New Court Securities Ltd v Citibank NA [1996] CLC 1958; [1997] AC 254.
Uzinterimpex JSC v Standard Bank plc [2007] EWHC 1151 (Comm); [2007] 2 Ll Rep 187.
Banking — Cheques — Gambling — Deceit — Collection — Advice of fate — Breach of contract — Casino granted cheque cashing facility to customer — Two cheques dishonoured — Whether “paid” advice given by collecting bank a fraudulent misrepresentation — Claim in deceit failed because paid advice not given dishonestly — Advice of fate and verbal “paid” answer not terms of art in international banking practice — Likely mismatch between understandings of paid answer — Uniform Rules for Collection 522 did not create contractual relationship between customer of remitting bank and collecting bank — Breach of contract claim failed — In assessing damages court would have had regard to all gaming during period, on which basis casino made a profit and suffered no loss.
This was a claim by a casino company (G) against a national bank for deceit and breach of contract.
G granted a cheque cashing facility (CCF) to an ostensibly wealthy businessman (R) from Ajman in the United Arab Emirates, who went on a gambling spree at G's gaming club, staking some £99 million, mainly on roulette, and losing over £18 million.
R presented two cheques to Grosvenor for respectively £3,070,000 (cheque A) and £3,610,000 (cheque B) which remained dishonoured. They were “scrip” cheques (i.e. blank house cheques of the club) drawn on R's account with the Ajman branch of the defendant bank (N). G obtained judgment in default against R on the cheques in 2001 but the difficulties of enforcement in the UAE meant that the judgment remained unsatisfied. G therefore pursued a claim against N in deceit, on the basis of an alleged fraudulent oral misrepresentation that cheque A was “paid”, made to an employee (P) of G's bank by an employee (S) at the Ajman branch, and communicated by P to G; and for breach of a contract said to have been made directly between G and N by virtue of the relevant cheque collection being undertaken pursuant to the Uniform Rules for Collection, URC 522.
G submitted that in giving the paid answer S must have known and intended that it 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, when the true position, as S must have known, was that when the paid answer was given there were nothing like sufficient funds available in R's account to honour the cheque and no evidence that any other facility was available from which sufficient funds could then be transferred.
N's case was that S had not represented that the funds were already in R's account and available to be remitted, and that the paid answers meant no more than that the cheque was in order and that S was confident that funds would be made available in the near future by or on behalf of R to honour the cheques. N denied that S had been dishonest. N also denied that G in fact relied upon the paid answer and said that, in any event, even if it did, G did not suffer any loss as a consequence. On the contrary, N contended that G had made a substantial profit from R's gambling during the relevant period.
G further contended that the effect of the collection of cheque A being made subject to the URC 522 was that a direct contractual relationship came into existence between G and N under which, pursuant to art. 9 of the URC, N owed G a duty to act in good faith and to exercise reasonable care.
Held, dismissing the claim:
1. There was insufficient evidence to support a conclusion of dishonesty on S's part in giving the “paid” answer. The case of deceit was not made out. A conclusion that one paid answer was a fraudulent misrepresentation necessarily meant that all the other paid answers S gave to P were equally fraudulent. The more likely explanation for the paid answers in the absence of sufficient funds in R's account was a mismatch between P and S as to what a “paid” answer meant, as opposed to fraud on his part. The concept of “an advice of fate” and verbal “paid” answers were not terms of art in international banking practice. The collection instruction letter from G's bank was not clearly and unequivocally asking for a paid or unpaid answer but seemed to be asking for some telephone or fax “advice of fate” before confirmation of payment was given. That might suggest to the recipient that advice was being sought of where a cheque was in the collection process. That tied in with possible gradations of where a cheque was in the collection process at any particular time, which a banker might intend by a “paid” answer. The most likely explanation of the paid answers given by S was 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. There was nothing to suggest that S used any ambiguity in what he was saying deliberately to deceive P.
2. S intended any representation he made to be relied upon., and G did so rely.
4. At common law there was no privity of contract between the payee/customer of the remitting bank and the collecting bank. As a matter of English law, the court would not conclude that there was privity of contract between a sub-agent and the principal merely because the principal was aware that his agent would delegate functions to a sub-agent and authorised such delegation; in this case it was not enough that G knew that its bank would delegate collection of R's cheques to another collecting bank, N, and consented to that usual commercial arrangement. Before a contract between G and N could be found to exist as a matter of English law, the court would have to be satisfied not only that G contemplated the involvement of N as collecting bank, but authorised its bank to create privity of contract between G and N. The communications between G and its bankers did not even begin to establish any such authority. (Calico Printers Association v Barclays Bank LtdUNK(1931) 36 Com Cas 71andHenderson v Merrett Syndicates Limited[1994] CLC 918; [1995] 2 AC 145applied.)
5. The clear common law position of no privity of contract between G and N was not displaced either by the collection letter sent by G's bank to N nor by the provisions of URC 522 to which the collection was made subject by that letter. There was nothing in the letter to support such a direct contractual relationship between G and N, as opposed to a traditional and normal contractual relationship between G's bank as remitting bank and N as collecting bank. URC 522 did not create privity of contract between the principal and the collecting bank. The setting out in art. 3 of the “Parties to a Collection” was 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. URC was intended to govern existing contractual relationships, not create such relationships where they did not otherwise exist. There was nothing in the other articles which led to a contrary conclusion. On the contrary they confirmed that the relationship in a collection process was between the two banks. Therefore the claim in contract failed. (Bastone & Firminger Ltd v Nasima Enterprises (Nigeria) Ltd[1996] CLC 1902distinguished.)
6. At the time when cheque B was accepted by the club and R received tokens to the value of £3,610,000, there was a loan of that amount.
7. The CCF was a credit facility granted for the purposes of gaming. The club was not a bank or a moneylender, but a casino, and when it granted a cheque cashing facility to its customer it did so in order that the customer could gamble at the club. That was why G was careful to ensure that any CCF and whatever credit was granted fell strictly within what was permitted by s. 16 of the Gaming Act 1968. Thus, the gaming which took place was not somehow divorced or independent from the credit granted pursuant to the CCF. The correct analysis was therefore that, if contrary to the court's finding, the paid answer was a fraudulent misrepresentation, then what G did in reliance on that misrepresentation was not merely to accept cheque B but to continue to grant the CCF to R for a two week period involving the acceptance of some 60 cheques overall. In considering the benefit to G of the transaction, 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 was intrinsic to or arose out of that transaction. Having regard to all the gaming which took place during the period, the club made a gain overall.
Flaux...
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