Grosvenor Casinos Ltd. v National Bank of Abu Dhabi [2007] EWHC 2600 (Comm)

[2007] EWHC 2600 (Comm)Case No 2005 FOLIO 392
IN THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
COMMERCIAL COURT
Venue Royal Courts of Justice, Strand, London, WC2A 2LLDate 14/11/2007
Before
MR JUSTICE DAVID STEEL
Between
GROSVENOR CASINOS LIMITEDClaimantNATIONAL BANK OF ABU DHABIDefendant
Stephen Phillips QC & James Evans (instructed by City Law LLP) for ClaimantBankim Thanki QC & Richard Handyside (instructed by Simmons & Simmons LLP) for DefendantHearing Hearing dates: 29 & 30 October 2007
Judgment

Background

[1]This is a further skirmish relating to the pleadings in this case. There are cross applications. The Claimant seeks leave to serve Re-Amended Particulars of Claim and to serve expert accounting evidence. The Defendant seeks to strike out the presently pleaded formulation of the quantum of the claim. It is only necessary to deal with the Claimant’s application as the latter application is broadly conceded.[2]The Claimant (“Grosvenor”) is the former owner of the Claeremont Club in Berkeley Square. Ahmed Al-Reyaysa (“AAR”) was a member of the club from 1999 to 2000. The Claeremont is a well-known gambling club. AAR was one of its biggest customers. He staked in excess of £150 million in his 18 month membership of the club.[3]AAR had various bank accounts. One of these was with the Defendant (“NBAD”). Between December 1999 and February 2000 Grosvenor permitted AAR to cash a number of cheques drawn on NBAD for substantial sums. This was arranged under a cheque cashing facility (“CCF”) operated by Grosvenor in accordance with Section 16 of the Gaming Act 1968 and guidelines promulgated by the British Casino Association and the Gaming Board. There were 20 such cheques all drawn on account number 0155379990 held in AAR’s name at the Defendant’s branch in Ajman. The total of the 20 cheques was over £25,000,000.[4]The claim arises out of two of the cheques - cheque “A” dated 4 February 2000 for £3,070,000 and cheque “B” dated 9 February 2000 for £3,610,000. The two cheques were both orally advised as “paid” by a Mr. Subhi of NBAD to Grosvenor’s bankers Natwest. It is to be assumed for present purposes that these representations were, and were known to be, false (or at least made negligently). The cheques were and remain unpaid. Further AAR has failed to repay the loans for which these cheques were conditional payment. Grosvenor has duly obtained judgment against AAR but this remains unsatisfied.[5]The essence of Grosvenor’s case against NBAD is that, if as is contended it should have done, NBAD had informed Natwest on 8 February 2000 that cheque A was not paid, Grosvenor would not have permitted AAR any further use of the CCF. Thus, it is contended, the advance of £3,610,000 against Cheque B would not have been made[6]Grosvenor relies upon two causes of action. The first is in contract under the Uniform Rules for Collection. The second is in deceit. Both these claims were introduced by amendment in April 2006 pursuant to an order of Colman J. Grosvenor’s case on causation and loss is the same in relation to both causes of action. It is the newly proposed pleaded case on the loss sustained which is at the heart of the present argument.

Loss

[7]In his judgment allowing the amendment, Colman J indicated that a revised draft of the Claimant’s case on causation and loss should be served. In the result the particulars thereafter furnished (as presently contained in the Amended Particulars of Claim) alleged a loss of about £5million reflecting the difference between the net winnings paid to AAR, together with the gambling duty incurred by Grosvenor, less the value of the cheques issued by AAR and paid.[8]Following disclosure and exchange of witness statements, NBAD challenged the calculation of the loss in correspondence. In particular, it was contended, first, that the figure for gaming duty was greatly exaggerated and, second, that the figure for payments made by AAR failed to include all of the winners cheques and cash that had been unsuccessfully “invested” by AAR during the relevant period. It was suggested that the true position was that Grosvenor had not made a loss but a profit.[9]At a hearing before Andrew Smith J in June 2007, the trial date was vacated and refixed for 11 February 2008. Grosvenor was ordered to provide a “Statement of Loss” clarifying its case. This was duly done on 22 June and, on 12 July, Grosvenor served its application to re-amend the Particulars of Claim. The relevant amendments reflected the approach contained in the Statement of Loss.

The present claim

[10]The formulation of the claim in the Amended Particulars of Claim was as follows: a) AAR received winnings of £7,285,900; b) Grosvenor incurred gaming duty of £6,649,920; c) Since the total value of cheques issued and paid by AAR was only £8,970,000, it followed that the loss sustained by Grosvenor by reason of the continuation of the CCF after 8 February was £4,938,820.[11]However it is now accepted by Grosvenor that the figure for(a) should be £10,700,800 (of which a somewhat uncertain part - put forward at £923,333 - is attributable to winnings from AAR’s use of “own casino” winners’ cheques over the same period: see below) and the figure for(b) should be £751,640.[12]That much, at least for present purposes, is common ground. What remains in issue on the figures is what deduction should be made within the compass of (c). Although it is accepted that the total of accepted and paid cheques was £8,970,000, NBAD contend that a further sum of £5,140,000 should be included in the sum received by Grosvenor representing the value of “own casino” winners’ cheques issued by Grosvenor to AAR during the relevant sessions and lost back by him to Grosvenor. Allowance for this would, it is suggested, convert a loss into a profit. (It is to be noted that further sums totalling £1,656,500 in the form of cash and “other casino” winners’ cheques were also used by AAR but it is accepted by NBAD that the winnings/losses associated with these sums should be disregarded.)

Grosvenor’s new case

[13]Grosvenor’s primary case as advanced in the proposed re-amendment is now put forward on a different basis, namely that all the winnings and losses subsequent to the provision of the loan proceeds are irrelevant as being transactions for which the breach of contract/deceit afforded the opportunity but did not constitute the legal cause.[14]The alternative case is that only gaming directly consequent on the use of funds obtained under the facility should be taken into account: the reinvestment by way of gaming with winners’ cheques should accordingly not be taken into account.

The issue

[15]The burden is on the Claimant to establish that one or other (or both) of these formulations has a realistic as opposed to fanciful prospect of success. I have reached the conclusion that the Claimant has passed this limited threshold requirement. Having done so, it is important, in giving my reasons briefly, that I do not trespass on the merits other than as may be necessary for this limited purpose.

The law

[16]The principles applicable to the assessment of damages in cases of deceit in the context of purchase of property were recently summarised in Smith New Court Ltd v Scrimgeour Vickers [1997] A.C. 254 per Lord Browne-Wilkinson at p. 267:
“(1) the defendant is bound to make reparation for the damage directly flowing from the transaction; (2) although such damage need not to 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 benefits which he has received as a result of the transaction; (4) as a general rule, the benefits received by him include the market value of the property acquired as at the date of acquisition; but such general rule is not to be inflexibly applied where to do so would prevent him obtaining full compensation for the wrong suffered; (5) although the circumstances in which the general rule should not apply cannot be comprehensively stated, it will normally not apply where either (a) the misrepresentation has continued to operate after the date of the acquisition so as to induce the plaintiff to retain the asset or (b) the circumstances of the case are such that the plaintiff is, by reason of the fraud, locked into the property. (6) In addition, the plaintiff is entitled to recover consequential losses caused by the transaction; (7) the plaintiff must take all reasonable steps to mitigate his loss once he has discovered the fraud.”
[17]These principles are of more general application and, for present purposes, sub-paragraphs (2) and (3) above are of particular importance. Yet the identification of those benefits (or losses) which must be taken account of as directly flowing from a (fraudulent) misrepresentation (as opposed to being “independent” or “collateral”) is seldom easy.[18]A good example in this “difficult” area is provided by Komercni Bank A.S. v Stone and Rolls [2003] 1 Lloyd’s Rep. 383. The sums derived from the proceeds of discounting fraudulent letters of credit were used to discharge the liabilities of third parties. Toulson J dealt with the submission that these monies should be set against the losses sustained by reference to the following approach:
“167. 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, i.e. belonging naturally, to the venture or transaction.”
[19]Thus, if this be right (and for present purposes it clearly is), it is necessary to identify the relevant venture or transaction involved in the operation of the CCF and whether any or all of the subsequent gambling transactions were the natural consequence of the obligations and benefits arising from its use. With that test in mind I turn to the two formulations put forward by Grosvenor.

The loan

[20]NBAD’s stance was that it was impossible to draw a line between the making of the loan and the subsequent gaming transactions. In summary, the argument was as follows: a) It was remarkable that Grosvenor was advancing the opposite of the usual argument to the effect that, given that forseeability was not a requirement, all losses sustained by reason of the provision of the credit were recoverable to the extent they were not outweighed by the benefits. b) Indeed that was precisely how Grosvenor had originally pleaded its case. c) Since the whole purpose of the CCF was to provide AAR with resources for gambling, it followed that there was nothing independent, disconnected or collateral in regard to the gambling transactions: it was all part and parcel of a distinct venture.[21]Grosvenor’s primary case, again in summary, was that the loss is to be measured by the amount of the loan made pursuant to the CCF: a) This loss was sustained as soon as the loan was drawn down on the facility; b) The monies thus obtained could be used for any purpose: there was no obligation to use them for gaming purposes. They could be retained as cash, used to make purchases within or without the casino, transformed back into winners’ cheques for use in other casinos and so forth; c) The gaming transactions were not directly induced by the fraud but were a paradigm example of separate (and speculative) transactions; d) There would otherwise be no way of identifying the end point of any analysis as to the use to which the cash was put by way of gaming.

Balance of account

[22]As regards the alternative formulation of the claim, NBAD’s case was very straightforward. If the CCF had been withdrawn, none of the winners’ cheques would have been obtained. In short, the CCF enabled AAR to obtain the winners cheques and, since they were all unsuccessfully regambled, the overall balance of account was a profit.[23]Grosvenor’s alternative case was that the use and dissipation of winners’ cheques was no different from the position with regard to other cash resources which it was accepted should not be taken account of at this stage. The whole process of gambling away the winnings involved an independent decision from the original use of the loan.

Conclusion

[24]I was referred to a great number of authorities which dealt with various aspects of causation on their special facts. None were remotely conclusive of the issues which arise in the present case.[25]Moreover causation is a question of fact and can give rise to great difficulty: Galoo Ltd v Bright Graham Murray [1994] 1 W.L.R. 1360 at p.1369. Accordingly the court should exercise great caution when invited to deal with such an issue on a summary basis: see MAN Nutsfahrzeuge AG v Freightliner Ltd [2004] PNLR 19 per Cooke J at p. 364. This, in my judgment, must be all the more so where a claim involves allegations of lack of good faith and fraud.[26]The exercise of common sense demands a clear understanding of the nature of the venture represented by the CCF and a clear factual picture of, amongst other things, the precise sequence and scale of winnings and losses by reference to their source. In this connection I have also borne in mind the proximity of the trial date.[27]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.[28]I grant leave to amend. As I understand it, in these circumstances the application to rely on accountancy evidence is not opposed.