Recent Developments In Finance Litigation: Privity Of Contract Between Principal And Collecting Bank

In Grosvenor Casinos Limited v National Bank of Abu

Dhabi [2008] EWHC 511 (Comm) it was held that the Uniform

Rules for Collection 522 did not create privity of contract

between a principal and collecting bank.

In 2001, the Claimant company ("Grosvenor")

obtained judgment in default against an individual

("R") from Ajman in the United Arab Emirates

("UAE") in relation to two dishonoured cheques which

R had presented to Grosvenor following a gambling spree at one

of their London casinos. The cheques in question were blank

house cheques of the casino drawn on R's account with the

Ajman branch of the National Bank of Abu Dhabi

("NBAD"). However, Grosvenor's judgment against R

was not satisfied due to enforcement difficulties in the

UAE.

As Grosvenor were not able to enforce their judgment against

R, they commenced proceedings against NBAD for deceit and

breach of contract. The claim in deceit was brought on the

basis of an alleged fraudulent oral misrepresentation by the

customer service manager at the Ajman branch of NBAD who dealt

with R's affairs ("S") to an employee

("P") at Grosvenor's bank in London

("Natwest") that the first cheque was

"paid". The claim for breach of contract concerned an

alleged contract that was made directly between Grosvenor and

NBAD by virtue of the relevant cheque collection being

undertaken pursuant to the Uniform Rules for Collection 522

(the "URC").

As regards the claim in deceit, Grosvenor contended that in

confirming that the first cheque was "paid", S must

have known and intended that a "paid" answer would be

understood (which it was by P) 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. However, the

true position was that there were insufficient sums in R's

account at the time that the "paid" answer was given

to honour the cheque and there was no evidence that any other

facility was available from which sufficient funds could be

transferred straightaway. Grosvenor contended that they had

relied on the "paid" answer by, amongst other things,

allowing R to continue to cash cheques at the casino.

NBAD's case in relation to the deceit allegations was

that S's "paid" answer 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...