The High Court heard yesterday that the multi-millionaire gambled at the Rendezvous Club two years after his pounds 10m nine-week gambling spree at the Ritz Casino in 1986 during which 16 cheques were returned by his bank.
Max Kingsley, the former managing director of London Clubs Limited, said Mr Khashoggi was an extremely valuable customer and would still have been welcome even though he had debts outstanding from two years previously.
"The man is still a man of some standing and there would be nothing at all to stop him attending and nothing at all to stop him playing provided that he played for cash," he said.
Mr Khashoggi, who was once worth pounds 2.4bn, is now being sued for the money - plus interest estimated at around pounds 5m. He claims that the debt is legally unenforceable because he had an arrangement with the casino's management which effectively allowed him to continue gambling on credit, contrary to the rules in the 1968 Gaming Act.
Mr Kingsley said it was not company policy to sue for outstanding debts "except as a last resort".
"It was common knowledge at the time that he was one of the richest men in the world," said Mr Kingsley, who said he was not surprised by the limit allowed to Mr Khashoggi, who was permitted to write cheques for pounds 1m-plus.
The court heard that Mr Kingsley became aware of the outstanding debts in September 1986. He said that promises had been made that the debt would be paid off by the end of October 1986 and that it would be "foolish" to sue at that point. "We always hoped to get settlement without litigation. Casinos generally do not want to be seen to be suing their clients. It is extremely bad PR."
The dishonoured cheques were finally returned on 5 January 1987 but Mr Kingsley still did not contemplate legal action. The following July Mr Khashoggi offered a property in Spain as part of the settlement but Mr Kingsley said it was not suitable.
In December 1990, Mr Kingsley sent a fax to Mr Khashoggi asking him about the debt. Mr Khashoggi had explained that he was having financial difficulties as he was involved in the US in a Congressional hearing over the Irangate affair and in criminal proceedings against him and Imelda Marcos, of which he was cleared in 1990.
Legal action was finally begun in December 1991. Mr Kingsley admitted that the company had not sent any letters asking Mr Khashoggi for the money, nor had they sent a solicitor's letter or threatened legal action before issuing the writ.
"The man had had enough chances to make some kind of payment and we had arrived at the end of the line and decided we were not going to get paid except through litigation," he said.
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