Mr Justice Rougier was told the casino and Adnan Khashoggi had come to an agreement, the terms of which were not disclosed in court.

The court had heard that during a three-month gambling spree in 1986 Mr Khashoggi spent £10m on gaming chips at the Ritz Casino in London's Piccadilly.

Cheques bounced

At first, his gambling was successful and cheques used to pay for the chips were honoured.

But when he began losing, the court heard, the cheques started to bounce. The casino had been seeking to recover £3.2m in unpaid debts together with interest of around £5m.

In his defence, Mr Khashoggi said he had reached an understanding with the casino that the cheques would not be honoured because he was still waiting for funds in connection with an arms deal with Iran.

The Saudi-born 63-year-old claimed the casino was effectively allowing him to gamble on credit, which is illegal under the Gaming Act and that therefore the debt is unenforceable.

But the casino claimed that shortly after Mr Kashoggi stopped gambling at the Ritz he played at two other London casinos.

At one he lost £3m but did appear to pay that debt back in full.

The fortune amassed by Mr Khashoggi, an uncle of Dodi Fayed who died in Paris with Princess Diana, was at one time estimated at £2.4bn but he suffered financial difficulties in the 1980s.

Robert Englehart QC, for Mr Khashoggi, told the judge: "The Ritz Casino's action against Mr Khashoggi has been settled on agreed terms.

"Mr Khashoggi is happy to make it clear that he withdraws any suggestion that the Ritz acted improperly or in contravention of the Gaming Act 1968."

Three-times-married Mr Khashoggi, who lives mainly in Paris and once ranked among the richest people in the world, did not attend any part of the hearing.

Irangate involvement

The Ritz called evidence that, up until 1990, Mr Khashoggi made repeated promises to pay up, but explained he was having financial difficulties and was involved in the US in a congressional hearing over the Irangate affair and criminal proceeding against him and Imelda Marcos.

When those matters were out of the way, the casino asked him to turn his attention to the dishonoured cheques. He failed to do so and legal proceedings were launched the following year.

Max Kingsley, former managing director of the Ritz Casino's parent company, agreed under cross-examination Mr Khashoggi was welcomed as a punter at another gaming club in the group two years after running up his debt to the Ritz.