Banca Nazionale del Lavoro SPA v Playboy Club London Ltd and Others

JurisdictionEngland & Wales
CourtSupreme Court
JudgeLord Mance,Lord Sumption,Lord Briggs,Lady Hale,Lord Reed
Judgment Date26 July 2018
Neutral Citation[2018] UKSC 43
Date26 July 2018

[2018] UKSC 43

Supreme Court

Trinity Term

On appeal from: [2016] EWCA Civ 457

Before

Lady Hale, President

Lord Mance

Lord Sumption

Lord Reed

Lord Briggs

Banca Nazionale del Lavoro SPA
(Respondent)
and
Playboy Club London Limited and others
(Appellants)

Appellants

Simon Salzedo QC

Fred Hobson

(Instructed by Simkins LLP)

Respondent

Jeff Chapman QC

Andrew de Mestre

(Instructed by Bird & Bird LLP)

Heard on 24 April 2018

Lord Sumption

(with whom Lady Hale, Lord ReedandLord Briggsagree)

1

This case is about a credit reference negligently supplied by a bank for a person who subsequently defaulted. The facts are to that extent similar to those of Hedley Byrne & Co Ltd v Heller & Partners Ltd [1964] AC 465. But there is a critical difference. The reference was relied upon not by the party to whom it was addressed but by that party's undisclosed principal. The question at issue on this appeal is whether the bank is liable to the latter.

2

In October 2010 Hassan Barakat wished to gamble at the London Playboy Club. He visited the club and applied for a cheque cashing facility for up to £800,000. Mr Barakat was a Lebanese resident and a well-known figure at a casino in Lebanon. But he had only once played at the London club. Playboy Club's policy for gamblers like him was to require a credit reference from his bankers for twice the amount of the facility, ie £1.6m. But in order to avoid disclosing the purpose of the credit facility, the Club's practice was not itself to ask its customer's bank for the reference. Instead, it arranged for an associated company called Burlington Street Services Ltd to do so without disclosing the purpose of the inquiry or the fact that the reference was required for the benefit of another company.

3

Mr Barakat completed a written application for the cheque-cashing facility, naming his bankers as Banca Nazionale del Lavoro in Reggio Emilia, Italy (“BNL”). A “Status Enquiry Request” was completed. It was written on Burlington's printed letterhead and addressed to the relevant branch of BNL. The operative part of the request read:

“We request your opinion as to the means and standing of Hassan Barakat [details follow] and his/her trustworthiness to meet a financial commitment to the extent of £1,600,000 at any one time.”

Mr Barakat signed the form of authority at the foot of the printed form. The operative part of the authority was in the following terms:

“I, Hassan Barakat, hereby consent to BNL-BNP Paribas Bank … providing a reference on me to Burlington Services Ltd.”

The request was then sent to the Club's bankers, National Westminster Bank, who forwarded it to BNL under cover of a letter beginning:

“We enclose a request on behalf of Burlington Street Services Ltd, who would be glad of your opinion on the character and standing of Hassan Barakat.”

The reply from BNL, faxed on 13 October 2010, was addressed to Burlington c/o National Westminster Bank. It confirmed that Mr Barakat had an account with them and that he was trustworthy up to £1,600,000 in any one week. It added: “This information is given in strict confidential” (sic).

4

In reliance on the reference, the Club granted the cheque cashing facility on 13 October 2010 and shortly afterwards increased it to £1.25m. Over four days from 15 to 18 October Mr Barakat played at the club. He drew two cheques on BNL for a total of £1.25m in return for gaming chips of the same amount. His net winnings were £427,400, which the Club paid out to him. He then returned to Lebanon and was not seen again at the Club. Both cheques were returned unpaid. Including gaming duty, the Club suffered a total net loss of £802,940. It is common ground that BNL had no reasonable basis for their reference. It held no account for Mr Barakat until two days after the reference was sent, when an account was opened in his name which had a nil balance until it was closed on 14 December 2010.

5

The Playboy Club, Burlington and another associated company subsequently began these proceedings against BNL. It is common ground that of the three claimants the Club is the only party with an interest, neither of the others having suffered any loss. The trial judge (His Honour Judge Mackie QC) said that BNL owed a duty of care in relation to its reference to the Club [2014] EWHC 2613 (QB). The Court of Appeal disagreed. They held that the only duty was owed to Burlington, to whom the reference was addressed [2016] 1 WLR 3169.

6

The decision of the House of Lords in Hedley Byrne & Co Ltd v Heller & Partners Ltd was a landmark in the development of the law of tort. Contrary to the ordinary rule as it had previously been understood, it allowed the recovery of a purely economic loss in negligence where the existence of a special relationship between claimant and defendant made this appropriate. The facts were that Hedley Byrne asked its bank, National Provincial Bank, to obtain a credit reference for a company wishing to place advertising contracts through it. The company's bank, Heller & Partners, supplied the reference to National Provincial. The Appellate Committee inferred as a matter of fact that Heller & Partners must have appreciated that National Provincial was not acting for its own account but wanted the reference for a client intending to do business with Heller's client, even though they did not know who that client was: see, in particular, pp 482 (Lord Reid), 493–494 (Lord Morris of Borth-y-Gest), 530 (Lord Devlin). The ratio of the decision was that the reasonable reliance of Hedley Byrne on the reference, combined with Heller & Partners' appreciation of the fact that they would reasonably rely on it, gave rise to a direct relationship between them involving a duty of care. All five members of the Appellate Committee gave reasoned judgments, but Lord Devlin's analysis has generally been treated in the subsequent case law as most clearly expressing the reasoning. At pp 529–530, Lord Devlin, said this:

“I have had the advantage of reading all the opinions prepared by your Lordships and of studying the terms which your Lordships have framed by way of definition of the sort of relationship which gives rise to a responsibility towards those who act upon information or advice and so creates a duty of care towards them … It is a responsibility that is voluntarily accepted or undertaken, either generally where a general relationship, such as that of solicitor and client or banker and customer, is created, or specifically in relation to a particular transaction. … Responsibility can attach only to the single act, that is, the giving of the reference, and only if the doing of that act implied a voluntary undertaking to assume responsibility. This is a point of great importance because it is, as I understand it, the foundation for the ground on which in the end the House dismisses the appeal …

I do not go further than this for two reasons. The first is that I have found in the speech of Lord Shaw in Nocton v Lord Ashburton and in the idea of a relationship that is equivalent to contract all that is necessary to cover the situation that arises in this case … All that was lacking was formal consideration …

I shall therefore content myself with the proposition that wherever there is a relationship equivalent to contract, there is a duty of care. Such a relationship may be either general or particular. Examples of a general relationship are those of solicitor and client and of banker and customer … There may well be others yet to be established. Where there is a general relationship of this sort, it is unnecessary to do more than prove its existence and the duty follows. Where, as in the present case, what is relied on is a particular relationship created ad hoc, it will be necessary to examine the particular facts to see whether there is an express or implied undertaking of responsibility.”

7

The principle thus established is capable of development. Indeed it has undergone considerable development since 1964, for example to cover omissions and the negligent performance of services. But these have been incremental changes within a consistent framework of principle. One area in which the courts have resisted expanding the scope of liability concerns the person or category of persons to whom the duty is owed. The defendant's voluntary assumption of responsibility remains the foundation of this area of law, as this court recently confirmed after a full review of the later authorities in NRAM Ltd (formerly NRAM plc) v Steel [2018] 1 WLR 1190, paras 18–24 (Lord Wilson JSC). It is fundamental to this way of analysing the duty that the defendant is assuming a responsibility to an identifiable (although not necessarily identified) person or group of persons, and not to the world at large or to a wholly indeterminate group.

8

In Caparo Industries plc v Dickman [1990] 2 AC 605, the Appellate Committee held that foreseeability, although it was a necessary condition for liability, was not necessarily a sufficient one. The foundation of the duty is proximity, which may require more than the mere foreseeability of reliance. The problem before the Appellate Committee was to identify the outer limits of the class of persons whose reliance on a statement could properly be said to give rise to a sufficiently proximate relationship. They found the relevant limiting factors in the defendants' knowledge of (i) the person known to be likely to rely on the statement, and (ii) the transaction in respect of which he was known to be likely to rely on. After reviewing the authorities supporting a duty of care for negligent statements, both before and after Hedley Byrne, Lord Bridge (with whom Lord Roskill, Lord Ackner and Lord Oliver agreed), summarised the position as follows at pp 620–621:

“The salient feature of all these cases is that the defendant giving advice or information was fully aware of...

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1 books & journal articles
  • Tan Cheng Han, The Law of Agency
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