Bank off the hook for negligent misstatement in Playboy Club case

The recent decision of the Supreme Court in Banca Nazionale del Lavaro SPA v. Playboy Club London Limited [2018] UKSC 43 examines well-known principles of duty of care established by cases such as Hedley Byrne v Heller and Caparo v Dickman.

Background

In October 2010, Mr Barakat, a Lebanese resident, wanted to gamble at the London Playboy Club (the Club). He therefore applied for a cheque cashing facility of £800,000, naming his bank as Banca Nazionale del Lavaro (BNL). The Club’s policy was to obtain a credit reference from a gambler’s banks for twice the amount of the cheque cashing facility requested.

As it was the Club’s practice, in order to avoid disclosing the purpose of the credit facility, the Club arranged for an associated company, Burlington Street Service Ltd (BSSL), to obtain a reference from BNL without disclosing the purpose of the inquiry, nor disclosing that the reference was for the benefit of another company.

On the 13 October 2010, BSSL made a “Status Enquiry Request” seeking BNL’s opinion as to the means and standing of Mr Barakat and his trustworthiness to meet a financial commitment to the extent of £1,600,000 at any one time. The request was accompanied by a consent form signed by Mr Barakat.

BNL provided a response, addressed to BSSL, confirming that Mr Bakarat had an account with them and that he was trustworthy up to £1,600,000 in any one week. The reference confirmed that the information was given in strict confidence.

In reliance on the reference, the Club granted the facility to Mr Bakarat and thereafter increased the facility to £1.25 million. Mr Bakarat played at the Club over 4 days and thereafter returned to Lebanon. Mr Bakarat’s cheques were subsequently returned unpaid with the Club suffering a total net loss of £802,940.

It was accepted that BNL had no basis for their reference. Mr Bakarat did not, until two days after the reference was sent, hold an open account with BNL, and in fact Mr Bakarat’s BNL account remained empty until it was closed in December 2010.

A claim was brought by the Club against BNL for the loss suffered on the basis of negligent misstatement. At first instance, the Court held that BNL had owed a duty of care to the Club in relation to the reference.

On appeal, the Court of Appeal disagreed. It held that the only duty was owed to BSSL, to whom the reference was addressed and who had not suffered any loss.

The Club appealed to the Supreme Court.

Supreme Court’s decision

The Supreme Court considered, in detail, the case law surrounding negligent misstatement and noted that it is fundamental that the duty to whom a defendant assumes responsibility, must be 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.

In his judgment, Lord Sumption held that it was clear that BNL, despite giving a favorable credit reference for someone with whom they appear to have had no relevant dealings, had no reason to suppose that BSSL was acting for someone else, and that they knew nothing of the Club. He went further to suggest that since BNL knew nothing of BSSL either, it may well be that BNL were in fact indifferent to whom they were dealing. However, the fact that BNL may well have been equally willing to assume a duty to someone else, does not mean that they can be treated as if it had in fact done so.

The decision to dismiss the Club’s appeal was unanimous, although Lord Mance noted that BNL was very lucky to avoid liability to the Club.

Analysis

This judgment does not create new law, but rather clarifies the principle in Hedley Byrne v Heller that a duty of care can only be owed to “a specific person or group of people to whom [a defendant] can be said to assume responsibility” and not the world at large.

However, banks and financial institutions who are regularly approached for financial references would do well to review their standard wording to make sure that they are not inadvertently caught out.