Does the house always win? Not if responsibility isn’t voluntarily assumed

Banca Nazionale del Lavoro SPA v Playboy Club London Limited and others [2018] UKSC 43

Whilst a trial judge had found that duty of care is owed to a party’s undisclosed principle, the Court of Appeal disagreed. The issue before the Supreme Court was whether a bank was liable for a negligent credit reference to an undisclosed principal whom had relied upon it.

Pursuant to their policy, Playboy Club London, (‘the Club’), requires credit references for the use of their cheque-cashing facilities at their club. However, to avoid disclosing the purpose of the reference, the Club utilises Burlington Services Ltd, (‘Burlington’) to request these references from the banks of gamblers.

In October 2010, Hassan Barakat wished to gamble in London. Being ‘on behalf of Burlington’, the Club’s bank forwarded his authorisation to BNL to provide ‘a reference on [him] to Burlington’. BNL confirmed to the Club’s bank that Mr Barakat was trustworthy and the “information is given in strict confidential” (sic).

In reliance on this, the Club granted Mr Barakat the cheque cashing facility, in which he drew two cheques for £1.25million. After Mr Barakat returned to Lebanon, the Club lost £802,940 when both cheques returned unpaid. It was common ground that BNL had no reasonable basis for the reference as Mr Barakat opened an account with nil balance 2 days after the reference was sent.

The Supreme Court examined the landmark authority of Hedley Byrne v Heller & Partners [1964] AC 465,whereby it was inferred that Hedley Byrne’s bank was acting for its client and not itself for the purposes of entering into a particular transaction, hence Heller had voluntarily assumed responsible for the credit reference.

Additionally, Caparo Industries v Dickman 1990] 2 AC 605 was considered, in which the foundation of the duty was held to be ‘proximity’, which required more than mere foreseeability of reliance. The Defendant must know that the statement would be communicated to the Claimant and that they would likely rely on the statement to enter into transactions. To prevent the Defendant from owing a duty to the world at large, the Claimant must be an identifiable individual or class.

Further, Lord Sumpton was not persuaded by the Club’s ‘undisclosed principle’ comparison on the basis that legal incidents of contractual relationships could not be imported into tortious relationships. Thereby, the Supreme Court dismissed the Club’s appeal and held that BNL had not voluntarily assumed responsibility because BNL did not know that the statement would be communicated and relied on by the Club since it was sought by the Club’s bank ‘on behalf of Burlington’ only.

Despite the lack of sympathy for BNL, this judgment is welcomed as a helpful reiteration of the stringency of the Hedley Byrne principle. Banks cannot be liable to strangers for any purpose for unlimited periods of time, therefore to satisfy the Hedley Byrne ‘special relationship’ requirement, it is prudent to ensure that the particular transaction and person likely to rely on the statements are both known to invoke a proximate relationship which would give rise to a duty of care.

Lastly, voluntary assumption of responsibility has once again been upheld as a fundamental pillar of duty of care, whereby courts are reluctant to impose duty where ‘proximity’ is not established. This judgment thereby serves as a warning that liability will arise if the person likely to rely on the statement is identifiable and the purpose of the representation in connection with a particular transaction is known.