Playboy Club London Ltd v Banca Nazionale Del Lavoro Spa [2018] EWCA Civ 2025 (12 September 2018)

A casino used an agent to get a credit reference for a client, without disclosing its identity. The bank provided a negligent reference. The Court of Appeal held the bank owed no duty of care to the casino as an undisclosed principal.

Facts

Playboy Club London Ltd (‘the Club’) considered offering cheque cashing facilities to a new customer, Mr Hassan Barakat. To assess his creditworthiness, the Club instructed an associated company, Burlington Street Services Ltd, to obtain a banker’s reference. Burlington contacted Mr Barakat’s bank, Banca Nazionale Del Lavoro (‘BNL’), requesting information on his financial standing, without disclosing that it was acting for the Club. An employee at BNL negligently confused Mr Barakat with a different customer of the same name and provided a favourable reference, stating he was trustworthy for up to £1.6 million. Relying on this, the Club granted Mr Barakat facilities. He drew two cheques for a total of £1,250,000, which were dishonoured. It transpired Mr Barakat was a fraudster with no significant funds. The Club lost over £800,000 and sued BNL for negligent misstatement.

Issues

The central legal issue was whether BNL owed a duty of care in tort to the Club, an undisclosed principal, for the financial loss caused by its negligent misstatement. This required the court to determine if the principle established in Hedley Byrne & Co Ltd v Heller & Partners Ltd extended to a situation where the defendant was unaware of the existence or identity of the principal on whose behalf the information was requested. The key question was whether BNL had ‘assumed responsibility’ towards the Club.

Judgment

The Court of Appeal unanimously allowed the appeal, overturning the High Court’s decision and finding that BNL did not owe a duty of care to the Playboy Club.

Reasoning of Lord Justice Sales

Giving the lead judgment, Lord Justice Sales held that the concept of ‘assumption of responsibility’ was central to liability for negligent misstatement. He concluded that such responsibility could not be assumed towards a party whose existence and identity were unknown to the defendant. He stated:

In a case of negligent misstatement, the duty of care is founded on a voluntary assumption of responsibility by the defendant…. it is a necessary part of the claimant’s cause of action in a case like this that the defendant providing the information or advice should have known that the information or advice would be communicated to the claimant (either as an individual or as a member of an identifiable class) and that the claimant would or would be very likely to rely on it for the purpose of a transaction or a decision of a particular kind.

Lord Justice Sales found that BNL had no knowledge that Burlington was acting as an agent for any other party, let alone for a casino for the purpose of authorising gambling credit. He distinguished the case from contractual agency rules, emphasising that in tort, the relationship between claimant and defendant is paramount.

In my judgment, contrary to the view of the judge, BNL did not voluntarily assume a responsibility to the Club for the accuracy of the reference when it was provided to Burlington. BNL had no knowledge of the Club, still less that the reference was required by it for the purpose of making a decision whether to allow Mr Barakat to have cheque cashing facilities for the purpose of gambling at its casino.

He reasoned that the identity of the recipient and the specific purpose of the advice were crucial factors for the advisor in deciding whether to provide the information and what qualifications to attach. As BNL was unaware of these, it could not be said to have voluntarily assumed responsibility to the Club. The judgments of Lord Justice Longmore and Lord Justice Lewison concurred, with Longmore LJ noting that a bank might well have been more cautious had it known the reference was to facilitate gambling, which he described as a ‘socially perilous’ activity.

Implications

The decision clarifies and arguably narrows the scope of the duty of care for negligent misstatement under the Hedley Byrne principle. It establishes a clear precedent that a duty of care is generally not owed to an undisclosed principal where the defendant is unaware of their existence, identity, or the specific purpose for which the information is to be used. This reinforces the ‘assumption of responsibility’ test as the primary determinant and serves to limit the risk of indeterminate liability for professional advisors. It highlights a significant divergence between the treatment of undisclosed principals in the law of contract and the law of tort.

Verdict: The appeal was allowed. BNL was held to owe no duty of care to the Playboy Club.

Source: Playboy Club London Ltd v Banca Nazionale Del Lavoro Spa [2018] EWCA Civ 2025 (12 September 2018)