The Playboy Club has lost its appeal to the Supreme Court, which unanimously held that BNL held no duty of care in respect of a negligent credit reference regarding gambling patron. 

On 26 July 2018, the Supreme Court handed down its decision in Banca Nazionale del Lavoro SPA v Playboy Club London and others, dismissing the Playboy Club’s appeal and holding that the defendant bank (BNL) owed no duty of care to the Club, as undisclosed principal, when providing a credit reference to its agent, Burlington Street Services, in respect of one of the Club’s gambling patrons.

What happened?

In October 2010, Mr Hassan Barakat wished to gamble at the London Playboy Club. Mr Barakat applied for a cheque cashing facility for up to £800,000. As he was not known to the Club, its policy required a credit reference from his bankers, BNL, for twice the amount of the facility (£1.6m). In order to avoid disclosing the purpose of the enquiry, the Club arranged for an associated company, Burlington Street Services Ltd (Burlington), to obtain the credit reference from BNL. BNL subsequently confirmed that Mr Barakat was trustworthy up to £1.6m in any given week. As a result, the Club granted the cheque cashing facility.

After four days of gambling, Mr Barakat had cashed two cheques, the Club had provided him with gaming chips worth £1.25m and he had net winnings of £427,000. The Club paid over Mr Barakat’s winnings and he left the premises, never to be seen again. Both his cheques were returned unpaid. The Club, Burlington and another associated company subsequently began proceedings against BNL for losses of £800,000+. The Club was successful at first instance, but an appeal by BNL to the Court of Appeal overturned that initial decision. The then Club appealed to the Supreme Court.

Judgment

The judgment, given by Lord Sumption, with whom Lady Hale and Lords Reed and Briggs agreed (Lord Mance gave a concurring judgment), is firmly founded in the principles set out more than 50 years ago in Hedley Byrne v Heller [1964] AC 465. This is namely that while it is possible for an unnamed or unidentified principal to recover pure economic loss for negligent misstatement if there is a ‘ special relationship’ between the principal and the party giving the statement, the foundation of any such claim lies in voluntary assumption of responsibility by the statement giver. In circumstances of this case, it simply was not possible to find that BNL voluntarily assumed responsibility to the Club for the accuracy of the credit reference. In particular, BNL had:

  • no knowledge of the transaction in contemplation – the Club had used Burlington as a shield specifically to hide the nature of its request
  • no appreciation of Burlington’s role as agent
  • no idea that its statement to Burlington would be communicated to, and relied on, by the Club.

The Club sought to argue that its position was ‘equivalent to contract’ – in contractual terms, an undisclosed principal may step out of the shadows of its agency and claim the benefits of a contract made between agent and third party. However, the Supreme Court held that the position in contract, where the relationship between principal and third party is a question of historic legal construct, and the position in tort, where the existence of a duty of care is dependent on whether, as a matter of fact, the relationship between the parties is sufficiently proximate, are not analogous. On the facts, there was no relationship between BNL and the Club, and nothing upon which the Club could hang its claim for loss.

This outcome is not surprising given the steps the Club took actively to hide both its existence and the nature of the underlying transaction. However, it is helpful n to have a clear review and restatement of the Hedley Byrne requirements from our most senior court. Perhaps the more interesting issue is yet to come – Lord Sumption’s reference to the rule that an undisclosed principal may declare himself and enter into a contract made by his agent directly, as surviving ‘on account of its antiquity rather than its coherence’ may suggest that a future Court, if faced with a contractual dispute between revealed principal and third party, may take the opportunity to bring that survival to an end.