In Playboy Club London Ltd and others v Banca Nazionale del Lavoro SpA [2018] UKSC 43, the Supreme Court held that banks do not owe a duty of care in tort to undisclosed principals, in circumstances where the bank is unaware of the relevant principal’s involvement.

The First Claimant operated a casino in London, which offered cheque cashing facilities to customers. In October 2010, the First Claimant wished to obtain a credit reference from the Defendant Bank in respect of a customer.  In order to preserve the customer’s confidentiality, the reference was requested by the Third Claimant, Burlington Street Services Limited (a company within the same group); the Defendant Bank was not at that stage aware of the First Claimant’s involvement. The Defendant Bank provided a reference, addressed to the Third Claimant, confirming that the customer was “financially healthy and able to meet his business commitments”. In reality, the customer was still in the process of opening an account and had not deposited any funds with the Defendant Bank. In reliance on the Defendant Bank’s reference, the First Claimant cashed counterfeit cheques from the customer totalling approximately €1.25m. 

The Claimants brought proceedings against the Defendant Bank for negligent misstatement in respect of the reference. At first instance, the High Court found the Defendant Bank liable. However, the Court of Appeal overturned the decision at first instance, finding that the Defendant Bank had not owed a duty of care to the First Claimant. 

In July 2018, the Supreme Court upheld the Court of Appeal’s decision. It was not persuaded by the Claimants’ argument that the relationship between the Third Claimant and the Defendant Bank was akin to a contract in respect of which, as an undisclosed principal, the First Claimant was entitled to declare itself and assume the benefit of the contract. Applying Hedley Byrne & Co Ltd v Heller & Partners Ltd, [1964] AC 465, the Supreme Court emphasised that in order to recover a purely economic loss in negligence, it was fundamental that: (i) the Defendant assumed “responsibility to an identifiable (though not necessarily identified) person…”; and (ii) the Defendant, in giving the statement, was fully aware of the nature of the transaction and knew that part of the statement’s purpose was to be communicated to and relied upon by the First Claimant.

In this case, the Defendant Bank was completely unaware of the involvement of the First Claimant, and therefore could not have known that the reference would be communicated to and relied upon by the First Claimant. Accordingly, no duty of care arose.

This case marks a positive development for banks, limiting liability under credit references to identified or identifiable parties. However, the importance of disclaimers in references should not be overlooked. Under English law, a disclaimer limiting liability to a named or identifiable class of individuals would normally be upheld. Best practice for banks is still therefore to include a narrowly drafted disclaimer in any credit references to avoid the risk of liability to undisclosed principals.