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You are here: BAILII >> Databases >> United Kingdom Supreme Court >> Banca Nazionale del Lavoro SPA v Playboy Club London Ltd & Ors [2018] UKSC 43 (26 July 2018) URL: http://www.bailii.org/uk/cases/UKSC/2018/43.html Cite as: [2018] LLR 657, [2018] PNLR 35, [2018] 1 WLR 4041, [2019] 1 All ER (Comm) 693, [2019] 2 All ER 478, [2018] WLR 4041, [2018] UKSC 43, 179 Con LR 17, [2018] WLR(D) 530 |
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Trinity Term
[2018] UKSC 43
On appeal from: [2016] EWCA Civ 457
JUDGMENT
Banca
Nazionale del Lavoro SPA (Respondent) v
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before
Lady Hale, President Lord Mance Lord Sumption Lord Reed Lord Briggs
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JUDGMENT GIVEN ON |
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26 July 2018 |
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Heard on 24 April 2018 |
Appellants |
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Respondent |
Simon Salzedo QC |
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Jeff Chapman QC |
Fred Hobson |
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Andrew de Mestre |
(Instructed by Simkins LLP) |
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(Instructed by Bird & Bird LLP) |
LORD SUMPTION: (with whom Lady Hale, Lord Reed and Lord Briggs agree)
1. This case is about a credit reference negligently supplied by a bank for a person who subsequently defaulted. The facts are to that extent similar to those of Hedley Byrne & Co Ltd v Heller & Partners Ltd [1964] AC 465. But there is a critical difference. The reference was relied upon not by the party to whom it was addressed but by that party’s undisclosed principal. The question at issue on this appeal is whether the bank is liable to the latter.
2.
In October 2010 Hassan Barakat wished to gamble at the London Playboy
Club.
He visited the
club
and applied for a cheque cashing facility for up to
£800,000. Mr Barakat was a Lebanese resident and a well-known figure at a
casino in Lebanon. But he had only once played at the London
club.
Playboy
Club’s
policy for gamblers like him was to require a credit reference from his
bankers for twice the amount of the facility, ie £1.6m. But in order to avoid
disclosing the purpose of the credit facility, the
Club’s
practice was not
itself to ask its customer’s bank for the reference. Instead, it arranged for
an associated company called Burlington Street Services Ltd to do so without
disclosing the purpose of the inquiry or the fact that the reference was
required for the benefit of another company.
“We request your opinion as to the means and standing of Hassan Barakat [details follow] and his/her trustworthiness to meet a financial commitment to the extent of £1,600,000 at any one time.”
Mr Barakat signed the form of authority at the foot of the printed form. The operative part of the authority was in the following terms:
“I, Hassan Barakat, hereby consent to BNL-BNP Paribas Bank … providing a reference on me to Burlington Services Ltd.”
The request was then sent to the Club’s
bankers, National
Westminster Bank, who forwarded it to BNL under cover of a letter beginning:
“We enclose a request on behalf of Burlington Street Services Ltd, who would be glad of your opinion on the character and standing of Hassan Barakat.”
The reply from BNL, faxed on 13 October 2010, was addressed to Burlington c/o National Westminster Bank. It confirmed that Mr Barakat had an account with them and that he was trustworthy up to £1,600,000 in any one week. It added: “This information is given in strict confidential” (sic).
4.
In reliance on the reference, the Club
granted the cheque cashing
facility on 13 October 2010 and shortly afterwards increased it to £1.25m. Over
four days from 15 to 18 October Mr Barakat played at the
club.
He drew two
cheques on BNL for a total of £1.25m in return for gaming chips of the same
amount. His net winnings were £427,400, which the
Club
paid out to him. He then
returned to Lebanon and was not seen again at the
Club.
Both cheques were
returned unpaid. Including gaming duty, the
Club
suffered a total net loss of
£802,940. It is common ground that BNL had no reasonable basis for their
reference. It held no account for Mr Barakat until two days after the reference
was sent, when an account was opened in his name which had a nil balance until
it was closed on 14 December 2010.
5.
The Playboy
Club,
Burlington and another associated company subsequently
began these proceedings against BNL. It is common ground that of the three claimants
the
Club
is the only party with an interest, neither of the others having
suffered any loss. The trial judge (His Honour Judge Mackie QC) said that BNL
owed a duty of care in relation to its reference to the
Club
[2014] EWHC 2613 (QB). The Court of Appeal disagreed. They held that the only duty was owed to
Burlington, to whom the reference was addressed [2016] 1 WLR 3169.
“I have had the advantage of reading all the opinions prepared by your Lordships and of studying the terms which your Lordships have framed by way of definition of the sort of relationship which gives rise to a responsibility towards those who act upon information or advice and so creates a duty of care towards them … It is a responsibility that is voluntarily accepted or undertaken, either generally where a general relationship, such as that of solicitor and client or banker and customer, is created, or specifically in relation to a particular transaction. … Responsibility can attach only to the single act, that is, the giving of the reference, and only if the doing of that act implied a voluntary undertaking to assume responsibility. This is a point of great importance because it is, as I understand it, the foundation for the ground on which in the end the House dismisses the appeal ...
I do not go further than this for two reasons. The first is that I have found in the speech of Lord Shaw in Nocton v Lord Ashburton and in the idea of a relationship that is equivalent to contract all that is necessary to cover the situation that arises in this case … All that was lacking was formal consideration …
I shall therefore content myself with the proposition that wherever there is a relationship equivalent to contract, there is a duty of care. Such a relationship may be either general or particular. Examples of a general relationship are those of solicitor and client and of banker and customer … There may well be others yet to be established. Where there is a general relationship of this sort, it is unnecessary to do more than prove its existence and the duty follows. Where, as in the present case, what is relied on is a particular relationship created ad hoc, it will be necessary to examine the particular facts to see whether there is an express or implied undertaking of responsibility.”
7. The principle thus established is capable of development. Indeed it has undergone considerable development since 1964, for example to cover omissions and the negligent performance of services. But these have been incremental changes within a consistent framework of principle. One area in which the courts have resisted expanding the scope of liability concerns the person or category of persons to whom the duty is owed. The defendant’s voluntary assumption of responsibility remains the foundation of this area of law, as this court recently confirmed after a full review of the later authorities in NRAM Ltd (formerly NRAM plc) v Steel [2018] 1 WLR 1190, paras 18-24 (Lord Wilson JSC). It is fundamental to this way of analysing the duty that the defendant is assuming a responsibility 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.
8. In Caparo Industries plc v Dickman [1990] 2 AC 605, the Appellate Committee held that foreseeability, although it was a necessary condition for liability, was not necessarily a sufficient one. The foundation of the duty is proximity, which may require more than the mere foreseeability of reliance. The problem before the Appellate Committee was to identify the outer limits of the class of persons whose reliance on a statement could properly be said to give rise to a sufficiently proximate relationship. They found the relevant limiting factors in the defendants’ knowledge of (i) the person known to be likely to rely on the statement, and (ii) the transaction in respect of which he was known to be likely to rely on. After reviewing the authorities supporting a duty of care for negligent statements, both before and after Hedley Byrne, Lord Bridge (with whom Lord Roskill, Lord Ackner and Lord Oliver agreed), summarised the position as follows at pp 620-621:
“The salient feature of all these cases is that the defendant giving advice or information was fully aware of the nature of the transaction which the plaintiff had in contemplation, knew that the advice or information would be communicated to him directly or indirectly and knew that it was very likely that the plaintiff would rely on that advice or information in deciding whether or not to engage in the transaction in contemplation. In these circumstances the defendant could clearly be expected, subject always to the effect of any disclaimer of responsibility, specifically to anticipate that the plaintiff would rely on the advice or information given by the defendant for the very purpose for which he did in the event rely on it. So also the plaintiff, subject again to the effect of any disclaimer, would in that situation reasonably suppose that he was entitled to rely on the advice or information communicated to him for the very purpose for which he required it. The situation is entirely different where a statement is put into more or less general circulation and may foreseeably be relied on by strangers to the maker of the statement for any one of a variety of different purposes which the maker of the statement has no specific reason to anticipate. To hold the maker of the statement to be under a duty of care in respect of the accuracy of the statement to all and sundry for any purpose for which they may choose to rely on it is not only to subject him, in the classic words of Cardozo CJ to ‘liability in an indeterminate amount for an indeterminate time to an indeterminate class:’ see Ultramares Corpn v Touche (1931) 174 N.E. 441, 444; it is also to confer on the world at large a quite unwarranted entitlement to appropriate for their own purposes the benefit of the expert knowledge or professional expertise attributed to the maker of the statement. Hence, looking only at the circumstances of these decided cases where a duty of care in respect of negligent statements has been held to exist, I should expect to find that the ‘limit or control mechanism … imposed upon the liability of a wrongdoer towards those who have suffered economic damage in consequence of his negligence’ rested in the necessity to prove, in this category of the tort of negligence, as an essential ingredient of the ‘proximity’ between the plaintiff and the defendant, that the defendant knew that his statement would be communicated to the plaintiff, either as an individual or as a member of an identifiable class, specifically in connection with a particular transaction or transactions of a particular kind (eg in a prospectus inviting investment) and that the plaintiff would be very likely to rely on it for the purpose of deciding whether or not to enter upon that transaction or upon a transaction of that kind.”
In support of that analysis, Lord Bridge adopted the celebrated dissenting judgment of Denning LJ in Candler v Crane, Christmas & Co [1951] 2 KB 164 on the persons to whom an auditor owed a duty of care in respect of his audit report. At pp 180, 182, 184, Denning LJ had said:
“To whom do these professional people owe this duty? I will take accountants, but the same reasoning applies to the others. They owe the duty, of course, to their employer or client; and also I think to any third person to whom they themselves show the accounts, or to whom they know their employer is going to show the accounts, so as to induce him to invest money or take some other action on them. But I do not think the duty can be extended still further so as to include strangers of whom they have heard nothing and to whom their employer without their knowledge may choose to show their accounts. Once the accountants have handed their accounts to their employer they are not, as a rule, responsible for what he does with them without their knowledge or consent … The test of proximity in these cases is: did the accountants know that the accounts were required for submission to the plaintiff and use by him?
… To what transactions does the duty of care extend? It extends, I think, only to those transactions for which the accountants knew their accounts were required…
My conclusion is that a duty to use care in statement is recognised by English law, and that its recognition does not create any dangerous precedent when it is remembered that it is limited in respect of the persons by whom and to whom it is owed and the transactions to which it applies.”
“(1) the advice is required for a purpose, whether particularly specified or generally described, which is made known, either actually or inferentially, to the adviser at the time when the advice is given; (2) the adviser knows, either actually or inferentially, that his advice will be communicated to the advisee, either specifically or as a member of an ascertainable class, in order that it should be used by the advisee for that purpose; (3) it is known either actually or inferentially, that the advice so communicated is likely to be acted upon by the advisee for that purpose without independent inquiry, and (4) it is so acted upon by the advisee to his detriment.”
11.
Mr Salzedo QC, who appeared for the Playboy
Club,
accepted that there
was no evidence that BNL knew that its reference would be communicated to or
relied on by anyone other than Burlington. He also accepted that in the ordinary
course where a statement is relied upon by B to whom A has passed it on, the
representor owes no duty to B unless he knew that the statement was likely to
be communicated to B. That concession was plainly justified. I would go further
and say that the representor must not only know that the statement is likely to
be communicated to and relied upon by B. It must also be part of the
statement’s known purpose that it should be communicated and relied upon by B,
if the representor is to be taken to assume responsibility to B. Mr Salzedo’s
submission was that the present case was different because the
Club
was
Burlington’s undisclosed principal. He submitted that the relationship between
BNL and the
Club
was, in Lord Devlin’s phrase, “equivalent to contract” because
in contract the
Club
would have been entitled to declare itself and assume the
benefit of the contract. This is an ingenious argument, but in my opinion it is
fallacious.
“(1) An undisclosed principal may sue and be sued on a contract made by an agent on his behalf, acting within the scope of his actual authority. (2) In entering into the contract, the agent must intend to act on the principal’s behalf. (3) The agent of an undisclosed principal may also sue and be sued on the contract. (4) Any defence which the third party may have against the agent is available against his principal. (5) The terms of the contract may, expressly or by implication, exclude the principal’s right to sue, and his liability to be sued.”
To this I would add that the third party must irrevocably elect whether to sue the agent or the undisclosed principal.
13. The first problem about the appellants’ argument is that it assumes that because a relationship “equivalent to contract” is generally sufficiently proximate to found a duty of care, it must follow that the legal incidents of a contractual relationship are imported into it. This is a non-sequitur. The expression “equivalent to contract” originates in the speech of Lord Shaw in Nocton v Lord Ashburton [1914] AC 932, 971-972. He used it to describe any kind of relationship which gave rise to a duty to give information or advice, and hence to liability for giving it negligently. The phrase was adopted by Lord Devlin in Hedley Byrne, at pp 528-529, and has passed into common currency: see in particular Smith v Bush [1990] 1 AC 831, 846 (Lord Templeman), Henderson v Merrett Syndicates Ltd [1995] 2 AC 145, 181 (Lord Goff), Spring v Guardian Assurance plc [1995] 2 AC 296, 324 (Lord Goff). It serves (i) as an allegory of proximity, to describe a case where a service is performed for a person pursuant to a relationship which would be contractual if there were consideration passing from that person; and (ii) as an explanation of why it is appropriate to award a purely economic loss as damages for negligence in the course of such a relationship. But it does not follow from the fact that a non-contractual relationship between two parties is as proximate as a contractual relationship, that it is legally the same as a contractual relationship or involves all of the same legal incidents.
16.
It is impossible to feel much sympathy for BNL given the circumstances
in which they came to give a favourable credit reference for some one with whom
they appear to have had no relevant dealings. But they had no reason to suppose
that Burlington was acting for some one else, and they knew nothing of the
Playboy
Club.
In those circumstances, it is plain that they did not voluntarily
assume any responsibility to the
Club.
It may well be, since they knew nothing
of Burlington either, that they were indifferent to whom they were dealing
with. But the fact that a representor may have been equally willing to assume a
duty to some one else does not mean that he can be treated as if he had done
so.
17. I would dismiss the appeal.
LORD MANCE:
18.
I agree with the judgment which has been prepared by Lord Sumption. But
one can, as he observes in para 16, have little sympathy for BNL; and the Club
has suffered significant loss in undoubted reliance on BNL’s negligent
misrepresentation of Mr Barakat’s trustworthiness. In these circumstances, I
think that there are one or two points worth examining further in order to
identify precisely why the
Club’s
claim nevertheless fails.
20. Passages can be found in authority where courts have used language suggesting that, for a duty of care to arise in tort in respect of a representation, (a) not only must the claimant be a specific person or within a group to whom responsibility may be said to have been undertaken, but (b) the purpose for which the representation is required must be “specifically in connection with a particular transaction or transactions of a particular kind” or must, “whether particularly specified or generally described”, be “made known, either actually or inferentially”, to the representor: see eg per Lord Bridge and Lord Oliver in Caparo Industries plc v Dickman [1990] 2 AC 605, 620-621 and 638, cited by Lord Sumption in his paras 8 and 9.
21.
BNL has argued that the Club’s
claim must fail because it satisfies
neither of the elements (a) and (b) suggested by these passages. The Court of
Appeal [2016] 1 WLR 3169 focused on element (a), although two sentences in para
19 of Longmore LJ’s judgment may also indicate that the Court saw the claim as
failing because neither element was satisfied. Longmore LJ said in particular:
“In the present case the customer
was identified by name as Burlington and the true purpose of the reference (for
a gambling club)
was not revealed. In these circumstances there cannot, to my
mind, be an assumption of responsibility to the
Club
(rather than to
Burlington) or indeed a responsibility for its use by the
Club
in trusting Mr
Barakat in his gambling activities (a purpose of which the Bank was unaware).”
22.
I do not consider that this claim should fail for want of communication
of the purpose or kind of purpose for which an assessment of trustworthiness
was required. Had Burlington been the operator of the gambling club
and
suffered the loss, it should have succeeded. On the face of it, BNL was
prepared, without further enquiry, to take the open risk of exposure to the
tune of up to £1.6m in any one week whatever “financial commitment” or
“business” to that tune was intended. There is no reason in principle why a
duty of care should not arise in relation to so unspecific a purpose, provided
(as is here clear) that the representation was requested and given in terms
showing that it was intended to be and would be relied on. The decision in Caparo
does not exclude liability on this basis. Caparo turned on the
statutory purpose of an audit being to enable shareholders to exercise their
class rights in general meeting, rather than to enable individual shareholders
to buy more shares in the company (unless of course the auditors specifically
agreed to extend the use of their audit report to such a use).
25. Had the representation been made, expressly or impliedly, for the benefit of an unnamed (rather than an entirely undisclosed) principal or client of Burlington, the case would have paralleled Hedley Byrne & Co Ltd v Heller & Partners Ltd [1964] AC 465, and the claim should then have succeeded. Had it been made, expressly or impliedly, for the benefit of any principal or client of Burlington, to which Burlington might make it available, the same would have applied. BNL would then have undertaken an open exposure, as it did in my view in relation to the purpose for which the representation as to trustworthiness was sought.
26.
I agree with Lord Sumption’s disposal of the ingenious and
well-presented submission that, as the Club
could have intervened to rely on
the representation had consideration been furnished for it to BNL, so the Court
should recognise the existence for tortious purposes of a relationship akin to
contract, in the absence of any consideration. The right of an undisclosed
principal to intervene in contract is not easy to rationalise, but it does not
rest or bear on proximity for tortious purposes. It is true that it follows
from this that contributory fault will not be available as a response to a claim
by an undisclosed principal relying on a representation for which consideration
has been given - since there will be no concurrency of contractual and tortious
liability: see Vesta v Butcher [1989] AC 852, CA. But the oddity here is
again, if anything, the existence of the right to intervene, or the limitations
of the Law Reform (Contributory Negligence) Act 1945, not the absence of a
relationship of duty of care.
27.
For these reasons, additional to those given by Lord Sumption, and
tempting though the thought is that BNL is very lucky to avoid liability to the
Club, I agree that the appeal falls to be dismissed.