Playboy not owed duty of care by bank

Posted on 27 September 2018

Playboy not owed duty of care by bank

In October 2010, Hassan Barakat wanted to gamble at the London Playboy Club. He requested a cashing facility for up to $800,000. The Club's policy in such circumstances was to require a credit reference from the person in question's bank for double the amount they were seeking.

In order not to disclose the purpose of the credit reference (and thereby to protect their members), the Club's practice was to make the request to the bank through an associated company, Burlington Street Services Ltd. The request did not disclose the purpose of the enquiry, nor that it was required for the benefit of another company.

Mr Barakat completed a written application for the cheque-cashing facility, naming his bankers as Banca Nazionale del Lavoro. The reply from the Bank was addressed to Burlington c/o National Westminster Bank. It confirmed that Mr Barakat had an account with them and that he was good for up to £1,600,000 in any one week.

In reliance on this credit reference, the Club granted the cashing facility, which it then increased to £1.25m. Mr Barakat provided the Club with two cheques totalling £1.25m, for which the Club gave him chips of the same value. The Club paid out winnings to Mr Barakat of £427,400.

The cheques were returned to the Club unpaid. The Bank has since confirmed that it has no reason to give the reference – Mr Barakat only opened an account with them two days after they gave the reference and no money was ever paid into it.

The Club suffered a total loss of £802,940 (including gaming duty), which it sought to recover from the Bank by bringing a claim for negligent misstatement. The Club won at first instance – the trial judge found that the Bank owed a duty of care to the Club. This was overturned by the Court of Appeal, which found that no such duty of care was owed.

Decision

The Supreme Court rejected the appeal and found that the duty of care owed to a party does not extend to that party's unidentifiable principal.

Lord Sumption gave the lead judgment. He noted that the decision in Hedley Byrne created the principle which "allowed the recovery of a purely economic loss in negligence where the existence of a special relationship between claimant and defendant made this appropriate." This principle has been expanded since, but "[t]he defendant’s voluntary assumption of responsibility remains the foundation of this area of law… 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."

He therefore distinguished this case from Hedley Byrne, despite the similarity in the facts, because, in Hedley Byrne "the defendant understood that the statement would be relied on by the unidentified, but readily identifiable, client on whose behalf National Provincial Bank was known to be making the inquiry." In this case, the Bank "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."

Conclusion

In order for Party A to owe a duty of care to Party B, Party B must be identifiable (if not identified) to Party A. If this is not the case, it cannot be said that Party A voluntarily assumed responsibility towards Party B.

It is critical, therefore, that when an agent seeks a representation from a third party on which its principal intends relying, it makes clear that its principal (or one of its principals/clients) will be relying on the representation, even if it does not identify the principal.

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