The gamble that didn't pay off - Casino loses appeal in UK Supreme Court

By Matthew Pack, Michael Brown

07-2018

On 26 July 2018 the UK Supreme Court unanimously dismissed an appeal against our client, Banca Nazionale del Lavoro SPA (BNL), upholding the judgment of the Court of Appeal that, on these facts, there is no duty of care for negligent misstatement to an undisclosed principal.

Banca Nazionale del Lavoro SPA (Respondent) v Playboy Club London Limited and others (Appellants) [2018] UKSC 43

Summary of the Supreme Court's decision

Whilst the facts of the case are novel (see below), the Supreme Court confirmed that the   principles established by the seminal cases of Hedley Byrne v Heller [1964] AC 465 and Caparo v Dickman [1990] 2 AC 605 regarding a duty of care for negligent misstatement are firmly rooted in the defendant's voluntary assumption of responsibility towards the claimant. The extent of this duty of care is to an "an identifiable person or group of persons, and not to the world at large or to a wholly indeterminate group". Therefore the duty of care cannot extend to an undisclosed principal.

The Club's "ingenious" submission (per Lord Mance at paragraph 26) which tried to extend the liability in contract to an undisclosed principal to tort, in circumstances that were said to be akin to contract (save for consideration), failed.

Facts of the case

In October 2010 HB decided to visit the London Playboy Club (the "Club") to gamble. In order to do this he applied for a cheque cashing facility of up to £800,000. The rules of the Club stated that in order to gamble the Club required a credit reference from his bankers for twice the amount of the facility. However, it was not the Club's practice to ask for the reference; instead it used an associated company called Burlington Street Services Ltd ("Burlington") to do so. HB stated that the reference should be obtained from his bank, BNL. BNL confirmed to Burlington that HB had an account with it and that he was trustworthy up to the figure of £1.6million in any one week.

In reliance on the reference HB was granted the cheque cashing facility by the Club, and shortly afterwards this was increased to £1.25 million. HB drew two cheques on BNL for a total of £1.25million for gaming chips and the Club paid out winnings of £427,400 to him. After gambling for 4 days HB left the Club and did not return. Both cheques were returned unpaid. BNL accepted that it had no basis for its reference. HB only opened an account with it two days after the reference was given. The balance of the account was nil.

The Club and Burlington, together with an associated company, sued for negligent misstatement by BNL. They were successful at first instance. The trial judge said that BNL owed a duty of care in relation to its reference to the Club. The Court of Appeal disagreed holding that the duty of care was owed to Burlington, as that was who the reference was addressed to, not the Club, the undisclosed principal. The Supreme Court agreed with the Court of Appeal.

Judgment of the Supreme Court

The Supreme Court considered the judgments of Hedley Byrne and Caparo v Dickman in some detail to illustrate that the defendant's knowledge of the transaction in respect of which it is making the statement is relevant in order to identify "a specific person or group of people to whom he can be said to assume responsibility".  If the reference had been given for the benefit of an unnamed principal or client of Burlington, the action would mirror that of Hedley Byrne, and the claim would have succeeded. Equally if the reference had been made for the benefit of any principal or client of Burlington, to which Burlington might also make it available, the claim would also have succeeded. The problem for the Club was that BNL was unaware, and had no reason to suspect, that Burlington was acting for anyone else. It was on this basis that the Club was unsuccessful.