Dear Colleagues;

In its second “duty of care” decision in two days, the UK Supreme Court in Banca Nazionale del Lavoro SPA v Playboy Club London Limited [2018] UKSC 43 (26 July 2018) https://www.supremecourt.uk/cases/docs/uksc-2016-0121-judgment.pdf has ruled that there is no duty of care owed for a negligent misrepresentation to an “undisclosed principal”. Here, in facts quite similar to Hedley Byrne, BNL were asked to provide a comment on the credit-worthiness of a Mr Barakat. Mr B wanted to gamble a large amount of money at the Playboy Club. But to avoid embarrassing their customers, the Club made such enquiries through a third party, a company called Burlington. Burlington made the query and BNL, for some unexplained reason, told them that Mr Barakat was good for debts up to £1,600,000. In fact, as later noted, BNL “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”! As it turned out Mr B paid for his gambling with bad cheques and the Club lost a lot of money.

Despite BNL’s behaviour, the Court concludes unanimously (LORD SUMPTION (with whom Lady Hale, Lord Reed and Lord Briggs agree), LORD MANCE concurring) that no duty of care was owed to the Club in the circumstances. Burlington had not disclosed it was enquiring for anyone else, and there was nothing else in the circumstances to lead BNL to know that anyone else was “behind” the query. At [16]:

 

[BNL] 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. 

 

 There was a creative argument made that since, in some circumstances, an “undisclosed principal” can come in and “take over” a contract made on its behalf, that hence the Club should get the benefit of being treated as if it were a party to the “similar to a contract” relationship between BNL and Burlington. But the members of the Court all said that the English law on undisclosed principals was technical, limited and should not be extended beyond the decisions supporting it so far.

Lord Mance’s separate judgment agrees that there is no duty owed where the existence of an undisclosed principal is not known, but he says that his decision does not turn on the fact that the “type of dealing” concerned was a risky gambling contract. In his view the question of the identity of the person to whom responsibility had been assumed is crucial, not the type of transaction.

I think the decision is correct, so long as one remembers that the cases show that a duty can be owed to an identifiable “class” of persons who will be known to rely on advice. But where there is no evidence that such a class of persons is known at all to the representor, then it seems right that no duty is owed.

I don’t suppose it needs saying, but it is interesting that we have now had two tort decisions in rapid succession from the UKSC which have gone against the claimant. That breaks something of a pattern from over the last few years.

Regards

Neil

 

 

 

 

NEIL FOSTER

Associate Professor, Newcastle Law School

Faculty of Business and Law

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T: +61 2 49217430

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Blog: https://lawandreligionaustralia.blog

 

 

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