Banca Nazionale del Lavoro SPA v Playboy Club London Limited and others

Liability for economic loss caused by a negligent statement rests on a voluntary assumption of responsibility to an identifiable, although not necessarily identified, person or class. Foreseeable reliance alone does not establish the necessary proximity. The maker must know that the statement is likely to be communicated to and relied upon by the claimant, and that such communication and reliance form part of its known purpose.

An undisclosed principal cannot acquire a duty of care merely because contract law would permit that principal to intervene in a contract made by an agent. A relationship described as equivalent to contract does not import contractual incidents into tort.

A bank negligently supplied a favourable credit reference about a prospective gambler. The request came from Burlington Street Services Ltd and did not disclose that Burlington acted for the Playboy Club. Relying on the reference, the Club provided a cheque-cashing facility and suffered substantial loss when the customer's cheques were dishonoured.

The trial judge held that the bank owed the Club a duty of care: [2014] EWHC 2613 (QB). The Court of Appeal held that any duty was owed only to Burlington: [2016] EWCA Civ 457; [2016] 1 WLR 3169.

The central issue was whether a bank which supplied a negligent reference to an agent assumed responsibility to the agent's undisclosed principal.

1. The appeal was dismissed unanimously. Lord Sumption gave the leading judgment, with which Lady Hale, Lord Reed and Lord Briggs agreed. Lord Mance also agreed, while adding observations about the required knowledge of the transaction's purpose.

2. Liability for pure economic loss caused by a negligent statement is founded on voluntary assumption of responsibility. Applying Hedley Byrne & Co Ltd v Heller & Partners Ltd [1964] AC 465 and Caparo Industries plc v Dickman [1990] 2 AC 605, a duty must be assumed to an identifiable person or class. Foreseeability is necessary but insufficient. The representor must know that the statement is likely to be communicated to and relied upon by the claimant, and such communication and reliance must form part of the statement's known purpose.

   The bank had no reason to believe that Burlington was acting for another person and knew nothing of the Club. Its willingness to provide the reference without investigating Burlington did not amount to an assumption of responsibility to any other person.

3. The Club could not obtain a duty by invoking the contractual doctrine of the undisclosed principal. Lord Sumption explained that the expression equivalent to contract is an allegory of proximity and helps justify recovery of economic loss where consideration is absent. It does not make a non-contractual relationship legally identical to a contract or import contractual incidents into tort.

   The undisclosed-principal doctrine is a legal construct which can place parties in contractual relations despite the absence of any factual relationship. It therefore supplies neither the proximity nor the voluntary and consensual assumption of responsibility required in tort. Importing only the principal's right to intervene would also omit the doctrine's corresponding liabilities, defences and requirement of election.

4. Lord Mance considered that the claim did not fail because the precise nature of the intended financial commitment had been withheld. The bank objectively accepted exposure up to the stated amount without seeking further details. Had the representation been made for an unnamed principal or client, the reasoning in Hedley Byrne could have supported liability. The decisive defect was that the reference was objectively requested by, and confined to, Burlington alone.

1. United Kingdom Supreme Court: Dismissed the Club's appeal and upheld the conclusion that the bank owed it no duty of care: [2018] UKSC 43.

2. Court of Appeal: Held that any duty concerning the reference was owed only to Burlington, to whom it was addressed: [2016] EWCA Civ 457; [2016] 1 WLR 3169.

3. High Court: The trial judge held that the bank owed the Club a duty of care concerning the reference: [2014] EWHC 2613 (QB).