Gambling With Liability? The Supreme Court Distinguishes Hedley Byrne

Yesterday, the Supreme Court handed down judgment in the case of Playboy Club London Ltd v Banca Nazionale del Lavoro SPA [2018] UKSC 43. The decision examines the core principles which underpin the imposition of liability for a representation made to a third party, with whom the representor has no contractual relationship. This is classically thought of as Hedley Byrne v Heller & Partnersliability.

In Hedley Bynre, Heller & Partners gave a credit reference in respect of Easipower Ltd directly to Hedley Byrne's bank, National Provincial Bank. The House of Lords found that Heller had appreciated that Hedley Byrne, the bank's client, would reasonably rely on its credit reference, and that Hedley Byrne reasonably did rely on its accuracy. This gave rise to a direct relationship between Heller and Hedley Byrne, that involved a duty of care.

This is illustrated below:

In Banca Nazionale, there was a vital difference.

Playboy Club London (the Club) operated a casino. Mr Hassan Barakat wished to gamble there with the benefit of a cheque cashing facility. Before providing that facility, the Club's policy was to seek a reference from a gambler's bank. Crucially, it did so via an agent company, Burlington. This was specifically so as to avoid disclosing the purpose of the proposed credit facility to the bank that would be providing the reference.

The result was that the bank would ordinarily not know that, in reality, the reference was being sought, and would be relied upon, by the Club. The Club was an undisclosed principal of Burlington, the agent to whom the bank's representation was actually made.

These facts are illustrated below, to show the distinction from the Hedley Bynre fact pattern. The difference is the introduction of the agent (Burlington), whose principal (the Club) is undisclosed.

Banca Nazionale (BNL) supplied a favorable credit reference for Mr Barakat to Burlington's bank. BNL was negligent: it had no valid basis for giving that reference. The Club relied on it, and granted Mr Barakat the cheque facility. Mr Barakat wrote cheques at the casino, which were later returned to the Club unpaid. The Club suffered loss, and brought a claim against BNL.

The 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.

However, the Club argued that because it was Burlington's undisclosed principal, the relationship between BNL and the Club was "equivalent to...