On the 26 July 2018, the Supreme Court handed down a significant judgment clarifying the law on pure economic loss for a negligent misstatement in the context of bank-issued customer credit references. The case, which ultimately turned on technical points of law applying the landmark tort case of Hedley Byrne v Heller is significant for it underscores the increasing relevance and impact wrought by improperly issued banking references on the business activities of individuals and commercial entities. The Banca Nazionale del Lavoro SPA (Respondent) v Playboy Club London Limited and others (Appellants) [2018] UKSC 43 judgment can be found here.


In October 2010 Hassan Barakat, a Lebanese resident, sought to gamble at the London Playboy Club (“the Club”) and applied for a cheque cashing facility for up to £800,000. The Club’s policy was to require a credit reference from his bankers for twice the amount sought. To preserve the confidentiality of the facility, the Club arranged for an associated company, Burlington Street Services Ltd (“Burlington”), to ask the customer’s bank for the reference. Mr Barakat provided the details for his Italian bank, Banca Nazionale del Lavoro (“BNL”).

BNL confirmed that Mr Barakat was trustworthy up to £1.6m in any one week and the Club subsequently granted a cheque cashing facility to the value of £1.25m. Mr Barakat drew two cheques totalling £1.25m, before netting winnings of circa £427k, which were paid to him by the Club; he then returned to Lebanon and both cheques were returned unpaid and the Club suffered a net loss in excess of £802k (including gaming duty). It was common ground that BNL should not have issued the reference in question: Mr Barakat held no account with BNL until two days after the reference was sent and held a nil balance until 2014.

At first instance, the trial judge held that BNL owed a duty of care to the Club in relation to its reference. The Court of Appeal disagreed holding that the only duty BNL owed was to Burlington, to whom the reference was addressed. The Club appealed the decision.


The Supreme Court unanimously dismissed the appeal. In summary, Lord Sumption, giving the lead judgment (with Lady Hale, Lord Reed and Lord Briggs in agreement), held:

  • The key relevant area of law is Hedley Byrne & Co Ltd v Heller & Partners Ltd [1964] AC 465, which permits a claim for pure economic loss for a negligent misstatement where a special relationship exists.  Voluntary assumption of responsibility remains the “foundation” of this law.
  • The representor’s knowledge of a transaction was relevant: a representor must not only know that the statement is likely to be communicated to and relied upon by someone, it must also be part of the statement’s “known purpose” that it should be communicated and relied upon by that person if the representor is to be taken to assume responsibility to them. BNL had no such knowledge.
  • The Club argued that the relationship between BNL and the Club was “equivalent to contract” due to the Club’s status as Burlington’s undisclosed principal. In response, the Court found that the anachronistic English law rule that an undisclosed principal may “declare itself and enter upon a contract” is an incoherent anomaly. It does not follow that simply because a relationship is treated in law as “equivalent to contract” that it is legally the same as a contractual relationship or involves all the same “legal incidents”. Whether a relationship is sufficiently proximate to create a duty of care is a question of fact, and the liability of a contracting party to an undisclosed principle is a purely legal construct (i.e. allowing a person to be brought into contractual relations with someone with whom there exists no factual relationship at all). This relationship does not give rise to a voluntary assumption of responsibility. To import case law on undisclosed principles into tort law would be inappropriate. Factually, BNL had no reason to know Burlington was acting for someone else and knew nothing of the Club. BNL did not voluntarily assume responsibility to the Club.

Lord Mance agreed with Lord Sumption, adding that there are two requirements for a duty of care to arise in respect of a representation: firstly, the claimant must be a specific person or group to whom the responsibility may be said to have been undertaken, and secondly, the representation must be made specifically in connection with a particular transaction or transactions of a particular kind made known to the representor. The claim failed here because of the second ground: BNL’s representation was directed solely at Burlington and not the Club.

Consequences for practitioners

What the Banca Nazionale judgment illustrates is the potential magnitude of losses that can result from inaccurate bank-issued customer references, losses often borne by legitimate commercial enterprises.  Practitioners should be alive to the principles advanced in the case, including emerging trends in the area of references, carefully considering the landscape of contract and tort-based measures in order to best protect the commercial interests of clients.