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11 September 2018
What was the negligent misstatement?
When does a duty of care arise?
Argument based on undisclosed principals
Decision in Banca Nazionale
The Supreme Court has ruled in Banca Nazionale del Lavoro SPA v Playboy Club London Limited that a bank providing a reference relating to its customer owed a tortious duty of care only to the addressee.(1)
Events started at the London Playboy Club. Hassan Barakat required more funds to gamble at the club. Playboy asked an associated company, Burlington, to seek a reference from Barakat's bank, Banca Nazionale del Lavoro SPA. Burlington made the request (making no mention of Playboy) and the bank responded by confirming that Barakat had an account with the bank and was trustworthy for up to £1.6 million "in any one week".
In reliance on the bank's reference, Playboy granted Barakat a cheque cashing facility of £1.25 million. After accumulating net winnings of £427,400 Barakat returned to his home in Lebanon. Barakat's cheques were returned unpaid; it transpired that the bank had opened an account for Barakat two days after it had provided the reference to Burlington. The account was closed shortly afterwards, having never held any of Barakat's funds.
A tortious duty of care can arise where the party making a negligent misstatement has "assumed responsibility" to the recipient of that statement and where the party making the statement:
For example, an accountant was held to be not liable to investors who had relied on a company's auditor's report because the report had been prepared for the benefit of the company's shareholders, without knowledge of the transactions which potential investors wished to undertake.(3)
Playboy had no contractual relationship with the bank. It therefore argued that the bank had owed it a tortious duty of care on the basis that:
The Supreme Court agreed with the Court of Appeal that the bank had owed a duty of care only to Burlington, to whom the reference was addressed. The court made the following observations:
The decision in Banca Nazionale reflects the wider judicial trend of restricting the circumstances in which duties of care for negligent misstatement are found to exist on the basis of an assumption of responsibility by the party making the statement. If a party wishes to rely on information provided to it by a third party it should (if possible) enter into a direct contractual relationship with the third party or, at the very least and in order to try and establish a duty of care, ensure that the third party knows that they are relying on the information and the purpose for which the information will be used.
For further information on this topic please contact Emma West or Parham Kouchikali at RPC by telephone (+44 20 3060 6000) or email (firstname.lastname@example.org or email@example.com). The RPC website can be accessed at www.rpc.co.uk.
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