Not abusive to bring deceit claim after Supreme Court dismisses negligence action for lack of duty of care

12/09/18

Two decisions, one by the Supreme Court and another by the Court of Appeal, have recently been given in Playboy Club v Banca Nazionale del Lavoro SPA.

The Supreme Court holds there is no duty of care…

A customer wanted to gamble at a Mayfair casino (the Club). The casino required a credit reference from the customer’s bank and arranged for the reference to be sent to its sister company (Burlington) to preserve customer confidentiality. The Bank gave a reference to Burlington. There was no reasonable basis for the Bank to provide the credit reference in the terms it did. The Club extended a cheque cashing facility on the strength of the reference and suffered significant loss as a result. The Club brought a claim in negligent misstatement against the Bank. The Club succeeded at trial but lost in the Court of Appeal on the question of whether a duty of care was owed.

In a judgment given in late July 2018, the Supreme Court held that no duty of care was owed, as reported at [2018] 1 WLR 4041. The Club’s argument was that (a) Burlington had received the reference as agent for the Club as undisclosed principal; (b) had consideration been provided, the Club could have sued in contract as undisclosed principal; (c) since the foundation of Hedley Byrne liability is that it is “equivalent to contract” a duty of care should arise in favour of the Club as undisclosed principal. The Court did not accept what it called this “ingenious” argument and reaffirmed the rule that a representor must know that a statement is likely to be communicated to and relied upon by the claimant. The Court further held that it must also be part of the statement’s known purpose that it should be communicated and relied upon by the claimant (see paragraph 11 per Lord Sumption).

Lord Sumption did not feel “much sympathy” with the Bank and Lord Mance said that the Bank was “very lucky” to avoid liability given its lack of interest in the identity of the company that would rely upon the reference.

  …but the Court of Appeal allows a new claim in deceit

The Bank’s luck did not last long. The Court of Appeal has today given the go-ahead for the Club to bring a new claim in deceit against the Bank based on the same representation that founded its negligence claim.

The issue arose in this way. It was accepted that the Club could have pleaded deceit in advance of the negligence trial (“could” in the sense of being consistent with the pleader’s professional obligations). But a fraud claim would have been relatively weak based on the material as it then stood. New material then came to light, in the course of cross-examination at trial and also after trial, that materially strengthened the claim in deceit. The Club then brought a new claim in deceit. Was that new claim an abuse of process, on the basis that it could and should have been brought as part of the original action?

Reversing the decision of the judge below, the Court of Appeal (Sales and Gloster LLJ) held that the deceit claim was not an abuse. The Court held that since the Club could have alleged fraud only on a speculative and inferential basis had it done so originally, the Club acted entirely properly in not bringing a fraud claim at that stage and it was accordingly not an abuse to plead deceit in a second action once new and highly relevant material had later emerged.

The judgment provides a salutary warning on the risks of pleading a speculative fraud claim. At paragraph 46 Sales LJ said: “Courts regard it as improper, and can react very adversely, where speculative claims in fraud are bandied about by a party to litigation without a solid foundation in the evidence. A party risks the loss of its fund of goodwill and confidence on the part of the court if it makes an allegation of fraud which the court regards as unjustified, and this may affect the court’s reaction to other parts of its case.”

The Supreme Court judgment is here; the Court of Appeal judgment is here.