The High Court recently considered the liability of a bank which provided a negligent reference for one of its customers.

The Facts

In these proceedings, Playboy Club London Limited (the “Claimant”) alleged that Banca Nazionale di Lavoro SPA (the “Defendant”) was negligent in providing a reference for one of its customers, Mr Hassan Barakat.

The Claimant was at all relevant times a casino. Via a third party, the Claimant requested a reference for Mr Barakat. Upon receipt of the Defendant’s reference, the Claimant accepted cheques from Mr Barakat and allowed him to play at its casino. Mr Barakat made losses whilst playing at the casino and the cheques bounced. Neither Mr Barakat nor his assets could be found.

The Claimant contended that it sustained losses of £1.25 million as a result. The Defendant denied negligence and argued that the Claimant broke any chain of causation, or was in the alternative contributorily negligence in accepting cheques that it said were counterfeit.

The Issues

The main issues for the Court to consider were:

1. Did the Defendant send the reference and was it responsible for its consents?
2. Did the Defendant owe a duty of care to the Claimant?
3. Did the Defendant breach this duty?
4. Did that breach cause the Claimant’s losses?
5. If so, what loss had the Claimant suffered and should any award be reduced on grounds of contributory negligence?

The Decision

On the evidence, the Court found that the Claimant could reasonably have expected the reference it received from an employee of the Defendant to have been provided with the authority of the Defendant. The Defendant’s assertion that the employee in question did not have the necessary authority to bind the Defendant was therefore rejected by the Court.

In considering the duty of care the Defendant owed to the Claimant, the Court considered the particular relationship between the parties in the context of their legal and factual situation taken as a whole. On the facts, the Court found that there was “no reason to restrict the legal duty” to the third party actually making the enquiry. Accordingly, the Court found that the Defendant owed a duty not just to the third party which made the enquiry of the Defendant but also to the Claimant.

Furthermore, in view of the nil balance on Mr Barakat’s account, the Court made no hesitation in finding that the Defendant breached its duty of care to the Claimant by confirming that Mr Barakat was capable of meeting financial commitments of up to £1.6 million in any one week.

With regard to the question of whether the Defendant’s breach had caused the Claimant’s losses, the Court rejected the Defendant’s argument that the fact the cheques were counterfeit broke the chain of causation. The Court held that, if the reference the Defendant had provided was accurate, the Claimant would not have extended a cheque cashing facility to Mr Barakat.

The assessment of the Claimant’s losses was measured by taking the difference between the loss actually suffered by the Claimant with what the Claimant’s position would have been had it not entered into the transaction. This was found by the Court to be £802,940. As to the Defendant’s assertion that the Claimant had negligently contributed to its own losses, the Court was minded to make a deduction of fifteen percent from this figure.


The decision of the High Court is a reminder to lenders of the circumstances in which a duty of care can arise and the consequences which can ensue should this duty of care be breached by the actions of an employee.

For further information, please contact Georgina Squire or the Partner with whom you usually deal.