The Court of Appeal’s decision in Playboy Club London limited & Ors v Banca Nazionale Del Lavoro Spa will be welcomed by banks that provide financial references in relation to their customers. It provides useful guidance to follow when providing or requesting references:

Banks should draft references carefully and consider limiting liability to specific recipients and for specific purposes.


  1. The underlying principal who will use the reference should be disclosed. If that is not possible, there should at least be some indication that the reference is to be used by an undisclosed principal.
  2. The purpose for which the reference is sought should be specified.

Playboy Club’s predicament

Playboy Club London Limited (the “Club”) ran a casino in London. It was standard practice at the casino to extend gambling credit to customers through a cheque cashing facility (“CCF”). This allowed customers to present a cheque and get gambling credit/chips before the cheque was cashed. The Club, through its agent Burlington, sought financial references for each customer wanting to use the CCF . An agent was used to preserve the confidentiality of their customers’ gaming activities.

In this case Burlington sought a reference for a Mr Barakat from Banca Nazionale Del Lavoro (“BNL”). The reference was sought through the Club’s bank – Natwest, which named its customer as Burlington and did not specify any purpose for the reference. The reference provided by BNL was addressed to Burlington in strict confidence. It confirmed that Mr Barakat maintained an account with BNL, was financially healthy and trustworthy up to £1.6m in any given week. The Club extended £1.25m worth of gambling credit to Mr Barakat in exchange for cheques drawn on Mr Barakat’s account with BNL. Mr Barakat played roulette for a few days which resulted in him owing around £800,000. When the Club tried to cash Mr Barakat’s cheques, they turned out to be counterfeit. It later also transpired that Mr Barakat had only begun the process of opening an account with BNL at that time and there was never any money in the account. The reference was given by a rogue employee without authority.

The Club brought a negligence claim against BNL and won. It was held that BNL owed a duty of care to Burlington and the Club because, amongst other things, BNL had not attempted to restrict liability in any way, and “but for” the reference the Club would not have accepted Mr Barakat’s cheques. BNL appealed. One of the grounds was the duty of care extended to Burlington only and no further. The Club argued that the duty of care when giving the reference extended not just to the person requesting it but also to any person for whom Burlington was acting, whether BNL knew about them or not.

The Court of Appeal decision

On negligent misstatements, the landmark House of Lords case Hedley Byrne v Heller & Partners Ltd naturally comes to mind. That was also banker’s reference case. The requesting bank’s ultimate customer (Hedley Byrne) was not disclosed but the requesting bank did specify that the reference was for an advertising contract. It was held that Heller owed a duty of care directly to Hedley Byrne because it knew the purpose for which the reference was being sought and so it was probable that the reference would be used by advertising contractors. A “special relationship” arose between advisor and advisee.

In the present case Hedley Byrne was distinguished because the reference specifically mentioned Burlington as the customer, and BNL was not made aware of the gambling purpose or that the reference would be passed on to anyone else. The Court of Appeal applied the threefold Caparo v Dickman test:

  • Whether the defendant assumed responsibility to the claimant. This was the decisive test. The court held that since the customer was identified as Burlington, BNL was not aware of the gambling purpose or that the reference would be passed on to Burlington’s client, and had not assumed responsibility to anyone but Burlington. It was difficult to establish a “special relationship” between BNL and the Club when BNL did not know of the existence of the Club. The court accepted that it is common practice for banks to request references on behalf of undisclosed customers. But where the requesting bank actually names the customer, there is no reason for the advising bank to think the reference will be relied on by anyone else. The fact that this reference was given in strict confidence lends weight to the assumption that it was not to be used by anyone else. It was therefore held that BNL had not assumed responsibility to the Club.
  • Whether
    • Loss was a foreseeable consequence of the defendant’s actions or inactions
    • The relationship of the parties was sufficiently proximate
    • It is fair, just, and reasonable to impose a duty of care on the defendant towards the claimant
  • The court held that it is not fair, just, and reasonable to impose a duty of care on BNL. Since the Club had chosen to remain anonymous to protect its clients’ confidentiality “it is hardly just and reasonable for it to assert that a duty of care is owed to it when it deliberately conceals its existence.”
  • Whether the addition to existing categories of duty is incremental rather than indefinable. This was rendered moot by the decision of the court on the first two limbs.

Lessons learned

This decision provides helpful clarity on the law of negligent misstatement specifically in the context of bankers’ references. It would be prudent for banks and customers alike to carefully consider in what terms to ask for and respond to references, and protect themselves by following the guidance mentioned above. If a duty of care had been established on the part of BNL (possibly if the purpose of the reference or identity of the Club was disclosed), then absent an exclusion clause, it would have been responsible for the Club’s losses on Mr Barakat’s counterfeit cheques. That would have made it a very expensive reference to give.