Negligent bank reference – but no duty of care owed

The recent Court of Appeal decision in Playboy Club London & Ors v Banca Nazionale del Lavoro Spa has brought into question the courts’ requirement to find a ‘special relationship’ sufficient to impose a duty of care in relation to a negligent misstatement.  Claims of negligent misstatement have historically been brought against banks and other bodies which provide references in relation to customers, and are the result of those references proving to be unreliable when used to make a judgment of character or, as in this case, financial strength.

Background

The case first went to court in 2014.  The Bank had given a customer reference to Burlington Street Services Limited, which acted as agent on behalf of the Casino, Playboy Club London to the effect that the customer was financially sound and good for up to £1.6milion per week.  In reliance on the reference from the Bank, the Casino had accepted fraudulent cheques from the customer and suffered financial losses of £802,940.

At first instance, the Casino’s claim that the Bank had given a negligent misstatement and was held to owe to them a duty of care succeeded.  It was decided that, although the reference was given to the Agent and there was no disclosure that it had a principal, there was sufficient proximity to establish that the Bank owed a duty of care to the Casino.  The main factor in this decision was the omission of a disclaimer excluding any assumption of responsibility on behalf of the Bank on the reference.  Furthermore, there was no suggestion by the Bank that the reference would not have been given or would have taken a different form if sought by the Casino direct.

Court of Appeal decision

The Bank appealed the decision and, on 18 May 2016, the decision was overturned.

It was decided that the Bank in fact owed no duty to the Casino.  Having only been informed that the reference was for the Agent, the Bank was completely unaware that the purpose of the reference was for gambling and could not be held to have been in a position to know the identity of the principal or the purpose of the reference.

In relation to the Agent, the court agreed that the Bank did owe a duty due to the special relationship.  However, in this case the Agent had suffered no loss.  In reaching a decision, the court stated that it would not have been fair, just or reasonable to find that the Bank held a duty of care to the Casino considering that the Bank did not know of the Casino’s existence in relation to the reference sought.

What impact will this have?

Whether a duty of care arises or not is fact specific.  Banks and other bodies which may be asked to give references should remain cautious.  Courts may still find that a special relationship exists where the reference giver ought to have been aware of the identity of the principal.

Can protective action be taken?

Courts will view each case on its own facts.  However, it is recommended that steps continue to be taken by banks and other bodies to offer themselves more protection where a negligent misstatement claim is brought.  Such steps include:

• Entering into an express contractual provision excluding or limiting liability;
• Giving notice that the statement is made on the basis that the representee agrees to exempt the representor from liability;
• Issuing a disclaimer that representor undertakes no responsibility for the information or advice provided.