In a recent judgment the Court of Appeal has overturned a decision holding a bank liable for negligent misstatement arising out of a credit worthiness reference.


Playboy Club London Ltd ("the Club") operates a casino in London. Mr Hassan Bakarat arrived at the Club on 11 October 2010 and requested a cheque cashing facility ("CCF") in the amount of £800,000. A CCF is essentially a credit facility by which the Club will provide gambling chips to customers paid for by cheques that have not yet been cashed. The Club informed Mr Bakarat that a bank reference was required for twice the value of the CCF (i.e. £1.6m). Mr Bakarat consented, and a reference was duly sought from Mr Bakarat's bank, Banca Nazionale del Lavaoro SPA (the "Bank"), via a services company acting for the Club called Burlington Street Services Ltd ("Burlington"). Importantly, the Bank was not aware that Burlington had requested the reference on behalf of the Club.

On 13 October 2010, the Bank provided a reference for Mr Bakarat. The reference contained statements to the effect that Mr Bakarat had an open account with the Bank, was "financially healthy" and was "trustworthy" up to a limit of £1.6m a week. In fact, the true position was that although Mr Bakarat had by the time of the reference begun the process of opening an account, there were never any funds in the account.

Between 15 and 18 October 2010, Mr Bakarat played roulette on a daily basis, sustaining losses of £800,000. When the Club attempted to cash the cheques that Mr Bakarat, relying on the CCF, had used in order to procure gambling chips, the cheques were returned unpaid because they were counterfeit. Being unable to recover anything from Mr Bakarat, the Club claimed the £800,000 from the Bank.

First Instance

In a trial in the Mercantile Court that took place in July 2014, the Bank was held liable to the Club. The judge held that the Bank owed a duty of care not only to Burlington but also to the Club, since there was no attempt on the Bank's part to restrict liability to Burlington only. The judge further held that the Bank had breached its duty in providing the reference (which had in fact been provided by an apparently rogue employee) and that "but for" the reference, the Club would not have accepted the cheques and proffered the gambling chips. The Club was awarded damages of £800,000 less 15% to reflect its own negligence in accepting counterfeit cheques. The Bank appealed.


The Court of Appeal has now overturned the first instance judgment. Distinguishing the facts of this case from the seminal judgment in the Hedley Byrne v Heller case, the Court of Appeal held that the Bank was not made aware of the identity of the ultimate recipient of the reference (the Club), nor did it know the true purpose of the reference, namely that it was to be used for a gambling club. The Bank and the Club did not have the kind of "special relationship" required to establish a duty of care in circumstances where the Club was deliberately using Burlington in order to preserve the confidentiality of gamblers who preferred to keep their gaming activities private. In the absence of a duty of care, the claim could not succeed and the appeal was allowed.

The Court of Appeal agreed with the judge at first instance that if a duty of case had been found, that duty would have extended to not providing a reference which inaccurately described Mr Bakarat as a man of wealth when in fact his account was empty. Further, had a duty of care been found, the Club's own negligence in accepting counterfeit cheques would not have broken the chain of causation, meaning that the Bank's negligence would not have been "obliterated" by the Club's negligence.


This judgment will be welcomed by banks and others frequently called upon to provide references. The Hedley Byrne v Heller case established the principle that a person can be held liable for negligent misstatement to a third party to whom it had not directly provided a reference. In this case, however, the Club effectively rendered the reference impotent by obtaining it via a third party. This judgment is an indication that the courts will apply this principle restrictively.