Sympathy for the Devil, or, be sure you are clear about who you are giving references to, and what those references are intended to be used for.
A rare moment of excitement in the usually grey world of Reynolds Towers (otherwise known as the Property & Commercial Department at Barrett & Co) was provided by the case of Playboy Club London Ltd and others v Banca Nazionale del Lavoro SpA  UKSC 43.
This case involved three magical elements:
- The London Playboy Club;
- An Italian bank; and
- A large sum of money.
In October 2010 Mr Hassan Barakat wished to gamble at the London Playboy Club (“the Club”) and applied for a cheque cashing facility of up to £800,000.
The Club’s policy in these circumstances was to require a credit reference from bankers for twice the amount of the facility requested (£1,600,000). References were to be obtained through an approach to the customer’s nominated bank by an associated company, Burlington Street Services Limited (“Burlington”). The purpose of the inquiry (and the fact that it was required for the benefit of another company – the Club) would not be disclosed.
Mr Barakat nominated his bank as Banca Nazionale del Lavoro in Reggio Emilia Italy (“the Bank”). Following an approach from Burlington (on Burlington’s headed paper and with no mention of the Club), the Bank confirmed (on 13 October 2010) that Mr Barakat had an account with them and was “trustworthy up to £1,600,000 in any one week.”
In reliance on the reference the Club granted Mr Barakat an £800,000 chequing facility, increased shortly afterwards to £1,250,000. Over four days (15 to 18 October) Mr Barakat played at the Club.
Mr Barakat drew two cheques on the Bank for a total of £1,250,000 in return for gaming chips of the same amount. The winnings generated by these chips totalled £427,400 which the Club paid out to Mr Barakat.
Shortly after this Mr Barakat returned to the Lebanon and was not seen at the Club again.
Both cheques were returned unpaid leaving the Club with losses, including gaming duty, of £802,940. The Club and Burlington issued proceedings against the Bank in the High Court Queens Bench Division arguing that their losses had been incurred in reliance on the reference provided by the Bank.
At the first instance this claim was successful ( EWHC 2613 (QB)).
The decision was appealed by the Bank and the first instance decision was reversed by the Court of Appeal ( 1 WLR 3169).
The matter was then further appealed to the Supreme Court ( UKSC 43;  1 WLR 4041) and, in the end, the Supreme Court found, applying what appear to be some fairly fundamental principles of the law of negligence, that the Club had not been entitled to rely on the reference from the Bank.
The principles cited were, specifically, that neither the purpose for which the reference was sought nor the fact that it was the Club (and not Burlington) which would rely on the reference were disclosed to the Bank.
The question which may, then, spring to mind is that given that these are – as stated – fundamental principles of the law of negligence – why was it necessary to argue the matter all the way up to the Supreme Court to avoid liability? (The matter has in fact since generated further Court of Appeal proceedings –  EWCA Civ 2025 – details of which are beyond the scope of this article.)
It would seem to be the case that – however simple and clear cut the legal principles underlying a matter may be found to be at the higher levels of the Court process – there is a tendency at the initial stages of civil proceedings to allow the waters to become muddied. Current commercial advice to banks (and others) being asked to provide references is therefore to make it clear what they are for and that no responsibility to any third party is accepted. The only way that this can be done is, of course, to include explicit provision to this effect in the reference.
This may result in a longer, less satisfactory document. Hopefully it will, however, avoid those giving references becoming embroiled in Court proceedings.
Incidentally, just in case anyone was feeling sympathy for the poor, innocent Bank having been dragged through Court proceedings when it had done nothing wrong: it was common ground in the above proceedings that BNL had no basis for their reference. They did not have an account in the name of Mr Barakat until 15 October 2010 – 2 days after the reference was sent. This account had a nil balance until it was closed on 14 December 2010.
Perhaps this, and not the absence of contractual wording, was what attracted the sympathy of the judge at first instance?