Bank Credit Reference and a Duty of Care

In Playboy Club London Limited, (1st Claimant), London Clubs International Limited, (2nd Claimant) Burlington Street Services Limited (3rd Claimant) v Banca Nazionale Del Lavoro SPA (Defendant) the 1st Claimant, is a casino in London, previously known in 2011 as the Rendezvous Club. The 2nd Claimant forms part of a larger group of casinos with the 3rd Claimant being a company owned by them to facilitate obtaining references and for administrative purposes.

The Defendant is a well established Bank from Italy and part of the BNP Paribas Group.

The case centres around a man called Mr Barakat. When Mr Barakat went to the 1st Claimant Club on the 11th October 2010 he applied for a cheque cashing facility for £800,000 which allowed him to obtain casino chips for that amount without the casino clearing his cheque.

The 3rd Claimant handled all administrative matters and arranged for Mr Barakat to sign a request form, which was on their headed paper, to send to the Defendant Bank as to his ability to meet financial requirements up to a limit of £1,6000,000. The request was sent to the Manager but Mr Barakat, although giving correct details of his account gave them a card with the name of Paola Guidetti and her contact details.

The 1st Claimant Bank, Nat West, utilising details given to them by the 3rd Claimant, faxed the number given on Ms Guidetti’s card, the request form addressed to the Manager of the Defendant Bank asking for a bank credit reference for Mr Barakat. She subsequently replied by fax on the 13th October satisfying the request for information from Nat West and giving Mr Barakat a clear reference to meet all the requirements of the 1st Claimant Club.

The Defendant Bank later pointed out certain inaccuracies in the fax, that the department it came from closed in 2008, Ms Guidetti said the signature was not hers and that the reference on the letter was no longer in existence.

In the interim Mr Barakat had played roulette in the 1st Claimant Club using the cheque cash facility and by the 17th/18th October his two cheques for $1,156,600 and $291,075 had been returned unpaid.

The 1st Claimant’s case was that without that reference from the Defendant Bank they would not have advanced the cheque cash facility to Mr Barakat.

The Defendant Bank denied liability. It denied even supplying the reference and as such argued that it did not owe any duty of care to the 1st Claimant club, that it was their fault for accepting the cheques from Mr Barakat that caused the loss and even if the Bank were liable there was contributory negligence by the 1st Claimant club.

The issues considered by His Honour Judge Mackie QC were as follows:

  • Had the reference originated from the Defendant Bank and therefore would the contents be their responsibility.
  • Was a duty of care owed by the Defendant Bank to the Club and therefore did they breach that duty.
  • Was the Bank responsible for the Club’s subsequent losses and if they were, what was the actual loss for the Club and should they be awarded less for their contributory negligence.

Had the reference originated from the Defendant Bank and therefore would the contents be their responsibility

With regard to the reference and any liability for its contents, it did not matter whether the letterhead it was written on was old or new, the letter sent by Paola Guidetti was signed by the Bank.

His Honour Judge Mackie observed further as to whether Ms Guidetti had the right to give authority on behalf of the Defendant Bank. The Defendant Bank had argued that the difference between giving authority and “course of employment” in this case does not matter since the Claimants could not justify either. They had argued that their procedures state that there must be two signatures on any document and as Ms Guidetti was in business development within the Bank, her remit did not extend to dealing with enquiries from other parties regarding Customers of the Bank.

His Honour Judge Mackie concluded from what had been produced to him that it was clear Ms Guidetti did not have the relevant authority to give a reference and this was not close enough to Ms Guidetti’s role in business development.

The 1st Claimant argued that a person receiving a letter from an employee of a Bank would not query whether that person had the Bank’s authority to write the letter, it would be assumed that they had the relevant authority to send that letter in the first place. Ms Guidetti’s business card had been given to the Club and the Request for a reference sent to the Manager of the Defendant Bank. When the reply came back from Ms Guidetti they knew she was an employee of the Defendant Bank who had been dealing with Mr Barakat.

His Honour Judge Mackie said that the Club was right, their bankers, Nat West, sent the request to Ms Guidetti addressed to the Manager. It would have been reasonable for them to assume that she had obtained the necessary authority to be able to respond to them. The standard request form used by the club always addressed it to the Manager of the particular Bank.

Was a duty of care owed by the Defendant Bank to the Club?

The Judge rejected the Defendant’s argument that no duty of care was owed to Playboy since the reference was addressed to its sister company and not to it. The Judge felt that there was sufficient proximity on the facts of the case.

The Judge rejected the argument that the counterfeit nature of the cheques broke the chain of causation or that the losses fell outside the scope of duty owed by the bank.

The Bank stated that Mr Barakat was capable of meeting a financial commitment of up to £1.6 million in any one week. In fact he had a nil balance on his account. The Judge held in those circumstances it cannot have exercised reasonable skill and care in preparing the reference and therefore breached its duty.

As to whether the breach had caused the loss,

“But for the reference the Club would not have taken a cheque from Mr Barakat. If what the Bank said in the reference had been true the Club might have recovered the money even if the cheques had bounced.”

His Honour Judge Mackie ruled that the Claimants could recover £802,920 subject to a deduction of 15% for contributory negligence.

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