Case No: A3/2014/2749
Neutral Citation Number: [2016] EWCA Civ 457
IN THE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE HIGH COURT
QUEEN’S BENCH DIVISION
MERCANTILE COURT
HIS HONOUR JUDGE MACKIE QC (Sitting as a High Court Judge)
Royal Courts of Justice
Strand, London, WC2A 2LL

Date: 18/05/2016
Before:

THE RIGHT HONOURABLE LORD JUSTICE LAWS
THE RIGHT HONOURABLE LORD JUSTICE LONGMORE
and
THE RIGHT HONOURABLE LORD JUSTICE DAVID RICHARDS

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Between:

	PLAYBOY CLUB LONDON LIMITED & ORS	Respondent	
	and 		
	BANCA NAZIONALE DEL LAVORO SPA	Appellant	

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(Transcript of the Handed Down Judgment of
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Mr Jeffrey Chapman QC & Mr Andrew de Mestre (instructed by Bird & Bird LLP) for the Appellant
Mr Simon Salzedo QC & Mr Fred Hobson (instructed by Michael Simkins LLP) for the Respondent

Hearing dates: 27th April 2016

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Judgment
Lord Justice Longmore: 
Introduction
1.	This appeal relates to a financial reference given by a Ms Paola Guidetti of the defendant appellant bank (“the Bank”) in respect of a customer, Mr Hassan Barakat.  The reference was given to Burlington Street Services Ltd (“Burlington”) which was acting on behalf of Playboy Club London Ltd (“the Club”) which operated a casino in Mayfair, known at the time as “The Rendezvous”.  The Bank says Burlington was a front and the judge found that it was the Club’s standard practice to use Burlington to ask for references so as “to preserve confidentiality for customers preferring to keep their gaming activities private”.  The casino was actually owned by the second claimant (“LCI”).  The reference, addressed to Burlington, c/o NatWest, Berkeley Square, was in the following terms:-
“13 OCTOBER 2010
WE CONFIRM AND CERTIFY, THAT MR HASSAN BARAKAT, OF VIA TANARA 35, PARMA 43100, MAINTAINS AN ACCOUNT NUMBER, 301 WITH US TO OUR SATISFACTION AND HE IS FINANCIALLY HEALTHY, AND CAPABLE TO MEET HIS BUSINESS COMMITMENTS AND ALL HIS OBLIGATIONS.
MR BARAKAT IS TRUSTWORTHY UP TO THE EXTENT OF 1,600,000.00 ONE MILLION SIX HUNDRED THOUSAND STERLING POUNDS IN ANY ONE WEEK.
THIS INFORMATION IS GIVEN IN STRICT CONFIDENTIAL
KIND REGARDS
PAOLA GUIDETTI
FOR B.N.L.GRUPPO PARIBAS”
The true position was that, although Mr Barakat had, on 4th October 2010, begun the process of opening an account with the Bank, there were never any funds in that account.
2.	The cheques presented by Mr Barakat to the casino in exchange for gambling chips were, in the judge’s word, “counterfeit”.  By this I take him to mean that they were not original documents taken out of a cheque book given to Mr Barakat but bad photocopies of cheques given to someone else without any obvious anti-fraud devices such as watermarks, although they were signed by Mr Barakat and stamped with the number of his account.
3.	The four main issues debated on the appeal were:-
i)	whether the Bank owed a duty of care to anyone other than Burlington and, if so, whether that duty was owed to the Club;
ii)	whether the scope of the duty related to “counterfeit” cheques; 
iii)	whether the Club’s loss in being unable to cash Mr Barakat’s cheques was caused by breach of duty on the part of the Bank; and
iv)	whether any claim should be reduced on account of contributory negligence on the part of the Club’s employees.
Outline Facts
4.	Mr Barakat became a member of the Club in September 2008.  Until October 2010 he had played only once at the Club and for a modest amount.  He had however played frequently at a casino in the Lebanon, the Casino du Liban, where he would typically gamble for stakes of around $100,000 per day funded in cash.  Mr Barakat was said to have been recommended the Club as a place to gamble in London by one of the casino’s employees (and former manager at the Club), Mr Shephard.  Mr Shephard duly notified the Club of Mr Barakat’s intention to gamble there, saying that he expected Mr Barakat to bring a substantial amount of cash with him to use in gambling.
5.	Mr Barakat arrived at the Club on 11th October 2010 and requested a cheque cashing facility (“CCF”) in the amount of £800,000.  A CCF allows a customer of the Club to present a cheque and, before the cheque is cashed, obtain high-value gaming chips up to an equivalent value.  The Club required Mr Barakat to obtain a positive reference from his bank for twice the amount of the CCF i.e. £1.6million.  Mr Barakat duly consented to the Club’s obtaining a reference and completed an application for submission to the Bank, with whom he was in the process of opening an account as described above.  He further provided the Club with a business card of Ms Guidetti, which described her as working in “Sviluppo business”, and also an information sheet setting out his account details and Ms Guidetti’s contact details.  Any employee of the Club who spoke Italian would know that “Sviluppo” is Italian for development.
6.	The reference request was, for the reasons stated above, made via Burlington through the Club’s own bank, National Westminster Bank (“Natwest”).  On 12th October 2010 Natwest faxed the request to the Bank, addressed to the manager of the Bank’s Reggio Emilia branch marked for the attention of Ms Guidetti.  The reference sought the Bank’s opinion as to the means and standing of Mr Barakat and his trustworthiness to meet a financial commitment to the extent of £1.6million at any one time.
7.	On 13th October, the Bank faxed the reference to Natwest which in turn passed it to the Club.  The reference was signed by Ms Guidetti, was sent from the Bank’s fax number and was in the above terms.  At trial, the Bank pointed to a number of irregularities concerning the reference but the Judge ultimately concluded that it had come from the Reggio Emilia branch of the Bank.  The same day as the reference was received, Michael Rothwell, the finance director of LCI, reviewed the reference and approved the CCF in the amount of £800,000.
8.	Mr Barakat played roulette at the Club each day between 15th and 18th October 2010.  His CCF was increased twice during that period, ultimately to £1.25million.  At the end of this period, the Club was left with two cheques drawn on Mr Barakat’s account with the Bank which it attempted to cash, one for €1,156,000 dated 17th October 2010 and another for €291,075 dated 18th October 2010.  The cheques were subsequently returned to the Club unpaid.  In early November, the Club was told that the cheques were counterfeit.  Efforts were made to contact Mr Barakat without success.  It later transpired that Mr Barakat’s account with the Bank, which was closed in December 2010, had always maintained a nil balance.
9.	The Club was consequently left out of pocket in the amount of £802,940.  In May 2013 it filed a claim in negligence in the Mercantile Court against the Bank.  The trial took place between 7th and 10th July 2014 before HHJ Mackie QC.  The Bank did not call evidence from Ms Guidetti but it emerged at trial that the Bank had dismissed her for conduct unrelated to the instant case but “similar in kind”.
The judgment
10.	HHJ Mackie QC held first that the Bank was responsible for the reference (whether by virtue of the doctrine of apparent authority or vicarious liability) since it was issued through a conventional channel in circumstances which would not have put a third party on enquiry.  Although there was originally an appeal from this finding, that appeal was not pursued in the light of the recent decisions of the Supreme Court in Bilta (UK) Ltd v Nazir (No. 2) [2016] A.C. 1 and Mohamud v Morrison Supermarkets [2016] 2 WLR 821.
11.	He then held that the Bank owed a duty of care not just to Burlington but to the Club in giving the reference because there was no attempt to restrict liability to the enquirer; there was no suggestion in the evidence that the reference would not have been given or would have taken a different form if sought by the Club nor was there any basis for treating the financing of gambling as being of a different order from the financing of ordinary trade.  He proceeded to hold further that the Bank was in breach of its duty of care and “but for” the reference the Club would not have accepted the cheques; the fact that the cheques were counterfeit did not, therefore, break the chain of causation; the Club was, however, contributorily negligent to the extent of 15% since the cheques looked odd on their face.  He therefore awarded the Club £802,940 subject to a deduction of 15%.
The Submissions
12.	The Bank now appeals and submits
i)	its duty of care extended to Burlington but no further; if the Club wished to obtain its reference through a company and conceal its own interest in the matter that was a matter for it;
ii)	the scope of the Bank’s duty extended only to the giving of the reference and not to the giving of cheques by its customer which were obviously bad on their face;
iii)	the Club’s own negligence in relation to the cheques broke the chain of causation; and
iv)	contributory negligence was in any event far greater than 15%.
13.	The Club supports the judgment and submits
i)	a duty of care in giving a reference extended not just to the person for whom it was expressly requested (in this case Burlington) but to any person for whom Burlington was acting whether or not the Bank knew that Burlington was acting for anyone else;
ii)	the judge was correct to apply the “but for” test of causation so consideration of the scope of duty was irrelevant;
iii)	there could be no question of any novus actus breaking the chain of causation; and
iv)	there should be no interference with the judge’s assessment of contributory negligence.
Duty of care
14.	The law of negligent misstatement was revolutionised by the decision of the House of Lords in Hedley Byrne & Co Ltd v Heller & Partners Ltd [1964] A.C. 465 which, as it happens, was a banker’s reference case in which the bankers gave a reference in respect of their customer Easipower Ltd at the request of a bank acting for advertising agents, Hedley Bryne, who were personally responsible for the price of advertising they were proposing to make for Easipower.  A first reference was given orally in a telephone conversation between Mr Heller of Heller & Partners and a representative of National Provincial Bank who were Hedley Byrne’s bank asking whether Easipower would be good for an advertising contract for £5000 to £9000.  A second reference was requested in writing by National Provincial to which Hedley Byrne replied in writing to National Provincial.  Mr John Foster QC for Heller & Partners, in addition to his argument that English law did not recognise liability for economic loss caused by negligent misstatement, submitted (page 474) that Heller only owed a duty to National Provincial Bank not to their unidentified customer.  That was the first matter to which Lord Reid turned his attention (page 482):-
“It is said that the respondents did not know the precise purpose of the inquiries and did not even know whether the National Provincial Bank wanted the information for its own use or for the use of a customer: they knew nothing of the appellants.  I would reject that argument.  They knew that the inquiry was in connection with an advertising contract, and it was at least probable that the information was wanted by the advertising contractors.  It seems to me quite immaterial that they did not know who these contractors were: there is no suggestion of any speciality which could have influenced them in deciding whether to give information or in what form to give it.  I shall therefore treat this as if it were a case where a negligent misrepresentation is made directly to the person seeking information, opinion or advice, and I shall not attempt to decide what kind or degree of proximity is necessary before there can be a duty owed by the defendant to the plaintiff.”
Lord Morris agreed saying (page 493):-
“It is, I think, a reasonable and proper inference that the bank must have known that the National Provincial were making their inquiry because some customer of theirs was or might be entering into some advertising contract in respect of which Easipower Ltd might become under a liability to such customer to the extent of the figures mentioned.  The inquiries were from one bank to another.  The name of the customer (Hedleys) was not mentioned by the inquiring bank (National Provincial) to the answering bank (the bank): nor did the inquiring bank (National Provincial) give to the customer (Hedleys) the name of the answering bank (the bank).  These circumstances do not seem to me to be material.  The bank must have known that the inquiry was being made by someone who was contemplating doing business with Easipower Ltd and that their answer or the substance of it would in fact be passed on to such person.  The conditions subject to which the bank gave their answers are important but the fact that the person to whom the answers would in all probability be passed on was unnamed and unknown to the bank is not important for the purposes of a consideration of the legal issue which now arises.  It is inherently unlikely that the bank would have entertained a direct application from Hedleys asking for a report or would have answered an inquiry made by Hedleys themselves.”
He added (page 503) that Heller knew that what it said would be passed on to some unnamed customer of the National Provincial.  Lords Hodson, Devlin and Pearce all agreed in their separate speeches.  The House, therefore, proceeded on the basis that the defendant’s duty of care was not merely owed to the bank who was asking for the reference but to that bank’s customer, the advertising contractors, because the defendant knew that the inquiry was in connection with an advertising contract.
15.	The present case is factually different because the requesting bank actually named the customer – Burlington – and the Bank itself knew nothing of the purpose – gambling – for which the reference was required.  (The judge was in no position to make (and did not make) any findings as to Ms Guidetti’s knowledge of the matter).  Does this factual difference constitute a relevant legal distinction?
16.	Before answering this question, it is relevant to remind oneself that the basis on which Hedley Byrne decided that there could be liability for negligent misstatement was that there should be some special relationship between the advisor and the advisee.  This emanated from the general words of Viscount Haldane in Nocton v Lord Ashburton [1914] A.C. 932, 950 and Robinson v National Bank of Scotland Ltd [1916] S.C. (H.L.) 154, 157 in which he cautioned against thinking that liability for negligent misstatement should be confined to cases of a fiduciary relationship.  Referring to Lord Haldane’s speech in the latter case, Lord Reid said (page 486):-
“He speaks of other special relationships and I can see no logical stopping place short of all those relationships where it is plain that the party seeking information or advice was trusting the other to exercise such a degree of care as the circumstances required, where it was reasonable for him to do that and where the other gave the information or advice when he knew or ought to have known that the inquirer was relying on him.”
Lord Devlin’s speech, in particular, is to similar effect (see pages 515, 523, 525 and 526), adding the concept of a relationship “equivalent to contract” (see pages 522, 529 and 530).
17.	The law about duty of care has not, of course, stood still since Hedley Byrne; it is now recognised that there is no single test for determining when a duty arises but since Caparo v Dickman [1990] 2 A.C. 605 it has become customary to enquire (1) whether the defendant assumed responsibility to the claimant (2) whether (to adopt what has been called the threefold test) (a) loss was a foreseeable consequence of the defendant’s actions or inactions, (b) the relationship of the parties was sufficiently proximate and (c) it is fair just and reasonable to impose a duty of care on the defendant towards the claimant and (3) whether the addition to existing categories of duty is incremental rather than indefinable.  These enquiries will usually lead to the same answer and can be used as cross-checks on one another.  They were all used in Customs and Excise Commissioner v Barclays Bank Plc [2007] 1 A.C. 181 in which the House of Lords held that a bank owed no duty of care to a claimant who had obtained a freezing injunction in respect of the assets of a customer of the bank and had notified the bank of the existence of that injunction.  The House decided in that case that there was no assumption of responsibility to the claimant on the part of the bank since the responsibility which it had was imposed by the order of the court rather than voluntarily assumed by the bank.  But the House also considered the other criteria for a duty of care and decided that, although loss was foreseeable as a result of the bank’s inactions, it was not fair just or reasonable to impose a duty of care on the bank in all the circumstances.
18.	In a key paragraph (35) of his judgment, Lord Hoffmann, while warning that the above criteria should be treated as practical guides rather than slogans, provided examples of situations in which it was useful to ask whether a defendant assumed responsibility to a claimant and then said:-
“In these cases in which the loss has been caused by the claimant’s reliance on information provided by the defendant, it is critical to decide whether the defendant (rather than someone else) assumed responsibility for the accuracy of the information to the claimant (rather than to someone else) or for its use by the claimant for the one purpose (rather than another).”
19.	This passage helps to answer the question whether the factual differences between this case and Hedley Bryne afford a relevant legal distinction.  In my judgment they do: it was clear that Hedley Bryne’s bankers were not asking for a reference about Easipower for their own purposes but for a customer (albeit unnamed) for the purpose of advertising contracts.  In the present case the customer was identified by name as Burlington and the true purpose of the reference (for a gambling club) was not revealed.  In these circumstances there cannot, to my mind, be an assumption of responsibility to the Club (rather than to Burlington) or indeed a responsibility for its use by the Club in trusting Mr Barakat in his gambling activities (a purpose of which the Bank was unaware).
20.	It is, moreover, difficult if not impossible to describe the Bank and the Club as having “a special relationship” when the Bank did not know of the existence of the Club and only knew that the reference was being requested on behalf of a company called Burlington.  It is true that a banker (and other providers of information) will often only know in general terms that the information is needed for a customer.  Then the Bank takes the risk that a special relationship will be inferred (by the court) with a customer whom the banker does not know.  But here the customer was identified with an anodyne name and the special relationship can, in my view, only have been with that identified customer.
21.	Mr Simon Salzedo QC for the Club submitted that since Burlington was described as a service company and its accounts publicly available at Companies House revealed that it and the Club were in the same group, that was enough to constitute the necessary relationship.  That is, however, to expect a degree of initiative on the part of the Bank that is entirely contrary to the concept of a special relationship.  
22.	He further submitted that the Club should be able to sue the Bank as Burlington’s undisclosed principal but cited no authority for that proposition.  In Hedley Byrne itself Mr Foster for the defendant bank asserted that Mr Gerald Gardiner QC’s argument was that Hedley Byrne could sue as an undisclosed principal and asserted that an undisclosed principal was not a neighbour within the rule in Donoghue v Stevenson [1932] A.C. 562.  But the assertion was misplaced since there was a disclosed (albeit unnamed) principal and the House did not need to determine whether Mr Foster’s submission was correct in law.  Whether Mr Foster was indeed correct will depend on the circumstances of the case.  One banker seeking a reference from another may well be understood to be doing so on behalf of a customer even if (unlike Hedley Byrne’s banker) he does not make that clear at the time.  But if the requesting banker actually names the person on whose behalf he is acting, there will usually be no reason for the banker providing the reference to think that it will be relied on by anyone else.  That is particularly so where the reference is “given in strict confidential” which, if it is to have its natural meaning, indicates that it is not to be passed on to (and still less relied on by) third parties.  I would, therefore, hold that the Bank assumed no responsibility to the Club on the facts of this case.
23.	That is not the end of the inquiry because, as Lord Bingham of Cornhill pointed out in the Customs v Barclays case (para 4), assumption of responsibility, if it exists, is sufficient but not a necessary condition of liability,  “If answered negatively, further consideration is called for”. 
24.	But if one asks whether (on the third limb of the 3-fold test) it is fair just and reasonable to impose liability on the Bank, my answer is “No, it is not”.  That is because the Club’s standard practice (adopted in this instance) was not to ask for references in its own name, but to use Burlington’s name instead.  The Club concealed its own interest in the matter “to preserve confidentiality for” their customers.  If the Club wishes to remain anonymous 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.  As for proximity (the second limb of the 3-fold test), it does not seem to me that there was a proximate relationship for the same reasons as I have given for saying that the Bank did not assume responsibility to the Club.
25.	I would therefore respectfully disagree with the judge’s conclusion that the Bank owed a duty of care to the Club and allow this appeal.  That makes it strictly unnecessary to consider the Bank’s submissions about the scope of the duty of care, causation and contributory negligence but I will say something shortly about the scope of the duty, if it existed and causation which are much the same point, if one puts to one side (for the moment) the arguments about the Club’s negligence breaking the chain of causation.
Other matters
26.	The Bank submitted that any duty of care only extended to the giving of a reference as to Mr Barakat’s creditworthiness not as to whether he was the sort of the person who would not present counterfeit cheques.  The judge (para 58) agreed to the extent that the reference, read as a whole, did not make any representation as to Mr Barakat’s general trustworthiness.  Mr Chapman QC for the Bank submitted that in these circumstances the losses did not arise from the fact that Mr Barakat had no funds with the Bank but from the fact he presented counterfeit cheques. The scope of the Bank’s duty was not to protect the Club from accepting counterfeit cheques.  As Lord Hoffmann put it in SAAMCO v York Montague Ltd [1997] A.C. 191, 213 C:-
“Normally the law limits liability to those consequences which are attributable to that which made the act wrongful.  In the case of liability in negligence for providing inaccurate information, this would mean liability for the consequences of that information being inaccurate.”
27.	The judge’s straightforward response to Mr Chapman’s argument was to say:-
“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.”
28.	On this point I agree with the judge.  The consequence of the inaccurate information was that the Club presented Mr Barakat with valuable chips enabling him to gamble in exchange for worthless cheques.  The fact that the Bank was likely to refuse payment because the instructions to pay were in a form which the Bank would not accept was only an interim problem; the real problem was that Mr Barakat was impecunious, when the Bank had represented that he was a man of wealth.  Although the judge could only say that the Club “might have recovered the money if the cheque had bounced” the matter only became problematic because the Club relied on the Bank’s negligent representation as to the state of Mr Barakat’s account.  It is quite different from the startling blunder in seamanship in The Empire Jamaica [1955] P. 259 on which Lord Hoffmann relied in SAAMCO or the fall in the property market in SAAMCO itself which were wholly extraneous to the defendants’ negligence in those cases.
29.	If, therefore, I had held that there was a duty of care, I would have held that the Bank was in principle liable for the Club’s loss.  Nor would I hold that any negligence on the Club’s part in accepting the “counterfeit” cheques broke the chain of causation in the sense of “obliterating” the Bank’s negligence, see Borealis AB v Geogas Trading SA [2011] 1 Lloyds Rep 482.  I would prefer to express no opinion on the question of contributory negligence since it is only right to engage with that question if a duty of care exists in the first place.
Conclusion
30.	For the reasons given above, however, I would allow this appeal and direct that judgment be entered for the Bank.
Lord Justice David Richards:
31.	I agree.
Lord Justice Laws:
32.	I also agree.

Case No:A3/2014/2749
IN THE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE HIGH COURT OF JUSTICE 
QUEEN’S BENCH DIVISION
MERCANTILE COURT 
HIS HONOUR JUDGE MACKIE QC (Sitting as a High Court Judge) 

BETWEEN
BANCA NAZIONALE DEL LAVORO SPA
Appellant
-and-

(1)	PLAYBOY CLUB LONDON LIMITED
(2)	CAESARS ENTERTAINMENT UK LIMITED 
(formerly known as LONDON CLUBS INTERNATIONAL LIMITED)
(3)	BURLINGTON STREET SERVICES LIMITED
Respondents

ORDER 

UPON THE APPEAL of the Appellant from the Order of HHJ Mackie QC dated 29 July 2014 (“the Order”)
AND UPON HEARING Leading Counsel for the Appellant and Leading Counsel for the Respondents
IT IS ORDERED THAT 
1.	The appeal is allowed and the Order is set aside.
2.	The Respondents shall repay to the Appellant all sums paid to the Respondents by the Appellant pursuant to the terms of the Order.
3.	The Respondents shall pay 80% of the Appellant’s costs of the trial and the appeal on the standard basis, such costs to be the subject of detailed assessment if not agreed.
4.	The Respondents shall pay the sum of £110,000 on account of the Appellant’s costs as set out in paragraph 3 above.
5.	The date for payment of all sums specified in this Order shall be 1 June 2016.
6.	Permission to appeal is refused

Dated this 18th day of May 2016