Don't Gamble On References – Learn How To Play A Winning Hand .

The case of Playboy Club London Ltd v Banca Nazionale del Lavoro SPA is a reminder to all employers about dangers of being careless or negligent with references. Although this case concerned a Bank giving a reference on behalf of one of its customers, the decision would still apply to employers giving references on behalf of ex-employees. The High Court held that the bank was liable for making a negligent statement in the reference, even though it was given by an employee of the bank who did not have the authority to do so - employers need to be aware of this!

Legal Position

When an employer provides a reference on behalf of an ex-employee to his/her new employer, it owes a duty of care to the new employer and must ensure that it does not make negligent statements. If any statement in the reference is inaccurate or misleading, and it was reasonable for the new employer to rely upon it, the employer giving the reference could be liable for negligence and any losses incurred by the new employer as a result of that statement.

Facts

The casino approached the bank for a reference about the creditworthiness of a new customer who had applied for a cheque-cashing facility with the casino. The customer was a client of the bank. The request for a reference was addressed the Bank's Manager, but another employee, who did not have authority to do so, responded on behalf of the bank provided a reference to the effect that the customer "had an account with them and was trustworthy to the extent of £1.6m in any one week". In reliance upon this, the casino allowed the credit facility and the customer drew down on the facility with cheques totalling £1.25m. The cheques did not clear and it was discovered that they were false, by which time the customer had left and returned to Lebanon. The casino's attempts to recover its losses from the customer were unsuccessful. It sued the bank for providing a negligent reference.

Decision

The High Court held that the bank had given the reference, that it owed a duty of care to the casino in doing so, it breached that duty of care and it was reasonable for the casino to have relied upon the reference when it decided to open the credit facility. The casino was held to be negligent in part due to its own failure to make enquiries of the customer. It was also held that it was reasonable for the casino to rely on the reference even though it was not provided by the Manager of the bank. The reference was sent on company...