The Court has recently revisited the question of whether a bank providing a reference owes a duty to a third party relying on that reference: Chudley v Clydesdale [2017] EWHC 2177 (Comm).

The facts in Chudley were very similar to the notable Court of Appeal decision in So v HSBC Bank plc & Anor[2009] EWCA Civ 296. In both cases, the Court held that letters produced by the respective banks setting out an intention to open and operate segregated client accounts amounted to false representations. And in both cases, third party investors transferred monies to the banks which – not being held in a segregated client account – were removed without the investors’ knowledge. Yet in So, the Court of Appeal found that a duty of care was owed by HSBC Bank plc (“HSBC“) to third party investors, whereas in Chudley, the High Court held that such a duty of care could not be imposed on Clydesdale Bank plc (“Clydesdale“) for lack of proximity.

Chudley follows established principles and is not in that sense new law. However, it helpfully confirms the narrow application of the (potentially problematic) duty of care found in So, which is positive news from the perspective of banking institutions. The case demonstrates that finding a bank owes a duty of care to third parties relying on a bank reference is finely balanced in practice, and it follows the trend to apply the duty narrowly: Playboy Club London Ltd & Ors v Banca Nazionale Del Lavoro SPA [2016] EWCA Civ 457 (see our e-bulletin here).

This e-bulletin considers the critical distinction between Chudley and So, and the implications for future cases of this type.

Factual background

The relevant facts in Chudley v Clydesdale and So v HSBC are near identical. In both cases:

  • The bank received and acknowledged a letter of instruction (“LOI“) to open and operate a segregated client account for third party investors’ monies.
  • The bank took no steps to open the segregated account referred to in the LOI.
  • The bank also signed a letter of reference in favour of the customer, making reference to the segregated account having been opened by the bank and providing reassurance as to the customer’s character.
  • Third party investors deposited monies in an account operated by the bank, but which was not a segregated account. These investors were defrauded of their funds by the bank’s customer.
  • The Court found that the bank’s letters amounted to false representations about its intention to open and operate a segregated client account.


In both So and Chudley, the Court applied the three-fold test of foreseeability, proximity and fairness, required for a duty of care to exist in cases of economic loss (established by the House of Lords in Caparo Industries v Dickman [1990] 2 WLR 358). In both cases, the Court found that it was reasonably foreseeable that the letters would be shown to third parties for the purpose of investing the funds, which resulted in the third party investors’ losses.

However, the reason a duty of care was not established in Chudley, but was in So, turned on the “notoriously elusive” concept of proximity. In Chudley, Clydesdale had no details of the proposed investment, and in terms of the third party investors, “did not know their identity“. While the Court considered that the letters might be shown to any potential investors (i.e. the world at large) this did not create a sufficiently special relationship between Clydesdale and those potential investors to establish a duty of care in negligence. Whereas in So, the necessary proximity was created because the third party investors (Mr So and Mrs Lu) and their proposed investment of US$ 30 million were named in the documents.

Accordingly, the negligent misstatement claim failed in Chudley as the claimants were unable to establish that Clydesdale owed them a duty of care. Despite establishing such a duty of care in So, the claim still failed on the basis of reliance: the negligent misstatement did not actually cause the loss, because the claimants relied on the fraudsters’ assurances rather than the bank’s representations.


The implication for future claims in negligent misstatement in the context of bank references, is that a bank is unlikely to owe a duty of care at large to a host of potential investors who might place reliance on its statements, without more being done to identify those customers (and also possibly details of the investment itself).

Damien Byrne Hill
Damien Byrne Hill
+44 20 7466 2114
Celina McGregor
Celina McGregor
Senior Associate
+44 20 7466 7460
Ceri Morgan
Ceri Morgan
Professional Support Lawyer
+44 20 7466 2948