Law Society to face negligence claim over its “Find a Solicitor” search engine

This case may have major implications for any organisation that provides searchable digital databases to the public. It’s particularly relevant to regulators who maintain online searchable registers of professionals, such as lawyers, accountants, architects, dentists, to name but a few examples. Reports have already appeared on the Legal futures and Legal Cheek blogs.

Background

Public search engines are chasms of legal uncertainty. Despite more of our lives and data being processed through them, some simple questions remain unanswered:

• Do we use search engines at our own risk?
• Do search results constitute a representation that the information contained in them is accurate and verified?
• Does a search engine facilitator owe a duty of care to any persons or specific organisations who use it?
• If so, what does that duty require the person/s responsible to do in practice?

These wider uncertainties are magnified in the world of conveyancing, for example, where it is now common for the legal representatives for each party to a property transaction never to meet in person and not to know (or know of) each other.

While the e-conveyancing industry has successfully driven down the costs of property deals (with significant consumer savings) it has also acted as a magnet for fraudsters and bogus transactions.

The legal frontiers of search engine law and conveyancing fraud collided in the recent case of Schubert Murphy v The Law Society [2017] EWCA Civ 1295, raising further questions in both areas.

Related: Alleged property fraud claim dismissed at trial

The facts

Schubert Murphy, a firm of solicitors, were acting for the purchaser in a property transaction. As part of their usual due diligence checks, they wanted to verify the status of a person claiming to be the vendor’s solicitor (‘Mr John Dobbs’ of ‘Acorn Solicitors’ in Rotherham). Schubert Murphy, like many others before them and since, went onto the Law Society’s website to use its ‘Find a Solicitor’ search facility.

The search facility confirmed the identity of the vendor’s solicitor’s firm and that the individual was a registered solicitor.

The problem was that none of this was true. A fraudster had stolen the identity of a retired solicitor, changed the name by deed poll and re-registered with the Law Society under a new name. Acting on promises by Acorn Solicitors to discharge the vendor’s mortgage, Schubert Murphy transferred the purchase price to a fraudster who made off with the money without paying the mortgage (a popular form of conveyancing fraud).

(Normally, this kind of fraud is carried out by persons pretending to be vendors and using a genuine law firm to act for them, rather than the more elaborate scheme employed here of impersonating a solicitor and creating a fake law firm).

After completion, the mortgage company sued the purchaser for possession. The purchaser sued Schubert Murphy for negligence (that claim being settled by their professional indemnity insurers). However, the Law Society refused to compensate Schubert Murphy from the Solicitors’ Compensation Fund. Protection from the Fund was only available in circumstances where a vendor’s solicitors do not discharge the mortgage in breach of their undertaking if the person giving the undertaking is a ‘solicitor’. As Mr Dodd was not a solicitor but a fraudster, no payment from the fund was due.

The buck stopped with Schubert Murphy, effectively destroying the firm.

The claim

In an attempt to put the matter right, Schubert Murphy brought a claim against the Law Society for damages as a result of their using the “Find a Solicitor” search function on its website.

This case has been in the works for some time (the original search took place in 2010). In late 2014, the Law Society asked the High Court to strike out the claim and order summary judgment in its favour. The Court refused. The Law Society appealed to the Court of Appeal who have now refused their appeal.

Unless the case settles, it will now proceed to a trial on the issues and could provide much anticipated guidance in this area.

The law

The statutory and policy-based rules that underpin the regulation of UK solicitors is sizeable (see §§ 7 to 15 in the judgment).

Related: why a common law duty of care cannot be derived from statutory duties

In property transactions, the Law Society’s Practice Note of April 2009 and the Conveyancing Handbook (§ 1.10.3) recommend that solicitors check the status of the person acting for the other party (if they are not already known to the solicitor), by referring to the relevant professional directory or body.

When considering whether to impose a duty of care for economic losses, the three-stage test in Caparo Industries plc v Dickman [1990] 2 AC 605 applies (ie. foreseeability of loss, proximity of relationship between the parties and public policy factors making it fair to impose a duty).

On proximity, the Court relied on the discussion in that case of the earlier authority of Hedley Byrne v Heller [1964] AC 465 at page 638B.

In summary, proximity will be established between an advisor and a person who relies on the advice where:

• the advice is required for a particular purpose, be it general or specific, which is known to the adviser at the time the advice is given;
• the advisor knows the advice will be communicated to the recipient, either specifically or as part of an identifiable group;
• the advisor knows that the advice is likely to be acted on for the particular purpose without further independent inquiry; and
• the recipient acts on the advice to their detriment.

What the Court of Appeal decided

In dismissing with the Law Society’s appeal, the Court took well-established common law principles into the digital world of search engines and e-commerce.

It observed that:

• while there is no general duty of care for the way in which a regulatory carries out its functions (see Yuen Kun Yeu v Attorney-General of Hong Kong [1988] AC 175 at § 195), if the regulator goes beyond its statutory duties and provides a voluntary service, like the “Find a Solicitor” facility here, without recommending any other checks, then it is arguable that it has created the risk that the facility will be relied on thus opening the potential for fraud (§ 32);
• it was therefore arguable that this was an exception to the usual rule that a defendant may not be liable in negligence where the cause of the claimant’s loss was the fraud of third party. In this case, it was arguable that the Law Society search facility had created or permitted of a source of danger or had assumed responsibility towards users of the facility through its conduct (§ 33);
• Importantly, the Court rejected the Law Society’s argument that there was a distinction between an online inquiry via an automated digital system and an in person inquiry over the phone or the counter (§ 36, 46).
• In deciding whether or not there is sufficient proximity between the parties so as to give rise to a duty of care, the purpose of the representation is relevant. Here, it was arguable that the Law Society search engine was marketing on behalf of solicitors.
• In this case, examining whether or not there was a sufficient connection between the Claimant and Defendant required an examination of the functioning of the Law Society website and search facility to see whether the search results were provided to the world at large or to identifiable users or classes of users (§ 40). This would require assessment of the degree to which the response from the facility was automatic and whether user’s IP address could lead to their identification (despite the fact that the system is used over a million times a month).
• The policy considerations raised in the claim were substantial and included:

…the potential cost to solicitors who suffer losses in reliance on the incorrect information provided by the Law Society’s FAS facility, and whether the effect of an absence of a duty of care would be materially to increase the cost of their professional indemnity insurance. (§ 45)

Conclusion

While it’s always easy to say this in hindsight, in some ways, the legal sector’s over-reliance on unsophisticated tools such as the Law Society’s “Find a Solicitor” search facility highlights how the lack of adequate analytics to predict and detect fraud leaves both lawyers and their clients massively exposed to financial and reputational risks.

That said, it is hard to see what Schubert Murphy could have done differently to avoid a fraud like this altogether, and the claim rightly focuses attention on what the Law Society could and should have done to prevent fraudsters posing as solicitors appearing on their register and protect the public from such dangers.

While each case will be fact-sensitive, if or when Schubert Murphy proceeds to trial, it is likely to have significant implications for other public-facing organisations and regulators who provide searchable digital databases. Until then, such organisations will have to tread water, but as a general pointer, it would be sensible for regulators in particular to review how their searchable databases are presented alongside their website terms and conditions and whether or not their sites recommend any alternative form of checks.