To what extent do databases such as HPI and the Financial Services Register owe a duty of care to their users? Russell Kelsall, partner, and Alanna Tregear, solicitor, at TLT look at recent cases that highlight potentially serious implications for motor dealers
There has been a long-established legal principle (following the House of Lords’ decision in Moorgate Mercantile Finance Limited v Twitchings [1977] AC 890) saying there is no legal obligation on motor finance providers to register any interest in a motor vehicle with a database provider such as HPI.
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This principle was eroded in limited circumstances by the High Court’s unhelpful decision in Lombard North Central plc v Chatfields-Martin [2014] EWHC 1222 (QB) where the lender lost title to a vehicle because the dealer checked the database, which showed an interest, but checked later and, because there was no interest, assumed the balance had been paid.
But does the Court of Appeal’s recent decision in Law Society of England and Wales v Schubert Murphy (A Firm) [2017] EWCA Civ 1295 potentially change the position?
The case
In Law Society, law firm Schubert Murphy checked the status of another law firm using the Law Society’s Find a Solicitor database.
To increase access to the solicitor profession, and make it easier for (mainly) consumers to find a solicitor, the Law Society introduced a free and searchable database.
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By GlobalDataThe database said Acorn (which apparently acted for the seller of a property) was a legitimate law firm. Acorn was, in fact, a front for fraudsters who, after receiving the purchase price, failed to pay off the existing mortgage and disappeared with the funds.
The buyer’s solicitors, Schubert Murphy, brought a claim against the Law Society arguing it negligently listed Acorn as a genuine firm of solicitors. Schubert Murphy argued the Law Society should have carried out appropriate checks on Acorn before listing it on the Law Society’s Find a Solicitor database, but failed to do so.
The Law Society applied to strike out the claim arguing (a) it owed no general duty when publishing the Find a Solicitor database and (b) a regulator like the Law Society cannot owe duties when acting as a regulator.
The Court dismissed the Law Society’s application, deciding it was at least arguable the Law Society owed Schubert Murphy a duty of care. The Court of Appeal came to the same conclusion.
Point of principle
It is, however, important to remember the Court has not decided the Law Society, in publishing its Find a Solicitor database, owes a duty to people using it. It has merely said such a claim is arguable. However, it raises an important point of principle for motor finance providers: What is the status of databases like the one operated by HPI or, indeed, the Financial Services Register – which motor finance providers will use to make sure introducers have the relevant authorisations from the Financial Conduct Authority (FCA)?
If they give rise to a legal duty by the operator of the database, will this mean (a) HPI or the FCA will make more checks (and potentially increase the costs to users) and (b) HPI or the FCA will consider imposing robust terms and conditions on anyone contributing to the database so if there are any issues, there is a direct right for HPI or the FCA to recover any costs from the person providing the information to them?
These issues should encourage the Court to say there is no such duty of care. However, if the Court decides to impose a duty on the Law Society, it arguably increases the risk of challenging other databases like the ones operated by HPI or the FCA. But it surely cannot be sensible for a Court to say a database operator, or the FCA, owes such duties. The better view must be that the user of such a database agrees to its limitations: It is clearly impossible for a database to be right all of the time.
Consequence
The consequence of such a view is there cannot be any legal liability if the database is wrong. If that is right, it takes us full circle back to the House of Lords’ decision in Twitchings. The Court said the database gave the user “nothing more than information as to the state of the records of HPI”. It did not claim “to and did not say anything as to the ownership or lack of ownership of any finance house member”.
Unless and until a compulsory system is introduced for the registration of interests in motor vehicles, there should be no legal consequence of registering or, indeed, failing to register.
