Schubert Murphy (a firm) v Tthe Law Society

A regulator may owe a duty of care for economic loss caused by careless information about whether a person is authorised to practise. The fact that the underlying carelessness occurred when no particular claimant was contemplated does not prevent proximity arising later, when the regulator responds to a specific enquiry. Electronic publication is not materially different from a response by telephone, letter or email. Whether the duty is fair, just and reasonable requires careful examination of the regulatory functions, checking procedures, costs, risks, insurance and reliance. A claim raising those issues should ordinarily proceed to trial where the facts require investigation.

The claimant firm of solicitors relied on the defendant’s electronic register and website, which represented that a person calling himself John Dobbs and a firm called Acorn Solicitors were authorised to practise. The claimant accepted an undertaking to discharge a mortgage from sale proceeds. The purported solicitors were imposters who misappropriated the money, causing loss for which the claimant’s insurers paid compensation and then pursued the defendant by subrogation.

The defendant applied to strike out the claim or obtain summary judgment, contending that its statutory regulatory functions could not give rise to a duty of care for economic loss. The central issue was whether the pleaded facts were capable of establishing proximity and a duty of care under assumption of responsibility, the Caparo test, or negligent misstatement principles.

1. The applications were refused. The claim was suitable for trial because several matters relevant to duty of care depended on evidence and factual findings.
2. The starting point was the three-stage approach in Caparo Industries Plc v Dickman [1992] AC 605. Foreseeability was accepted. Whether imposing a duty would be fair, just and reasonable required factual investigation, including the regulatory functions performed, the nature and adequacy of identity checks, available resources, the cost of improved checks, the scale of fraudulent applications, potential financial exposure and available insurance.
3. The defendant’s reliance on Yuen Kun-Yeu v Attorney General of Hong Kong [1988] 1 AC 175 did not establish that a regulator could never be liable for economic loss caused by carelessness. That decision concerned the different question whether a deposit-taking regulator owed a duty to potential depositors to prevent loss caused by fraudulent or imprudent management.
4. Proximity could arise when the defendant’s website answered a specific enquiry and represented that the named person was on the Roll and entitled to practise. It was immaterial that the carelessness in compiling the Roll occurred before the claimant was personally contemplated. The same principle applied whether the enquiry was answered electronically or by a person, telephone, letter or email.
5. The court declined to decide assumption of responsibility at the interlocutory stage. It observed that the security of conveyancing practice and the defendant’s encouragement of public reliance on its published information were potentially powerful factors supporting a duty of care.