The question of liability in relation to local authority searches used to be fairly straightforward. Local authorities expressly accepted that their liability for negligence in respect of search results would extend beyond the person raising enquiries to those who relied on the answers for specified purposes.
In relation to other data providers, the position was not always so clear and satisfactory. In some cases, the terms and conditions under which searches were carried out offered only limited protection for negligence. For example, under the Environment Agency’s terms and conditions, liability for negligence in respect of waterways searches carried out by the Agency is limited to the person by or on whose behalf these enquiries are made.
For background, see Practice Note, Investigating the property: Pre-exchange searches (www.practicallaw.com/9-107-4830).
In any event, it was not always be possible to obtain redress for some errors in search results for any number of reasons. In the Gooden case for example, an incorrect response to a local authority enquiry was not negligently provided because the council's underlying records were inaccurate (Gooden v Northamptonshire County Council, 20 November, 2001 (Court of Appeal), see Negligence in replying to enquiries of a local authority (www.practicallaw.com/2-101-6056)).
The National Land Information Service (NLIS) system has introduced an element of complexity to the searching process, and brings with it new risks that need to be considered alongside the existing risks relating to searches.
Liability for negligently provided incorrect search results is no longer as clear as it was, even in relation to local authority searches, and there is concern among some practitioners that the chain of liability from data provider to client may be broken by the imposition of an NLIS channel. Some practitioners have expressed concern that the standard terms on which the NLIS channels perform searches may not provide adequate protection in relation to some significant commercial property transactions. As a result, practitioners that take this view are either relying on paper searches or seeking special terms from the NLIS channels.
The NLIS system enables internet ordering of geographically related information from numerous sources. Instead of making paper searches with local authorities and other data providers directly, the practitioner signs up with one of the three NLIS channels that are licensed by NLIS to process search requests through the NLIS hub.
The new information flow can be represented as follows:
The three NLIS channels are:
Interposing two new points in the information flow raises a number of questions in relation to search results:
What happens if the data provider negligently provides the wrong information? Is the chain of liability from data provider to client broken by the introduction of an NLIS channel?
What happens if the data becomes corrupted (whether as a consequence of negligence by the NLIS channel or otherwise) on its way between the data provider and the solicitor?
How can you tell where, and what, went wrong?
The Local Government Information House, a body that represents local authorities, has said informally that there is "no problem" with liability for negligently provided information. What this means is that, in theory, if a local authority were to negligently provide an incorrect search result through NLIS, it would have the same liability to those that relied on the search as it would have had for a paper search. However, such assurances are not binding on local authorities and do not guarantee that a local authority would approach a claim arising from a search conducted through NLIS in the same way as one arising from a paper search.
In relation to other data providers, depending on the way the terms and conditions under which they carry out searches are drafted, the addition of the NLIS channel may mean that some people involved in the transaction may no longer be able to rely on the search.
As far as the measure of damages is concerned, there is also a question of whether there is a direct contract between the practitioner and the data provider (or relevant third party rights under the contract between the data provider and the NLIS channel) or whether liability arises only in tort.
Even if liability is theoretically unchanged, there is a further problem. How would the practitioner go about establishing that the data provider's negligence has given rise to an incorrect search result in the first place? The information no longer passes directly from the data provider to the practitioner. Therefore, it is possible for the information to become corrupted along the way. What if the cause of the incorrect search result is, or could be, data corruption?
In practice, data corruption risk is thought to be low. Martin Willard, Managing Director of MDA TransAction Online, explains: "The problem is that the system is so good that the fact that there are no known cases of data corruption has meant that the question of liability has not had to be tested in the courts. The system is a victim of its own success."
Even if data were to become corrupted, the risk that data corruption would cause an otherwise correct search result to change into an incorrect search result (as opposed to simply rendering the result unintelligible) has been described as "minuscule".
Leaving the size of the risk aside, if there is data corruption and it can be shown that it has caused the incorrect search result, the answer depends on the terms and conditions of the relevant NLIS channel. The NLIS channels take a somewhat uneven approach to data corruption in their standard terms and conditions of use, published on their respective websites.
MDA TransAction Online warrants that it will provide its contracted services with reasonable skill and care and that the responses it passes on are true, accurate and complete copies of the ones it receives.
Searchflow undertakes to take reasonable endeavours to avoid data corruption but its customers must acknowledge the risk.
TM Property simply warrants that it will provide its contracted services with reasonable skill and care.
For reasons of space, the limitations on liability that apply in each case are not summarised here but practitioners will want to review them.
The more difficult question is what happens if the cause is either negligence on the part of the data provider or data corruption but it is not possible to show which. The short answer is that if causation is not clear, neither is responsibility. And if responsibility is not clear, the fact that a local authority would have liability for negligence if it were responsible becomes irrelevant.
What happens in practice depends again on the approach the NLIS channel takes to incorrect information provided in responses. Again, the approach taken in their published standard terms and conditions varies and, in all cases, practitioners will want to review the limitations on liability that apply.
MDA TransAction Online provides a "broken liability" indemnity of up to £500,000 in respect of erroneous responses that is triggered where the data provider does not provide an indemnity after all reasonable attempts to obtain one have been exhausted (that is, where the liability chain between the data provider and the client is broken).
Both Searchflow and TM Property expressly exclude liability for inaccuracies in or omissions from responses to the extent not prohibited by law.
Practitioners are approaching the problem in a number of different ways:
Continuing to make paper searches. Some practitioners have taken the view that they must continue to make paper searches in relation to high-value commercial property transactions. This is a safe and simple route and avoids the problem but it also means that the advantages of NLIS, in particular time saving when ordering suites of searches, are lost.
However, these practitioners may be in a minority, or be using paper searches only in some cases. According to the City of London Law Society Land Law Committee minutes of 12 October, "Most committee members carry out electronic searches using one of the NLIS channels."
Explaining the risk to clients. Some practitioners are taking the approach that the additional risks are small, understood by clients, no different to the risks that clients accept daily in other areas of business and are outweighed by the advantages.
Relying on professional indemnity insurance. There has been some suggestion, anecdotally, that other practitioners have taken the view that they can rely on their own professional indemnity insurance. There seem to be some problems with this approach. It means that the firms are effectively underwriting the searches at their own cost (albeit a cost indirectly passed on to clients) and it is not at all clear how the claim would be established in the event that an incorrect search result were obtained.
Seeking enhanced terms from the NLIS channels directly. Some practitioners have suggested that the NLIS channels could obtain insurance and spread the cost among the beneficiaries of an enhanced service. This solution can be seen to some extent in the "broken liability" indemnity offered by MDA TransAction Online in its standard terms and conditions.
Stuart Pearce, Sales and Marketing Director of Searchflow, told Practical Law Company that, whilst Searchflow considers that their standard terms of business are acceptable in most cases, in many cases they offer their commercial property clients special terms and conditions which include, among other things, a "broken liability" indemnity relating to third party data provider error.
Steven Foster, Chief Executive of TM Property said: "We [TM] have taken the view that any client which has specific concerns about the liability flow is able to sign up to an enhanced set of terms and conditions with us which provide a comprehensive level of protection. These terms were designed with the assistance of well-known practitioners in the market and TM charges a small premium for the additional protection they offer."
Insurance is not a panacea. Where it offers limited protection on narrow terms, it may simply increase the cost of searches without offering substantially greater comfort for clients. Arguably, clients might prefer to accept some risk, knowing that they have obtained the best information that it is practical to obtain at reasonable cost. Where a matter is of particular concern, more detailed investigations could be made.
Bearing in mind the limited practical risk of data corruption, practitioners have argued that data corruption is a side issue and that the priority should be to negotiate terms and conditions with data providers that, like the local authority search, allow all those involved in a transaction to rely on the search result issued by the data provider.
Sara Catley, Market Practice Analyst, Practical Law Company