The Ghost in the Machine: AI Hallucinations and the New Frontier of Professional Negligence

The rapid integration of Artificial Intelligence (AI) into legal practice is no longer a futuristic concept; it is an everyday reality. For solicitors specializing in professional negligence, this technological shift represents a fertile new battleground. The recent High Court decision in Re an Office-Holder; Cork v Smith EWHC 1199 (Ch) provides a stark warning about the perils of AI misuse, the breakdown of supervision, and the inevitable rise of a new breed of professional negligence claims.

 Summary of the Decision: Cork v Smith

Cork v Smith involved a routine, uncontentious “block transfer application” to remove an insolvency practitioner and appoint a replacement across multiple cases. The issue arose when the applicant’s solicitors, Pinsent Masons, submitted a draft order requesting the “release” (discharge from liability) of a liquidator.

When ICC Judge Mullen queried the statutory power to grant such a release in a voluntary liquidation, a junior associate at the firm (“Lawyer A”) relied on an AI platform to draft the response. The AI confidently hallucinated a non-existent provision, purporting to quote Insolvency Rule 12.37(5) as granting the court express power to order the release. Despite the AI repeatedly warning Lawyer A to verify the precise wording against primary sources, Lawyer A failed to do so. Worse, Lawyer A presented the hallucinated text to their supervising senior associate and the supervising partner, who both approved the letter to the court without independently checking the statutory reference.

When the court challenged the fabricated quotation, Lawyer A again turned to the AI to draft an explanation. Rather than admitting the hallucination, the resulting 14th April letter doubled down, misleadingly characterizing the fabricated quote as a “summary conclusion” of several rules.

Ultimately, the court publicly admonished the supervising solicitors and the firm. While the judge found no deliberate intention to mislead on the part of the senior lawyers, he highlighted a severe lack of care and a failure to adequately supervise the junior lawyer. The firm self-referred the matter to the Solicitors Regulation Authority (SRA) and agreed to bear the client’s additional costs.

Impact on the Professional Negligence Industry

For professional negligence practitioners, Cork v Smith is a watershed moment. It signals that AI-related errors are not just regulatory issues; they are primary drivers for civil liability. The impact on the industry will likely manifest in three core areas:

1. The Shifting Standard of Competence and Supervision

Professional negligence claims hinge on whether a professional’s conduct fell below the standard of a reasonably competent practitioner. As established in R (Ayinde) v London Borough of Haringey (cited heavily in Cork v Smith), lawyers have a professional duty to check the accuracy of AI-generated research against authoritative sources.

Furthermore, the SRA Code of Conduct Rule 3.5 dictates that solicitors remain accountable for work conducted on their behalf. If a partner fails to verify an AI-generated submission drafted by a junior—or fails to implement robust AI usage policies—this will almost certainly be viewed as a breach of the requisite standard of care. Professional negligence claims will increasingly allege systemic failures in tech supervision rather than just substantive legal errors.

2. Wasted Costs and Direct Financial Loss

In Cork v Smith, the client suffered only minimal delays, and Pinsent Masons proactively agreed to pay the additional costs incurred. However, had this hallucination occurred in high-stakes, contentious litigation, the consequences could have been catastrophic. A fabricated case citation relied upon in a skeleton argument could lead to a struck-out claim, adverse costs orders, or a lost trial. Where an AI hallucination directly causes a client financial loss, the pathway to a professional negligence claim against the advising firm is now clearly paved.

3. Heightened Scrutiny on the “Cover-Up”

As professional negligence practitioner well know, the recurring theme in the industry is that the initial mistake is often compounded by the subsequent attempt to hide it.

The court in Cork v Smith was particularly disturbed by the second letter, which attempted to explain away the hallucination as a “paraphrase”. Negligence claims frequently escalate when solicitors fail to make an immediate, full, and truthful disclosure of an error to the court and their client. Claimants will look closely at how firms respond once an AI error is discovered, as secondary misrepresentations can inflate damages and trigger regulatory sanctions.

Insight and Discussion arising

The “Black Box” Defense Will Fail

Some practitioners might attempt to argue that they cannot be held liable for the opaque, unpredictable nature of generative AI (the “black box” argument). Cork v Smith utterly destroys this notion. The court made it clear that “legal professionals bear ultimate responsibility for their work and cannot outsource the process of legal research or of legal reasoning to an AI“.

The courts and regulators expect lawyers to treat AI output with the same skepticism as an unverified internet search. Ignorance of how the technology works will not shield a solicitor from a negligence claim.

The Danger of “Automation Bias”

The transcripts of Lawyer A’s chats with the AI reveal a deeply concerning psychological phenomenon: automation bias. Lawyer A outsourced their critical thinking to the machine, trusting its output even when the machine itself explicitly warned them to check the primary sources. The Bar Council and SRA Guidance consistently emphasize that AI must not dilute a practitioner’s independent judgment. As a professional negligence solicitor, when investigating a claim, one must look beyond the final document and request the audit trail of the AI prompts and outputs. The discovery of an AI chat transcript (as seen in this case, running to 59 pages) can be the “smoking gun” that proves a fundamental abdication of professional judgment.

Potential Third-Party Liability of AI Developers

Cork v Smith raises a fascinating theoretical question for the professional negligence sector: if a law firm is sued for negligence due to an AI hallucination, could the firm seek to pass on liability—fully or on a contributory basis—to the technology company that developed the AI?

In this case, the transcripts reveal that the AI was highly articulate but “plainly wrong”. It invented a non-existent legal provision and even formatted it to look like a statutory extract. A law firm facing a negligence claim might argue that the AI software was inherently defective or negligently designed, as it confidently presented fabricated information as fact.

However, pursuing the AI developer would be fraught with evidential and contractual challenges. As seen in the Cork v Smith transcripts, the AI platform provided explicit disclaimers. It warned the user: “I am not able to verify the precise wording… I would strongly recommend that you Verify the wording directly against the current version of the Insolvency (England and Wales) Rules 2016”.

In a contribution claim, the AI developer would almost certainly rely on these clear warnings, arguing that the proximate cause of the negligence was not the software’s hallucination, but the user’s explicit disregard of the safety warnings and the firm’s subsequent failure to supervise. Furthermore, commercial terms of service for generative AI platforms heavily limit liability.

On those facts, it is doubtful that the firm will be approaching the AI provider with a negligence claim but it is not difficult to see the facts moving only quite modestly before some sort of contribution claim might be viable.

While this presents a difficult hurdle for joining tech providers to a claim, the tension between highly plausible algorithmic output and standard user-end disclaimers is undoubtedly an area ripe for future legal testing.

Vulnerability in Routine “Boxwork” versus wider implications

It is telling that this incident occurred in an uncontentious, administrative application. Judge Mullen noted that the court is “particularly exposed to the risk of being misled” in undefended applications where there is no opposing counsel to point out an error. Firms may be incorrectly assuming that AI is safest to use for routine, low-value administrative tasks. In reality, because these tasks receive less partner scrutiny, they represent a massive hidden liability. Negligence claims may soon spike in areas like uncontested probate, standard conveyancing, or block transfers, where AI tools are deployed with insufficient human oversight.

It is readily apparent why the Judge was concerned (putting it neutrally) given the nature of the judicial task at hand (uncontested box work), the fact he had sought clarification and despite judicial enquiries, there had been a doubling down.

However, while the breach was egregious (being close to contemptible conduct), the damage was in truth limited in financial terms.  However, what is going to the position if ghosting impacts the foundations of large-scale litigation and that ghosting is not picked up on human review?

These may well prove to be the proverbial interesting times for professional negligence lawyers.

Conclusion

Cork v Smith confirms that the legal profession cannot outsource its critical reasoning to technology. For practitioners handling professional negligence disputes, the case underscores that AI tools do not alter the fundamental duties of care and supervision owed to clients and the court. When investigating future claims, obtaining the “audit trail” of AI prompts and outputs will be just as vital as reviewing the final drafted advice, as it may reveal the precise point where human oversight failed.

Also, Cork v Smith is a wake-up call to the legal professionals, if they are listening. It demonstrates that the integration of AI into legal practice requires a parallel evolution in risk management. For solicitors acting in professional negligence, AI represents a highly complex, emerging technology and thus potentially also a head of claim.

The technology may be artificial, but as this case proves, the professional liability is entirely real. Firms that fail to supervise both their junior lawyers and their algorithms will inevitably find themselves on the wrong side of the ledger.

Article by Lauren Godfrey