5 July 2024 by Siobhan Rochford

Barclays v Terry & Terry – A look at the risk of using AI to discharge mortgages

In recent years, AI has become increasingly prevalent in the workplace and we have seen it being used more in the banking sector for repetitive tasks. While AI can be hugely beneficial in streamlining tasks and saving time, it is important to be aware that it is not always accurate and can make mistakes. When mistakes are made by AI, the question then arises as to who is responsible. The recent case of Barclays v Terry & Terry highlights the banking industry’s need to be cautious in its use of AI.

Facts of the case

Barclays’ claims stemmed from an audit process over their mortgage book. Barclays identified a number of outdated charges at the Land Registry, where customers had redeemed their mortgage but had not been formally discharged.  This meant Barclays was still recorded as the mortgagee over the properties.

Charges over property are usually ‘manually’ removed by way of an application to the Land Registry.  In this case, Barclays implemented an AI system that would automatically issue discharges and apply to remove charges that were no longer required from registered titles.

In September 2023, Barclays had a ‘go/no-go’ meeting in which they decided to roll out the AI system for approximately 41,000 charges which they believed no longer secured live loans. However, this turned out to be in error.  Barclays discovered that, in over 5,000 cases, the customer actually still owed money to Barclays on their mortgage and Barclays should not have discharged its security. HM Land Registry and Barclays began receiving queries from borrowers who had discovered the issue.

The effect of the discharge at the Land Registry is to cause the charge no longer to exist (whether as a ‘legal charge’ or an ‘equitable charge’. Barclays wanted the removals rescinded on the basis of ‘equitable mistake’. All parties affected, including the Terrys, accepted that a mistake had been made and there was likely an entitlement in principle to relief.

Barclays did not blame AI for the error; instead they put it down to humans who made the decision to remove the charges at the go/no-go meeting. Summary judgment was given in Barclays’ favour against Mr and Mrs Terry. The judge found that Barclays’ behaviour was exemplary throughout. This was on the basis of the time and attention Barclays put into developing the AI project, how quickly Barclays identified the mistake and the fact Barclays agreed to compensate all affected customers. On this basis, it was considered unconscionable for the defendants to retain the benefit of the mistake.

Future of AI?

The case raises the question of what would have happened if Barclays had not sought to rely on the go/no-go meeting as the qualifying mistake but on the AI system. If a mistake is presented as a software issue or can be shown to have generated simply by AI itself, the court will be faced with a challenging issue because it would not be capable of satisfying the current test for a qualifying mistake.

As AI becomes increasingly commonplace in the banking and legal sector, it will be important to have a close oversight of the processes to reduce the risk of error. This will be particularly important in re-financing transactions where clients may wish to use AI to reduce costs and make transactions quicker and easier.

It will be interesting to see how technology develops in this area and how the law evolves to tackle these new issues.

If you have any queries about the issues raised this article, or if you need advice on any other property related matter, one of our expert real estate teams will be able to help you.  These include Commercial Real Estate and Development, Residential Real Estate, Lease Extensions and Property Management, Block Management for Landlords, and Real Estate Disputes.

21 June 2024 by Roger Longaron

Acknowledging transgender and non-binary identities through gender-neutral vocabulary in Will drafting

In recognition of Pride Month, we want to discuss what legal professionals can do to promote equality and protect the […]

28 June 2024 by Peter Thibault

What is a Resulting Trust?

A resulting trust arises when property is transferred to someone, but it is presumed that the transferee is not intended […]

Signup To Our Weekly e-News

"*" indicates required fields

We’ll never share your details with any third party in line with our privacy policy.