Data protection breaches by law firms have been a hot topic in the press recently. This article considers firms' obligations and the consequences of data loss.
The problems faced by recently closed London firm ACS:Law, have been in the national press lately. They raise risk management issues as to the protection of personal data firms hold on behalf of clients, employees and others.
The relevant background to the matter is set out in the judgment of the Patents County Court in Media CAT v Malcolm Adams and others (2011). Essentially, throughout 2009 and 2010 ACS:Law made large scale claims against suspected copyright infringers. They sent letters to thousands of individuals suspected of sharing copyright material on the internet, including music files and pornographic films. ACS:Law's modus operandi was to acquire IP addresses of individual suspected infringers and to apply for a "Norwich Pharmacal" court order requiring their broadband provider to disclose customer information, including names and addresses. Letters of claim were then sent to the customers. ACS:Law offered them the chance to settle the dispute by paying a lump sum, commonly around £500. It appears that the majority of individuals paid up, although a small minority refused and proceedings were issued against them. At the time of writing, following a rejected application to discontinue those proceedings, ACS:Law is facing the possibility of a wasted costs order.
SRA action
These tactics were also used by another larger firm, whose actions first gained notoriety in December 2008 when a group of the alleged file misusers complained to the consumer company, Which?. Complaints to the SRA resulted and two partners from the firm were referred to the Solicitors' Disciplinary Tribunal (SDT) by the SRA in March 2010; disciplinary proceedings are expected to commence in May 2011. It has been reported that these proceedings allege that claims were brought against individuals despite the fact that the partners in question knew they may be targeting innocent web users, and in pursuance of their firm's interests rather than those of their clients. The SRA has also now referred ACS:Law's principal to the SDT, reportedly on the basis of similar but not identical allegations.
Information Commissioner action
In September 2010, there was a denial of service attack on ACS:Law's website by members of an internet forum, 4chan. The hackers managed to cause ACS:Law's website to crash for a number of hours. When it came back on line, confidential information was mistakenly left accessible. This information was downloaded and shared publicly on various internet sites. In addition to confidential emails, the material included the personal data of thousands of broadband users that ACS:Law had obtained from the internet service providers under Norwich Pharmacal orders. This publishing of personal data is now the focus of an investigation by the Information Commissioner, although whether this will be affected by ACS:Law's closure remains to be seen.
ASC:Law are not the only lawyers in the firing line for data protection problems. A4e, a company involved with managing legal advice centres, was recently fined £60,000 by the Information Commissioner following the theft from an employee's house of a laptop containing personal data of more than 20,000 clients. There was no report of any of the clients suffering any loss, but it was still held that a fine was justified because A4e had not taken reasonable steps to prevent the loss of the data, notably by failing to encrypt it.
Law and regulation
The law as to the protection of personal data is governed by the Data Protection Act 1998 (the Act). The Act protects individuals' interests by obliging organisations who control data about them to manage it in accordance with eight data protection principles, making sure that the information is, amongst other things, fairly and lawfully processed, accurate and up to date, and (most relevant to this case) kept secure.
Solicitors have also long had professional duties to keep client information secure. The duties are now clearly set out in Rule 4 of the current Solicitors' Code of Conduct which deals with confidentiality. The ACS:Law case brings into focus the particular obligations a firm has in relation to personal data held electronically, and the consequences of a failure to maintain such data securely.
Consequences of data loss
Firms could be the subject of an investigation by the SRA or by the Information Commissioner, or both. Responding to such investigations requires the investment of time and, if legal representation or expert input is necessary, money. The consequences of such investigations could be disciplinary action or a fine, with the Information Commissioner having the ability to impose fines of up to £500,000.
Whereas previously the costs of an SRA investigation were covered by solicitors' PI insurance arising from a claim or circumstances, the recent revision of the Minimum Terms specifically provides that the costs of "any disciplinary proceedings under the authority of the Law Society of England and Wales (including, without limitation, the Solicitors Regulation Authority and the Solicitors Disciplinary Tribunal)" need not be covered. The Minimum Terms do, however, require there to be cover for costs of "any investigation or inquiry" (which would seem to extend to an investigation by the Information Commissioner) provided that the investigation arises from a claim against the insured or a circumstance notified by it. There can be civil claims under the Data Protection Act and, if one is made, the costs of dealing with a related investigation by the Information Commissioner may therefore also be covered by solicitors' insurance insofar as the Minimum Terms apply to it. On the other hand, any fines or penalties will not be covered.
In addition to direct financial consequences, law firms also face reputational damage should they be found to have failed to keep personal data secure. Clients, particularly those who themselves face close scrutiny from regulatory authorities such as the FSA in respect of the protection of confidential information, will not look kindly on a law firm's security procedures coming under criticism.
Conclusion
The protection of personal data is now very much a hot topic and one that law firms cannot afford to ignore.
The ACS:Law case demonstrates that firms can be a target for internet hackers and data thieves. The Information Commissioner is also looking to make an example of organisations, including law firms, that fail to take reasonable steps to safeguard personal data, and the SRA has also shown itself willing to take action.
Accordingly, law firms should have clear policies and procedures in place for the protection, storage and use of personal data. This will assist in demonstrating, if necessary, to the Information Commissioner and others that reasonable precautions have been taken to safeguard data, which in turn will help keep sanctions to a minimum. For example, law firms should consider whether it is appropriate to encrypt personal data (particularly if it is being taken off site or entrusted to a third party) and should have in place a strong firewall. Such technology should also be updated and tested frequently to keep pace with technological advances.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
