Pinsent Masons faces regulator referral over AI 'hallucinations' in insolvency case

Pinsent Masons has been criticised by a High Court judge after lawyers at the firm relied on hallucinated AI-generated legal authorities and submitted misleading material to the court in an insolvency case.

According to a judgment handed down on Friday (22 May), the incident arose during a routine “block transfer” insolvency application, where the firm was acting for the applicants, but the case escalated into a quasi-disciplinary inquiry after the judge discovered the firm had cited an insolvency rule that did not exist.

Pinsent Masons wrote to the court claiming an insolvency rule gave the court power to release outgoing liquidators from liability and even quoted purported statutory wording.

The judge challenged the citation. The firm then sent a second letter attempting to explain the wording as a “summary conclusion” drawn from several rules.

The judge said he was “astonished” by the response and found the explanation “impossible to accept”. He said the original correspondence “had caused me to be concerned that a cavalier attitude was being taken as to the accuracy of the material that Pinsent Masons were putting before the court” and said he suspected an AI “hallucination”.

The ruling later revealed that AI was also used in preparing the firm’s second letter.

AI warnings ignored

According to the ruling, a junior solicitor at the firm used AI tools to research the legal issue. The AI hallucinated fake rules and statutory wording while also repeatedly warning the lawyer to verify the material against authoritative legal sources before using it.

The judge said it was “concerning” that the lawyer appeared to ask AI what sections of the Insolvency Act said rather than checking the legislation directly.

“Had [the solicitor] done so, it would have been readily apparent that the AI was producing nonsense and was unreliable,” the judgment said.

The judgment reproduces lengthy extracts from the internal AI chats, showing the junior lawyer relying heavily on AI for legal research, the AI repeatedly misstating the law, and supervisors failing to properly verify the material before correspondence was sent to court.

The judge said the junior lawyer’s conduct was “very troubling”. “Much of it could have been avoided had [the solicitor] simply checked any of the statutory provisions that the AI referred to in an authoritative source,” he said.

SRA referral

The judge stopped short of contempt proceedings, concluding the conduct appeared to stem from a lack of care and judgment rather than a deliberate attempt to mislead the court.

But he said publication of the judgment and referral to the SRA was the appropriate response. The firm referred itself to the regulator, according to the judgment.

The ruling also criticised the supervising senior associate and matter partner, with the judge saying the court’s response to the firm’s first letter should have alerted them to the risk that AI had hallucinated the text and prompted further investigation.

The judge suggested the outcome may have been different had the firm immediately admitted what had happened and apologised properly.

Firm apology

Pinsent Masons said in a statement: “We have apologised unreservedly to the Court and are taking steps to strengthen our processes and oversight to ensure this does not happen again.

“As the matter has been before the Court, it would not be appropriate to comment further.”