Where, in the course of carrying out their instructions, solicitors representing lenders come into possession of information that is clearly significant to their clients, they have a duty to report it to them. The duty is known as the “Bowerman duty”, following the decision in Mortgage Express v Bowerman & Partners [1996] 1 EGLR 126, where the court ruled that the buyer’s solicitors should have informed the lender, who was also their client, that the property that the buyer was purchasing had recently changed hands at a much lower price.
A similar issue arose in E Surv Ltd v Goldsmith Williams Solicitors [2014] EWHC 1104 (Ch); [2014] PLSCS 125. However, the buyer’s solicitors sought to avoid liability on the ground that the instructions in the Council of Mortgage Lenders’ Handbook have ousted the Bowerman duty. The point arose in the context of proceedings under the Civil Liability (Contribution) Act 1978, which applies where two parties are liable in respect of the same damage.
A firm of valuers had paid £200,000 to settle a negligence claim made by a lender and sought a contribution from the lender’s solicitors. The valuers claimed that the solicitors were also to blame; they should have informed the lender that the registers of title revealed that the borrower had owned the property for less than six months and that he had paid significantly less for the property than the value that they had placed on it. They argued that this would have caused the lender to contact them and that they would have corrected their valuation.
The solicitors argued that the Lenders’ Handbook did not expressly require them to report the previous purchase price to the lender (although it did oblige them to report that the owner had owned the property for less than six months). They pointed to the list of duties in the Lenders’ Handbook (which post-dates Bowerman), and to the form of certificate of title that solicitors are required to give in residential transactions. They also relied on practice rules that list the duties that solicitors can undertake for lenders: none include a duty to report on the price originally paid by a seller or a re-mortgaging borrower. They suggested that all these factors indicated that the Bowerman duty was inconsistent with the express terms of their retainer and tried to persuade the court that it would be wrong to imply that the duty had arisen.
Nonetheless, the judge ruled that the law firm should contribute 50% of the damages. The practice rules state that solicitors acting for lenders should make appropriate searches in public registers – and the Land Registry fell within this category. The rules also require solicitors to report any results that might adversely affect a lender, while paragraph 5.1.2 of the Lenders’ Handbook also requires them to tell lenders about anything that they “should reasonably expect us to consider important in deciding whether or not to lend to the borrower”. Consequently, the Bowerman duty had arisen.
However, the judge accepted that there might be some justification for passages in textbooks cited by the law firm in support of its arguments – and agreed that the duty might not arise in cases where information about the previous price is obtained from sources that solicitors are not expressly required to consider.
Allyson Colby is a property law consultant
