A firm of solicitors has successfully appealed a ruling forcing it to pay £100,000 as part of a settlement negotiated between a mortgage lender and a surveyor over a negligent overvaluation.
The case rests on solicitors’ Bowerman duty, named after a 1996 Court of Appeal judgment. Under Bowerman, a solicitor has a duty to report to his lender client matters relevant to the valuation of the property offered as security for a loan.
A two-judge panel at the Court of Appeal ruled today that, while Goldsmith Williams Solicitors did fail in its Bowerman duty by not giving the lender information that might have given it cause to doubt the surveyor’s valuation, the solicitor was not responsible for the lender’s loss.
According to the ruling, Goldsmith Williams Solicitors failed to inform The Mortgage Business that a would-be borrower (who later defaulted) had owned the property for less than six months and had paid only £390,000 for it, against E.Surv’s valuation for the mortgage offer of £725,000.
The Mortgage Business sued E.Surv for its negligent valuation. E.Surv settled for £200,000 and sued the solicitors, saying that if the firm had informed The Mortgage Business of the discrepancy in price, the lender would have refused the loan. The borrower would not have been in a position to default, and the lender would not have suffered loss.
Judge Stephen Davies agreed and ordered the solicitors to pay £100,000.
However, the Court of Appeal ruled today that, while the solicitors should have informed The Mortgage Business about the discrepancy in price, they could not be held responsible for the lender’s loss.
The borrower stated in his mortgage application that he bought the property for £450,000 in October 2005, the ruling said. The negligent valuation of £750,000 took place in November of the same year, suggesting that the property had increased in value by £300,000 in a matter or weeks.
“Why then did the lender approve the loan, even in principle?” appeal judge Sir Stanley Burnton wrote in his judgment. “That information was no materially different from that which the solicitor should have reported to the lender.”
E.Surv Ltd v Golsmith Williams Solicitors Chancery (Patten LJ, Burnton LJ,) 11 November 2015
Ben Hubble QC and Shail Patel (instructed by DWF LLP, Solicitors Manchester) for the claimant
Paul Mitchell (instructed by Reynolds Porter Chamberlain LLP, Solicitors, London) for the defendant
