E Surv Ltd v Goldsmith Williams Solicitors

Solicitor – Duty of care – Civil Liability (Contribution) Act 1978 – Claimant surveyors settling damages claim for over-valuation – Claimants seeking contribution from defendant solicitors – Whether defendants breaching duty to notify lender of actual purchase price as well as purchase date – Claim allowedThe claimant surveyors claimed a contribution under the Civil Liability (Contribution) Act 1978 from the defendant solicitors in respect of monies paid to a mortgage lending company in settlement of its claim for damages for negligent overvaluation of a substantial detached property near Buxton which was being operated as a bed and breakfast establishment before being acquired by the borrower. The claimants’ case was that the defendants had failed, in breach of the express and implied terms of their contract with the lender, to advise the lender that the would-be borrower had been registered as proprietor of the property for less than six months and that the price of £390,000 he had paid for it was significantly less than the claimants’ valuation of £725,000 as stated in the mortgage offer.The claimant contended that, had the defendants so advised the lender, it would have asked the claimants to reconsider their valuation in the light of that information. The claimants would then have realised that the borrower had misinformed them about the purchase price and produced a significantly reduced valuation and/or informed the lenders about that misinformation, with the result that the lender would have declined to lend to the borrower and avoided the loss which it in fact incurred. Whilst the claimants accepted that they could not recover all their loss from the defendants, they claimed to be entitled to a substantial contribution against the total amount of £200,000 paid in settlement. The defendants admitted the breach of an express obligation in clause 5.1.1 of the Council of Mortgage Lender’s Handbook to inform the lender that the borrower had been the registered proprietor for less than six months. However they denied that they were obliged to inform the lender as to the purchase price paid. Moreover, they denied any causative effect between any breach on their part and the lender’s decision to lend.Held: The claim was allowed.(1) The Lenders Handbook, read with the Solicitors Practice Rules 1990 and the certificate of title, was intended to identify and delimit the precise scope of the specific activities which the solicitor was being retained to do, in circumstances where the solicitor was faced with the difficult position of acting for two parties with potentially conflicting interests. It was not intended to exclude the general obligation to exercise reasonable care and skill in the performance of such activities or, as part of such general obligation, the obligation to report to the lender as one of the clients where, through the performance of such obligations, the solicitor came into possession of information which had a material bearing on the valuation of the lender’s security or some other ingredient of the lending decision (the “Bowerman duty”). There was no specific limitation to reporting only matters relevant to title: Mortgage Express v Bowerman [1996] 1 EGLR 126; [1995] 04 EG 126 applied It followed that a solicitor had to perform his express obligations under the Lenders Handbook by undertaking a Land Registry search and by reading the office copies so obtained as well as by reading a copy of the valuation report provided to him. If in the process of so doing he discovered information from the office copies about the recent purchase price which had a material bearing on the valuation of the property, then he was under an obligation to the lender to disclose it. That obligation was expressly preserved by clause 1.3 of the handbook, and had to be performed unless to do so would involve a conflict of interest, in which case the solicitor had to cease act, in accordance with clause 5.1.2 of the handbook. In all the circumstances, the Bowerman duty arose in the present case. Even making allowances for apparently buoyant market at the time, the disparity was so significant that it ought to have been disclosed to the lender. Accordingly, a breach in failing to notify the lender of the actual purchase price as well as the purchase date had been made out.(2) On the balance of probabilities, standing back from the detail, the claimants had satisfied the burden of proof on causation to the requisite standard. On the evidence, had the lenders been provided with the actual purchase details by the defendants, they would have contacted the claimants for a revised valuation which would have resulted in a reduce mortgage offer insufficient to discharge the borrower’s existing bridging loan and the transaction would not have proceeded. In the circumstances, the court was satisfied that the individual links in the chain of causation had been satisfied sufficiently strongly to make good the chain overall.(3) Under the 1978 Act the court had to assess contribution by reference to what was just and equitable, having regard to the degree of blameworthiness of both parties and the relative causative potency of each party’s breach. Since there was no reason to allocate responsibility anything other than equally, the claimants were entitled to judgment against the defendants for £100,000 plus interest.Shail Patel (instructed by DWF LLP Solicitors, of Manchester) appeared for the claimant; Paul Mitchell (instructed by Reynolds Porter Chamberlain LLP) appeared for the defendant.Eileen O’Grady, barrister