E.Surv Ltd v Goldsmith Williams Solicitors

Solicitor – Duty of care – Civil Liability (Contribution) Act 1978 – Respondent surveyor settling damages claim brought by mortgage lender for over-valuation – respondent seeking contribution from appellant firm of solicitors – Whether appellant in breach of duty by failing to notify lender that property recently purchased for considerably less than amount of mortgage offer – Whether that failure causing loss – Appeal allowed In 2005, the respondent firm of surveyors was instructed by a lender to provide a valuation of a substantial detached property near Buxton in connection with a loan of £580,000 by way of remortgage. The appellant firm of solicitors was instructed by both the lender and the borrower in connection with the loan transaction, on the terms of the then current CML Lenders Handbook and the lender’s Part 2 instructions. The property had formerly been a bed-and-breakfast establishment but the borrower indicated that he was buying it to occupy as his residence. In his loan application, the borrower stated that he had purchased the property for £450,000. The respondent valued it at £725,000. In the course of investigating title, the appellant obtained Land Registry office copy entries in respect of the property, which revealed that the borrower had in fact purchased it six months previously for only £390,000. The appellant did not disclose that information to the lender. The lender subsequently brought a claim against the appellant for damages for negligent over-valuation of the property. The appellant settled that claim for £200,000 and then sought a contribution from the respondent under the Civil Liability (Contribution) Act 1978, on the grounds that the respondent was also in breach of a duty owed to the lender to disclose the information about the earlier purchase. The claim was allowed in the court below on the grounds that: (i) the terms of the CML Lenders Handbook, read with the Solicitors Practice Rules 1990 and the certificate of title, did not exclude the duty of a solicitor, identified in Mortgage Express v Bowerman [1996] 1 EGLR 126; [1995] 04 EG 126, to report to the lender where, in the course of carrying out its instructions, it 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; and (ii) had the lender been provided with the information, it would have contacted the appellant for a revised valuation which would have resulted the transaction not proceeding. The respondent was ordered to make a contribution of £100,000: see [2014] EWHC 1104 (Ch); [2014] PLSCS 125. The appellant appealed. Held: The appeal was allowed. The Bowerman duty required a solicitor to point out to a lender any facts which it discovered in the course of investigating title, which a reasonably competent solicitor would realise might have a material bearing on the valuation of the lender’s security or some other ingredient of the lending decision. That duty was not excluded by, or otherwise inconsistent with, the terms of the appellant’s retainer as contained in the CML Handbook, read together with the Solicitors Practice Rules 1990. Although the handbook did not include an express requirement to report information which cast doubt on the valuation, the handbook was not intended to be a comprehensive and exclusive statement of the solicitors’ responsibilities; that was apparent from clause 1.3, so far as it stated that the handbook did not affect any responsibilities which the solicitor had to the lender “under the general law or any practice rule or guidance issued by your professional body from time to time”. Further, the effect of clause 5.1.2 of the handbook was that, if a matter came to the attention of the solicitor which the solicitor should reasonably expect the lender to consider important in deciding whether or not to lend to the borrower, and if that matter was not confidential to the borrower, then the solicitor should report that matter to the lender. That duty was not limited to cases where a reasonable solicitor would consider that information gave rise to a significant risk that the borrower was fraudulent or had misled the lender. Moreover, a solicitor’s obligations under the practice rules included “making appropriate searches relating to the property in public registers… and reporting any results… which the solicitor considers may adversely affect the lender”: see r 6(3)(c). A search of the Land Registry was a search for the purposes of that provision and, where the search produced the information that the property had been purchased recently at a price, which suggested strongly that the valuation was excessive, that was obviously a matter which was relevant to the value of the proposed security. That conclusion was not negated by the terms of the standard form of certificate of title, which should not be read narrowly in that regard. That did not mean that a solicitor instructed to act for both lender and borrower had to act as a detective or bloodhound. The solicitor did not have any liability or responsibility beyond carrying out its instructions, which involved the making of appropriate searches and advising the lender of the results of those searches, including information that affected the value of the proposed security. A solicitor instructed on the terms of the CML Handbook was not required to carry out any work that was outside the scope of its instructions. It was only if, while carrying out that work, it came into possession of non-confidential information that a reasonably competent solicitor would realise adversely affected the title to the mortgage property or the value of the security that it was under a duty to report it to the lender. (2) The appellant was in breach of duty by failing to inform the lender of the information relating to the earlier purchase since a reasonably competent solicitor would have realised that the date of the purchase and the price paid strongly suggested that the valuation was greatly excessive. Nonetheless, the appellant was not liable since the respondent had failed to establish that the appellant’s breach of duty was causative of the lender’s loss. It was relevant that the lender was already in possession of information strongly suggesting that the valuation of the property was excessive, namely the figure stated as the purchase price in the loan application. It was not suggested that the difference between the stated figure of £450,000 and the actual price of £390,000 was material. The judge did not have sufficient evidence before him to show why, if a reported price of £450,000 was not of concern, a price of £390,000 should have raised concerns. The respondent had not proved that the lender would have reacted to the information as to the date and actual price of the purchase of the property, which was not materially different from the information given to it by the borrower. Annelise Day QC and Paul Mitchell (instructed by Reynolds Porter Chamberlain LLP) appeared for the appellant; Ben Hubble QC and Shail Patel (instructed by DWF LLP, of Manchester) appeared for the respondent. Sally Dobson, barrister Click here to download the E.Surv Ltd v Goldsmith Williams Solicitors transcript