This recent decision by the Court of Appeal in Goldsmith Williams Solicitors v E.Surv Limited  EWCA Civ 1147 (a contribution claim by surveyors against a firm of solicitors) reiterates the requirement on solicitors to report matters to lenders which may affect the lender's security (the so-called "Bowerman" duty) and clarifies its scope regarding the CML Handbook. It also provides another example of the need to establish that a solicitor's breach of duty caused the lender's loss.
In December 2005, the Borrower applied to The Mortgage Business (TMB) for a remortgage. He stated that he had purchased the Property in October 2005 for £450,000. TMB agreed to lend the Borrower the sum of £580,000, its decision having been considered by 3 separate underwriters and based on an earlier valuation from E.Surv which valued the Property at £725,000.
Goldsmith Williams (GW), a firm of solicitors, was instructed to act for both the Borrower and TMB. TMB confirmed that GW was instructed in accordance with Parts 1 and 2 of the CML Handbook. GW was also provided with a copy of TMB's mortgage offer and E.Surv's valuation. GW carried out the usual searches and discovered that the Property was purchased in September 2005 for a purchase price of £390,000. However, GW failed to pass on that information to TMB.
In February 2006, GW provided TMB with an unqualified Certificate of Title and completion took place shortly thereafter.
The Borrower defaulted and TMB repossessed and sold the Property, suffering a loss. TMB pursued a claim against E.Surv, which was settled for £200,000 inclusive of costs. E.Surv then pursued a contribution claim against GW.
At the hearing at first instance before HHJ Davis, E.Surv's position was that:
- GW was under a duty to advise TMB of facts discovered in the course of its investigations which a reasonably competent solicitor might consider would have an impact on the valuation of TMB's security; and
- the discrepancy between the purchase price and valuation was such that had GW advised TMB of the discrepancy, and TMB reported it to E.Surv, E.Surv would have revised its valuation. As a result TMB would not have made the loan and suffered the loss.
GW contended that:
- it was not under a duty to report to TMB the date and purchase price paid by the Borrower. It said that its duty under the CML Handbook was confined to investigating and reporting on title save where there was evidence of fraud; and
- even if it was under a duty to advise, its failure to do so did not cause any loss. TMB had decided to make the loan with knowledge from the Borrower's application form that there was a significant discrepancy between the purchase price allegedly paid by the Borrower and E.Surv's valuation.
HHJ Davis found that had GW not breached its duty, TMB would not have made the loan and no loss would have been caused. The Judge held that GW was liable to make a contribution to E.Surv in the sum of £100,000 plus interest and costs.
GW appealed the decision. Sir Stanley Burton of the Court of Appeal said that there were 2 issues to consider:
- duty: was GW under a duty to report the true purchase price?; and
- causation: if under such a duty, was GW's failure causative of TMB's loss?
The Judge found that, in accordance with the decision in Mortgage Express Ltd v Bowerman & Partners , GW was under a duty to report information to the lender which a reasonable solicitor would realise might have an effect on the lender's security or some other element of the lending decision. The Court held that the "Bowerman" duty was not excluded by, or inconsistent with, the terms of the solicitor's retainer pursuant to the CML Handbook and therefore rejected GW's assertion that the CML Handbook should be construed narrowly.
The Court therefore held that GW should have reported the date and purchase price of the Property and was in breach of duty.
TMB was already aware of the significant difference between the alleged purchase price paid by the Borrower and E.Surv's valuation following the information contained in the Borrower's application, and yet had lent in the full knowledge of that information. The information that GW had failed to pass onto TMB was not materially different from the information TMB already had and the Court held that E.Surv had failed to establish that TMB would have acted on the information that GW should have provided to TMB.
It was not established, therefore, that GW caused the lender's loss and GW's appeal was accordingly allowed.
This case reiterates the "Bowerman" duty that solicitors must report non-confidential information to lenders which a reasonable solicitor would realise may affect the lender's security and that duty applies notwithstanding the terms of the CML Handbook. It is also a positive reminder that even in contribution claims where breach of duty is established, a claimant must still prove causation to establish a recoverable loss. Causation aspects in valuation cases can be a crucial defence for defendant solicitors and their insurers, as in this case.