A conveyancing firm has won its appeal against a High Court order to pay £100,000 to a surveying company for failing to disclose information on the value of a property.
Last year E-Surv Limited successfully sought a contribution from Liverpool firm Goldsmith Williams in the High Court after it was forced to pay £200,000 to a lender over a mistaken valuation for a property in the Buxton area in Derbyshire.
The surveyors contended that the law firm, which was instructed by the borrower and the lender, was under a duty to advise the lender in relation to facts 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’, the Court of Appeal judgment states.
The firm’s failure to advise the lender about the discrepancy between the valuation and the purchase price and date of purchase of the property was a contributory cause of its loss, the surveyor argued.
However, Goldsmith Williams said it was not under any duty to the lender to report the facts as to the date and price of the purchase of the property.
Even if, contrary to its contention, it was under the alleged duty, its failure to perform it did not cause any loss. The lender had decided to make the loan even though it had information as to the date and price of the purchase of the property that should have led it to question the surveyor’s valuation, the law firm argued.
Goldsmith Williams disputed the High Court’s findings that it was under the duty alleged by the surveyors, that it had failed to fulfil the duty, and that the lender would not have made the loan had it performed its duty.
In the Court of Appeal judgment Sir Stanley Burnton said the question of whether the firm was under the Bowerman duty (on a solicitor to report to his lender client matters relevant to the valuation of the property offered as security for a loan) depended on whether, properly construed, that duty was excluded by, or was inconsistent with, the terms of the solicitors’ retainer, as contained in the Council of Mortgage Lenders’ Handbook.
‘In my judgment, the answer to this question is clearly “no”,’ he said.
Burnton rejected the firm’s contention that it was not under a duty. But he said the facts of the case were ‘unusual’ because the lender ‘was already in possession of information strongly suggesting that the valuation of the property was excessive’.
Burnton said the surveyors did not prove the lender would have reacted to the information the solicitors should have provided on the purchase price and date of purchase of the property, ‘which was not materially different from the information given to them by the borrower’.
He said he would ‘allow the appeal on this ground’.
Lord Justice Patten agreed.
Commenting on the scope of Goldsmith Williams’ duty, Patten said rule 6 of the Solicitors’ Practice Rules (the circumstances in which a solicitor may act for more than one party in conveyancing and related matters) was designed to avoid conflicts of interest in the field of conveyancing and property selling.
Rule 6, he said, existed ‘to set limits to the type of instructions which a solicitor in such a transaction may properly accept; not to set out the terms upon which the solicitor may be instructed in respect of matters which he is permitted to carry out or to regulate the limits of his reporting obligations when acting for both lender and borrower in the transaction’.
But the full Bowerman duty was not excluded by the limitation imposed by rule 6.3, which covered standard mortgage transactions, or by the form of the certificate of title, Patten said.
The duty to draw the differences between the price and the valuation to the lender’s attention was a ’necessary incident of the solicitors’ instructions to investigate and report on title unless expressly excluded by the terms of the retainer’.
He said Goldsmith Williams was in breach of the general Bowerman duty in this case.