The recent Court of Appeal decision in Mortgage Express Limited v Bowerman & Partners [1995] The Times, 1 August has in part clarified the scope of the respective duties owed to borrower and lender clients in conveyancing transactions.

The Court of Appeal held that in circumstances where a solicitor acts for both the borrower and lender in the course of a residential conveyancing transaction, although the solicitor's implied duty extends beyond referring matters of title to the lender, the duty only extends to disclosing information that might have a material bearing on the lender's potential security or its decision to lend.

In circumstances where the information is of a confidential nature to the borrower, the solicitor must either obtain the borrower's consent to disclose the information, or decline to act for the lender, or both parties.The defendants were instructed to act for Mortgage Express Ltd and the prospective purchaser of a flat at Queensway, London, for the sum of £220,000.

Prior to exchange of contracts, the defendants learnt that the property was the subject of a sub-sale to the vendor which was to be completed contemporaneously with the purchase for £150,000.

The lender had agreed to make a loan of £180,150 based on a valuation of £199,000.The defendants reported the sub-sale to the purchaser who confirmed that he was prepared to accept the price as he wished to purchase this particular property.

The defendants were satisfied with this response and did not inform the lender of the existence of the sub-sale.

The lender satisfied the court that if it had been informed of the sub-sale, it would not have lent the purchase money to the purchaser, and alleged breach of duty and/or negligence on the part of the defendants.

The integrity of the defe ndants was not in question and the lender did not pursue the case on the basis that the borrower was dishonest.In evidence, the defendants argued that they did not disclose the sub-sale to the lender on the basis that it did not affect title, the lender had obtained a valuation with which it was apparently satisfied and that they assumed that the valuation was correct.

It was agreed that the open market value of the property at the time was only £120,000.At first instance, Mrs Justice Arden held that a solicitor's duty to his respective clients is to protect their respective interests when carrying out their instructions, and found that the solicitor owed a duty of care to report to the lender the information he had about the sale price.

The court went so far as to find that the solicitor is bound to take some action in relation to 'any information which puts him on enquiry as to the accuracy of the valuation' and that the failure to disclose any such information amounted to negligence.

Although the Court of Appeal upheld the first instance decision, it has narrowed the extent of the duty owed by a solicitor to a lender.

The Court of Appeal held that if a reasonably competent solicitor came into possession of information which is not confidential to the borrower, but which might have a material bearing on the lender's potential security or the ingredients of the lender's decision to lend, he must pass it on to the lender.

Whether information is of such a nature is a question of fact and degree in each particular case.The Court of Appeal held that the information concerning the price and the existence of the sub-sale was not confidential to the borrower and was of equal importance to both clients, albeit for different reasons.

On the facts, the court held that the information might have led a reasonably competent solicitor to form the view that the information might have caused the lender to doubt the accuracy of its valuation and, as a consequence, the information ought to have been passed on to the lender.During the course of its judgment, the Court of Appeal re-affirmed the duties of a solicitor in circumstances where the information is of a confidential nature to the borrower.

In those circumstances, the solicitor must seek the borrower's consent to disclose the information to the lender.

In the event that this is not given, the solicitor must decline to act for the lender or both parties.Whilst most new mortgage instructions expressly require the solicitor to advise of a sub-sale, the clarification of the scope of the duties owed to the borrower is of some significance.

The solicitor is only under an implied duty to report the fact of the sub-sale if it may have a material bearing on the lender's decision to lend.

It is worth noting that in Mortgage Express, the sub-sale was completed at almost £70,000 less than the purchase price.

Given that the solicitor's duty to advise a lender of information which may have a material bearing on the security or decision to lend is a matter of fact and degree, if the difference was slight, for example £10,000, it is questionable whether the solicitor would be under the same implied duty.The decision is a useful indication of the solicitor's implied duties, given the increasingly detailed express instructions given by lenders, for example, the requirement to comment on the value of the property itself.

The Court of Appeal stressed in Mortgage Express that it was not the solicitor's duty to comment on value, but to disclose information which might cause the lender to doubt the ac curacy of the valuation.

As always, the decision highlights the need to consider carefully contributory negligence on the part of the valuer and the lender and to pursue discovery where imprudent lending is suspected.

In Mortgage Express, a claim was not pursued against the valuer, which had ceased trading.The issues involved in this case are of importance and will give rise to further debate, particularly in relation to the increasingly detailed express instructions given by the lender.