Goldsmith Williams Solicitors v E.Surv Ltd [2015]

In Goldsmith Williams Solicitors v E.Surv Ltd [2015] EWCA Civ 1147 (11 November 2015) the matter was an appeal from an earlier hearing in the High Court where the Appellant Solicitors had been instructed to act on a mortgage of a property, acting for both Lender and Client in accordance with the Council of Mortgage Lenders handbook (CML).

The Client/Borrower subsequently failed to make repayments on its mortgage and the Lender incurred loss.

The Surveyor, instructed by the Lender, had originally valued the property at £725,000 for mortgage purposes. However, the borrower had only recently bought the property less than six months before. The CML handbook required ownership to be for more than 6 months and the Borrower had informed the surveyor that he purchased the property for £600,000. When the Solicitors carried out their searches on the transaction, it transpired that the purchase price, when the Borrower bought the property less than 6 months before, had been £390,000.

The Lender sued the Surveyors. It was agreed to settle the matter for £200,000 and the Surveyors sued the Solicitors to recoup part of the amount paid to the Lender.

In the Surveyors case against the Solicitors, they contended that the Solicitors had not acted in accordance with the Lenders instructions and in breach of their contract with the Lender under the CML Handbook. Further, they should have let the Surveyors know, on investigation of title, anything affecting their valuation.

The Solicitors argued that the Handbook excluded any duty they might have in that regard as the particular clause referred to,, property valued by the Surveyor, did not fall into the same category as their duty to report to the Lender title matters adversely affecting the property and valuation, not on matters of security.

The High Court found the Solicitors jointly liable with the Surveyors ordering them to pay half of the £200,000 to the Surveyors.

The Court of Appeal before Lord Justice Patten and Sir Stanley Burnton considered there to be two issues:

“(1) Duty: were the Solicitors under the duty alleged by the Surveyors?

(2) Causation: if they were under that duty, was their failure to fulfil it a cause of the Lender’s loss?”
Sir Stanley Burnton noted the Solicitors were instructed on the 1st February 2006 in accordance with the CML Handbook, at that time the 6th May 2005 version. He further noted Clause 4.1. of the Handbook headed “Valuation of Property” which covered the Lenders requirements on a valuation report, no discrepancies between the description of the valued property, title and other documents. Any discovered should be reported immediately to the Lender. Assumptions made by the Valuer must be verified by the Solicitor as to title with the valuation revised if the property was valued using the wrong information. He also referred to clause 5 headed “Title” which read that if the owner has been registered for under six months, this must be reported to the Lender.

He referred to the case of Mortgage Express Ltd v Bowerman and Partners (“Bowerman”), which had established the law as to the duties of Solicitors. The Court of Appeal rejected the submission by the Solicitors that their only duty to the Lender was to report on title. Sir Thomas Bingham MR said “… if, in the course of investigating title, a solicitor discovers facts 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, then it is his duty to point this out.”

He considered if Solicitors were under the Bowerman duty, dependent upon whether their duty had been excluded or inconsistent with the terms of their retainer in accordance with the Handbook. He believed the answer to be No as “Clause 1.3 of the Handbook is inconsistent with its provisions being a comprehensive and exclusive statement of the solicitors’ responsibilities. Clause 5.1.2 can only be explained on the basis that if the matter that “comes to the attention of the fee earner dealing with the transaction which [the fee earner] should reasonably expect [the Lender] to consider important in deciding whether or not to lend to the borrower” and that matter is not confidential to the borrower, the fee earner should report it to the lender”.

He observed, a Solicitor instructed to act for both Lender and Borrower should not be expected to be both “detective or bloodhound”. The Solicitors instructions are in accordance with the Handbook. They would not be required to carry out work in addition to those instructions but if they come across non-confidential information which “a reasonably competent solicitor” viewed as adversely affecting the title or security of the property, this should be reported to the Lender.

He observed that the Judge had found that a reasonably competent Solicitor, having knowledge of the price paid in September 2005, would have been aware that the valuation was far in excess of that price. He rejected the contention by the Solicitors that they were not under a duty.

As to the second issue raised, Causation, he noted that the Lender should be aware the valuation was excessive as the borrower’s application showed he bought the property in October 2005 for £450,000. It would be unlikely that the value of the property would have increased by nearly £300,000. He questioned why the Lender had approved the loan since the information would not have been different from that reported by the Solicitors. He noted Surveyors Counsel’s submission that the inference was that the underwriters had overlooked the discrepancy between the details in the mortgage application and the valuation given which the Judge rejected “If the mortgage underwriting team’s practice, either because of what was in the mortgage underwriting guidelines or because it was settled practice, was to check any discrepancy such as there was in the instant case between the reported purchase price and the valuation with the valuer, then in my judgment it is unlikely that it would not have been done in this case.”

He observed that if the reported price of £450,000 prior to the mortgage application did not concern the underwriters, why had the reported price of £390,000 concerned them. The Solicitors had not seen a copy of the mortgage application and were not aware the information given was misleading. He concluded “In my judgment, the Surveyors did not prove that the Lender would have reacted to the information that 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. I would allow the appeal on this ground”.

Lord Justice Patten agreed that the appeal should be allowed on the issue of Causation as outlined by Sir Stanley Burnton, the Judge had reversed the burden of proof not having given enough weight to the evidence about the earlier mortgage proposal. He also agreed that the Solicitors owed a duty of care to inform the Lender how much the property was purchased for. He concluded that the appeal raised a question about the construction of the terms in clause 5.1.2. of the Handbook in situations where disclosable information has to be withheld by a Solicitor if disclosing it meant he was in breach of duty to his borrower client where in such cases the Solicitor must cease to act, “it recognises in words which echo the judgment of the Master of Rolls in Bowerman that reportable matters which come to the solicitor’s attention when dealing with the transaction and are not confidential to the borrower must be communicated to the lender. It therefore acknowledges the existence of a Bowerman-type reporting duty as part of the solicitors’ instructions”.

He agreed with Sir Stanley Burnton that clause in its true context does not exclude the Bowerman duty and the Solicitors were in this case, in breach of duty.

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