Spot the Difference

This article was produced by Olswang LLP, which joined with CMS on 1 May 2017.

The Message:

Failure to highlight a property price discrepancy may cost solicitors dearly.

The Case:

E. Surv Limited v Goldsmith Williams Solicitors [10 April 2014] concerned whether solicitors were required to indemnify surveyors to reflect the former's contribution to a loss suffered by a mutual lender client following the surveyors' negligent over-valuation. The case is a lesson for solicitors acting for lenders on a property financing to check at the Land Registry the price last paid for the property and to highlight where there is a significant discrepancy with the valuation for the loan. This is especially the case where the Land Registry price was recently entered on the register.

The Mortgage Business, a mortgage lending company, lent £580,000 to its borrower under a re-mortgage of a residential property, reliant on a valuation of the property of £725,000 provided by E.Surv Limited, a firm of surveyors. Subsequently, the borrower defaulted and the lender suffered a loss and claimed against E.Surv for damages for a negligent over-valuation. The surveyors paid £200,000 in settlement and sought a contribution under the Civil Liability (Contribution) Act 1978 from the lender's solicitors, Goldsmith Williams, in respect of the money it had paid to the lender.

The surveyors argued that the solicitors, in breach of their contract with the lender, had failed to advise that Land Registry office copies showed the borrower had paid £390,000 for the property within the last six months, which was significantly less than the surveyors' valuation. E.Surv argued that, had the solicitors disclosed this information, it would, ultimately, have led to the lender declining to lend and the loss not being incurred.

Solicitors have a common law duty, known as a "Bowerman" duty, to report to a lender client matters relevant to the valuation of a property offered as security for a loan. A key issue was whether that duty was ousted by the terms of the Council of Mortgage Lenders' Handbook, under which the lender instructed the solicitors. The solicitors argued that the Handbook did not require them to disclose the lower price and this prevailed over the Bowerman duty and they also argued that the surveyors' valuation would not have changed, had the information been provided.

The High Court, however, decided, in E.Surv's favour that the solicitors should indemnify them £100,000, 50% of the settlement amount.

The solicitors were obliged to make appropriate property searches in public registers and report any results which they considered may adversely affect the lender. The Court held that this included a Land Registry search and the Bowerman duty, not excluded by the Handbook or solicitors' practice rules, applied to that search. If the solicitor discovers information from the office copies about a recent purchase price which has a material bearing on the valuation of the property for a refinancing, then he is obliged to the lender to disclose this. Here, the disparity in the values was so significant that it should have been disclosed and, if it had been, this would have impacted on the lender's decision to lend at the particular loan to value ratio.

In terms of apportioning liability, the court is required to assess contribution by reference to what is just and equitable having regard to the degree of blameworthiness of each party and its respective impact. The Court considered the solicitors equally to blame and should share the liability equally with the surveyors.