Solicitors acting for both sides in property transactions are under a duty to disclose crucial details to lenders, the Court of Appeal has ruled.
Sir Stanley Burnton said he did not expect a solicitor to act as a “detective or bloodhound”, but he or she was under a duty to report to a lender “non-confidential information that a reasonably competent solicitor would realise adversely affected the title to the mortgage property or the value of the security”.
Sir Stanley said the duty to report, established by the Court of Appeal in Mortgage Express v Bowerman & Partners  2 All ER 836, was not excluded by the terms of the Council of Mortgage Lenders (CML) Handbook.
He rejected the suggestion in the third edition of Solicitors’ Negligence and Liability, edited by QCs Flenley and Leech, that the provisions of the Handbook were inconsistent with the Bowerman duty.
Sir Stanley was giving judgment in an action brought by surveyors e.surv against the law firm Goldsmith Williams under the Civil Liability (Contribution) Act 1978, following the settlement of a negligence action against e.surv.
He said the surveyors had agreed to pay The Mortgage Business £200,000 plus costs and interests for negligent valuation. At first instance, HHJ Stephen Davies ordered Goldsmith Williams to pay half of this.
The Court of Appeal heard in Goldsmith Williams v E.Surv  EWCA Civ 1147 that David Gayler bought Quarnford Lodge near Buxton for £390,000 in September 2005.
Mr Gayler told a surveyor from e.surv who inspected the property in November 2005 that he had bought it for £600,000, and the surveyor valued it at £725,000.
In late December 2005, Mr Gayler applied to The Mortgage Business for a remortgage, seeking a loan of £580,000 and giving the purchase price as £450,000 in his application.
Sir Stanley said The Mortgage Business agreed to the loan the following month, even though the underwriter must have seen details of the purchase price and the borrower’s contention that the property had increased in value by £275,000 in only two months. Mr Gayler later defaulted.
Meanwhile, Goldsmith Williams had obtained office copy entries showing the purchase price of only £390,000, but did not report the information to the lender.
Sir Stanley said that although the lender “intimated a claim against the solicitors”, it was not pursued once the solicitors had pointed out what was stated in the mortgage application itself about the purchase price.
The judge said that the answer to the question of whether the Bowerman duty to report was “excluded by, or was inconsistent with” the CML Handbook was “clearly ‘no’”.
“On this appeal, it is not suggested that if the solicitors were under the duty that I consider applied to them, they were not in breach of that duty.
“As the judge found, a reasonably competent solicitor would have realised that the date and price paid for the property in September 2005 strongly suggested that the valuation was greatly excessive. I would therefore reject the solicitors’ contention that they were not under a duty.”
However, Sir Stanley disagreed with the High Court on causation. He said the facts of the case were unusual, in that the lender already had information “strongly suggesting that the valuation of the property was excessive” and that information was not “materially different” from the details which should have been reported by the solicitor.
Sir Stanley said the High Court judge “fell into error” by reversing the burden of proof and instead it should have been for the surveyors to establish the breach of duty.
He concluded that e.surv had not proved that the lender would have reacted to the information the solicitor should have reported, which was not “materially different” from details it already had from the borrower.
Sir Stanley allowed the law firm’s appeal. Lord Justice Patten agreed, for his own reasons.
Describing the ruling as a “good result”, Eddie Goldsmith, founding partner of Goldsmith Williams, said the case “was never about the lenders who didn’t pursue a case against us”.
He went on: “This is about common sense prevailing, with the court reversing a wrong decision requiring us to make a contribution to the valuer’s negligence.”