E.Surv Limited v Goldsmith Williams Solicitors [10 April 2014]
In this case, a practice of Solicitors acting for a bank lender were found to be equally to blame for a substantial over-valuation by a surveying firm, despite playing no part in the valuation process.
The original case concerned a lender, The Mortgage Business, who lent £580,000 for a re-mortgage against the security of a property valued within a ‘Mortgage Valuation Report’ by E.Surv at £725,000. The borrower then defaulted and The Mortgage Company suffered a substantial loss. Bringing a claim against E.Surv for negligent over-valuation, the Claimant secured £200,000 worth of damages in settlement.
The litigation did not end there, with E.Surv consequently suing the Solicitors, Goldsmith Williams, under the Civil Liability (Contribution) Act 1978. They claimed 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.
The argument relies upon the ‘Bowerman Principle’, a duty established in common law which prescribes that a solicitor acting for a lender client must report to that client all matters relevant to the valuation of a property offered as security to a loan. Whilst the Solicitor argued that the Council of Mortgage Lenders Handbook did not require them to disclose the lower price and that the surveyors’ valuation would not have changed had the information been provided, the Judge ruled against them.
The Judge ultimately ruled that 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. The Bowerman duty, not excluded by the Handbook or solicitors’ practice rules, applied to that search and the solicitor acted negligently in not disclosing its contents.
In this case, 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. Whilst it would not have affected the value reached by E.Surv’s negligent valuer, the solicitors were still held liable for 50% of E.Surv’s damages – some £100,000.
A clear warning then to all solicitors working in the property field, the Bowerman Principle is alive and well and it must not be neglected.