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The Bowerman Duty Lives On?

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Kevin O’Brien, Partner and Head of Lender Services at JCP Solicitors, comments on the recent High Court decision in E. Surv v Goldsmith Williams – published on 10th April 2014 – which is likely to be of particular interest to lenders.

Does a solicitor, when acting for a borrower and a lender in a standard mortgage transaction under the instructions contained in the CML Lenders Handbook (and Solicitors’ Practice Rules 1990 Rule 6(3)(c)), continue to owe a general duty to report to a lender, information which is material to the valuation of the proposed security property or some other ingredient of the lending decision?

This general duty derived from the judgment of the Court of Appeal in Mortgage Express v Bowerman [1996] (“the Bowerman duty”).

With the subsequent introduction of standardised instructions from lenders to conveyancing solicitors, by way of the CML Lenders Handbook, and the standard form Certificate of title under the Solicitors Practice Rules, one school of thought was that the Bowerman duty was now redundant. 

Although not a definitive answer, the recent decision in E. Surv Ltd v Goldsmith Williams provides an interesting, and from the point of view of lenders, a welcome perspective.

The facts?

  1. Mr Gayler bought Quarnford Lodge (the property) in September 2005 for £390,000.
  2. E. Surv was instructed to value the property in November 2005.
  3. Mr Gayler informed E. Surv that he had bought the property between 6 to 12 months earlier, for £600,000.
  4. E. Surv valued the property at £725,000.
  5. Mr Gayler applied to the Lender in December 2005 for a loan of £580,000 to be secured against the property, based upon an estimated value of £725,000.  His mortgage application stated that he had bought the property in October 2005 for £450,000.
  6. E. Surv’s valuation was not provided to the Lender at the time of the application, but was provided afterwards, before the mortgage offer was issued. 
  7. In the course of their investigations prior to completion, Goldsmith Williams (acting for the borrower Mr Gayler and for the Lender under the standard form CML Lenders Handbook instructions) obtained HM Land Registry entries which stated that the property had been bought by Mr Gayler in September 2005  for £390,000.  They did not report those matters to the Lender.
  8. The loan of £580,000 was advanced on 13 February 2006 and the mortgage was completed.
  9. The mortgage account went into default: the Lender repossessed the property and sold at a significant loss.
  10. The Lender asserted claims against E. Surv and Goldsmith Williams, but in the event only pursued the claim against E. Surv in respect of its allegedly negligent valuation.
  11. E. Surv settled the Lender’s claim on terms which included a settlement payment of £200,000, and pursued contribution proceedings against Goldsmith Williams.

This judgment was in relation to those contribution proceedings.

The arguments?

E. Surv’s case was that Goldsmith Williams owed, and breached, a duty to inform the Lender of the true purchase price paid by Mr Gayler, and the date of his purchase of the property.  They argued that that duty arose in one of the following ways:-

  • Under paragraph 4.1.1.1 of the CML Lenders Handbook – duty to report to the Lender a discrepancy between the description of the property as described in the valuation report, and the  information contained in the title documents; and/ or
  • The solicitor’s general common law duty of reasonable skill and care; and/ or
  • The Bowerman duty.

Goldsmith Williams argued that:-

  • The obligation under paragraph 4.1.1.1 of the CML Handbook did not include reporting a discrepancy relating to the price of the property;
  • The Lenders Handbook, Solicitors Practice Rules Rule 6(3)(c) and standard form Certificate of title prescribe the instructions which a solicitor acting for the lender (as well as the borrower) in a standard mortgage transaction must follow, and those instructions do not include an obligation to report the actual purchase price paid by the borrower; and
  • The Bowerman duty no longer applies to the conduct of transactions governed by the CML Lenders Handbook.

The Judge agreed that no duty to report the true price arose under the express instructions contained in the CML Lenders Handbook.  The price could not be a discrepancy between the description of the property in the valuation report and the title documents (CML 4.1.1.1).  Nor did the solicitor’s obligation under CML 5.1 to report to the Lender that the borrower had been registered as the owner of the property for less than 6 months, carry with it an obligation to inform the Lender of the purchase price that the borrower had paid.

However, the Judge found in favour of E. Surv and ordered Goldsmith Williams to pay a contribution based upon a 50/50 apportionment of responsibility.  On the question of the duties owed by the solicitor to the Lender, the key aspects of the judgment included the following:-

  • The CML Lenders Handbook was intended to set out certain specific requirements upon solicitors acting for two parties (borrower and lender) who had potentially competing interests;
  • It was not intended to exclude a solicitor’s general duty to exercise reasonable skill and care; and
  • Neither was the CML Lenders Handbook intended to exclude the Bowerman duty to report information which a reasonably competent solicitor would recognise was material to the question of the valuation of the property or some other ingredient of the lender’s decision to lend, where that information had come into the solicitor’s possession in the course of performing the duties which the solicitor is instructed to undertake.  In this case, the information as to the true purchase price came into the solicitor’s possession as a result of undertaking usual investigations and enquiries and the solicitor was therefore under a duty to report that information to the Lender.

The Judge commented that whilst, in his judgment, the Bowerman duty was not excluded or extinguished by the CML Lenders Handbook and standard form instructions, the duty might not necessarily arise if, for example, the source of the information coming into the solicitor’s possession was something other than carrying out the steps required under the terms of his instructions.

This judgment suggests that the Bowerman duty does live on, but so undoubtedly will arguments between those acting for lenders and those defending solicitors against lenders’ claims, as to whether and when it applies in particular circumstances.

For more information please contact me, Kevin O'Brien on kevin.o'brien@jcpsolicitors.co.uk or telephone 01792 529625.

Kevin O’Brien is a Partner and head of the Lender Services team at JCP. Kevin specialises in complicated litigation in the areas of professional negligence and mortgage fraud claims. Kevin is also an accredited commercial mediator and was the Chairman and co-founder of Commercial Mediation West Wales, the first mediation provider in Wales to achieve accreditation by the Civil Mediation Council.

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