E.Surv Ltd v Goldsmith Williams Solicitors

In this case the claimant surveyors E.Surv Limited (“the surveyors”), seek contribution under the Civil Liability (Contribution) Act 1978 from the defendant solicitors Goldsmith Williams (“the solicitors”), in respect of monies paid to a mortgage lending company, The Mortgage Business (“the lender”), in settlement of its claim for damages for negligent over-valuation of a property known as Quarnford Lodge, near Buxton (“the property”).

The surveyors’ case is that the solicitors failed, in breach of the express and implied terms of its contract with the lender, to advise the lender that the would-be borrower, a Mr David Gayler (“the borrower”), had been registered as proprietor of the property for less than 6 months and that the price he had paid for it as disclosed on the office copy entries, £390,000, was significantly less than the surveyors’ valuation as stated in the mortgage offer, £725,000. The surveyors’ case is that had the solicitors done so then the lender would have requested the surveyors to reconsider their valuation in the light of that information, that at that point the surveyors would have realised that the borrower had misinformed them about the purchase price, and would have: (a) produced a significantly reduced valuation; and/or (b) informed the lenders about this misinformation, with the result in either case being that the lender would have declined to lend to the borrower and, thus, avoided the loss which it in fact incurred.

Whilst the surveyors accept that they cannot recover all of their loss from the solicitors, they do claim that they are entitled to a substantial contribution from them against the total amount paid in settlement, which was £200,000.

The solicitors defend the claim on the following basis:

I have heard evidence from 3 witnesses called by the surveyors, Mr Michael Beal, Mr Craig Smith and Mr Colin Davison. The solicitors did not adduce any witness evidence. So far as those three witnesses are concerned, my assessment is as follows:

Mr Beal is employed by the surveyors as the head of panel management. His evidence was directed to the issue as to what the surveyors would have done had the lender notified them of the actual purchase details. He came across to me as an honest and reliable witness in relation to matters of fact, and I accept his evidence of fact. Insofar as in his witness statement and evidence he expressed opinions as to what would have happened in the hypothetical circumstances that the lenders had approached the surveyors notifying them of the actual purchase details, I am unable to place any great weight on that evidence.

Mr Smith is employed by the surveyors as a residential area valuer, working from their Sandbach office valuing properties in the Buxton and High Peak areas. His evidence was directed to the valuation of the property which he undertook in November 2005, and also as to what he would have done had he been asked to re-consider his valuation in the light of the actual purchase price.

He came across to me as an honest and broadly reliable witness notwithstanding that he had through failure to refer to all of the contemporaneous documents when providing his witness statement failed, until the morning of trial, to note or to correct what was potentially a significant error in his contemporaneous site notes. I should emphasise however that there was no attack on his honesty and, in particular, there was no suggestion put to him that he was complicit with the borrower in deliberately producing an overstated valuation. In my judgment there would have been no proper basis for doing so in any event.

In short, I accept his evidence as to the circumstances in which he had come to produce his valuation, and as to what he would have done had he been asked to reconsider it by the lender by reference to the actual purchase details.

Mr Davison was employed by the lender as a national account manager. He was called by the surveyors to give evidence as to the operation of the lender’s underwriting team and how they would have responded to being provided by the solicitors with the information about the actual purchase details. Mr Mitchell for the defendant invited me to strike out certain parts of his witness statement as containing inadmissible and/or irrelevant opinion evidence but I refused to do so, holding that I would need to hear Mr Davison give evidence before I could reach a conclusion as to the extent to which such evidence was admissible and/or relevant, and as to the extent to which it assisted me in deciding the issues.

Having heard Mr Davison, my conclusion is that whilst he was an honest and reliable witness of fact, he had insufficient knowledge or experience of the particular mortgage underwriting team who dealt with this application to provide me with very much assistance as to how they would have dealt with the application had the solicitors provided the actual purchase details.

I will address the key issues in the following order: (1) breach; (2) causation; (3) apportionment, but before doing so I will refer to the relevant circumstances and make any necessary findings of fact

Quarnford Lodge is a substantial detached property, located on the main road from Buxton to Leek. It was built in the late 1970’s, with a view to being operated as a small hotel and restaurant or similar. It had 4 reception rooms, 7 bedrooms and 5 bathrooms. It was apparently being operated as a bed and breakfast establishment before being acquired by the borrower. The photographs show that it did rather look more like a purpose built bed and breakfast type establishment than a converted dwellinghouse. That impression was fortified by its position right up against the road and its lack of garden or grounds. As at November 2005 it appears to have been in reasonable condition, but no more than that.

Mr Gayler was a local man, with his own local property business. He had a track record of acquiring property in the Buxton area for buy-to-let purposes with the benefit of secured finance. Mr Smith accepted that he had valued properties where Mr Gayler was the borrower on 2 or 3 previous occasions.

In late December 2005 he applied to the lender for a remortgage, seeking a loan of £580,000, on the basis of self-certified details of his earnings from his self-employment. He completed the application form on the basis that he was, and intended to continue, occupying the property as his own residence, rather than for business purposes.

I should make it clear that notwithstanding the apparent discrepancies in relation to the purchase details as provided by Mr Gayler no evidence has been put before me, nor submission advanced to me, that he acted dishonestly as regards this transaction. The information provided by him on the application form as to the purchase details was not so significantly different from the actual purchase details as would dictate that conclusion. Moreover, once Mr Smith had clarified his witness statement when giving evidence in chief, the discrepancies between the actual purchase details and what he had told Mr Smith was not quite so marked. Nonetheless, given the clear discrepancy between the true position, what he stated on the application form, and what (I am satisfied) he told Mr Smith, it is difficult for me to reach any other conclusion, for the purposes of this action only I stress, than that he was deliberately misstating the true position to Mr Smith, with a view to adding credence to the value he was contending for and/or with a view to minimising the extent to which his current secured borrowing exceeded the original purchase price.

The surveyors were initially instructed in November 2005 by a different lender to produce a valuation for re-mortgage purposes. The instructions record that the estimated value was said to be £850,000 and the loan required was £500,000. The job was assigned to Mr Smith as the surveyors’ valuer for that area and on 15 November 2005 he met the borrower and inspected the property. His site notes have been produced. For present purposes 2 entries are relevant:

So far as the entry at p.3 is concerned Mr Smith had, in his witness statement, confirmed that this is what he had been told by the borrower. However he said in his evidence in chief that the day before the trial he had been shown, for the first time since he had made it, a contemporaneous internal document, headed “critical value authority”, which he was required to produce in all cases of valuations above £400,000 in order for his valuation to be sanctioned internally before being sent out. On that document he had recorded the “original purchase price” as £600,000 but the “original purchase date” as “2004”. He said that whilst he no longer had any recollection of what he had actually been told by the borrower on that day, doing the best he could to reconcile the site notes with the critical value authority he could only surmise that he had been told by the borrower that he had purchased the property 6-12 months ago for £600,000, and that when completing the site notes he had failed to delete the pre-printed word “years” and replace it by “months”. Although Mr Mitchell expressed some polite incredulity in cross-examination on this aspect of his evidence, it seems to me to be the most sensible explanation of the conflict between the two documents, and I accept it.

That does however still beg the question as to why Mr Smith had written “2004” and not “2005” as the year of purchase, when 6 months before November 2005 would be May 2005. On balance I consider the most likely explanation is that when completing the critical value authority Mr Smith was, as Mr Mitchell suggested, conscious that there was less likely to be a query as to the extent of the increase in value if the gap between purchase and valuation was more like 12 months than 6 months. Accordingly, even though as I find the borrower’s actual answer was “around 6 months ago”, he chose to treat that answer as if the words used had been “within the last 12 months”. I stress that I am not finding a deliberate intention on Mr Smith’s part to deceive. But I do consider that he knew that he was going out on a limb in valuing the property at £725,000, and thought that there was less likelihood of its being queried if he entered 2004 rather than 2005 on the internal form.

So far as the entry at p.5 is concerned, Mr Smith was taken in cross-examination to the retrospective report produced by an independent expert surveyor, Mr Sellors, in April 2010 on the surveyors’ instructions with a view to ascertaining whether or not there was force in the lender’s subsequent criticism of Mr Smith’s valuation. In that report Mr Sellors referred to the 3 comparables and expressed his view that they were all far superior to the property in their location, appearance, land and suitable amenities, so that in his view the third was not truly comparable and it was not appropriate to rely on the sale value of £725,000 for the first two without first discounting heavily to reflect those differences.

Mr Smith’s evidence was that after inspecting the property he would have made enquiries with a number of local estate agents with a view to finding evidence of recent sales of comparable properties, on the basis that the valuation database maintained by the surveyors did not assist him in valuing this rather unusual property.

His evidence was that he regarded the estimated value of £850,000 as being over-inflated. He said that he was influenced by the information he had received about the purchase price of £600,000, which he had no evidence or reason to disbelieve. He said that he would have taken this as his starting point, then had regard to the rise in the market over what he had understood was the 6 months or so since the property was acquired by the borrower, then looked for properties close to his valuation to use as comparables.

He accepted that a valuer should not start with a particular value in mind and then look for comparables to justify that valuation. He accepted that the proper approach was to look for properties which were comparable, and then to have regard to their sale value when valuing the particular property. He acknowledged that it was “human nature” to look for comparables which supported the figure which the valuer had already provisionally arrived at.

He accepted that he would not have viewed the comparable properties, although he might have been able to obtain sales particulars, and at the time he was mostly reliant on speaking to local estate agents. He admitted that there were some inaccuracies in his comparables, in particular that the first comparable was in fact only on the market for £725,000 at the time, and had not actually been sold for that figure.

It was clear to me that Mr Smith was required to provide valuations to a very tight timetable. The expectation was that he would produce his valuation on the same day as he inspected the property. Typically he would inspect and produce valuations for 3 to 4 properties each day. Although as he said obtaining comparables for more straightforward properties would not be anything like as demanding as it was with an unusual property such as the instant one, nonetheless it was still a very full and pressured working day. He estimated that he might have had time to spend about an hour obtaining comparables in this case. The conclusion I reach is that he did little more than obtain brief details of the comparables in this case in terms of their location, size, number of bedrooms and bathrooms and so on.

As I have said Mr Sellors’ view was that it would not have been right to rely upon the comparables relied upon by Mr Smith without significantly discounting their value to reflect the differences. In my judgment he is plainly right in this, and in fairness Mr Smith did not seek to argue otherwise. Of course Mr Smith’s difficulty was that he had not, whether due to time pressure or for other reasons, obtained sufficient information about the comparable properties to appreciate just how different they were to the subject property. In fairness to Mr Smith I note that Mr Sellors was equally unable to find genuine comparables, perhaps not surprisingly given the unusual nature of the property. Thus the comparables selected by Mr Sellors are by no means comparable in terms of their size and accommodation. Perhaps tellingly, what Mr Sellors said at p.8 of his report was that:

“Given that the subject property was freely exposed to the market from May 2005 to September 2005 at an asking price of £399,950, it is very difficult to justify providing retrospective valuation advice at a significantly higher level.”

In my judgment, that tends to support Mr Smith’s starting point, which was to begin with what he was informed, and had no reason to disbelieve, was the recent actual sale price. In my judgment where he went wrong thereafter was to place too much weight on the subsequent rise in the market, and to rely on comparables which were comparable only in terms of size of accommodation but otherwise far superior to the subject property in terms of their appeal to residential homebuyers. I consider that he did fall into the trap of arriving at a provisional valuation of around £725,000 and then, having found comparable sized properties with a sale price at around that figure, used those as comparables without checking sufficiently carefully to see if they really were comparable.

Having provided his valuation in November 2005, Mr Smith was then instructed to produce was he described as a “re-type” on 11 January 2006 on behalf of the lender in this case. What that means is that under the system in operation at the surveyors at the time, so long as the request for the valuation was received within 3 months of the original valuation there was no need for a further inspection or revaluation, so that the previous valuation was, effectively, re-typed as a new valuation in the format required by the particular lender. That is what was done in this case, and the valuation in question was produced on the same day.

Under the terms of the settlement agreement reached by the surveyors with the lender the latter had expressly declined any obligation to provide any assistance to the former in relation to any contribution claim it might bring. It was in those unpromising circumstances that the surveyors have been unable to adduce any direct evidence from anyone involved with this particular transaction at the time. I have however been provided with what I understand to be a full copy of the lender’s internal documentation produced in relation to this transaction and, with the assistance of counsel and Mr Davison’s evidence, I have been able to gain a reasonable understanding of events.

As I have said the mortgage application completed by the borrower stated (at page 9 of a 15 page form) the purchase price and date as being £450,000 and October 2005 respectively. It follows that any mortgage underwriter reading the application form could have been in no doubt that the borrower was contending that the property had accumulated in value by £275,000 in only 2 months.

The application was approved in principle by one of the mortgage underwriters on 3 January 2006. It is clear that the underwriter would have seen the application form, but there is no indication from the internal notes that he raised any question in relation to the purchase details. It is however clear from the internal notes that he did check, and was satisfied, that the borrower’s existing loan facilities with the lender were being satisfactorily operated. The application was further scrutinised by another underwriter in the team on 16 January 2006. The data entered by that underwriter at that point, as recorded by an internal email of that date, includes the data in the application form as to the year of purchase and purchase price, demonstrating that the underwriter must have seen this information. There is no indication however that this was questioned, even though the underwriter was clearly aware that the purpose of the loan was in part to clear the existing bridging loan used to purchase the property. However it also appears from this email and other internal documentation that the valuation report had not been provided to the mortgage underwriting team at this stage, and there is no indication that they were aware that the £725,000 which the borrower had estimated as being the current property value was in fact based on a valuation as opposed to the borrower’s own estimate. By 19 January 2006 it appears from the internal notes that the valuation report had been obtained, although seemingly unsigned. Finally, it appears from the internal notes that another mortgage underwriter approved the application on 26 January 2006, and an offer was issued. There is no indication that any question was raised as to the valuation in the light of the purchase price details on either date. Mr Davison said that he believed that it was more likely that the underwriter had just missed the information, rather than due to lack of concern but that was, in my judgment, pure speculation on his part.

In the absence of the lender’s mortgage underwriting guidelines in force at the relevant time it is not known whether an underwriter considering an application such as the present was specifically required to check the purchase price details against the valuation or to take any action either if the purchase date was less than 6 months prior to the application date or if the discrepancy between the purchase price as reported and the value as valued exceeded some specified percentage. What however Mr Davison was able to confirm was that January 2006 was a very busy time because of the then boom in the property market. He was also able to confirm that there were around 16 mortgage underwriters in the mortgage underwriting team at the time, divided into separate teams. However he accepted that he had no knowledge of, or dealings with, the mortgage underwriting team which dealt with this application, which was based in Chester and dealt with applications in relation to properties in this region. He accepted that in such circumstances he was unable to say how they would have viewed this situation or what their processes were. Whilst he said that he would have been concerned about the apparent discrepancy, he accepted that he could not say whether or not they would have been similarly concerned.

It is common ground that the solicitors were instructed both by the borrower and by the lender. The latter instructed the solicitors by letter dated 1 February 2006. That letter stated that the instructions were given on the basis of:

The relevant version of the Lenders’ Handbook is that dated 6 May 2005. It is a document produced following negotiations between the CML on behalf of its members and the Law Society representing individual conveyancing solicitors, and must be read together with the Solicitors Practice Rules 1990 (“Practice Rules”). Since the solicitors place considerable reliance upon it in support of their case that they owed no duty of care to the lender to report the purchase price to the lender, it is necessary for me to refer to it in some detail.

It is divided into 2 parts. Part 1 is entitled “Instructions and Guidance”, and contains 17 separate sections. Whilst neither party has been able to provide a copy of Part 2, which comprises the bespoke instructions provided by the lender in the particular transaction, it is not suggested that it contained anything of relevance to the issue which I have to decide.

Part 1 begins with the following statement:

“Those lenders who instruct using the CML Lenders Handbook certify that these instructions have been prepared to comply with the requirements of rule 6(3) of the Solicitors’ Practice Rules 1990.”

The Practice Rules were made by the Law Society to regulate the practice of solicitors, both generally and in respect of certain specific matters, and were in force up to 1 July 2007. Rule 6 sets out the circumstances in which a solicitor may act for more than one party in conveyancing and related matters. Rule 6(3)(a) prohibits a solicitor from acting for both lender and borrower on the grant of a mortgage of land in certain specified circumstances, including where the lender’s mortgage instructions extend beyond the limitations contained in rule 6(3)(c) or do not permit the use of the certificate of title required by rule 6(3)(d). Rule 6(3)(e) makes it clear that in the event of any ambiguity or discrepancy the terms of the rule will prevail over the terms of the instructions.

In short, therefore, the instructions given in this case by the lender to the solicitors by reference to the CML Lenders Handbook are to be read as being consistent with, and not imposing obligations going beyond, those contained in the Practice Rules.

Rule 6(3)(c) provides that the lender’s instructions must be limited to the matters specified therein. The following are, or may be, relevant to this case:

“(ii)

making appropriate searches relating to the property in public registers (for example, local searches, commons registration searches, mining searches), and reporting any results specified by the lender, or which the solicitors considers may adversely affect the lender.

(v)

reporting if the seller or the borrower (if the property is already owned by the borrower) has not owned or been the registered owner of the property for at least 6 months.

Rule 6(3)(d) specifies the form of certificate of title to be used by the solicitor. There are a number of specific matters, followed by:

Returning to the Lenders Handbook, clause 1 – General, contains a number of clauses which are relevant in this case:

Clause 4 – Valuation of the Property, contains the following clause:

Clause 5 – Title, contains a number of relevant clauses:

Returning to the facts of this case, the solicitors applied for and obtained office copy entries relating to the property, which revealed the actual purchase details to which I have referred. There is no evidence from the solicitors as to whether or not they appreciated that the information disclosed that the property had been purchased within the last 6 months for substantially less than the valuation of £725,000. All that is known is that the solicitors did not report this information to the lender.

On 3 February 2006 the solicitors submitted a duly completed signed certificate of title to the lenders. It is on the lender’s standard form, and includes the following statement:

“We the conveyancers named above give the certificate of title set out in the Appendix to Rule 6(3) of the Solicitors Practice Rules 1990 as if the same were set out in full, subject to the limitations set out in it.”

Finally, on 13 February 2006 they reported that completion had occurred on that date. It is not in issue that the lender advanced the monies to the borrower, that he defaulted, that in due course the lender suffered a loss, and that following a claim made against the surveyors a settlement was reached. It is also right to record that although the lender also intimated a claim against the solicitors it was not pursued once the solicitors had drawn the lender’s attention to what was stated in the mortgage application itself about the date of the prior purchase and the purchase price.

Since it is relevant to the issue on causation, I should conclude my factual account by referring to the evidence about the facility offered by the surveyors to check valuation information. It is clear from the evidence that at the relevant time the surveyors had a dedicated team, known as the Post Valuation Query (or PVQ) team, which they marketed as a facility, available to clients such as the lender, under which any query connected with a valuation could be directed to this team, who would then ensure that the query was dealt with and answered appropriately and expeditiously. The members of the PVQ team, which comprised a small number of administrative staff headed by a team leader, were not qualified surveyors, and it was their function simply to log the request and transmit it on to the relevant surveyor to be dealt with.

The attraction to the lender was that rather than having to locate and deal direct with the individual valuer, they could simply make contact with the PVQ team who would then deal with the query for them. Of course in the majority of cases all that this meant was that the PVQ team would transmit the query to the valuer concerned, obtain a response, and transmit that response to the lender. Mr Beal’s evidence was that in appropriate cases the individual team member might also involve the team leader, who might also involve either Mr Beal, to whom he or she would have reported, or the regional manager responsible for the valuer in question.

Although there is evidence before me that the lender in this case did use the PVQ team to raise queries regarding valuations, there is no evidence that it ever raised a query in circumstances similar to the present case. Nor is there any evidence that in similar circumstances the PVQ team ever reported specific lender queries to Mr Beal or to the regional manager, as opposed simply to transmitting them to the valuer concerned. There is however some evidence from the schedule produced by Mr Beal that in two cases the lender did contact the PVQ team in relation to communications from solicitors, which were answered by the valuers concerned. Although the letters do not make it clear beyond doubt that the solicitor communications emanated from the solicitors instructed jointly by the lender and the borrower in accordance with the CML Lenders Handbook, the inference from the tenor of the letters is that they did.

BREACH

As I have said, although the solicitors admit breach of clause 5.1.1 of the Lenders Handbook they deny that they owed any obligation to report on the discrepancy between the purchase price and the valuation.

The surveyors’ case is that the solicitors were obliged to do so both under the express terms of clause 4.1.1.1 and as an incident of their duty to exercise reasonable care and skill under which, according to the surveyors, the solicitors were obliged to advise in relation to facts discovered by them in the course of investigating title 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. This is known as the “Bowerman duty”, because it is derived from the decision of the Court of Appeal in the case of Mortgage Express v Bowerman [1996] 1 PNLR 62 in which, at p.69, Lord Bingham MR so held.

The solicitors through Mr Mitchell contend that clause 4.1.1.1 does not apply because the discrepancy between purchase price and valuation is not a “discrepancy between the description of the property as valued and the title documents”. Mr Mitchell contends that the description of the property cannot extend to its valuation or its purchase price. The surveyors through Mr Patel contend that the valuation is part of the description, and that the solicitors’ interpretation is too narrow.

I agree with Mr Mitchell that, on its plain wording, clause 4.1.1.1 cannot apply to the situation here. The words “description of the property as valued” themselves make clear that the description of the property is different from the valuation of the property. Moreover, since the valuation of the property is a statement of opinion, whereas the purchase price paid for a property on a previous sale is a statement of fact, it is difficult to see how there could be a “discrepancy” between two things of completely different characters.

Mr Patel contends that nonetheless the Bowerman duty arises in this case. He points, amongst other things, to clause 5.1.2 of the Lenders Handbook, which he submits is an implicit recognition that there is such a duty, because otherwise there would be no need to make provision for what the conveyancer would have to do in such circumstances.

However Mr Mitchell contends (in paragraph 8 of his opening skeleton argument) that it cannot apply where, as here, “a solicitor gives a certificate of title in the form appended to Rule 6(3) of the Solicitors Practice Rules 1990 (“Practice Rules 1990”), because:

He also contends that there is no express requirement in the Lenders Handbook for the solicitors to report on the original purchase price of the property, in contrast to the obligation to report if the owner had been registered less than 6 months previously. He contends that the surveyors’ reliance on clause 5.1.2 is irrelevant, because it only applies to circumstances where the Lenders Handbook or the certificate of title specifically requires the solicitor to disclose a particular piece of information.

He draws my attention to the commentary in two textbooks, which he submits support his case. The first is Solicitors’ Negligence and Liability, by Flenley and Leech, 3^rd edition (2013), and the second is Lender Claims, by Tomlinson and Grant, 2010. In the former the authors suggest, at paragraph 10.67, that the absence of any specific instructions in the CML Lenders Handbook along the lines of the Bowerman duty would be inconsistent with the implication of such a duty. In the latter the authors suggest, at paragraph 3-29, that a solicitor acting under the CML Lenders Handbook no longer owes the Bowerman duty to the lender, on the basis that if that had been intended an express duty to that effect would have been included.

Furthermore, I note that the authors of Jackson & Powell on Professional Liability (7^th edition, 2012) suggest, at paragraph 11-218, that in relation to the CML Lenders Handbook “while there may be some room for the implication of implied duties in addition to the written duties, the scope for such implication is quite limited”.

Responding to these submissions, Mr Patel accepts that the Bowerman duty would not arise where it is inconsistent with the express terms of the retainer or with the surrounding circumstances of the relationship. However he submits that clause 1.3 of the Lenders Handbook could not be clearer in providing that the Lenders Handbook should not affect the solicitors’ responsibilities to the lender under the general law. He submits that clause 5.1.2 of the Lenders Handbook implicitly recognises the existence of a Bowerman duty and demonstrates that such duty, being a duty forming part of the solicitors’ general duty of reasonable care, applies notwithstanding the fact that there is no express provision imposing such an obligation in the Lenders Handbook. He submits that it is clear from the terms of the Lenders Handbook that the general duty to take reasonable care is not ousted, observing that the provisions of the Lenders Handbook are not prescriptive as to specifically what it is that the solicitors must do. Thus clause 4.1.1 requires the solicitors to take “reasonable steps”, clause 5.2.1 requires the solicitors to “make all usual and necessary searches and enquiries”, and clause 5.2.2 requires the solicitors to carry out any other searches which may be “appropriate to the particular property”.

As to Mr Mitchell’s reliance upon the Practice Rules and the certificate of title, he submits that the retainer is to be found in the Lenders Handbook and not elsewhere, and that the certificate of title is not, and is not intended to be, exhaustive as to the obligations undertaken by the solicitors, whether expressly or by implication, under the contract of retainer.

He submits that even if Mr Mitchell was otherwise correct in his argument as to the effect of the Lenders Handbook, the Practice Rules and the certificate of title, that argument does not avail the solicitors because under the retainer they were expressly obliged to “make appropriate searches relating to the property in public registers” and to report any results “which the solicitor considers may adversely affect the lender”: see rule 6(3)(c)(ii) of the Practice Rules. He submits that it is clear that the title register maintained by HM Land Registry is clearly a public register, that searching HM Land Registry was obviously an appropriate search which the solicitors were obliged to make, and that the obligation to report any results which the solicitor considers may adversely affect the lender obviously includes the obligation to comply with the Bowerman duty. He submits that since the Bowerman duty is thus within the scope of the instructions in rule 6(3)(c)(ii) it also falls within the mop-up provision in clause (i) of the certificate of title and, thus, is not excluded by the limitation contained at the end of that document.

In seeking to meet this last point, Mr Mitchell counters that conducting a HM Land Registry search was not capable of falling within the scope of the “appropriate searches” required by clause 6(3)(c)(ii) Practice Rules, since it was not specifically referred to in it, and nor is it something which a conveyancer would normally consider to be a “search”. He submits that it would more naturally fall within the obligation at paragraph (vii) to “investigate title to the property”.

As to this, Mr Patel objects that there is no evidence to support Mr Mitchell’s assertion that as a matter of conveyancing understanding the word “searches” would not include HM Land Registry searches. He also obtains support in my judgment from the terms of the Lenders Handbook, under which by clause 5.2.1 HM Land Registry searches were specifically referred to in the context of the obligation to undertake “all usual and necessary searches”.

I accept Mr Patel’s submissions on the narrow point of the true construction and effect of the Lenders Handbook, the Practice Rules and the certificate of title. As a matter of construction, it is clear to me that conducting a search at HM Land Registry does fall within the category of appropriate searches relating to the property in public registers, even if the primary or, indeed, the sole purpose of so doing is to investigate title to the property. That is confirmed by the terms of the Lenders Handbook to which I have referred. There is no indication from the face of the documents that the word “searches” is intended to or should bear some more restricted meaning so as to exclude Land Registry searches. Whilst such searches are not specifically mentioned in rule 6(3)(c)(ii), those that are mentioned are only stated to be by way of example as opposed to an exhaustive list. I agree that the obligation to report any results which the solicitor considers may adversely affect the lender is obviously both intended to and capable of including the obligation to comply with the Bowerman duty. There is no specific limitation to, for example, reporting only matters relevant to title.

It follows, in my judgment, that it is not possible for the solicitors to say that the terms of the Lenders Handbook, read with the Practice Rules and the certificate of title, exclude, on their true construction, the Bowerman duty.

On the wider point, in my judgment what the Lenders Handbook, read with the Practice Rules and the certificate of title, is intended to do is to identify and to delimit the precise scope of the specific activities which the solicitor is being retained to do, in circumstances where the solicitor is faced with the difficult position of acting for two parties with potentially conflicting interests. It is not intended to exclude the general obligation to exercise reasonable care and skill in the performance of such activities or, as part of such general obligation, the obligation to report to the lender as one of the clients where, through the performance of such obligations, the solicitor comes into possession of information which has a material bearing on the valuation of the lender’s security or some other ingredient of the lending decision.

It follows in my judgment that a solicitor must perform his express obligations under the Lenders Handbook by undertaking a Land Registry search and by reading the office copies so obtained as well as by reading a copy of the valuation report provided to him. If in the process of so doing he discovers information from the office copies about the recent purchase price which has a material bearing on the valuation of the property, then he is under an obligation to the lender to disclose it. That is an obligation which does not extend beyond the limitations of the Lenders Handbook, is expressly preserved by clause 1.3 of the Lenders Handbook, and must be performed unless to do so would involve a conflict of interest, in which case the solicitor must act in accordance with clause 5.1.2 of the Lenders Handbook.

It follows that I am satisfied that the Bowerman duty arose in this case. Whether or not it applies in other cases will, in my judgment, depend upon the source of the information in question. If the source is not one which the solicitor is required to obtain or to consider under his express obligations, then I can see the force of the argument that he cannot be obliged to consider whether or not it has a material bearing on the valuation so as to give rise to a Bowerman duty. That, it seems to me, is the point which the authors of the textbooks to which I have been referred are making.

It has not been suggested by Mr Mitchell, rightly in my judgment, that having regard to the actual purchase details and the valuation the discrepancy between the purchase price in September 2005 and the valuation in December 2005 was not such that the solicitors were not required to disclose it to the lender. Even making allowance for what appears to have been a buoyant property market at the time, it is clear in my judgment that the disparity was so significant that it ought to have been disclosed to the lender. Since the solicitors were not provided with a copy of the mortgage application form they would not have known that the borrower had in fact disclosed details of the purchase date and purchase price on the form, but even if they had they would have observed that there was a discrepancy of some significance between the purchase price as declared by him and the actual purchase price, and would have known therefore that they should ensure that the lender was made aware of the actual purchase price. As Mr Patel submitted, if the solicitors had wanted to challenge these points it would have been expected either that they would call the conveyancer involved at the time or at least explain why she was not being, or could not be, called to give evidence to address these points.

It follows in my judgment that breach in failing to notify the lender of the actual purchase price as well as the purchase date has been made out.

CAUSATION

It is common ground between the parties that in this case the task for the court is to decide on the balance of probabilities what would have happened had the solicitors provided the actual purchase details to the lender, which involves a consideration of what that third party (the lender) would have done and also what the surveyors would have done. In this regard the surveyors bear the burden of proving to my satisfaction that the end result would have been materially different, and that as a result the loss which the lenders sustained would have been avoided entirely or at least in part. The surveyors are inviting me to find each link in the chain of causation to have been established, whilst the solicitors are contesting those individual links, but it is also necessary in my judgment for me to stand back from the detail and to consider whether the surveyors have, overall, satisfied the burden of proof on causation to the requisite standard.

This is the first issue which requires consideration. Mr Patel invited me to conclude that the lender would undoubtedly have referred this information to the surveyors’ PVQ team with a view to seeing whether or not it affected the valuation. Mr Mitchell submitted that based on the information before the court it was simply not possible to reach such a conclusion on the balance of probabilities. He submitted that in the absence of hard evidence, either from the mortgage underwriting guidelines or from a member of the mortgage underwriting team who would actually have been involved in this process, that this is what would have happened there is no basis for so concluding. He submitted that since the contemporaneous evidence shows that no such query was raised even though the purchase details as reported in the mortgage application form were not materially different from the actual purchase details, and even when the evidence shows that at least one if not more of the members of the mortgage underwriting team must have seen and read the mortgage application form, the only safe conclusion which can be drawn is that the lender was indifferent to such details in the context of this particular application made by this particular lender for this particular product, most probably because all that the lender was interested in was the strength of the borrower’s personal covenant and the valuation.

In seeking to meet this objection Mr Patel submitted firstly that I should conclude that the more likely explanation for the failure to pick up the reported purchase details on the mortgage application form was underwriter error as opposed to underwriter indifference, in the light of the evidence that this was a particularly busy time, and secondly that I should conclude that even if the underwriters were not sufficiently troubled to take up the reported purchase details it cannot sensibly be believed that they would have been equally indifferent to a letter from the solicitors reporting the actual purchase details.

So far as Mr Patel’s first point is concerned, I am not satisfied that there is a proper evidential platform for drawing that conclusion. As Mr Mitchell submits, it is reasonably clear from the documentary evidence that at least one of the underwriters must have scrutinised the mortgage application form before the application was approved. This was not an application which went through at some speed. It clearly went through a number of stages. 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.

However by reference to the timeline to which I have already referred I am equally unpersuaded that the mortgage underwriting team made a conscious decision not to seek to investigate the discrepancy between the purchase details as reported and the valuation. At the time the application was approved in principle it is clear that the valuation was not to hand. It is obvious therefore that the underwriter could not have raised any query with a valuer of whom he or she was unaware. Whilst the discrepancy would, no doubt, have been apparent by 26 January 2006 had the underwriter then involved conducted a full read through of all of the relevant information, including the reported information on the mortgage application form and the valuation, there is no evidence or basis for inferring that this was the process which that underwriter would, on the balance of probabilities, have undertaken at that stage. Insofar as Mr Davison in cross-examination said that he believed that an underwriter in such a position would do so, his evidence on that point carries no particular weight for the same reasons as his evidence generally in relation to what this particular mortgage underwriting team would have done. It is not obviously self-evident, either from the documents or otherwise, that this is what would have happened. Although the solicitors rely on the surveyors’ failure to produce the mortgage underwriting guidelines, had the solicitors wanted to adduce a positive case to the effect that it would have been standard practice for an approving underwriter to conduct a thorough check including cross referring all of the information in the mortgage application form against the valuation, it would have been as open to them as to the surveyors (if not more so, given that they were not subject to the terms of the settlement agreement) to seek such information, whether by application for third party disclosure against the lender or subpoena against a relevant witness or otherwise. In the circumstances I am not persuaded that prior to the date when the solicitors should have reported the actual purchase details to the lender the relevant underwriter or underwriters had become aware that the valuation provided by the surveyors was significantly greater than the purchase price a few months earlier as reported to them by the borrower, or that they had taken a conscious decision not to seek to investigate that discrepancy. Instead I am satisfied that the most likely explanation is that the discrepancy was not picked up by the time the underwriter came to approve the facility once the valuation was to hand.

In any event, I accept Mr Patel’s second point that I can and should properly infer that there is a real difference between what an underwriter might have been expected to do at approval stage had he or she noted an apparent discrepancy between a valuation and information provided by a borrower on an application form, and what an underwriter would have done if, post approval, the solicitors had reported to the lender that the borrower had purchased the property within the last six months for significantly less than the valuation ascribed by the valuer. That is because the court can and should properly infer that such a communication, coming from that source and at that stage, would have been viewed far more seriously than the information which might have been available from the borrower at an earlier stage. In my judgment that applies with even more force in circumstances where the solicitor would, I have little doubt, have explained to the lender that the information as to the purchase price was being provided because the solicitor had noted the apparent discrepancy between the purchase price and the valuation as being something which might be relevant to the adequacy of the security. It also applies in my judgment with even more force in this case, where had such information been provided the lender would probably have referred back to the mortgage application form, and at that point noted that there was a further discrepancy between the reported purchase details and the actual purchase details.

Finally, in reaching my decision on this point, I must consider how difficult it would have been for the underwriter to take reasonable steps to act on this information. In short, it would have been extremely easy for the underwriter to make contact with the surveyors’ PVQ team, with whom I have no doubt the mortgage underwriting team would have been well familiar, and ask them to pass on the solicitors’ letter to the valuer to ascertain whether or not it affected his valuation. That would have been something which I am satisfied any responsible underwriter would have wanted to do at that point, not least because otherwise they would have been well aware of the risk both to their employer and to their own reputation if they failed to take that very obvious and very easy step in circumstances where if the borrower subsequently defaulted and the security provided inadequate no doubt they would face some fairly pointed questions as to why they had not done so.

In all the circumstances I have very little doubt in concluding that the lender would have acted on a solicitors’ letter complying with their Bowerman duty by contacting the surveyors and asking the PVQ team to raise this query with the surveyor concerned. I consider that I am both able and entitled to reach this conclusion on the basis of the evidence before me without needing to have direct evidence either from production of the relevant underwriting guidance or oral evidence from the relevant underwriting team.

I should add however that I am not satisfied that the lender would, instead of or in addition to raising this question with the surveyors, have made further enquiry with the borrower having observed the discrepancy between the reported purchase details and the actual purchase details. There is no evidence that this is what the mortgage underwriting team would have had, nor is there any obvious basis for inferring that it would have done so given that the difference between the two is not glaring. Nor in any event am I satisfied that had it done so then it would have been led to a chain of enquiry which would have resulted in a decision not to lend. The discrepancy between the information provided by the borrower and the information reported by the solicitors could and probably would, it seems to me, have been explained as simple error, and nothing more.

The first question which I have to decide is whether or not the PVQ team would simply have passed the request on to Mr Smith, or whether they would also have involved the regional manager or customer care manager at that point. In his witness statement Mr Beal had said that they would only have been involved had there remained any concerns after the surveyor had responded, but in his evidence he said that depending on the nature of the query it might have been reported to the regional manager at that preliminary stage. He said that since the PVQ team would have been able to access the database and view the relevant valuation report it would have been possible for them to make a judgment on the significance of the query and whether or not it would need to be reported to the regional manager as well as to the surveyor. He appeared to indicate that he believed that this would have happened in this case. He accepted however that he had no evidence that this had ever happened in a previous similar case and, indeed, in the schedule he had produced, which appeared to be a printout of all matters involving this particular lender which had been referred to the PVQ team between 2005 and 2008, there was no record of any similar query having been raised. In my judgment, in the absence of any direct evidence from the team leader or a member of the PVQ team, and in the absence of any direct evidence from the regional manager, I am unable to conclude on the balance of probabilities that a query of this nature would have been referred to the regional manager at the same time as being referred to Mr Smith. Although Mr Beal suggested that the significant discrepancy between the valuation and the purchase price would have of itself been sufficient for the PVQ team to have done so, in the absence of evidence that this had ever happened previously in similar circumstances, and in the absence of positive evidence from those who would have been directly involved that this is what would have happened, and given that this suggestion only emerged for the first time in cross-examination, I am unable to accept it.

The second question which I have to decide is what Mr Smith’s response would have been to this query. In his witness statement he said that it was not unusual to receive queries from lenders via the PVQ team, and that in this case had he been given the information as to the actual purchase details he would have discussed the matter with the regional manager and revisited his valuation. In cross-examination he accepted that nothing similar had in fact ever happened to him. It was suggested to him that in fact the information would have made no difference to him one way or the other, because his valuation was based on his own independent view with the benefit of his comparables. He disagreed, saying that the actual purchase price was a piece of information which was relevant to his valuation process. He said that once he had become aware of the true position he would have wanted to discuss the matter with his regional manager, and he believed it would have been agreed that he should look at the valuation afresh. He did not accept that he would have been too embarrassed to admit his error and that he would, in effect, have buried the matter. In his witness statement he says that if he had been informed of the actual purchase details he would have spent more time investigating the history of the property and comparables, and would probably have chosen to use different comparables and produced a valuation of around £400,000 - £450,000.

Although I suspect that Mr Smith’s evidence in relation to what he would have done in terms of alternative comparables and valuation is coloured by reference to Mr Sellors’ conclusions, I unhesitatingly accept the essential gist of his evidence. I have no doubt that once he had been made aware that the true purchase price was not £600,000 but £390,000 he would have appreciated the need to reconsider his valuation. That is so for two reasons. One is the purely rational reason that once he knew that the true purchase price was over £200,000 less that had been reported to him (over one third less), I consider that he would obviously have wanted to review his valuation to satisfy himself, at the very least, that he could stand by that previous valuation. That is particularly so when some months had elapsed since he had actually viewed the property and produced his valuation, so that he would likely have wanted to refresh his recollection before replying one way or another. The second, I am satisfied, is that he would have felt extremely annoyed that he had, as he would rightly have seen it, been actively misled by the borrower, in circumstances where I am also satisfied that he was aware that he had gone out on a limb to arrive at a reasonably high valuation for what was a relatively difficult property to value. I am satisfied that in such circumstances he would have wanted to find out more about the history of the property, by speaking to the selling agents, which would have confirmed that what he had been told by the borrower was plainly misleading. In such circumstances I have no doubt that he would have wanted to review his valuation adopting a more rigorous approach than he had done previously and, in those circumstances, would have cast a more critical eye both over the property itself and its shortcomings, and also the extent to which it was less attractive than the comparables. I am satisfied on the balance of probabilities, having regard to the evidence before me, namely Mr Smith’s evidence and Mr Sellor’s report, that in such circumstances he would not have valued the property at more than £500,000.

It follows, I am satisfied, that had Mr Smith arrived at this revised valuation he would have discussed it with this regional manager and he would have produced a revised valuation report which would have been transmitted back to the lender via the PVQ team. I am also satisfied on the balance of probabilities that the valuation report would have explained that the reduced valuation was due to a re-assessment based on the actual purchase price of £390,000 being different to the £600,000 reported by the borrower. That is because I have no doubt that Mr Smith and indeed his regional manager would have wanted to provide an explanation for the altered valuation which would deflect any potential criticism of his original valuation.

It is obvious, in my judgment, that the lender would have had no reason to question the revised valuation, and would have accepted it. It is apparent from the lender’s internal documentation that the amount sought, £580,000, was 80% of the valuation of £725,000. As appears from the mortgage offer, the maximum loan to value ratio was 85%. It follows that if the revised valuation would have been no more than £500,000 then the maximum which the lender would have been prepared to offer would have been 85% of that figure, namely £425,000. That would not have been sufficient for the borrower to discharge the existing bridging loan of £470,000 and, it follows inevitably in my judgment, that the transaction would not have proceeded.

Insofar as there might be any doubt about that conclusion, I am also satisfied on the balance of probabilities that once the lender had been made aware that the borrower had reported a purchase price to the valuer of £600,000, which was significantly in excess of the actual purchase price of £390,000 and also significantly in excess of the reported purchase price of £450,000, the lender would have adopted a rather more circumspect approach to this particular transaction. Whilst I am not finding that this in itself, in the absence of a significantly downwards revised valuation, would have made a difference to the lending decision, I do consider that it would have influenced the lender against the borrower insofar as, for example, he might have sought to persuade the lender to disregard the revised valuation or to adopt some half way valuation figure.

I am satisfied that the individual links in the chain of causation have been made good. I must also stand back and consider whether causation as a whole has been made good. I need to be satisfied that each link in the chain has been sufficiently strongly established to make good the chain overall. If I was satisfied, but only just, in relation to each link then it would be difficult for me to be satisfied on causation overall. I am however sufficiently satisfied overall. That is because when I look at this case in the round, it seems to me to be plain that a lender faced with a solicitors’ letter of the type which ought to have been sent would naturally have reverted to the valuer to comment, because that is, after all, the whole point of the performance by the solicitor of the Bowerman duty. Second, it seems to me to be plain that a valuer provided by his lender client with information significantly different from that which the borrower has provided is bound, when it is clear that he has relied on that earlier information to a material extent in arriving at a relatively generous valuation, to take that information seriously and to undertake a fresh valuation with a different outlook. Third, it also seems to me to be plain that this would have resulted in a significantly downwards revised valuation in this case. Fourth, even in a rising market the lender would not be prepared to lend more than the sanctioned 85% loan to value ratio in such circumstances. Fifth, it is clear that the borrower needed a high valuation to get the loan which he needed to clear the bridging loan, and without the high valuation the transaction would not generate sufficient to do so, so that there would have been no point in proceeding with a lower valuation. All of these propositions have, in my judgment, been well demonstrated on the evidence, so that there is no real room for doubt in my mind.

The only other point I need to address, albeit briefly, is what my conclusion would have been on causation had I decided that the solicitors’ duty was limited to reporting the actual purchase date and not the actual purchase price. Mr Patel advanced an argument to the effect that even though the solicitors would not have been obliged to report the actual purchase price to the lender nonetheless it is inconceivable that, had they reported the actual purchase date they would not in the same communication have reported the actual purchase price. On that basis, he submitted, precisely the same result would have followed as would have followed had the solicitors been obliged to disclose that further information. In response, Mr Mitchell submitted firstly that it was mere speculation that this is what the solicitors would have done, and secondly that it could not be right to hold the solicitors liable by a sidewind for the consequences of not disclosing information which they were not obliged to disclose. Mr Patel submitted that there was nothing objectionable about this since, albeit the chain of causation required a further link to be added, the loss still followed on as a matter of causation from the admitted breach.

I agree with Mr Mitchell’s submissions. Since clause 5.1.1 only required the solicitors to report if the owner had been registered as such for less than 6 months, it follows that all that the solicitors would need to do was to report that information to the lender. Although it is no doubt possible that some solicitors would have provided more detail, there is no evidence or basis for drawing an inference that this is more likely to have happened than not, whether in general terms or in relation to these particular solicitors. Accordingly the surveyors have not established the essential factual link in the causation chain in this scenario. Moreover, I also agree with Mr Mitchell that to hold that the solicitors would have been liable to the lenders for not providing information which they were not obliged to provide under their retainer would be legally objectionable. It might have been different if the surveyors had been able to establish that merely having been advised of the actual purchase date would have been enough to cause the lender to make further enquiry with the solicitors and then to have discovered the actual purchase price, but there is simply no evidence or basis for drawing an inference to this effect.

APPORTIONMENT

It is common ground that under the 1978 Act the court has to assess contribution by reference to what is just and equitable, having regard to the degree of blameworthiness of both parties and the relative causative potency of each party’s breach.

As to the surveyors’ blameworthiness, I find that Mr Smith was initially led into error by the borrower, and thereafter was careless rather than reckless or worse in producing his valuation. I also find that, whether due to a desire to please or pressure of time or both, he produced a valuation which I am satisfied he probably knew or suspected was overly generous, because it treated the property as if it was an original, attractive, Peak District dwellinghouse converted into a bed and breakfast establishment, rather than what it was. I do not however accept Mr Mitchell’s submission that Mr Smith’s conduct was “egregious”.

As to the solicitors’ blameworthiness, as Mr Patel submits it is difficult to reach any clear conclusion one way or another, since there is no evidence, whether in the form of contemporaneous documentation or oral evidence, to explain why the conveyancer who dealt with this matter did not report the actual purchase details to the lender. There is no basis in my judgment for regarding the solicitors’ blameworthiness as significantly less than the surveyors.

As to causative potency, although the original fault was that of the surveyors, since as I have found it was the solicitors’ role to bring the disparity to the lender’s attention, and had they done so the valuation would have been corrected, it does not seem to me that there is any material difference in that regard.

In short, there is no reason in my judgment to allocate responsibility anything other than equally.

Since there is no issue as to the £200,000 paid by the surveyors in settlement, it follows that the surveyors are entitled to judgment against the solicitors for £100,000 plus interest as appropriate.