Conveyancers’ duties to lenders

Goldsmith Williams Solicitors v E. Surv Ltd [2015] EWCA Civ 1147

This was an appeal by Goldsmith Williams from a High Court decision reported as E.Surv Ltd v Goldsmith Williams Solicitors [2014] EWHC 1104. It involves conveyancer’s duties under the CML Lenders Handbook.

The CML requirement in issue was as follows:

“5.1 Surrounding Circumstances

5.1.1 Please report to us … if the owner or registered proprietor has been registered for less than six months …..

5.1.2 If any matter comes to the attention of the fee earner dealing with the transaction which you should reasonably expect us to consider important in deciding whether or not to lend to the borrower (such as whether the borrower has given misleading information to us or the information which you might reasonably expect to have been given to us is no longer true) and you are unable to disclose that information to us because of a conflict of interest, you must cease to act for us and return our Instructions stating that you consider a conflict of interest has arisen.”

The case arose out of a property being over-valued and the lender recovering its loss on sale from the valuers. They then sought a contribution to the loss from the solicitors. The valuers’ case was that the solicitors were in breach of duty in not advising the lender that the borrower had been registered as proprietor 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 of £725,000. Had they done so, it was claimed, the lender would not have lent and so would not have suffered any loss.

The High Court upheld the claim and ordered the solicitors to contribute £100,000 to the loss suffered by the lender.

The Court of Appeal decision

The Court of Appeal agreed that there was a duty to report the price discrepancy under CML 5.1.2. But it also held that no loss had been suffered as a result of that breach. There was no proof that the lender would have declined to lend had the solicitors in fact reported the discrepancy.

But the importance of the case is the clear statement by the Court that the conveyancers were under a duty to report the discrepancy in value. The Court of Appeal had held this to be the case as long ago as 1996 in Mortgage Express v Bowerman [1996] 2 All ER 836. In that case Sir Thomas Bingham MR stated at 842:

“… if, in the course of investigating title, a solicitor discovers facts 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, then it is his duty to point this out.”

Goldsmith Williams had argued that this had been superseded by the CML Handbook. They claimed that CML 5.1.2 only required disclosure in cases of suspected fraud as indicated by the example given in the clause – (such as whether the borrower has given misleading information to us or the information which you might reasonably expect to have been given to us is no longer true). The Court of Appeal disagreed:

“I see no reason to construe them as limiting the preceding part of clause 5.1.2 to cases of fraud….. The duty to draw the differences between the price and the valuation to the lender’s attention was therefore a necessary incident of the Solicitors’ instructions to investigate and report on title …” (Patten LJ).

But Sir Stanley Burnton did add:

“This does not mean that a solicitor instructed to act for both lender and borrower must act as a detective or bloodhound….. It was only if, while carrying out that work, he came into possession of non-confidential information that a reasonably competent solicitor would realise adversely affected the title to the mortgage property or the value of the security that he was under a duty to report it to the lender.”

So a clear statement of a conveyancer’s duties under CML 5.1.2. That at least must be welcomed by all conveyancers.

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