This recent decision of the High Court confirms that the CML Handbook (the “Handbook”) does not restrict the Bowerman duty placed on conveyancing solicitors.
The Claimant, a firm of surveyors, sought a contribution from the Defendant firm of solicitors in respect of monies paid to a mortgage lender in settlement of its claim for damages for the negligent overvaluation of a property. The Claimant argued that the Defendant failed, in breach of its express and implied duties of its contract with the lender, to advise the lender that the borrower had been registered as proprietor of the property for less than six months and that the price paid was significantly less than the Claimant’s valuation. It was the Claimant’s case that, had the Defendant reported these facts, the lender would have requested that the Claimant reconsider its valuation and the Claimant would then have either: (a) produced a significantly reduced valuation; and/or (b) informed the lender about the misinformation. In either case, the Claimant argued that this would have caused the lender to decline to lend and thus avoid the loss it suffered.
The Bowerman Duty
Although admitting breach of an express obligation to inform the lender that the borrower had been registered as proprietor of the property for less than six months, the Defendant denied that they were obliged to inform the lender as to the purchase price paid. Accordingly, one of the issues to be decided was whether or not the Bowerman duty (the duty on a solicitor to report to his lender client matters relevant to the valuation of the property offered as security for a loan) was ousted by the terms of the Handbook.
It was the Claimant’s case that the Defendant was obliged to report the discrepancy between the purchase price and valuation both under the express terms of the Handbook, and as an incident of their duty to exercise reasonable skill and care, under which the Defendant was obliged to advise of facts discovered in the course of investigating title which a reasonably competent solicitor would realise might have a material bearing on the valuation of the security or some other ingredient of the lending decision. It was also argued that the Handbook implicitly recognises the Bowerman duty.
The Defendant sought to argue that the Handbook did not impose a requirement to advise of a discrepancy between purchase price and valuation. One of the arguments raised by the Defendant was that a Bowerman duty cannot apply where, as in this case, a solicitor gives a certificate of title in the form appended to Rule 6(3) of the Solicitors’ Practice Rules 1990 because: (a) the court would not imply an obligation when to do so would be inconsistent with express terms of the solicitor’s retainer or surrounding circumstances; (b) the Handbook was a result of long negotiations between the Law Society and lenders, post Bowerman; and (c) the Handbook did not expressly include a duty to report matters relevant to the value of the security, or the purchase price originally paid.
In response, the Claimant contended that the Handbook was clear in that it should not affect a solicitor’s responsibilities under the general law and that the general duty to take reasonable care is not ousted. In particular, it was said that the provisions of the Handbook are not prescriptive as to specifically what it is that a solicitor must do. In any event, the Handbook contained an obligation to make appropriate searches and to report results which the solicitor considers may adversely affect the lender.
The Court confirmed that it was not possible for the Defendant to argue that the Handbook, when read with the Practice Rules, excluded the Bowerman duty. The Court held that the purpose of the Handbook was to identify and delimit the precise scope of the specific activities which a solicitor is intended to do and was not intended to exclude the general obligation to exercise reasonable care and skill, or the obligation to report to the lender when a 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.
This is a welcome decision for lenders. It confirms that the Handbook does not oust the general duty of care, or the Bowerman duty. Additionally, it emphasises that a solicitor is under an express duty to carry out title searches and compare these with the valuation report provided. If in the course of doing so, the solicitor becomes aware of a recent purchase price of the property which has a material bearing on its valuation, then the solicitor must disclose that information to a lender.
For further information, please contact Georgina Squire or the Partner with whom you usually deal.