Sharing the pain

In E.Surv Ltd v Goldsmith Williams a well-known firm of solicitors was ordered to contribute £100,000.00 to a firm of surveyors, being one half of the damages paid out by the surveyors to a lender for an overvaluation made by them.

The Facts
E.Surv had been instructed to value a property for remortgage purposes. The loan required was £500,000. The instruction’s estimated the property’s value to be £850,000. The mortgage application stated that the purchase price was £450,000, the purchase date being one month prior to the solicitor’s instructions. Goldsmith Williams went through their usual due diligence but failed to report to the lender, the recent purchase (being with the last six months) neither did they report that the purchase price paid by the borrower, was substantially less than the valuation amount, having been provided with a copy of the valuation.

The borrowers defaulted, the property was sold and the lender suffered losses.

In the negligence claim, a settlement was reached and the surveyors agreed to pay damages to the lender. The surveyors then pursued the solicitors, and submitted that the solicitors had failed in their retainer with the lender and had contributed to their losses.

Had they notified the lender of the purchase price and the purchase date, then the lender would most likely have asked the surveyors to reconsider valuation in light of the information, and at that point, the surveyors submitted, they would have realised that they had been misled by the borrower on price and would have significantly reduced their valuation. Consequently, the lender would have decided not to lend, and no loss would have been suffered. Surveyors sought a contribution to the damages paid by them from Goldsmith Williams.

A sensible and well-constructed argument, and one which found favour with the court.

The court considered that a solicitor is under an obligation to report any findings which may adversely affect the lender.

A solicitor is required to read a copy of the valuation report and when so doing, if the solicitor discovers information from the title such as a recent purchase, and its price, which had or was likely to have a material bearing on the valuation of the property, then the solicitor is under an obligation to the lender to notify and report.

It is not always easy for conveyancers to draw a line between their duties and those of surveyors, but the “Bowerman” duty does require a conveyancer to report on matters, which some conveyancers may regard as the surveyors preserve. There is bound to be a degree of overlap in certain areas.

This case illustrates that solicitors are required to be commercial and savvy. It highlights the need for lenders to ensure that they are represented by lawyers who are experienced in their business and their thinking.

Not that solicitors are the safety net for surveyors being sued for negligence. They are not.  Whether or not the Bowerman duty arises will depend on the facts and circumstances of each case.

In this case the dramatic discrepancy between purchase price and valuation on a property which had only recently been purchased, would give rise to that duty.

By Jonathan Newman Senior Partner of Brightstone Law

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