The High Court in Manchester has recently made a very interesting decision in the case of E.Surv Ltd v Goldsmith Williams Solicitors  EWHC 1104 (Ch).
This was a claim brought by a surveyor against the solicitors that acted for the borrower during a remortgage of a property. The surveyors, E.Surv, valued the property at £725,000, after the borrower told them that he had bought around 6 months before, for £600,000.
As with most remortgages, solicitors were instructed to act on behalf of the borrower and the lender, who were in this case, Goldsmith Williams. It is widely accepted that conveyancing solicitors have a duty to carry out necessary searches to protect both the lender and the buyer, and to report anything that could have a material effect on the lending, to the mortgage company. They have to comply with the requirements of the Council of Mortgage Lenders (‘CML’) Handbook.
It later transpired that the borrower had in fact only bought the property for £390,000 around 6 months before the remortgage. The lender therefore brought a claim against the surveyor for negligent overvaluation, and during the settlement of that claim, the surveyor paid damages of £200,000 to the lender. They then brought the claim against the solicitors under the Civil Liability (Contribution) Act 1978, for a contribution towards their losses.
During the conveyancing process, and as part of the standard searches carried out, the solicitors had obtained Official Copies of the title for the property from the Land Registry. This clearly stated on it that the borrower has bought the property around 6 months before, for £390,000. This was not reported to the lender by the solicitors, and the surveyor therefore argued that this was in breach of the CML Handboook.
The Court agreed, and ordered that the solicitors did act negligently, and in breach of the Handbook. The purchase price 6 months prior was such a significant reduction from the valuation on the mortgage offer, that it would have made a material difference to the lending. The Court accepted that the lender would not have loaned that amount to the borrower for the purchase of the property, as the loan to value ratio on the true valuation was too high, and the transaction would likely not have proceeded at all.
The High Court found that the solicitors and surveyor were jointly liable for the losses therefore, and ordered that the solicitors had to pay the surveyors £100,000, being 50% of the sum they had paid to the lender.
This is a very interesting case and one that shows how solicitors can get things wrong. This can be whether they act on behalf of individuals or companies. Conveyancing and Probate are the two areas of practise in which the most claims for negligence are brought against solicitors.
By Heather Korwin-Szymanowska, associate solicitor in the dispute resolution department
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