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

The Bowerman Renaissance

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The Court of Appeal’s recent decision in Goldsmith Williams Solicitors v E.Surv Ltd [2015] EWCA Civ 1147 is confirmation of the renaissance of the Bowerman duty owed by conveyancing solicitors.  The duty is sometimes controversial because it obliges a solicitor to report to the client even if the express terms of the retainer do not require him to do so. 

The Bowerman duty

In Mortgage Express Ltd v Bowerman & Partners [1996] 2 All ER 836, the defendant solicitors’ firm was instructed to act for a house purchaser and also his proposed lender.  The purchase was to be for £220,000, facilitated by a mortgage loan of £180,150.  The property had been valued at £199,000.  The solicitor dealing with the conveyance discovered that his client’s vendor was proposing to buy the house for £150,000, and to sell it on to his client by way of an immediate sub-sale.  The solicitor drew the purchaser’s attention to the discrepancy between the two purchase prices and the valuation, but his report to the lender did not refer to the sub-sale.  After completion, following an almost-immediate default by the borrower, the lender repossessed and sold the property, realising only £96,000.  The lender brought a claim against the firm for negligence. 

The Court of Appeal found that the solicitor had breached his duty to the lender.  Millett LJ explained that the solicitor owed duties to each of his clients:  duties of confidence, but also duties to act in each client’s best interests.  Whilst there was obvious scope for potential conflict between those duties, there was, in fact, no conflict when the purchaser knew (and intended) that the solicitor should also investigate and report on title to the lender (as he was instructed by the lender to do).  That obligation to report to the lender on title, was not, as the firm argued, limited. It compelled the solicitor to report the fact that the purchase was proceeding by way of a sub-sale.  That was information which the solicitor ought to have appreciated the lender would want to know. 

Subsequent authorities, including National Home Loans Corporation v Giffen Coach & Archer [1998] 1 WLR 207 and Nationwide Building Society v Balmer Radmore [1999] PNLR 606, clarified the duty: 

  1. Such a duty could not arise when the terms of the contractual retainer expressly precluded it.  However, save where it was expressly excluded by the retainer or it would be inconsistent with the circumstances of the solicitor’s instruction, the Bowerman duty would ordinarily be implied when a solicitor acted for a lender in a mortgage transaction; 
  2. When the duty did arise, the solicitor was only required to disclose information that he discovered in the course of completing his instructions for the lender – and not information that he discovered in some other way;  and 
  3. The only information that the solicitor was obliged to disclose was information relating to title or the adequacy of the lender’s security and the lending decision, those being the lender’s interests to which the solicitor was engaged to attend. 

The CML Handbook

The CML Handbook was launched in 1999, after all of the above developments, and after a negotiation between the CML and the Law Society.  The Handbook is a lengthy and comprehensive code of instructions for conveyancers acting on behalf of lenders in residential conveyancing transactions.  It sets out in detail what is and what is not or might not be acceptable to lenders in terms of security and, in particular, when the conveyancer must raise a specific report to the lender about some aspect of the proposed security. 

Goldsmith Williams

In Goldsmith Williams, a property developer, Mr Gayler purchased a property for £390,000 in September 2005.  In November 2005, and having been misled by Mr Gayler as to the purchase price he paid, a surveyor valued the property at £725,000.  In December 2005, Mr Gayler applied for a remortgage.  His application stated that he had bought the property for £450,000 in October 2005, but that it was worth £725,000 and sought a loan of £580,000.  The surveyors’ valuation from November 2005 was made available to the lender and the loan was approved.  Goldsmith Williams Solicitors acted for both Mr Gayler and the lender.  They obtained an Official Copy of the Register, on which it was recorded that Mr Gayler had purchased the property for £390,000 in September 2005.  That fact was not disclosed to the lenders.  The remortgage completed but, following default by Mr Gayle, the lender suffered losses.  The lender brought a claim against the surveyors for negligent valuation; a claim which the surveyors settled.  The surveyors then sought a contribution from the solicitors who had acted on behalf of the lender (and the purchaser) pursuant to the Civil Liability (Contribution) Act 1978. 

In order to be successful in their claim, the surveyors needed to show that the solicitors were also liable to the lender in respect of its losses.  They sought to do so by alleging that the solicitors ought reasonably to have known that the discrepancy between the September 2005 purchase price as recorded on the Register and the apparent valuation and the loan being offered might have a material bearing on the value of the security or the lending decision.  The solicitors were therefore under a Bowerman-type obligation to report that discrepancy to the lender. If they had done so, the surveyors argued, the loan would, ultimately, not have been made. 

In defence, the solicitors argued that their obligations were confined by the terms of their instructions to investigating and reporting on title, save where there was evidence of fraud.  The CML Handbook instructions were a complete and exhaustive code setting out the obligations of solicitors and they had not breached the obligations set out therein.  In the alternative, they denied causation, alleging that even if they had reported the discrepancy to the lender, the loan would still been made.  In support of that contention, they relied on the fact that the loan had been approved even though the application had declared (wrongly) that the property had been acquired in October 2005 for £450,000. 

At first instance, the surveyors succeeded; the solicitors appealed. 

Was the CML Handbook an Exhaustive Code? 

Argument appears to have been focussed on two particular aspects of the Handbook instructions:  paragraph 5.1.2 of the Handbook and the terms of the standard form Certificate of Title. 

Paragraph 5.1.2 of the Handbook states:  “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 solicitors, referring to opinions expressed in both Lender Claims by Tomlinson QC and Solicitors Negligence and Liability by Flenley QC and Leech QC, argued that the terms of the Handbook were inconsistent with the general Bowerman duty;  and that the duty to report in paragraph 5.1.2 was only engaged when it came to the solicitor’s attention that the borrower had misled the lender or was otherwise attempting a fraud. 

That was consistent with the standard form Certificate of Title provided by the solicitors which confirmed that “ ... we have complied with your instructions in all other respects to the extent that they do not extend beyond the limitations contained in paragraph (3)(c) of rule 6 of the Solicitors Practice Rules 1990,” and then concluded that “Our duties to you are limited to the matters set out in this certificate and we accept no further liability or responsibility whatsoever.  The payment by you to us (by whatever means) of the mortgaged advance or any part of it constitutes acceptance of this limitation …”.  The matters set out in rule 6 of the Solicitors Practice Rules 1990 did not include anything in the nature of a general Bowerman obligation, but were, in fact, a list of specific matters which the Rules permitted a solicitor to perform when instructed by both lender and borrower. 

The Court of Appeal rejected the solicitor’s arguments, holding that the Handbook was not a complete and exhaustive code of instructions.  They pointed out that paragraph 1.3 of the Handbook provided that “The Lenders’ Handbook does not affect any responsibilities you have to us under the general law or any practice rule or guidance issued by your professional body from time to time.”  

Further, the Court held that the detailed terms of the Handbook instructions did not exclude, whether expressly or by implication, the Bowerman duty.  To the contrary, the terms of the Handbook were to be read in the context of and consistently with the Bowerman duty.  Accordingly, paragraph 5.1.2 was not engaged only in those circumstances set out in parentheses, but in all circumstances; those set out in the parentheses were simply examples.  As for the Certificate of Title, the Solicitors Practice Rules had permitted the solicitor to make appropriate searches relating to the property in the public registers and to report any results that may adversely affect the lender.  The search of the register was such a search. 

The Court stressed that the Bowerman duty did not impose upon the solicitor an obligation to carry out investigations going beyond its retainer; but if, in the course of carrying out its retainer, it discovered something relevant to the interests to which the client had engaged the solicitor to attend, the solicitor had a duty to disclose that information unless that duty was excluded by the retainer. 

The solicitors had, therefore, been under a duty to disclose the discrepancy between the September 2005 purchase price recorded in the Register and the apparent November 2005 valuation and loan being advanced. 

Causation:  Who needed to prove what? 

The causation question that arose in this appeal was identified as follows:  “If a reported price of £450,000 shortly before the date of the mortgage application was not of concern to the underwriters, why should a reported price of £390,000 have concerned them? It was not suggested that the difference between £450,000 and £390,000 was material.”  

At first instance, the Judge had found for the surveyors on the basis that the solicitors had failed to adduce evidence to the effect that, if the discrepancy had been declared, the loan would nevertheless have been made. In doing so, the Court of Appeal held that he had wrongly burdened the solicitors with proving a lack of causation.  It was the surveyors who were claiming the contribution; it was upon them that the burden of proof as to causation lay.  They had failed to show that a reported price of £390,000 in September 2005 would have made any difference to the lender’s underwriting process and, for that reason, the appeal was allowed. 

A wider application of the Bowerman rationale? 

Although the context of Bowerman and the subsequent cases was that of a solicitor acting for a lender and borrower, the rationale behind the Bowerman duty was explained in terms of general principle:  the solicitor’s duty is to act in the best interests of his client in relation to those of his client’s affairs to which the solicitor was engaged to attend.  That general rationale for Bowerman was noted in passing by the House of Lords in Hilton v Barker Booth & Eastwood [2005] 1 WLR 567, a case in which a solicitor acted for both vendor and purchaser and failed to disclose to the purchaser a relevant fact concerning the vendor.  There is no reason for the duty to be confined to lender claims, and indeed it is not.  On the other hand, there must be limits to such a duty because otherwise a solicitor’s role would be an impossible one.  Those limits are defined by the solicitors’ contractual retainer. The meaning of the retainer, not only its express terms but also the implication of any additional terms, must be determined in accordance with the well-known principles of contractual interpretation. 

A recent case that appears to demonstrate that principle in action is Minkin v Landsberg (Practicing as Barnet Family Law) [2015] EWCA Civ 1152, in which solicitors were engaged by a one of two divorcing spouses swiftly to put into a form fit for presentation to a Court a consent order that she had agreed with her husband.  Subsequently, the client brought a claim against the solicitors for negligence for failing to advise her against entering into the agreement because there had been no investigation of her husband’s financial affairs and the agreement might therefore be unfair. 

Her claim failed and she appealed.  Jackson LJ giving the lead judgment in the Court of Appeal reviewed the authorities (including National Home Loans Corporation v Giffen Coach & Archer [1998] 1 WLR 207) and identified the following principles (essentially repeating the substance of Donaldson LJ’s judgment in Carradine Properties v DJ Freeman & Co [1999] Lloyd’s Rep PN 483 (CA): 

i)  A solicitor's contractual duty is to carry out the tasks which the client has instructed and the solicitor has agreed to undertake.

ii)   It is implicit in the solicitor's retainer that he/she will proffer advice which is reasonably incidental to the work that he/she is carrying out.

iii)  In determining what advice is reasonably incidental, it is necessary to have regard to all the circumstances of the case, including the character and experience of the client.

iv)  In relation to (iii), it is not possible to give definitive guidance, but one can give fairly bland illustrations.  An experienced businessman will not wish to pay for being told that which he/she already knows.  An impoverished client will not wish to pay for advice which he/she cannot afford.  An inexperienced client will expect to be warned of risks which are (or should be) apparent to the solicitor but not to the client.

v)   The solicitor and client may, by agreement, limit the duties which would otherwise form part of the solicitor's retainer.  As a matter of good practice the solicitor should confirm such agreement in writing.  If the solicitor does not do so, the court may not accept that any such restriction was agreed.

On the one hand, it would have been very easy for the solicitors to have volunteered some general, incidental advice about the lack of any investigation of the husband’s finances.  Such advice would have been as relevant to formalisation of the agreement between Mrs Minkin and her husband, as reporting the price discrepancy was to Goldsmith Williams’ instruction to complete the mortgage. Mrs Minkin was not contending that the solicitors ought to have carried out any such investigation, but simply advised that there ought to be one. 

However, the Court identified four significant factors that were relevant to determining the limits of the solicitor’s retainer:  Mrs Minkin was an intelligent woman who had qualified as a chartered accountant;  she was aware of the risk that the agreement might be unfair;  she had already been advised by previous solicitors that there had been no investigation of her husband’s finances and that the agreement appeared to be unsatisfactory;  and the Defendant did advise her that enforcement of the agreement might be difficult once her husband had emigrated to the USA, but she had responded by requesting that the Defendant formalise the agreement swiftly before he left. 

For those four reasons, the Court concluded that the retainer was limited simply to preparing the formal consent order and did not extend to providing the incidental advice that Mrs Minkin contended ought to have been provided.  It also found that, for the same four reasons, if there had been a duty, its breach had not caused Mrs Minkin any loss. 

There is an inherent tension between, on the one hand, a solicitor’s Bowerman-type duty to ensure that his client is properly informed of matters relevant to the retainer, even if not expressly required by the retainer to do so, and the desire that a solicitor may have to limit his obligations (which desire his client may legitimately share in order to limit the costs involved).  Conveyancing retainers are sufficiently similar in nature to permit one to generalise that they will usually impose upon a solicitor an obligation to report matters that might call into question the value of the property in which an interest is being acquired.  In other, more bespoke situations, however, such a generalisation cannot be made.  The existence or not of a duty to report to the client is likely to turn on the detailed factual circumstances in which the solicitor was instructed.