Goldsmith Williams Solicitors v E.surv Ltd (Respondent/Claimant)
| Jurisdiction | England & Wales |
| Judge | Sir Stanley Burton:,Lord Justice Patten |
| Judgment Date | 11 November 2015 |
| Neutral Citation | [2015] EWCA Civ 1147 |
| Court | Court of Appeal (Civil Division) |
| Docket Number | Case No: A3/2014/1389 |
| Date | 11 November 2015 |
[2015] EWCA Civ 1147
IN THE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
MANCHESTER DISTRICT REGISTRY
HH Judge Stephen Davies (sitting as a Judge of the High Court)
Royal Courts of Justice
Strand, London, WC2A 2LL
Lord Justice Patten and Sir Stanley Burnton
Case No: A3/2014/1389
Anneliese Day QC and Paul Mitchell (instructed by Reynolds Porter Chamberlain LLP) for the Appellant
Ben Hubble QC and Shail Patel (instructed by DWF LLP) for the Respondent
Hearing date: 15 October 2015
Approved Judgment
Introduction
This is an appeal by Goldsmith Williams, a firm of solicitors, from the order of His Honour Judge Stephen Davies dated 11 April 2014. The Judge held the Appellants liable to the Respondent Claimant to make contribution to the Respondent under the Civil Liability (Contribution) Act 1978 in the sum of £100,000 together with interest and costs, on the ground that the Appellants would if sued have been liable to The Mortgage Business ("the Lender") for its loss resulting from its loan secured by a mortgage on the property known as Quarnford Lodge near Buxton ("the Property"). The Respondent had settled the Lender's claim against it for negligent valuation of the property by agreeing to pay it the sum of £200,000, inclusive of costs and interest.
The appeal raises what we were told was an important issue as to the scope of the duty of solicitors instructed on behalf of both the proposed mortgagor and mortgagee of property.
The facts
I shall refer to the Appellants as "the Solicitors" and to the Respondent as "the Surveyors".
My account of the facts is taken from the Judge's thorough judgment, for which I express my appreciation.
The borrower was David Gayler, a local man, with his own local property business. He had a track record of acquiring property in the Buxton area for buy-to-let purposes with the benefit of secured finance. In September 2005 he purchased the property at the price of £390,000.
The Surveyors were initially instructed in November 2005 by a different lender to produce a valuation for re-mortgage purposes. The instructions record that the estimated value was said to be £850,000 and the loan required was £500,000. The job was assigned to Craig Smith, who was the Surveyors' valuer for the area. On 15 November 2005 he met the borrower and inspected the property. The judge found that Mr Gayler told Mr Smith that he had purchased the property around 6 months previously for £600,000. Mr Smith valued the property at £725,000.
In late December 2005 Mr Gayler applied to the Lender for a remortgage, seeking a loan of £580,000, on the basis of self-certified details of his earnings from his self-employment.
Under the terms of the settlement agreement reached by the Surveyors with the Lender the latter had expressly declined any obligation to provide any assistance to the Surveyors in relation to any contribution claim it might bring. However, the Judge was provided with a full copy of the Lender's internal documentation, on the basis of which he considered that he had been able to gain a reasonable understanding of events. He also had evidence from Mr Colin Davison, about which the Judge said this:
10. Mr Davison was employed by the Lender as a national account manager. He was called by the surveyors to give evidence as to the operation of the lender's underwriting team and how they would have responded to being provided by the solicitors with the information about the actual purchase details. …
11. Having heard Mr Davison, my conclusion is that whilst he was an honest and reliable witness of fact, he had insufficient knowledge or experience of the particular mortgage underwriting team who dealt with this application to provide me with very much assistance as to how they would have dealt with the application had the solicitors provided the actual purchase details.
Mr Gayler completed the Lender's application form on the basis that he was, and intended to continue, occupying the property as his own residence, rather than for business purposes. He stated that he had purchased the property in October 2005 at the price of £450,000. As the Judge remarked, since Mr Gayler gave £725,000 as the value of the Property, any mortgage underwriter reading the application form could have been in no doubt that the borrower was contending that the property had increased in value by £275,000 in only 2 months. Nonetheless, the application was approved in principle by one of the mortgage underwriters on 3 January 2006. The internal notes do not show that any query was raised as to the discrepancy between the value contended for and what were stated to be the purchase price and date of purchase. On 16 January 2006 a second underwriter considered the application. The data entered by that underwriter at that point, as recorded by an internal email of that date, included the data in the application form as to the year of purchase and purchase price, demonstrating that the underwriter must have seen this information. There is no indication however that this was questioned, even though the underwriter was clearly aware that the purpose of the loan was in part to clear the existing bridging loan used to purchase the property. By 19 January 2006 the Surveyors' valuation report had been obtained. Finally, another mortgage underwriter approved the application on 26 January 2006, and an offer was issued. There was no indication in the internal notes that any question was raised as to the valuation in the light of the purchase price details. Mr Gayler duly accepted the offer.
The Solicitors were instructed both by the borrower and by the lender. The latter instructed the Solicitors by letter dated 1 February 2006. That letter stated that the instructions were given on the basis of:
(1) The then current edition of the Council of Mortgage Lenders ("CML's") Lenders Handbook;
(2) the Lender's Part 2 instructions.
The letter also enclosed a copy of the Lender's mortgage offer to the borrower dated 1 February 2006, and a copy of the valuation report.
The Solicitors applied for and obtained office copy entries relating to the property, which revealed the actual purchase details, that is that the property had been purchased by Mr Gayler at the price of £390,000 in September 2005. There was no evidence from the Solicitors as to whether or not they appreciated that the information disclosed that the property had been purchased within the last 6 months for substantially less than the valuation of £725,000. All that is known is that the Solicitors did not report this information to the Lender.
On 3 February 2006 the Solicitors submitted a duly completed signed certificate of title to the Lender. It is on the Lender's standard form, and includes the following statement:
"We the conveyancers named above give the certificate of title set out in the Appendix to Rule 6(3) of the Solicitors Practice Rules 1990 as if the same were set out in full, subject to the limitations set out in it."
On 13 February 2006 the Solicitors reported that completion had occurred on that date. The Lender advanced the monies to the borrower; he defaulted; in due course the Lender suffered a loss, and following a claim made against the Surveyors a settlement was reached. Although the Lender also intimated a claim against the Solicitors it was not pursued once the Solicitors had drawn the Lender's attention to what was stated in the mortgage application itself about the date of the prior purchase and the purchase price.
The parties' contentions
The Surveyors contended:
(1) The Solicitors were under a duty to advise the Lender in relation to facts discovered by them in the course of investigating title 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.
(2) The discrepancy between the valuation and the purchase price and date of purchase of the property were such facts.
(3) If the Solicitors had so advised the Lender of the discrepancy, the Lender would have referred the discrepancy to the Surveyors, who would have revised their valuation, with the result that the Lender would not have made the loan and would not have incurred its loss. The Solicitors' failure to advise the Lender was therefore a contributory cause of its loss.
The Solicitors contended:
(1) They were not under any duty to the Lender to report the facts as to the date and price of the purchase of the property. Before us, they submitted that their duty was confined by the terms of their instruction to investigating and reporting on title, save where there was evidence of fraud. The carefully negotiated and detailed provisions of the CML's Handbook, to which I refer below, is to be read as a comprehensive and exclusive code setting out the duties of a solicitor instructed by both lender and borrower.
(2) Even if, contrary to their contentions, they were under the alleged duty, their failure to perform it did not cause any loss. The Lender had decided to make the loan even though it had information as to the date and price of the purchase of the property that should have led it to question the Surveyors' valuation; the facts that it is alleged should have been reported would not have led it to act differently.
The Judge held that the Solicitors were under the duty alleged by the Surveyors; they had failed to...
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