11th January 2016
The duty of conveyancing solicitors to report to a lender was established in Mortgage Express Ltd v Bowerman & Partners  and is commonly referred to as the “Bowerman duty”.
In that case the conveyancer discovered that the seller was proposing to buy a property and sell it on to the borrower in an immediate sub-sale. The solicitor drew the proposed sub-sale to the borrower’s attention but did not mention it in his report to the lender. The lender brought a claim for negligence against the solicitor and the Court of Appeal found that the solicitor owed duties of confidence and to act in each client’s best interests to both the borrower and the lender. The court found that there was no conflict between the duties owed to both clients where the borrower knew and intended that the solicitor should investigate and report on title to the lender. The duty to report to the lender on title was not limited and it compelled the solicitor to report the sub-sale. The solicitor should have appreciated this was information the lender would have wanted to know.
Later case law  clarified the Bowerman duty as follows:
In Goldsmith Williams Solicitors v E.Surv Ltd  the borrower had purchased a property for £390,000 in September 2005. Two months later, the borrower having misled the surveyor as to the purchase price, the property was valued at £725,000. In December 2005 the borrower applied to the lender for a loan of £580,000, claiming that the property had been purchased in October 2005 for £450,000 and relying on the valuation. Goldsmith Williams Solicitors were instructed to act for the borrower and the lender. They obtained Official Copies recording the purchase in September 2005, but did not pass this information on to the lender.
The lender subsequently brought a claim against the surveyor for negligent overvaluation. The surveyors, after settling the claim with the lender, brought a claim against Goldsmith Williams for a contribution under the Civil Liability (Contribution) Act 1978.
The surveyors argued that the solicitors had a duty, effectively the Bowerman duty, to report the discrepancy between the actual purchase price, the stated purchase price and the valuation. This information was material to the value of the lender’s security and the lending decision. Had the solicitors reported the information to the lender, so the surveyors argued, the loan would not have been made.
Goldsmith Williams’ primary defence was that their obligations were defined in the CML Handbook  which, they argued, was a complete and exhaustive code. The solicitors argued that they had not breached the obligations as set out in the Handbook, which were to investigate and report on title, save where there was evidence of fraud.
Goldsmith Williams also argued, in reliance on the fact that the lender had accepted the loan even though the application had declared the property had been purchased for £450,000, that even if they reported the discrepancy to the lender, the lender would have made the loan. They therefore argued that they had not caused the lender’s loss.
The Court of Appeal found that the CML Handbook is not a complete and exhaustive code of instructions. The court referred to paragraph 1.3, which states that the 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”. The court therefore concluded that the Handbook did not exclude the Bowerman duty.
So far as the solicitors’ causation argument was concerned, however, the Court of Appeal held that the surveyors had failed to show that the purchase price of £390,000 would have made any difference to the lender’s decision to lend. The judgment raises an interesting evidential point for lenders and their representatives. Sir Stanley Burton noted the surveyor’s failure to adduce evidence from any of the underwriters making the decision for the lender. However he also stated that the surveyors had failed to bring evidence of “any lending manual that might have indicated what action should be taken when information … comes into the possession of the Lender” . This indicates that the court is prepared for lenders to adduce evidence from their underwriting manuals and guidance, as opposed to having to call evidence from underwriters as to whether a loan would or would not have been made.
Goldsmith Williams is therefore a valuable case for lenders and their advisors to bear in mind. It confirms that the Bowerman duty applies to conveyancers when acting for lenders, and that conveyancers have an obligation to report to the lender even if that is not expressly stated in the solicitors’ retainer. This duty to report will include information known to the conveyancer which may affect the lender’s decision to lend, for instance to report previous sales transactions and their purchase prices and even possibly information that the conveyancer knows about the purchaser such as his creditworthiness. The case also suggests that lenders will be able to rely on their lending manuals and guidance when submitting evidence of their lending decision. That could save significant time and cost in the preparation and delivery of witness evidence, especially as in many cases the underwriters may no longer be employed by the lender and may, in any event, be unlikely to recall specific details about a transaction but would be more likely to speak of the usual practices and procedures that were applied.
The case is also a very clear reminder that causation is an essential component of any successful cause of action, and that it can therefore be an effective weapon for defendants to deploy.
  2 All ER 836
 including National Home Loans Corporation v Giffen Coach & Archer  1 WLR 207 and Nationwide Building Society v Balmer Radmore  PNLR 606
  EWCA Civ 1147
 After the Bowerman duty had been codified in case law, the CML Handbook, an extensive code of instructions for conveyancers instructed by lenders in residential conveyancing transactions, was released in 1999.
 Para. 45