In the Court of Appeal case of Mortgage Express Ltd v Bowerman & Partners [1996] Millett LJ said;
“…..A solicitor who acts for [buyer and lender in] a transaction owes a duty of confidentiality to each client, but the existence of this duty does not affect his duty to act in the best interests of the other client. All information supplied by a client to his solicitor is confidential and may be disclosed only with the consent, express or implied, of his client. There is, therefore, an obvious potentiality for conflict between the solicitor’s duty of confidentiality to the buyer and his duty to act in the best interests of the mortgage lender.”
No such conflict was found by the court to exist:
“It is the duty of a solicitor acting for a purchaser to investigate the vendor’s title on his behalf and to deduce it to the [lender’s] solicitor. He has the implied authority of his client to communicate all documents of title to the [lender’s] solicitor. In the present case, the information in question appeared on the face of the vendor’s title, which consisted of his agreement, subject to contract, to purchase the flat for £150,000. Had the [lender] instructed other solicitors, [the borrower’s solicitor] would have had to provide them with a copy of that agreement. It would then have been for those solicitors to consider whether they ought to inform their client of the price which [the borrower] was paying for the flat. In the present case [the borrower’s solicitor] was instructed to act both for the buyer and the [lender] and it was his duty to investigate the vendor’s title on behalf of each of his clients. He must, therefore, be taken to have been in possession of the documents of title, including [the vendor’s] purchase agreement, not only as solicitor for [the borrower] but also, with [the borrower’s] implied authority, as solicitor for the [lender]. He then came under a duty to the [lender] to consider whether he ought to disclose the information which that documentation contained to them.”
In the Court of Appeal case of Goldsmith Williams Solicitors v E.Surv Ltd [2015] the court said that the question whether the Solicitors were under the Bowerman duty in the present case depended on whether that duty was excluded by, or was inconsistent with, the terms of the solicitors’ engagement, as contained in the Council of Mortgage Lender’s (CML’s) Handbook.
On the contrary Clause 5.1.2 of Part 1 of the CML Handbook could only be explained on the basis that if:
1. a matter “comes to the attention of the solicitor dealing with the transaction which [the solicitor] should reasonably expect [the Lender] to consider important in deciding whether or not to lend to the borrower” and
2. that matter is not confidential to the borrower
then the solicitor should report it to the lender.
One of the matters then included under Rule 6(3)(c) of the Law Society’s Practice Rules 1990 as being a solicitor’s obligation to the lender was “making appropriate searches relating to the property in public registers … and reporting any results … which the solicitor considers may adversely affect the lender”.
A search of the Land Registry in this case was a search for the purposes of that sub paragraph and had resulted in the information that the property had been purchased recently at a lower price which strongly suggested that the current valuation was excessive. The search in this case had obviously been relevant to the value of the proposed security and the information should have been reported to the lender.
However the solicitors’ appeal was successful. Even if they had provided the information they should have on the purchase price and date of purchase of the property, it had not been proved on the balance of probabilities that the lender would have reacted to the information. This was because on their mortgage application the borrower had provided price history information which was not materially different.
This blog has been posted out of general interest. It does not replace the need to get bespoke legal advice in individual cases.
Original article: Solicitor should have disclosed price discrepancy to lender.