Case No: A3/2014/1389
Neutral Citation Number: [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)
[2014] EWHC 1104 (Ch)
Royal Courts of Justice
Strand, London, WC2A 2LL

Date: 11 November 2015
Before :

LORD JUSTICE PATTEN
and
SIR STANLEY BURNTON 
- - - - - - - - - - - - - - - - - - - - -
Between :

	GOLDSMITH WILLIAMS SOLICITORS	Appellant/
Defendant 	
	- and –
		
	E.SURV LIMITED	Respondent/
Claimant 	

- - - - - - - - - - - - - - - - - - - - -
- - - - - - - - - - - - - - - - - - - - -

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
- - - - - - - - - - - - - - - - - - - - -
Judgment
Sir Stanley Burton : 
Introduction
1.	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.
2.	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
3.	I shall refer to the Appellants as “the Solicitors” and to the Respondent as “the Surveyors”. 
4.	My account of the facts is taken from the Judge’s thorough judgment, for which I express my appreciation.
5.	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. 
6.	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. 
7.	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. 
8.	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.
9.	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. 
10.	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. 
11.	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.  
12.	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.”
13.	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
14.	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.
15.	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. 
16.	The Judge held that the Solicitors were under the duty alleged by the Surveyors; they had failed to fulfil it; if they had performed it, the Lender would not have made the loan. Before us, the Solicitors dispute both these findings. 
17.	It follows that in essence there are two issues before us:
(1)	Duty: were the Solicitors under the duty alleged by the Surveyors?
(2)	Causation: if they were under that duty, was their failure to fulfil it a cause of the Lender’s loss?
The duty of solicitors acting for both Lender and Borrower: the terms of the retainer
18.	The starting point must of course be the express terms of the Solicitors’ retainer, the instructions given by the Lender and accepted by the Solicitors. 
19.	The solicitors were instructed both by the borrower and by the lender.  The latter instructed the solicitors by letter dated 1 February 2006 which, as stated above, incorporated the CML’s Handbook.
20.	The relevant version of the Lenders’ Handbook was that dated 6 May 2005.  It was a document produced following negotiations between the CML on behalf of its members, and the Law Society representing individual conveyancing solicitors. The Handbook was divided into 2 parts.  Part 1 was entitled “Instructions and Guidance”, and contained 17 separate sections.  The Judge did not have a copy of Part 2, which would have comprised the bespoke instructions provided by the Lender for the particular transaction, but it was not suggested to the Judge, and has not been suggested to us, that it would have contained anything of relevance to the nature and scope of the Solicitors’ duty.     
21.	Part 1 began with the following statement:
“Those lenders who instruct using the CML Lenders Handbook certify that these instructions have been prepared to comply with the requirements of rule 6(3) of the Solicitors’ Practice Rules 1990.”
22.	Part 1 of the Lenders’ Handbook was headed “Instructions and Guidance”. Clause 1 was headed “General” and included the following:
“1.3 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.
 1.4 The standard of care which we expect from you is that of a reasonably competent solicitor … acting on behalf of a mortgagee.”
1.5 The limitations contained in rule 6(3)(c) and (e) of the Solicitors Practice Rules 1990 apply to the instructions contained in the Lenders Handbook …”
23.	Clause 3 was headed Safeguards, and among other things requires solicitors to follow the guidance in the Law Society’s Green Card (mortgage fraud) and Pink Card (undertakings) and to the extent that they applied comply with the Money Laundering Regulations 1993. 
24.	Clause 4 was headed “Valuation of the Property”. Clause 4.1, headed “Valuation”, was as follows:
“4.1.1 Check part 2 to see whether we send you a copy of the valuation report or if you must get it from the borrower. If you are sent, or are required to obtain, a copy of the valuation report:
4.1.1.1 You must take reasonable steps to verify that there are no discrepancies between the description of the property as valued and the title and other documents which a reasonably competent conveyancer should obtain, and, if there are, you must tell us immediately; and
4.1.1.2 You should take reasonable steps to verify that the assumptions stated by the valuer about the title (for example, its tenure, easements, boundaries and restrictions on its use) in the valuation are correct. If they are not, please let us know as soon as possible (see part 2) as it will be necessary for us to check with the valuer whether the valuation needs to be revised. We are not expecting you to assume the role of valuer. We are simply trying to ensure that the valuer has valued the property based on correct information.
4.1.2 We recommend that you should advise the borrower that there may be defects in the property which are not revealed by the inspection carried out by our valuer and there may be omissions or inaccuracies in the report which do not matter to us but which would matter to the borrower. We recommend that, if we send a copy of a valuation report that we have obtained, you should also advise the borrower that the borrower should not rely on the report in deciding whether to proceed with the purchase and that he obtains his own more detailed report on the condition and value of the property, based on a fuller inspection, to enable him to decide whether the property is suitable for his purposes.”
25.	Clause 5 was headed “Title”:
“5.1 Surrounding Circumstances
5.1.1 Please report to us (see part 2.) if the owner or registered proprietor has been registered for less than six months or the person selling to the borrower is not the owner or registered proprietor unless the seller is:
5.1.1.1 a personal representative of the registered proprietor, or
5.1.1.2 an institutional mortgagee exercising its power of sale; or
5.1.1.3 a receiver, trustee-In-bankruptcy or liquidator; or
5.1.1.4 developer or builder selling a property acquired under a part-exchange scheme.
5.1.2 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.
5.2 Searches and Reports
5.2.1 In carrying out your investigation, you must make all usual and necessary searches and enquiries. We must be named as the applicant in the H M Land Registry search.”
26.	Doubtless in part because of the references at the beginning of Part 1 of the Handbook and in paragraph 1.5 it was and is common ground that the provisions of the Handbook must be read together with the solicitors’ Practice Rules 1990.  The Practice Rules were made by the Law Society to regulate the practice of solicitors, both generally and in respect of certain specific matters, and were in force up to 1 July 2007.  Rule 6 set out the circumstances in which a solicitor may act for more than one party in conveyancing and related matters.  Rule 6(3)(a) prohibited a solicitor from acting for both lender and borrower on the grant of a mortgage of land in certain specified circumstances, including where the lender’s mortgage instructions extended beyond the limitations contained in rule 6(3)(c) or did not permit the use of the certificate of title required by rule 6(3)(d).  Rule 6(3)(e) made it clear that in the event of any ambiguity or discrepancy the terms of the Rule were to prevail over the terms of the instructions.  
27.	Rule 6(3)(c) was as follows:
“6(3)(c) A solicitor acting for both lender and borrower in a standard mortgage may only accept or act upon instructions from the lender which are limited to the following matters:”
28.	There were 25 subparagraphs set out under the Rule, of which the first 5 were as follows:
“(i) taking reasonable steps to check the identity of the borrower (and anyone else required to sign the mortgage deed or other document connected with the mortgage) by reference to a document or documents, such as a passport, precisely specified in writing by the lender;
following the guidance in the Law Society’s “green card” warning on property fraud and “blue card” warning on money laundering;
checking that the seller’s solicitors or licensed conveyancers (if unknown to the solicitor) appear in a current legal directory or hold practising certificates issued by their professional body;
and, in the case of a lender with no branch office within reasonable proximity of the borrower, carrying out the money laundering checks precisely specified in writing by the lender;
(ii) making appropriate searches relating to the property in public registers (for example, local searches, commons registration searches, mining searches), and reporting any results specified by the lender or which the solicitor considers may adversely affect the lender; or effecting search insurance;
(iii) making enquiries on legal matters relating to the property reasonably specified by the lender, and reporting the replies;
(iv) reporting the purchase price stated in the transfer and on how the borrower says that the purchase money (other than the mortgage advance) is to be provided; and reporting if the solicitor will not have control over the payment of all the purchase money (other than a deposit paid to an estate agent or a reservation fee paid to a builder or developer);
(v) reporting if the seller or the borrower (if the property is already owned by the borrower) has not owned or been the registered owner of the property for at least six months;”
29.	None of these subparagraphs expressly required a solicitor to report to a lender any discrepancy between the information provided by the borrower and that disclosed in the searches carried out by him, or information casting doubt on the value of the property to be charged.
30.	Rule 6(3)(d) specified the form of certificate of title to be used by the solicitor.  There were a number of matters to be certified, including at paragraph (i) the following:
	“We confirm 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.”     
31.	The certificate concluded:
“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 duty of solicitors acting for both Lender and Borrower: discussion
32.	Quite apart from the express provision in clause 1.3 of the Handbook, I would have thought that the pre-existing law as to the duties of a solicitor were relevant to its interpretation. Given the express terms of clause 1.3, and for other reasons that I shall come to, I think it clear that it is necessary to have regard to that law.
33.	The pre-existing law was, as is well known, declared in the landmark decision of the Court of Appeal in Mortgage Express Ltd v Bowerman & Partners [1996] 2 All ER 836, universally referred to as “Bowerman”. The facts were not materially different from the present. G, a partner in the defendant firm of solicitors, was instructed to act on behalf of the plaintiff mortgage lender in respect of an application for a loan of £180,150 by H, who wished to purchase a property for £220,000. The solicitors were also instructed to act for H. Enclosed with the plaintiff’s letter of instruction was a professional valuation, valuing the property at £199,000. The solicitor dealing with the matter became aware that the vendor was himself purchasing the property for £150,000 and was selling on simultaneously to H. The solicitor drew to H’s attention the discrepancies between the two purchase prices and the valuation figure. However, in his written report on title to the plaintiff, the solicitor did not mention the simultaneous sale of the property for £150,000. The plaintiff duly advanced the loan to H and the sales were completed. H defaulted on the loan after one payment and the property was repossessed and sold for £96,000. As in the present case, it was submitted by the solicitors that their only duty to the lender was to report on title. The Court of Appeal rejected this submission, and accepted that for the lender, namely, as Sir Thomas Bingham MR put it at 842:
“… if, in the course of investigating title, a solicitor discovers facts 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, then it is his duty to point this out.”
34.	Millett LJ, an eminent Chancery judge, said at 845:
“It is important at the outset to recognise that it would not have involved [the solicitor] in any breach of duty to his client, if he had communicated the information in question to the plaintiffs. A solicitor who acts both for a purchaser and a mortgage lender faces a potential conflict of duty. A solicitor who acts for more than one party to 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, however, arose in the present case. 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 mortgagee’s solicitor. He has the implied authority of his client to communicate all documents of title to the mortgagee’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 plaintiffs instructed other solicitors, Mr Gilroy 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 Mr Arrach was paying for the flat. In the present case Mr Gilroy was instructed to act both for the buyer and the mortgagee 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 Mr Arrach’s purchase agreement, not only as solicitor for Mr Hadi but also, with Mr Hadi’s implied authority, as solicitor for the plaintiffs. He then came under a duty to the plaintiffs to consider whether he ought to disclose the information which that documentation contained to them.
Mr Gilroy recognised as much. In cross-examination he said: ‘If I had had any cause to doubt the valuation, that is something I should have passed on, but I did not doubt the valuation.’
…
The question which the judge had to ask herself was whether a solicitor of ordinary competence would have regarded the information in question as information which might cause the plaintiffs to doubt the correctness of the valuation which they had obtained.”
35.	Schiemann LJ agreed with both judgments.
36.	Bowerman was considered by the Court of Appeal in National Home Loans Corporation Plc. v. Giffen Couch & Archer [1998] 1 WLR 207, in which it was held on the facts of that case that the information that it was alleged the solicitor should have passed on to the lender (namely the borrower’s existing arrears under his existing mortgage and the threat of legal proceedings by his existing mortgagee) did not relate to title or to the adequacy of the security, or to any other matter on which he was instructed to report or to advise, and he was therefore not in breach of any duty to his lender client in not reporting that information. It is not suggested that this gloss on the Bowerman duty is relevant to the instant case: the information that it is alleged should have been reported to the Lender clearly affected the adequacy of the security.
37.	The judgment of Blackburne J in Nationwide Building Society v Balmer Radmore [1999] PNLR 606 repays study. At 632 he said:
“… there is no general duty on a solicitor to report matters which might be of commercial interest to a lender and nothing in Bowerman justifying the conclusion that there is. On the contrary, as the decision in GCA makes clear, any duty to report arises not because a matter might be of interest to the lender but if and only if it goes to a matter which concerns those of the lender’s interests to which the solicitor is engaged to attend.”
At 634 he said:
“I accept Mr Davidson’s submission, based on his analysis of Bowerman and GCA, that the duty to report, as expounded in the Bowerman case, is confined to matters which are within the scope of the client’s interest which the solicitor is engaged to serve. I also accept his submission that whether or not the solicitor is subject to such a duty depends on the terms and limits of his retainer.
I also accept his submission that, in considering whether a solicitor acting for a lender is subject to a Bowerman type duty, the correct approach is to examine the terms of the retainer and then consider what implied obligations, if any, there are to accompany the expressed ones. Having said that, however, I am inclined to think that the Bowerman duty is a species of obligation which the court will ordinarily imply, or find present, where a solicitor acts for a lender in a mortgage transaction except to the extent that where to do so would be inconsistent with the express terms of the engagement or with the surrounding circumstances of the relationship.
I do not accept his submission that the Society’s written instructions set out the entirety of what it required its solicitor to do and that, to use Mr Davidson’s expression, there was no “spare breadth” to them. …
38.	Like Blackburne J, I consider that the question whether the Solicitors were under the Bowerman duty in the present case depends on whether, properly construed, that duty was excluded by, or was inconsistent with, the terms of the Solicitors’ retainer, as contained in the CML’s Handbook. 
39.	In my judgment, the answer to this question is clearly “No”. Clause 1.3 of the Handbook is inconsistent with its provisions being a comprehensive and exclusive statement of the solicitors’ responsibilities. Clause 5.1.2 can only be explained on the basis that if the matter that “comes to the attention of the fee earner dealing with the transaction which [the fee earner] should reasonably expect [the Lender] to consider important in deciding whether or not to lend to the borrower” and that matter is not confidential to the borrower, the fee earner should report it to the lender. The examples set out in the parentheses are just that. Turning to the Law Society’s Practice Rules, as has been seen one of the matters listed under Rule 6(3)(c) was “making appropriate searches relating to the property in public registers … and reporting any results … which the solicitor considers may adversely affect the lender”. It is not now suggested that a search of the Land Registry is not a search for the purposes of this subparagraph. The search in this case resulted in the information that the property had been purchased recently at a price that suggested strongly that the valuation was excessive. This was obviously relevant to the value of the proposed security. 
40.	I do not think that this conclusion is negated by the terms of the standard form of certificate of title. The Solicitors did not have any liability or responsibility beyond carrying out their instructions, which involved the making of appropriate searches, and advising the lender of the results of those searches, including information that affected the value of the proposed security. A narrow reading of the certificate would be inconsistent with clauses 1.3 and 5.1.2 of the Lenders’ Handbook. 
41.	I therefore disagree with the suggestion in Lender Claims by Tomlinson QC and Grant at paragraph 3-29 that “unless a reasonable solicitor would consider that information gave rise to a significant risk that the borrower was fraudulent or had misled the lender, s 5.1.2 is not engaged”. This suggestion is inconsistent with the express wording of clause 5.1.2. Similarly, I am unable to accept the suggestion, in Solicitors’ Negligence and Liability (3rd edition) by Flenley QC and Leech QC, at paragraph 10.67, that the provisions of the CML’s Handbook are inconsistent with the Bowerman duty. 
42.	This does not mean that a solicitor instructed to act for both lender and borrower must act as a detective or bloodhound. The solicitor instructed on the terms of the CML Handbook was not required to carry out any work that was outside the scope of his instructions. It was only if, while carrying out that work, he came into possession of non-confidential information that a reasonably competent solicitor would realise adversely affected the title to the mortgage property or the value of the security that he was under a duty to report it to the lender. 
43.	On this appeal, it is not suggested that if the Solicitors were under the duty that I consider applied to them, they were not in breach of that duty. As the Judge found, a reasonably competent solicitor would have realised that the date and price paid for the property in September 2005 strongly suggested that the valuation was greatly excessive. I would therefore reject the Solicitors’ contention that they were not under a duty.
Causation
44.	This facts of this case are unusual in that the Lender was already in possession of information strongly suggesting that the valuation of the property was excessive. The borrower had stated in his application that he had bought the property as recently as October 2005 at the price of £450,000. It was highly unlikely that at the date of his application its value had increased by almost £300,000. Why then did the Lender approve the loan, even in principle? That information was not materially different from that which the Solicitors should have reported to the Lender.
45.	In the absence of evidence from at least one of the underwriters making the decision for the Lender, and without any lending manual that might have indicated what action should be taken when information such as that in the present case comes into the possession of the Lender, the Judge was driven to speculate what would have happened if the Solicitors had informed them of the date and price of the borrower’s purchase of the property. He rightly rejected as conjecture Mr Davison’s evidence that the underwriter must have missed the information that had been given by the Borrower. He recorded the parties’ submissions as follows:
“Mr Patel invited me to conclude that the lender would undoubtedly have referred this information to the surveyors’ PVQ team with a view to seeing whether or not it affected the valuation.  Mr Mitchell submitted that based on the information before the court it was simply not possible to reach such a conclusion on the balance of probabilities.  He submitted that in the absence of hard evidence, either from the mortgage underwriting guidelines or from a member of the mortgage underwriting team who would actually have been involved in this process, that this is what would have happened there is no basis for so concluding. He submitted that since the contemporaneous evidence shows that no such query was raised even though the purchase details as reported in the mortgage application form were not materially different from the actual purchase details, and even when the evidence shows that at least one if not more of the members of the mortgage underwriting team must have seen and read the mortgage application form, the only safe conclusion which can be drawn is that the lender was indifferent to such details in the context of this particular application made by this particular lender for this particular product, most probably because all that the lender was interested in was the strength of the borrower’s personal covenant and the valuation.”
46.	Counsel for the Surveyors, Mr Patel, submitted that the inference to be drawn from such evidence as was before the Court was that the underwriters had simply failed to pick up the discrepancy between the information in the mortgage application form and the value ascribed to the property. The Judge rejected this submission. He said:
“So far as Mr Patel’s first point is concerned, I am not satisfied that there is a proper evidential platform for drawing that conclusion.  As Mr Mitchell submits, it is reasonably clear from the documentary evidence that at least one of the underwriters must have scrutinised the mortgage application form before the application was approved.  This was not an application which went through at some speed.  It clearly went through a number of stages.  If the mortgage underwriting team’s practice, either because of what was in the mortgage underwriting guidelines or because it was settled practice, was to check any discrepancy such as there was in the instant case between the reported purchase price and the valuation with the valuer, then in my judgment it is unlikely that it would not have been done in this case.”
47.	This conclusion begged the question: if a reported price of £450,000 shortly before the date of the mortgage application was not of concern to the underwriters, why should reported price of £390,000 have concerned them? It was not suggested that the difference between £450,000 and £390,000 was material. The solicitors had not been provided with a copy of the application form completed by the borrower (for no good reason that I can think of), and so would not have known that the information provided by him was misleading (c.f. clause 5.1.2 of the Handbook). 
48.	It seems to me that it is at this point that the Judge fell into error. He said:
“75. … Although the solicitors rely on the surveyors’ failure to produce the mortgage underwriting guidelines, had the solicitors wanted to adduce a positive case to the effect that it would have been standard practice for an approving underwriter to conduct a thorough check including cross referring all of the information in the mortgage application form against the valuation, it would have been as open to them as to the surveyors (if not more so, given that they were not subject to the terms of the settlement agreement) to seek such information, whether by application for third party disclosure against the lender or subpoena against a relevant witness or otherwise.”
This was in effect to reverse the burden of proof. It was for the Surveyors to establish that the Solicitors’ breach of duty was a cause of the Lender’s loss. It was of course open to the Solicitors to adduce such evidence as they considered appropriate on the issue of causation, but it could not be held against them that they did not do so. It was for the Surveyors to secure the evidence they required, if necessary by the issue of a witness summons against a relevant witness. It also seems to me that the Judge’s finding that there was no evidence of a standard practice for an approving underwriter to conduct a thorough check including cross referring all of the information in the mortgage application form against the valuation sits ill at ease with his earlier positive finding that an underwriter had scrutinised the information provided by the Borrower and nonetheless approved the loan in principle. 
49.	Ultimately, my view is that the Judge did not have the evidence before him that enabled him to answer the question I referred to at paragraph 47 above. In my judgment, the Surveyors did not prove that the Lender would have reacted to the information that the Solicitors should have provided on the purchase price and date of purchase of the property, which was not materially different from the information given to them by the borrower. I would allow the appeal on this ground.
Lord Justice Patten :
50.	I agree that the appeal should be allowed on the issue of causation for the reasons given by Sir Stanley Burnton.  The judge effectively reversed the burden of proof and failed to give proper weight to the evidence which he did have about the earlier mortgage proposal. 
51.	I also agree that the Solicitors did owe a duty to draw to the Lender’s attention the fact that the Property had been purchased in September 2005 for only £390,000.  But, because of the potential importance of this issue, I wish to add a few observations of my own about the scope of the Solicitors’ duty.  
52.	It is not disputed by the Solicitors that the facts about the proximity of the purchase and the disparity between the purchase price and the £725,000 valuation of the Property were matters which should have been reported by the Solicitors to their lender client under the principles explained by this Court in Mortgage Express v Bowerman [1996] 2 All ER 836.  That case established that the solicitors’ duty of care in carrying out their task of investigating title extended to the disclosure of facts which they, as reasonably competent solicitors, ought to have realised would have a material bearing on the valuation or the lending decision: see Sir Thomas Bingham MR at page 842f.
53.	The Bowerman duty is one of disclosure.  The solicitor is not required (unless asked to do so) to advise on the wisdom of going ahead with the mortgage loan nor on valuation.  Those are matters which the Lender can take up with the Valuer and its own underwriters.  The disclosure obligation may also be confined by the fact that the solicitor in a mortgage transaction will often be acting for both lender and borrower and so face potential conflicts of duty in relation to information which is confidential.
54.	In a typical lending transaction problems about conflicts of duty will usually be resolved by the lender’s requirement that the borrower should consent to the disclosure of information material to the transaction.  But the Law Society’s Solicitors Practice Rules 1990 (“SPR”) also set limits to the instructions which a solicitor may accept when acting for both lender and borrower.  Rule 6 is designed to avoid conflicts of interest in the field of conveyancing and property selling and Rule 6(3) which has featured in the argument on this appeal covers standard mortgage transactions.
55.	The material parts of the Rules have been set out by Sir Stanley Burnton in [27] – [28] of his judgment and, as he has observed, do not include an express requirement to report information which casts doubt upon the valuation.  But that is not surprising.  It is important to bear in mind that it is not the function of Rule 6 SPR to specify how a solicitor in a mortgage transaction should carry out his instructions or what is the scope of his duty of care.  Rule 6 is there to set limits to the type of instructions which a solicitor in such a transaction may properly accept; not to set out the terms upon which the solicitor may be instructed in respect of matters which he is permitted to carry out or to regulate the limits of his reporting obligations when acting for both lender and borrower in the transaction.  Like Sir Stanley Burnton, I consider that Rule 6(3)(c)(ii) does not preclude the existence of a Bowerman duty but to discover whether such a duty is included within the scope of the Solicitors’ retainer one must look at their instructions.  
56.	In this case those instructions are contained in the CML Handbook quoted in [20] – [25] above.  The Handbook in this form post-dates the decision in Bowerman and was, Ms Day QC submitted, a carefully drafted contractual framework.  She accepts that the difference between the September 2005 purchase price of the Property and the £725,000 valuation was reportable under the Bowerman principles.  But her case is that the CML Handbook deliberately limited the duty of disclosure to cases of fraud so that her clients were not required to report the difference simply because, as reasonable solicitors, it should have occurred to them that it might cast doubt upon the accuracy of the valuation.  This, she says, is confirmed by clause 4.1.1.2 which states in terms that the solicitor is not expected to assume the rôle of valuer but simply to ensure that the Property has been valued upon correct assumptions about the title.  
57.	In the end the appeal raises a question of construction about the terms of clause 5.1.2.  This sub-clause is concerned with a situation in which disclosable information has to be withheld by the solicitor because, to disclose it, would result in a breach of duty to his borrower client.  In such circumstances the solicitor must cease to act.  The sub-clause does not in terms impose a duty of disclosure but it recognises in words which echo the judgment of the Master of Rolls in Bowerman that reportable matters which come to the solicitor’s attention when dealing with the transaction and are not confidential to the borrower must be communicated to the lender.  It therefore acknowledges the existence of a Bowerman-type reporting duty as part of the solicitors’ instructions.  
58.	Ms Day, I think, accepts this.  But she contends that the words in parenthesis in clause 5.1.2 should be taken as an indication that the scope of the reporting duty should be limited to cases of fraud.  I do not accept this.  The examples given of misleading or incorrect information are in my view no more than obvious examples of instances where the reporting duty would arise.  But they are not in terms exhaustive and I see no reason to construe them as limiting the preceding part of clause 5.1.2 to cases of fraud.  The full Bowerman duty is not, as I have explained, excluded by the limitation imposed by SPR 6.3 or, for the reasons given by Sir Stanley Burnton, by the form of the certificate of title.  Nor was the information about the purchase price of the Property in any sense confidential to the borrower.  The duty to draw the differences between the price and the valuation to the lender’s attention was therefore a necessary incident of the Solicitors’ instructions to investigate and report on title unless expressly excluded by the terms of the retainer: see the passages from the judgment of Blackburne J in Nationwide Building Society v Balmer quoted at [37] above.
59.	I therefore agree with Sir Stanley Burnton that clause 5.1.2 properly and fairly read is not an exclusion of the general Bowerman duty and that the Solicitors were in breach of duty in this case. 
Crown copyright©