Nationwide, the building society, is suing Eversheds, one of the country’s largest law firms, for more than £20 million, claiming that it was given negligent advice on an allegedly fraudulent property deal.

The High Court claim is linked to Erinaceous, the troubled quoted property services firm, whose surveying unit became the target of a police investigation into a possible mortgage fraud ring.

Nationwide says that Eversheds failed to tell the building society that it was offering a £14 million loan secured on a Welsh building worth less than £1 million. As Nationwide’s legal adviser on the deal, Eversheds was obliged to investigate the title of the property, confirm the buyer’s identity and verify the source of any upfront payment.

According to the claim: “Eversheds never received any such confirmation or evidence and allowed the matter to drop.”

The case is expected to have repercussions in Britain’s £700 billion commercial property industry, which is braced for a string of similar mortgage-related fraud claims from lenders. Agents are pencilling-in price falls of about 10 per cent, which could trigger a surge in losses on the loan books of banks. This, in turn, is likely to lead to lenders suing property agents and lawyers to help to recover losses.

City lawyers and large property agencies are concerned that many smaller firms of surveyors could have overvalued buildings over the past couple of years to help highly leveraged private buyers to win auctions.

In June, Nationwide won what is understood to have been a multi-million-pound settlement from Dunlop Haywards, Erinaceous’s surveying unit involved in the Welsh property deal. Nationwide had brought a claim for £25 million in damages over allegedly fraudulent valuations. The High Court ruled that Dunlop Haywards had been “reckless” about the truth of valuations given to Nationwide and they had contained “false” representations.

In respect of the latest action, Nationwide said: “We are not alleging the solicitors acted fraudulently in any way. It is purely a negligence claim.”

Eversheds said: “In the ruling on the Nationwide v Dunlop Haywards case, Mr Justice Simon quite clearly determined that an employee of Dunlop Haywards, a Mr McGarry, acted deceitfully in the preparation of valuation reports on which Nationwide relied. Like Nationwide, Eversheds, who acted for them, was subject to the fraud perpetrated by others.

“Following this ruling, to protect their position, Nationwide has issued and recently served proceedings against Eversheds. We are unable to comment further.”

Annual revenues at Eversheds reached £323 million to the end of May, earning its owner-partners an average of £500,000 each.

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