A conveyancing solicitor owes no general duty to a client to investigate the solvency of a vendor in a property transaction – Kandola v Mirza Solicitors LLP  EWHC 460 (Ch).
The High Court (HHJ David Cooke) so held when dismissing C’s claim against his former solicitors (D) for alleged negligence.C, a businessman and owner of several buy-to-let properties, instructed D in 2010 over the purchase of a property. On exchange of contracts, a deposit of £96,000 was paid (unusually) on terms that it be held by the vendor’s (V) solicitors as agents for V rather than as stakeholder. Unknown to D, the arrangement was intended to facilitate a loan by C to V. D advised C not complete, but did not undertake any further investigations into V’s credit status. If they had, they would have discovered that, prior to exchange, a bankruptcy petition was outstanding against him.
C ignored the advice, V did not complete, the deposit was lost and V was subsequently made bankrupt. V’s solicitors were subsequently struck off for fraudulent misuse of client money (relating to separate cases). C sued D on the bases that D should have (1) provided C with specific advice about the solvency of V; and (2) further investigated the risk by conducting bankruptcy and Land Registry priority searches.
The claim was dismissed. The court held that it is not, in general, a solicitor’s duty to check on the credit status of his client’s counterparty to a transaction, unless he is instructed to do so. The fact that the transaction took an unusual form did not justify a duty beyond that contained in the Law Society’s Conveyancing Handbook (which dealt with general risks associated with the release of a deposit). In deciding what should be explained, a solicitor was entitled to consider the client’s background and experience. The solicitor is not the guarantor of his client’s subjective understanding.
The case does not extend established principles. It stresses the need for a tailored explanation of a transaction in light of a client’s perceived background and experience. And is serves as a tacit reminder for good attendance notes.
Derek Kerr / 1st Apr 2015
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