The simple answer is no. Your solicitor has no duty to check or guarantee the creditworthiness of your buyer or seller in a property transaction. If you do require any further information on this then this is for you to obtain or specifically instruct your solicitor to do it.
This is the legal position following the recent case of Kandola v Mirza Solicitors LLP [2015] EWHC 460 (CH) where a judge considered in detail the scope of a solicitor’s duty to his client in a conveyance case.
Background to the case
Mirza Solicitors LLP (“Mirza”) were the solicitors acting for Mr Kandola. Mr Kandola entered in to a business property transaction where, unfortunately, the seller (his nephew’s business partner) was declared bankrupt after exchange of contracts. As a result, Mr Kandola lost the large deposit that he had paid towards the purchase.
Mr Kandola had agreed to pay a large deposit of £96,000 and had also agreed to make it available to the seller to use to enter into other business transactions before completion of the sale of the property. This agreement was made without Mirza’s knowledge. As a result of this agreement, the deposit was held by the seller’s solicitor as agent for the seller and not as a stakeholder for both parties, which is the normal arrangement.
On discovering that this agreement was in place, Mirza advised Mr Kandola of the risk to him if the seller became bankrupt after the deposit was paid and if the purchase did not completed. The property had a number of charges against it and although Mirza did not know the value of the charges, they had informed Mr Kandola of the risk that the seller was selling the property at a loss and therefore he may be unable to pay them off completely. Mr Kandola instructed Mirza that he wished to continue with the purchase and signed a waiver that he had been advised of the risks involved in the purchase and wanted to proceed against his solicitor’s advice.
After the seller had been declared bankrupt, Mr Kandola issued a professional negligence claim against Mirza. His claim was that Mirza should have better advised him of the risks involved in the transaction and any advice that he did receive was not sufficient. He claimed Mirza should have credit checked the seller or done a Land Register priority search prior to exchange, either of which would have shown a bankruptcy petition against the seller even though the seller was not, at that stage, bankrupt. With that knowledge, Mr Kandola claimed he would not have continued with the purchase.
Mirza’s defended the claim stating that they had advised properly. They had also advised Mr Kandola in writing not to exchange contracts on the basis of the terms of the deal, but he went ahead in any event.
The extent of a solicitor’s duty
The judge concluded that there was no breach of duty by Mirza. He considered the extent of the duty a solicitor has to advise a client regarding the risks of a particular transaction. He concluded that:
- in the case of an experienced business client, as in this case, it was for the client to make the decision as to who to do business with and he should make his own checks or specifically instruct his solicitor to make certain checks into a seller’s credit position;
- it is not for the solicitor to make or suggest making credit risk check into future insolvency beyond the normal practice;
- a solicitor must advise of an unusual risk, but they have no duty to seek to evaluate it unless specifically instructed to do so; and
- a solicitor needs to be aware that there is a difference between advising an inexperienced client and an experienced one. However, a solicitor is not a guarantor of his client’s subjective understanding and he would have fulfilled his duty if he gave an explanation in terms that the client reasonably appeared to him to be able to understand.
Dismissing the claim, the judge commented:
“[A solicitor’s] duty is always defined by his retainer. If he advises his client of the risk, it is a matter for the client to decide whether he wishes to take that risk, or obtain further information or security before doing so.”
Conclusion
One of the key points from this case is that the level of experience and knowledge your solicitor reasonably believes that you have is likely to have an effect on the level of explanation he/she is required to give you. Make sure you are clear with your solicitor when you do not understand an explanation given. After you have been advised of the risks involved in your transaction and believe you have experience to understand those risks a solicitor is not required to evaluate those risks further without your specific instruction to do so.
About the author
Susan advises on all aspects dispute resolution particularly in the financial services sector. She has extensive insurance, professional negligence and restrictive covenants experience. She deals with claims against solicitors, valuers, surveyors, brokers and accountants, fraud issues, recoveries for lenders and bank mis-selling.
