Kandola v Mirza Solicitors LLP

A solicitor’s duty is defined by the retainer and the standard of the reasonably competent practitioner. Where a transaction carries an unusual solvency risk, the solicitor must explain that risk in terms appropriate to the client’s experience. The solicitor is not generally required to investigate or quantify the counterparty’s credit risk, or to conduct insolvency searches, unless instructed to do so or an established practice requires it. The commercial decision whether to accept the risk remains the client’s. A solicitor is not a guarantor of the client’s subjective understanding where the advice was expressed in terms the client reasonably appeared able to understand.

The claimant instructed the defendant solicitors in connection with a proposed property purchase. He agreed to exchange contracts on terms requiring a £96,000 deposit to be released to the vendor rather than held as stakeholder. The vendor subsequently failed to complete, became bankrupt, and the deposit was not recovered.

The claimant alleged that the solicitors should have given fuller advice, investigated the extent of the insolvency risk, and conducted a bankruptcy or Land Registry priority search before exchange. The defendant relied on advice given against releasing the deposit, acknowledged in a signed waiver. The issues were whether the advice was adequate, whether further searches were required, and whether any breach caused loss.

The claim was dismissed.

1. The court accepted that the solicitor’s duty is measured by what a reasonably competent practitioner would do having regard to professional standards: [1979] Ch 384. The Law Society’s Conveyancing Handbook was relevant evidence of accepted practice, but it did not determine the scope of a legal duty in every case. The observation in Brown v Gold & Swayne that conveyancing practice could properly be established by textbooks required caution because practice must be distinguished from questions of legal duty: [1996] PNLR 130.

2. The defendant had adequately explained the risks. The claimant was told that the deposit would be released to the vendor, that the amount secured by the charges was unknown, that the vendor might be unable to complete, and that the deposit might be lost if the vendor became insolvent. The explanation was suitable for an experienced businessman and property investor. The solicitor was not a guarantor of the claimant’s subjective understanding.

3. The extent of advice may properly reflect the client’s experience. An inexperienced client may require more explanation, while an experienced client may require less. If the client asks for further explanation or appears not to understand, further explanation may be necessary. Those principles were supported by Yager v Fishman & Co and Carradine Properties v DJ Freeman & Co: [1944] 1 All ER 552; [1999] Lloyd’s Rep PN 48.

4. There was no general duty to check the counterparty’s credit status. A specific insolvency search might sometimes be required where insolvency would affect the ability to complete or convey good title, but the unusual release of a deposit did not itself create such a duty. Nor was there an established practice requiring either proposed search before exchange. The claimant could have instructed further investigation if he wished.

5. In any event, causation failed. The claimant accepted that disclosure of the bankruptcy petition, accompanied by an explanation that it concerned a £10,000 debt which would be cleared on completion, would not have deterred him from exchanging contracts.