A solicitor in a conveyancing transaction is not under a duty to evaluate the risk of the counter party’s insolvency.
This is the crux of the recent decision in Kandola v Mizra Solicitors LLP [2015] EWHC 460 (Ch).
Mr Kandola sued his solicitors in connection with the purchase of a property. Upon exchange Mr Kandola paid £96,000 to the vendor on the solicitors’ undertaking that it would be held by vendor’s solicitors as agents.
In the course of the transaction Mr Kandola had, without his solicitors’ knowledge, made a deal with the purchaser direct. He and the purchaser had agreed that that the £96,000 would be used as a loan by the vendor in order to fund a back to back purchase of a property at a profit. The undertaking given by the vendor’s solicitor was to be treated as security for the loan.
When Mr Kandola’s solicitors found out about the arrangement they advised Mr Kandola not to proceed with it. They highlighted the risk to him that the vendor might become bankrupt after he had received the £96,000 and may not be able to complete on the transaction. They warned him that there were a number of secured charges against the property that Mr Kandola wanted to buy. The solicitors did not know the amount of the charges, but they flagged up to Mr Kandola that the vendor might be selling the property at a loss and so may not be able to release them.
Mr Kandola insisted that he wanted to proceed with the transaction contrary to his solicitors’ advice. He signed a waiver for the solicitors saying that he was proceeding against their recommendation.
The vendor became bankrupt; a petition was filed just before exchange of contracts; and the transaction did not complete.
Mr Kandola issued professional negligence proceedings against the solicitors claiming that their advice was inadequate. He claimed that they should have carried out a bankruptcy search against the vendor before exchange of contracts, and should have entered a priority search at the Land Registry before exchange.
His claim was dismissed. The Court held that Mr Kandola’s evidence was not reliable. Beyond that, Mr Kandola was held to be a commercially astute business man who had dealt with a number of property transactions. The solicitors were entitled to take into account the extent of his experience in these matters when discharging their duty. What mattered was whether Mr Kandola reasonably appeared to understand the advice given to him, even if he later claimed that he did not fully comprehend it. The Court held that Mr Kandola had appeared to understand the risks, and had signed a waiver confirming that he wanted to proceed against advice.
As to the duty to carry out searches, there were no specific instructions for the solicitors to carry them out therefore the Court referred to the normal practice in conveyancing transactions. It is not normal practice to carry out a priority search of the register before the exchange of contracts. Mr Kandola’s claim failed on that head.
With regard to the bankruptcy search, the Court held that the solicitors’ duty included advising about the potential risk of the vendor’s insolvency. However, in the absence of express instructions, the solicitors were not expected to evaluate the extent of the risk by carrying out bankruptcy searches or ascertaining the extent of the charges against the property.
Mr Kandola made a statement in evidence that was fatal to his case; that even if he had known about the petition he would have proceeded with the transaction. Even so, in the context of anti-money laundering, and hyper due diligence imposed upon solicitors in conveyancing transactions, this case seems to limit some of the attributes that a solicitor should have to investigate, unless specifically asked.
