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Failed Conveyancing due to Vendor's Bankruptcy - Who is Responsible?

Facts: Claimant Kandola seeks damages against the defendant solicitors, who acted for him in the proposed purchase of a property. On exchange of contracts a deposit of £96,000 was paid to be held by the vendor's solicitor as agents for the vendor. The vendor did not complete and the deposit was lost. Since then the vendor has been made bankrupt and the vendor solicitors no longer in practice following an SRA intervention which led the two principals of the firm to be eventually struck off. Case Study by Sangeet Kaur
Case: Kandola v Mirza Solicitors LLP [2015] EWHC 460 (Ch), [2015] All ER (D) 26 (Mar)

Mr Kandola's central complaint is that he should have received better advice about the risks involved which would have revealed that a bankruptcy petition was outstanding against the vendor, in which case he would not have proceeded with the transaction.

The defendant's case is that Mr Kandola was fully and properly advised throughout, including specific advice which he acknowledged in writing not to exchange contracts on that basis, but he elected not to follow that advice.

Held: Claim dismissed and that the solicitor had not been under any duty to make the suggested searches prior to exchange of contracts. The risks had been adequately explained to a person of the claimant's experience and he had, in fact, understood the advice he had been given. Paragraphs 51 & 52 of the judgment state:

"It is not, in general, a solicitor's duty to check on the credit status of his client's counterparty in a transaction unless instructed to do so. There may be circumstances in which a solicitor should check specifically for the commencement of bankruptcy proceedings, since that may affect a party's ability to complete a transaction or give a good title. But that is not the same as a general duty to make checks about risk of future insolvency. Nor can such a duty arise merely because the client is incurring a risk of loss if the counterparty becomes insolvent, for that will be true in most if not all transactions.

Nor in my view does such a duty arise merely because the transaction takes an unusual form which does involve a solvency risk (eg on release of a deposit) where the more normal form would not (deposit held as stakeholder). In such cases the duty of the solicitor is to advise of the unusual risk, but not to seek to evaluate it unless specifically instructed to do so."

"In part that is because the decision whom to trust in business is a commercial decision for the client to take and not the solicitor. In part it reflects the submission that Mr. Wood made, with which I agree, that just because a solicitor (or other professional) could take a particular step does not mean that it is his duty to do so. His duty is always defined by his retainer. If he advises his client of a risk, it is a matter for the client to decide whether he wishes to take that risk, or to obtain further information or security before doing so. The solicitor is not, in general, obliged to seek out such further information unless instructed to do so."

http://www.bailii.org/ew/cases/EWHC/Ch/2015/460.html