The High Court has dismissed a negligence claim against a firm after ruling it was not responsible for checking the solvency of a vendor in a property transaction. 

Businessman Karmjeet Kandola had alleged he was wrongly advised by east London firm Mirza Solicitors LLP to place a £96,000 deposit during a proposed property transaction in 2010 for a site in Hornchurch, Essex.

Unusually, the deposit was paid on terms that it be held by the vendor’s solicitor as agents for the vendor, but the deal did not complete and the deposit was lost.

Since then, the seller has been made bankrupt, his solicitors have disappeared and the two principals struck off.

Kandola complained that he should have received better advice about the risks involved in the transaction, including that a bankruptcy petition was outstanding against the vendor. Had he been aware of that, he said, he would have halted the transaction.

The firm said Kandola was fully and properly advised throughout, including specific advice not to exchange contracts on the basis of the terms of the deal – advice that was not followed.

His Honour Judge David Cooke, sitting in the Chancery Division of the High Court, found that the buyer had understood the advice he was given.

The judge said if Kandola had wanted to check the vendor’s credit status he could have taken other steps himself.

‘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,’ added Cooke (pictured). 

‘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.’

He ruled that Mirza Solicitors LLP was not under any duty to suggest credit-risk searches prior to exchange of contracts. 

He added that deciding whom to trust in business was a commercial decision for the client to take, and not for the solicitor.

‘Just because a solicitor (or other professional) could take a particular step does not mean that it is his duty to do so,’ said the judge. ‘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.’