Two recent professional negligence cases are of particular interest as they provide guidance on the scope of solicitors’ duties generally when 1) explaining the risks involved in a transaction, and 2) advising on areas outside of their own expertise.
Kandola v Mirza Solicitors LLP
This case involved solicitors acting for Mr Kandola, a successful and entrepreneurial businessman, who was offered the chance of a favourable deal on a property through a family connection. Mr Kandola released a 25% deposit to the seller direct as opposed to paying the deposit to the vendor’s solicitor as stakeholder, as would usually be the case. Mr Kandola’s solicitors advised him not to proceed on such a risky transaction and even went so far as to require him to sign a waiver stating that he accepted that he understood his solicitor’s advice and the risks involved with the transaction. Mr Kandola went ahead with the transaction anyway and subsequently lost his deposit when the seller was declared bankrupt following a petition that had been presented before the exchange of contracts.
Bringing a claim against the solicitors, Mr Kandola argued that if he had been provided with appropriate advice about the risks involved, the bankruptcy petition would have been revealed and he would not have proceeded with the transaction had he been aware of this.
HHJ Cooke held that Mr Kandola understood the substance of the solicitor’s advice and the meaning of the waiver he had signed. The judge stated that “a solicitor’s duty to explain matters to his client (such as the risks involved in taking a particular step) takes account of his client’s experience; the solicitor is not required to explain matters that should be obvious to a person with the client’s experience or background”. In other words, an inexperienced client may require more explanation, whereas an experienced client may need less, or even no explanation.
Addressing whether the solicitors should have carried out a bankruptcy search in relation to the vendors, HHJ Cooke stated: “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 to take that risk, or to obtain further information…before doing so. The solicitor is not, in general, obliged to seek out such further information unless instructed to do so”.
Fryatt v Preston Mellor Harrison
This case considered a professional negligence claim against a firm of solicitors regarding advice given in relation to an agreement granting an option to Mr Fryatt to purchase shares comprising the entire issued share capital of a company which was the owner of land that Mr Fryatt wished to acquire. Mr Fryatt had initially negotiated with the sellers to take an option over the land itself. However, during the course of those negotiations it was decided that Mr Fryatt would instead take an option to purchase the shares in the company. Ultimately, before Mr Fryatt could exercise the option provided for in the agreement, the company entered into liquidation and the liquidator subsequently sold the land to a third party.
Mr Fryatt brought a claim against his solicitors arguing that they had failed to advise him as to the risks involved in taking an option to purchase shares in the company, as opposed to an option to purchase the land itself. He argued that had he been properly advised he would have taken an option over the land itself and would have had a proprietary interest in the land which he could have then enforced against the liquidator.
Mark Cawson QC ultimately dismissed the claim on the basis that the claimant had failed to establish causation or loss. However, his solicitor’s advice was found to have fallen below the applicable standard of care owed to Mr Fryatt.
The solicitor had informed Mr Fryatt on multiple occasions that he was a property lawyer and did not have the expertise of a corporate/mergers and acquisitions lawyer who specialised in company sales transactions. The solicitor even went so far as to recommend that Mr Fryatt sought specialist corporate advice regarding the transaction.
The judge stated that when Mr Fryatt had demonstrated that it was quite possible that he did not understand the true nature of the transaction, “it was incumbent upon a reasonably competent solicitor acting to the appropriate legal standard to ascertain whether the claimant did in fact understand the true nature of the transaction and the effect thereof and, if not, to correct any misunderstanding and to ensure that he did properly understand the nature and effect”.
The Kandola case is helpful for solicitors when acting in a transaction generally in circumstances where the risk is explained to the client but they fail to understand the advice. In the context of this case, the judge held that ‘just because a solicitor … could take a particular step does not mean that it is his duty to do so. His duty is always defined by his retainer’. In other words, the solicitor is not required to explain matters that should be obvious to someone with the client’s experience.
The Fryatt judgment highlights the risks that practitioners take when they advise on matters which are outside of their expertise and experience. The judgment notes that although the defendant had acknowledged his own lack of expertise in relation to corporate mergers and acquisitions, there was no evidence that he had provided the client with detailed information to make an informed decision whether to instruct a more suitable solicitor.
If you aren’t receiving our legal updates directly to your mailbox, please sign up now
Please note that this blog is provided for general information only. It is not intended to amount to advice on which you should rely. You must obtain professional or specialist advice before taking, or refraining from, any action on the basis of the content of this blog.
Edwin Coe LLP is a limited liability partnership registered in England and Wales (No. OC326366) and is authorised and regulated by the Solicitors Regulation Authority. A list of members of the LLP is available for inspection at our registered office: 2 Stone Buildings, Lincoln's Inn, London WC2A 3TH. "Partner" denotes a member of the LLP or an employee or consultant with the equivalent standing. Our privacy notice which we are obliged to give you under the GDPR is available here.