"The obvious is always least understood"

I remember the Lehman Brothers collapse in September 2008, with headlines like the above 10 years ago today. There was an enormous amount of energy being expended at the top levels of Government and banking, all designed to stop the finance and credit pipes from icing up and causing a credit crisis worldwide.

I had no connection to it until a couple of months later, when a mortgage originator which was in the 'low-doc' space contacted me for advice. Their loan funds were sourced originally from lenders in the USA. The problem was that their commission payments from overseas funds had shrivelled, then suddenly stopped. On examination, there was an extraordinary cascading fountain of commissions which had 12 or so levels from its origination to the point where the loan settled to a borrower. When the original source of commissions dried up, each level was not only owed money, but also owed commission to the level beneath it. Obviously, that is a big problem for each level and for the commission structure as a whole.

However, as more clients in the financial services area came in from lower down the fountain levels, it became clear that some of the commission agreements with their agents did not make payment contingent on first receiving the upstream commission. The only event which determined whether the commission was payable was whether the loan was still in existence with the borrower. In many cases the loans were still in place and had not been refinanced. That meant commissions were due to be paid to the lower level when no funds had been paid to the level above.

It's the sort of fundamental commercial issue which makes you think that maybe that the person who photocopied the agreement missed the vital page. But no, they were copied well. No pages were missing.

The thought that the upstream commission may not be paid had simply not occurred to the lawyers drafting the agreements. This lack of foresight was not limited to one firm - multiple firms missed it.

It was probably only the fact that nearly everyone ran out of money and that there were many bigger issues from the collapses generally that prevented negligence claims for this drafting being pursued.