Two Brothers, a Lender and an Undertaking Given by a Trainee

Client conflict between the brothers. The starting point is that the firm must not act where there is a conflict of interests or a significant risk of one. The 'substantially common interest' exception permits acting for two clients whose interests in the matter are aligned, provided the benefits of acting for both (here, speed and cost) can be explained and the clients give informed consent, and provided effective safeguards are in place. The risk factors here are real: a 60:40 split where only one contributes cash; the need for a declaration of trust recording who owns what and in what shares, and how the deposit is to be treated (gift, loan from Ade to Ben, or loan from Ade to the joint purchase); and what happens if Ben defaults on the mortgage. Safeguards: separate client care letters making the joint retainer and the limits of confidentiality explicit; informed written consent to the joint retainer; a declaration of trust drafted for both, with separate advice or at least a written recommendation that each obtain independent advice on it; a clear written agreement about how information is shared between the brothers - and Ade's confidential disclosure cannot be passed to Ben without Ade's consent.

Acting for Northbank. Acting for a lender and a borrower on a standard residential purchase is permissible where their interests coincide on the security. Here they do not obviously coincide: the shortfall in the advance, the father's loan (a potential source of funds and a possible expectation of repayment that affects affordability), the undeclared county court judgments and Ade's reluctance to explain the £80,000 are all matters the lender needs. The firm has a duty of confidentiality to Ade, but it also has a duty to report to Northbank anything material to its security, and it cannot act for the lender if it withholds information the lender would want.

Conclusion. The firm may continue for the brothers if the safeguards above are in place and both consent. It should not continue for Northbank unless the source of funds and the CCJs are resolved and disclosed. If Ade refuses, the firm must cease to act for the lender (and may need to cease for both borrowers if the transaction cannot proceed on the lender's terms).

It is the firm's undertaking. An undertaking given by a member of staff in the course of the firm's business binds the firm, whatever the staff member's internal authority and whatever their seniority. The firm cannot say the trainee had no authority; there is no 'we didn't mean it' answer. The trainee may also be personally liable if the undertaking was given on their own account, but that does not relieve the firm.

Was it capable of performance? The undertaking is conditional - 'if the purchase does not complete by 30 June'. On the face of it the firm can perform it if the £5,000 is held. Check whether the £5,000 has in fact been received and where it is; client money must be held in the client account and cannot be used for anything else. If the money has not been received, the firm has given an undertaking to pay money it does not hold, which is a serious compliance failure.

Immediate steps.

1. Tell the trainee and the partners, and notify the firm's professional indemnity insurers in accordance with the notification conditions.
2. Contact the seller's solicitors the same day; do not wait to see whether the condition is triggered. Seek their written agreement to release or vary the undertaking - this is a consensual variation of an obligation, not something the firm can simply withdraw.
3. If the recipient will not release it, the firm must perform it, or apply to court for relief. Do not repudiate it.
4. Review how undertakings are given in the firm: who may sign, a register, and a partner's countersignature for any undertaking. Record the training and supervision failure as a compliance matter; the trainee's inexperience is a management issue even though it does not affect liability.
5. Write to Ade and Ben explaining the position if it affects the transaction, and consider whether it must be reported to the lender.

Rule to state to the trainee. Never give an undertaking you may not be able to honour, and never give one whose meaning you are not certain of.

The firm cannot bridge the gap itself. Using money held for another client, or borrowing from the client account, is a fundamental breach of the accounts rules and a disciplinary and criminal risk. Do not 'borrow and repay on Monday'.

Options, in order of preference:

1. Obtain the father's loan in time with proper evidence: bank statements, a signed loan agreement or a letter confirming it is a gift or a loan on stated terms, and disclosure to Northbank. The client's word that the money is 'a few days away' is not enough, and completing on that basis would put the firm at risk.
2. Ask Northbank to reinstate the £15,000 served against an undertaking to pay the booking fee separately, or to accept a retention - unlikely, since the deduction was contractual, but ask and record the answer.
3. Agree an extension of completion with the seller, with or without interest. Under the Standard Conditions, if the buyer fails to complete the seller may serve a notice to complete; after the notice period the seller may rescind, forfeit the deposit and claim interest at the contractual rate (typically 4% above base) plus any loss. Quantify this for the client.
4. Reduce the price or restructure the deal - for example, the seller accepting a charge or a deferred sum. Requires the seller's and Northbank's consent.
5. Bridging finance from a regulated lender. Explain the cost and the fact that the first charge must be disclosed to Northbank.

Source of funds and the CCJs. Before Friday you must have a satisfactory explanation of the £80,000 and the judgments. If it is not forthcoming, the firm may be unable to act further, must consider whether a suspicious activity report is required (and must not tip off the client), and cannot submit a certificate of title to Northbank. The client's confidentiality point does not entitle the firm to assist a transaction on funds it cannot explain.

Client care. Set out all of this in writing, obtain written instructions, warn about interest and possible rescission, and confirm the position to the lender. Advise the client that the 60:40 declaration of trust must be resolved before completion and that a gift from the father should be documented as such if it is not to be repaid.