In another development on the secret commissions front, HHJ Raynor QC, sitting as a High Court judge, handed down judgment in Commercial First Business Limited v Pickup & Vernon (unrep, Ch Div, Manchester District Registry, 6th December 2016).
The defendant borrowers (“Ds”) were experienced property investors who had entered a series of secured commercial loans, with advances totalling over £1 million.
Loans 5-6 post-dated Hurstanger Limited v Wilson [2007] 1 W.L.R. 2351 and so by the date of those advances the lender had amended its terms and conditions so as to make full disclosure of the commissions [34] and [37].
In respect of loans 1-4, Ds alleged that there had been secret commissions paid to the broker, entitling them to equitable compensation and/or a finding of an ‘unfair relationship’. In relation to loan 1, Ds had also paid a broker’s fee themselves, but the lender’s commission had been the only source of the broker’s remuneration for loans 2-4.
The Court found that the commissions paid in respect of loans 1-4 were “half secret” commissions – they had not been disclosed by the lender and the broker had only disclosed the fact, but not the amount, of the commissions: [42] and [45]-[47]. Ds’ oral evidence, accepted on this point, was that despite the partial disclosure, they were unaware of the existence of commissions in relation to loans 1-4, but that they would have been happy to proceed regardless: [37].
The Court held that the broker was not Ds’ agent, yet alone their fiduciary agent, and therefore Ds had no entitlement to relief. At the outset it was correctly noted that in Hurstanger the issue of a fiduciary relationship had been conceded: [48]. The next stage of the Court’s reasoning is interesting: it was held that by virtue of the fact of commission being disclosed “in those circumstances I cannot see how the defendants could reasonably have expected undivided loyalty” [52].
It would be surprising if the characterisation of a commission as “half secret” were fatal to the existence of a fiduciary duty. All the reported ‘secret commission’ cases where relief has been granted involve half secret commissions. The fully/half secret dichotomy is well-established as being relevant to the nature of relief that may be granted, not to the prior issue of whether a fiduciary duty is owed.
The High Court’s alternative reasoning (at [53]) is more traditional. The Court referred to the absence of any written contract and (in relation to loans 2-4) any broker’s fee and concluded that Ds “simply received a quotation … leading to the application form being completed..”; there was only an agency relationship in respect of the submission of the completed application forms to the lender, still less a fiduciary relationship, citing Yates and Lorenzelli v Nemo Personal Finance & anor (unrep, Manchester county court, 14th May 2010, HHJ Platts).
The conclusion that no fiduciary relationship was owed on the facts is especially welcome after a series of appellate decisions where the existence of such a relationship appears to have been taken for granted.
It is also worth noting that on the issue of rescission (considered in case the Court was wrong about there being no fiduciary relationship and the commissions only being half secret), HHJ Raynor QC said obiter that rescission of the loan agreements would be unavailable where the borrowers were unable to make restitution of the advances: [55].
Summary by Ruth Bala.