‘Medsted Associates’: CA Judgment on Secret Commission

The Court of Appeal handed down its latest judgment on broker secret commissions in Medsted Associates Ltd v Canaccord Genuity Wealth (International) Ltd [2019] EWCA Civ 83. The appellant (‘Medsted’) was a broker who introduced potential investors in contracts for difference to financial institutions such as the respondent (‘Canaccord’).

The Court of Appeal upheld the first instance judge’s decision that the broker owed the investors a fiduciary duty. Significantly, the Court rejected Medsted’s submission that it could not be a fiduciary because it lacked authority to bind the investors in dealing with third parties (at [31]-[32]). That consideration was not determinative in assessing whether a broker was a fiduciary. Since Medsted had “impliedly represented” to the investors that the respondent’s terms were “competitive”, to that extent the investors had reposed trust and confidence in Medsted. That sufficed to render Medsted a fiduciary (at [32]).

However, the Court of Appeal departed from the first instance judge on the second question of whether Medsted’s non-disclosure of the amount of its commission constituted a breach of fiduciary duty. The investors did not pay any fees to Medsted and as such, it had been found as a fact that they must have known that Medsted was receiving commission from Canaccord. Accordingly, this was a case of what is conventionally known as ‘half-secret commission’. The investors knew the existence, but not the amount of commission. The Court of Appeal held that Medsted’s non-disclosure of the amount of commission did not constitute a breach of its fiduciary duty. The scope of fiduciary duty is limited where the principal knows that his agent is being remunerated by the opposite party [42].

Nonetheless, where (as here) there is no “trade usage” as to the amount of commission, there are circumstances where the principal’s knowledge about commission payments may need to be more specific, requiring disclosure of the amount. Longmore LJ distinguished Hurstanger Ltd v Wilson [2007] 1 W.L.R. 2351 (which had also involved ‘half-secret commission’): in that case there was a need for specific knowledge because borrowers coming to the non-status market were likely to be vulnerable and unsophisticated  (at [35]-[43]). By contrast, Medsted’s investors were wealthy Greek citizens who were likely to be experienced investors (at [30] and [42]). This moulded the scope of the fiduciary duty owed by Medsted.