The Court of Appeal (CA) today handed down its long-awaited decision in McWilliam v Norton Finance (UK) Ltd (in liquidation) [2015] EWCA Civ 186. The appeal concerned the non-disclosure of commission received by a broker (Norton) in the context of arranging finance and payment protection insurance (PPI) for Mr and Mrs McWilliam.
Read a copy of the full judgment McWilliam v Norton.
In 2006 Mr and Mrs McWilliam approached Norton seeking £25,000 to consolidate debts and finance the building of a conservatory. Including PPI which was funded as part of the loan, they entered into a regulated credit agreement in the sum of £30,495. Of that total, £5,610.25, or 18.4%, represented fees and commissions paid to various parties, of which £1,685.25 related to the PPI, amounting to 45% of the total premium payable. The agreement was repaid in full in 2007. In 2009 the claim was issued against Norton (and also initially the lender) seeking repayment of allegedly secret commissions.
There was initially some dispute as to which party had received commission from the transaction. However, during the course of proceedings in an attempt to narrow the issues and avoid allocation to the multi-track, thereby saving costs, Norton conceded in correspondence and in their Defence that commission had been received by them. That concession was said to be only “for the purposes of these proceedings”. Following an amendment to Mr and Mrs McWilliam’s Particulars of Claim (on an unrelated point), Norton submitted an Amended Defence which sought to withdraw the admission. Although no formal application was ever made to make that withdrawal under CPR 14, during the course of the trial Norton’s witness gave largely unchallenged evidence that the commissions had in fact been paid to a third party, Fintel. Accordingly, the judge concluded that the most practical way forward was to treat Norton’s earlier admissions as withdrawn. In any event, she stated obiter that she would have concluded that no fiduciary duty was owed by Norton so as to require disclose of any commissions as might have been received.
Mr and Mrs McWilliam appealed. Three issues arose for consideration: (i) whether the judge was right to allow Norton to withdraw their admissions; (ii) if not, whether Norton owed fiduciary duties to the McWilliams; (iii) if such a duty was owed, whether it was breached by Norton. Tomlinson LJ gave the lead judgment, with which Mitting J and Sir Robin Jacob agreed.
On the procedural admission point, the CA concluded that the judge’s decision to permit the withdrawal of the admission was unjust. As a result of the admission, no disclosure had been made by Norton or sought by the McWilliams on the point and, in consequence, the court had been unable to properly examine the issue. In short, the judge’s approach involved her exercising a discretion “she was not asked to exercise and upon which she was not addressed”. The result was said to be “manifest unfairness” (para 31). Accordingly, the CA proceeded to consider issues (ii) and (iii) on the basis that commissions were taken by Norton.
As to the second issue, the CA re-stated the test in Bristol & West Building Society v Mothew [1998] Ch 1, viz. that the existence of a fiduciary obligation depended upon whether the relationship was one of trust and confidence. Their conclusion was that it was, such that fiduciary obligations had been owed by Norton to the McWilliams. Although it was accepted that the service offered by Norton was non-advisory, Tomlinson LJ considered both the judge and himself to be bound by Hurstanger Ltd v Wilson [2007] 1 WLR 2351 where, equally, no advice had been given by the broker. Generally, it was held that whether advice was being sought by Mr and Mrs McWilliam from Norton was irrelevant to the proper characterisation of the parties’ relationship. In any event, at “the very least, Norton implicitly told the Claimants that the terms offered… were the most competitive to which they had access.” (para 44).
Thus, the CA also considered whether those duties had been complied with by merely providing Mr and Mrs McWilliam with a copy of the standard FISA Borrower Information Guide, which limited disclosure to a generic statement that the broker would receive commission from the lender unless otherwise stated. In relation to breach, the key question was whether the non-disclosure had vitiated the McWilliams’ informed consent to the transaction. Tomlinson LJ concluded that contents of the Guide did not “adequately alert” the McWilliams to the receipt of commission, let alone of commission amounting to 45% of the PPI premium; accordingly, Mr and Mrs McWilliam could not have given their informed consent. In reaching that conclusion the CA again considered Hurstanger to be indistinguishable by virtue of the McWilliams’ status as “vulnerable and unsophisticated”.
Accordingly, the CA allowed the McWilliams’ appeal, and have ordered repayment of commissions plus interest.
In many ways the decision is uncontroversial in its treatment of the CPR and the existing authority of Hurstanger. However, it throws up certain interesting considerations as to the relevance – or lack thereof – of the facts that a broker was not advising and a customer’s “sophistication” to the existence and breach of fiduciary obligations.
Summary by Thomas Samuels, Gough Square