In Wood v Commercial First Business Ltd [2021] EWCA Civ 471, the English Court of Appeal held that a fiduciary relationship between a client and a broker is not a necessary pre-condition for relief against the payer of an undisclosed commission to a broker. Instead, the question is whether the broker owes a duty to provide impartial and disinterested advice to the borrower. This decision brings welcome clarity on the duty of a broker to disclose any commission received from a lender.

The case involved conjoined appeals against orders for rescission. The borrowers in both cases, Mrs Wood and Mr Pengelly, had taken out mortgages and secured loans with the same lender and broker. They both defaulted on their loan payments. The loans were later assigned to third parties. The borrowers both sought relief on the basis that the lender had paid commissions to the broker without their knowledge and consent. They were both granted orders for rescission of the loan agreements and mortgages. The assignees appealed against these orders. Lord Justice David Richards, giving judgment on behalf of the Court of Appeal, dismissed their appeals and made three key findings.

First, that a fiduciary relationship is not a necessary pre-condition to the grant of relief against the payer of an undisclosed commission. Richards LJ found that requiring a fiduciary relationship in this instance ran the risk that either civil remedies would be denied because of a lack of such relationship, or that the term “fiduciary relationship” would be applied so widely as to deprive it of any content beyond the simple idea that a person under a duty to another must not accept or be offered an inducement to influence them in the performance of that duty. He pointed out that the cases did not involve obvious fiduciary relationships, such as trustee and beneficiary or director and company. Instead, they involved a contractual duty to provide information or advice and required an examination by reference to the relevant terms of engagement. After a thorough review of the authorities, he reframed the key question in these cases as this: was the payee under a duty to provide information, advice or a recommendation on an impartial or disinterested basis? If the payee is subject to such a duty, then the applicable civil remedies, including rescission, are available. It is the content of the duty (to give impartial and disinterested advice) that matters; not the label attached to it. There is no need for the court to undertake a complex analysis of the legal nature of the relationship in these cases.

Second, the broker owed a fiduciary duty of loyalty to the borrower in both cases. Richards LJ found that, to the extent it was necessary, the lower courts were correct to hold that the broker owed a fiduciary duty of loyalty to the borrowers. Based on the broker’s terms and conditions, it had owed both borrowers a duty to make a disinterested selection of mortgage products to put to the client in each case. However, as indicated in relation to the first issue, it did not matter whether this duty was classed as “fiduciary”.

Third, the money paid in these cases were fully secret, not half secret, commissions. The assignees of the lenders argued that the undisclosed payments were half secret commissions, because the terms of business stated that the borrower may receive a fee from the lender. However, the terms of business also stated that the broker would disclose the amount of any fee greater than £250 (as was the case in both appeals). Richards LJ held that, without this disclosure, the borrowers were not on notice that any commission may be paid. In fact, the lack of disclosure would lead the borrowers to conclude that no commission was paid. As a result, he found that the payments were fully secret, not half secret, commissions.

This decision brings welcome clarity on the extent of a broker’s duty to disclose any commission received to the borrower. Rather that grappling with the legal complexities of fiduciary relationships, the court simply needs to examine the role of the broker, asking whether they are subject to a duty to provide impartial information, advice or recommendation. This test is more easily understood and avoids undue complexity. Furthermore, it resolves a conflicting line of authority that was beginning to emerge on this question.

Rose Lynch, Associate in London

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