Court of Appeal determines that a fiduciary relationship is not a necessary pre-condition to relief in respect of an undisclosed commission paid to an agent

The Court of Appeal has found that a fiduciary relationship is not a necessary pre-condition to relief in respect of an undisclosed commission paid to an agent. Instead, the court should determine whether the agent was obliged to provide information, advice or recommendation on an impartial or disinterested basis, saying that “it is the duty to be honest and impartial that matters”. Where there is such a duty, both the payer and recipient of the undisclosed commission will be liable: Frances Elizabeth Wood v Commercial First Business Limited [2021] EWCA Civ 471.

The Court of Appeal further held that the cases before it involved undisclosed commissions (which give rise to a right to rescind the contract), rather than “half-secret” commissions (where the principal was aware of the payment to its agent, but did not have sufficient information to give informed consent to that payment, with the result that rescission may, but will not necessarily, be available). In the two cases before the court a mortgage broker’s terms provided that they may take a commission from lenders, but that if they did so, it would be disclosed to the borrowers. The court held that in circumstances where no commission was disclosed, the borrowers were not on notice that commission was being paid, and the commissions were therefore secret commissions.

This decision will be of interest to financial institutions as it provides a helpful clarification of the position in relation to secret commissions and indicates that the court will not be required to strain to find a fiduciary duty in order to grant relief in such cases. It further indicates that a general disclosure of potential commissions, of the kind provided to the borrowers in this case, may be insufficient to take cases out of the realm of secret commissions.

For a more detailed discussion of the decision, please see our Civil Fraud and Asset Tracing Notes blog post.