COVID-19 - Latest update

Wood and Pengelly – Court of Appeal Holds No Need for Broker’s Fiduciary Relationship in Secret Commission Cases

31 March, 2021

David Lord QC and Stuart Cutting appeared for the Appellants in a significant decision of the Court of Appeal on broker secret commission handed down today in the conjoined appeals of Wood v Commercial First Business Ltd & ors and Business Mortgage Finance 4 plc v Pengelly [2021] EWCA Civ 471.

The appeal of the Assignees was dismissed in the lead judgment given by David Richards LJ (with Males LJ and Elisabeth Laing LJ in agreement).

Background Facts
The original mortgagee in both cases was Commercial First Business Ltd (“CF”) and the broker was UK Mortgage and Financial Services Ltd (the “Broker”). In both cases the mortgages were subsequently assigned to various third parties (the “Assignees”).

Wood
Mrs Wood took out two mortgages (26 May 2006 and 12 July 2007) and a further advance under the first mortgage (30 November 2007), which were secured against Mrs Wood’s farms. As the mortgages were commercial they were unregulated.

Mrs Wood paid a fee to the Broker in respect of the first mortgage and the further advance, but no broker’s fee was paid in respect of the second mortgage.

The Broker received commission from CF in relation to the two mortgages and the further advance (being either 3% or 4% of the amount of the advance). CF did not disclose the fact or the amount of these payments to Mrs Wood as they required the Broker to do so.

Pengelly
Mr Pengelly took out a single mortgage (11 January 2006), which was secured against a barn on Mr Pengelly’s farm. As the mortgage was commercial it was unregulated.

Mr Pengelly paid a fee to the Broker Fee. The Broker received commission from CF in relation to the mortgages (being 3% of the amount of the advance). CF did not disclose the fact or the amount of this payment to Mr Pengelly as they required the Broker to do so .

No Requirement for a Fiduciary Relationship
If a “a fiduciary relationship” is required as a pre-condition for remedies in respect of bribes or secret commissions the inherent risk is either that civil remedies which should be available will be denied because there is not a fiduciary relationship, or that the term “fiduciary relationship” will be applied so widely as virtually to deprive it of content [46]. To ask in cases of this kind whether there is a fiduciary relationship as a pre-condition for civil liability in respect of bribes or secret commissions is an unnecessarily elaborate, and perhaps inaccurate, question [48]. It is the content of the duty, not the label attached to it, that matters, which is in accordance with the authorities as well as with principle [50]. The Court acknowledged that in a significant number of authorities, particularly recently, the liability of the payer and recipient of the bribe or secret commission was in terms of a “fiduciary duty” and an accessory liability for the payer (at [73] and [87]). However, such references were only in a “wide” and “very loose sense” ([73] and [79]).

It should be noted though in the case of a “half-secret commission” the Court of Appeal in Hurstanger Ltd v Wilson and Anthr [2007] 1 WLR 2351 made it clear that it is necessary to establish a fiduciary relationship [119] and [128].

Requisite Duty Owed by Payee
With there being no need for the payee to be in a “fiduciary relationship” with the borrower the question is much simpler. The payee will be “someone with a role in the decision making process in relation to the transaction in question e.g. as agent, or otherwise someone who is in a position to influence or affect the decision taken by the principal” [51] (affirming the view of Christopher Clarke LJ in Novoship (UK) Ltd v Mikhaylyuk [2012] EWHC 3586 (Comm) at [108]).

The Court found that the emphasis on the duty to provide disinterested advice as the pre-condition to the application of the rules and remedies available in the case of bribes and secret commissions has been repeated in many cases since Panama and South Pacific Telegraph Company and v India Rubber, Gutta Percha, and Telegraph Works Company (1874-75) L.R. 10 Ch. App. 515 [62] (with one striking authority being Shipway v Broadwood [1899] 1 QB 369 [63]).

The straightforward and simple question to ask is “Did the ‘agent’ [the payee] owe a duty to be impartial and to give disinterested advice, information or recommendations” [102]. It is the duty to be honest and impartial that matters [92]. The precise scope of the payee’s duties will require examination by reference to the terms of engagement [47].

In recent authorities Courts have characterised the payee’s duty as a “fiduciary duty of loyalty”. While that may be accurate, it does not mean that the Courts need to involve themselves in complex analyses of the nature of a fiduciary relationship or the duties that may be associated with a fiduciary relationship. The Court found it would be better to avoid doing so [102].

Whether Broker Owed Requisite Duty On Facts
The Broker, on the basis of their terms and conditions, did owe the requisite duties on these facts to engage the law applicable to bribes and secret commissions. The Broker was under a duty to make a disinterested selection of mortgage product to put to its client in each case. To the extent that it was necessary, the Judges below were also correct to hold that the Broker owed a fiduciary duty of loyalty to Mrs Wood and Mr Pengelly [110].

Where the Broker only put forward a single product for the client’s consideration (the so called “information-only sale”), it was the Broker and not the client, who had access to a panel of lenders and the Broker undertook to work from that panel to provide the “appropriate” product to meet the client’s individual circumstances and needs. This necessarily involved judgment and choice on the part of the Broker. Moreover, under the terms and conditions the Broker had express authority to negotiate with lenders and could thereby seek to improve the terms available to the client [113].

The High Court authority of HHJ Raynor in Commercial First Business Ltd v Pickup and Vernon [2017] CTLC 1 (where the Court had dismissed the ‘half secret’ commission claim on the basis that no fiduciary duty was owed as there could be no expectation of “undivided loyalty” and the broker was a mere introducer) was wrongly decided [126]. On the broker’s terms and conditions there was clearly intended to be an exercise of judgment on the part of the broker as to what best fitted the borrower’s requirements, which was an exercise requiring an impartial and disinterested view (thereby being sufficient to impose a fiduciary duty on the broker) [125].

Half or Fully Secret?
The Broker’s terms and conditions were identical for Mrs Wood and Mr Pengelly. They notified Mrs Wood and Mr Pengelly that the Broker “may” receive fees from creditors with whom it placed mortgages. The terms went on to say:

Before you take out a mortgage, we will tell you the amount of the fee in writing. If the fee is less than £250, we will confirm that we will receive up to this amount. If the fee is £250 or more, we will tell you the exact amount.”

The evidence of Mrs Wood and Mr Pengelly was that they did not receive any subsequent written notification of the fact or amount of the Broker’s commission. The Court found that the Broker’s failure to make any disclosure in accordance with the terms and conditions in these cases meant that Mrs Wood and Mr Pengelly were entitled to proceed on the basis that no commission was being paid [119]. Therefore on both cases this was a case of “fully secret” commission [134].

Rescission
Secret payments were treated as a special category of fraud with the principal being entitled to have the relevant contract rescinded as of right at his or her election [61]. Therefore. rescission of a transaction with the third party is available as of right in cases of bribes or secret commissions, subject to making counter-restitution [101].

Stuart Cutting
scutting@threesone.law


Devonshires Solicitors LLP v (1) Elbishlawi (2) Lam Developments Ltd

11 March, 2021

[2021] EWHC 173 (Comm)
This decision contains useful guidance for claims concerning unpaid solicitors fees.  The Claimant sought summary judgment as the period for challenging its bills under the Solicitors Act 1974 (“the 1974 Act”) had expired and there were no special circumstances justifying an extension of time.  The Defendants argued that summary judgment could not be given as (1) with one exception, the bills were not final statute bills (2) the Defendants had a right to assessment at common law, irrespective of the 1974 Act.

Butcher J gave summary judgment for the Claimant.  He found inter alia that (1) the Defence did not allege the bills were not final statute bills (an allegation which should have been pleaded) (2) whilst there was a jurisdiction to order assessment at common law irrespective of the 1974 Act, the onus was on the client to challenge specific items where a breakdown had been provided (applying and clarifying Turner v Palomo [2000] 1 WLR 37).  In relation to two of the six invoices at issue, sufficient detail had been given.  As the Defendants had not challenged specific items in respect of those invoices, the Court gave summary judgment for the amounts claimed in them.  Summary judgment was also given on the other invoices, with the amounts to be assessed at common law.

Daniel Burkitt
dburkitt@threestone.law


The Supremacy of The Supreme Court & Brexit – Seminar Notes

23 February, 2021

Three Stone Chambers held a ‘zoominar’ on 18 February 2021 on “The Supremacy of The Supreme Court & Brexit”. The Speakers included: Adam Chichester Clark; Daria Gleyze; James Woolrich and Christopher Howitt.

Topics covered:

              •  Brexit and Private International Law in 2021
              •  Reflective loss: the Supreme limitation
              •  Business interruption: the Supreme Court has got us covered
              •  Enka v Chubb: Supreme ruling on Arbitration Governing Law

 

Please click here to download the Seminar Notes.
Please click here to watch the Seminar.
Please click here to listen (audio only) to the Seminar.


Three Stone Zoominar: The Supremacy of The Supreme Court & Brexit

3 February, 2021

Three Stone Chambers will be presenting a ‘zoominar’ on “The Supremacy of The Supreme Court & Brexit” on 18 February 2021, 5pm – 6.30pm.

 

Speakers include:

  1. Adam Chichester Clark
  2. Daria Gleyze
  3. James Woolrich
  4. Christopher Howitt

TOPICS:

  1. Brexit and Private International Law in 2021
  2. Reflective loss: the Supreme limitation
  3. Business interruption: the Supreme Court has got us covered
  4. Enka v Chubb: Supreme ruling on Arbitration Governing Law

RSVP: seminar@threestone.law
The programme is available to download here.


Triannual Review: Issue 2

29 January, 2021

Please find below a link to Issue 2 of the new Three Stone Triannual Review, where you will find articles on current issues, case reviews, and a practice update that we hope will be of interest and of use to you.

The topics covered in this edition include:

  • On Fiduciary Membership of Charitable Companies: Mark Baldock looks at the Supreme Court’s decision in Lehtimäki v Cooper, and what it means for charities.
  • Wills, Probate, and Technology: Tim Clarke takes us through some of the technological innovations in wills and probate practice brought about by the pandemic.
  • Case Reviews
  • Practice Update
  • Chambers News

Download PDF


Giles Maynard-Connor appointed Queen’s Counsel

17 December, 2020

Threestone are delighted to announce that Giles Maynard-Connor is to be appointed Queen’s Counsel.
The award of Queen’s Counsel is for excellence in advocacy in the higher courts. It is made to advocates who have rights of audience in the higher courts of England and Wales and have demonstrated the competencies in the Competency Framework to a standard of excellence.

The awards ceremony would usually take place in March 2021, but given the current global pandemic the ceremony will take place at a later date.

The announcement is here.

Giles Maynard-Connor
gmc@threestone.law


Specialist Civil Circuit Judge Appointment: Mark Cawson QC

30 November, 2020

The Queen has appointed Peter Mark Cawson QC to be a Specialist Civil Circuit Judge on the advice of the Lord Chancellor, the Right Honourable Robert Buckland QC MP and the Lord Chief Justice of England and Wales, the Right Honourable The Lord Burnett of Maldon.

The Lord Chief Justice of England and Wales, the Right Honourable The Lord Burnett of Maldon, has appointed Peter Mark Cawson QC to be a Specialist Civil Circuit Judge at Manchester County Court with effect from 30 November 2020.

The announcement is here.

Mark Cawson QC
mcawson@threestone.law


Medsted Associates Ltd v Canaccord Genuity Wealth (International) Ltd

17 November, 2020

[2020] EWHC 2952 (Comm)
The Commercial Court (Nicholas Vineall QC) handed down a decision on quantum of damages in relation to a dispute between a Channel-Islands based wealth manager and a BVI-incorporated introducing broker.  There have been two previous decisions in the proceedings, reported at [2018] 1 WLR 314 (Teare J) and [2019] 1 WLR 4481 (Court of Appeal).  The Defendant had been found to be in breach of its contract with the Claimant, but questions remained concerning the correct approach to the assessment of damages, and the quantum of damages, due to the Claimant.

Of note in the latest judgment is the deputy judge’s consideration of the “fair wind” principle (as discussed in Marathon Asset Management LLP v Seddon [2017] EWHC 300 (Comm)) leading to a conclusion that the Claimant should be granted a fair wind, but not a free ride, when damages were assessed.  The deputy judge therefore declined the Claimant’s request to make wholesale variations to the figures for the Claimant’s damages prepared by the Defendant ([85]-[110]).  The decision is also of interest for how the Court found itself not to be bound by judicial comment earlier in the same case, made at the liability stage of the proceedings.  In the Commercial Court’s liability judgment Teare J noted that the assessment of the Claimant’s loss would have to take into account sums payable by the Claimant to its own sub-brokers, to avoid over-compensating the Claimant.  The Claimant nevertheless sought damages in a sum which did not take into account payments to sub-brokers.  Mr Vineall QC held that the decision of Teare J did not give rise to an issue estoppel, the Claimant’s arguments were not an abuse of process, and that Teare J’s finding on the point was obiter ([45]-[55]).

Rupert Coe
rcoe@threestone.law


Specialist Civil Circuit Judge Appointment: Neil Cadwallader

28 October, 2020

The Queen has appointed Neil Anthony Cadwallader to be a Specialist Civil Circuit Judge on the advice of the Lord Chancellor, the Right Honourable Robert Buckland QC MP and the Lord Chief Justice of England and Wales, the Right Honourable The Lord Burnett of Maldon.

The Lord Chief Justice has deployed him to the Northern Circuit, based at Liverpool County Court with effect from 2 November 2020.

The announcement is here.

Neil Cadwallader
ncadwallader@threestone.law


Decision on s33 Wills Act 1837

1 October, 2020

In the recent decision of Deputy Master Lloyd in Ashton v Brackstone, it fell to the Court to consider whether a testamentary gift to “such of my children as shall survive me in equal shares” was in itself sufficient to exclude s33 Wills Act 1837.  The Court found that the Will did not exclude s33.  No extrinsic evidence was admitted under s21 Administration of Justice Act 1982, since no part of the will was meaningless, or ambiguous or ambiguous in light of surrounding circumstances.

Accordingly, the testatrix’s granddaughter, Holly Ashton, succeeded in her claim for a declaration that she was entitled to half of her grandmother’s estate.  Ms Ashton’s claim was opposed by her uncle, David Brackstone (brother of Ms Ashton’s late mother) who argued unsuccessfully that he was his mother’s sole heir.

The decision as to the true construction of the Will is consistent with Ling v Ling [2002] WTLR 553 and Hives v Machin [2017] EWHC 1414, which authorities the Court preferred to Rainbird v Smith [2012] EWHC 4276 (Ch).

Rupert Coe
rcoe@threestone.law


Menu