In Commercial First Business Ltd v Pickup & Vernon, the High Court decided that a broker did not owe a borrower a fiduciary duty to disclose the amount of commission the broker received from the lender before the borrower entered into various loan agreements. Additionally, the court did not find an unfair relationship under s.140A of the Consumer Credit Act 1974 (CCA). As a result, the borrowers have to repay outstanding loans.

No fiduciary duty ordinarily

In Pickup [2007] CTLC 1, the High Court decided that sourcing a loan offer does not ordinarily give rise to a fiduciary duty with the prospective borrower. In finding that there was only a narrow agency, rather than a fiduciary relationship, it is interesting that the High Court judge decided not to follow a line of authorities, including Hurstanger Ltd v Wilson [2007] EWCA Civ 299 (from the Court of Appeal).

As Pickup and its authorities do not align, cases related to Hurstanger and commission payments need to be considered.

  • In Plevin v Paragon Personal Finance Ltd [2014] UKSC 61, the broker was found to be the agent of the debtor. The agency relationship was discussed on a well-considered basis. It is worth mentioning Plevin’s links to payment protection insurance (PPI), a complicated public policy concern in the UK. A s.140A unfair relationship was found in the Plevin case.
  • Subsequent decisions are in line with Plevin (e.g. McWilliam v Norton Finance (UK) Ltd [2015] CTLC 60 (which cited Plevin and Hurstanger) and Nelmes v NRAM plc [2016] CTLC 106 (which cited Plevin and Hurstanger and was cited in Pickup)).

Stay within the tipping point - and disclose

The relative size of the commission payments is the point of interest for the Plevin and McWilliam cases in their juxtaposition with Pickup. As Lord Sumption JSC says in Plevin (para 18):

“Mrs Plevin must be taken to have known that some commission would be payable to intermediaries … But at some point commissions may become so large that the relationship cannot be regarded as fair …. At what point is difficult to say, but wherever the tipping point may lie the commissions paid in this case [at 71.8% of the premium] are a long way beyond it … [This] information was of critical relevance.”

With case law being slightly blurred, it is good practice to disclose the fact and amount of commission in regulated or unregulated business – and set commission at modest levels.

The fact of commission was disclosed in Pickup and, although half-secret as the amount was not disclosed, at 2-4%, the commission was within reasonable parameters for a commercial loan - and the borrowers were satisfied with the terms of the loan. It is germane to Pickup that the borrowers were both sophisticated property investors and this clearly has some relevance to why the judge did not contrive a fiduciary duty (see para 52 of the judgment) or an unfair relationship under the CCA.

The Pickup case may sit uncomfortably with McWilliam, although Raynor J did not specifically consider the Court of Appeal decision (which followed Hurstanger). In Pickup, like McWilliam, the borrowers consented to elements of the commission payments. But, as Raynor J mentions in paragraphs 37 and 50-53 of his judgment, the crux of his decision about the fiduciary relationship was whether a client was happy with the deal and would reasonably expect undivided loyalty if a commission payment is made. We can expect this area to see some more action.