Mr Recorder Rees’ important recent decision in Buckingham & Buckingham v Black Horse Limited (2011), Birmingham County Court, 3 February 2011, decided three issues that often arise in payment protection insurance litigation: firstly, whether the broker was the borrowers’ agent and owed a fiduciary duty and, if so, whether it breached that duty by accepting a “secret commission”; secondly, whether the lender procured a breach of fiduciary duty; and thirdly, whether the lender misrepresented the policy.
Mr & Mrs Buckingham were a married couple. In 2004 they decided to apply for a loan to consolidate their debts. Mr Buckingham looked on the internet and identified a broker, Central Capital Limited Corporation, who he asked to help him and his wife obtain a loan. He did not meet the broker, and could not remember if the broker sent him any documents. In fact, Mr & Mrs Buckingham had no documentation to even identify the name of the broker and were reliant on what came to light during the proceedings.
Mr & Mrs Buckingham completed a loan application, which the broker submitted to Black Horse Limited (“Black Horse”). After considering the application, Black Horse agreed to advance £13,000.00 (the “Loan”) and further credit of £6,966.15 (the “Premium”) if Mr & Mrs Buckingham wanted to enter into an optional contract of payment protection insurance (the “Policy”). They opted to take the Loan and the Policy and entered into an agreement on 19 March 2004 (the “Agreement”). The Agreement was regulated by the Consumer Credit Act 1974 (the “CCA 1974”) and was secured on Mr & Mrs Buckingham’s property. It was redeemed on 23 March 2005.
The Court had to determine the following issues:
- Whether the broker acted as Mr & Mrs Buckingham’s agent (either exclusively or nonexclusively) and, if so, whether it owed them a fiduciary duty and, if so, breached that duty by accepting a “secret commission”.
- Whether Black Horse procured the breach of a fiduciary duty by paying the commission.
- Whether Black Horse misrepresented the Policy to Mr & Mrs Buckingham.
Readers of our earlier notes will be aware of the Court’s reluctance to impose fiduciary duties. The Court noted the fact that there was no broker fee paid by Mr & Mrs Buckingham and there was no written contract between them and the broker.
After hearing evidence, Mr Recorder Rees decided that:
- It was “a matter of common sense … that [Mr & Mrs Buckingham] must have appreciated that the broker was not working for free. The broker cannot be expected to arrange the loan without remuneration”.
- There was a “clear distinction” between this case and the Court of Appeal’s decision in Hurstanger Limited v Wilson & Another  1 WLR 2351 because the broker was not paid a fee and there was no written contract between Mr & Mrs Buckingham and the broker.
- As rightly pointed out by Bowstead & Reynolds on Agency, where “the borrower leaves the broker to look to the other party for his remuneration or knows that he will receive something from the other party, he cannot object on the ground that he did not know the precise particulars of the amount paid”.
- Even if the broker is paid a fee, like the broker in Yates & Lorenzelli v Nemo Personal Finance Limited & Another (2010), Manchester County Court, 14 May 2010, it does not necessarily follow that a fiduciary relationship exists.
- Mr & Mrs Buckingham, on the balance of probabilities, received the Finance Industry Standards Association’s Borrower’s Guide (the “Guide”) which clearly recorded the fact that a commission would be paid to the broker.
- Mr & Mrs Buckingham had time to consider the documentation but failed to do so. Indeed, Mr Buckingham told the Court in evidence that they were “just blinkered on getting the loan”.
It therefore followed, in Mr Recorder Rees’ view, that there was no exclusive agency agreement or fiduciary duty between the broker and Mr & Mrs Buckingham. He also decided that there had been disclosure of the commission, which was contained in the Guide.
Procurement of Fiduciary Duty
Mr Recorder Rees noted that Mr & Mrs Buckingham’s claim for recovery of the secret commission from Black Horse was confusing and mixed together “a number of different legal principles”. He decided that, at best, the claim against Black Horse was for procuring a broker’s breach of duty. He also considered the alternative claim that Black Horse was vicariously liable for the broker’s negligence. He dismissed both claims as there was no breach of fiduciary duty but, even if there was, the claims were unsupported by the evidence.
Mr & Mrs Buckingham made a number of allegations of misrepresentation (both express and implied). Firstly, they argued that Black Horse represented to them that if they took further credit for the Policy then they would receive the Loan in the form of a cheque. Secondly, there was an implied representation that the Policy was compulsory.
After hearing the evidence, Mr Recorder Rees decided that:
- Both the face of the Agreement, and clause 6 of the terms, made it clear that the Policy was optional. Indeed, Clause 6 stated that Mr & Mrs Buckingham did “not have to take out a payment protection plan in order to obtain the cash loan”.
- There were issues with the credibility of Mr & Mrs Buckingham’s evidence, particularly when the claim that the Loan would be paid by cheque was changed to a claim that it would be paid into a bank account.
- The Court needed to be very cautious when considering words used or apparently said during a meeting that took place over 6 years ago particularly when there were no written records.
- There was a 14 day “cooling off period” and, because the Agreement was secured against Mr & Mrs Buckingham’s property, Section 58(1) of the CCA 1974 meant that the Agreement could not be completed immediately.
- It was telling that none of the alleged representations were mentioned in the letter of claim.
- There was a significant difference between saying that a person “might” not be accepted for the Loan and saying that the Policy was a condition.
Mr Recorder Rees therefore dismissed the claim for misrepresentation. He noted that such a claim was “a very serious allegation” and Mr & Mrs Buckingham’s evidence was, at best, “flimsy”. Indeed, he noted that to support such a claim there must be “compelling evidence”.
This is an important decision for brokers and lenders alike. Many brokers and lenders face claims for secret commissions and it is a key component of such a claim that a fiduciary relationship exists. It has always been the case that such a duty is very difficult to establish, and there have been a number of cases where such a claim has failed. This is further support for the proposition that where no broker fee is paid, a fiduciary relationship is highly unlikely to exist. It is also a further reminder that even if a broker fee is paid, as it was in Yates, it does not necessarily follow that there will be a fiduciary relationship. We have argued in a number of cases that the Guide satisfies the requirements for disclosure and in this case the Court accepted this argument. It is not the case (and never has been) that a broker or lender must disclose the amount of the secret commission.
The Court’s decision on the claim for misrepresentation is also extremely welcome. There was no direct evidence from the sales person but, once again, the borrower’s evidence failed to satisfy the Court. Indeed, it was described by the judge as “flimsy”. It is also a useful reminder for practitioners, as we noted in our review on Woodward & Woodward v Black Horse Limited, to cross-check allegations against those made in the letter of claim.