The borrowers signed loan application documentation which advised that the lender pay commission to brokers in certain circumstances. The broker who arranged the loan was paid a commission of £240. This was in addition to the fee the borrowers paid to the broker. The borrowers argued that that payment had been a secret commission, and the disclosure in the documentation of the possibility of there being such a payment was inadequate and did not negate the secrecy. The lender argued that the disclosure had been sufficient and the borrower did not need to be told the actual amount to be paid.

The Court of Appeal found that there had not been a secret commission, but that the failure to obtain the borrowers’ informed consent to the payment meant the broker was in breach of his fiduciary duty to the borrowers. By accepting the commission from the lender, the broker had put himself in a position where he had a conflict of interest. Borrowers in the nonstatus lending market, as here, were likely to be vulnerable and unsophisticated. To draw their attention to the potential conflict of interest, such borrowers required a statement of the amount of commission the broker was to receive (not just a warning that some commission might be paid). They also needed to be told explicitly that the payment to the broker could mean that he might not be in a position to give unbiased advice.

The court therefore concluded that, although the documentation the borrowers signed negated secrecy, it was insufficient to amount to an informed consent to the commission. For that failure, the borrowers had a claim for equitable compensation, and so were entitled to the return of the commission plus interest from the date it was received. It was not, however, appropriate to rescind the loan agreement and the related legal charge. This remedy would need to be triggered by a secret commission to justify such draconian relief.

Wilson & Another v Hurstanger Ltd