In a recent decision, the English Court of Appeal has found that there was no breach of fiduciary duty where the amount of commission received by a fiduciary was not disclosed to the client. The Court established the following general principles in this case:

  • A principal’s knowledge (even if there is no knowledge of the amount of the commission) of its agent’s remuneration may limit the scope of the fiduciary duty that the agent owes to its principal to disclose that remuneration.
  • Where a principal knows that its agent is being paid entirely by another party, it cannot complain that it did not know the precise particulars of the amount paid.
  • Where there is no trade or customary usage, the principal’s knowledge of the commission may need to be “more specific”. However, the sophistication of the principal (e.g. financial expertise) and the degree of secrecy are relevant to the specificity of knowledge required by a principal.

We consider the case further below.


Collins Stewart (now called Cannacord Genuity, the defendant) is an investment firm incorporated in Guernsey which conducts business as an investment institution. Medsted (the claimant) is a company registered in the British Virgin Islands which conducts business as an introducing broker. Collins Stewart entered into an introducing agreement with Medsted, under which Medsted would introduce investors (in this case, mainly in relation to Contracts for Difference) to Collins Stewart.

The agreement provided that Medsted would be paid a proportion of the commission received by Collins Stewart from introduced investors. The dispute arose from events in 2010 when Collins Stewart did business directly with one or more of the investors which Medsted had introduced, thus depriving Medsted of the commission and rebate to which they would otherwise have been entitled. The agreement contained a non-circumvention term prohibiting Collins Stewart from dealing with introduced investors directly (this was a point of dispute between the parties, but confirmed by the High Court, see below).

Medsted successfully introduced 16 investor clients who traded through Collins Stewart. Subsequently however, Collins Stewart did business with some of them directly, cutting Medsted out of its share of the commission.

High Court Decision

The High Court found that Collins Stewart was in breach of its obligation not to circumvent Medsted by dealing directly with investors introduced by it, and Medsted had suffered loss by missing out on the payments to which it was entitled. However, the High Court awarded nominal damages, because it found that Medsted owed fiduciary duties to the introduced investors. The fiduciary duty arose out of the agency relationship between Medsted and the investors, with the former acting as agent for the latter. One of the main ingredients of an agent’s fiduciary duty is that he must not receive (or agree to receive) a secret commission from a third party. The High Court held that Medsted had breached its fiduciary duty by failing to tell the investors of the precise split of commission as between Collins Stewart and Medsted. In this context a key finding of fact by the High Court was that the investors did not pay a commission to Medsted and so must have assumed that Medsted was receiving payment from Collins Stewart, to which the investors did pay commission (this point was not appealed).

Notwithstanding the above finding of fact, the High Court described the payments from Collins Stewart to Medsted as a “secret commission” and denied any substantive recovery on public policy grounds, because otherwise the court would be assisting Medsted to profit from its own breach of fiduciary duty. Medsted appealed.

Court of Appeal Decision

The Court of Appeal upheld Medsted’s appeal, finding that it had not acted in breach of the fiduciary duty it owed to the introduced investors by failing to inform them of the amount of commission it received. In particular, it looked at whether it was within the scope of Medsted’s duty to the investors to inform them how the commission was to be divided between itself and Collins Stewart.

The Court of Appeal in this case considered authority of the same court in Hurstanger Ltd v Wilson [2007] 1 WLR 2351, which made the following observations/findings: It noted the serious consequences of finding that a secret commission has been paid which, in addition to amounting to a breach of fiduciary duty, is a category of fraud. It questioned whether there was a “half-way house” between the situation where there has been sufficient disclosure to negate secrecy, but nevertheless the principal’s informed consent has not been obtained – because a finding of fraud would be unfair where there has been only partial or inadequate disclosure. The Court of Appeal ruled that Hurstanger was a “half-way house” case: the pre-contractual document in that case was sufficient to negate secrecy, but insufficient to obtain the borrowers’ informed consent, because – among other things – the lender should have informed the borrower of the amount of the commission. The Court found that the claimant did not pay the broker a secret commission but procured the broker’s breach of fiduciary duty by failing to obtain the defendants’ informed consent to the broker acting in the way he did.

Applying Hurstanger to the present case, the Court of Appeal held that the investors’ assumed knowledge of Medsted’s remuneration by Collins Stewart, meant that the scope of Medsted’s fiduciary duty to the investors was limited in circumstances where the principal knows that his agent is being remunerated by the opposite party.

Referring to Bowstead & Reynolds on Agency (21st edition; 2018), the Court of Appeal said that where a principal knows that its agent is being paid by the opposite party, it cannot complain that it did not know the precise particulars of the amount paid. Where there is no trade or customary usage, the principal’s knowledge of the commission may need to be “more specific”. Considering the specificity of knowledge required by the investors in the current case, the Court of Appeal noted two principal distinctions with Hurstanger. Sophistication of the principal – The court noted that an important factor in Hurstanger was the unsophisticated nature of the borrowers, whereas the investors in the present case were wealthy and experienced investors. Degree of secrecy – Moreover, the commission was less “secretive” than in Hurstanger because the investors knew that all the commission was payable by Collins Stewart; there was no question that any extra commission was being paid over and above what had been agreed.

The court concluded that there was no duty on Medsted to disclose to the investors the actual amount of the commission it received from Collins Stewart. Medsted’s failure to disclose the amount of commission it received did not, therefore, represent a breach of the broker’s fiduciary duty (unlike in Hurstanger, in which the Court of Appeal held that the fiduciary duty had been breached, although the payments in question did not amount to secret commissions).

The Court of Appeal therefore allowed the appeal.


The approach adopted by the Court of Appeal seems to be limited to cases involving sophisticated principals (in this case in the field of finance), who have knowledge that their agent will receive some form of commission from a third party. In such limited cases, the Court seems to adopt a lower threshold in relation to the agent’s fiduciary duty. It follows that in cases where the principal is less sophisticated, the Courts may seek to protect vulnerable principals by applying a higher threshold in relation to the agent’s fiduciary duties.

It is important to note that fiduciaries are still required in all circumstances to disclose the fact that they are being paid a commission by a third party (i.e. “secret commissions” are still a breach of fiduciary duties). Fiduciaries should therefore ensure that their principal has full disclosure of any commission being paid, so as to avoid any arguments in relation to breach of fiduciary duties and/or the sophistication of the principal.