Fiduciary Duties of Credit Brokers: McWilliam v Norton Finance
| Published date | 01 January 2016 |
| Pages | 99-104 |
| Author | |
| Date | 01 January 2016 |
| DOI | 10.3366/elr.2016.0328 |
In
[2015] EWCA Civ 186, [2015] 1 All ER (Comm) 1026.
the Court of Appeal examined the circumstances in which an independent credit broker owes fiduciary duties to its consumer clients, and is liable to account for commissions received without their informed consent. The court ruled unanimously that fiduciary duties arise between a broker and its client where the client is unsophisticated and places trust and confidence in the broker, irrespective of whether the transaction is an information-only sale or an advised sale. In these circumstances, the broker is liable to account to its client for commissions that were not fully disclosed and consented to by the clientMr and Mrs McWilliam (“the claimants”) contacted Norton Finance UK Ltd (“Norton”), an independent credit broker, to inquire about a loan of around £25,000 and payment protection insurance (“PPI”). Norton informed them that a loan was available and that only one PPI product was available with that loan. The claimants signed an application form whereby they acknowledged and consented to the fact that Norton would receive a commission from the lender upon loan completion. Subsequently, they received several other documents, including the Finance Industry Standards Association (“FISA”) Borrower Information Guide, which stated that, unless notified otherwise, the broker would receive commission from the lending company. They also received a Demands and Needs statement, which specified that the transaction was an information-only sale and the claimants retained discretion to decide how to proceed.
The claimants agreed to pay Norton a broker fee and a completion fee. Norton did not specify to the claimants that the amount of the commission from the lender was £2,675, and that it would receive an additional commission for arranging the PPI in amount of £1,685.25, or 45% of the premium. Following repayment of the loan, the claimants alleged that Norton had received the two commissions in breach of the fiduciary duties owed to them, and claimed that Norton should account to them for these commissions.
Some controversies arose during the preliminary stages of the litigation as to which entity actually received the allegedly secret commissions. In an attempt to save time and costs, Norton admitted that it had received the commissions. Subsequently, it sought to withdraw this admission. Based on largely unchallenged evidence that the commissions had in fact been received by a third party, the trial judge concluded that the most practical way forward was to treat Norton's earlier admissions as withdrawn, although no formal application was made to that effect. Consequently, it was not necessary for the court to make any further findings, as Norton was not the recipient of the allegedly secret commissions. Nevertheless, the judge held,
The claimants appealed. Tomlinson LJ gave the lead judgment, with which Mitting LJ and Sir Robin Jacob agreed. The Court of Appeal had to consider three main issues:
(a) whether the trial judge was right to allow Norton to withdraw its admission;
(b) whether Norton owed fiduciary duties to the claimants; and
(c) if fiduciary duties were owed, whether Norton had breached them.
On the first point, the court held that, due to procedural flaws, Norton should have been held to its initial admission. The trial court handled thisTo continue reading
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