Date: Wed, 4 Apr 2007 17:30

From: Andrew Tettenborn

Subject: Not-so-secret commissions

A curious case in the English CA about secret commissions: Wilson & Anor v Hurstanger Ltd [2007] EWCA Civ 299 (4 April 2007). The result seems, if one may say so, fairly sensible: whether the reasoning is may be another matter.

Cash-strapped mortgage borrowers, through a loan broker acting as their agent, remortgaged with usurers at the usual usurious rates, in addition paying the latter a "brokers' arrangement fee" of £1,000. In proceedings by the lenders for repayment and/or possession they raised a technical consumer credit defence (which failed), and also a secret commissions point. The brokers, they said, had not disclosed that in addition to the £1,000 fee received from the borrowers they had also received £240 commission from the lenders. This, they went on, meant that the transaction was voidable: hence, subject to providing counter-restitution in the shape of repayment of the principal with interest at a moderate rate, they could escape liability on the loan contract.

The CA found that (a) there had been disclosure to the borrowers of the possibility of a commission, but (b) there was no sufficient informed consent by the lenders to the acceptance of that commission. The borrowers said this made no difference: if they hadn't properly consented to the payment, it was illegitimate and all the normal remedies, including rescission, remained available. The CA disagreed. There was, it said, a half-way house between secret commissions and informedly-consented-to commissions. For rescission to be available as of right, the commission had to be entirely undisclosed: here it wasn't, so the borrowers remained liable. (The CA said that there remained a discretion to grant rescission, but declined to exercise it.) On the other hand, because of the lack of informed consent they did have a right to an account of the commission from the brokers: and this also extended to giving them a right to equitable compensation against the lender for instigating the broker's breach of fiduciary duty.

Happy Easter

Andrew Tettenborn
University of Exeter.

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