Article by Trevor Berriman

As PPI disputes concerning undisclosed commissions following Plevin appear to be slowing in number, the Court will no doubt be seeing an increase in a new wave of claims focussing on secret commissions of the type seen in Wood v Commercial First Business Ltd and Others [2021] EWCA Civ 471.

In that case the Court of Appeal ruled that it was not necessary to find the existence of a fiduciary duty to grant civil remedies for the payment of a ‘bribe’ or ‘secret commission’.  The case involved the services of a Broker who had been retained by a customer to source funding options and the court identified wide-ranging circumstances in which a borrower can recover a secret profit or rescind an agreement as a result of an undisclosed commission.

The judgment also considered and clarified the level of disclosure necessary for a commission to be deemed “half-secret”.

The background to the cases under appeal were similar and involved the use of the same broker. The Borrowers had obtained loans secured against their properties and, unbeknown to them, the broker had received commission from the lender.  The commissions had not been disclosed to the Borrowers.

The Borrowers sought rescission of the loan agreements and the question arose as to whether the Lenders could be liable if there was no fiduciary relationship between the Broker and the Borrowers.

Wood held that it was not necessary for a fiduciary relationship to exist to find civil liability for the payment of bribes or secret commissions.

The question to be answered by the Court was whether the Broker was “under a duty to provide information, advice or recommendation on an impartial or disinterested basis”. The court also summarised it as “the duty to be honest and impartial”.

Remedies for bribery (or the payment of a secret commission) are available in both common law and equity. These remedies include:

• Money had and received (i.e. recovery of a sum equal to the amount of the secret commission) as against either payer or the payee; or
• Damages for fraud relating to any loss suffered (against the payer or the payee); and
• Rescission as of right, subject to counter-restitution.

The decision in Wood is likely to have wide reaching implications for lenders.  There is a marked increase in the number of cases being brought by claimants seeking to apply the Wood principles to car finance agreements and even utility contracts where a broker/intermediary has been used.

Claimants and Defendants are expected to be at odds over the scope and reach of Wood, and time will tell whether such claims will result in bulk litigation in the coming months.