McWilliam and another v Norton Finance (UK) Ltd (t/a Norton Finance in liquidation)

    Fiduciary duty – Breach – Secret commission – Respondent credit broker securing loan and PPI insurance for appellants – Respondent receiving commission from lender and insurer – Whether respondent thereby breaching fiduciary duty owed to appellants – Whether obliged to account to appellants for amount of commission – Appeal allowed In 2006, the appellants sought a loan of about £25,000 in order to refinance existing debt and fund the building of a conservatory for their house. They telephoned the respondent, a credit broker, which took their details and then sent a pre-populated application form for them to sign and return. A declaration on the application form above the signatures acknowledged that the respondent would receive commission from the lender and that the appellants consented to the respondent retaining that commission. The declaration also stated that it was important for the appellants to read the borrower information guide enclosed with the form. That guide contained general information about broker commissions but the appellants did not read it. The respondent proceeded to arrange the loan, plus payment protection insurance (PPI), to which the appellants had agreed in response to a standard-form enquiry. The insurance premium was added to the loan along with the respondent’s fees so that the total borrowing was £30,745. The respondent received a commission of £2,675 from the lender, representing 8.77% of the loan advanced, and a commission of £1,685.25 from the insurer, amounting to 45% of the PPI premium. The appellants subsequently brought proceedings against the respondent, contending that it was obliged to pay those sums to them as secret commissions received in breach of fiduciary duty without their informed consent. By that time, they had repaid the loan. The claims were dismissed in the county court by the recorder, who found, contrary to earlier admissions made by the respondent in correspondence and the pleadings, that the commissions had been paid not to the respondent but to a different company. That finding made it unnecessary to decide whether the respondent owed a fiduciary duty to the appellants. However, the recorder indicated that, had the point arisen, she would have found that no such duty was owed. In that respect, she found that the respondent had acted on an “information only” basis rather than giving advice and that no contract had arisen between the parties. The appellants appealed. Held: The appeal was allowed. (1) The recorder should not have permitted the respondent to resile from its earlier admission that it had received the commissions. It was not just in all the circumstances to permit the respondent to advance a case, which had not hitherto been pleaded. Withdrawal could only be achieved with permission of the court. No application to withdraw the admission had been made or adjudicated on and counsel for the appellants had been given no opportunity to address the issue. The recorder had therefore exercised a discretion, which she was not asked to exercise and on which she was not addressed. That had resulted in manifest unfairness and the respondent should be held to its admission. (2) On the facts found by the recorder, the task of the broker was to identify the lender, which was willing to lend to the particular borrowers on the terms most advantageous to them. Having undertaken to supply information concerning PPI, the respondent’s task extended to identifying an insurer willing to offer PPI cover in respect of a loan by the particular lender on the terms identified. In performing its services in return for a fee, the respondent was acting under a contract of agency with the appellants: Plevin v Paragon Personal Finance Ltd [2014] UKSC 61; [2014] 1 WLR 4222 applied. (3) Merely to identify the existence of a contract and to characterise the relationship as one of agency was not conclusive of the question whether a fiduciary duty was owed. However, such a duty arose in the instant case since the respondent was acting in a capacity which involved the appellants reposing trust and confidence in it. A critical factor was the nature of the borrowers. Although the appellants were not “non-status” borrowers, of the kind who would generally find it difficult to obtain finance from traditional sources on normal terms and conditions, they were nonetheless not financial sophisticates. The appellants were people of relatively modest means with a history of credit problems. They were vulnerable in the sense that they had debt, which was for them substantial and they needed assistance in finding a loan to ease the burden of servicing that debt and to put them a position where they could carry out an improvement to their home. The relationship between the respondent and the appellants was a paradigm case of a relationship of trust and confidence giving rise to a fiduciary duty. The respondent should not have placed itself in a position where its duty and its interest might conflict, nor profit out of the trust reposed in it to get the best possible deal, nor act for its own benefit without the appellants’ informed consent. The circumstance that the respondent was not providing advice or recommendation was irrelevant to the question whether a fiduciary duty was assumed. The reliance underlying the relationship of trust and confidence on which fiduciary obligations were based was not the same sort of reliance as gave rise to a tortious duty of care. Nor was it conclusive that Insurance Conduct of Business rules in force at the time did not require an insurance intermediary to disclose the amount of commission to a borrower. In all the circumstances, the relationship between the respondent and the appellants was a fiduciary one: Hurstanger Ltd v Wilson [2007] EWCA Civ 299; [2007] 1 WLR 2351 applied. (4) The appellants had not given their informed consent to the commission received by the respondent. Although the application form and borrower information guide had referred to the payment of commission, those materials did not adequately alert the appellants to the possibility that the respondent might receive a commission in respect of the loan additional to the agreed fee. The critical point was that the appellants were not told how much commission would be paid. Likewise, although the appellants had been alerted to the possibility of a commission based on a proportion of the premium for the PPI, and had gone ahead on that basis, that was not sufficient to amount to informed consent to the respondent receiving a commission of 45% of the PPI premium. A statement of the amount which the appellants’ broker was to receive was necessary to bring home to them the potential conflict of interest: Hustanger applied. Even if the respondent was not giving advice and the likelihood of a conflict of interest was low, that did not remove the incentive for the respondent to look for the lender and/or associated insurer who would pay the biggest commission and it could not affect the appraisal of whether, in the circumstances, informed consent was given. It followed that the respondent had breached its fiduciary duty by receiving commission without the informed consent of the appellants and it was obliged to account to them for the commissions received in the sum of £4,360.25, plus interest. Andrew Clark (instructed by Miller Gardner Ltd, of Manchester) appeared for the appellants; the respondent did not appear and were not represented. Sally Dobson, barrister   Click here to download the transcript of McWilliam and another v Norton Finance (UK) Ltd (t/a Norton Finance in liquidation)