McWilliam v Norton Finance UK Ltd

The Court of Appeal held that a consumer credit broker carrying out the sourcing and packaging of a loan and associated payment protection insurance owed fiduciary duties to its clients. The trial judge had erred in allowing the broker (Norton) to resile from an admission that it had received undisclosed commissions; Norton should have been held to that admission. On the facts the broker had not obtained the clients' informed consent to the receipt of substantial additional commissions and therefore was obliged to account to them for those sums. Relevant procedural rules on withdrawal of admissions (CPR 14.1) and the overriding objective were applied. The court awarded an account of the additional commissions of £4,360.25 together with interest at 5% from completion of the loan.

Background and procedural posture

• The claim concerned a loan of £25,500 arranged by a credit broker (Norton) together with Payment Protection Insurance (PPI) where substantial commissions were paid from lender and insurer to the broker or an associated entity. The claimants sought an account of two additional commissions (£2,675 from the lender and £1,685.25 from the PPI insurer) said to have been received without their informed consent and also alleged breach of statutory duty. Other claims were discontinued or dismissed at trial.
• At trial the recorder found that the additional commissions had been paid to a Jersey company, Fintel, rather than Norton and dismissed the claims. The recorder considered but did not decide the fiduciary point. Norton had, however, earlier correspondence and amended pleadings indicating admission that it had received the commissions; at trial Norton sought to resile from that position.
• The claimants obtained permission to appeal. The appeal was delayed by Norton entering administration and later liquidation; after the appeal was reinstated the Court of Appeal heard the matter.

Issues framed

1. Whether the trial judge was correct to allow Norton effectively to withdraw its prior admissions about receipt of the commissions.
2. Whether Norton, as a credit broker, owed the claimants a fiduciary duty to disclose and to avoid conflicts of interest in relation to commissions received.
3. If a fiduciary duty existed, whether it had been breached and what remedy was appropriate.

Court’s reasoning

• The Court of Appeal held the trial judge had been wrong to permit Norton to resile from its admissions without a formal application and without the court being addressed on the question whether withdrawal should be permitted: CPR 14.1 required the court's permission to withdraw admissions and the recorder had not given the parties that opportunity. Allowing withdrawal at trial produced manifest unfairness because the claimants had not pursued disclosure or further investigation in reliance on the admitted position.
• Once Norton was held to its admission, the court examined whether a fiduciary duty arose. The broker had contractual agency functions: sourcing lenders and PPI for vulnerable consumer borrowers, inputting and processing applications and arranging the finance. The relationship involved trust and confidence and was therefore fiduciary in character. Authorities on fiduciary duties, including Bristol & West v Mothew and Hurstanger v Wilson, were applied.
• The materials given to the claimants (a borrower information guide, application form and confirmations) did not supply sufficient information of the quantum of commissions to constitute informed consent, particularly given the claimants' vulnerability. The court distinguished older insurance-market authorities on customary broking practice as inapplicable to consumer PPI sold as part of loan packaging. Accordingly Norton breached its fiduciary duty by receiving substantial commissions without the claimants' informed consent.
• Remedy: Norton was ordered to account for the additional commissions totalling £4,360.25, with interest at 5% from the date of completion of the loan.

Appeal allowed. The Court of Appeal held the trial judge erred in permitting Norton to resile from its admissions without the court having considered whether permission to withdraw the admissions should be granted; Norton should have been held to its admissions. On the facts Norton, as a credit broker, owed the claimants fiduciary duties and breached them by receiving substantial additional commissions without the claimants' informed consent. Norton was ordered to account for the commissions (£4,360.25) with interest at 5% from completion of the loan.

Claim issued August 2009 in Chester County Court; trial heard May 2011 before Mrs Recorder McMullen at Teeside/Middlesbrough County Court (Judge dismissed claims). Permission to appeal granted 13 October 2011 by Sir Richard Buxton. Appeal fixed for 15 March 2012 but Norton entered administration 7 February 2012; the claimants did not proceed and the appeal was dismissed by order of Deputy Master Bancroft Rimmer on 12 April 2012. Norton entered creditors' voluntary liquidation on 24 January 2013. The claimants applied to reinstate the appeal in March 2014; on 16 May 2014 Maurice Kay and Floyd LJJ granted permission to reinstate and set aside the April 2012 order. The Court of Appeal heard the reinstated appeal (hearing 2 December 2014) and handed down judgment 11 March 2015, [2015] EWCA Civ 186.