Medsted Associates Ltd v Canaccord Genuity Wealth (International) Ltd

A fiduciary’s obligations depend on the nature and scope of the particular relationship. Where a principal knows that an intermediary is remunerated by the other party, the intermediary ordinarily need not disclose the precise amount received. More specific disclosure may be required where the principal is vulnerable or unsophisticated.

A payment is not a secret commission merely because its amount is undisclosed when the principal knows that a commission will be paid. A party which circumvents an introducing broker in breach of contract cannot therefore avoid substantial damages by wrongly characterising known remuneration as secret.

An introducing broker arranged for investors to trade through an investment institution. Their agreement entitled the broker to commission and funding rebates and prohibited the institution from circumventing it. The institution later opened concealed accounts for introduced investors and thereby excluded the broker from remuneration.

Following a trial, Teare J found breaches of the disclosure and non-circumvention obligations but awarded only nominal damages. He considered that the broker had breached fiduciary duties to the investors by failing to disclose the precise division of commission and funding charges, and that public policy precluded substantial recovery: [2018] 1 WLR 314.

The broker appealed. The central issues were whether non-disclosure of the amount constituted a fiduciary breach, whether public policy barred recovery, and whether the monetary claim sounded in damages or debt.

1. Appeal allowed on grounds 3 and 5. The broker had not breached any fiduciary duty by failing to disclose the exact amount of its remuneration. The finding that its remuneration was a secret commission could not stand. Substantial damages for breach of the non-circumvention agreement were therefore to be assessed.

2. The relationship was capable of being fiduciary. The broker had at least impliedly represented that the terms offered by the institution were competitive. To that extent, the investors reposed trust and confidence in it. The decisive question, however, was the scope of the resulting obligation rather than the application of the fiduciary label.

3. Where a principal knows that an intermediary is remunerated by the opposite party, the intermediary is not ordinarily obliged to disclose the precise amount received. The obligation is moulded by the nature of the relationship. More specific disclosure may be required where no relevant trade usage exists and the principal is vulnerable or unsophisticated, as in Hurstanger Ltd v Wilson [2007] 1 WLR 2351. Here the investors were wealthy and probably experienced. They knew that the institution paid the broker and that the entire charge was payable to the institution. No additional, undisclosed commission was involved.

4. The judge made no finding that the rates were uncompetitive. The institution, rather than the investors, invoked the alleged fiduciary breach to avoid remuneration otherwise due. There was consequently no basis for withholding damages on public policy grounds.

5. It was unnecessary to determine the illegality issue. Longmore LJ nevertheless observed that total disallowance would appear disproportionate under Patel v Mirza [2017] AC 467. The institution had knowingly participated in keeping the division of remuneration from the investors, and the broker was in any event entitled to charge a reasonable commission. No final conclusion was reached on that ground.

6. The procedural-irregularity ground and the debt ground were rejected. The monetary claim was one for damages, not debt. Peter Jackson LJ and Asplin LJ agreed.

1. Court of Appeal (Civil Division): The appeal was allowed on grounds 3 and 5. The award of nominal damages was displaced and damages were ordered to be assessed. The procedural-irregularity and debt grounds were rejected, while no order was made on the public policy ground: [2019] EWCA Civ 83.

2. High Court, Commercial Court: Teare J found that the institution had breached its contractual disclosure and non-circumvention obligations but awarded only nominal damages because he considered substantial recovery contrary to public policy: [2018] 1 WLR 314.