Wood v Commercial First Business Ltd & Ors

Relief for bribery or a secret commission does not depend on proving a fiduciary relationship. The essential question is whether the recipient owed a duty to provide impartial or disinterested advice, information or recommendations. The principle can apply beyond technical agency to persons involved in the transaction’s decision-making. The payer is a primary wrongdoer and may face money had and received, damages and rescission, subject to counter-restitution. A commission is not merely half-secret because the borrower was told that fees might be paid where the broker also promised to disclose the amount. If the promised disclosure is not made, the borrower may reasonably assume that no commission was paid and the commission remains wholly secret.

Two appeals concerned secured loans arranged through the same mortgage broker, which received undisclosed commissions from the lender. The borrowers sought rescission of their loan agreements and mortgages.

In the Wood proceedings, Mr Pickering, sitting as a Deputy High Court Judge, found for the borrower on the commission issue and ordered rescission: [2019] EWHC 2205 (Ch). In the Pengelly proceedings, the County Court dismissed the defence and counterclaim, but Marcus Smith J allowed an appeal on the commission issue, subject to counter-restitution: [2020] EWHC 2002 (Ch).

The appeals raised whether a fiduciary relationship was necessary, whether the broker owed the relevant duties, and whether the commissions were half-secret rather than wholly secret.

The appeals were dismissed. Lord Justice David Richards gave the judgment, with which Lord Justice Males and Lady Justice Elisabeth Laing agreed.

1. Applicable principle. The law treats bribery and secret commissions as serious wrongs because they may deprive a principal of impartial advice. The essential inquiry is whether the payee owed a duty to provide impartial or disinterested information, advice or recommendations. A fiduciary relationship is not a necessary legal precondition. The approach accords with the emphasis on disinterested advice in Panama and South Pacific Telegraph Co v India Rubber, Gutta Percha, and Telegraph Works Co (1875) LR 10 Ch App 515, and with the broader analysis in Reading v Attorney-General [1951] AC 507.
2. Scope and remedies. The rule is not confined to a technical agent. It is sufficient that the recipient has a role in the transaction’s decision-making or is positioned to influence the principal. Where the relevant duty exists, the payer is a primary wrongdoer, not merely an accessory to a fiduciary breach. The available remedies include money had and received, damages and rescission. Rescission is available as of right, subject to counter-restitution: T. Mahesan S/O Thambiah v Malaysia Government Officers’ Cooperative Housing Society Ltd [1979] AC 374; Hurstanger Ltd v Wilson [2007] EWCA Civ 299.
3. Broker’s duties. The broker’s terms and the factual findings showed that it selected mortgage products from a panel to meet each borrower’s circumstances, provided advice and had authority to negotiate. It therefore owed duties requiring an impartial selection and disinterested advice. It was also correct, if necessary, to describe the relationship as fiduciary. Commercial First Business Ltd v Pickup and Vernon [2017] CTLC 1 was wrongly decided and should not be followed.
4. Characterisation of the commissions. Hurstanger recognised a distinction between wholly secret commissions and half-secret commissions. The broker’s terms did more than mention that a lender might pay a fee: they promised disclosure of the amount before the mortgage was taken out. No disclosure was made. The borrowers were therefore entitled to assume that no commission had been paid. The commissions were wholly secret, entitling the borrowers to rescission subject to counter-restitution.

• Court of Appeal (Civil Division) dismissed both appeals on 31 March 2021.
• High Court (ChD) upheld Mrs Wood’s claim for relief and ordered rescission: [2019] EWHC 2205 (Ch). Marcus Smith J allowed Mr Pengelly’s appeal on the undisclosed-commission issue, subject to counter-restitution: [2020] EWHC 2002 (Ch).
• County Court dismissed Mr Pengelly’s defence and counterclaim and gave liberty to enforce an existing possession order.