We have in recent years acted for various energy brokers on claims in which it is alleged that secret commission has been made by the brokers in breach of their fiduciary duties.
There is a significant body of claims out there which have broadly yet to develop, but which we expect will develop in due course.
In the recent decision of Johnson -v- Firstrand Bank Limited (London Branch) T/A Motonovo Finance [2024] EWCA Civ 1282, the Court of Appeal considered similar issues in relation to claims concerning car finance.
Whilst decided on the facts, and whilst not directly comparable to energy brokers, the decision nonetheless gives some interesting guidance for energy brokers (and those insuring them) to consider carefully.
Background to the claim
The matter comprised of three combined appeals on motor finance commission cases against Firstrand Bank and Close Brothers Ltd.
The claimants were all consumers who took out hire purchase agreements (via credit brokers) to enable them to buy second-hand cars. The dealers then subsequently received commission from the banks.
The appeal was primarily concerned with the issue of whether or not the consumers had been made aware that the dealers would receive a commission.
The extent of disclosure varied in the different matters:
- Consumer 1 - no disclosure of commission
- Consumer 2 - partial disclosure – lender’s standard T&Cs noted that a commission may be payable
- Consumer 3 – partial disclosure – lender’s standard T&Cs noted that a commission may be payable, however the dealer also provided a lending suitability document which again noted that a commission may be received.
The decision
The court found that the dealers owed the claimants a duty to provide information, advice or recommendations on an impartial/disinterested basis.
It was also found that the dealer owed the claimants a fiduciary duty which was breached if the consumer did not give informed consent to the commission.
In respect of the first two consumers, the court found that they did not receive any/sufficient disclosure of commission, and therefore the banks were also liable to the consumers for the commission received.
In the case of the third consumer, the court considered there was sufficient disclosure to negate the “secret” element, however there was insufficient disclosure to gain fully informed consent, and as such the banks were still liable as accessory to the dealer’s wrongdoing.
Whilst the court envisaged that the Supreme Court may want to give more definitive guidance in this area in due course – the Court of Appeal’s decision still being largely fact specific - the decision (at the very least) gives important guidance on where the courts are likely to lean in cases concerning alleged secret commission.
Implications
At face value at least, this judgment would suggest that:
- lenders and brokers cannot rely on generic statements in agreements / T&Cs to discharge obligations to disclose commission arrangements
- lenders cannot assume that brokers have made full disclosure, and
- the specific practices and procedures adopted will be relevant and investigated by the courts.
In our experience, were the logic of this judgment applied to claims involving energy brokers, it would serve to increase the dial of risk brokers (and those providing the commission) in that industry would face, based on our experience of current and historic working practices.
It would seem sensible to us that energy brokers and providers is this space revisit current working practices and seek suitable legal input to limit their exposure moving forwards and/or make suitable assessment (and provision for) existing risk.
If this is something which is relevant to you or your insureds, our team of experts stand ready to assist.
