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Asset Finance: Dealing with Broker Commission Refund Claims
In our last Briefing we reported on the Court of Appeal decision on broker commissions in Wood v Commercial First Business Ltd and the rather surprising decision of the NACFB in recommending that “both regulated and unregulated firms, working in all sectors, should be transparent about their commissions and fully disclose the amount of commission received”.
Not surprisingly this has led to a flurry of activity amongst the ambulance chasers and others, and increasingly funders have been subjected to claims from Lessees seeking remedies arising from the alleged payment of secret commission to brokers.
Despite what is asserted in these claims, on any fair view the law is quite complex, and certainly retains a degree of uncertainty which is clearly not understood or appreciated by those pressing forward with these claims at full speed. In particular when properly analysed the Wood case is by no means authority that all undisclosed commissions must be repaid.
In particular, where no fee was paid by the customer to the broker and documentation provided either by the broker or the funder makes some reference to the payment of commission there is scope for argument that there has been no breach of duty and no remedies are available to the Lessee.
We therefore recommend that as an initial step whenever a funder receives a claim for repayment of commission or some other remedy based on alleged secret payment of commission to a broker it should immediately contact the broker and require them to produce:
(1) copies of any material sent to the customer, including any Terms and Conditions and any documentation referencing the payment of commission, with proof of how such materials were communicated;
(2) in the absence of the material described above, any Terms and Conditions or notices that it can be argued were incorporated by reference, for example by means of Invoices or websites etc;
(3) a full explanation including documentation indicating exactly what the broker did on behalf of the customer, not limited to enquiries with the funder concerned but extending to any enquiries with other potential funders; the reason for this is that it may actually transpire that the deal eventually accepted involved lower overall payments and/or a lower overall APR than others offered, which should go a long way to demonstrating that there has been no prejudice or loss to the customer arising from acceptance of the deal involving the commission which is now the subject of complaint;
(4) any relevant input from the dealer, for example relating to its Terms and Conditions or references in documents or otherwise to commission payment, and an explanation of the interplay between the customer, dealer and broker in relation to the particular transaction; and
(5) any information the broker or dealer had about the customer before or indeed after the transaction, such as the salary details and employment description used for credit check purposes.
As to this last point, the funder should then carry out its own enquiries as to the likely status of the customer, since if it can be demonstrated that he or she was anything other than entirely unsophisticated that may assist in demonstrating that there has been no breach of any legal duty by the funder in relation to disclosure of commission.
In addition going forward funders should give serious consideration to requiring all its brokers to sign up to carefully drafted Broker Agreements containing amongst other things suitable provisions relating to the disclosure of commission.
It is clear from the case law that to a large degree cases will turn on their own facts, so the effort in gaining the above material is likely to pay off because otherwise funders will be effectively defenceless if they cannot show that appropriate steps were taken in relation to the disclosure of the fact of the payment of commission (as opposed to the amount) at least in respect of some customers.
Contact Bermans Asset Finance team