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Asset Finance: Disclosure of Brokers’ Commissions

The Court of Appeal has recently handed down judgment in Wood v Commercial First Business Ltd and Others and Business Mortgage Finance 4 plc v Pengelly [2021] EWCA Civ 471, on the issue of broker “secret commissions”.

These decisions have caused something of a storm in the industry, and somewhat surprisingly in our view the NACFB is recommending “both regulated and unregulated firms, working in all sectors, should be transparent about their commissions and fully disclose the amount of commission received”.

In our view it may be a little premature to raise the white flag on the question of disclosing the amount of commission to business customers unless they ask for that information. In both Wood and Pengelly, the broker’s terms and conditions notified the mortgagors that the broker “may” receive fees from creditors with whom it placed mortgages. If the terms had stopped here, then these would have been “half secret” cases (with the wording resembling that in Hurstanger Limited v Wilson [2007] 1 WLR 2351). However, the terms went on to promise that in the event commission was paid, the mortgagors would receive notification of the amount. Given the finding of fact that no such notification was received, the court correctly categorised these as fully secret cases.

In Wood and Pengelly, the Court of Appeal definitively rejected the need for the broker to owe the borrower a fiduciary duty. This is not especially controversial in the context of fully secret cases, where the court should pose the single question formulated by Richards LJ, namely: Was the broker under a duty to provide information or advice on an impartial or disinterested basis?

(Wood and Pengelly at [48] and [92]).

Half secret cases: requisite duty owed by broker

The really interesting question is whether Richards LJ’s test should also be applied in “half secret” cases. Those acting for customers will stress that Richards LJ at no point qualifies his test by suggesting that it only applied to “fully secret” cases. Nonetheless, Wood and Pengelly were “fully secret” cases and so the leading authority on “half secret” cases remains Hurstanger, where Tuckey LJ said at [39]:

”Is there a half-way house between the situation where there has been sufficient disclosure to negate secrecy, but nevertheless the principal’s informed consent has not been obtained? Logically I can see no objection to this. Where there has only been partial or inadequate disclosure but it is sufficient to negate secrecy, it would be unfair to visit the agent and any third party involved with a finding of fraud and the other consequences to which I have referred, or, conversely, to acquit them altogether for their involvement in what would still be breach of fiduciary duty unless informed consent had been obtained.”

In Wood and Pengelly, Richards LJ appears to accept, reluctantly, that Hurstanger is binding authority that a fiduciary duty is required in “half secret” cases, so anything said about “half secret” cases in Wood and Pengelly is opinion only and in our view the Hurstanger line of cases survives.


These judgements are somewhat difficult to follow in parts, which emphasises the complexity and degree of uncertainty which exists. However, in relation to “half secret” deals then our preferred view remains that disclosure of the fact but not the amount of commission clearly and unambiguously by the broker (and in the lease document) in good time before the Agreement is signed should suffice to establish that no fiduciary duty is owed in commercial funding – as opposed to consumer cases – and to avoid the Agreement being rescinded if this issue were raised.

At worst our expectation is that any commission paid would have to be refunded to the customer. On the other hand, if a funder wants to be 100% sure this could not happen then there should be full disclosure by the broker including the amount of the commission to be received.

Therefore funders should seek warranties and assurances from all their brokers that they do not take a fee from the customer and that they do disclose the fact that they receive a commission from the funder in good time before the deal is funded, and in which case Agreements should usually fall into the “half secret” category . Also, brokers should warrant that the customer will be/has been told the amount of commission received if that information has been requested by the customer. In the case of regulated agreements this will also be necessary to comply with CONC.

Funders would be well advised to also check all Broker Trading Agreements and/or update them, if necessary to ensure these obligations are covered.

On a wider industry level there is a very sensible article on the practical implications of these decisions and the stance taken by the NACFB for funders and brokers and a suggested sensible way forward in Julian Rose’s blog at: