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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 asset finance industry but the implications are not limited to asset finance, 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 invoice finance clients 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 before disclosure of commission was required. 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]). In the context of invoice finance the answer to this will often be in the negative.

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 before disclosure of commission is required (subject of course to any contractual terms requiring disclosure), 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 judgments 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 of payment of commission with further details on request clearly and unambiguously in advance of execution of documents should suffice to establish that no fiduciary duty is owed in commercial funding – as opposed to consumer cases – and to avoid any successful challenge to the enforceability of an Invoice Finance Agreement if this issue were raised.

Of course this is the position recommended by UK Finance in the IFABL Code of Practice, which requires members to:

“ensure that any arrangement for the making of commission or other payments to anyone who is not an employee of the Member or of the Member’s group in connection with the referral or introduction to the Member of a client is disclosed in writing to the client prior to the completion of the legal documentation; such disclosure shall include relevant details of the party receiving the payment; upon request the Member shall provide details in writing to the client of the amount of any known commission and the method of calculation of future commission”.