UK: Court Of Appeal Gives Guidance On Scope Of Fiduciary Duty In "Secret Commissions" Case

The Court of Appeal has found that there was no breach of fiduciary duty where an introducing broker failed to inform its client investors of the amount of commission it received from the financial institution to which it had introduced them: Medsted Associates Ltd v Canaccord Genuity Wealth (International) Ltd [2019] EWCA Civ 83.

This decision represents a novel application of the law in this area and it offers helpful guidance as to the scope of the fiduciary duty that may be owed by an agent to its principal to disclose commission payments. The Court of Appeal confirmed the following general principles of broader application:

• A principal’s knowledge of its agent’s remuneration may limit the scope of the fiduciary duty that the agent owes to its principal to disclose that remuneration.
• Generally speaking, where a principal knows that its agent is being paid by another party, it cannot complain that it did not know the precise particulars of the amount paid.
• However, where there is no trade or customary usage, the principal’s knowledge of the commission may need to be “more specific”. Considering the specificity of knowledge required by a principal, the Court of Appeal noted two factors relevant in the present case:
  • Sophistication of the principal – in this case the investors were wealthy and experienced investors.
  • Degree of secrecy – the commission was less “secretive” because the investors knew that all the commission payable to the broker was payable by the financial institution (the investors did not pay any commission to the broker themselves, they only paid commission to the financial institution).

In the present case, the Court of Appeal concluded that there was no duty on the broker to disclose to the investors the actual amount of the commission it received from the financial institution. The broker’s failure to disclose the amount of commission it received did not, therefore, represent a breach of the broker’s fiduciary duty.

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