Posted: Mon Jun 11, 2007 9:10 pm
One for the experts - if you need a copy of the case summary / detail email Andy who has my contact details.
The Hurstanger case and its implications for commission disclosure
Wilson & Hurstanger Ltd - 04/04/2007 Court of Appeal
The Hurstanger case, decided in April by the Court of Appeal is important; it sets legal precedent and is now law.
The Court held that where a finance broker owes a fiduciary duty to a borrower he is required to act loyally and not put himself into a position where he has a conflict of interest. Such a conflict does arise in cases where the broker agrees to accept commission from the other party (i.e. the lender). The Court decided that the broker can only receive commission in such circumstances if the borrow consented to this with full knowledge of all the material circumstances. This means that the broker must:
• disclose the amount of the commission to the borrower
• obtain the borrower's consent to receive the commission
• explain that this may prevent the broker from offering unbiased advice
Failure to do so will render the broker liable to refund the commission. The lender would also be liable as an accessory to this.
The Court also held that in cases where the broker does not disclose he is in receipt of commission from the lender, the commission will be "secret", the broker potentially guilty of fraud, and the entire loan liable to be rescinded. The Court however held that the commission in the Hurstanger case was not "secret" as it was disclosed, albeit fairly generically, in the loan documentation.
The Hurstanger case and its implications for commission disclosure
Wilson & Hurstanger Ltd - 04/04/2007 Court of Appeal
The Hurstanger case, decided in April by the Court of Appeal is important; it sets legal precedent and is now law.
The Court held that where a finance broker owes a fiduciary duty to a borrower he is required to act loyally and not put himself into a position where he has a conflict of interest. Such a conflict does arise in cases where the broker agrees to accept commission from the other party (i.e. the lender). The Court decided that the broker can only receive commission in such circumstances if the borrow consented to this with full knowledge of all the material circumstances. This means that the broker must:
• disclose the amount of the commission to the borrower
• obtain the borrower's consent to receive the commission
• explain that this may prevent the broker from offering unbiased advice
Failure to do so will render the broker liable to refund the commission. The lender would also be liable as an accessory to this.
The Court also held that in cases where the broker does not disclose he is in receipt of commission from the lender, the commission will be "secret", the broker potentially guilty of fraud, and the entire loan liable to be rescinded. The Court however held that the commission in the Hurstanger case was not "secret" as it was disclosed, albeit fairly generically, in the loan documentation.