Jurisdiction(s):
United Kingdom

Undisclosed broker commissions are bribes and breach fiduciary duty; borrower may rescind mortgage against assignee subject to restitution—Pengelly v Business Mortgage Finance 4 plc (High Court, England and Wales)

Published on: 10 August 2020

Published by a LexisNexis Commercial expert

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Article summary

Pengelly v Business Mortgage Finance 4 plc [2020] EWHC 2002 (Ch) What are the practical implications of this case?

Practitioners will recognise that the agreements reviewed in this matter are largely boilerplate—typical and widely used across the market. Its consequences are likely to be extensive. The broker’s terms given to the borrower provided that it might obtain payments from lenders to whom it introduced mortgages, and that, before arranging a loan, it would set out the fee in writing; where the fee was below £250 it would confirm receipt of up to that figure, and where the fee was £250 or more it would specify the exact amount. The brokers probably took two streams of commission—one from the borrower and another from the lender. The lender accepted that it routinely paid a 2–4% commission, but expected the broker to handle disclosure. The broker did not do so and was liable for breaching its fiduciary duty owed to the borrower. The decision is significant in confirming that fiduciary duties arise wherever an agent appears to act for two principals. The court was unequivocal: agents owe fiduciary obligations to borrowers and, unless they reveal the sums...

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