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Another missed opportunity to clarify whether a broker owes a fiduciary duty

The High Court's decision in Medsted Associates Ltd v Canaccord Genuity Wealth (International) Ltd [2017] EWHC 1815 (Comm) on fiduciary duties in the context of broker commissions


On 20 July 2017 the High Court handed down the latest judgment on the issue whether brokers owed fiduciary duties meaning they should not accept a secret commission. 

The Court considered (amongst other things) whether Medsted (in its capacity as introducing broker) owed its clients a fiduciary duty and, if so, whether Medsted breached its fiduciary duty by failing to disclose the commission split. In giving judgment, Mr Justice Teare decided Medsted did owe its clients a fiduciary duty.

This feels like a backward step following the recent positive decision in Commercial First Business Loans v Pickup and Vernon [2017] CTLC 1, where earlier case-law, and facts of those decisions, was carefully considered by His Honour Judge Raynor QC.


Medsted Associates Limited (Medsted) (acting as broker) entered into an introducing broker's agreement with Collins Stewart (now Canaccord Genuity Wealth (International) Limited) (Canaccord) (acting as a finance house). The purpose of the agreement was to enable wealthy individuals (the clients) to buy contracts for difference from first tier providers. 

Canaccord agreed to pay Meadsted a share of the commission it would receive from the first tier provider.
Medstead and Canaccord expressly agreed (a) the client would be told of the charges but (b) it would not be told of the split in commission between Medsted, Canaccord and the first tier provider.

In 2010, Canaccord did business directly with one or more of the clients on terms which cut out Medsted from any right to claim its share of commission. 

Medsted issued proceedings against Canaccord for the commission which would have been received had Canaccord kept to the original agreement. Canaccord said the clients discovered the amount of commission and funding rebate being paid by Canaccord to Medsted and preferred to trade directly with Canaccord. Medsted did not accept this and said Canaccord had set out to do business with the clients in breach of its agreement with Medsted. 

The fiduciary duty issue

The Court tackled eleven issues.  However, the issue considered by this note is whether it was an implied term of the agreement between Medsted and Canaccord that Medsted would not mislead the clients on the split of commission.

To decide this issue, Mr Justice Teare considered two points:-

(a) Whether Medsted (in its capacity as introducing broker) owed the clients a fiduciary duty. 

(b) If so, whether Medsted had breached its fiduciary duty by failing to disclose the commission split.

The High Court recently considered whether a broker owed a fiduciary duty (in a different factual context) in Commercial First Business Loans v Pickup and Vernon [2017] CTLC 1.  HHJ Raynor QC (sitting as a Judge in the High Court) dismissed the borrowers' counterclaim alleging the broker, Select Finance Limited, owed the borrowers a fiduciary duty meaning the amount of the commission they received from the lender ought to have been disclosed to them before they entered into the loan agreements (see earlier article). 

High Court's decision 

In a detailed written judgment handed down on 20 July 2017, Mr Justice Teare decided:-

Medsted did owe the clients a fiduciary duty because:

o a fiduciary duty can arise even where an agent has no authority to affect the principal's relations with third parties and just "…introduces parties desirous of contracting and leaves them to contract themselves"; and

o (applying the Court of Appeal's decision in McWilliam v Norton Finance (UK) Ltd t/a Norton Finance (in liquidation) [2015] EXCA Civ 186) the clients placed trust and confidence in Medsted because (a) the clients could not deal with first tier providers directly, (b) it was impliedly represented by Medsted to the clients the terms offered were competitive, (c) the clients were vulnerable to any disloyalty by Medsted and reliant on its good faith and (d) Medsted appeared to (probably wrongly) accept in cross-examination it had duty to act with good faith not to mislead, be fair and transparent and act in best interests of the client (all of which have the hallmarks of a fiduciary relationship).

Medsted had breached the fiduciary duty by not disclosing the commission because it was in a position of conflict with the clients by failing to state the split.

Canaccord's actions (in dealing directly with the clients) did amount to a breach of contract with Medsted which caused Medsted to suffer loss. However, since the root of damage was Medsted's own breach of fiduciary duty, Medsted was only entitled to nominal damages.


This is a disappointing decision from the High Court.  There are four key points:

(a) Mr Justice Teare applies McWilliam even though Lord Justice Tomlinson said that case was a "very unsuitable vehicle to determine issues of principle" on the basis that no adversarial argument was heard.

(b) While Mr Justice Teare acknowledges (following Commercial First Business Loans) "not all loan brokers are fiduciaries), he disappointingly does not engage with, apply or disapprove the reasoning used by His Honour Judge Raynor QC in Commercial First Business Loans.

(c) It is difficult to see how Mr Justice Teare classified the clients as vulnerable after describing them as "…experienced investors…with significant holding in companies in Greece". This seems far away from the "unsophisticated borrower" described in Hurstanger Limited v Wilson & Another [2007] EWCA Civ 299. 

(d) Despite being no evidence of any advice or recommendation which Medsted gave to the clients, Mr Justice Teare inferred Medsted at least impliedly represented to the clients the terms were competitive.  Such a conclusion is difficult to justify on its own; particularly with "experienced investors".

It surely cannot be long before this issue, which appears to be attracting increased judicial scrutiny, is reconsidered by the Court of Appeal or the Supreme Court with the benefit of adversarial argument.  If it is, it is hoped the Court follows the logical conclusions of the High Court in Commercial First Business Loans v Pickup and Vernon [2017] CTLC 1.

This article was originally published by Practical Law and written by Russell Kelsall (Partner), Warren Clark (Associate) and Alanna Tregear (Solicitor), TLT LLP 

This publication is intended for general guidance and represents our understanding of the relevant law and practice as at July 2017. Specific advice should be sought for specific cases. For more information see our terms & conditions.



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