06/02/2019

Henry Byam-Cook and Belinda McRae successful in Court of Appeal fiduciary duty case

Medsted Associates Limited v Canaccord Genuity Wealth (International) Limited [2019] EWCA 83

Court of Appeal holds that no breach of fiduciary duty by introducing broker where principal knew fact, but not amount, of commission paid by third party.

The decision

Henry Byam-Cook and Belinda McRae (instructed by Memery Crystal LLP) acted for Medsted in its successful appeal from a decision of Teare J (reported at [2018] 1 WLR 314) concerning the interplay between agency and fiduciary relationships, the scope of fiduciary duties in cases involving commissions, and public policy. The Court of Appeal handed down its judgment today.

Medsted, the appellant, is an introducing broker. It had an agreement with the respondent stockbroker (formerly known as Collins Stewart) by which it would receive a share of the commission and funding rebate payable by clients to whom Medsted introduced Collins Stewart. When Collins Stewart later cut Medsted out of the picture and traded directly with certain clients, Medsted brought a claim against Collins Stewart to recover its share of the commission and funding rebate.

In a liability-only trial in 2017, Teare J found in favour of Medsted on almost all of the 11 issues that he had to decide. He nonetheless held that Medsted was only entitled to nominal damages, on the basis that it had breached its fiduciary duty to the clients by failing to inform them of the precise split of the commission and funding rebate as between itself and Collins Stewart. On that basis Teare J held that Medsted was to be denied any substantive recovery on public policy grounds.

The Court of Appeal (in a focused judgment of Longmore LJ, with whom Peter Jackson and Asplin LJJ agreed) has now held, however, that there was no such breach of fiduciary duty on Medsted’s part. This was because the scope of its duty was limited in circumstances where the clients knew that Medsted was being remunerated by Collins Stewart; this was not a case of ‘secret commissions’ (as Teare J had wrongly conceived of it). Longmore LJ’s judgment contains an interesting discussion of the earlier Court of Appeal case of Hurstanger Ltd v Wilson [2007] 1 WLR 2351 (the well-known loan broker case). A key difference here was that Medsted’s clients were experienced investors who could always have asked about the split and if they did not like the answer, taken their business elsewhere.

The upshot was that Medsted was under no specific duty to disclose the exact amount of the commission and rebate that it was receiving, and there was thus no breach and no public policy basis on which to preclude Medsted’s recovery.

In those circumstances, the Court of Appeal did not deem it necessary to address Teare J’s failure to consider and apply Patel v Mirza [2017] AC 467 on the public policy point, although the Court did express several doubts about the public policy analysis that had been undertaken below.